Bipartisan Physician Payment Reform Can Do Without the War Gimmick

Reps. Allyson Schwartz (D-PA) and Joe Heck (R-NV) have introduced a bill to overhaul the Medicare physician payment system. The bill includes a number of laudable reforms, but it does not have a legitimate pay-for, since it uses the war drawdown gimmick to pay for its costs. But more on that in a moment.

The physician payment changes in the proposal are headlined by the repeal of the Sustainable Growth Rate (SGR) formula, the formula that controls physician payment growth. However, given past actions of Congress to override the scheduled cuts, the SGR now mandates huge cuts in physician payments -- 30 percent at the end of this year. This bill, as mentioned above, repeals the SGR and gives all physician services a 0.5 percent annual bump-up for the next four years. In order to emphasize the use of primary care, preventive care, and care coordination, the bill also provides increases for these services that are well above the overall physician payment increase.

While these payment increase schedules would be in effect through 2017, the payment system would be overhauled thereafter. The legislation calls for the Center for Medicare and Medicaid Services to develop a menu of delivery reform options by October 2016 after pilot program effectiveness has been evaluated. By 2018, the system will have moved away from fee-for-service by reducing payments for physicians who stay in FFS and would instead incentivize higher quality and higher value care based on one of the models that CMS develops.

Sounds good, right? There is one problem with the fiscal impact though: it offsets the $270 billion cost of repealing the SGR and the additional costs of the physician payment increases with the war drawdown. As we have mentioned before, using savings from the war drawdown that is already scheduled to happen is a gimmick. Essentially deficit financing the hundreds of billions that the bill will cost is simply not good enough.

Rather than resort to a gimmick, the bill could instead pay for its physician changes with changes involving providers or beneficiaries. It could also use a less costly update system for physicians in the interim. For example, the Medicare Payment Advisory Commission (MedPAC) has recommended freezing primary care payment rates while reducing them for other services, a move that is estimated to be about $100 billion less expensive than freezing all payments (and therefore well more than $100 billion cheaper than the bill's update schedule). The Fiscal Commission plan reduced physician payments by one percent and ordered a value-based payment system to be developed for savings of $30-$40 billion against a freeze.

The goals of this bipartisan bill are laudable and payment reforms like these will need to be considered for Medicare. Still, repealing the SGR should be paid for legitimately.