Medicare reform's first step: Revise physician pay formula

There are many aspects of the Medicare physician payment formula that are unfair to doctors and patients. But the Obama administration recently took a big step toward correcting one of the more egregious inequities.

In its proposed 2010 Medicare physician fee schedule, the Centers for Medicare & Medicaid Services said it would remove the costs of Part B drugs from the calculation of the pay formula. This would decrease the number of annual pay cuts doctors face in the coming decade as well as the size of the reductions that remain in force. It would also decrease by tens of billions of dollars the price to lawmakers of turning those remaining cuts into positive pay updates that better reflect the costs to physicians of providing care.

What does the process look like now?

The broken Medicare formula that physicians are constantly battling to overhaul on Capitol Hill is driven by unreasonably low spending targets that force deep pay cuts whenever spending on all doctors' services exceeds the thresholds. The costs of physician-administered drugs, such as chemotherapy medications, are counted as part of that total spending. That artificially forces spending levels further beyond the targets and mandates pay cuts that doctors don't deserve.

All physicians know full well that they have no control over the costs of the drugs they administer in the office, many of which are innovative and complex therapies that can be very expensive to develop. Nor can physicians be expected to limit Medicare spending by curtailing the use of medications that their patients desperately need to improve their health -- or even to survive.

That's why the current inclusion of Part B prescription drug costs in the formula is so harmful, and why the Obama administration made the right move in proposing that they be taken out of the equation.

The move is a long time coming.

The American Medical Association has been arguing since 2002 that CMS had the power to exclude the cost effect of Part B drugs and to make the policy retroactive to 1996, thus correcting the drug costs' past ill effects going forward. But the Bush administration claimed it had no power to make the simple administrative change.

The new White House revisited the question and came up with the right answer.

While this historic policy reversal is an important step toward real Medicare payment reform, it's still just a step.

If finalized by the Obama administration this fall, the proposed change will do nothing to reduce the projected 21.5% cut physicians face in January. While it reduces the size of mandated annual cuts starting in 2011, those additional reductions could still run as high as 3% or more before updates head back into positive territory. And the underlying payment formula remains fatally flawed.

That's where Congress must step in.

Only lawmakers have the power to roll back the double-digit cut that threatens to choke off seniors' access to their doctors starting next year. They have the duty to include a more lasting Medicare payment solution in their national reform effort so access can be preserved for decades to come.

The administration has made this effort more financially attainable for lawmakers by lowering the price of a long-term reform.

The White House has shown it is serious about making physician payment more equitable and access to care more sustainable.

Now Congress must follow that example and act.