• Economics
• Political

In April 2013 we reviewed the definition and historical development of the sustainable growth rate (SGR) formula that plagues the American healthcare system.1 We examined and contrasted a number of serious policy proposals designed to fix this broken system. Finally, we explored what at the time were late breaking estimates of the perceived diminution in cost of permanently fixing the SGR.

As described in that foundational article, while there may have been a rational basis in developing the SGR to curb costs, in fact the SGR is at present a discredited approach. By design it is meant to restrain the growth of Medicare spending on physician services that critically links to the US gross domestic product (GDP).2–4 Current estimates are that application of the SGR formula would result in a diminution of professional fees for physicians accepting Medicare of 24.4% on 1 April 2014.2–4 We seek to update readers of JNIS on some meaningful developments related to the SGR discussion.

On 26 December 2013, President Obama signed the Bipartisan Budget Act of 2013 into law.5 This ‘fix’ is really a postponement of application of the SGR correction of 3 months; the irony being that the cuts are delayed to 1 April 2014. What is not a joke is that there was a pathway for the SGR Reform Act of 2013. There appears to be growing light at the end of the tunnel.

The Bipartisan Budget Act of 2013 established federal budget targets for 2014 and 2015 and, not surprisingly, included a number of provisions impacting the federally supported Medicare and Medicaid programs.6 ,7 While the act provides the 3-month fix described above, it extended Medicare 2% provider payment cuts under the existing sequestration authority for 2 years.5

The hope is that the 3-month delay will give Congress time to permanently repeal the SGR once and for all. This hope comes in the newly positive context of legitimate legislative efforts towards repealing and replacing the SGR that took shape in 2013 largely as a result of the lowering of the Congressional Budget Office (CBO) estimate on cost of repair. In the past, legislative efforts to reform the SGR relied primarily on applying the GDP-based formula to different subgroups of physicians.8 ,9 Examples include both the children's health and Medicare Protection Act of 2007 and the Medicare Physician Payment Reform Act of 2009. However, these efforts never bore fruit and never became the law.

The 2013 congressional session was hardly known for its bipartisanship. However, bipartisan ‘SGR fix’ bills were passed out of several committees and we will review them here. The first bill was passed unanimously by the Energy and Commerce Committee and its framework was referenced in our previous article.10 As well, the Senate Finance Committee and the House Ways and Means Committees each put forward potential fixes.11

These three bills have a variety of common elements which readers might hope augers well for a potential solution. In all three congressional proposals there is a short period of stability for physician reimbursement, with small updates possible and still larger updates made available for physicians who participate in alternative delivery systems that can demonstrate improved value. Importantly, physician fees will in fact be reduced for those who do not demonstrate success in improving value or efficiency.10 ,11

The cost of repealing the SGR has been the major factor since a few years after its inception and was reviewed in detail in the reference paper.1 Briefly, the SGR targets the product of the growth in the fee-for-service enrollment: inflation update factors, real GDP per capita and changes in law or regulation. Actual growth and spending on physician services are compared with a cumulative target growth rate linked to GDP using 1996 as the base year. In addition, the formula limits the amount of an increase in payment rates to inflation plus 10%, and it also limits a decrease in payment rates to inflation minus 7%, with inflation being measured by the Medicare Economic Index (MEI). The MEI measures changes in the cost of a physician's time and operating expenses (ie, practice expense), which is weighted to some of the prices of inputs in those two categories. The changes in the cost of a physician's time are measured using changes in the non-form labor cost and changes in ‘all factor’ productivity.12

As outlined in the reference paper, critical to understanding how providers could face what was at times an approximate 30% overnight cut in the value of their services is the fact that, whenever Congress blocks implementation of that year's fee reduction, it compounds the difference between actual and SGR driven fees, making the eventual adjustment that much larger. The 2011 estimates from the CBO cut by nearly half its cost estimate for freezing physician reimbursement over a decade, which is in part what is creating our present belief that the SGR might get fixed this year.

The CBO cost to repeal the SGR does not necessarily equate exactly to the anticipated cost for each individual legislative effort. For example, the CBO has estimated that the bill passed by the Energy and Commerce Committee would cost $175 billion over a period of 10 years.13 The draft strategy from the Senate Finance and House Ways and Means committees has not yet been given a cost estimate by the CBO.14

The House committee on Ways and Means and the Senate committee on Finance originally proposed a 10-year freeze on Medicare physician payments; however, the House bill would now provide a 0.5% positive update for 2014–2016. In contrast, the Senate bill retains the10-year payment freeze. Other elements of these bills include providing funding to shift towards new payment models focusing on quality rather than fee-for-service, consolidating existing quality improvement programs into a single Value-Based Performance Payment program, creating a Medicare payment for complex chronic care and remote services. Finally, readers of our previous papers on the Relative Value Scale Update Committee will create a process to identify misvalued services and redistribute savings on those services within the physician fee schedule.15 ,16

The House Energy and Commerce Committee is also known as the Medicare Patient Access and Quality Improvement Act of 2013.10 That bill stabilizes the fee updates, including a provision that would repeal the SGR. There is a Quality Update Incentive Program (QUIP) that would end with implementation of an enhanced Physician Quality Reporting System (PQRS), which would link payments to providers delivering high quality care. The draft also includes an interesting method of moving forward alternative payment models. Eligible providers could opt out of the fee-for-service program and participate in alternative payment models.

All three congressional proposals contain overlapping elements, as shown in table 1. One might be cautiously optimistic that this multi-year SGR conundrum would be solved; however, as students of congressional inaction, we point out that multiple challenges still remain. The first and most obvious is how to pay for the fix. The second relates to the developing primacy of alternative payment models and quality systems that could further challenge small practices. Bearing that in mind, we believe the moment may indeed be right for physicians and other providers to imagine a world without yearly threats of draconian cuts to their reimbursement.