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Fixing the Medicare formula

Medicare Services office in New York City

BOB MOON: Every day, Medicare eats up more and more of the federal budget. How to pay for it? Should seniors pay more? What about paying health care providers less?

A special advisory committee recommends changes on Medicare payment rates to Congress each year, and their latest report came out today. But as Helen Palmer reports from the Health Desk at WGBH, they didn't come up with a fix for one of the biggest problems of all - how doctors are paid.


HELEN PALMER: Medicare links what it pays doctors to the rise in the Gross Domestic Product. Medical costs are rising much faster than GDP, so the formula means doctors get squeezed. Physicians cry "foul," and every year Congress rolls back the proposed cuts.

Cecil Wilson heads the American Medical Association Board.

CECIL WILSON: When my patients get sick, they don't check to see if the economy's growing well enough for them to get care. And so we need something that actually reflects inflation.

Wilson testified today before the Senate Finance committee. He says hospitals and nursing facilities get annual raises — only doctors face cuts as Medicare sets targets for spending.

There's wide agreement that the current formula's flawed and needs to be fixed. Tricia Newman of the Kaiser Family Foundation.

TRICIA NEWMAN: The current payment system doesn't put in place the right incentives for physicians to provide the most efficient care or to reward quality.

The advisory commission's job is to propose fairer ways to deal with Medicare payments. Newman says they had two suggestions for fixing the problems of doctors' pay rates.

NEWMAN: One would be to just repeal flat out the current formula and get rid of what's called expenditure targets. The other would be to take the current approach that's being used for physicians and apply it to all providers.

Members of the Commission can't agree whether spending targets are any use, so it doesn't advise Congress which approach to take. It does recommend more investment in health information technology and more quality incentives. But before the end of the year, Congress will have to come up with a better formula, or the same cycle will repeat itself.

In Boston, I'm Helen Palmer for Marketplace.

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