One feature of President Obama's budget framework is a proposal to change the way that the costs associated with stopping scheduled payment cuts to doctors, due to Medicare's sustainable growth rate (SGR) formula, will be accounted for in budget forecasting.
Dr. Peter Orszag, who heads the White House's Office of Management and Budget, had this to say in testimony before the House Budget Committee:
"Our Budget includes the Administration's best estimate of future SGR relief given the agreed-to fixes for Medicare physician reimbursement in past years. As a result, projected deficits are about $400 billion higher over the next ten years than they would otherwise be. In contrast, past budgets accounted for no SGR relief in any years. (Although our Budget baseline reflects our best estimate of future SGR relief given past policy actions on SGR, as discussed below we are not asserting that this should be the future policy and we recognize that we need to move toward a system in which doctors face stronger incentives for providing high-quality care rather than simply more care.)"
In other words, the administration is assuming that avoiding what Orszag calls "sudden cuts to doctors" will add $400 billion to Medicare baseline spending over the next ten years.
If Congress agrees, the legislative prospects for a long-term fix of the SGR will greatly improve.
A little background first.
The SGR is a key element in the formula used by Medicare to determine annual fee updates to doctors. It sets a target rate of growth in physician expenditures based on per capita GDP growth. When spending on physician services exceeds growth in the economy as measured by per capita GDP, Medicare payment updates to physicians automatically are subject to across-the-board cuts. Since 2002, Congress has stepped in just about every year to enact temporary "patches" to stop the SGR cut, but hasn't come up with a permanent replacement.
Congress has used budgetary slight-of-hand to fund the "patches." Rather than honestly acknowledging that each annual "patch" will increase Medicare baseline spending - the difference between the lower amount mandated by the SGR, and the higher amount paid out under the patch - Congress has just pretended that the higher spending will be made up with even an even deeper SGR pay cut the following year.
This is why the "patch" for an estimated 5% SGR cut in 2008 resulted in a scheduled 10.5% SGR cut in 2009. And why the patch for the 10.5% SGR cut in 2009 balloons to a scheduled 21% cut in 2010.
Think of it this way. Imagine that your boss told you that your wages would be cut by 10% this year. Later, she announces that your company won't cut your wages, but that the only way the company can afford to stop the 10% cut will be to pretend to reduce your wages by 20% the following year. She tells you not to worry, though: they'll just do the same thing next year - prevent the 20% cut by pretending that the cost will be made up by cutting your wages by 40% the following year.
Even though the company has no intention of every allowing the 40% cut to happen. They just have to pretend they will so their accountants will allow them to stop the immediate pay cut. Ridiculous, right? Yet this is exactly the type of dishonest accounting that Congress and the Bush administration engaged in.
Obama's proposal to acknowledge in the budget that Congress will not allow "deep and sudden cuts" in payments to physicians will trouble the deficit hawks. But it provides a way for Congress and the President to reach an agreement on a permanent solution to prevent the physician fee cuts. By telling the truth: preventing pay cuts to doctors will mean that Medicare must spend more.
Today's question: Is Obama right to add $400 billion to the deficit to stop Medicare fee cuts to doctors?