Last Year's Medicare "Doc Fix" Is Already Breaking Down. Here Are Some New Fixes.

(A version of this column was published by Forbes.)

What a difference a year makes! In April 2015, a bipartisan super-majority in Congress overwhelmingly passed a bill to give the federal government even more control over how doctors practice medicine on Medicare beneficiaries. Advertised by Republican and Democratic leaders as a permanent solution to the flawed way Medicare paid doctors, the Medicare Access and CHIP Reauthorization Act (MACRA) was actually Republican politicians’ first vote for Obamacare.

The president himself confirmed this shortly after signing the bill, congratulating leaders of both parties at a White House garden party celebrating the law’s concentration of power within the U.S. Department of Health & Human Services: “I shouldn’t say this with John Boehner here, but that’s one way that this legislation builds on the Affordable Care Act. But let’s put that aside for a second.”

The MACRA was largely pushed the professional societies which claim to represent physicians. Unfortunately, practicing physicians who see patients all day were too busy to pay attention to how the federal government was going to impose itself even more on their practices. In a survey of 600 physicians published earlier this year by Deloitte, half had never heard of MACRA and one third recognized only the name.

That blissful ignorance is dissipating, in the wake of a lengthy rule proposed by the Centers for Medicare & Medicaid Services (CMS) last March. Just the first step in implementing the many technical requirements necessitated by MACRA, the rule has been described as “962 pages of gibberish” by Margalit Gur-Alie, a leading healthcare consultant.

As more practicing physicians have learned about MACRA and the proposed rule, a deluge of comments have forced the Acting Administrator of CMS, Andy Slavitt, to admit its implementation might be delayed beyond its January 2017 start date. This delay provides a window of opportunity to make some changes that could re-direct MACRA in a more positive direction, according to a new report published by the National Center for Policy Analysis.

The report recognizes that overwhelming bipartisan political support for MACRA means it is unlikely to be repealed and replaced in the foreseeable future. Nevertheless, delay provides an opportunity to take a fresh look at how to improve Medicare's physician payments. The report proposes two reforms to the rule.

First, the report recommends Including Medicare Part D (prescription drug) claims with Medicare Part A (hospital) and Part B (physician) claims in the costs for which physicians are accountable  The statute encompasses this opportunity, and CMS is open to input on how to do it. (It is more complicated than it seems.) Including Part D claims in the measurement of resource use will better incentivize clinicians to prescribe appropriately to reduce overall costs.

Second, the report recommends moving away from the Resource-Based Relative Value Scale to paying for “bundles” of care without fees fixed by government.  Although MACRA wants to pay for value, not volume, the new payment system is still based on the old fee schedule. William Hsiao, the economist who designed the current Resource-Based Relative Value Scale, originally determined the fees as follows:

He put together a large team that interviewed and surveyed thousands of physicians from almost two dozen specialties. They analyzed what was involved in everything from 45 minutes of psychotherapy for a patient with panic attacks to a hysterectomy for a woman with cervical cancer. They determined that the hysterectomy takes about twice as much time as the session of psychotherapy, 3.8 times as much mental effort, 4.47 times as much technical skill and physical effort, and 4.24 times as much risk. The total calculation: 4.99 times as much work. Eventually, Hsiao and his team arrived at a relative value for every single thing doctors do.

Rick Mayes and Robert A. Berenson, Medicare Prospective Payment and the Shaping of U.S. Health Care (Baltimore, Md.: Johns Hopkins University Press, 2006), page 86.

This would make a Soviet bureaucrat blush. Until the government allows prices to be determined by normal market forces, resources cannot be used effectively. Although the statute does not jettison the fee schedule, the measurements of cost imply clinicians should be paid for “bundles” of care around diagnoses.

In this sense, it approximates a 1983 reform to the hospital fee schedule that paid hospitals by Diagnosis-Related Group (DRG). Advocates of further payment reform should emphasize that paying for “resource use” rather than every single service enables Medicare to move from paying fees for activities to paying fees for diagnosis-related episodes of care, and encourage the current fee schedule to become vestigial.

Neither of these changes is certain or even likely, as the roll out of the new physician payment scheme will be bogged down by interest group politics. Nevertheless, they are potentially positive developments.