Medicare: The AMA is warning of a “catastrophic” cut in physician payments. Relax. The world isn’t about to end. But costs will keep soaring unless the new Congress comes up with real reform.

If you want to know why Washington can’t control entitlement spending, there’s no better example than the regular ritual surrounding Medicare payments to physicians.

It has been going on for more than a decade, and it follows a consistent script. Congress faces a deadline to adjust Medicare reimbursements to a sustainable growth rate (SGR) established in a 1997 law. But Congress has never trimmed payments to anything near the levels demanded by the SGR formula, and it’s too late to play catch-up.

The looming cut is alarmingly large — so large that there’s no way it can stick. The American Medical Association then makes a fuss, raises the specter of doctors fleeing Medicare en masse, scares the seniors and forces Congress to come up with a short-term patch that holds the line on pay for a year or so and maybe even raises it a bit.

So the can gets kicked down the road, and Medicare keeps eating up a larger share of gross domestic product.

This time around, the scheduled cuts are 23% on Dec. 1 and 1.9% on Jan. 1. AMA President Cecil Wilson has been warning of dire, even deadly, consequences if the lame-duck Congress doesn’t delay these until the end of 2011 — time enough to come up with a formula to replace the SGR with something more doctor-friendly. (Wilson wants a 1% raise to boot).

He told a press conference on Monday that Congress would be “putting the health care and the lives of senior citizens and military families at grave risk” if it did not block the cuts.

Congress and the doctors went through a similar bit of theater in June. A face-off between Republicans and Democrats went down to the wire, with the GOP trying to force the cuts into effect and make the majority Democrats take the political heat.

But the Republicans blinked, and the cuts didn’t happen. There’s no reason to think this time will be different. Expect a lot of noise, but nothing like the end of the world.

Even if Dr. Wilson is an over-the-top alarmist, he does have a point about the need to change Medicare. Lurching from crisis to crisis, with the taxpayers losing every time to the doctors, is no way to run things. Congress should take up the AMA’s challenge to fix the reimbursement formula in the coming year.

The doc-fix problem is a perfect entry point for fundamental reform of Medicare as a whole. What’s wrong here is what’s wrong throughout the system. Spending levels are set not by consumer choices, competition or need, but by politics. Doctors, hospitals and other health care interests vie with each other to get as large a share of the budget as possible.

The taxpayers, responsible for covering most of the cost, usually lose out to those powerful lobbies.

One alternative to this logrolling, which no one served by Medicare really seems to want, is rationing of care. It’s not the only possible course. Medicare could also become a consumer-driven system, in which public money goes directly to beneficiaries to buy coverage and care in a competitive market of private health plans and providers.

Taxpayers would be protected by a formula controlling the annual growth of the grants (which could be tax credits or vouchers). Otherwise, physician pay, hospital bills and other items in the health care tab would be determined by patients, insurers and other private players.

This plan is essentially what the Republicans’ one-man brain trust, Paul Ryan, has set forth in his road map for tax and spending reform. Now that the GOP has won the House and the Wisconsin congressman will soon take the reins of the Budget Committee, he has some power to get his ideas — for Medicare and much else — enacted into law.

His own party has been slow to embrace his plan, but the voters have asked for serious action on spending and the deficit, and more than others he has risen to that challenge.

This month’s doc-fix crisis presents Congress with a choice that it will face often in the coming year.

It can come up with a short-term patch just makes the problem more intractable the next time it arises.

Or, with a little more work and political risk taking, it can enact real reform for the good of future taxpayers.