Rising cost of delayed SGR reform spurs call for permanent solution

The projected price tag of replacing cuts with freezes jumps more than $30 billion over 10 years from when the Senate considered such a move last fall.

By Chris Silva — Posted May 17, 2010

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As Congress once again closed to within weeks of the next Medicare physician payment cut, organized medicine made another pitch for a long-term solution, this time citing new budget projections showing that such a move is becoming more expensive as time goes on.

Whatever lawmakers decide to do -- whether it's the multiyear package being crafted at this article's deadline or another month-long patch -- will come against the backdrop of an April 30 cost estimate from the Congressional Budget Office.

The CBO projects that scrapping the current formula and freezing pay at current levels would cost nearly $276 billion over the next 10 years -- and that's without accounting for the more than $6 billion it would cost to keep pay steady for the rest of 2010.

The revised 10-year figure represents an increase of more than $30 billion from November 2009, when the Senate considered a bill by Sen. Debbie Stabenow (D, Mich.) that would have abandoned the current sustainable growth rate formula and set future annual payment updates at zero.

The American Medical Association and other physician organizations have cited the growing budgetary problem associated with repeated short-term patches in urging Congress to fix the payment formula permanently, before the June 1 deadline. The AMA said the estimated price of long-term reform was only $49 billion in 2003.

After CBO released its new projections, the Association launched a new print ad May 10 citing Congress' worsening pocketbook issue. It features a child contemplating a growth chart listing projected costs of an overhaul. If lawmakers do not act now, the ad states, the cost of a permanent overhaul will jump to $396 billion in three years, and to $513 billion in five years.

"Short-term patches of any length create instability in the Medicare system for seniors and their physicians and hurt health care access for patients," said AMA President J. James Rohack, MD.

Another SGR deadline

As the clock started ticking down to the 21% cut, which already has gone into effect twice this year before being reversed, some lawmakers were floating a possible multiyear solution.

Congress has used extenders bills as vehicles to enact the most recent short-term patches to the Medicare pay cut. The legislation also extended various unemployment and health assistance programs that had expired. With those programs set to expire again, another such bill might offer a chance for a more substantial SGR solution.

"It is part of the longer-term extensions/tax extenders bill," Regan Lachapelle, deputy communications director for Senate Majority Leader Harry Reid (D, Nev.), said in a May 10 e-mail. "It could be as soon as we complete action on Wall Street reform."

Lachapelle indicated that Congress hopes to consider the extenders bill before it plans to break for the Memorial Day recess after May 28. Without congressional action to stop it, the physician pay reduction would take effect the day after the holiday. Congress is scheduled to return June 7.

Rep. Chris Van Hollen (D, Md.), assistant to the House speaker, expressed his support for long-term reform and a permanent fix of Medicare payments. The House already has passed legislation that would scrap the SGR and allow for physician pay raises in future years, but the Senate has not taken up the bill.

"He believes we can't have a month-by-month strategy," said Doug Thornell, Van Hollen's spokesman. "The House already voted for ... a permanent SGR fix. He continues to believe long-term SGR reform is the fairest solution for physicians and the most fiscally responsible approach for our nation."

Five-year freeze possible

In the meantime, lawmakers have entertained the idea of a five-year freeze of physician rates starting in 2011 or another multiyear solution that would cost the same. The five-year freeze would run about $88.5 billion, a figure that also includes keeping pay steady for the rest of 2010, the new CBO report said.

A statutory pay-as-you-go law enacted earlier this year generally requires lawmakers to find money in the budget to pay for any new mandatory spending or tax cuts. But several legislative priorities, including increased Medicare pay to physicians, would be partially exempt from the requirement, meaning that some of the cost could be paid for by raising the federal deficit.

The pay-go law exempted an amount corresponding to a five-year rate freeze, drawing the ire of fiscal conservatives on Capitol Hill.

The AMA, however, points out that since 2002, lawmakers have made commitments to stop Medicare cuts even if they didn't find the budgetary offsets to pay for it every time.

"It's well known that the budgetary gimmicks used by Congress to delay Medicare physician payment cuts increase the cost of reform and the size of the cuts, so these new CBO projections are not surprising," Dr. Rohack said. "It's time for Congress to put aside the short-term actions that have more than quadrupled the price of a solution for American taxpayers and fix the problem once and for all for seniors, military families and their physicians."

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Patch now, pay later

Because Congress for years has put off approving a long-term Medicare physician payment overhaul, freezing doctors' rates for the remainder of this year alone would cost $6.5 billion, and a 26% cut would still loom for 2011. Freezing or increasing rates beyond 2010 would cost more and might require larger future cuts, depending on what path lawmakers choose:

Option 10-year cost (2011-2020)
Freeze through 2011, 29% cut in 2012 $15.4 billion
Freezes through 2012; 30% cut in 2013 $35.8 billion
Freezes through 2013; 30% cut in 2014 $58.4 billion
Cost-based raise through 2011*, 29% cut in 2012 $15.8 billion
Cost-based raises through 2012*, 31% cut in 2013 $37.2 billion
Cost-based raises through 2013*, 32% cut in 2014 $61.3 billion
2% raise through 2011, 30% cut in 2012 $16.5 billion
2% raises through 2012, 33% cut in 2013 $39.6 billion
2% raises through 2013, 34% cut in 2014 $66.4 billion
Freeze through 2011, limited cuts afterward** $66.6 billion
Freezes through 2012, limited cuts afterward** $106.2 billion
Freezes through 2013, limited cuts afterward** $143.4 billion
Cost-based raise through 2011*, limited cuts afterward** $71.1 billion
Cost-based raises through 2012*, limited cuts afterward** $115.9 billion
Cost-based raises through 2013*, limited cuts afterward** $157.5 billion
2% raise through 2011, limited cuts afterward** $79.4 billion
2% raises through 2012, limited cuts afterward** $132.0 billion
2% raises through 2013, limited cuts afterward** $182.1 billion
SGR baseline reset to 2009 level $193.6 billion
Freezes through 2020 $275.8 billion
Cost-based raises* through 2020 $329.9 billion
2% raises through 2020 $374.2 billion

* Updates would range from 0.7% to 1.8% based on the Medicare Economic Index

** Future cuts would be no higher than about 6%

Source: Congressional Budget Office

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