Can We 'Doc Fix' Our Way Out of Our Budget Woes?

Bruce Bartlett has a very nice review of the Social Security and Medicare shortfalls over at the New York Times.  His suggestion?  Let the "Doc Fix" expire:

Medicare's actuaries do not believe their own projections are realistic because they were required to assume that a key provision of current law will take effect as scheduled. This is known as the "sustainable growth rate" (S.G.R.) and involves implementation of a law enacted in 1997, but repeatedly postponed by Republican and Democratic Congresses. It would require a 29.4 percent cut in fees for doctors who treat Medicare patients on Jan. 1, 2012.

The Medicare actuaries just don't believe this provision will be allowed to take place because they think Congress will punt the ball once again. Therefore the official estimates of Medicare's fiscal position are much too optimistic.

But what if President Obama and House Speaker John Boehner agreed, as part of negotiations on raising the debt limit, to let the this cut in Medicare fees take effect as current law requires?

That would cut Medicare's costs very substantially over current policy - something Mr. Boehner has demanded as a price to prevent the Treasury from defaulting on the debt. The virtue of this approach is that no one has to do anything - the sustainable growth rate is already in law. All our leaders have to do is promise not to change the law and instead allow it to take effect on schedule.

The doctors will scream bloody murder and threaten to stop treating Medicare patients. It will be ugly.

But everyone knows that Medicare needs to be cut, and as the biggest contributor to long-run deficits, doing something meaningful to reduce spending on this program will demonstrate resolve and commitment to deal with entitlement spending. It's exactly the sort of thing Mr. Boehner says he wants in order to raise the debt limit.

Mathematically, it would work.  But I see two problems.  The first is obvious: doctors are a powerful, well organized, and extremely photogenic lobby.  Any proposal to just let the SGR expire will quickly run into wall-to-wall ads from the American Medical Association, ads that will aim to--and will almost certainly succeed at--terrifying the bejeesus out of seniors.

As Bartlett says, in those ads, the doctors will "threaten to stop treating Medicare patients", which is bad enough.  But even worse, if the law passes, doctors will probably actually stop treating Medicare patients.  Medicaid has been using reimbursement cuts to handle its budget problems for some time now, and the results are somewhat predictible: people on Medicaid find it very difficult to locate doctors who will treat them.  Now the problem seems to be spreading to emergency rooms:

Urban and suburban areas have lost a quarter of their hospital emergency departments over the last 20 years, according to the study, in The Journal of the American Medical Association. In 1990, there were 2,446 hospitals with emergency departments in nonrural areas. That number dropped to 1,779 in 2009, even as the total number of emergency room visits nationwide increased by roughly 35 percent

. . . Emergency rooms at commercially operated hospitals and those with low profit margins were almost twice as likely as other hospitals to close, Dr. Hsia and her colleagues found. So-called safety-net hospitals that serve disproportionate numbers of Medicaid patients and hospitals serving a large share of the poor were 40 percent more likely to close.

This even though the "disproportionate share" hospitals receive substantial government subsidies.  As Tyler Cowen says, "Supply curves slope upward, installment #1438".

So even if we brave the ire of the AMA and allow the doc fix to expire, the next step is probably a whole lot of seniors getting stranded as their doctors cut down on their Medicare patient load.

I presume the next step after that is Congress rushing back into special session in order to un-expire the SGR.

Budget math is relatively easy.  Budget politics is very hard.