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Medicare / Health Care News / Health Care Policy & Politics

Brother, can you spare me … $138 billion?

February 21, 2013
KEYWORDS AMA / fiscal cliff / SGR
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The American Medical Association is pointing to a new report from the Congressional Budget Office that says growth in Medicare spending has dropped significantly over the last few years. That occurrence, the AMA says, creates an opportunity for Congress to put in place a 10-year fix of the much-hated sustainable growth rate formula that governs Medicare physician pay.

Said Jeremy Lazarus, MD, president of the AMA, in a statement on Feb. 5: "We welcome the news from the CBO that the cost of permanently replacing the flawed Medicare physician payment formula … is $138 billion, more than $100 billion less than the previous projection. The rate of Medicare spending growth declined compared to historical trends, and spending for physician services affected by the SGR is projected to be far less than previously estimated."

This year, as part of the fiscal cliff legislation, Congress put aside $24 billion to cover a 27% cut in Medicare physician pay that would have kicked in on Jan. 1.

(Related: Summary of the impact of the 'Fiscal Cliff' Act on the dialysis community)

The beginning of the end for the SGR?
AMA's push to abolish the formula is part of a move on Feb. 6 by House members Allyson Schwartz, D-Pa., and Joe Heck, D.O., R-Nev., to reintroduce the Medicare Physician Payment Innovation Act of 2013, which would repeal permanently the SGR and prevent a scheduled cut of more than 26% in Medicare payments to physicians on Jan. 1, 2014. Similar to the bill introduced last year, H.R. 574 establishes a five-year period of payment stability. Reimbursement to all physicians would remain level through 2014 and then would increase in each of the following four years by 0.5% for specialty physicians and by 2.5% for primary care, preventive, and care coordination services.

The bill instructs CMS to produce a "menu [of] health care delivery and payment model options based on an analysis of its relevant evaluations and input from the provider community." For physicians unable to participate in one of the "menu" options, this bill "provides two options for physicians with a demonstrated commitment to quality and efficiency… to participate in a modified fee-for-service option."

To aid physicians in the evolution to new payment models, traditional fee-for-service payments will be continued at 2018 levels for one year at the end of the five-year transition period. Physicians who choose to retain the current FFS model will be subject to reduced updates to both primary and non-primary care services.

AMA's Lazarus liked the bill, saying the cost is less than the $146 billion Congress has already spent on short-term patches to the SGR over the past decade. "This legislation is an important part of the continuing discussion on the future of Medicare and the end of the SGR. We look forward to continuing to work with Reps. Schwartz and Heck and their colleagues on both sides of the aisle to move past the SGR and transition to an array of Medicare delivery and payment options that give physicians the flexibility they need to help lower costs and improve the quality of care for their patients."

Some history
The SGR has been around for 13 years, but the last time Congress allowed the cut in Medicare physician pay was about a decade ago. The Centers for Medicare & Medicaid Services is supposed to use the SGR to control spending on physician services. Enacted by the Balanced Budget Act of 1997, the SGR replaced the Medicare Volume Performance Standard (MVPS), which was the previous method that CMS used in an attempt to control costs. Generally, the sustainable growth "rate" in Medicare physician pay is based on the yearly increase in the expense per Medicare beneficiary. If that expense exceed the growth in GDP, than physicians get a cut in pay.

Every year, CMS sends a report to the Medicare Payment Advisory Commission, which advises Congress on the previous year's total expenditures and the target expenditures. The report also includes a conversion factor that will change the payments for physician services for the next year in order to match the target SGR. If the expenditures for the previous year exceeded the target expenditures, then the conversion factor will decrease payments for the next year. If the expenditures were less than expected, the conversion factor would increase the payments to physicians for the next year. On March 1 of each year, the physician fee schedule is updated accordingly.

The AMA says it wants to replace the formula with a new system that "encourages quality care while reducing costs." In conjunction with the SGR repeal, the AMA says these driving principles can provide a foundation for a transition plan.

  • Medicare should invest and support physician infrastructure that provides the platform for delivery and payment reform.
  • Medicare payment updates should reflect costs of providing services as well as efforts and progress on quality improvements and managing costs.

The transition plan must include core elements that:

  • reflect the diversity of physician practices and provide opportunities for physicians to choose payment models that work for their patients, practice, specialty, and region
  • encourage incremental changes with positive incentives and rewards during a defined timetable instead of using penalties to order abrupt changes in care delivery
  • provide a way to measure progress and show policymakers that physicians are taking accountability for quality and costs.

In addition, the AMA says the plan needs to be structured in a way that will:

  • reward physicians for savings achieved across the health care spectrum
  • enhance prospects for physicians adopting new models to achieve positive updates
  • tie incentives to physicians’ own actions, not the actions of others or factors beyond their influence

The emerging ACO model for dialysis care certainly talks to those ideas, although not everyone is happy about the plan. Some argue that traditional fee-for-service medicine should be eliminated––the sooner the better––and all physicians should be salaried.

In a Oct. 15, 2012 letter to Max Baucus, D-Mont., chairman of the Senate Committee on Finance, and Orrin Hatch, R-Utah, the Committee's ranking member, the AMA touted the opportunity for physicians to develop a new and improved Medicare physician payment system. "The sustainable growth rate formula is an enormous impediment to successful health care delivery and payment reforms that can improve the quality of patient care while lowering growth in costs. Physicians facing the constant specter of severe cuts under the SGR cannot invest their time, energy, and resources in care re-design.

"The first step in moving to a higher performing Medicare program must be the elimination of the SGR formula. The status quo is bad for patients, physicians, and taxpayers."

Controlling costs and improving care is the mantra of every payer. With the influx of new patients coming with the health care law around the corner, we need to find a better way to pay physicians for the work they do.


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