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PFM

What You Need To Know: Medicare and Physician Pay
 
What Was the SGR?
 
On April 14, 2015, President Obama signed a repeal of the Medicare Sustainable Growth Rate into law after Congress passed legislation to replace it with a new formula for reimbursing physicians. The Centers for Medicare and Medicaid Services (CMS) used the SGR formula to determine the appropriate fee schedule for payment to physicians to keep costs to the program in line with Gross Domestic Product (GDP). The SGR was enacted as part of the Balanced Budget Act of 1997 as a means to control rising Medicare costs. It took 12 years to repeal it after Congress in 2003 passed the first alternative to the rate cuts that would have gone into effect under the SGR.[i] The SGR formula used four factors to determine the SGR: changes in physicians’ service fees, percentage change in the number of Medicare beneficiaries, the 10-year average annual percentage change in GDP per capita, and any changes in the Medicare budget due to legislation.[ii]
 
New Reimbursement Formula
 
Policymakers on both sides of the aisle had agreed on the need to repeal the SGR formula and replace it with a permanent and workable alternative. The replacement Congress approved April 2015 replaces the SGR reimbursement schedule with 0.5% payment increases for doctors for the next five years as Medicare transitions to a new incentive system.[iii] That new system will improve streamline three existing quality programs into one designed to reward providers who meet performance thresholds. It will also create a process to improve payment accuracy and incentivize care coordination for patients with chronic conditions. And under the law, a “technical advisory committee” will review and recommend how to develop alternative payment models.  Measures will be developed to judge the quality of care provided and how physicians will be rewarded or penalized based on their performance.  While the law lays out a structure on how to move to these new payment models, much of their development will be left to the Administration and federal regulators.[iv]
 

The History of the Repeal of the SGR
 
A major hindrance in achieving the permanent fix had been its cost. While the cost of temporary fixes ultimately adds up, the one-time cost of permanently fixing the SGR had been a hard sell in Congress. The Congressional Budget Office’s (CBO) estimated cost of a permanent doc fix has grown over time and in 2012 had a price tag of nearly $300 billion. In 2013, however, based on new Medicare spending data, CBO revised its estimate, lowering the cost of permanent SGR repeal by over $100 billion, to $138 billion, which was encouraging for policymakers and other stakeholders pushing for a permanent doc fix.[v] However, despite progress in the development of policy to fix the SGR and CBO’s significantly lowered cost estimate for a permanent fix, Congress passed yet another temporary patch in 2014 and parties remained at odds on how to pay for the fix, which has stalled passage of final legislation, the House negotiated a solution in 2015.
 
House leaders announced on March 19, 2015 that they had reached a bipartisan agreement, reflected in H.R. 2: Medicare Access and CHIP Reauthorization Act of 2015, that would offer a permanent doc fix.[vi] House members approved the measure on March 26, 2015, by an overwhelmingly bipartisan vote of 392-37.[vii] The legislation creates a new system where providers would receive 0.5 percent increases each year from 2015 to 2019 until the government would shift to an incentive-based system. Additionally, doctors and providers would be encouraged to use an alternative payment model centered more on the outcomes of patients under which payments to providers would increase annually by 1 percent starting in 2026. The CBO estimates that the legislation could cost $214 billion over 10 years, including two years of funding for the Children’s Health Insurance Program in the bill. It is paid for through a combination of increased costs for some Medicare beneficiaries and changes in payments to hospitals and nursing homes in addition to higher deficits.[viii]
 
After the House vote, the Senate reconvened on April 14 and approved the SGR legislation passed by the House with a vote of 92-8.  President Obama signed the legislation into law later that evening, signaling the end to a decade long battle to repeal the SGR formula.
 

History of the SGR 
 
Congress created the SGR formula in 1997 in an effort to limit Medicare spending, specifically spending on physicians’ services under Medicare Part B. While Medicare spending remained below SGR targets in the first few years, spending exceeded targets every year since and physicians faced associated cuts in payments. Congress, however, had continuously overridden the scheduled cuts, never allowing them to go into effect (known as the “doc fix”) – despite the fact that Medicare outlays continue to rise and the need for payment reductions to balance expenditures remains. On January 1, 2014, physicians faced a nearly 24 percent cut to reimbursements, and as it has since the SGR became law, Congress instated a temporary fix that averted cuts to physician payments, which delayed reductions for three months – until April 1, 2014.[ix] Just before the deadline, Senate Majority Leader Harry Reid and House Speaker John Boehner negotiated another temporary fix. President Obama signed the one-year patch on April 1, extending the SGR fix to April 2015, when Congress approved a permanent fix.
 

Why was the SGR important? 
 
The Medicare Payment Advisory Commission, an independent Congressional agency that advises Congress on Medicare issues, called the SGR formula “fundamentally flawed” and said it “has failed to restrain volume growth and, in fact, may have exacerbated it."[x] While the SGR was designed as a mechanism for controlling Medicare expenditures, in repeatedly preventing the SGR from going into effect, Congress effectively stymied the cost control mechanism and expenditures have continued to rise.  Congress, however, did not acted without reason – should SGR cuts have gone into effect as intended, there would likely have been significant repercussions, including a potentially vast shortage of Medicare physicians. Yet, while major cuts have been avoided, the temporary, stop-gap fixes instituted by Congress continue to leave physicians in a state of limbo – as the threat of cuts resurfaces time and time again, physicians face ongoing uncertainty, which can impact their practice of medicine and whether or not they choose to cover Medicare patients. 
 
View PFM's full fact sheet here


[i] http://energycommerce.house.gov/sites/republicans.energycommerce.house.g...

[ii] http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SustainableGRatesConFact/Downloads/sgr2013p.pdf

[iii] http://energycommerce.house.gov/sites/republicans.energycommerce.house.g...

[iv] http://kaiserhealthnews.org/news/faq-could-congress-be-ready-to-fix-medicare-pay-for-doctors-2/

[v] http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-BudgetOutlook.pdf

[vi] https://www.congress.gov/bill/114th-congress/house-bill/1470

[vii] https://www.congress.gov/bill/114th-congress/house-bill/2/actions

[viii] https://www.cbo.gov/sites/default/files/cbofiles/attachments/hr2.pdf

[ix] http://www.advisory.com/daily-briefing/2013/12/19/congress-passed-a-two-year-budget-deal

[x] http://www.medpac.gov/chapters/Mar12_Ch04_CORRECTED.pdf

 

Date: 
Wednesday, May 6, 2015