Medicare’s "sustainable growth rate" (SGR) formula, passed in 1997, required drastic cuts to physician fees annually.

Each year, Congress postponed the cuts in response to warnings that implementation would lead to severe problems with access to care for Medicare beneficiaries, but without changing the formula, effectively "kicking the can down the road."

The U.S. House and Senate have finally passed a bipartisan "Doc-Fix" bill, HR 2, which will eliminate the SGR formula for good. Everyone welcomes the end of the SGR, but instead of a clean bill, HR 2 contains add-ons from both parties that will have serious consequences for the Medicare program.

The Republicans got increased patient cost-sharing for Medicare recipients. "Medi-gap" policies, that cover what regular Medicare doesn’t, will no longer be allowed to cover the Medicare deductible, so the required deductible will become a deterrent to needed care for those with limited means. Those with higher incomes will be subjected to means testing and higher Medicare premiums.

The Republican goal is privatization of Medicare, so the "required deductible" will be waived for seniors who leave regular Medicare and join private Medicare Advantage plans. These are the plans that have been gaming risk-adjustment formulas to increase their reimbursement and using marketing and restricted networks and formularies to "cherry-pick" healthier seniors and push sicker ones back onto regular Medicare, while costing the government 14 percent more than regular Medicare.

The Democrats got a two-year extension of funding for the Children’s Health Insurance Program and the Community Health Centers, and those are good things. However, they also included provisions to accelerate the push toward "value-based" payment for doctors by implementing a "merit-based incentive payment system," relying on detailed data from diagnosis and treatment coding, to be used for "pay-for-quality" or "pay-for outcomes." There are escalating penalties for failure to adequately computerize so as to provide the required data.

Physicians seeing patients under "alternative payment models" and Medicare Advantage plans are exempted from these penalties, but this means older doctors who are not up to all the changes are more likely to retire early. The rest will be pushed into large "clinically integrated networks" controlled by hospitals and insurance plans, or else into direct employment by hospitals and health plans. Independent physician practices will soon become extinct.

Unfortunately, these reforms are not based on evidence-based policy. Experience so far with "value-based" payment and "alternative payment models" shows no significant progress toward the stated goals of improving care coordination and quality of care, improving population health, or reducing cost. National evidence shows that small independent primary care practices, even without advanced computerization, actually do much better than large group practices in preventing avoidable admissions, most likely because independent doctors tend to know their patients better.

In Hawaii, efforts to implement "pay-for-performance" have been associated with a dramatic increase in health insurance costs and administrative burdens imposed on doctors and hospitals. These efforts also coincide with a severe and worsening physician shortage across most specialties, and with rapid decline in physician acceptance of Medicaid due to managed care burdens.

The payment reforms in the bill will accelerate the trends of increasing administrative burdens on doctors, worsening physician shortages, and worsening access to care problems.

A clean repeal of the SGR would have been far preferable, but we must now live with HR 2. Instead of administratively expensive attempts to micromanage doctors, our best hope in Hawaii would be to design our own "alternative payment model" that focuses on reducing administrative burdens and improving access to necessary health care for all, controlling cost with administrative savings instead of restrictions on care.