The $150 Billion Question: How to Pay for a Permanent SGR Repeal

Why a doc pay fix is needed and how it might be financed

It is a rarity nowadays: Bipartisan and bicameral support for a substantive legislative reform. It currently exists for a temporary and possibly a permanent repeal of the unpopular Medicare sustainable growth rate, which threatened to impose a sharp decrease to the physician fee schedule of about 24 percent on Jan. 1.  

In early December, Congressional Democrats and Republicans reached agreement on a bipartisan budget deal that included a three-month "patch" that staved off the imminent reduction to the PFS. That short-term "doc fix," which raised PFS rates by 0.5 percent through March 2014, bought Congress some time to come up with a permanent solution.

Then on Dec. 12, 2013, the House Ways and Means Committee and the Senate Finance Committee both approved bills that would reform the SGR. The House bill, the Medicare Patient Access and Quality Improvement Act of 2013 (most recently titled the SGR Repeal and Medicare Beneficiary Access Act of 2013), was approved by a vote of 39-0. The Senate bill, the SGR Repeal and Medicare Beneficiary Access Improvement Act of 2013, was approved by a voice vote. Neither bill has been approved by the full House or the Senate, but it is likely that some combination of the two pieces of legislation will be produced as a single bill that will be considered by both houses of Congress.

While the Congressional Budget Office's most recent estimate of the cost of a permanent repeal of the SGR — freezing PFS rates for 10 years — encouragingly dropped again in December, to $116.5 billion, the permanent doc fix that will be taken up by Congress will probably carry a price tag of about $150 billion. The CBO recently estimated the cost of the House bill at $153.2 billion, while the CBO's preliminary estimate for the Senate bill was $148.6 billion, the sum of $124.1 billion for repeal of the SGR and $24.5 billion for various extensions and other provisions that were added to the bill.

As with virtually all the previous legislative attempts to permanently repeal the SGR, neither bill identifies specific, realistic sources of funding — so-called "pay-fors" that would offset the increased government spending that repeal of the SGR would entail and allow the legislation to be deficit-neutral.

There certainly have been some creative doc fix funding proposals. In May 2012, Rep. Allyson Schwartz (D-Pa.) introduced to the House the Medicare Physician Payment Innovation Act of 2012 (H.R. 5707), which proposed tapping savings from the reduction in military operations in Iraq and Afghanistan, but that funding source was generally deemed implausible, and the bill died in a House committee. [Editor's note: Rep. Schwartz has since introduced the Medicare Physician Payment Innovation Act of 2013, which does not draw funding from military operations' savings. The 2013 bill was referred to committee and served as the framework for the SGR legislation approved by the House Committee on Ways & Means on Dec. 12, according to a spokesperson for Rep. Schwartz.]

In November 2013, Sen. Jay Rockefeller (D-W.Va.), chairman of the Health Care Subcommittee of the Senate Finance Committee, urged the Senate to pass the Medicare Drug Savings Act (S. 740/H.R. 1588), which would require drug companies to provide rebates to the federal government on drugs used by people eligible for both Medicare and Medicaid. The CBO estimated that this change would save Medicare $141.2 billion over 10 years, and Sen. Rockefeller proposed using those savings to pay for a permanent doc fix. As expected, the Pharmaceutical Research and Manufacturers of America opposed the legislation, and the bill did not make it out of the Senate Finance Committee.

Given the current challenges of the Patient Protection and Affordable Care Act, it is hard to imagine Congress passing a broad deficit-reduction plan that incorporates numerous significant health reform components that would together fund a permanent doc fix. Because $150 billion is not easy to come by, the source or sources of funding will need to be clearly identified. Based on what we have seen with past short-term SGR patches, the most likely funding scenario is some sort of robbing of Peter, i.e., other players in the healthcare system (e.g., hospitals and other non-physician healthcare providers), to pay physician Paul.

Ken Perez is a healthcare IT marketing and policy consultant in Menlo Park, Calif.

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