January 28, 2014

SGR- The Doc Fix: Kicking the Can Once Again

Jerry Levine, MD, MBA, CPE
Senior Physician Executive Consultant

On December 18, 2013, the Senate approved the House-passed budget agreement that extended the current Medicare physician payment levels through March 2014, averting a 23.7% payment cut to docs on January 1st.

Does this sound familiar to you? Do you feel like Bill Murray in his film “Groundhog Day”? Do you wonder how long Congress and the President can continue to kick the SGR fix down the road? I have found that many doctors don’t understand what SGR means than it is like a guillotine held over their heads as part of a yearly ritual of frustration.

So, let’s briefly review what the Sustainable Growth Rate (SGR) is all about.  A 1997 effort to control federal spending led to a deficit reduction law that set Medicare physician payment rates through a formula based on complex economic growth; this law was known as the SGR. (The details are beyond this brief overview, but can be found on the link below1).

For the first few years, the Medicare expenditures did not exceed the targets, and doctors received modest pay increases. Then in 2002, everything came apart, as the docs got a 4.8% pay cut. The fury that rose has led Congress to stave off the scheduled cuts every single year for the last decade- the so called “doc fix”. Yet, the deferrals are always temporary due to the difficulty of finding offset cuts to pay for a permanent fix. In fact, in 2010, Congress delayed cuts five times, with the longest “patch” lasting just one year! However, each deferral just increases the size (i.e. price tag) of the fix needed the next time.

Of note, even the Medicare Payment Advisory Commission (MedPAC) called the formula fundamentally flawed and that it “has failed to restrain volume growth and, in fact, may have exacerbated it.”2

If you wonder why the lawmakers don’t simply repeal the formula it comes down to money. The Congressional Budget Office (CBO) recently estimated that the cost of a doc fix is on the order of $245 BILLION3.  There have been several plans recommended by the “experts”- MedPAC, AMA, ACPE, etc. These include everything from cutting fees to specialists and imposing a 10 year freeze on rates for primary care physicians (MedPAC) to freezing all physician rates at their current level for 10 years and then phasing in individual increases based on quality of care and efficiency (House Republicans).

Of course, I wonder how the constant increase in the cost of living and inflation will be dealt with if the payments are “frozen”.

Let me end this summary with some more sobering reality- the automatic cuts in federal spending called sequestration require Medicare to impose a 2% reduction to physicians and hospitals. Many physicians I talk to are considering opting out of Medicare. The potential impact of this trend, should it increase, could be devastating, as the “Baby Boomers” reach Medicare age and enroll.

Health and Human Services Secretary Kathleen Sebelius has stated that 11,000 new seniors become eligible for Medicare every day4.

Coors Healthcare Solutions is committed to provide education, data, and advice to all providers as we attempt to navigate the stormy waters of healthcare reform!!

  1.  http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SustainableGRatesConFact/downloads/sgr2010p.pdf
  2. http://www.cbo.gov/sites/default/files/cbofiles/attachments/43539-08-22-2012-Update_One-Col.pdf
  3. http://cnsnews.com/news/article/senior-boom-11000-new-seniors-become-eligible-medicare-every-day
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