Could a "doc fix" have a bigger impact on U.S. healthcare than the ACA?

Two interrelated features of the U.S. healthcare system are probably the primary causes for the uniquely high cost of healthcare in the U.S.: weak government control over pricing, and the fee-for-service payment model.

These interrelated weaknesses are exacerbated, as a weekend Washington Post exposé showed, in that Medicare pretty much lets doctors determine the rates at which they paid, by leaving it to the AMA to produce estimates of how long each procedure takes. Surprise! The doctors' chief trade group massively pads the estimated times required for most procedures. 

Even if procedure prices were based on accurate time estimates, free-for-service incentivizes providers to perform a high volume of the most expensive procedures. Nonetheless, countries in which the government imposes monopsony price control -- i.e., every other wealthy country in the world -- generally manage to deliver universal healthcare at two thirds to half the cost per capita of healthcare in the U.S.  Government control over pricing, as Ezra Klein recently forced healthcare free market evangelist Avik Roy to admit, is the sine qua non of effective heathcare cost control.  And we in the U.S. don't have it, as a study published in Health Affairs ("It's the Prices, Stupid...", Gerard F. Anderson et al., 2003) explains:

In the U.S. health system...money flows from households to the providers of health care through a vast network of relatively uncoordinated pipes and capillaries of various sizes. Although the huge federal Medicare program and the federal-state Medicaid programs do possess some monopsonistic purchasing power, and large private insurers may enjoy some degree of monopsony power as well in some localities, the highly fragmented buy side of the U.S. health system is relatively weak by international standards. 

That said, it's also true that a) countries in which the government controls prices, but pays on a fee-for-service basis, are facing healthcare inflation pressures of their own, though from a much lower base than the U.S., and b) in the U.S., government (state as well as federal) does pay nearly half the healthcare total healthcare tab and has tremendous influence over pricing. 

For that reason, many healthcare reformers are heavily invested in and eagerly watching the Medicare payment reforms in the Affordable Care Act, many of which are voluntary pilot projects poised to expand if they work -- for example, Accountable Care Organizations, which provide incentives for hitting cost-saving benchmarks but which are also leading to worrisome consolidation.

There is, however, a potential vehicle for a more global move away from fee-for-service in Medicare: so-called "doc fix" legislation.  The current formula for determining Medicare payments, the Sustainable Growth Rate (SGR) instituted by Congress in 1997, has proved unsustainable, as it would have kept payment rates lower than anyone was prepared to accept, and so has been overridden by band-aid legislation every year, to the point where, if the rate were allowed to take effect now, healthcare providers would take a pay cut in the neighborhood of 23%.  Various bills introduced to fix the formula all purport to wean doctors and hospitals off fee-for-service or at least strongly modify it with various quality incentives.  The principle of replacing fee-for-service has at least theoretical bipartisan support.

The Hill's Elise Vietek reports that a doc fix bill has been approved by the House Energy and Commerce subcommittee on Health:

The Energy and Commerce bill would repeal the SGR and create options for doctors to be paid based on the quality of their care rather than the volume of services they provide.

This strategy is expected to gradually lower healthcare costs over time. Providers who remain in the traditional, volume-based "fee for service" model would see a permanent 5 percent pay cut under the bill. 

Vietek links to a "working draft" of an as-yet-unnamed bill.  The draft foregrounds "quality measures" to be "endorsed by consensus-based activity" - -i.e., input from "professional groups and other  relevant stakeholders..including State medical societies."


More detail on the bill from HealthLeaders:

A five-year period of payment stability
The bill provides an annual statutory update of 0.5% per year for 2014 through 2018. During this time, payment incentives such as the Physician Quality Reporting Program (PQRS) and the Electronic Health Record (EHR) Incentive Program will continue.

Rewarding performance
Beginning in 2019, physicians receiving fee-for-service reimbursement will receive an additional update adjustment based on quality performance under the update incentive program (UIP). Performance will be assessed based on quality measures and clinical practice improvement.

Providers and other stakeholders will have a say in the development and selection of the UIP quality measures. High-performing providers will have the opportunity to earn a 1% bonus payment, while low performing providers will see a 1% reduction in payments.

Alternative payment models
Beginning in 2015, providers and other stakeholders may submit proposals for new payment models to an independent entity that will review proposals and make recommendations to the Department of Health and Human Services for models to move forward as either a demonstrations or permanent programs.

The WaPo, following up on its AMA exposé, reports that Rep. Jim McDermott (D-Wash.) has introduced separate legislation to remove the AMA fox from the procedure-timing henhouse:

 The legislation, which is partly based on proposals from Congress’ Medicare watchdog, would require Medicare officials to collect data such as how much time doctors spend doing procedures. It would reduce the doctor payment for overvalued services. A House subcommittee approved a draft of the bill Tuesday.

The doc fix bill has a long, long way to go in an insanely dysfunctional Congress. It would cost an estimated $138 billion, as the "unsustainable" pay cuts mandated by the current SGR are built into budget calculations. Perhaps the quality measures will ultimately be gamed by physicians' groups.  But it is noteworthy that both parties are at least nominally on board with the principle of replacing fee-for-service. If legislation like this were incorporated in the ACA, Republicans would doubtless now be excoriating it as bureaucrat-controlled healthcare.