Washington is finally preparing to abandon its least effective tool for controlling rising Medicare costs: the so-called sustainable growth rate, a formula that was designed to curb the program's payments to physicians.
Good riddance, say health economists.
Congressional Republicans have proposed a permanent "doc fix," which, in Beltway speak, refers to the annual ritual of suspending the formula and offsetting the added spending elsewhere in the budget.
The new proposed fix has three stages. First, it would freeze increases in physician reimbursements for several years. Second, the Medicare physician payment formula would change to include measures of care quality. Third, physicians would be able to switch into "alternative payment models" that make more drastic changes to Medicare's payment model.
That's good news, but the plan is light on the next steps. It doesn't begin to define how it intends to measure quality, for one. And just suspending the doc fix isn't enough. There are real unresolved issues, from the perverse incentives to over-treat patients to the imbalance in Medicare pay rates for primary and specialty-care doctors.
Congress created the formula in 1997 as part of a budget agreement. The goal was to tap on the brakes lightly, but because of higher-than-forecast cost growth, the formula implied large cuts. Congress chose to suspend the formula for a year. And then, with no desire to catch up with even bigger cuts, it suspended it again. And again. Payments now are 30 percent higher than the formula's prescription.
Congressional leaders want to make the change now because the Congressional Budget Office anticipates slower growth in health care costs. As the CBO measures it, that has reduced the cost of eliminating the sustainable growth rate by more than half, to $139 billion during the next 10 years.
"We urge the Congress to act now to take advantage of this lower estimate," wrote Glenn M. Hackbarth, the chairman of the independent Medicare Payment Advisory Commission, in a letter in April. "If history is any guide, the cost of repeal could increase again."
Hackbarth is being an opportunist. Acting before a higher cost of repeal has a political benefit, not a real one. It would come from a temporarily (and, if so, incorrectly) reduced forecast. That would allow Congress to pass a permanent doc fix with smaller offsets.
Still, there are two good reasons to fix the payment formula: It was poorly designed, and caps are an ineffective and unintelligent way to control health-care costs.
To lose weight, you wouldn't skip meals; you would change your diet. To cut medical costs, you shouldn't slash payments outright; you should change how government pays for medical care. Congress suspended the formula because it would have been stingy enough to drive most doctors out of Medicare.
A better interim fix might expand the controls beyond physicians, targeting specialists and medical technology, where costs have risen far more quickly. The goal, as the Republican proposal correctly identifies, is to escape the fee-for-service paradigm entirely. But there are many gaps in the vision of what comes next.
(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)