An Unpaid Doc Fix

Published April 16, 2015

Consumer Power Report #459

In a bipartisan vote this week, the Senate undid the longtime Sustainable Growth Rate can-kick for a more permanent fix – but one that is not paid for by any stretch of the imagination. In fact, the Senate rejected an opportunity to require the increased payments to physicians be paid for:

Utah Republican Sen. Mike Lee had introduced a potential amendment to the bill that would have subjected the bill to spending rules known as pay-as-you-go, which would have required the cost of the bill to be fully offset by spending cuts or tax increases. Lee’s amendment, which required 51 votes to pass, fell short at 42–58.

While both sides of the aisle agreed that the Sustainable Growth Rate – a schedule that steadily decreases payments to physicians for Medicare patients, which Congress annually prevents in a ‘doc fix’ bill – needed to be reformed, the GOP has been split on whether it should require the cost increases in the law to be entirely offset instead of increasing the budget deficit.

The Congressional Budget Office has pegged the cost of the measure at $141 billion, while the federal government’s top Medicare expert, the Medicare actuary, has warned that the bill’s fixes won’t be permanent.

In order to pass the reform, the Senate waived the pay-as-you-go requirements that the legislation be budget-neutral, 71–29.

This can-kick is more fundamental and problematic, as the savings within it are nothing more than make-believe. John R. Graham explains at Forbes:

There are two major differences between this so-called “fix” and previous ones. The first one is real: Previous increases have been offset by cuts to other government spending, and this one is not. The second one is fiction: That this doc fix is a permanent solution to the fee problem.

That fiction was debunked last week in a report published by Medicare’s Chief Actuary. First, the Chief Actuary has a significantly higher estimate of the gross cost of increasing physicians’ fees over the next 10 years than the CBO did. As shown in Table 1, the differences are trivial for the first few years, but they grow with time. Over the entire 11-year period, the Chief Actuary estimates the increase in payments will be $205 billion, $29 billion more than CBO’s estimate.

And it gets worse: Even this “fix” is no fix at all, but as unrealistic and broken as the current fee schedule. Medicare’s Trustees do not believe the current fee schedule is credible, so they estimate a “projected baseline” which they calculate by taking an average of the last 10 years of actual increases Congress adds on to the fee schedule, and using that to project a realistic estimate of future Medicare physician spending.

So why would the supposedly fiscally conservative Republicans in the Senate engage in this lousy fix? Perhaps part of the motivation is found across the street from Capitol Hill, at the Supreme Court, where Obamacare’s fate hangs in the balance:

The high court is expected to rule this summer on a challenge to Obamacare’s insurance subsidies. A ruling against the Obama administration would unleash tremendous disruption on state insurance markets, and could drive some states’ individual markets to the brink of collapse – unless Republican governors or the Republican-controlled Congress steps in.

Congressional Republicans have worked hard over the past several months to make the case that they’ll be ready with a fix. And the most important audience for that public-relations campaign isn’t the public, but rather the justices themselves.

It’s a hard sell. You don’t need to be particularly cynical to question whether Congress is seriously going to be able to come to a bipartisan agreement on the most controversial law in decades – a deal that would be polarizing, extremely expensive, and politically toxic from multiple angles.

But hardly anyone in politics or health care thought the permanent doc fix would happen, either. Congress had patched the payment formula 17 times over 13 years. Lawmakers complained all the time about the need for a permanent replacement, but they never actually passed one.

We’ll see if the Court heeds Congress’s message later this summer. But the doc fix and its budgetary pressure are likely to endure for much longer, given the unwillingness of members in both parties to stand up to hospital systems and doctors when it comes to holding down the costs of the program.

— Benjamin Domenech



Dr. Robert Wergin, president of the American Academy of Family Physicians, made little effort to contain his glee Wednesday over the news Congress had voted to end a reviled payment system for doctors, simultaneously averting a 21 percent physician pay cut and overhauling the way Medicare will pay doctors in the future.

“I just can’t be more positive about it,” said Dr. Wergin, who is a family doctor in rural southeast Nebraska. “The one word is yahoo.” Then he added: “Now, what next?”

