Lawmakers told Medicare reform begins with elimination of SGR

Think tank leaders urge senators to find an alternative to the Medicare payment formula so other changes will follow.

By Charles Fiegl — Posted Oct. 24, 2011

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Reforming the Medicare program and dealing with its long-term financial issues start with eliminating the sustainable growth rate formula, several health policy observers told a Senate panel on Oct. 12.

The Senate Special Committee on Aging held a hearing to build consensus on fixing Medicare as lawmakers consider major reforms to government programs that slow the growth of the national debt. Congress is debating ideas to send to the Joint Select Committee on Deficit Reduction, which is aiming to decrease future deficits by $1.2 trillion.

Eliminating the SGR wouldn't reduce the deficit. Instead, it's estimated to cost $300 billion. But delaying its repeal would be more costly to the program, think tank leaders said.


Sen. Bob Corker (R, Tenn.)

"Get this off the books," said Douglas Holtz-Eakin, PhD, president of American Action Forum, a conservative policy institute in Washington. "Stop messing around with that corner of Medicare and fix the program."

Patients would lose access to their physicians if the SGR is not fixed, Holtz-Eakin said. Since 2003, Congress has prevented cuts to Medicare rates, but temporary fixes have caused the severity of the SGR reductions to grow to a 29.5% cut set for 2012.

Senators acknowledged the need for a permanent solution. Many have long considered the SGR a flawed formula, said Sen. Bob Corker (R, Tenn.). It allowed the program to spend a certain amount of money, but the more Medicare spending grew, the fewer dollars would be available to cover future services.

"If we don't fix this thing for at least 10 years, we know we're just kidding ourselves," Sen. Saxby Chambliss (R, Ga.) said during the hearing. "We know that we're just going to come back and stick that Band-Aid on it every year. There is no policymaker who can go home, look their docs in the eye without doing that."

Finding Medicare savings

Corker was one of dozens of senators who recently wrote to the deficit committee to propose large changes to Medicare, federal entitlements and tax policy. He would like to see a recommendation that produces $4 trillion in savings.


The American Medical Association launched an advertising campaign that urges Congress to find a permanent solution to safeguard Medicare access for America's seniors. The ad began running on Oct. 7 and aired on CNN, Fox News and TV stations in select markets. View video

"If we start making significant changes now, actuarially they will multiply into huge savings down the road," Corker said. "Ultimately, fixing Medicare and controlling overall health costs will require transforming our health system so we move away from the current fee-for-service program."

Corker asked witnesses at the hearing to submit ideas that Democrats and Republicans could agree on. They agreed on SGR reform but also mentioned reforms to beneficiary cost sharing and increasing Medicare's eligibility age to 67. Among the witnesses were Holtz-Eakin and John Holahan, PhD, director of the Urban Institute's Health Policy Research Center, a progressive think tank in Washington.

The average Medicare beneficiary receives more benefits than his or her contributions to the program over a lifetime. Raising patient premiums to 35% from 25% could save $240 billion in 10 years, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan fiscal policy institute in Washington.

Any increase in patient fees also should include protections for low-income beneficiaries, Holahan said.

Raising the eligibility age to 67 would reduce the deficit by $124.8 billion in 10 years, Holtz-Eakin said.

Patient advocacy groups have been against shifting costs to beneficiaries. AARP opposes increasing the age of eligibility. Such a policy would increase premiums for other patients enrolled in the program, AARP said.

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Cutting Medicare to trim deficit

At an Oct. 12 Senate hearing, Douglas Holtz-Eakin, PhD, president of the American Action Forum, recommended the following steps to reduce Medicare costs:

  • Limit medical liability awards, which would reduce the deficit by about $60 billion over 10 years.
  • Reduce federal payments for graduate medical education, which would save $69.4 billion.
  • Raise the eligibility age to 67, which would save $124.8 billion.
  • Expand cost-sharing structures for Medicare and Medigap insurance, which would save $32.2 billion to $92.5 billion.
  • Increase basic premiums for Part B, which would save $241.2 billion.

Source: Senate Special Committee on Aging hearing, Oct. 12 (link)

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AMA ad urges Congress to fix Medicare now

The American Medical Association has launched a multimillion-dollar advertising campaign calling for patients and physicians to tell their congressional leaders to fix Medicare's broken payment formula.

The ads began running on Oct. 7. A 30-second spot aired on national cable news channels (CNN and Fox News) and TV stations in select markets (link). A 60-second ad aired in some markets.

Lawmakers have a unique opportunity to repeal the flawed sustainable growth rate formula through the Joint Select Committee on Deficit Reduction process, said Robert M. Wah, MD, chair of the AMA Board of Trustees. The expedited committee process presents an opening for meaningful payment reform before Medicare rates are slashed by 30% in 2012, he said.

Budget estimates show that a repeal would cost $300 billion, but neglecting to eliminate the formula would cost $600 billion in five years. In 2005, an SGR repeal would have cost $48 billion.

Dr. Wah said the SGR has been like a tumor on the Medicare program. "It's growing every day, and it will continue to grow unless we remove it," he said.

Cuts to Medicare pay would threaten patient access for seniors and military families who rely on Tricare, which follows Medicare's rates.

A poll published by the AMA shows that a majority of Americans support an SGR repeal. The poll found that 94% believe the 30% rate cut is a serious problem for Medicare patients.

The AMA has created fliers with more information on the SGR for physicians to print and post in their offices (link).

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