Dump -- don't expand -- the SGR

There is a flip side to the popular adage, "If it ain't broke, don't fix it." It applies to the sustainable growth rate formula that helps determine Medicare physician reimbursement. This system is broke, so let's fix it.

Recognizing the SGR's flaws, Congress, in the 2005 Deficit Reduction Act, required the Medicare Payment Advisory Commission to come up with alternatives. Panel members couldn't agree on just one option, so last month they delivered to lawmakers a report outlining two paths.

The first is for Congress to repeal the formula and "accelerate development and adoption of approaches for physicians ... to furnish lower-cost and higher-quality care." The second is to keep an expenditure target but apply it not just to physicians but also to all Medicare players.

Dumping the dysfunctional SGR and developing a new system that adequately reflects physician practice cost increases is the only real solution. The American Medical Association has advocated this move for years. It strongly opposes expanding the broken formula or imposing any new spending target.

The reasons are many. Targets such as the sustainable growth rate, which results in cuts to physicians' base pay if the expenditure target is exceeded, are a blunt weapon. The SGR penalizes all doctors, regardless of whether they provide care efficiently.

The system is based on the impossible notion that doctors alone can control the utilization of services. This ignores an aging population, the increased prevalence of chronic conditions, government benefit expansions and technological advances.

It doesn't recognize that growth in the volume of physician services is typically beneficial for Medicare and its beneficiaries. For example, the spending target doesn't accurately reflect increased care sparked by new preventive benefits adopted by Congress or coverage expansions made by the Centers for Medicare & Medicaid Services. The formula doesn't acknowledge the program savings generated by the shift of care from the more expensive hospital setting to the less expensive physician office.

As the AMA points out, spending on doctors' services is a wise investment. Over the last decade, life expectancy has risen for men and women. Mortality rates for heart disease and strokes have been falling by about 3% a year.

A continuation of the SGR would undermine future treatment advances and the overall push for quality improvement. Under the current system, physician payment would be cut 10% next year, as opposed to the 1.7% increase MedPAC recommends. Rates would plummet a total of nearly 40% over the next eight years, while practice costs would jump about 20%.

Physicians would be unable to afford new medical technology and the information technology that makes quality reporting possible. The ultimate victims would be patients, who would lose the benefits of new technology and who would see their access to physicians slip as more doctors make the hard financial decision to drop new Medicare patients or curtail services.

MedPAC supporters of spending targets argue they are necessary to control expenditures and provide lawmakers with leverage to force doctors to embrace reforms.

The AMA believes that efforts by medical professionals to assure the appropriate use of services would be more effective. The Association is prepared to work with Congress, the Bush administration and MedPAC to explore alternatives. Evidence of its commitment can be found in joint recommendations made by the AMA and 76 other medical and health professional organizations. Along with the SGR's repeal, the associations are calling on Congress to support their efforts to bridge gaps in care and ensure that services for Medicare patients are appropriate.

Many of their recommendations mesh with MedPAC suggestions. For example, both support encouraging coordination of care and sharing quality and utilization information with physicians so they can compare themselves with their peers.

MedPAC's report signals the beginning of this year's debate on the catastrophe that is Medicare's physician payment formula. Congress needs to abandon the flawed SGR in favor of a system that reflects practice cost increases and to work with the physician community on quality and utilization issues. It's the only option that makes sense.