“Fix The Docs” Without Driving Up The Deficit

November 13th, 2009 Bob Moffit

Congress and the Administration are breaking records. They just piled up a deficit of over $1.4 trillion in 2009 alone. Needless to say moderates and fiscal conservatives in both political parties have cause for very bad night’s sleep.

The Doc Mess. The latest chapter in this crazy drama is to be played out next week when the House deals with the Medicare Doc Fix. At issue is the congressionally created formula for annually updating Medicare physician payment. The congressional formula ties physician payment to general economic growth: if physician payment increases faster than economic growth, payment is proportionally reduced. Of course, the basic concept is bizarre: there is no rational relationship between the supply and demand for medical services and the performance of the general economy, any more then there is a relationship in the demand for tonsillectomies and the phases of the Moon. But this official stupidity is the law; expect similar stupidities if Congress is successful in creating another government-run health plan made in the image and likeness of Medicare.

So, to avoid its own prescribed draconian cuts in Medicare doctors’ payments, Congress goes through an annual Chinese fire drill to prevent its goofy formula from being implemented each year. As a budgetary matter, the accumulated cuts now amount to an automatic reduction in physician payment of 21 percent effective next year. That prospect has the professional medical organizations in a tizzy, and they are willing to do anything – anything, mind you- to avoid that fate worse than death, even to the point of formally embracing H.R. 3962, the gargantuan 2032 page House health care bill.

Bigger Deficits. To lure the desperate doctors into bed with the liberals, their big ugly “public option” and all (analogously, a longer prison sentence, but better food and more yard time), the Congressional leadership included a “permanent fix” to Medicare physician payment in the original version of the 1018 page House bill, small increases, no cuts. But they carved it out because its cost made the House health care bill appear too expensive. So, to keep that version “looking cheaper”, they created another vehicle (H.R 3961), a companion bill, that would provide for a permanent Medicare “doc fix” at a ten year cost of $210 billion. Under the rule for debate in the House, however, as Byron York points out in November 13, The Washington Examiner, this $210 billion “fix” is not “paid for”; like a similar (but unsuccessful) Senate attempt, it would simply add hugely to the deficit. In fact, a former Medicare Trustee says that it will also add trillions to the already crushing unfunded obligations of the Medicare program.

Paying for the Spending. As President Obama warned, Congress should not add one dime to the deficit. If it is going to increase Medicare payment by over $200 billion over the next ten years, it should offset those increases with cuts elsewhere, preferably within the Medicare or other government health care programs.

Fortunately, the Obama Administration has surfaced a potential solution: the introduction of competitive bidding in Medicare Advantage. The Administration projected an estimated $177 billion in savings over ten years. But Obama’s Medicare savings were not earmarked for Medicare, but rather would finance his health care agenda. Senator Max Baucus (D-MT) proposed a variant on Medicare competitive bidding that would benchmark government payment to Medicare Advantage plans to actual plan costs rather than Medicare’s administrative pricing for Medicare Part A and B services. CBO estimated a $117 billion savings from that change.

This is a start. Congress could build on the Baucus proposal and secure the projected savings, while creating a “robust” Medicare competitive bidding system. Government payment to health plans in Medicare would based on the weighted average costs of actual health plans, as Baucus has proposed, but the competition would be extended to traditional Medicare fee for service program itself. As former Senator John Breaux (D-LA) has suggested, traditional Medicare should be granted managerial flexibility. This would enable the traditional Medicare program to compete effectively with private health plans, guaranteeing a level playing field, and thus keep the rest of the private health plans “honest”, as they say.

Not only would such an approach guarantee payment for the “doc fix”, but it might even reduce the deficit and ease the pressure on long-term Medicare costs. Such an approach should have direct appeal, not only to moderates and fiscal conservatives in both political parties, but also to the many members of Congress who identify themselves as champions of a “public option” that would compete fairly against private health plans; it would provide an excellent test of such public-private health plan competition, as well as the sincerity of its advocates. All options would compete fairly on a level playing field and guarantee real Medicare savings and rational physician reimbursement in the process.

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