SGR pay cuts play spoiler to optimistic Medicare forecast

Washington The caretakers of Medicare's finances outlined a doomsday scenario in which the sustainable growth rate formula imposes a 24.7% cut to physician payments in 2014.

According to the annual report of the program's board of trustees, Medicare pay rates on average would drop to 61% of what private insurers pay for the same health services, also bringing rates below what Medicaid pays. The situation would not improve over time, with Medicare rates dipping below 40% of what private insurers pay as the system approaches the year 2050.

Although the trustees acknowledged that Congress is unlikely to allow such an extreme application of the SGR to occur, they urged lawmakers to shore up Medicare's finances without additional delay.

“The sooner that policymakers address the challenges that lie ahead, the less disruptive the unavoidable adjustments will be both for individuals and our economy,” said trustee Robert D. Reischauer, PhD, a former director of the Congressional Budget Office. “Similarly, the sooner decisions are made, the greater the opportunity will be to craft solutions that are both balanced and equitable.”

The annual trustees report provided some cautious optimism about Medicare, as health spending growth has remained slow following the recent economic recession and the enactment of the Affordable Care Act. The solvency of the Medicare trust fund for hospital care was extended to 2026, an additional two years beyond the estimate in the 2012 trustees report. The report revealed that Medicare spending per patient grew only 1.7% from 2010 to 2012.

But the period of slow spending growth is not expected to continue indefinitely, as economic conditions improve and new health technologies and medical advances are introduced to the system, the trustees said. These and many other fiscal challenges remain, including the expected effect on spending that would come from overriding a physician pay reduction of nearly 25%, the report stated.

“If the past is any guide, lawmakers will most certainly override this reduction, and Part B Medicare expenditures will therefore be higher,” Reischauer said.

Factors in Part B's future

More Medicare spending would cause the program to outpace economic growth, according to an additional analysis in the report prepared by the Centers for Medicare & Medicaid Services Office of the Actuary.

Outpatient spending alone grew 6.7% to $240.5 billion and represented more than 1.5% of gross domestic product in 2012. Part B will approach 2.5% of GDP by 2030 under an alternative scenario that assumes Congress will block the SGR cuts and give physicians modest pay raises.

The trustees projected a growth in surpluses for Part B — funded by tax revenues and beneficiary premiums — from 2014 to 2020, as key ACA provisions are implemented and lower pay updates are compounded. However, these surpluses would not materialize in the likely event Congress keeps overriding the SGR, they said.

The trustees report gave a snapshot of how the Medicare Independent Payment Advisory Board would affect program finances under current law. The board, authorized by the ACA to control program costs, is expected to become active by the end of the decade and in subsequent years.

The IPAB is required to propose Medicare reductions when projected spending outpaces growth targets established by the ACA, proposals that could include cuts to physician pay. Under current assumptions, the cost-control board would be triggered for action in 2019, 2023, and then every two years until at least 2035, the CMS actuary office stated.

Organized medicine groups and many lawmakers oppose the 15-member IPAB because it would wield great authority over Medicare and have its proposals expedited through Congress. No one has been appointed to the IPAB, but if the board remains inactive or fails to reach consensus on cuts, its powers would fall to the Health and Human Services secretary.

Some movement on SGR reform

Despite the slow Medicare growth outlined in the trustees report, now is not a time to be complacent, said economist Douglas Holtz-Eakin, PhD, at a Washington forum after its release. He is president of the conservative think tank American Action Forum and a former CBO director. The U.S. health system has experienced periods of slow growth before, most recently from 1994 to 1999, which were followed by stretches of much higher spending, he said.

Holtz-Eakin and other forum participants discussed ways to modernize Medicare, including redesigning the benefit structure, changing patient cost-sharing and scrapping the SGR.

The House Energy and Commerce Committee has drafted a bill to eliminate the pay formula and provide a period of rate stability while transitioning to a new system with an array of pay models. Options would include accountable care organizations, patient-centered medical homes, bundled payments and fee for service.

The draft will be modified with input from practicing physicians, patients and others, said Rep. Michael Burgess, MD (R, Texas), vice chair of the panel's health subcommittee. But the legislation definitely would accomplish a repeal of the SGR — an achievement that has eluded lawmakers for at least a decade.

The draft was released May 28 with the hope of passing an SGR-repeal bill before the end of 2013. “I'm as optimistic as I've ever been,” Dr. Burgess said.

The draft is another step toward ending the SGR and moving toward new ways to deliver and pay for care that reward quality and reduce costs, said AMA President Jeremy A. Lazarus, MD. “We are pleased that Congress is focused on this issue, and we look forward to continuing to work to see that progress is made this year.”

Work on Medicare reform also is ongoing in the Senate. In response to questions posed by the Senate Finance Committee, the AMA wrote a May 31 letter strongly supporting the panel's goal to identify alternative payment models to aid physicians who deliver high-quality, affordable care to seniors.

“Medicare patients' access to physicians has been placed in jeopardy annually due to the threat of steep SGR cuts,” the letter stated. “It is important that the SGR replacement process avoid similar disruptions to medical practices and provide adequate resources for this undertaking.”