The Coming Demise of the Medicare Sustainable Growth Rate and the Undoing of Fee For Service: How and Why Congress Really Means It This Time

Here they come....

Like manna from heaven, the Congressional Budget Office (CBO) has given the nation's physicians and their medical organizations an opening against Medicare's reviled sustainable growth rate (SGR).

Regular Disease Management Care Blog readers already know that the SGR is part of a 1997 law that was designed to battle rising health care costs. It relies on the blunt force of a "conversion factor" that unilaterally adjusts physicians' Medicare fee schedules to match the growth in the U.S. gross domestic product. Despite the good intentions, physicians costs have blown past the GDP faster than high income earners fleeing California. Not wanting to disappoint a grumpy constituency, Congress has repeatedly approved temporary patches to undo the conversion factor.

Unfortunately, the original 1997 law was never repealed and the Feds' bookkeepers have kept track of the growing gap between the GDP and the physician fees.  Without another patch, Medicare will deploy the conversion factor and reduce payments by approximately 25% beginning in 2014. 

As the DMCB understands it, the problem with the SGR is the projected costs of cancelling it. According to a recent article in AMA News, the price tag of repealing the SGR would increase the projected 10 year cost to $244 billion.  That calculated deficit has complicated Washington DC's efforts to balance the federal budget, find common ground on the sequester and fix the debt ceiling.

Enter the CBO's updated and just-released Budget and Economic Outlook for 2013 to 2023 . This telling sentence is buried on page 31:

"... holding payment rates through 2023 at the levels they are now would raise outlays for Medicare (net of premiums paid by beneficiaries) by $14 billion in 2014 and about $138 billion (or about 2 percent) between 2014 and 2023."

Whether you believe the projected slowdown in physician costs from $244 to $138 billion is the result of a moribund economy (the Republicans) or the enlightened interventions of Obamacare (the Democrats), the implications for the U.S. budget deficit are enormous.  Knowing a fiscal opening when they see it, politicians have responded faster than the DMCB's misanthropy to a crowded Amtrak train. 

The U.S. House Republicans have released their outline of an SGR reform proposal, while Pennsylvania Rep Allyson Schwartz (D-PA) (see below) has introduced a House bill dubbed the "Medicare Physician Payment Innovation Act of 2013."

Both are remarkable for their two similarities than differences:

1) Strangling the SGR by repealing the looming 25 percent across-the-board rate cut in 2014 along with any future rate cuts. Congress will establish a temporary five-year period of "predictable payment rates."

2) Finishing off fee-for-service (FFS) by soliciting organized medical society and "other relevant stakeholder" input to create multiple scientifically based payment models that use a variety of quality and efficiency metrics that will be periodically updated by Medicare.

These models will include registries, risk adjustment approaches, physician rankings, performance feedback, shared decision-making tools and pay-for-performance. Should a doc disagree that the registry-based risk adjusted ranking of how the shared decision making improved performance, he or she will be given opportunity to make an "appeal."

Ms. Schwartz's bill has more detail. She would lock-in the current payment rates until the end of 2014 and transition in the reforms described above over 5 years. During this time, she would also annually increase primary care physician payment rates by 2.5%. An interim report on the pace and success of the reforms would need to be submitted by the General Accounting Office to Congress in 2017. For docs that are struggling with the demise of fee-for-service, there'd be a payment track that retains FFS "for providers who are incapable of transitioning."

The DMCB's take:

1. Given the degree of Democratic and Republican agreement and the relatively low cost of "only" $138 billion, the likelihood of repeal of the SGR is better than it has been for years. Maybe it will really happen this year.

2. There is a remarkable bipartisan consensus that Medicare's FFS system needs to go away, despite an astonishing lack of evidence that we can really achieve an payment approach that is truly a better payment mousetrap.  The DMCB remembers the perils of exquisitely engineered global payment systems that were designed to reimburse for value and not volume.  It was called "capitation" and it failed miserably.

Maybe a 2019 target date is warranted. It'll take that long to not repeat history.

3. Also buried in the CBO report is this caveat:

.....spending per enrollee for Medicare and Medicaid—which generally has grown faster than GDP—is very difficult to predict. If per capita costs in those programs rose 1 percentage point faster or slower per year than CBO has projected for the next decade, total outlays for Medicare (net of receipts from premiums) and Medicaid would be about $650 billion higher or lower for that period."

While the DMCB understands the fiscal and political logic behind the timing of the SGR appeal, let's be honest: this is a budget decision built on assumptions based on guesses that are ultimately propped up by wishful political decision-making.

4. As a member of several professional medical organizations, the DMCB appreciates the proposed role of these entities in this next phase of health reform.  If you are a doctor and you are not paying dues to one organization or not participating in meetings and emailing its leadership, you stand to lose. 

Docs: Join. A. Professional. Society. Or. Association. Now. 

That's especially true if, as an employed physician, you think your Health System CEO has your interests at heart.  This might be a good start.