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What is the “Doc Fix”? And why isn’t it, well, fixed?

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By Mary Agnes Carey
KHN Staff Writer

Now that Congress has passed legislation to avert drastic payment cuts to physicians who treat Medicare patients, attention is turning to what will happen when the temporary solution expires at the end of this year.

For doctors, the nail-biter has become a familiar but frustrating rite. Lawmakers invariably defer the cuts prescribed by a 1997 reimbursement formula, which everyone agrees is broken beyond repair. But the deferrals are always temporary. In 2010, Congress delayed scheduled cuts five times, with the longest patch lasting one year.

While Democratic and Republican leaders say they do not want Medicare physicians’ payments to be cut, there is often disagreement about how to offset the costs of a fix.

With the clock already ticking to the next deadline – Dec. 31, 2012 — we thought we would provide some answers to frequently-asked questions about the doc fix.

Q: How did this become an issue?

Today’s problem is a result of yesterday’s budget panacea – a 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth and known as the “sustainable growth rate” (SGR).

For the first few years, Medicare expenditures did not exceed the target and doctors received modest pay increases. But in 2002, doctors reacted with fury when they came in for a 4.8 percent pay cut.

Every year since, Congress has staved off the scheduled cuts. But each deferral just increased the size – and price tag – of the fix needed the next time.

The formula also reinforces what many experts say are some of the worst aspects of the current fee-for-service system – rewarding doctors for providing more tests, more procedures and more visits, rather than for better, more effective care.

In an Oct. 14 letter to lawmakers, the Medicare Payment Advisory Commission (MedPAC), which advises lawmakers on Medicare payments, called the formula “fundamentally flawed” and said it “has failed to restrain volume growth and, in fact, may have exacerbated it.”

Q. Why don’t lawmakers simply eliminate the formula?

Money is the biggest problem. It would cost about $316 billion to stop the doc fix cuts over the next decade and Congress can’t agree on where to find that kind of cash.

For physicians, the prospect of facing big payment cuts is a source of mounting frustration. Some say the uncertainty led them to quit the program, while others are threatening to do so.

Still, defections have not been significant to date, according to MedPAC. Physician groups continue to lobby Congress to enact a permanent payment fix.

The deal Congress just passed would stop a 27 percent pay cut scheduled to begin March 1 but did not raise the level of Medicare reimbursement to physicians.

Q: What do experts recommend?

Last October, MedPAC recommended eliminating the formula without increasing the deficit by cutting fees for specialists and imposing a 10-year freeze on rates for primary care physicians. That proposal was strongly opposed by health industry groups, as well as the American Medical Association (AMA).

The AMA has recommended a five-year transition fee scale that allows time to test new payment approaches, including several being tested as part of the 2010 health care law.

Several other options have been offered to fix the reimbursement scheme, including proposals by Rep. Allyson Schwartz, D-Pa., and the White House, but none has generated strong bipartisan interest.

Q: What happens next?

The current fix expires on Dec. 31 but lawmakers aren’t expected to have any serious discussions about what to do next until after the November elections. So the “doc fix” is likely to be considered in a lame duck session of Congress later this year.

Proponents of using money saved from winding down the wars in Iraq and Afghanistan to finance a permanent fix are likely to push for that again. While the idea has found favor among Democrats, many Republicans oppose it.

Lawmakers may also turn to ideas they’ve used before to fund another short-term fix, such as reducing Medicare payment rates to hospitals, nursing homes and other providers.

Carol Eisenberg and Lexie Verdon contributed to this report.

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This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

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