Drastic Doc Fix Proposed by Federal Debt Commission

November 10, 2010

November 10, 2010 — The 2 chairmen of a bipartisan debt-reduction commission appointed by President Barack Obama have proposed a "doc fix" for the Medicare reimbursement crisis that spreads the pain among physicians, Medicare and Medicaid patients, drug companies, and plaintiffs' attorneys.

Physicians face a 23% cut in Medicare rates on December 1 and another on January 1 that pushes the total to roughly 25%. Both are triggered by the controversial sustainable growth rate (SGR) formula that Medicare uses to set physician pay. Put simply, the reductions represent the program's attempt to collect several hundred billion dollars that it has overpaid physicians since 2002. This debt has built up because every year Congress has postponed SGR-mandated reductions. The cost of merely freezing current Medicare rates through 2020 as opposed to cutting them as planned would amount to $276 billion, according to the Congressional Budget Office.

As co-chairs of the National Commission on Fiscal Responsibility and Reform, Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, chief of staff to President Bill Clinton, released a proposal today that would replace the massive cuts with more modest but unspecified reductions through 2015. Their proposal recommended other ways to erase the SGR debt in the medium term:

  • Create a new Medicare payment system — one designed to reduce costs and improve the quality of care — that would debut in 2015.

  • Pay attorneys less and reduce the cost of defensive medicine by enacting comprehensive tort reform and, in particular, a cap on noneconomic damages in malpractice cases. Congressional Republicans and organized medicine have sought this kind of tort reform for years.

  • Require Medicare patients to pay more out of pocket for the services they receive. One way would be to eliminate first-dollar coverage in Medigap plans, according to Simpson and Bowles.

  • Require pharmaceutical companies to pay Medicare rebates for brand-name drugs as a condition of participating in Medicare Part D.

  • Strengthen the Independent Payment Advisory Board, a new and controversial organization created under the Affordable Care Act (ACA) to reduce Medicare spending.

  • Expand successful cost-containment experiments conducted by the Centers for Medicare and Medicare Services.

Simpson and Bowles also propose additional and "illustrative" savings in healthcare totalling $395 billion from 2012 to 2020 that could offset the cost of a doc fix. These include reducing federal outlays for graduate and indirect medical education by $54 billion, increasing Medicaid copays by an aggregate $15 billion, and converting the federal government's share of Medicaid payments for long-term care into a capped allotment, which would save the government $89 billion

A Resurrected Public-Option Plan?

Simpson and Bowles also put forward several recommendations for trimming federal healthcare expenditures on a long-term basis. One of them is setting a global target for all federal spending on healthcare, including Medicare, Medicaid and the Children's Health Insurance Program, and ACA initiatives. The goal would be to limit spending growth to changes in the gross domestic product plus 1% (resembling the SGR formula).

If federal healthcare spending exceeds the target, based on an average of the last 5 years' performance, the president must submit further belt-tightening measures to Congress, according to Simpson and Bowles. Examples include overhauling the fee-for-service payment system, increasing premiums or cost-sharing for beneficiaries, and adding a robust public option or an all-payer system, or both, in the state healthcare exchanges mandated by ACA.

The proposed cost-saving measures from Simpson and Bowles are bound to provoke applause and hisses. Organized medicine likes the idea of heavy-duty tort reform, for example, but dislikes giving more power to the Independent Payment Advisory Board, which it fears will take serious bites out of physician income. Asking Medicare recipients to pay more out of pocket could generate political resistance. And revisiting the idea of a public-option health plan would inflame the ongoing debate on healthcare reform as it did in the run-up to the ACA.

Plan Would Reduce Budget Deficit by Almost $4 Trillion Through 2020

The debt-reduction ideas put forward by Simpson and Bowles go far beyond healthcare. In all, their plan would reduce the projected deficit in the federal budget by almost $4 trillion through 2020. It combines spending cuts of $2.2 trillion, a revenue hike of $961 billion achieved in part by eliminating some tax breaks and raising the gasoline tax, and $673 billion in savings through lower interest payments.

Notably, Simpson and Bowles address the largest federal entitlement program — Social Security — and its future solvency. To preserve the program, they recommend gradually raising the retirement age for full benefits to 69 in about 2075 and eventually reducing benefits for most retirees.

No sooner was this trial balloon launched by the commission co-chairs — the entire committee has yet to weigh in — than the arrows started to fly. In a statement posted on her Web site today, House Speaker Nancy Pelosi (D-California) called the proposal "unacceptable."

"Any final proposal from the Commission should do what is right for our children and grandchildren's economic security as well as for our nation's fiscal security, and it must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare," Pelosi said.

AFL-CIO president Richard Trumka stated in a press release that "it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare."

"The Symbolism Is Important"

Dennis Smith, a visiting fellow with the conservative Heritage Foundation and a former director of Medicaid under President George W. Bush, gives a mixed review to what Simpson and Bowles outlined for healthcare.

"The symbolism is important," Smith told Medscape Medical News. "They (Simpson and Bowles) are willing to confront the need for entitlement reform, but the specifics leave a lot to be desired. I don't see a lot of real market reforms."

Some recommendations, such as expanding successful cost-containment demonstrations, are too vague, according to Smith, who also now works at a healthcare consulting firm called Leavitt Partners. The plan to reduce the pay of physicians and other providers amounts to price control, which is not likely to succeed, he added. "It's just another form of passing on the cost of healthcare reform to providers."

He credited the chairmen of the debt commission for proposing that Medicare and Medicaid beneficiaries pay more out of pocket.

"It's a step in the right direction," Smith said. "The idea that you can change healthcare without involving beneficiaries is...self-defeating."

Paul Ginsburg, PhD, president of the nonpartisan Center for Studying Health System Change, noted that Medicare beneficiaries have been spared the major increases in out-of-pocket costs that privately insured individuals have experienced in recent years. Medigap policies, Dr. Ginsburg explained, help shield beneficiaries from these costs and thereby encourage them to use more Medicare services. Eliminating first-dollar coverage in Medigap plans would force beneficiaries to be more judicious about the treatment choices they make. Medicare spending on physician services should decline as a result.

Although the plan from Simpson and Bowles is applying an electric shock to the body politic, Dr. Ginsburg said that many of its individual proposals have been kicking around in healthcare policy circles for years.

"A lot of things that weren't politically feasible yesterday have perhaps become politically feasible now," he said.

President Obama charged the National Commission on Fiscal Responsibility and Reform to find policies that would improve the federal government's finances in the medium term, achieve sustainability in the long term, and balance the budget by 2015, excluding interest payments on debt.

The commission is scheduled to vote on a final set of recommendations no later than December 1, 2010. At least 14 of the group's 18 members must give their approval.

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