SGR pay cuts play spoiler to optimistic Medicare forecast

Medicare cost growth remains low but is expected to rise, triggering automatic spending cuts under the IPAB before the end of the decade.

By Charles Fiegl amednews staff — Posted June 10, 2013

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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.

Medicare spending per patient grew only 1.7% from 2010 to 2012.

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.”

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Court uncloaks physician identity in Medicare data

A federal judge has lifted a permanent injunction in place since 1979 that had blocked the Dept. of Health and Human Services from disclosing Medicare payment data that identify individual physicians.

Vacating the injunction still leaves in place an HHS policy adopted in 1980 that states “the public interest in the individually identified payment amounts is not sufficient to compel disclosure in view of the privacy interests of the physicians found compelling by the courts,” wrote Judge Marcia Morales Howard, with the U.S. District Court for the Middle District of Florida, in the May 31 ruling. That means the decision will not result in an immediate release of the information, and interested parties that include The Wall Street Journal would need to request access to the information again from HHS, which might continue to reject such requests despite the end of the legal injunction.

In 2011, the newspaper challenged the injunction and sought a decision on whether personally identifiable Medicare billing data should be disclosed. The paper had published a series of articles on suspected Medicare fraud being committed by physicians, but it had been prevented from publicizing the names of the doctors believed to be defrauding the program.

The Florida Medical Assn. and six physicians first had filed a lawsuit designed to block the government from releasing the information in 1978, and the American Medical Association soon joined the lawsuit as a plaintiff.

Although the White House at the time of the initial injunction supported the release of claims data, HHS since has adopted the policy of opposing it on physician privacy grounds. The latest decision might be subject to an appeal.

“Medicine has stood its ground during the last 34 years to defend an injunction that favored individual rights and protected innocent physicians from becoming targets of suspicion,” AMA President-elect Ardis Dee Hoven, MD, said in a statement immediately after the ruling. “The American Medical Association is considering its options on how best to continue to defend the personal privacy interests of all physicians.”

An HHS spokeswoman would not comment on the decision.

— By Charles Fiegl

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Effect of SGR, IPAB repeal on spending

The sustainable growth rate formula is scheduled to cut doctor payment rates by 24.7% in 2014, but budget officials projected the upward effect on spending if cuts were replaced with a 0.7% pay increase in 2014 and subsequent years. Removing the Medicare Independent Payment Advisory Board cuts expected in 2019 also would cause spending growth to rise. Expenditures are in billions of dollars.

Current law Alternative projection
Year Expenditures Growth rate Expenditures Growth rate
2012 $240.5 6.7% $240.5 6.7%
2013 $251.3 4.5% $251.3 4.5%
2014 $253.4 0.8% $268.2 6.7%
2015 $267.9 5.7% $283.8 5.8%
2016 $287.3 7.2% $303.4 6.9%
2017 $308.6 7.4% $326.1 7.5%
2018 $333.9 8.2% $353.0 8.3%
2019 $360.0 7.8% $381.9 8.2%
2020 $390.1 8.4% $414.0 8.4%

Source: “Projected Medicare Expenditures under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers,” CMS Office of the Actuary, May 31 (link)

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External links

“2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” Centers for Medicare & Medicaid Services, May 31 (link)

“Projected Medicare Expenditures under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers,” CMS Office of the Actuary, May 31 (link)

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