Medicare’s Physician Reimbursement Problem

Medicare has cost significantly more than projected since its inception in the late 1960s.  One of the reasons for those continual cost overruns has been provider over-utilization and price increases.  Congress and CMS have in turn tried serial methods to rein in those provider costs by new reimbursement schemes.  The most recent physician reform was the sustainable growth rate formula, which tied annual changes in physician payment rates to the total amount Medicare was paying for doctor services per beneficiary.  For several years after its enactment, the formula was allowed to operate as designed, but after a year in which fees were reduced due to the SGR, Congress began stopping the automatic reductions from occurring in 2003.  Last year, the cumulative cut should have been over 21 percent, but Congress again blocked implementation.  A Health Affairs article explores the current dilemma.   (Health Affairs Article)

As the article points out, Congress sooner or later has to make a permanent fix.  In reality, the SGR has been abandoned, but lawmakers leave it nominally in place to avoid recognizing the huge addition to projected deficits its absence will cause.  The underlying problem, of course, is that physician costs continue to rise at an unacceptable rate; unacceptable both because the country can’t afford to keep spending more and more on Medicare physician services and because of a perception that many services being delivered to beneficiaries aren’t necessary.  Whatever reimbursement approach replaces SGR, it needs to be more effective than that formula was at controlling physician behavior.

The best solution would appear to be for Medicare to follow the lead of most private health plans and profile the behavior of physicians in a severity adjusted manner.  The GAO and others have laid out possible profiling approaches.  Profiling would identify the abusers in the system and they could then be told to clean up their act or be booted from the program.   The AMA and other physician organizations have vehemently opposed this method.   Doctors should be forced to choose between helping to identify those physicians among them who misuse the system to maximize income or all taking very large reimbursement cuts to keep physician service spending within reasonable bounds.