President Obama's Deficit Plan: What Happens to the Sustainable Growth Rate?

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President Barack Obama recently released his plan for economic growth and deficit reduction, which included cuts of $320 billion to Medicare and Medicaid over the next 10 years. Roughly $224 billion would be aimed toward Medicare. However, the sustainable growth rate, which is used to determine physician payments under Medicare, is only mentioned once.

Page 35 of President Obama's plan reads, "These proposals are presented in the context of a Medicare baseline that assumes legislative action to permanently prevent current law reductions in Medicare physician payment rates consistent with the Administration's commitment to fix the sustainable growth rate policy in a fiscally responsible way."

If Congress does not repeal or reform the SGR, Medicare payment rates for physicians will fall by 29.4 percent starting Jan. 1, 2012. If the SGR is repealed, such as the President's plan suggests, Medicare spending on physician services would increase by roughly $300 billion over the next decade — but new cuts would have to be found elsewhere to make up for this augmentation. In other words, it's a "catch-22" of large proportions.

Ken Perez, director of healthcare policy and senior vice president of marketing at MedeAnalytics, says the plan, "Living Within Our Means and Investing in the Future," hints at what needs to be done and makes one major assumption: The plan assumes the SGR will be repealed, and there will be a new budgetary baseline that differs with the Congressional Budget Office baseline, against which all deficit reduction proposals are being measured. "This new baseline constitutes an alternate reality," Mr. Perez says. "It basically conceals the $300 billion SGR budget exposure from the American public."

Because the deficit plan does not explain how the $300 billion for repeal of the SGR would be offset by cuts, Mr. Perez says this issue will make the job harder for the Joint Committee on Deficit Reduction, which already must find $1.5 trillion in cuts by Thanksgiving. "It's a huge issue, and the math is straightforward," he adds.

Additionally, MedPAC issued its SGR repeal offsets, but many of its savings proposals overlap with President Obama's plan, Mr. Perez says. For example, cuts to Medicare Part D drug plans, hospitals and post-acute care appear in both plans, as do changes to Medicare benefits to seniors. Essentially, it appears the two different plans are trying to get water from the same well, Mr. Perez says.

Under the President's proposal, either Medicare spending swells by $300 billion, or the Joint Committee will be forced to find cuts from other areas — healthcare or otherwise. "It's like going to a restaurant, enjoying the meal and then realizing the amount of the bill exceeds how much money you have in your wallet," Mr. Perez says.

Related Articles on the Sustainable Growth Rate:

AMA: Deficit Reduction Must Include Repeal of Sustainable Growth Rate
MedPAC Considers Repeal of Sustainable Growth Rate
Report: Potential Reform of Sustainable Growth Rate to Have Huge Implications

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