SGR Deal Would Fix Perennial Physician Pay Problem

Seeking to avert a cut in Medicare's physician payment rate set for April 1, lawmakers in the House and Senate have embraced a pact that would replace the sustainable growth rate formula with a payment system that includes a small rate increase for doctors.

After a decade of squabbling and annual renewals, the federal Medicare guidelines for physician reimbursement known as the Sustainable Growth Rate appear destined for repeal and replacement.

A bipartisan deal announced Thursday in both houses of Congress includes an annual 0.5 percent reimbursement rate increase for doctors over five years, but the pact does not spell out a mechanism to pay for the new reimbursement system. In a joint statement from the Senate Finance Committee, House Ways and Means Committee, and House Energy and Commerce Committee, lawmakers urged passage of the SGR repeal deal.

"Congress has spent a decade lurching from one 'doc fix' to the next, creating a new, unnecessary threat to seniors' care each time. Enough is enough," said Sen. Max Baucus, (D-MT), chairman of the Senate Finance Committee. "This proposal would bring that cycle to an end and fix the broken system. Our bill makes Medicare's physician payments more modern and efficient, and it will protect seniors' access to their doctors. This bill is the product of years of hard work, and I hope Congress comes together to pass it."

Sen. Orrin Hatch, (R-UT), ranking member of the Senate panel, said replacing SGR is a necessary step in the push to replace the fee-for-service model in U.S. health care to a value-based system.

"For far too long, the doc fix has been annual ritual for Congress. It's time to put that ritual to an end," Hatch said. "I'm proud of this legislation. It not only fully repeals the broken sustainable growth rate formula, but puts in place real reforms that move Medicare away from a fee-for-service model that promotes greater spending to one that encourages better results."

The joint statement from Congress listed the following highlights of the SGR repeal and replacement deal:

• Repeal the SGR and end the annual threat to seniors' care, while instituting a 0.5 percent payment update for five years.
• Improve the fee-for-service system by streamlining Medicare's existing web of quality programs into one value-based performance program. It increases payment accuracy and encourages physicians to adopt proven practices.
• Incentivize movement to alternative payment models to encourage doctors and providers to focus more on coordination and prevention to improve quality and reduce costs.
• Make Medicare more transparent by giving patients more access to information and supplying doctors with data they can use to improve care.

'The SGR Problem'
Ardis Dee Hoven, MD, president of the American Medical Association, praised the deal in a prepared statement Thursday:

"The American Medical Association congratulates House and Senate negotiators for taking this critical step toward reforming the nation's Medicare program," Dee Hoven said. "Now Congress is closer than it has ever been to enacting fiscally-prudent legislation that would repeal Medicare's fatally flawed sustainable growth rate (SGR) formula."

Hoven said reaching a long-term solution for Medicare reimbursement for doctors is critically important for providers and their patients. "Congress has been debating the shortcoming of the SGR policy for more than decade. Continuing the cycle of short-term patches by merely addressing the 2014 cut that is imminent on April 1 without solving the underlying problem would be fiscally irresponsible and further undermine the Medicare program," she said. "It is time for action to repeal the SGR and establish a transition to a new more stable Medicare physician payment policy to better serve America's senior citizens."

In a "Summary of the SGR problem," the lawmakers who crafted the deal offered a scathing assessment of the existing system in their joint statement:

"The Sustainable Growth Rate formula—the mechanism that ties physician payment updates to the relationship between overall fee schedule spending and growth in gross domestic product (GDP)—is fundamentally broken. Although originally introduced as a mechanism to contain the growth in spending on physician services, a decade of short-term 'patches' has frustrated providers, threatened access for beneficiaries, and created a budgetary dilemma from which Congress has struggled to emerge. Over the last decade, Congress has spent nearly $150 billion on short-term SGR overrides to prevent pending cuts."

Rep. Allyson Schwartz, (D-PA), a member of the Ways and Means Committee, introduced legislation a year ago that was incorporated into the SGR repeal deal. She urged Congress to approve the pact before SGR's latest extension expires at the end of March. "While we still have to grapple with the challenge of offsets, it is imperative that Congress acts to make sure seniors have access to the care they need," she said in a prepared statement. "Time is running out and Congress cannot afford to let this opportunity slip away."

New Payment System
A document prepared by the three congressional committees dated Feb. 6 provides details of the SGR repeal deal. A key provision of the pact is a set of guidelines for transitioning to the new payment system for physicians and other health care professionals, starting with the 0.5 percent annual pay hikes.

The deal "provides stable updates for five years and ensures no changes are made to the current payment system for four years," the Feb. 6 document states. "In 2018, it establishes a streamlined and improved incentive payment program that will focus the fee-for-service system on providing value and quality."

After the annual 0.5 percent rate increases from 2014 to 2018, "the rates in 2018 will be maintained through 2023, while providing professionals with the opportunity to receive additional payment adjustments," the Feb. 6 document states.

Under the deal, physicians who embrace alternative pay models would receive higher compensation when the new Medicare payment system is fully implemented. "In 2024 and subsequent years, professionals participating in [alternative payment models] that meet certain criteria would receive annual updates of one percent, while all other professionals would receive annual updates of 0.5 percent."

Alex Hunter, managing director of Chicago-based Navigant Consulting's healthcare practice, said the SGR repeal deal could be a long-term solution to the doc fix dilemma. "This will avert what was viewed by physician organizations as a 'fiscal cliff' for professional reimbursement—given that prior to the repeal of SGR, physicians were facing a possible reduction by 28 percent. Also, the proposed deal will provide a more certain financial environment in which physicians can function and plan for the future," Hunter said.

He said the new Medicare payment system could serve as an engine of change and serve the interests of patients.

"The legislation is viewed by Congress as transitional in nature, with the end game being to develop an approach that integrates value-based programs into the Medicare physician payment system," Hunter said. "During this transition period, physicians will likely continue to seek increased collaboration and coordination among themselves and local health systems. For Medicare patients, this is also good news, as physicians will likely continue to provide access to care without concern for whether their physician can afford to provide services to them."