Administration trims health reform price tag

The Obama administration proposed a regulation Wednesday that would shave as much as $87.5 billion from the cost of one expensive component of healthcare reform.

The House is considering legislation that would make permanent reforms to the way Medicare pays physicians. The current formula, which has called for cuts to doctors’ fees every year since 2002, is universally regarded as flawed, but the cost of fixing it has been pegged at $285 billion over 10 years or more.

“As part of healthcare reform, the administration supports comprehensive, but fiscally responsible, reforms to the physician payment formula,” says a statement issued by the Centers for Medicare and Medicaid Services.

In a move welcomed by the American Medical Association (AMA) and sure to be cheered by House Democrats, the Medicare agency proposes altering the payment formula to exclude the cost of prescription drugs administered by doctors in their offices, such as those that must be injected.

The Congressional Budget Office (CBO) has estimated that such a change would cost the federal government $87.5 billion over 10 years. If the administration goes ahead with its regulation, those dollars would be excluded from the CBO’s calculations on how much fixing Medicare payments to doctors would cost.

Though presented as part of an obscure regulation, the administration’s actions could ease the path toward healthcare reform by making it a little cheaper — and by winning the good will of the AMA and other physicians groups, whose support for reform could prove crucial to success for Obama and his allies.

“The removal of physician-administered drugs from the broken Medicare physician payment formula is a major victory for America’s seniors and their physicians,” AMA President J. James Rohack said in a statement. “The AMA has been calling for this action since 2002 so that Congress can afford to repeal the flawed Medicare physician payment formula.”

The Obama administration and the House Democratic leadership also support separate legislation that would exclude the entire cost of fixing Medicare physician payments from Congress’s pay-as-you-go budget rules. Under that bill, the CBO’s budgetary score of healthcare reform would disregard the cost of increasing what Medicare pays doctors.

Though the House Democrats’ draft healthcare reform legislation includes provisions to adopt a new formula for Medicare’s physician payments, the Senate Finance Committee is eyeing only a short-term remedy akin to what Congress has enacted since 2002.

The alternation of the payment formula is contained in this year’s version of regulation that Medicare annually issues announcing the payment rates for physician services in the following year.

The policy change would not improve the short-term outlook for physicians, however. Underscoring the urgency of the issue for doctors and the high cost of addressing the problems with the payment formula, current law calls for Medicare fees to physicians to drop 21.5 percent on Jan. 1, 2010. Further cuts of around 5 percent are projected for several years after.

While legislation is needed to prevent a cut in next year’s rates, the Medicare agency notes that excluding the cost of drugs from the payment formula would “reduce the number of years in which physicians are projected to experience a negative rate."

The administration also proposes several other changes to the formula, including those designed to increase payments to primary care doctors — and decrease payments to specialists; to pay less for medical imaging scans performed in doctors’ offices; and to increase payments for physical examinations of new Medicare enrollees.