For Docs, the Fix is In

This week, the Senate approved a one-year "doc fix" to avoid cuts in Medicare payments to physicians. But real reform still waits.

“The prospect of being hanged focuses the mind wonderfully”.  America may not be at the gallows quite yet, more like in the appeals process when it comes to the economics of healthcare. The latest iteration of the “doc fix” is the perfect example of the mess we are facing, but not really focused on quite yet.

By now, most sentient beings understand that in 1997, Congress in its inimitable style faced Medicare’s growing unaffordability by creating a system to which Congress had no intention of adhering. Every year, beginning in 2002, it has rescinded its promise to restrain the growth in payment for Medicare physician services to match the growth (or decline) in the economy. It has failed that pledge over and over again so that the current bill is about 25% over the legally determined growth rate.

Here is the perfect example of the moral hazard of our healthcare payment system. Those over 65 get more and more healthcare services and physicians supply those services and sometimes develop even more expensive treatments to generate more costs.

Yet, neither the provider nor the consumer really ever considers the cost of the services.

The explanation for where the money will come from for the latest fix is beyond convoluted. All we hear is something about the rebates for those getting insurance in the healthcare exchanges to be set up in 2014.

Here is Politico’s explanation for the revenue source for the new doc fix:

Under the health care reform law, if a person gets more of a tax subsidy than they’re eligible for, they’d have to repay no more than $250. Families would have to repay no more than $450. The deal on the table would raise those caps on a sliding scale based on income. The figures haven’t been finalized yet.

Now is it clear?

Anyhow, this is a clear example of the flaw in approaching healthcare from a perspective of price controls and insurance premium controls. None of it will work until patients and physicians have an economic incentive to achieve the most cost effective approach to providing care.

Of course, we knew there would be a doc fix in 2010.  The AMA was promised this by the administration so that it would go along with Obamacare and the status quo in healthcare. The risk of a collapse in physician payments for Medicare services is too great.

The ongoing problem persists and will be confronted again next year. Payment reform is critical but the idea that physicians can be paid for outcomes of care rather than volume of services provided is the answer proposed by Obamacare advocates and many on the right. The idea that outcomes can be attributed in a consistent fashion to the characteristics of medical care is simply not realistic.  There is too much variability that the patient brings to any encounter to be able to reliably and consistently attribute outcome to a single physician. Outcome systems that could be robust enough to allow payment to be based on results of care simply do not exist.

Rather, a capitated system like Kaiser Permanente remains the only real alternative to our current system. Accountable Care Organizations are held up by Obamacare supporters as a model that could achieve the same results as a large integrated healthcare delivery system that combines the payer and the provider in one entity like Kaiser. I doubt it as the current plan for Obamacare is for a central committee in Washington, the Independent Payment Advisory Board (IPAB) that will have virtually unchecked power to adopt laws, setting prices and payments for nearly all medical services. According to Paul Radensky, M.D. a partner in the law firm of McDermott Will & Emery,

the health reform law instructs the IPAB to develop proposals that (a) improve the health care delivery system and health outcomes, (b) protect and improve Medicare beneficiaries’ access to necessary and evidence-based items and services, and (c) target reductions in Medicare program spending to sources of excess cost growth.

Congress specified that IPAB proposals shall not include any recommendation to ration health care, raise revenues, raise Medicare beneficiary premiums, increase Medicare beneficiary cost-sharing (including deductibles, coinsurance and copayments) or otherwise restrict benefits or modify eligibility criteria

It is going to be impossible for such a central command approach to accomplish anything more than Congress achieved with the original approach to the doc fix, yet another mess that is either created or perpetuated in Obamacare and awaits real reform.