On March 23, the House of Representatives overwhelmingly passed a permanent “doc fix.” Now it heads to the Senate, where it is expected to pass easily. This bipartisan effort will end the yearly ritual of bypassing Medicare reforms imposed by the Balanced Budget Act of 1997. Much of professional Washington greeted it with a cheer—a sign that comity in the capital is still possible.
Professional Washington is wrong. While the BBA was a clunky attempt to amend Medicare, the program remains in need of reform—and the permanent doc fix illustrates that neither party is prepared to do what needs to be done.
The BBA imposed a “sustainable growth rate” on doctor payments under Medicare Part B. The SGR mandated that payments be limited by a function of broader economic growth. Because medical costs typically increase faster than the rest of the economy, this put doctors in a squeeze. The American Medical Association leaned heavily on Congress to walk back reforms.
Thus the doc fix was born—and grew bigger every year, as the gap between what the SGR mandated and doctors’ actual prices kept widening. The annual effort to pass the fix generated a lobbying bonanza as provider groups pressured Congress to keep reimbursement rates from falling precipitiously.
A permanent doc fix is probably necessary. The BBA is badly designed law on this front. It is one of those pieces of legislation that enable politicians to declare today that they’ve solved a problem, while pushing hard choices well into the future. The annual fix is also extortionary. Legislators prefer short time horizons for many programs—like agricultural and transportation subsidies, as well as corporate tax preferences—because they ensure industry groups keep coming to Congress and making campaign donations.
The problem with this permanent doc fix is that it does not address the real problem: Medicare providers have too much say in what they shall be paid. This conflict of interest has driven the program’s costs far beyond its architects’ wildest imaginings. The SGR is an ineffective way to deal with this problem, and it needs repealing. But it also needs replacing. Sure, there are some modest reforms in the permanent fix—Medicare means-testing for upper income brackets—but these skirt the real issue.
In this way, the permanent doc fix is entirely unexceptional. For 50 years, politicians looking to expand or reform the welfare state have lived in abject fear of the medical services industry. And for good reason—political success has always depended heavily upon the industry’s approval.
After his surprise election in 1948, Harry Truman proposed a national health insurance system, which the AMA vehemently opposed. Truman’s idea went nowhere. John F. Kennedy backed an early version of Medicare during his brief tenure; the AMA balked, and again the proposal went down to defeat.
It was only after his 1964 landslide election that Lyndon Johnson had the numbers in Congress to pass a Medicare plan, and even this program was highly favorable to providers. Under Medicare’s original 1965 terms, the government was forbidden from discriminating between providers based on performance and could not set limits on prices, instead relying on the usual and customary rates providers set. Providers did not have to deal directly with the government, either, but through third-party processors like Blue Cross Blue Shield. Medicare was basically a blank check handed to the medical services industry.
Little wonder that it ended up costing so much more than anybody imagined. But this was the prerequisite to making the program work. The government was not going to provide care directly to seniors; it lacked the capacity, and anyway the public hotly opposed socialization of medicine. The only solution was to delegate the task to private parties, whose participation is voluntary and predicated upon an expectation of profit. Legislators had to write Medicare to win providers over, and after the previous defeats they wrote the friendliest law imaginable. By allowing providers to set their own prices, the architects of Medicare institutionalized a conflict of interest.
The costs of the program became so obscene that by the 1980s, enough was enough. The government finally found the wherewithal to impose some restraints on providers, in the form of formulas meant to base reimbursement rates on the value of the procedures. These modest cost controls are budgetary measures imposed from the top down, making them a variant of Richard Nixon’s early 1970s price freezes. Accordingly, they create all sorts of perverse effects as providers look to game the law to their advantage. In many cases, seniors receive substandard care as a direct consequence.