Harry Reid Is Right on Fixing Medicare Payment Formula Independent of Health Care Reform

The Washington Post attacks Harry Reid for separating fixing the Medicare payment formula from the overall health care reform proposals. Harry Reid is right on this. The Medicare payment formula is flawed–so flawed that every year Congress acts to override the formula. Fixing this formula will result in greater spending than it it wasn’t fixed, but budget numbers based upon maintaining the formula are imaginary. Regardless of whether there is comprehensive health care reform, this is money which will continue to be spent every year, as has been the case in the past.

The idea when the formula was established was to tie physician reimbursement to overall health care costs under the assumption that this would give physicians an incentive to keep health care costs down. A formula was written to determine physician reimbursement under Medicare which would pay more if health care costs were kept down but pay less if costs rose.

While in theory this might make sense the formula has not worked. Individual doctors have very limited control with regards to overall health care costs which have increased with increasing technology and an aging population. The price of injectable drugs, primarily administered by Oncologists, has been responsible for much of the increases which would have triggered pay cuts to all doctors. In recent years the formula would have cut physician reimbursement by double digits every year. Realizing that this would cause physicians to be unable to afford to see Medicare patients, every year Congress has acted to block the cuts which the formula would enact.

Fixing this formula is an independent problem from this year’s health care proposals. The goal has been for these proposals to be budget neutral. If the costs of fixing the Medicare formula are included as a cost of health care reform, it will be necessary to reduce spending elsewhere, such as with lower subsidies to assist those with difficulty in paying for medical insurance.

The Washington Post writes, ” The Medicare payment formula is one of a number of fiscal time bombs that will need defusing soon: the alternative minimum tax, the Bush tax cuts, the estate tax, other expiring tax provisions.” This is true, but these budget problems need to be fixed as part of an overall fix to the budget. Fixing the Medicare payment formula should not be done at the cost of health care reform.

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