SGR Still Standing

Congress Likely to Punt on Long-Term Medicare Fee Fix

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Legislative Affairs Feature - July 2009  


Tex Med. 2005;105(7):37-40.  

By  Ken Ortolon
Senior Editor  

When President Barack Obama called health care professionals, insurers, and stakeholders together for a White House summit on health system reform in March, then-American Medical Association President Nancy H. Nielsen, MD, made it clear that fixing a broken Medicare physician payment system was a critical part of any reform effort.

"We are hard at work to ensure that physicians can continue to care for seniors, and the president's budget took an important step toward achieving that goal by including $329 billion to stop Medicare physician payment cuts," Dr. Nielsen said. "Looming physician shortages and aging baby boomers highlight the urgent need to permanently fix the Medicare physician payment system to preserve seniors' access to care."

The Texas Medical Association also believes fixing the Medicare payment system is critical to maintaining a viable physician workforce to make sure Medicare beneficiaries have access to high-quality, affordable health care.

In a May 26 letter to Senate Finance Committee Chair Max Baucus (D-Mont.), TMA President William H. Fleming III, MD, urged Congress to address the Medicare Sustainable Growth Rate formula (SGR) as part of comprehensive health system reform.

"We fully appreciate the need and resources required to re-engineer and finance the physician payment system, and again urge you to pursue SGR repeal, replacement, and financing as a top priority," Dr. Fleming said. Without that key reform, the savings and other financing and revenue-generating strategies outlined in policy options released by Senator Baucus' committee on May 20 "will not succeed in a broken and failing system."

However, while President Obama and the U.S. House of Representatives seem finally to have mustered the political will to fill the several-hundred-billion-dollar hole in the Medicare physician payment system created by the flawed SGR formula, the U.S. Senate, apparently, has not.

The Senate has proposed yet another short-term SGR fix that would punt the issue down the road for another three years.

That, says current AMA President Jim Rohack, MD, of Temple, is a bad idea if the politicians want to succeed in building a better health care system.

"The SGR formula is going to be a major barrier to achieving any of the visions for health system reform that have been brought up by Congress and the president," Dr. Rohack said. "We believe that you have to repeal the SGR and fix the payment system now before the pressure of increased demand for services starts, when four million baby boomers hit the Medicare rolls in 2012."

On May 26, AMA announced that it and 59 national medical specialty societies and other organizations had endorsed a set of joint recommendations that, among other things, calls for a transition to complete replacement of the SGR by 2015.

That recommendation is similar to one proposed in TMA's  Texas Medicare Manifesto , which calls for a "rational Medicare physician payment system that automatically keeps up with the cost of running a practice, and is backed by a stable funding source."

Digging a Hole  

Congress created the SGR in 1997 to control costs under Medicare Part B, which covers physician services. The idea was to set an overall target amount for spending on physician services and then adjust physician fees based on that amount.

But the scheme quickly ran into trouble, as rising enrollment in Medicare and a shift toward providing more care on an outpatient basis caused demand for physician services to spike. That, in turn, forced physician fees downward to meet the spending targets.

In each of the past several years, Congress intervened to stop the fee cuts required by the SGR and to provide no or meager increases in fees. But each time Congress enacts one of these short-term fixes, it digs the hole a little deeper. A 21-percent fee cut is scheduled for January 2010 unless Congress again steps in, and Dr. Rohack says that will grow to 40 percent by 2015 if Congress doesn't replace the SGR with a more sensible system.

Dr. Rohack says physicians essentially are being penalized for saving Medicare money on the Part A side, which covers inpatient hospital care.

"We try to incentivize physicians to keep their patients out of the emergency room, to keep them out of the hospital, which are more expensive places to provide care than in the outpatient setting. But the formula basically says we're going to pay doctors less if they do that," Dr. Rohack said. "You don't need an MBA to see that none of that makes sense."

The Temple cardiologist says both physicians and lawmakers are "getting fatigued" at having to debate the issue every year, but lawmakers have been unwilling to pony up the dollars needed to fill the hole they've dug for themselves. The Congressional Budget Office (CBO) estimates that freezing Medicare physician fees at current rates from 2010 to 2019 would cost $285 billion, while giving doctors a 1-percent annual increase during that same time period would raise the cost to $333 billion.

"Clearly, the dollars are the constant pushback," Dr. Rohack said. He says President Obama's proposed budget would fill in the SGR hole and remove any barrier to creating a new payment system, preferably one that would base physician fees on the Medicare Economic Index (MEI), which is similar to how hospital fees are calculated.

A budget outline approved this spring by the House includes President Obama's SGR fix, but the Senate appears to be of a different mindset. In a health system reform policy option paper released April 28, Senator Baucus and ranking minority member Chuck Grassley (R-Iowa) said they were looking at two short-term options to forestall the 21-percent cut.

The first would give physicians a 1-percent increase in 2010 and 2011 and freeze rates in 2012. Calculations under the SGR to determine future updates would resume in 2013. The second option would include the 1-percent increases in 2010 and 2011, but allow the SGR calculations to resume in 2012 with a 3-percent limit on how much rates could drop. 

Finding the Solution  

While the president's budget proposal would solve the SGR problem for the next 10 years, it is not a permanent fix. That would require the actual repeal of the SGR. In its budget document, the Obama administration indicated it would support "comprehensive, but fiscally responsible, reform to this payment policy." The document also says the administration would explore options available to facilitate such reforms, including the possibility of excluding physician-administered drugs from the SGR.

Dr. Rohack says AMA supports that, but the CBO says removing physician-administered drugs from the payment system both retrospectively and prospectively would cost another $87.5 billion over 10 years.

The joint recommendations issued by AMA and the other groups call for the SGR to be repealed this year and replaced with a payment update system that reflects increases in physicians' practice costs.

If Congress and the administration decide to adopt a transitional approach, the joint recommendations from the national organizations say they should:

  • Establish a transition pathway to complete replacement of the SGR by 2015,
  • Provide positive updates through that year linked to the MEI,
  • Establish a realistic baseline for Medicare spending on physician services that eliminates the assumption that SGR-driven cuts will take place,
  • Remove physician-administered drugs from the SGR, and
  • Adjust the MEI to include all costs of a current medical practice.

The recommendations also call for developing and testing payment reforms that support physicians in providing high-quality care in a cost-effective manner. Such innovative approaches could include gainsharing or bundled payments for entire acute episodes of care, which now are being pilot-tested by the U.S. Centers for Medicare & Medicaid Services in several cities, including San Antonio. (See "Bundling Payments.")

TMA has opposed bundling of payments in the past, and TMA officials say Medicare needs to take a cautious approach on such payment initiatives to ensure that allowing hospitals to control physicians' payment does not allow them to interfere with a physician's clinical autonomy.

The groups also issued a number of recommendations for promoting healthy lifestyles and appropriate use of medical services, improving Medicare's quality reporting program, promoting appropriate and effective care, and strengthening Medicare's resources.

Among groups cosigning those recommendations were national medical specialty societies representing dermatologists, family physicians, ophthalmologists, endocrinologists, neurological surgeons, orthopedic surgeons, emergency physicians, radiologists, and many others.

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by e-mail at  Ken Ortolon .   


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