Payroll tax deal extends ‘Doc Fix’

Thursday’s tentative deal on Capitol Hill to extend the payroll tax cut also freed another hostage — the so-called “Doc Fix” that Congress has enacted each year to keep a 1997 budget-cutting law from biting too deeply into physicians’ payments, which doctors say would force them to stop seeing Medicare patients.

But the annual scramble to pass the Medicare funding problem has sparked increasing calls to fix the problem permanently, so it no longer becomes a bargaining chip in year-end congressional fights over unrelated issues.

This year’s game of chicken was particularly scary: The Centers for Medicare and Medicaid Services had already notified doctors that it would hold their claims for the first 10 business days in January if no agreement was reached. Congress has approved the Doc Fix every year since 2003.

Despite the drama of the past week, few in Washington doubted Congress would find a way to do so once again.

“There’s not a soul who thinks payments should be cut by 27 percent in less than two weeks,” said Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities. “The issue there is how to pay for it. That’s always been a problem and it’s becoming in a sense an increasing problem.”

The urgency of the problem may have played a behind-the-scenes role in forcing a deal on the payroll tax cut, with doctors’ groups lobbying heavily during the stalemate for Congress not to leave the Doc Fix unaddressed.

American Medical Association President Dr. Peter W. Carmel, calling the proposed cuts “untenable,” told the Capitol Hill publication Roll Call his group had generated some 380,000 contacts with lawmakers in recent months on the issue.

The root problem necessitating the Doc Fix is a formula called the sustainable growth rate (SGR), passed by Congress in 1997. Intended to curb Medicare costs gradually, the SGR tied spending targets on Medicare to growth in GDP per capita, thus imposing a total limit on Medicare spending.

The formula worked until 2002, when physician claims for the first time exceeded the statutory cap. Congress allowed payments to doctors to drop by 4.8 percent for one year — and then proceeded to override the cuts every year after that, digging a fiscal hole that meant ever bigger reductions were required.

The rate formula “was not at the time thought to be a big deal,” Mr. Van de Water said. “At that point, physician spending was growing, but not at a breakneck pace. … If anyone had thought it was going to produce huge cuts, it would have been controversial and it probably wouldn’t have happened.”

And until recently, legislators didn’t pay for the temporary fixes, instead pushing the tab continually into the future. Under new pay-as-you-go rules, Congress paid for the Doc Fix in 2010 by tapping a provision in the health care law allowing the government to collect insurance subsidy overpayments.

This year, doctors were facing the largest reduction yet in their Medicare reimbursements — 27.4 percent — after efforts earlier this year on Capitol Hill to negotiate a permanent fix went nowhere.

In July, a bipartisan “Gang of Six” called for reforming the SGR in its debt-reduction plan. And as the 12-member supercommittee spent the fall futilely searching for agreement on $1.2 trillion in savings, Rep. Allyson Y. Schwartz, Pennsylvania Democrat, urged members to consider her own proposal to reform the formula.

But with a price tag of $298 billion over 10 years, reforming the SGR would require Congress to do something it has failed repeatedly to accomplish this year: find the cuts in other programs to offset the tab.

Instead, as in prior years, Congress defaulted to the temporary Doc Fix as a cheaper option.

Before Thursday’s compromise was announced, Rep. Phil Gingrey, Georgia Republican, told The Washington Times that lawmakers were already eyeing a $38 billion, two-year fix passed by the House to be resurrected if a larger deal couldn’t be struck. Mr. Gingrey expressed optimism that Congress will achieve SGR reform sometime in 2012.

“We’re committed to solving the problem this time finally once and for all — get rid of SGR and replace it,” Mr. Gingrey said. “I think we can sell that to [lawmakers] before the end of the next session, I absolutely do.”

And Rep. Jim McDermott, Washington state Democrat, said it was unlikely that House Republicans would “commit political suicide” by refusing to compromise on a Doc Fix deal, even with the partisan divisions on display in the payroll tax fight.

“It’s hard for me to conceive of this place being so dysfunctional that it won’t happen,” he said.