Doctors' Medicare payouts to be cut 21% June 1

If the proposed cuts go through, physicians are worried their practices will be so strapped that they'll have to drop some of the 43 million Americans who are covered under Medicare.

But, of course, on the other side of the issue is cost to the government at a time when the federal budget is tight.

Federal law currently requires that the payment rates for doctors who accept Medicare be adjusted annually based on a formula that's tied to the health of the economy.

"The current formula is absolutely broken," said James Rohack, president of the American Medical Association. "Congress is in a hole, and instead of climbing out they keep digging deeper."

That formula was established in 1997, andthe law says rates should be cut every year to keep Medicare in the black.

But Congress has blocked those cuts in seven of the last eight years, setting up nine temporary patches often referred to as the "doc fix" -- three of which were in 2010 alone.

"It's hard to imagine this 21% cut actually being allowed to go through," said Patricia Neuman, a vice president at the nonpartisan analysis group Kaiser Family Foundation. "A cut of this magnitude would have a chilling effect on physicians."

'Annual agony'

Of course, delaying cuts merely kicks an existing problem down the road.

"This annual agony must end," said Lori Heim, president of the American Academy of Family Physicians, in a statement. "Postponing a permanent solution is false economy."

One possibleoutcome of the congressional wrangling is a five-year delay in the 21% cut in Medicare fees. That option, the most-discussed so far, would cost about $80 billion.

That spending would be exempt from a "pay as you go" law enacted in February that requires lawmakers to find ways to offset certain spending increases or tax cuts.

0:00/3:17Doctors opt out of Medicare

Other options include delaying cuts by a fewer number of years, but at higher reimbursement rates, provided that the cost is capped at $80 billion.

But the AMA's Rohack says he wants "a new formula that actually reflects the true cost of care." Lawmakers counter that repealing the current setup would cost $210 billion over 10 years.

The massive cost of retooling Medicare is the reason such a measure wasn't included in the new health care reform law.

"Like so many things, this is a fiscal issue -- it all gets down to money," Neuman said. "There's a lot of interest in changing the formula, but it's not so straightforward, especially from a budgetary point of view."

The AMA is pushing for a total Medicare overhaul because the years of temporary patches have created uncertainty for physicians and consumers alike, Rohack said.

"There will be letters saying, 'Dear Mrs. Jones, I'm closing my practice because I can't afford it anymore,' " Rohack said. "I'm worried they won't even be able to recommend other physicians because no one else in the community is accepting Medicare either."

A permanent fix would remove physician uncertainty, restore consumer faith and ultimately save money, Rohack said, adding that a permanent fix in 2007 would have cost just $49 billion.

"If they'd fixed this permanently years ago, it would have been a tadpole-sized problem," Rohack said. "Now, it's become a bullfrog -- and eventually it'll be Jabba the Hutt." 

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