Best Chance for Doc Fix

Improving federal government finances may open a brief window to overhaul Medicare’s flawed physician payment system.

In the midst of rising government revenue from tax collections and bailout paybacks shrinking the federal deficit faster than expected, the Democrat chair and Republican leader of the Senate Finance Committee, Max Baucus and Orrin Hatch, sent letters to providers on May 10, 2013, asking questions about repealing and replacing the sustainable growth rate (SGR).

“Our ultimate goal is for Medicare to pay physicians and other healthcare providers in a way that results in high quality, affordable care for seniors, ” the senators wrote. “We support identifying alternative models, including those being currently tested, with a clear recognition that these will take time to develop and scale.”

Shrinking Deficit

The previous day, Fannie Mae, the mortgage finance giant that got a boatload of taxpayer aid during the recession, said it would pay back $59.4 million to the government in dividends at the end of June. Freddie Mac also said it would pay back at least $7 billion. That along with a 16% increase in tax collections from higher tax rates is resulting in a federal deficit for the first seven months of the government’s fiscal year that’s $231 billion less than the deficit a year ago, according to the Congressional Budget Office. That’s more than enough to pay for a “doc fix.”

The stock market is up, housing prices are rising, consumer confidence is swelling and the number of new workers seeking unemployment benefits has fallen to prerecession levels. Money is so cheap that the government was able to borrow money in early May at no cost for the first time in 17 months and congressional budget auditors recently lowered the price tag for repealing the SGR from over $200 billion to just $138 billion.

Structural and Behavioral Changes

Baucus and Hatch asked providers how Medicare can incentivize providers to “undertake the structural, behavioral, and other changes” necessary for a transition to performance-based payments. “We must improve the current system to ensure that it makes appropriate payments for physician services, reduces unnecessary utilization and improves quality while also easing the transition to new payment models, ” the senators wrote.

Since the SGR was created by the Balanced Budget Act of 1997, Congress has “patched” mandatory cuts required by the Act. Congress passed the most recent patch on January 1, 2013, as part of the American Taxpayer Relief Act of 2012. The one-year fix cost $25 billion. That patch freezes fees until January 1, 2014, when fees are scheduled to be cut by 26.5%.

The House of Representatives has already acted to fix the SGR, but those efforts have been largely ceremonial and political posturing since their bills have little chance of being heard in the Democratic controlled Senate or signed by the President. This effort by bipartisan Senate leaders has the feel of a serious legislation that can pass the Senate and gain support from the White House.