Fiscal Commission Report Proposes Medicare Pay Freeze, Then 1% Cut in 2014

December 02, 2010

December 2, 2010 — Physicians would see their Medicare reimbursement rates frozen through 2013 and then reduced by 1% in 2014 under an ambitious plan to reduce the federal deficit that was released today.

The plan, bearing the title "The Moment of Truth," comes from the bipartisan group called the National Commission on Fiscal Responsibility and Reform that President Barack Obama appointed earlier this year. Its cochairs are Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, the president of the University of North Carolina system and a chief of staff to President Bill Clinton during the president's second term. Most of the commission's 18 members are Democratic and Republican members of Congress.

The commission was charged with voting on a proposal for deficit reduction by December 1, but that vote has been postponed until Friday. The commission, meanwhile, released its report yesterday to comply with its deadline. Any plan approved by the commission — which will require 14 of 18 votes — goes to Congress for its consideration. Whether the commission or Congress can agree on the drastic changes envisioned for the federal budget and sacred-cow programs such as Social Security and Medicare remains to be seen.

The commission report calls for achieving almost $4 trillion in deficit reduction through 2020. Of that amount, 57% would come from spending cuts; 26% from revenue increases, in part resulting from repealed tax breaks; and 17% from net interest savings.

This economic weight-loss program largely resembles an outline released by commission cochairs Simpson and Bowles on November 10. That first document recommended "modest reductions" in Medicare reimbursement for physicians, as opposed to the 25% cut currently scheduled for January 1, but did not specify an amount. Today's full-fledged report provides numbers.

Beyond a pay freeze through 2013 and a 1% pay cut in 2014, the commission report calls for a revamped formula for setting Medicare pay in 2015 that stresses care coordination and rewards providers for the quality — not quantity — of their services. This formula would replace Medicare's notorious "sustainable growth rate" (SGR) formula that will trigger the 25% pay cut next year unless Congress acts this month to avert it.

The report's "doc fix" for the Medicare reimbursement crisis also addresses the issue of "phantom savings" in a federal budget based on massive SGR cuts "that will never occur." The report insists that these phantom savings — close to $300 billion — must be offset with real savings elsewhere.

The report also says lawmakers need to find money to offset the loss of premiums that individuals are expected to pay for long-term care insurance under a section of the healthcare reform law called the Community Living Assistance Services and Support (CLASS) Act. CLASS, says the report, is unsustainable and should be repealed or reformed — hence the need to make up for the program's premium revenue in the budget.

Caps on Noneconomic and Punitive Damages Take Lower Profile

To replace phantom SGR savings as well as CLASS premium revenue, the report recommends a long list of frugalities that will reduce federal healthcare spending by nearly $400 billion from 2012 through 2020. These measures, first described in the outline released by Simpson and Bowles last month, range from trimming Medicare payments for graduate medical education to implementing medical malpractice reforms.

Simpson and Bowles originally trumpeted caps on noneconomic and punitive damages in malpractice cases as a component of their tort reform, much to the delight of organized medicine and political conservatives, who have championed such limits over the years. In contrast, Congressional Democrats have traditionally opposed malpractice caps, viewing them as an infringement on a person's constitutional right to a trial by jury.

Perhaps reflecting a philosophical clash among Democratic and Republican members of the commission, the report released today seems to make the subject of caps more of a footnote. It recommended 5 measures that lawmakers should pursue:

  • Allow courts to subtract workers compensation payments and other outside benefits for injured parties from jury awards.

  • Impose a statute of limitations, perhaps up to 3 years, for medical malpractice cases.

  • Eliminate joint-and-several liability rules that can make one of several defendants liable for the entire amount of damages, regardless of his or her share of responsibility for them.

  • Create specialized "health courts" to try malpractice cases.

  • Give legal protection — "safe havens" — to providers who follow best practices of care.

"Many members of the Commission also believe that we should impose statutory caps on punitive and non-economic damages," the report goes on to say, "and we recommend that Congress should consider this approach and evaluate its impact."


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