Late last month, an overwhelming bipartisan majority in the House of Representatives approved the Medicare Reauthorization and CHIP Extension Act (MACRA), a Medical Care Card USA Samplefiscally irresponsible approach to increasing the amount the federal government spends on Medicare’s physicians’ services. Medicare’s Physician Fee Schedule is tied to an inflation formula that is inadequate to pay physicians enough to keep seeing Medicare patients. While Congress has had to increase this amount every year, those increases have always been funded by offsets from other federal spending.

This is the first time politicians of both parties have ignored this rule, increasing Medicare’s physicians’ payments perpetually and not paying for it. Worse, gimmicks obscure the true cost of the bill. Further, the bill would centralize federal control of the practice of medicine along the lines of Obamacare. The bill faces a lot of pressure to pass the Senate next week, especially because Medicare will have to start paying doctors according to a significantly lower fee schedule on April 15. So, the Senate needs to fix the bill very quickly before approving it.

There are three responsible approaches: A shorter “doc fix” that increases physicians’ Medicare payments by no more than two years, which can be easily offset just like 17 previous doc fixes have been; including MACRA on the “pay as you go” (PAYGO) scorecard, making its spending subject to sequestration; or finding $141 billion of offsets required to make the entire bill budget neutral.

The last choice is not as terrifying as often assumed. In 2014, the centrist Committee for a Responsible Federal Budget (CRFB) introduced the PREP Plan, which described about $250 billion of offsets to pay for reforming Medicare physician payments. The PREP plan was updated this March. CRFB has also proposed other Medicare savings outside the PREP plan. Many of these tax hikes are not acceptable to conservatives, and some are spending cuts that rely overly on central planning (like Obamacare and MACRA do) or reduce prescription drug prices by degrading innovative drug makers’ intellectual property.

MACRA includes only one of these conservative reforms: Restricting first-dollar coverage for medigap plans (also known as Medicare supplemental plans). However, even that is not worth much: less than $1 billion according to the Congressional Budget Office (CBO). The president also has this reform in his budget (via a surtax on medigap premiums), but savings from his plan are almost $4 billion. The reason for the difference is not completely clear, but appears mostly because the president’s medigap reform kicks in in 2018, while MACRA’s is delayed until 2020. Even in such a relatively small thing, the House of Representatives has underbid President Obama for budget savings!

Other savings proposed by the CRFB, some already in President Obama’s budget, are mostly ignored in MACRA. I have ranked these in (what I think is a reasonable) descending order of acceptability to conservatives:

  • Equalize payments for similar services performed in different settings ($30 billion) such as hospitals or physicians’ offices.
  • Modernize Medicare Part A and Part B cost-sharing rules (up to $80 billion) by reforming deductibles, coinsurance and copays.
  • Restore “provider tax” threshold to reduce the incentives for states to tax hospitals in order to distribute that money right back to providers and then receive a federal match on that contribution ($10 billion to $75 billion).
  • Reduce Medicare coverage of beneficiaries’ unpaid debts to hospitals by 25 percent ($35 billion) or eliminate entirely ($55 billion).
  • Encourage low-cost physician-administered drugs ($10 billion) by paying a flat fee instead of a markup on drugs for injection.
  • Introduce competitive bidding to determine payments to Medicare Advantage plans ($10 billion).
  • Reduce excess subsidies to academic medical centers for indirect costs of Graduate Medical Education (GME) by ten percent ($10 billion) or phase out ($50 billion).
  • Reduce preventable admissions and unnecessary complications ($10 billion) by increasing penalties for hospitals, which have high readmission rates.
  • Expanding the use of bundled payments and ACOs in Medicare ($50 billion) that pay for episodes of care rather than individual services.

The first four alone should be enough to offset the necessary $141 billion. Of course, these expenditures are revenues to members of the Obamacare coalition that supported MACRA in the House of Representatives, which will resist losing them. Nevertheless, if Congress cannot find offsets for a permanent Medicare doc fix, it should not be trusted to make Medicare fiscally solvent down the road. After all, the cost of MACRA over the next ten years is less than two percent of the overall cost of Medicare.


John R GrahamJohn R. Graham is a Senior Fellow at the Independent Institute as well as NCPA.

As an expert on individual choice and limited government control over medicine, Graham speaks frequently on health reform on radio and television, and at meetings in the United States, Canada, and Europe.