No doubt that Teddy Kennedy’s dramatic return to the Capitol on Wednesday and the senatorial smackdown on Medicare that ensued were the stuff of legend. With Kennedy’s vote putting the Senate Democrats over the hump on cloture on S. 3101, nine Republicans who had voted against cloture last week pivoted to produce a potentially veto-proof 69-30 vote in favor of linking another temporary physician-pay fix to Medicare Advantage (MA) modifications already passed in the House by a 355-59 margin.

With the White House ideologically committed to protecting MA, the outcome of a veto struggle remains uncertain. Republican senators who changed their votes will be under heavy pressure from the administration to support a veto. But state chapters of the American Medical Association are well positioned to target campaign ads at those who are up for reelection and to paint them as insensitive to Medicare beneficiaries if a pay cut prompts doctors to drop out of the program.

Easily lost in all the political drama is the modesty of the compromise that won over so many Republicans in both chambers. The controversial benchmark system for setting bid targets for MA plans remains untouched, despite repeated recommendations from the Medicare Payment Advisory Commission to equalize payments for MA and traditional Medicare. The bill phases out a payment adjustment to MA plans for indirect medical education (IME) by a maximum of one-half of one percentage point a year, worth a total of $12.5 billion from 2008 to 2013. But as the Congressional Budget Office points out, the current IME adjustment represents a double payment to MA plans, because Medicare’s fee-for-service hospital rates, on which MA benchmarks are partially based, already include an IME add-on.

The larger enchilada is the bill’s “deeming” provision, which will require MA private fee-for-service (PFFS) plans to create contractual provider networks beginning in 2011, except in markets where PFFS plans have only one or two competitors. The costs of creating networks are substantial, and the PFFS exemption from the MA “access to care requirements,” as they are called, has given the PFFS plans a large competitive advantage over other types of MA plans. It has also increased their profitability and helped fuel their rapid growth in recent years. As the juggernaut for Medicare privatization, the PFFS plans have been staunchly supported by the Bush administration despite per beneficiary costs that are an estimated 17 percent higher than those of traditional Medicare. The bill also eliminates the PFFS exemption from MA quality improvement and bid review requirements.

Meanwhile, enrollment in rural PFFS plans — which has justified much of the support the program has received in the Senate — has fallen behind urban enrollment. Marketing abuses have been a further embarrassment. And the original reason for creation of these plans in the Balanced Budget Act (BBA) of 1997, which was to create an option that would not force beneficiaries into plans that might restrict their access to end-of-life care, has been undermined by benefit designs that saddle patients with unexpected cost-sharing requirements that effectively limit access for many just as managed care restrictions might have.

Sources familiar with the history of the PFFS plans describe their evolution as a concatenation of unintended consequences. The struggle in Congress in the past two weeks has shown how difficult it can be to bring such a runaway policy under control once it has acquired a life of its own.