Congress again is working on a solution to solve the problem of how Medicare can continue to pay physicians without making cuts. How did we get into this position?
Medicare is now paying on a "fee for service" basis - meaning that Medicare pays when a procedure or service is performed by a physician. This may not be the only way Medicare makes payments in the future.
The Balanced Budget Act of 1997 called for annual adjustments to the amount doctors were paid under Medicare. This was done by tying the the percentage increase in Medicare payments to doctors to the percentage increase in the Gross Domestic Product for Congress to achieve budgetary goals. Beginning in 2002 if the formula did not show an increase was due it was necessary to cut physician payments for Medicare to accomplish what the act called a "Sustainable Growth Rate." Unfortunately the increases in health care costs outstripped the GDP-based formula for a number of years. Instead of making the cuts, Congress has overridden the formula, specifying small increases or payment freezes instead of large cuts that were due. For each time the cuts were ignored, a "Doc Fix" was put in place.
The limitation of the 1997 Act's goal of a Sustainable Growth Rate is that it does not affect the incentives of individual physicians concerning the rate of use of services. Moreover, as Congress has found over the last few years, the formula is capable of prescribing reductions in payment rates that are so large that policymakers are reluctant to implement them because of the havoc it would create. The danger is that doctors would stop accepting Medicare (and also Tri-Care, which is tied to this formula).
Because we have so many years of data we are seeing key health care advisers suggesting the move away from the "fee for service" payment system. The thinking is to move toward a method of payment based on quality of performance much like Medicare rates plans on the Star system.
Betsy Vipond is CEO of The Senior Health Advisor and has been in insurance for more than 33 years. She is a board member of Tampa Bay Health Underwriters part of the National Association of Health Underwriters and specializes in Medicare products. You may contact her at (800) 603 0901.