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The Economist: Close, but no cigar, yet (on Medicare payments)

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The author of this entry is responsible for this content, which is not edited by the Wilson County News or
April 2, 2015 | 3,481 views | Post a comment

It looks like we are finally going to be treated to an all-too-rare accomplishment: meaningful, bipartisan agreement in Washington. House Speaker John Boehner apparently walked over to Minority Leader Nancy Pelosi’s office and the two struck a deal in a matter of minutes to solve a perennial problem. They finally agreed on a way to permanently fix a problem with the Medicare payment system which without a solution would cause reimbursements to doctors to drop by 21% as of April 1. In typical fashion, the deal has hit a snag, but the prevailing belief is that it will happen.

A last-minute compromise last year narrowly avoided a disruptive drop in payments and the issue was punted to this year. (Punted yet again, I should say, since Congress has visited the issue about 17 times and counting. In fact, I wrote about the last one almost exactly a year ago.) In spite of a failure to actually get the deal done before the Congressional recess, it is very encouraging that we may be actually getting somewhere this time.

The reimbursement problem goes back to the “sustainable growth rate” (SGR) outlined in deficit reduction legislation in the late 1990s. The SGR pegs annual increases in Medicare payment rates to economic growth and some other factors. In 2002, the formula would have resulted in a decrease in reimbursement rates for doctors, and the strong negative reaction by physicians led to the first “doc fix.” Over time and through subsequent temporary patches, the gap between actual reimbursements and those embedded in the formula continued to expand, making it even more difficult to solve. This year’s 21% decline would certainly cause major problems for doctors and their patients and deal a blow to the sustainability of health care for the elderly.

The original SGR framework was never intended to cause a reduction in payments. It was simply political chicanery designed to give the appearance of balancing or controlling costs. While the many and varied “patches” to keep reimbursement rates at reasonable levels have avoided a disaster, it has become increasingly important to deal with the issue once and for all. Rising health care costs, longer life spans, and the aging of the Baby Boomer generation are working to increase to need for dealing with the structural imbalances inherent in Medicare.

One of the major provisions of the legislation to fix the reimbursement problem is a step toward compensating doctors for the quality of care they provide rather than the quantity. Some of the highest-income Medicare recipients would see increases in their payments to help offset the added costs, and all premiums would increase slightly under the new plan. Another element of the agreement is to extend funding for the Children’s Health Insurance Program by two years.

Of course, both Democrats and Republicans (and everyone else on the planet) would doubtless point to aspects of the compromise that they would like to tweak if possible, but at the end of the day, the House voted by an overwhelming 392 to 37 margin to pass the legislation. President Obama has indicated his support. However, the Senate failed to act before the recess, and the final deal has not been reached. It appears as if the Senate will pass the bill (likely by a big margin), and there are ways to avoid a meltdown until then. It will be good news indeed when the final deal is signed, sealed, and delivered.

A sustainable method for funding Medicare and ensuring reasonable reimbursement rates is crucial to long-term prosperity. The well-being of senior citizens, stability of the health care system, and prosperity in general are all at risk without a permanent solution. Uncertainty also keeps doctors from investing in the equipment and other items which could improve outcomes and reduce costs. For that matter, these kinds of uncertainties can discourage America’s brightest young people from undertaking the extremely expensive (both in terms of monetary and opportunity cost) training needed to enter the medical profession.

Letting Medicare reimbursement rates drop by more than 20% would cause a major disruption to health care providers, patients, and the economy as a whole. It looks like we’ve not only avoided that nasty scene, but are also on the cusp of a notable stride in the right direction.

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group ( He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.
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