President Obama has signaled that he will sign the bill, resolving an issue that frustrated lawmakers in both parties for more than a decade because it repeatedly required Congress to step in to avert cuts to doctor fees. Doctors and health policy experts have begun to take stock of the practical implications of the legislation, which seeks to move away from paying doctors solely on the volume of their services and toward reimbursing them based on the quality and value of the care they provide. Many said the legislation was short on details about how such quality will be measured, and others expressed apprehension about whether the system will be fair.

“It’s very important legislation in that it aims to support better care and lower costs, but there are a whole lot of details that still need to be filled in,” said Dr. Mark McClellan, a senior fellow at the Brookings Institution and a Medicare administrator in the George W. Bush administration.

Under the new legislation, Medicare will increase the amount it reimburses doctors by 0.5 percent for the next five years. Doctors will earn a 5 percent bonus if they participate in newer payment models that seek to better coordinate care. One example is the so-called medical home, in which a medical team coordinates a patient’s care. They could also work in groups, called accountable care organizations, that receive a set fee to take care of a patient while still meeting quality standards.

“It’s a very big boost to these models,” said Paul B. Ginsburg, a health economist at the University of Southern California, although he and others noted that how these payment models will be defined is still not clear.

Mr. Ginsburg and others expressed more skepticism about another component of the legislation: one that, beginning in 2019, would pay doctors based on how they perform on quality and other measures. Ultimately, the Department of Health and Human Services will decide those standards.

Mr. Ginsburg said that doctors did not typically see enough patients to yield reliable data about how well they perform, or to adjust their scores for whether their patients are sicker than average.

SOURCE: Katie Thomas and Reed Abelson, New York Times


Senate GOP leaders, who just took the majority a few months ago, want to take advantage of the 51-vote threshold and focus on repealing Obamacare. On the other side of the Capitol, House Republican leadership, which has orchestrated a nearly endless stream of repeal votes over the past five years, thinks that strategy is short-sighted.

As Republicans try to finalize a budget deal in the coming days and align their fiscal visions for the next decade, it’s apparent that there’s no partywide agreement on reconciliation.

Publicly, everyone is saying they should use the tool – which would allow the Senate to toss the usual 60-vote threshold and pass legislation without a single Democratic vote – for an Obamacare repeal.

“The absolute requirement is that … we use reconciliation for the Affordable Care Act,” Senate Budget Committee member Roger Wicker (R-Miss.) said. “It’s one of the only things that matters … putting a repeal on the president’s desk.”

But privately, senior House Republican sources say that’s a waste of time. And, of course, Obama is sure to veto any measure he doesn’t like, so Republicans may be able to score political points by forcing his hand, but they would need 67 votes in the Senate if they want to override a presidential veto to make a new law.

Behind the scenes, House Republican leadership has already started mapping out an ambitious agenda to take advantage of the procedure. If the Supreme Court strikes down health exchanges in nearly three dozen states in June, Republicans are looking at a host of options to respond, including a plan to let people buy insurance across state lines. If the Supreme Court upholds the exchanges, Republicans could consider other possibilities, including tax reform – an idea that’s received a lukewarm reception in the Senate.

SOURCE: Jake Sherman and Rachel Bade, Politico


New Jersey’s Christ Hospital collected $2.93 million in special payments for treating the sickest Medicare patients in 2013, more than quadruple what it had the prior year.

Much of the increase didn’t come from treating more patients or providing more care. It came from higher list prices charged by the Jersey City hospital – markups of at least 60% from the prior year for many patients with common diagnoses, billing records show.

List prices charged by hospitals aren’t supposed to matter to Medicare because the government doesn’t pay them. The federal program almost always pays fixed amounts based mostly on patients’ conditions. That is supposed to prevent hospitals from sticking the government with big price hikes.

Nevertheless, jumps in list prices hit the government every year in one corner of the roughly $600 billion Medicare system: treating complicated cases known as “cost outliers.” Medicare allows hospitals to collect for such patients based on the actual costs of treating them. But because hospitals don’t provide cost data until many months after patients are treated, the government has to estimate costs using a formula that relies heavily on list prices.

When prices rise faster than actual costs, the government overpays. Medicare can seek to claw back overpayments when it gets fresher information about costs, but it rarely does, hospital records show.

