House Approves Senate's 1-Month Medicare Doc Fix

November 29, 2010

November 29, 2010 — The Medicare guillotine will not drop on Wednesday.

In a bipartisan voice vote this afternoon, the House approved legislation already enacted by the Senate that postpones a 23% reduction in Medicare reimbursement for physicians from December 1 to January 1. The bill awaits the signature of President Barack Obama.

Now a lame-duck Congress needs to hustle to pass additional legislation in the coming weeks to avert what will be a 25% cut on New Year's Day. Sen. Max Baucus (D-MT), chair of the Senate Finance Committee, and Sen. Chuck Grassley (R-IA), the committee's ranking Republican, have proposed a 12-month postponement. In the House, Rep. John Dingell (D-MI) and 4 other Democrats have introduced a bill that also would reschedule the Medicare guillotine for January 1, 2012.

Delaying the pay cut just until January 1, 2011 will cost $1 billion over 10 years, according to the Congressional Budget Office (CBO). The legislation passed by the House today offsets that cost with savings from reduced Medicare reimbursement rates for multiple outpatient therapies, such as physical therapy and speech therapy, that are performed on the same day.

The American Medical Association estimates that extending the effective date of the Medicare rate reduction from December 1, 2010 to January 1, 2012 will cost the US treasury roughly $15 billion. Finding that kind of money in spending cuts or revenue hikes elsewhere in the federal budget will challenge a Congress that has taken a hard turn away from deficit spending.

Buying Time for the Permanent Fix

Postponing the cut until 2012 is designed to buy Congress time to craft a permanent "doc fix" for the Medicare reimbursement crisis. A permanent fix would entail scrapping or revising the sustainable growth rate (SGR) formula that Congress created in 1997 to help control Medicare spending.

This formula establishes an annual target for Medicare outlays for physician services based in part on changes in the gross domestic product. If actual spending exceeds the target in a given year, Medicare must reduce physician reimbursement the following year to recover the difference.

Physicians have faced SGR-triggered pay cuts every year going back to 2003, but Congress has delayed each one. However, the difference between targeted and actual expenditures on physician services builds up over time, so each year's cut is bigger than the last.

Organized medicine calls the formula flawed, saying that physician practice costs grow at a faster pace than the gross domestic product. It has campaigned for pegging physician pay to the Medicare Economic Index (MEI), which gauges inflation in practice costs. The CBO has estimated that bumping up Medicare pay by roughly 1% to 2% through 2020, based on an MEI-oriented formula, will cost $330 billion.

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