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Advice to Congress: Pass physician pay (SGR) reform and do NOT pay for it

Posted by John McDonough  December 22, 2013 07:58 PM

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Down in DC, hearts are atwitter among those who pay attention to the reimbursement of physicians in Medicare Part B (the fee-for-service part of Medicare that pays physicians). Key committees in the House and Senate have now approved legislation to reform physician payment by: 1. Permanently and totally repealing a monstrosity known as the Sustainable Growth Rate (SGR); and 2. Replacing it with a new and smart set of physician performance standards.

Only one thing is missing from the happy events: a way to pay for the full cost of repeal over 10 years, as required under Congressional rules called "paygo." The cost of the repeal legislation is estimated by the Congressional Budget Office at around $140 billion, a veritable bargain in contrast with estimates as high as $350 billion just 2-3 years ago. Truth is, if Congressional leaders can't figure out how to pay for the legislation, then it's just a pipe dream.

I propose a solution. But first, let's back up a bit.

SGR was created as part of the 1997 Balanced Budget Act (BBA) as way to hold down the rate of growth of Medicare payments to physicians. Actually, hospitals, home health agencies, and other providers took the big hits in the BBA and the SGR was supposed to be just small potatoes. If overall Medicare physician spending went below target, docs got bonuses; and if it went over, docs were to take a hit on their payment rates.

Between 1998 and 2001, docs got bonuses and were happy. (By the way, the BBA was so effective in squeezing the hospitals and other providers that Congress gave them 'giveback" legislation and funding not just once, but twice in 1999 and 2000.) In 2002 for the first time, the SGR required a cut in doc payment and Congress let it happen -- about 4%. Docs got so mad, Congress has never been willing to let them take a cut again, and every year since 2003 has reached a so-called "SGR Cliff" and blinked by preventing the cut and giving docs a small rate hike. In the first few years, it was not that big a deal because the Republican in charge of Congress just added the cost to the federal deficit.

By the way, it's not just physicians who hate SGR. Senior citizen groups such as AARP want it repealed because if the cuts ever took effect (ranging these days between 24 and 30% of rates), the fear is that many, many docs would abandon Medicare. So even though docs are among the highest paid professionals in American society, senior citizens -- and their Members of Congress -- are committed to not ever allowing SGR to go into effect.

In 2007, the Democrats retook the House and Senate and reinstated a rule known as "paygo"  which basically says that Congress agrees to finance any new government obligations with cuts, savings, or revenues, and not deficit financing. It's the right thing to do, I fully believe, though it made the annual SGR "patch" much more problematic to achieve, because whenever Congress averted the SGR cliff, under paygo rules, they had to find federal cuts, savings, or revenues to pay for it.

So for 7 years now, Congress has been averting the  SGR cliff by a thousand cuts here and there -- about 15 times at a cost of about $140 billion. Democrats badly wanted to include a full SGR repeal in the Affordable Care Act, but could not figure out how to add a CBO-estimated $350 billion to an already expensive bill.

Since the ACA's signing in 2010, the expected 10-year rate of growth in Medicare has gone down by more $700 billion (wow -- thanks in big part to the ACA). And now, CBO estimates the 10-year cost of repeal to be "only" $116.5 billion; the other reforms the House and Senate want to add would hike up the 10-year cost to about $140 billion. So, 140 versus 350, it's Miller Time! Let's have a party and repeal SGR now!  Just before Congress left, they approved a 3-month SGR patch through the end of March to give themselves time to pass the full repeal and to figure out how to pay for it. Bipartisan majorities on both sides are in agreement on repeal and accompanying reforms: does it get better than this?

Only one problem.

There is no agreement on how to pay for the bargain-basement SGR repeal price. Turns out -- $140 billion is a lot of dough to find, even over ten years.

So I propose a modest solution:

Don't pay for it.

There, I said it.

I say this as someone who greatly admires the commitment of Democratic leaders to put their money where their mouths are and not hike up new federal obligations without a way to pay for them -- as notoriously done during the George W. Bush years with tax cuts, wars in Iraq and Afghanistan, and the Medicare drug program.

Still, let me make the case, please:

First, Congress is never going to allow the SGR cuts to happen. That is clear after more than 10 years of patches. It's a balance sheet myth.

Second, the SGR has done more than anything to generate physician ill will toward Medicare, and the uncertainty created by the constant cliff-walking holds back physicians from making necessary improvement investments in their practices.

Third, if we knew then (in 2010 when the ACA was signed) what we know now -- that the expected rate of growth in Medicare and Medicaid between 2010-19 would be about one trillion less than the CBO and Congressional budget writers expected, ACA drafters would readily have included SGR repeal in the ACA, as they had always wanted to do.  The chart below shows the lower projects just since August 2012 relative to today ($382 billion):

M&M Since 2012.png

Fourth, this incessant short-term SGR fixing is an utter waste of time that Congress could better use by turning its attention to important health policy matters which never seem to get on their radar screen, partially because they spend so much time on SGR lunacy.

Fifth, to pay for these constant SGR short term "patches," Congress goes rummaging everywhere and does unnecessary harm to important and good initiatives just to forestall the "doc cut." Hospitals and other providers have taken repeated cuts to pay for SGR "fixes" as have community health centers, public health promotion and disease prevention programs, even the many ACA Exchange enrollees who underestimate their household incomes are going to pay extra high penalties around tax time just to cough up extra dough for one of the more recent fixes. House Ways and Means, by the way, is now proposing to pay for full SGR repeal through a series of higher premiums and cost sharing on current Medicare enrollees (no good deed goes unpunished, right AARP). 

If Congress goes hunting for $140 billion to pay for the full repeal, get out your umbrellas folks, because the you-know-what is going to fly fast and furious. And at the end of the day, my bet, we will have stalemate and no SGR repeal.

I know and understand the serious and legitimate objections to this proposal. If Congress suspends "paygo" for wealthy and entitled docs, how can they not do so for 31,285 other compelling constituencies? I don't have to deal with the 31,285 other groups, they do; heck, I don't even have to deal with the docs.

But I do wonder this:

How much harm to worthy federal programs will be done to fix this 1997 mistake? Heck, big corporations write off losses from deals and launches that went sour all the time. A lot of collateral damage will be done in the worthy cause of fixing the SGR fiasco.

The truth is that we've already saved far more than the full ten year cost of SGR repeal with the lower growth rates for Medicare and Medicaid.

Let's just do it.

Happy holidays everyone.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »

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