Doc Fix Cost Rises

In recent weeks, we’ve heard a lot of talk about the fiscal cliff, but little of it has focused on one piece that has caused headaches for lawmakers for almost a decade – the Sustainable Growth Rate (SGR) formula. In January, the SGR formula calls for an unrealistic 27 percent cut to Medicare provider payments if Congress does not act to prevent them from going into effect. We’ve discussed before how the SGR is a flawed formula and that any “doc fix” enacted by Congress should be paid for in full. However, a fix may be more expensive than many of us have thought.

Yesterday, The Hill reported on new estimates from the Congressional Budget Office that show a one-year extension of physician payments at current rates may be nearly $7 billion more than earlier estimates. CBO’s last projection scored a “doc fix” at $18.5 billion for one year, but now reports say this may cost almost $25 billion. This is not good news for lawmakers scrambling to avert these cuts and seeking offsets for a deal on the fiscal cliff.

This further points to a greater need to reform the way we pay physicians entirely and fix this formula for the long term. Passing yearly, or even monthly, “doc fixes” is not wise budgeting - especially if they are not paid for. It also leaves physicians and other Medicare providers in limbo with a great deal of uncertainty over payments. It’s time to address this issue head on, and a comprehensive budget deal could do just that.

We know the growth of federal health spending is the biggest driver of future deficits. A grand bargain will need to look at how we reform federal health spending into the future. Payment reform can play an important role in more efficiently spending federal dollars on quality of care, not just quantity. There is no shortage of options as we have shown before.  Various recommendations have been made by MedPAC, the Fiscal Commission, and other organizations.  Additionally, one bipartisan bill has been introduced by Representatives Allyson Schwartz (D-PA) and Joe Heck (R-NV). But any full repeal of the SGR formula needs to be paid for. If CBO’s new estimates mean higher numbers for just a one-year fix, then their earlier $270 billion estimate for a ten-year will likely be much higher.

As lawmakers negotiate any sort of down-payment or future plans to tackle the debt, this is yet another sign that they will need to take a serious look at health care spending to solve this and other budgetary challenges.