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Friday, November 11, 2011

New Year's Irresolution: Medicare’s sustainable growth rate and physician reimbursement

Wes Joines, MPA

Unless Congress acts between now and the end of 2011, at least one group will not be experiencing a happy New Year: physicians who provide services to Medicare patients. Under current law, starting in 2012, reimbursement for Medicare-provided services will be reduced by an estimated 30%. Why is this happening? It is all related to policies enacted nearly 15 years ago in an earlier iteration of debt reduction efforts.

The Balanced Budget Act of 1997 was signed into law on August 5, 1997 and was designed to balance the federal budget by 2002. Of its $160 billion in spending cuts during that time period, $112 billion was applicable to the Medicare program, which is the primary health coverage program for older and some disabled Americans. A key component of the cuts to Medicare included, for the first time, a budgetary restraint on Medicare’s total expenditures to maintain budget neutrality. Known as the sustainable growth rate (SGR), it is a major component of the current formula for determining annual updates to physician reimbursement. While Medicare payment rate increases since 1992 had been tied to trends in physician utilization (i.e. efficient use of medical tests and facilities by a doctor), in 1997, for the first time, the implementation of the SGR meant that Medicare reimbursement changes would be linked to four factors: 1) changes in input costs, 2) changes in Medicare fee-for-service enrollment, 3) changes in the volume of physician services relative to growth in the national economy, and 4) changes in expenditures due to changes in law and/or regulation.

The SGR resulted in annual increases to the Medicare fee schedule until 2002, when a 4.8% reduction took place. Since that time, rate reductions called for by the formula have been deferred, although Congress has not changed the underlying SGR formula or the cumulative spending targets. Because of vast increases in the volume and complexity of health care services for the Medicare population in recent years, especially when compared to the SGR designers’ projections, the formula specifies cuts in physician payments that become more severe with each passing year. In fact, at a cost of $19 billion, a last-minute December 2010 vote delayed a scheduled 25% reduction in the SGR that was to take place in January 2011.

So, here we are again, this time in late 2011, deciding whether or not reimbursement for Medicare providers will be cut. Even before the current debt reduction debate and increasing prevalence of political gridlock in Congress, policy movement regarding the SGR involved numerous short-term fixes. For example, from 2003 through 2010, Congress included provisions in 13 separate pieces of legislation to forestall reimbursement cuts. As a long-term fix for the SGR – e.g. replacing it with a current fee freeze – would be extremely costly to the taxpayer (some estimates currently peg it around $300 billion over 10 years), short-term fixes have generally proved to be an easier bargain (as much as they have irritated physicians and their respective trade associations).

At this point, anyone’s guess is as good as another’s regarding the level of reimbursement for Medicare services on January 1, 2012. Although the current political climate is not one that generally supports massive spending to doctors that would be required for a long-term fix, many believe that cuts of the magnitude prescribed by the SGR would not be conducive to ensuring beneficiary access to services. Therefore, another short-term fix might be in the works as a stop-gap measure. However, there is also a chance that the currently-convened deficit reduction “Super Committee” might address the SGR as part of its proceedings.

If compromise is within reach, within or outside of the Joint Select Committee on Deficit Reduction, it may be similar to a plan recently recommend by the Medicare Payment Advisory Commission (MedPAC), which ironically enough, was also established by the Balanced Budget Act of 1997 and serves as an independent advisor to Congress. MedPAC’s plan, which would cost $200 billion over 10 years (instead of the $300 billion of the fee freeze), would protect both primary care and specialty physicians from the deep cuts called for by SGR. Primary care physicians would see physician fees associated with Medicare services frozen for 10 years, while specialists would see smaller cuts (of 5.9% per year) over the first three years that would then remain frozen for the remaining seven years in the budget window.

Granted, MedPAC’s suggestion is not a panacea, but it is a good start. At the very least, it should focus us on attempting to resolve this looming crisis.

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