Medicare sustainable growth rate reform proposals trickle in

November 1, 2011

The good news is that the battle over the budget in Washington has opened the door to serious consideration for reforming the formula used to pay physicians under Medicare. The bad news? Proposals being considered to pay the tab could bring considerable pain.

Key Points

President Obama's proposed American Jobs Act, which Republicans pronounced dead on arrival when it was introduced in September, contains $293 billion in funding over 10 years to finance fixing the Medicare sustainable growth rate (SGR) formula, which results in annual requirements for reimbursement reductions that are almost routinely overruled by Congress.

To help pay for that, the president would give still more power to the Independent Payment Advisory Board (IPAB), created by the new healthcare reform law to recommend Medicare spending reductions that are expected to include payment cuts. The physician community, including the American Academy of Dermatology Association (AADA), continues to seek repeal of the IPAB provision in the law.

While the Obama jobs bill faces strong opposition in Congress, particularly in the Republican-controlled House of Representatives, the fact remains that if the SGR is to be reformed, the cost is expected to reach or exceed $300 billion over 10 years - and some way to cover that expense will need to be found.

The Medicare Payment Advisory Commission (MedPAC) came out with a recommendation to provide for that, and AADA as well as many other physician organizations immediately announced their opposition.

Under MedPAC's plan, Medicare reimbursements to specialists would be slashed by 5.9 percent per year for three years, followed by a rate freeze for seven years. The reimbursement rate for primary care physicians would be frozen for the entire 10-year period.

Of course, unless some action is taken, Medicare physicians are due to suffer a 30 percent cut, effective Jan. 1 - a doomsday scenario that is helping to move SGR discussions along. Over the years, SGR-required cuts have been killed by Congress and replaced with modest payment increases, for the most part. But with that 30 percent cut looming (it gets bigger every year), lawmakers now figure they can't delay in fixing the situation any longer.

AMA opposition

The American Medical Association (AMA) issued a statement in mid-September expressing its opposition to the MedPAC plan, saying that while the SGR must be repealed this year, the "drastic cuts" proposed would be disastrous for Medicare patients' access to care and would derail delivery innovations that are critical to lowering healthcare costs.

Peter W. Carmel, M.D., AMA president, pointed out that Medicare payment updates have not kept up with the cost of running a medical practice, leaving a 20 percent gap between reimbursement rates and practice expenses. He noted that many physicians could also face upcoming payment penalties related to electronic prescribing, health information technology and quality reporting programs - if they cannot meet new requirements.

"The proposal MedPAC is now considering poses a very real risk to compromise physicians' ability to retain staff, care for Medicare patients and make the investments needed to modernize their practices and participate in new models of care delivery like accountable care organizations," Dr. Carmel said.

He added that more than 40 percent of U.S. physicians are over age 55, and 21 percent are older than 65, and he cautioned that cuts contained in the MedPAC plan could trigger a wave of retirements, further threatening access to care for all patients - even as many previously uninsured Americans obtain health coverage under the new law.

"Repeal of the SGR should help move Medicare forward - not create severe instability and hinder needed improvements," Dr. Carmel stated.