Tug-of-war continues in Medicare's SGR

November 1, 2005

Legislation backed by the American Academy of Dermatology Association (AADA) to abolish the controversial sustainable growth rate (SGR) formula in the Medicare fee schedule contains provisions to implement a payment system based on "pay for performance," a plan to compensate physicians according to the quality of care they provide.

Legislation backed by the American Academy of Dermatology Association (AADA) to abolish the controversial sustainable growth rate (SGR) formula in the Medicare fee schedule contains provisions to implement a payment system based on "pay for performance," a plan to compensate physicians according to the quality of care they provide.

Quality-based payments

The bill, H.R. 3617 sponsored by Rep. Nancy Johnson (R-CT), chairwoman of the House Ways and Means Health Subcommittee, would replace the SGR with a formula based on the Medicare Economic Index (MEI) and implement quality-based payments.

The comments were filed in response to CMS revised payment policy under the 2006 physician fee schedule. CMS accepted new practice expense information from AADA, effectively protecting dermatologists from reductions that will be suffered by most physicians next year. (See last month's Washington & You for details.)

Dr. Coldiron urged that the cost of physician-administered drugs and biologicals should be removed from the SGR formula, which he estimated would reduce the cost of repealing SGR by $111 billion.

'Immediate action' needed

In addition, Robert Berenson, M.D., a former senior official at the Centers of Medicare and Medicaid Services (CMS), said it would take "years" to effectively implement such a plan, and that immediate action should be taken to eliminate fundamental problems that exist within the current system - including provisions that encourage physicians to establish ambulatory surgery centers and other such facilities and then refer patients to themselves.

The goal of eliminating the SGR appears to have momentum in the subcommittee, and received strong support at the hearing. John H. Armstrong, M.D., an AMA trustee, noted that a 4.4 percent Medicare physician pay cut is slated to take effect January 1, 2006; the first of a series of cuts totaling 26 percent expected over the next six years. Rep. Johnson's bill would replace next year's cut with a 1.5 percent increase, and would replace the SGR formula beginning in 2007 with "updates that reflect increases in medical practice costs," he says.

Rep. Johnson's bill would be a significant step toward CMS' goal of factoring in measures of quality and efficiency in determining physician payments. It would provide a differential payment update to practitioners meeting pre-established thresholds of quality or pre-established levels of improvement, equal to the Medicare Economic Index (MEI). Practitioners not meeting these thresholds would receive an update of MEI, minus 1 percent.

Measures of quality and efficiency, Rep. Johnson said, would include "a mix of outcome, process and structural measures, including a requirement that clinical care measures be evidence-based. "Practitioners would be directly involved in determining the measures used for assessing their performance," Rep. Johnson promised.

Concerns

Some of the concerns expressed by Dr. Armstrong on behalf of the AMA include:

Physicians must have the opportunity for prior review and appeal regarding any data that is part of the public review process, and physician comments should be included with any information released to the public.