Super committee gone, 27% Medicare pay cut threat remains

The failure of the congressional debt panel leaves the 2012 SGR cut unresolved and threatens physicians with additional pay reductions starting in 2013.

By Charles Fiegl — Posted Dec. 5, 2011

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Lawmakers again find themselves with less than a month to pass legislation to stop a steep decrease in Medicare payments to physicians.

Doctors are in the familiar situation of facing severe pay cuts brought on by Medicare's sustainable growth rate formula. On Jan. 1, the Centers for Medicare & Medicare Services is set to start paying claims for Medicare services at 27.4% less than 2011 rates.

The American Medical Association had hoped that the Congressional Joint Select Committee on Deficit Reduction, dubbed the "super committee," would eliminate the SGR during its months-long work to address federal deficits. But the committee failed to reach any agreement, not only leaving the SGR intact but also triggering "robotic, across-the-board spending cuts that do not address critical structural problems in the federal budget," said AMA President Peter W. Carmel, MD.

"The deficit committee had a unique opportunity to stabilize the Medicare program for America's seniors now and for generations to come," Dr. Carmel said. "Once again, Congress failed to stop the annual charade of scheduled Medicare physician payment cuts and short-term patches, which spends more taxpayer money to perpetuate a policy everyone agrees is fatally flawed."

Rep. Jeb Hensarling (R, Texas) and Sen. Patty Murray (D, Wash.), the committee's co-chairs, released a Nov. 21 statement expressing deep disappointment that they were unable to reach a bipartisan deficit reduction agreement.

"Despite our inability to bridge the committee's significant differences, we end this process united in our belief that the nation's fiscal crisis must be addressed and that we cannot leave it for the next generation to solve," the lawmakers said.

The committee was created during negotiations to raise the federal debt ceiling in August. The Budget Control Act directed the panel of six Democrats and six Republicans to develop a plan that cut federal budget deficits by at least $1.2 trillion over 10 years. The failure to reach an agreement triggers $1.2 trillion in automatic spending cuts, divided between defense and nondefense spending, starting in 2013.

The act exempted Medicare patient benefits and the Medicaid program from the automatic cuts, meaning that Medicare pay to health professionals will be on the chopping block. But the statute capped the total amount that can be cut from Medicare to 2% per year. This totals about $123 billion coming out of the program over the next decade, according to a Sept. 12 Congressional Budget Office report.

An analysis by the Washington health policy group Avalere says spending reductions in Medicare would be concentrated on the facilities and professionals providing services and on Medicare private insurers. The group estimates that 12% of the total would come from reduced pay under the physician fee schedule. Nearly a third of the cuts would hit hospital inpatient care. Group plans, which include Medicare Advantage, would bear 15% of the program reductions.

Even though the super committee is finished, Congress still could agree before 2013 to prevent some or all of the $1.2 trillion in automatic cuts by agreeing on deficit reductions elsewhere. Some lawmakers, including Sen. John McCain (R, Ariz.) and Rep. James Clyburn (D, S.C.), also have said they'd be open to simply reversing the automatic cut process -- known as sequestration -- to save certain defense projects or to allow for a payroll tax cut extension. However, President Obama has said he would veto legislation that allows Congress to sidestep the automatic reductions.

Still looking for a Medicare pay solution


Rep. Allyson Schwartz (D, Pa.)

Meanwhile, with the larger 2012 Medicare physician pay cut still in play, lawmakers will be scrambling for a solution before the new year. Rep. Allyson Schwartz (D, Pa.) has been pushing a bill that repeals the SGR formula and replaces the payment system with alternative models. Despite the tightening timeline, she said she's still committed to advancing the bill in the final month of 2011.

"Members of both parties recognize the need to put an end to this perennial threat to Medicare beneficiaries' access to medical services, restore stability to the Medicare program and reduce growth in spending," Schwartz said.

Although the AMA said it appreciated Schwartz's effort to put forward a long-term reform plan, the Association said it could not support the legislation because it would impose penalties on physicians who were not able to transition their practices to a new payment system or meet its heightened expectations.

Rep. Michael Burgess, MD (R, Texas), also has pushed this year for eliminating the SGR. He has been part of several committee hearings to discuss longer-term ideas for reforming the Medicare pay system.

However, the debt limit debate during the summer and the deficit committee deliberations in the fall delayed work on a repeal, Dr. Burgess said. He said a full repeal, which would cost in the neighborhood of $300 billion, cannot be achieved before Jan. 1. A two- or three-year payment patch, with budgetary offsets in the tens of billions of dollars, is a more realistic year-end goal, he added.

The work on an SGR repeal will go on, Dr. Burgess said. House committee staffers will continue working on legislation to implement a long-term solution next year.

Until that happens, Congress could pass temporary patches to keep Medicare payment rates stable, just as it has numerous times since 2003. In 2010 alone, lawmakers enacted five short-term payment patches, including some that lasted just weeks.

However, Congress also has shown that it is willing to miss deadlines and allow SGR cuts to take effect temporarily until legislation can be passed to override the reductions retroactively. Such a move could require the Medicare agency to reprocess past claims once the retroactive patch takes effect so physicians are paid the full rate.

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One lawmaker's plan to replace SGR

Rep. Allyson Schwartz (D, Pa.) is one of the few lawmakers who has offered a long-term plan to eliminate Medicare's sustainable growth rate formula, although the AMA does not support it. The Medicare Physician Payment Innovation Act of 2011 would provide a transition period to test new pay models before weaning the health system off traditional fee-for-service. Her legislation would:

  • Increase pay for primary care services by 2.5% annually from 2013 to 2016.
  • Increase pay for all other services by 0.5% annually from 2013 to 2016.
  • Evaluate new payment and health care delivery models by 2015.
  • Freeze fee-for-service rates at 2016 levels and transition to new pay and delivery models in 2017.
  • Penalize physicians who stay in the traditional fee-for-service model by reducing their pay by 2% in 2018, 3% in 2019, 4% in 2020 and 5% in 2021. Exemptions would be given to physicians on a case-by-case basis.

Source: Medicare Physician Payment Innovation Act of 2011

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