Medicare Payment Formula Finally Changed – Win or Loss?

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Congress passed a  law in 1977 linking Medicare payments for physician services to growth in the economy.  Because it failed to take into account inflation and other factors, Congress has had to act 17 times to prevents cuts to physician pay under the sustainable growth rate (SGR) formula. This year physicians were set to get a 21% pay cut this year. This created a lot of stress and uncertainty for physicians, and caused some physicians to stop accepting Medicare patients.

The Senate recently voted to repeal this formula, 92 to 8. The bill was already approved by the House, and now President Obama has signed the bill.

That sounds like a great triumph for physicians. Although this may prompt some to pull out their imaginary violins in mock sympathy, I’m not so sure it will turn out to be such a great deal for physicians, which actually only consumes 12% of the Medicare budget.

The bill freezes the current rates, then increases them 0.5% a year from 2016 to 2019. For 2020 through 2025 there is no increase, and from 2026 onwards it increases by 0.75% per year. That is far below the current rate of inflation, and there is no provision if inflation gets worse than the currently low rate. That effectively means a real loss every year into the indefinite future.

There is a provision to transition payments to reward physicians for quality, rather than quantity. That is good in theory, but we’ll have to see how that works out in practice. Quality healthcare is very difficult to measure, and there is a risk that quality will be defined based on what’s easy to measure, and that will lead to physicians and other healthcare providers to concentrate on what they are rewarded to do, and not what may be in patients’ best interest. I hope I’m wrong.

About Daniel Ginsberg, MD, FACP

I'm an internal medicine physician and have avidly applied computers to medicine since 1986, when I wrote my first medically oriented computer programs. So yes, that means I'm at least 35-years-old!
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