Obama's New Budget Proposes 2-Year 'Doc Fix'

February 14, 2011

February 14, 2011 — President Barack Obama's proposed budget for fiscal year 2012 would delay a massive reduction in Medicare reimbursement for physicians from January 1, 2012, until January 1, 2014, and freeze rates in the meantime.

Released this morning, the budget for fiscal year 2012, which begins October 1, would finance this so-called "doc fix" to the Medicare reimbursement crisis by, among other things, reducing Medicaid outlays for durable medical equipment; speeding new, lower-cost generic drugs to the marketplace; and capping Medicaid taxes that states impose on hospitals, nursing homes, and other providers as a way to increase their federal Medicaid funding. These measures would raise $62.2 billion, which would offset the $54.4 billion cost of the 2-year doc fix and yield an additional $7.8 billion in savings.

Last December, Congress passed a nearly $15 billion doc fix that delayed a 25% cut in Medicare rates from January 1, 2011, to January 1, 2012. The legislation froze rates at 2010 levels. If Congress enacts Obama's new 2-year fix, physicians will not receive a Medicare raise for 3 years running.

The pay cut once scheduled for January 1, 2011, had been mandated by the so-called sustainable growth rate (SGR) formula that Medicare uses to set physician pay. Organized medicine has lobbied Congress for years to replace the SGR formula with one it considers more equitable for physicians. Congress has been overriding SGR-required pay cuts since 2003, causing them to balloon in size.

Obama's new budget calls the 2-year doc fix a "down payment" on a permanent solution to the SGR problem and specifies $315 billion in "SGR relief" from 2014 through 2021. The budget lists a corresponding in unidentified offsets, which have yet to be determined.

SGR relief is also on the radar of Congress. Last month, in a 428-1 vote, the House approved a measure calling for a permanent doc fix. Lawmakers are worried that cutting Medicare reimbursement by 25% or more would drive physicians from the Medicare program, reducing access to care for seniors as well as military families, whose TRICARE coverage is based on the Medicare fee schedule.

2-Year Delay Buys Time to Craft New Payment Formula

Obama’s proposal to postpone an SGR-triggered cut in Medicare reimbursement until 2014 found favor with leaders of organized medicine, who said it buys time to figure out a new compensation formula.

"We need some time to put [payment] pilots in place and test them," Jack Lewin, MD, chief executive officer of the American College of Cardiology, told Medscape Medical News. "So having 2 years paid for upfront with a commitment for a decade-long fix is a positive thing."

Roland Goertz, MD, president of the American Academy of Family Physicians, called a 2-year doc fix a step in the right direction but noted that organized medicine had sought a longer breather of 3 to 5 years to analyze payment models, such as the patient-centered medical home.

"We’ll try very hard to get them [demonstration and pilot projects] in place as soon as possible," Dr. Goertz told Medscape Medical News. He added that a 2-year doc fix is better than the SGR "patches" of 1 month, 2 months, and 6 months that frayed physicians’ nerves in 2010.

The Affordable Care Act has set into motion various experiments in reimbursement, such as accountable care organizations and bundled payments, all of which focus on rewarding providers for the quality and efficiency of their care, as opposed to the mere volume of services.

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