Doc fix politics

Ezra Klein reminds us that Medicare’s methodology for updating physician payments–the Sustainable Growth Rate (SGR)–is broken, but still serves a cost control role.

The Medicare SGR was a small formula that Republicans inserted into the 1997 Balanced Budget Act that was meant to save a bit of money — $12 billion over 10 years, or 3 percent of the bill’s Medicare cuts, to be exact. The formula was wrong, and it quickly required massive cuts that would destroy the program, and that the SGR’s authors never intended. So congresses controlled by both parties have repeatedly kept them from going into effect.

Meanwhile, the SGR formula actually has cut costs in Medicare dramatically. The cuts have been less than the flawed formula would’ve demanded, but vastly more than would’ve been likely in its absence. As James Van Der Water and Jim Horney document, the byproduct of the compromises required to keep the formula’s cuts from taking effect is that “the reimbursement rate for physicians next year will still be 17 percent below the rate paid in 2001, adjusted for subsequent increases in the costs that physicians incur in providing services as measured by the [Medicare Economic Index].”

There’s a neat little game being played here that few have recognized or commented on explicitly. I did so in a parenthetical comment in a Kaiser Health News column last summer:

Growth in Medicare physician payments are constrained by the relatively small updates Congress allows in its over-rides of SGR dictated cuts. Last week Congress voted to replace the 21 percent payment cut with a 2.2 percent increase, for example.

With such small increases, payment levels are below those in effect in early in the decade, adjusted for medical inflation. (This is, by the way, a cost-control virtue of the SGR. There’s nothing like the threat of a double-digit percentage payment cut to make a one or two percent increase look large.) But the volume of health care services remains unconstrained. As it grows, so do costs. [Bold added.]

It’s a curious thing. The SGR overrides look like failures of political will to impose scheduled cuts or to fix the update calculation. But they may be exactly the way to achieve a level of cost control that could not otherwise be achieved. Nobody likes a pay cut. Congress can’t easily pass a pay cut for physicians. But, they can pass a small raise that is appears to physicians to be far better than a massive pay cut. And that’s what they do. It’s a clever success (of a sort) disguised as a failure, even if it’s not by design.

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