From Medscape Medical News

Senate Sets Stage for SGR Fix to Freeze Medicare Pay for 5 Years, Followed by Massive Cut

Robert Lowes

By scrapping the SGR formula, Congress would not only avert the deep pay cut but also retire years of SGR "debt." However, the longer Congress waits to do so, the more debt there is to retire. Earlier this month, internist Nancy Nielsen, MD, the AMA's immediate past president, stated that if Congress had eliminated the SGR in 2005, it would have cost only $49 billion, as opposed to more than $200 billion in 2010.

February 1, 2010 — Physicians who were hoping for a permanent solution to the notorious sustainable growth rate (SGR) formula for setting Medicare rates may have to settle for another temporary fix that would freeze their pay for 5 years at 2009 levels and then cut it by 25% to 30% in 2015.

This possible scenario emerged from legislation that the Senate passed last week to raise the federal debt ceiling from $12.4 trillion to $14.3 trillion, as well as requiring Congress to make spending and tax cut proposals budget-neutral. The latter provision, called the pay-as-you-go — or pay-go — rule, would force lawmakers to finance new outlays by cutting the budget elsewhere or raising taxes. Likewise, any move that decreases federal revenue would have to be offset with spending cuts or tax hikes.

The legislation came as organized medicine and lawmakers scrambled to avert a 21.2% reduction in Medicare reimbursement that is scheduled to take effect March 1. Physicians warn that such a draconian decrease, which is triggered by the SGR formula, would force them to stop seeing Medicare patients.

The Senate bill calls for exempting a 5-year Medicare rate freeze — which would replace the scheduled rate cut — from the pay-go rule, meaning that lawmakers could finance the freeze through deficit spending. The cost of freezing Medicare rates for 5 years instead of cutting them comes to $82 billion, according to the American Medical Association (AMA).

The debt ceiling legislation that the Senate passed last week only makes this SGR fix possible — a second bill is needed to actually avert the March pay cut and freeze rates for 5 years. Plus, the House would have to concur, noted Neil Kirschner, PhD, a senior associate in regulatory and insurer affairs for the American College of Physicians. "The House is expected to go along with it."

The Senate plan differs greatly from a bill that the House passed last fall that would scrap the SGR formula entirely and institute a new one with the promise of Medicare pay hikes. That bill would add $210 billion to the deficit, according to the Congressional Budget Office. However, the Senate has already indicated that it is not willing to go into the hole that much. Last fall, a Senate version of the House SGR bill that would have cost $247 billion was defeated in a procedural vote.

"Short-Term Fix Is Not Acceptable"

The move toward a more frugal solution to the SGR crisis, although understandable in the current debate about deficit spending, has alarmed leaders of organized medicine. "Such a short-term fix is not acceptable," William Jessee, MD, president and chief executive officer of the Medical Group Management Association, told Medscape Medical News. "Failure to address this issue at this time will surely lead to far more serious patient access problems."

Lori Heim, MD, president of the American Academy of Family Physicians, said that a 5-year freeze was better than a 21.2% pay cut, but that Congress shouldn't stop there. "I appreciate that we have to control deficit spending, but the Senate bill is short-sighted," Dr. Heim told Medscape Medical News. Failing to permanently fix the SGR problem now, she said, will only make it more expensive to do so in the future.

Created by Congress to control Medicare costs, the SGR formula sets an annual target for expenditures on physician services based on growth of the gross domestic product. If expenditures overshoot the target, Medicare cuts physician pay the following year to recoup the difference. Organized medicine considers the formula flawed because the cost of operating a medical practice typically grows faster than gross domestic product.

The SGR formula has triggered rate decreases going back to 2003, but each time Congress has postponed them with a 1-year "patch." However, the difference between targeted and actual spending on physician services accumulates from year to year, making the next year's pay cut even bigger.

That same math would play out with the proposed 5-year freeze of Medicare rates beginning this year. In 2015, the SGR formula would trigger a rate decrease of roughly 25%, according to Dr. Kirschner. The AMA puts the pay cut at roughly 30%.