Between making healthcare reform a reality through greater public expenditure and keeping fiscal deficit from ballooning, the U.S. government's resources are being stretched dangerously thin.

When the healthcare bill was passed by the United States Congress a few months ago, the triumphalism that accompanied it belied the extent to which the older, demonstrably flawed system would continue untouched.

Last week, a desperate plea from President Barack Obama to his Congressional opposition to not stall one of the many ongoing pieces of healthcare legislation revealed reform for what it really is — a slow, plodding process.

In a televised address, Mr. Obama called on Senate Republicans to stop blocking a vote to prevent a 21-per cent pay cut for doctors who see Medicare patients; a cut, he argued, “that will hurt America's seniors and their doctors.”

This thorny issue dates back to more than a decade ago, when Congress created a formula to govern how doctors would get paid by the Medicare programme.

The original intention was in some ways farsighted, as lawmakers then worried about the fiscal burden that the healthcare system would impose on the economy. The formula annually reduced the reimbursement for doctors who cared for the elderly via Medicare.

A bit of history is in order here. Ever since the Medicare programme was established in 1965, several methods have been used to determine how much physicians are paid for their services.

In the early days, the programme compensated physicians on the basis of their charges and permitted them to bill clients for the entire amount above their Medicare reimbursement. As costs started to steadily climb, by 1975 caps were imposed on the annual increase in fees.

Even with the caps, costs continued to rise and between 1984 and 1991 the annual change in fees had to be determined by legislation. Thus, starting in 1992 a fee schedule was introduced. But, because the mechanism led to excessive variation in payment rates, Congress had to substitute it with what was called the Sustainable Growth Rate (SGR) formula in 1998.

Under the SGR, spending was controlled, according to the Congressional Budget Office, by setting an overall target amount for such items as physicians' services, laboratory tests, imaging services, and physician-administered drugs. In other words, the amount that Medicare spent on doctor fees for each beneficiary would not rise faster than the economic growth rate.

Yet again, the inherent cost-spiralling nature of the healthcare industry resulted in calls for cuts to the amount that doctors got for their services every year. With vociferous opposition from medical professionals' associations, Congress repeatedly passed temporary legislation to postpone these cuts.

Fast forward to the present day and these repeated postponements have led to a cumulative 21 per cent cut requirement — now a serious legislative headache for President Obama.

However, in today's context, where access to healthcare for relatively vulnerable groups has become a prime casualty, these pay cuts have reached a level where they now endanger “not only … our physicians' pay, but our seniors' healthcare”, according to Mr. Obama.

Ironically, this issue had been a bipartisan rallying point since 2003, when Congress undertook legislation to halt the pay cuts. That cross-party bonhomie may be about to falter on the threshold of Congressional elections — set for November this year — as the massive 21-per cent reimbursement cut affecting Medicare-focused doctors looms over Capitol Hill this week.

If Congress were to pass such a pay cut, it would, said Mr. Obama, “undoubtedly force some doctors to stop seeing Medicare patients altogether.”

But, the fact remains that the current administration is engaged in a high-stakes, tightrope act. Between making healthcare reform a reality through greater public expenditure and keeping the enormous fiscal deficit from ballooning, this government's resources are being stretched dangerously thin.

Mr. Obama appeared to recognise this. In his address, he said: “Now, I realise that simply kicking these cuts down the road another year is not a long-term solution to this problem ... I am committed to permanently reforming this Medicare formula in a way that balances fiscal responsibility with the responsibility we have to doctors and seniors.”

The answer that the White House team appears to have come up with is to improve the overall cost coverage within Medicare by curbs elsewhere in the system. For example, the administration is taking some steps to slow the growth of Medicare costs through health insurance reform by “eliminating 50 per cent of the waste, fraud, and abuse in the system by 2012”.

This is commendable. What may be less salutary, and less in keeping with the spirit of the hard-fought reform, would be any measures that punished the elderly who are almost entirely reliant on Medicare, or the service-minded physicians who treat them. As Mr. Obama said: “That's just wrong.”

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