The Broader Implications of Letting the Sustainable Growth Rate (SGR) Formula Happen

According to the Washington Post, it is highly unlikely that Congress will undo the planned "sustainable growth rate formula" (SGR) mandated Medicare fee schedule cuts. While there's an outside chance of a fix, the American Medical Association, as well as other organized physician groups, can't be happy about the near-certain arrival of the 20% payment reductions that are slated to begin within a week.

Recall that the SGR was signed into law back in 1998. It was designed to be "cumulative and prospective," setting spending health care targets that, if exceeded any given year, were supposed to be proportionately applied to the following year's target. Until now, each yearly reduction has been temporarily cancelled by Congress. With the passage of the years, the excess has accumulated to approximately $20 billion. Without passage of a "fix" by Congress that can be signed by President Obama, this is the fiscal year when the SGR will force CMS to recoup its pounds of flesh.

Despite Mr. Obama's now classic ploy of blaming "some Senate Republicans" for the impasse, the Disease Management Care Blog suspects the AMA and its membership will rue its Faustian Deal of supporting the Democrats' health reform in exchange for assurances that the SGR would be permanently repealed. Without it, the DMCB wonders if this kind of political malpractice could lead to a spread of Texan-style refusals to accept new patients with Medicare, making even MedPAC to take note. To make things worse, commercial insurers use Medicare as a base when they calculate their payment rates. Whether they'll also reduce the fees or knuckle under to this attempt by the Feds to use them to cross-subsidize Medicare remains to be seen.

The DMCB doesn't think this is going to end well:

1. This is only partly about the money. It's about commitments. Will the primary care physicians dealing with Medicare need to think twice about embarking on a CMS medical home demo when payments can be unilaterally reduced like this?

2. On a larger scale, this is demonstrating that a mainframe government healthcare system seems incapable of intelligently targeting cost reductions. If Mr. Obama's health reform Ver 1.0 fails to tame overall health care cost inflation, the same blunt Medicare decision-making could to happen to hospitals, nursing homes, medical device manufacturers and to the insurers/patients counting on Federal subsidies. Hello Mr. Mudd.

3. And on an even larger scale, this may also be symptomatic of a more profound underlying problem of governance. Modern and enlightened government activism is so far turning out be no different than old fashioned if well-meaning government activism when it comes to dealing with blown-out oil wells, Keynesian deficit spending, war-making and compromising with an obstructionist if loyal opposition. Mr. Obama's rhetorical skills and distant intellectualism may not be the secret sauce that many of us hoped would make the difference. We'll see.

Image from Wikipedia