A Wall Street Journal analysis of Medicare claims data and financial filings from medical facilities [show] that many hospitals increased prices faster than costs rose, affecting outlier payments. The Journal identified $2.6 billion in overpayments Medicare made to general hospitals between 2010 and 2013 because of overestimates of hospitals’ costs – about one-sixth of outlier payments in the analysis.

SOURCE: Christopher Weaver, Wall Street Journal


For a while now, I’ve been saying that the most important Obamacare deadline this year was not the end of open enrollment on the exchanges, but April 15. That’s when lots of people find out that they owe money to the government – either because they didn’t have insurance and therefore get hit with the individual mandate penalty, or because they found out they received too much in subsidies and now owe money to the government.

So how’s it going? As with many things about this law, it’s hard to tell.

My working assumption has been that the mandate and the “clawback” of overpaid subsidies would have two main effects:

  • Angry outcry from voters who found out that the program was costing them money.
  • Folks who got hit by the mandate penalty grudgingly toddling over to the exchanges and buying insurance so they wouldn’t get hit with it again next year.

Effect 1 has been more muted than I thought – or, if there is such an outcry, it hasn’t reached the media. I don’t know what voters are thinking in the privacy of their own hearts or saying to their legislators.

Effect 2 is yet unknown. The Barack Obama administration has permitted a special open enrollment period for folks who didn’t have coverage in 2014 and are only now realizing that this cost them money at tax time. That period ends April 30, so we won’t know until then whether tax season has brought us a surge of new enrollees.

Meanwhile, Louise Radnofsky of The Wall Street Journal offers an example of Effect 3, which I confess hadn’t occurred to me: folks who were covered in 2014, got their refund docked to cover subsidy overpayments, and therefore decided to cancel their insurance for this year.

At first blush, this seems irrational. You don’t need to cancel your insurance to make sure that your tax refund remains intact; you just need to do a better job of estimating your income when you go to buy your insurance so that you don’t end up with overpayments. Of course, the taxpayer in question might not have bought the insurance if she’d known what it was actually going to cost her. Evidence suggests that the level of participation in the insurance exchanges is directly tied to how big a subsidy you get.

SOURCE: Megan McArdle, BloombergView


As an aside, however, I would register on this point my amazement that Americans seem so obsessed over their freedom to choose their own health insurance carrier and policy that they are willing to trade off for that freedom their freedom to choose freely among their providers of health care. In most other advanced economies in the OECD, it is exactly the other way around: Freedom of choice of doctor and hospital trumps freedom of choice among different health insurance products. But, as Julius Caesar or Voltaire or Yogi Berra or whoever once sagely put it: De gustibus non est disputandum (there is no accounting for taste). So I am left just to marvel at it.

Here it must be noted that the hassle which narrow provider networks can visit on patients, that is, “consumers,” occurs not only under Obamacare. That hassle also happens under employment-based health insurance. Small employers, for example, have for years offered their employees a choice among two insurance plans, or even offered them only one (wise guys might call the arrangement a “for-profit single-payer” approach), and these plans then confine enrollees to narrow networks of providers, once again to keep premiums affordable.

Even large employers can serve up nasty surprises to their employees on this score. As chair of the former New Jersey Commission on Rationalizing Health Care Resources, for example, I was stunned to learn during public hearings that a hospital in the network of a patient’s health plan may rely [on] in-hospital radiologists, anesthesiologists and pathologists who are not in that plan’s provider network and thus have the right to bill unsuspecting patients their “usual” fees, often leaving patients exposed to potentially large out-of-pocket expenses. (Legislation in New Jersey has since mitigated that problem, albeit at the expense of private health plans.) This strikes me as a quite untoward arrangement, although I could think of more colorful descriptors.

The issues raised by Goodman – high deductibles and narrow networks of providers – are serious ones warranting further debate. Alas, I have seen no alternative coming from the right of the ideological spectrum that would do available with very high cost sharing. To be sure, they might do away with narrow networks of providers and even with private health insurance plans altogether (if they had their druthers). But free choice to bargain over prices with powerful providers of health care whom in the end one cannot afford is no really no freedom at all.

SOURCE: Uwe Reinhardt, Forbes