A Plan to Fix the Dreaded SGR Formula?

The sustainable growth rate formula first came on the scene during the Clinton administration, but has since derailed. Is there a way to right the wrongs?

The sustainable growth rate (SGR) formula was supposed to be used by Congress to control Medicare costs to providers. Well, it was supposed to do a lot more—like helping to balance the budget. When the Balanced Budget Act [https://www.cms.gov/demoprojectsevalrpts/downloads/cc_section4016_bba_1997.pdf] was first passed during the Clinton administration, the SGR formula was implemented to compute cuts in physician reimbursements that were to contribute to long-term savings being wrung from many healthcare providers. However, physicians pushed back—and hard—against these cuts, and an annual ritual was born: Congress had to postpone the cuts until the following budgetary cycle, lacking a solution. As such, the SGR formula results in progressively larger mandated reductions each year in the fees that Medicare pays its physician providers, to eventually make up the money that was supposed to have been saved since the Balance Budget Amendment was passed in 1997. This year, the SGR formula would require 29.5% lower payments to physicians on January 1, 2012, without the elusive “doc fix.” But a wide majority agrees that there is little chance of that happening.

Here is something else widely agreed upon: the need to be rid of the SGR formula and the annual Congressional charade of postponing its intended cuts. However, in the past 10 years, no one has put forth a reasonable alternative. In October, the Medicare Payment Advisory Commission (MedPAC), which advises Congress on issues of Medicare budgets, finally attempted to do just that. Recognizing there is a shortage of primary care providers in the US and that the risk of providers dropping out of the Medicare program because of fee cuts is real, they offered a solution that can still obtain needed savings. However, it will surely draw the wrath of physician groups.

Members of MedPAC believe access to primary care for seniors is a more serious problem than access to specialists; so they elected to freeze payments to primary care clinicians for 10 years. Specialists did not fare so well. Under MedPAC’s proposal, they would experience 5.9% cuts in payments for 3 consecutive years, followed by a 7-year freeze at the lower payment level. MedPAC estimates that these actions would result in $100 billion in savings over 10 years. The organization also seeks an additional $235 billion in cuts to Medicare part D drug plans (accounting for one-third of the savings), hospitals, Medicare Advantage plans, and other providers, while reducing overall benefits under the Medicare program.

One of the carrots that MedPAC holds out to the provider community is that they can still join or form accountable care organizations, in which they can share the savings obtained through fixed payments (e.g., capitation). Another incentive is fixed, legislated increases in the fee schedule for some currently “undervalued” services they provide.

The physician groups vilified the proposal upon its release, saying it will jeopardize access to doctors willing to treat Medicare patients. The Endocrine Society, for example, said that it will “unfairly punish endocrinologists, and other cognitive specialists, who largely bill evaluation and management services and often serve as the primary care provider to patients with chronic and complex diseases.” They do have a point, in that many of the specialists are de facto primary care physicians for elderly patients with long-standing chronic disease. Therefore, some of the professional societies are seeking to have their specialists reclassified as “primary care providers” for the purposes of avoiding the cuts. If Congress seriously considers MedPAC’s recommendations (and it does not have to), we can expect other similar maneuvers to preserve physician fees.

Since the Balanced Budget Act was passed, nearly all aspects of the Medicare health delivery system have seen lower reimbursements at one point or another, except physicians. They have successfully avoided this fate, with intense lobbying efforts and particularly strong concerns about physicians dropping out of the program, thereby limiting patient access to necessary care. It is clear that the cuts intended to be implemented through the SGR formulas will never be. Yet, physicians’ trade organizations have provided few serious alternative solutions.