Medicare SGR sticker shock adds urgency to pay reform campaign

The price tag of a one-year Medicare payment patch rises to $25 billion as calls continue for a permanent measure to overhaul the program’s pay system.

By Charles Fiegl amednews staff — Posted Dec. 3, 2012

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The cost of stopping the 2013 Medicare physician payment reduction has changed, increasing by $7 billion for a one-year pay patch that would preserve rates at 2012 levels, according to federal budget officials.

The new Congressional Budget Office estimate will be referenced during negotiations in the lame-duck session of Congress to settle several massive fiscal issues before the end of 2012. In addition to the 26.5% cut mandated by the Medicare statute, Medicare rates are set to be reduced by an additional 2% starting in 2013 through a budget sequestration process required by a 2011 deficit reduction law.

The cost of offsetting a freeze of Medicare payments by preventing the 2013 cut under the sustainable growth rate formula has proved to be a moving target. The most recent estimate incorporates policy adopted in the final 2013 physician fee schedule, CBO said. But the projections vary over time and are complicated, showing the costs of overriding the SGR to be higher in some instances but lower in others when compared with an earlier estimate in March, depending on the budgetary window being considered.

“The adjustment is realized over a period of multiple years and can result in increased or reduced payment rate updates for periods of several years,” CBO said. For instance, projecting a one-year pay patch generates a 10-year spending figure — now $25 billion — that is higher than the initial estimate, but assuming a two-year patch results in a figure that is lower than what initially had been projected.

Although the cost estimates for temporary payment patches can fluctuate, on the whole they are becoming larger every year that Congress puts off implementing a longer-term solution. That makes it more difficult for lawmakers to find the money in the budget needed to prevent rate cuts without adding to federal deficits. The latest CBO estimate further demonstrates how the short-term approach of delaying cuts is not the way to take care of an SGR formula that is broken and needs to be eliminated, said American Medical Association President Jeremy A. Lazarus, MD.

“The new information from the CBO shows that the rate of growth in Medicare spending has gone down, but now the cost for preventing the devastating cut has increased by $7 billion,” he said. “When lower rates of spending growth lead to a higher cost for reform, it is clear that the SGR does not work. It is time to stop this broken cycle in Medicare and move toward a program that ensures the best health outcomes for patients and a stable, rewarding practice environment for physicians.”

The AMA has called on Congress and the White House to transition away from the SGR to a system that emphasizes quality innovations for patients, Dr. Lazarus said. Other associations representing primary care physicians and patients also have encouraged lawmakers to stop future cuts without relying on the practice of using stopgap measures to override the SGR. The American Academy of Family Physicians and the American College of Physicians joined AARP and other patient advocates on a Nov. 9 letter to Congress urging leaders in the House and Senate to provide stability to the program.

“We urge you to pass the longest possible SGR fix this year in order to allow for the development of a long-term and sustainable solution,” the letter said. “New payment methods are needed that maintain access and encourage the delivery of high-quality care.”

Congress consistently has prevented Medicare doctor pay cuts for the past decade, and no lawmaker has said that he or she believes the reduction will take effect in 2013. At the same time, physicians looking for certainty in the national health entitlement again are forced to deal in the final weeks of the year with the uncertainty of exactly when and how Congress might act. In several cases, lawmakers technically have allowed the SGR cut to take effect temporarily before rolling back rates with a retroactive patch.

“No business can sustain a reduction of nearly 30% and remain viable,” said AAFP President Jeffrey Cain, MD. “These cuts will devastate family physicians’ ability to care for elderly and disabled Americans. Not only will they see reductions from Medicare, but they’ll also see losses in Medicaid and private insurance, because their payment rates are tied to the Medicare payment.”

As has been the case in recent years, finding the federal funds to stave off the pay cut is the primary stumbling block in the way of a resolution. During the short lame-duck session, efforts to patch pay rates will be competing for dollars and lawmakers’ attention with the impending expiration of the Bush-era tax cuts and a payroll tax cut as well as the budget sequestration. Lawmakers have expressed their desire to prevent all of those changes from taking place.

Organized medicine supports repealing the SGR and paying for the long-term solution by redirecting unused money from an overseas contingency operations fund after the end of full-scale military operations in Iraq and Afghanistan. This type of budgeting offset has the support of the White House and Democrats on Capitol Hill.

But Republicans have resisted the war-funding offset, with many calling it a budgetary gimmick. Rep. Phil Gingrey, MD (R, Ga.), is one key lawmaker who does not support using the overseas allocations to pay for Medicare system reforms. The co-chair of the House GOP Doctors Caucus told reporters on Nov. 15 that Congress will block the pay cut temporarily and suggested that eliminating unnecessary government programs would be the way to pay for the measure. He said he was confident that the House and Senate would pass a one-year patch before the next session of Congress convenes in January 2013.

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How a one-year SGR patch costs $25 billion

The Congressional Budget Office has provided lawmakers with new estimates for how much it would cost to freeze 2013 Medicare rates at 2012 levels — the course of action that lawmakers have said is the most likely. Despite an expected decrease in utilization of services in 2013 and lower health spending growth in 2012, the price tag for a one-year patch is just over $25 billion. That cost is spread over 10 years, and the projection also assumes that Medicare will cut physician pay by 25% in 2014.

Fiscal year Cost of patch
(in billions)
2013 $10.6
2014 $6.7
2015 $1.3
2016 $1.3
2017 $1.2
2018 $1.0
2019 $0.8
2020 $0.7
2021 $0.7
2022 $0.8
10-year total $25.2

Note: Numbers do not add up exactly because of rounding.

Source: “Medicare’s Payments to Physicians: The Budgetary Impact of Alternative Policies Relative to CBO’s March 2012 Baseline,” Congressional Budget Office, Nov. 21 (link)

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