Time To Change How, and How Much, Medicare Pays Doctors

Congress long ago discovered a great way to control Medicare spending — at least on paper.

It sets spending targets. If they're not met, fees paid to doctors, hospitals and nursing homes automatically are cut.

Or at least they're supposed to be. In reality, nearly every time those cuts have been triggered, Congress has stepped in at the last minute to soften or repeal them — usually with the provision that even larger cuts would take effect at some undetermined future date.

The future is now.

On March 1, fees paid to doctors by Medicare will be cut by 21 percent unless Congress intervenes.

The cuts would be bad for doctors and even worse for their Medicare patients. But the worst consequences would fall on the members of Congress who might let it happen.

Stopping the cuts normally would be a no-brainer, even if it didn't include fixing the flawed budget mechanism that keeps triggering them.

The problem is cost. If the payments aren't cut, Medicare costs would increase by an average of $21 billion a year over the next 10 years.

That's a drop in the bucket compared to overall Medicare spending, which was almost $470 billion in 2008. But the 10-year, $210 billion total cost is large enough that House Democrats took it out of their health care reform bill to meet cost targets announced by President Barack Obama. Instead, they passed a separate bill to block the physician payment cuts.

That sets up a difficult decision in the Senate — especially for Senate Republicans.

They can add to the deficit, something they've criticized Democrats for supposedly doing (health care reform actually would cut the deficit by about $130 billion over 10 years); increase taxes, something they've pledged never to do; or cut Medicare, something else they've demonized Democrats for allegedly doing.

What to do? First, there are good reasons not to let the physician fee cuts happen.

If they do, doctors will stop seeing new Medicare patients, and the elderly will suffer.

But that's only part of the problem.

Health care suffers from something called Baumol's cost disease. Whatever price-lowering productivity gains occur elsewhere in the economy, it still takes a certain amount of time for a doctor to examine and treat a patient and for that patient to recover.

Differing rates of productivity improvement help explain why health care costs continue to grow faster than inflation. It also demonstrates the fundamental unfairness of arbitrarily cutting doctors' fees as their costs continue to rise.

But fixing these fee cuts without fixing the way doctors and hospitals are paid only would kick the problem down the road.

Doctors and hospitals are paid more for doing more — even if doing more isn't in the patient's best interest. It makes more sense to tie their pay to the quality of care they provide.

The Senate health care reform bill would create small-scale experiments to investigate how best to accomplish that. Good results could be applied widely.

It's past time to address the fundamental problems in how we pay doctors and hospitals.

Congress can do that by passing health care reform. Or it can pass a standalone bill that fixes the automatic cuts to doctors' fees and provides financial incentives for the best quality care.

One thing is not possible: waiting. Medicare's day of reckoning has arrived.

REPRINTED FROM THE ST. LOUIS POST-DISPATCH.

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