The Heritage Foundation

Factsheet #137

February 3, 2014

February 3, 2014 | Factsheet on

Ending Relentless “Fixes” to Medicare’s Physician Payment Structure: The Right Policies for Patients, Doctors, and Taxpayers

The Problem

  • Every year since 2003, Congress has engaged in the “doc fix” dance. Lawmakers postpone built-in cuts to Medicare reimbursement to physicians that are tied to the complex Sustainable Growth Rate (SGR) formula.
  • This year Congress plans to prevent what would be a 24 percent pay cut for physicians who treat Medicare patients.
  • There is near-universal agreement that current law—tying Medicare reimbursements for doctors to a convoluted formula—is bad policy for patients, physicians, and taxpayers. It needs to be fixed.

Congressional Movement on a Permanent Doc Fix

Bills to change the physician payment formula passed all three relevant congressional committees in 2013. Congress passed a temporary “patch,” which expires March 31, 2014, to provide Members with more time to enact permanent changes. These bills represent the largest single change in Medicare physician payment policy since the Balanced Budget Act of 1997. Because the outcome will affect every doctor treating Medicare patients, as well as roughly 50 million Medicare patients themselves, it is crucial that Members of Congress and staff carefully read and digest the details of the pending legislation.

Key Principles For Reform

Any permanent solution by Congress to repeal the flawed SGR formula and replace it with an alternative payment program should reflect three principles:

  1. Protects Doctors and Patients from Washington Micromanagement. The legislative language currently before Congress moves away from paying doctors based on the quantity of services they provide—as the current fee-for-service payment system does—toward paying for the quality and outcomes for patients. This is a laudable goal for the private market but is fraught with serious risk in government hands. What is needed is a clear, statutory guarantee that the federal government will not control or supervise the practice of medicine or the manner in which medicine is practiced.
  2. Doesn’t Add to the Deficit – the Permanent Doc Fix Should Be Budget Neutral. With America $17 trillion in debt and 45 percent of federal spending already financing health care, and Medicare itself generating $36 trillion in long- term unfunded liabilities, Congress must guarantee that any permanent “doc fix” is budget neutral and fiscally responsible, and based on long-term Medicare program savings.
  3. Strengthens Medicare by Making Bipartisan Structural Reforms. Combining Medicare Part A (hospital payments) and Part B (physician payments) would cut down on government inefficiency. Such a reform would establish uniform co-payments rationalizing the relationship between Medicare and Medigap, while securing seniors protection from catastrophic costs, which Medicare does not provide today.
  4. Other commonsense reforms include lowering taxpayer-funded subsidies for wealthy retirees (a flawed variation of which was included in President Obama’s FY2014 budget proposal) and gradually raising Medicare’s eligibility age. Ending Relentless “Fixes” to Medicare’s Physician Payment Structure: The Right Policies for Patients, Doctors, and Taxpayers

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