One-Year Doc Fix Emerges

(Updated to incorporate new information from the Congressional Budget Office's score of the doc fix bill)

In lieu of a permanent agreement and with the deadline approaching in five days, new legislation has emerged in the House to extend the "doc fix" and other health extenders for a year. This legislation would avert a 24 percent cut in Medicare physician payments due in April from the Sustainable Growth Rate (SGR) formula, instead freezing physician payments through March 2015.

The end goal remains a permanent replacement of the SGR formula, but with no agreement reached on pay-fors and three of the four proposals either offsetting the costs with gimmicks or simply ignoring its costs altogether, lawmakers appear ready to move a host of smaller Medicare reforms to pay for another temporary patch.

The one-year doc fix and health extenders package would cost about $21 billion, according to the Congressional Budget Office (CBO), but on paper, these costs would paid for with $22 billion of savings from more targeted health care reforms. Notably, though, $5 billion of the $22 billion is the result of a timing gimmick that was also used in the previous three-month doc fix for some of its savings. The other $17 billion, however, consists of a host of legitimate offsets through health care reforms, some of which are structural changes, if small, including:

• Establishing a value-based purchasing program in Medicare for Skilled Nursing Facilities that would take into account re-admission rates ($2 billion);
• Setting Medicare payments for clinical lab tests equal to the median payment from private insurers, in place of the current uncompetitively high, administratively set rates ($2.5 billion);
• Allowing the Department of Health and Human Services to use data on values of physician services to more accurately set Medicare payments, with a target reduction in spending of 0.5 percent per year ($4 billion);
• Undertaking a number of steps to encourage quality and appropriate use of imaging in Medicare, including requiring prior authorization for physicians who order an unusually high number of advanced imaging tests ($200 million);
• Updating the Medicare end-stage renal disease prospective payment system ($1.8 billion);
• Eliminating limits on deductibles for small group health plans; and
• Extending the Medicaid Disproportionate-Share Hospital (DSH) payment reductions first passed in the Affordable Care Act for an additional year to 2024 ($4.4 billion).

The gimmick, though, damages the fiscal credibility of the bill. Rather than having the Medicare sequester cut payments by 2 percent uniformly in 2024, the bill increases cuts in the first half of the year to 4 percent and eliminates them in the second half. The bill, therefore, would result in lower spending in FY 2024 that would be completely offset by higher spending in FY 2025, effectively shifting spending outside the ten-year budget window. This produces no savings overall, but by shifting cuts that would otherwise occur in FY 2025 back into CBO's ten-year window, it makes the bill ostensibly deficit-neutral over ten years.

This gimmick is problematic because it simply uses a deficit-neutral timing shift to pay for real costs. Even more problematic is the fact that the gimmick is larger this time: whereas the three-month doc fix set the payment cuts at 2.9 percent and 1.1 percent in the first half and second half of 2023, respectively, this bill would make the payment cuts in 2024 4 percent and 0 percent in the first and second half of the year, respectively. This makes the size of the gimmick much larger and enables lawmakers to pay for a more expensive or longer doc fix.

This gimmick also likely runs the bill afoul of PAYGO rules, as it appears to fall under statutory PAYGO's prohibition of "timing shifts." Specifically, the PAYGO statute states that "The Director shall not count timing shifts, as that term is defined at section 3(8) of the Statutory Pay-As-You-Go Act of 2010, in estimates of the budgetary effects of PAYGO Legislation." Without the "savings" from sequester realignment, the bill would not be offset for purposes of PAYGO, adding roughly $4 billion to deficits through 2024. To avoid this problem, the bill includes special language to exclude its effects from counting on the PAYGO scorecard.

Obviously, a permanent doc fix would be ideal, especially given the bipartisan, bicameral agreement on the replacement payment system. A permanent replacement can encourage care coordination and help move the health system further toward paying for quality and value rather than just the quantity of services provided. And plenty of options exist to offset its costs.

One-year patches can be useful, though, and this bill importantly follows in the tradition of past doc fixes by including some legitimate reforms to improve health care policy, but the $5 billion gimmick means that the bill falls short of being paid for.