Fixing Medicare’s Physician Payment System | Health Care Reform Center

by Bruce C. Vladeck, Ph.D in NEJM

Now that Congress has completed the epochal, exhausting, and contentious task of enacting comprehensive health care reform, it must confront another health care issue that is perhaps even more politically difficult: reform of Medicare’s physician payment system. On April 15, Congress voted to postpone a 21% reduction in Medicare fees that was to have gone into effect April 1, but a longer-term solution is not yet in sight.

The problems with the Medicare physician payment system are twofold, and each dimension poses complex political difficulties. First, Medicare is captive to an arbitrary, if elegantly conceived, formula for total payments to physicians — the sustainable growth rate (SGR). In the alternate reality of the Congressional budget process, the SGR will reduce Medicare’s physician payments, which already trail those from private insurers, as far into the future as the eye can see. Second, there is widespread consensus that the relative fees in the current system are a significant cause of the growing imbalance in supply and utilization between primary care and specialty services in the U.S. health care system. That imbalance, in turn, is widely perceived as a major cause of both excessive costs and inadequate quality of care. This is not just a Medicare problem: the Medicare Resource-Based Relative Value Scale is used by most private insurers to set relative prices for physicians.
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