December 8, 2010 — In a rare show of bipartisanship, the Senate today passed legislation that freezes Medicare reimbursement to physicians through the end of 2011 and averts a 25% pay cut scheduled for January 1.

The bill, approved in a voice vote, now goes to the House, where it is expected to pass. Organized medicine has warned that if the massive pay cut takes effect on New Year's Day, droves of physicians will close their doors not only to Medicare patients but also military families, whose TRICARE coverage is based on the Medicare fee schedule.

The sponsors of the latest Medicare "doc fix," as such legislation is called, are Senate Majority Leader Harry Reid (D-NV); his Republican counterpart, Minority Leader Mitch McConnell (R-KY); Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee; and Sen. Chuck Grassley (R-IA), the committee's ranking Republican.

In addition to temporarily defusing the Medicare reimbursement crisis, the Senate legislation extends a variety of Medicare payment policies that would otherwise expire, and it funds several relatively minor changes to Medicare, Medicaid, and the Children's Health Insurance Program. The total cost of the bill tops $19 billion, with $14.9 billion of that representing the Medicare doc fix.

A year ago, the legislation might have been funded through deficit spending, but now that they command the 41 votes needed to sustain a filibuster, Senate Republicans are in a position to insist that a bill like this one pay for itself. Accordingly, bill sponsors propose to offset its cost by amending a provision in the Affordable Care Act (ACA) pertaining to tax credits that help individuals and families purchase health coverage. When they earn more money than expected in a given year, these individuals and families are required under the law to pay back some or all of the tax credit amounts received for buying insurance. However, if they are at or below 400% of the federal poverty level, their maximum repayments are limited to $250 for individuals and $400 for families.

The latest doc fix legislation would increase these pay-back limits for some individuals and families and lower them for others, based on their income. Senate sponsors estimate that this amendment to the ACA would save $19 billion. Several hundred million dollars more in Medicare savings round out the bill's funding.

The 25% reduction in Medicare rates scheduled for January 1 is triggered by the program's sustainable growth rate formula for setting physician compensation. The legislation passed in the Senate does not eliminate this cut but, rather, postpones it to January 1, 2012. Lawmakers hope that in the interim they can enact a permanent doc fix that would replace the sustainable growth rate formula with one physicians consider more equitable.