by Wendy Simmons | October 10, 2011 7:00 am
There is a looming bill of $300 billion over 10 years facing the American health care system. It is not paid for — not by people making a meager $250,000 or even a respectable $1 million. It will not be paid by snapping our fingers and repealing “ObamaCare.” The $1.2 trillion spending cut agreement this summer did not address it. If we pay the bill, it will be part of the deficit, no doubt about it. I refer, of course, to what is known as the “doc fix.”
Under current law, Medicare providers (i.e. doctors, nurses and hospitals who care for people over the age of 65) will see a cut of 29.5% in their reimbursement rate (read: a pay cut) on Jan. 1, 2012. A bit of (admittedly dull) background is in order:
Congress is charged with setting the reimbursement rate for Medicare providers. In the 1990s, a formula was agreed upon by President Bill Clinton and Congress that soon proved to be wrong — and actually cut provider payments significantly. No one wanted doctors to experience a sudden financial shock and be incentivized to close their doors to new Medicare patients. So, Congress routinely began to pass what’s known as the doc fix, which prevents massive cuts to providers.
Obviously, legislators have had the opportunity to correct this formula for some time and have not done so. Projecting large costs into the future inconveniently adds to the overall price tag of the program. It is basically the same dynamic as the Bush tax cuts: They were scheduled to expire after 10 years, so their true cost was not factored into long-term planning. The last doc fix was passed late last year and expires at the end of 2011.
In normal times, this type of legislation is bipartisan and quickly dealt with. In fact, in December 2010, the House of Representatives passed the most recent patch to fix provider payments by a vote of 409-2 after it unanimously passed in the Senate.
This was before the newly elected deficit hawks took their seats in January 2011. Now the fix will be up to them.
If the politics of the past six months continue, the doc fix will go the way of funding for victims of natural disasters (remember the FEMA funding drama) or the jobs bill (now nothing more than a campaign tool for both parties). It is possible, of course, that the Congressional super committee will at last provide a permanent legislative solution to this type of chronic dysfunctional policy-making. After all, Medicare and Medicaid together contribute to 25% of the federal outlays that the committee is charged with reining in (not including the $300 billion doc fix). We will know by Thanksgiving what, if anything, the massive health care lobby was able to persuade the super committee to cut or keep.
What will be the consequences of this particular failure of government? Seniors will have a harder time finding doctors, and many Medicare providers will get a big pay cut. Doctors, nurses and hospitals will have to find other ways of making up the lost income. (Sort of like those fees that banks are now charging their checking account customers in the wake of the Dodd-Frank reforms.) This most likely means higher prices charged to everyone else under their care.
Reining in health care costs is the biggest budgetary challenge facing America. Perhaps the lesson for all of us is that in order for the government to spend less on health care, it will have to spend less on health care. Starting in January.
Source URL: http://investorplace.com/investorpolitics/why-the-doc-fix-will-be-the-next-casualty-of-the-do-nothing-congress/
Short URL: http://invstplc.com/1nA9gGR
Copyright ©2014 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.