The “Doc Fix” for Medicare Fees: Déjà vu All Over Again…but Worse?

A 21% cut for Medicare physician fees is set to go into place today.  This year, fixing physician payment has been overshadowed by all the talk about health insurance reform (who can forget the buzz about the public option and death panels?).        

In fact, I remember being invited to talk about healthcare reform on a panel for medical students this past fall.  As part of my remarks, I mentioned the 21% pending cut in physician payment and recall the questions and quizzical looks.  Another panelist said  – oh but that won’t happen – they (meaning Congress) will fix it.  And I said I hope so, but they have not done it yet…and here we are.

Actually, the truth is we believed they would fix it…at least in the short-term.  After all, I have gone to Washington DC for the past 5 years for the American College of Physicians Leadership Day and have taken several residents and students with me through the years.  Each year, we are fortunate to hear Bob Doherty, ACP Vice President and top health policy blogger, give a riveting update on what’s new on the Hill.  And for the past 5 years, the recurring theme has been the need to fix the physician payment system and the ‘flawed formula’ that calls for the cuts.   I was even lucky enough to participate in a Congressional hearing on the issue in 2006.   And every year, Congress has passed a short term fix to the problem.  Unfortunately, that has started the vicious cycle which makes the cuts the following year even worse… hence 21% cut today…unless there is another quick fix this week. 

Believe it or not, there seems to be general agreement that the system for paying doctors needs to be fixed.  The issue is how to pay for it.  As discussed in the Wall Street Journal:

The calculus on this issue is always basically the same. There’s widespread political support for blocking scheduled pay cuts to doctors. But doing so is expensive. So rather than get rid of the formula that keeps calling for the cuts — which would require Congress to acknowledge that the country is going to be on the hook for billions of dollars in additional Medicare costs — Congress keeps passing these short-term patches.

As I have discussed topic over the years with a variety of students and residents, I have noted a lot of confusion on these issues.  That isn’t entirely surprising since health policy isn’t a required course in medical school…but maybe it should be?   To better understand this chain of events and why all of this is really happening, I’ve outlined some basic questions and answers below.    

How are doctors paid?  Doctors are still paid on a fee for service system for their time.  When Medicare initially passed in 1965, to get physician support, Congress agreed to preserve the fee for service system.  To determine the actual value of physician services, a ratio system (RVRS) was introduced in 1992 that determines the value of one service to another and adjusts for geography.  Every five years, an AMA committee (RUC) composed of representatives from each specialty society debates the relative values of physician services and publishes the book that sets these ratios.  It is widely believed that the RUC is overrepresented by subspecialists who have led to undervalue of primary care services.  More recent concerns about the incentives to ‘do more’ in the fee for service system have led to some to argue for the ‘bundling’ of physician payments.

What is the SGR?  The Sustainable Growth Rate is a general marker of inflation.  In 1998, due to concerns of escalating healthcare costs, Medicare payments for physicians were tied to the SGR.  Unfortunately, healthcare inflation outpaces general inflation and since 2002, the cost of physician services has exceeded what would be predicted from the SGR.  Hence, every year a predicted cut in Medicare physician fees to bring it back to the SGR.  Each year, because a temporary fix is passed, the next year the cuts get worse

What is pay-go?  Because of pay-go rules, new legislation that increases spending has to include cuts elsewhere.  In this environment, it makes it harder to pass a costlier bill.  Unfortunately, a long-term fix means getting rid of the SGR and replacing it once and for all is very costly.  So in this environment, it is easier to get a short term fix passed.  This year, the AMA, ACP, and other professional organizations stated they no longer support a short term fix and called for a full repeal of the SGR.  In fact, because the ‘doc fix’ costs so much, it was removed from the calculation of the cost of the health reform bill to make it more likely that the health reform bill will pass.  To get support of physicians for health reform, Democrats said they would pass a long-term doc fix.  The House did pass a bill that repealed the SGR.   It also passed a short term delay on the cuts and in fact paired it with extending unemployment benefits, but the Senate (due to one vote opposing from Senator Bunning –R Kentucky who took a lot of heat for his opposition) did not act.  And that is where we are today.

Why do we have to fix this? As you can imagine, a 21% cut in Medicare physician fees would likely result in limited access for seniors and veterans.  Reports already highlight that doctors will be forced to drop or delay seeing their Medicare patients until they know what will happen.  Although many physicians ‘participate’ in Medicare, it is unknown how many may be limiting the number of Medicare patients they would see.  Since Medicare is the largest payer, it is likely that other insurers will follow suit and cut physician fees.  Lastly, all the money and time that goes into the short term patches have left physicians tired, uncertain of the future and with little faith in the legislative process.  We need to fix this so we can move onto other pressing issues in healthcare.        

 – Vineet Arora, MD




  1. What has been the adjustment for healthcare inflation over general inflation in past years? Just trying to get a sense of what this year’s 21% stacks up against past adjustments for SGR

    1. Thanks for the question…here is the history so far of the proposed cut next to what actually happened – located here from the American Acad of Dermatology. Pay cut is biggest this year & is projected to get even bigger if we stick with this system…which is why we need to fix it.

      2002 -5.4% cut None
      2003 -4.4% cut 1.6% increase
      2004 -4.5% cut 1.5% increase
      2005 -3.3% cut 1.5% increase
      2006 -4.4% cut Freeze at 2005 level
      2007 -5% cut Freeze at 2005 level
      2008 -10.1% cut 0.5% increase
      2009 -15% cut 1.1% increase
      2010 -21% cut

  2. Hi,

    I am a doctor-to-be and I write for

    Basically we blog about issues having to do with student debt. Some posts are satirical and others are serious. Given my schedule I can’t write often and I am certainly behind the 8 ball soliciting a cross-link from other young medical types with new blogs. So readers I invite you to check out my site and FutureDocs if you’re interested, please comment on a post at the above link.

    Please do it. Half the other writers are lawyers and I don’t want to be overwhelmed.


  3. Its to bad the government has to mess with healthcare even more. I know a lot of podiatrist who are thinking of closing up shop because of this 21% cut. They just simply cant afford to see patients with medicare. Simply terrible.

  4. What is currently being done about the 21% Medicare cut? I don’t see how we can improve health care in this country if we cut physician reimbursement and more importantly don’t expand funding for residency training. This is another issue that has not been discussed very much in the whole debate, but the physician shortage is a very urgent topic too. However, if anyone has any new information about the Medicare cuts and things being done about it now, I would be very interested in hearing them.

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