Obama Signs Legislation to Replace SGR With Medicare Reform

The bill ends years of annual "patches" to forestall cuts to Medicare reimburement rates and replaces the sustainable growth rate formula with a transition to a value-based payment model.

On Thursday afternoon President Obama signed into law the bipartisan bill that replaces the much-despised sustainable growth rate (SGR) formula and replaces it with a long-term measure to reward doctors who pursue value-based payment models in Medicare.

The bill, which had passed the House overwhelmingly in late March, passed the Senate late Tuesday by a vote of 98-2, hours before a scheduled 21% cut to reimbursements would have taken effect. Obama had promised to sign the bill and did so, with a notice appearing on the White House web site.

He had praised members of Congress Tuesday evening for working together to pass the bill. “Nearly every year for the past 13 years, physicians have faced the possibility of an arbitrary cut in their payments from Medicare unless Congress passed a so-called ‘doc fix.’ In my budget, I called for putting a permanent end to this annual manufactured crisis to ensure that doctors will not face a sudden drop in their pay.”

“This bill is consistent with that proposal — it’s a milestone for physicians, and for the seniors and people with disabilities who rely on Medicare for their health care needs,” Obama said.

Speaker John A. Boehner and Rep. Nancy Pelosi negotiated behind closed doors for weeks on the bill, which overhauls the way Medicare pays physicians while extending the Children’s Health Insurance Program (CHIP) for another 2 years.

The essential element for doctors is a 5-year schedule that includes annual 0.5% increases as well as targeted payments based on quality, value and accountability of the provider as Medicare phases out of the old fee-for-service structure. Major physician groups including the American Medical Association and the American Society of Clinical Oncology, as well as its state chapters, endorsed the bill.

The problem with SGR dates to 1997 when Congress created the formula in an effort to control spending. It was supposed to set rates that would be paid, and any difference between the schedule and what was actually paid would have to be made up. But the rates were so out-of-step with prevailing costs that doctors refused to take Medicare patients, and Congress kept passing "patches" to keep Medicare operating.

It had been estimated it would cost $140 million over 10 years to repeal the formula, which is why a solution had been so difficult. Instead, the Boehner-Pelosi deal, which costs $213 million, is only offset by about $70 million in cuts, which is why the most conversative lawmakers did not support it.