Fixing Medicare’s Physician Payment Formula: Is the 16th Time the Charm? | Health Care Economics, Insurance, Payment | JAMA Health Forum | JAMA Network
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Fixing Medicare’s Physician Payment Formula: Is the 16th Time the Charm?

When the Sustainable Growth Rate (SGR) formula was created by the US Congress as part of the Balanced Budget Act of 1997, it was envisioned as a device to help control Medicare spending on physician (Part B) services. This formula, which is annually deployed to update the Medicare physician fee schedule, is indexed to the relatively slow-growing gross domestic product (GDP) and requires cuts to physicians’ fees when growth in physician spending exceeds the growth in the GDP.

But in recent years, using the SGR would have required ever-deeper reductions in physician reimbursement, the implementation of which was deemed politically unthinkable. Faced with defection by participating Medicare physicians and the certain ire of Medicare beneficiaries, Congress stepped into the breach. In what evolved into an unprecedented and interminable saga, Congress intervened a total of 15 times, including 5 times in 2010 alone, to defer impending physician pay cuts.

The last time Congress enacted an “SGR patch” was January 2, 2013, when President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA). Emerging from the cauldron of the notorious “fiscal cliff” and its aftermath, ATRA abrogated an imminent 26.5% SGR-mandated cutback in physician reimbursement.

Now, a year later, the SGR dilemma is upon us again. Unless Congress acts by the end of 2013, reimbursement for services by participating Medicare physicians will be reduced an estimated 24.4%. With less than 2 months remaining in the legislative calendar, the prospects for meaningful SGR reform can only be viewed as uncertain. Distractions abound. Topping the list are the ever-present need to hammer out an agreement on this fiscal year’s budget, the contentious debates on whether or not to raise the national debt ceiling, and the ongoing drive to repeal and defund the Affordable Care Act.

And that is just the beginning. Still, an unusual constellation of present-day and historic elements appear to have coalesced so that meaningful SGR reform may be in the cards after all. Should this prove to be the case, a heretofore elusive “doc fix” reaching the President’s desk will likely rest on the strength of an economic window of opportunity, a flurry of recent bipartisan legislative initiatives involving both the House and the Senate, and a compelling historic precedent.

To a large extent, the very notion of overhauling the SGR formula rests on recent and favorable estimates of the Congressional Budget Office (CBO) regarding the price tag (“offset”) attached to its permanent elimination. Because of marked reductions in Medicare Part B spending, this cost, calculated by the CBO in January 2012 as a 10-year $316 billion “pay for,” is currently estimated at $139 billion. Seizing on this development, the Senate Finance Committee, chaired by Max Baucus (D, Mont), and the House Ways and Means Committee, chaired by Dave Camp (R, Mich), introduced a joint “discussion draft” that would repeal and replace the SGR formula effective 2014.

In its first phase of implementation, the draft plan calls for freezing Medicare physician reimbursement rates at current levels through 2023. Thereafter, Medicare will incentivize participating physicians who embrace fee-for-value payment models (such as accountable care organizations and patient-centered medical homes) in lieu of the fee-for-service volume paradigm. Guideline-driven avoidance of “inappropriate care that harms patients,” promotion of same-day appointments, use of electronic medical records, and establishment of care management services will be rewarded as well.

Other legislative initiatives proved similarly inclined. A distinct if comparable initiative (HR 2810), the Medicare Patient Access and Quality Improvement Act of 2013, was unanimously advanced by the House Energy and Commerce Committee chaired by Fred Upton (R, Mich). For its part, HR 2810 would also repeal the SGR in 2014. A biphasic dismantling of the fee-for-service payment construct will follow suit.

Many have noted that the very crafting of legislative initiatives to resolve the SGR dilemma may well be due to the personal commitment of retiring and term-limited key congressional committee chairs. Senate Finance Committee chairman Baucus is retiring after a quarter-century of service and House Ways and Means Committee chairman Camp is term-limited by the House Republican caucus. Equally significant is the impending retirement of Senate Health, Education, Labor, and Pensions chairman Tom Harkin (D, Iowa), given that his all-important committee is bound to weigh in on any and all potential SGR-resolving legislation. No longer beholden to short-term political gains, these legislators are free to focus on their legacy, unencumbered by future reelection campaigns.

Guarded optimism about addressing the recalcitrant SGR challenge could hardly have been anticipated in the wake of the recent government shutdown. Bitter and polarizing, this painful episode would appear all but prohibitive for the passage of major pieces of legislation by a divided Congress. Surprisingly, the events following the 1996 government shutdown argue otherwise, forcefully so: Congress proved exceptionally productive, with notable major statutes that included the Health Insurance Portability and Accountability Act (HIPAA), the Balanced Budget Act of 1997, the Telecommunications Act of 1996, the FDA Export Reform and Enhancement Act of 1996, and the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, to name a few.

Whatever the outcome of the upcoming SGR deliberations, the next several weeks and months will afford Congress a historic opportunity to repeal the SGR as well as to further bend the cost curve. The stars appear to be properly aligned. Congress is in a position to place one additional nail in the Medicare fee-for-service coffin by replacing the fee-for-service payment model, which has been a major determinant of the runaway medical cost inflation in the United States, with a quality-driven physician payment framework. If so, it may allow a more rational health care system to finally rise from the much reviled ashes of the SGR affliction.           .

About the author: Eli Y. Adashi, MD, MS ( is Professor of Medical Science at the Warren Alpert Medical School of Brown University in Providence, RI. A member of the Institute of Medicine, the Council on Foreign Relations, the Association of American Physicians, and the American Association for the Advancement of Science, Dr Adashi has focused his writing on domestic and global health policy at the nexus of medicine, law, and ethics. A former Franklin fellow, Dr Adashi served as a senior advisor on Global Women’s Health to the Secretary of State office of Global Women’s Issues during the Obama Administration.
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