Medicare Reform Plan Would Freeze Physician Pay for 3 Years

June 30, 2011 — Physicians would dodge a nearly 30% Medicare pay cut next January and see their rates frozen for 3 years under an ambitious proposal from 2 US senators to slow the growth of Medicare spending and save the government healthcare program for seniors.

However, seniors would get hit squarely with fiscal pain. The reform plan issued yesterday by Sen. Tom Coburn, MD (R-OK), and Sen. Joe Lieberman (I-CT) would gradually raise the Medicare eligibility age from 65 to 67 years by 2025, require wealthier seniors to pay more for their share of the Part B medical program and the Part D drug program, and increase Part B premiums for all enrollees. These and other features of the plan that have not yet been submitted as legislation would supposedly save more than $600 billion over 10 years.

The proposal is one more chip in the high-stakes Congressional poker match over the federal deficit and debt ceiling, or the limit on how much the government can borrow. The Treasury Department warns that the government will default on its obligations, such as interest payments, if Congress fails to raise the debt ceiling from its present level of $14.3 trillion by August 2. Republicans who control the House and hold enough Senate seats to filibuster the Democratic majority there have made massive budget cuts a prerequisite for raising the debt ceiling.

In turn, Congressional Democrats have resisted Republican efforts to put Medicare and other entitlement programs on a crash diet at the expense of beneficiaries. In response to the Coburn-Lieberman proposal, House Minority Leader Nancy Pelosi (D-CA) stated, "It is unfair to ask seniors to get less in benefits and wait longer to get onto Medicare — all while Republicans back tax breaks for Big Oil and corporations that ship American jobs overseas." Pelosi said the proposal is just as unacceptable as legislation passed by the House, and defeated by the Senate, that would give seniors subsidies to buy health coverage from private insurers.

More Time for Congress to Devise Better Pay Formula

Congressional Republicans and Democrats are more united on the need to solve the Medicare reimbursement crisis, created by the program's sustainable growth rate formula for setting physician pay. That formula sets an annual target for Medicare spending on physician services based in part on changes in the gross domestic product. When spending exceeds that target in a given year, reimbursement rates the following year are supposed to decrease to make up the difference. Every year since 2003, however, Congress has postponed such cuts, all the way up to 2010, when it voted to spare physicians a 25% reduction set for January 1, 2011.

Every postponement causes the next cut to deepen. Accordingly, the sustainable growth rate formula is now mandating a nearly 30% reimbursement reduction on January 1, 2012. For years, organized medicine has warned that such a plummet in revenue would cause physicians to leave Medicare in droves.

The Coburn-Lieberman proposal would avert this catastrophe by freezing Medicare rates at their current levels for 3 years. This "bridge" period would give Congress time to develop an improved method for paying Medicare providers, according to the 2 senators. They put the cost of the 3-year "doc fix," as such measures are called on Capitol Hill, at $37.7 billion over 10 years.