Paying for a Permanent Solution: How Cost Still Stands in the Way of SGR Repeal

Every year since 2003, Congress has passed a short-term legislative patch to stave off double-digit Medicare pay cuts for physicians under the sustainable growth rate.

The latest patch — passed as part of the Bipartisan Budget Act of 2013 — delayed a required 24 percent Medicare pay cut and provide a 0.5 percent payment update for physicians through March.  

checkFederal lawmakers have been working to end the parade of temporary fixes, and it looks as though they might be close to a permanent solution: Last week, House and Senate leaders introduced a bipartisan bill that would repeal the SGR and replace it with a payment system that incentivizes physicians to provide high-quality, low-cost care. The legislation combines proposals approved last year by the House Ways and Means Committee, House Energy and Commerce Committee and Senate Finance Committee.

However, lawmakers still need to sort out some significant aspects of the physician payment solution, including the thorny issue of how to pay for the permanent fix, according to Darshak Sanghavi, MD, a fellow and managing director of the Brookings Institution's Engelberg Center for Health Care Reform. He is also associate professor of pediatrics and the former chief of pediatric cardiology and at the University of Massachusetts Medical School in Worcester.

"The general framework makes a lot of sense," he says of the latest proposal to do away with the SGR. "The problem with the bill is how the fix will be paid for, which lawmakers are still trying to work out."

The Balanced Budget Act of 1997 established the SGR to control growth in Medicare spending for physicians' services. However, the Medicare Payment Advisory Commission has informed Congress the SGR is "fundamentally flawed and is creating instability in the Medicare program for providers and beneficiaries."

The formula's methodology of tying annual payment increases to cumulative expenditures has encouraged providers to administer higher volumes of services and has disproportionately burdened those in specialties with little ability to provide higher volumes of care, according to MedPAC. Groups such as the American Medical Association have urged policymakers to fix the payment formula once and for all.

And there's never been a better time to do so. The price tag attached to repealing and replacing the SGR has been steadily decreasing due to a slowdown in Medicare spending growth, creating a "fire sale" on fixing the formula, Dr. Sanghavi says. In August 2012, the Congressional Budget Office estimated it would cost $245 billion from 2013 to 2022 to repeal the SGR. By contrast, although a cost estimate for the latest proposal is not yet available, the CBO estimated the bill the House Energy and Commerce Committee approved this past summer to repeal and replace the SGR would cost $153.2 billion from 2014 to 2023. A similar proposal from the House Ways and Means Committee would cost just $121.1 billion, according to the CBO.

However, fixing the physician payment formula would still cost a considerable amount, and the options lawmakers have considered to foot the bill would be "very painful," according to Dr. Sanghavi. He says the potential payment sources policymakers have evaluating in the past have included hospital reimbursement reductions, cutting the budget for the National Institutes of Health and scrapping the subsidies available for people purchasing health insurance through the Patient Protection and Affordable Care Act marketplaces, among other options.

"All of those things have been politically unpalatable," Dr. Sanghavi says.

Ultimately, he says lawmakers will likely have to find a way to pay for the SGR fix by cutting a little bit in all areas, from hospitals to drug companies to health insurers. Going about it in a way that is "equitable to the various options" could work.

"It's how the [PPACA] was paid for," he says. "My hope is the same thing can be done here. I believe there's a window of opportunity now, and the fact that Congress has gotten this far in an extremely partisan environment gives me cause for optimism."

More Articles on the SGR:
House, Senate Leaders Introduce Medicare SGR Replacement Bill  
CBO: House SGR Bill Would Cost $121.1B  
5 Key Facts About the Medicare SGR 

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