Medicare Advantage Plans Need the “Doc Fix” More Than Docs Do

Predictably, the “Doc Fix” has become a political football in the fiscal cliff discussions here in Washington, and it continues to have huge bearing not just on physicians but Medicare Advantage plans as well.  You could say MA plans need the “Doc Fix” more than docs do.

The Sustainable Growth Rate (aka the SGR) is a formula established by Congress in the Balanced Budget Act of 1997, and sets an annual expenditure target for traditional Medicare physicians’ services, based on the annual growth in per capita expenditures for physician and related services.  Spending in excess of the target is supposed to produce an off-setting reduction in physician fees.  Spending below the target has actually generated fee increases, which, of course, made the situation worse in the following year.  As the Congressional Budget Office put it:  “the SGR method allows spending per beneficiary to grow with inflation, with [some] additional adjustments.”

In 2002, for the first time the SGR generated a cut to physician fees, of 4.8%.  In 2003, the SGR would have cut an additional 4.4%.  Instead, Congress increased fees by 1.7% (an annualized swing of 6%, although only effective for 10 months).  In 2004, the SGR would again have cut physician fees, by 4.5% — but Congress increased fees by 1.5%…and so on to this very day.  The SGR calculation is cumulative, so each year, the overrides and increases are added to the SGR, compounding the problem.  The cut to occur on January 1, 2013 is projected to be 27%.

In an ideal world, Congress would use the lame duck session to fix this once and for all.  After all, those who were going to lose have lost, those who were going to win have already won, new members don’t arrive until January, and the next election is nearly two years away when the half-life of any political memory is about six weeks.  There’s never been a better time to enact the doc fix.

However, the fiscal cliff, and the remaining intransigence of the far right of the House Republican caucus, make things difficult.  A permanent “doc fix” costs about $245 billion.  Legislators who are pledged to reducing the size of government programs are going to have a hard time voting to add that much to Medicare, even though everyone knows that Congress will add at least that amount on an annual basis anyway.

So once again, we’re likely to see a one-year fix at the last minute, kicking the can down the road another year, and again leaving doctors wondering about the viability of Medicare participation if they are going to get jerked around on an annual basis.

And, Medicare Advantage friends take note: this isn’t just a physician headache.  The SGR is costing Medicare Advantage plans a ton of money.  While Congress consistently holds physicians whole, albeit often in the 11th hour,  the SGR gets baked into the Medicare Advantage benchmark calculations.  The correction to Medicare Advantage benchmark payments lags a full year.  By then, a new SGR cut has been calculated, a cut probably bigger than the last.  So the retroactive correction for last year’s predicted cut that never happened is offset by including the next year’s cut in the benchmark calculations.  That’s why temporary fixes continue to depress MA rates, while a permanent fix would boost them 5-6% two years later — essentially offsetting the MA cuts that helped fund health reform. And it’s why MA plans need the doc fix to happen more than docs do.

As Lewis Carroll said, “The hurrier I go, the behinder I get.”