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Another SGR “Fix”: The Broken Record of a Broken Formula

By Dr. Ram Krishnamoorthi

In the past few weeks, my e-mail inbox has been inundated with messages from several different organizations urging me to do the same thing: to call on my Senators and Congressman to halt the looming 23% cut in Medicare payments to physicians that is scheduled to take effect on December 1st. The American College of Physicians (ACP) urged me to call the Senate relentlessly until I get through “to avoid wreaking havoc on your patients and practices.” The American Medical Association (AMA) released their online survey results revealing that a whopping 94% of all American adults think that Medicare physician payment cuts pose a “serious problem” to seniors (I wonder what the other 6% were thinking). And the American Association of Physicians of Indian origin (AAPI) asked me to “ensure our seniors continue to have access to the health care they need” by pushing Congress to “provide certainty to the physicians who treat them” or else they will hear from thousands of seniors in their districts.

The scheduled cut comes from Medicare’s Sustainable Growth Rate formula. The infamous “SGR” is hated by all doctors—and feared alike. Every year for over a decade, and now multiple times a year, the specter of an across-the-board cut leaves docs waiting anxiously on whether reimbursements will match their expenses, whether they’ll be able to make their payrolls, or whether they’ll be able to accept new Medicare patients for the coming year. For seniors, the thought of losing access to physicians is even more nerve-racking and defeating.

But every single time, the cuts are postponed by temporary patches, or “doc fixes”, by Congress.

The latest such fix was passed by the Senate on November 18th. The “Physician Payment and Therapy Relief Act of 2010,” would continue this year’s current fee schedule, a 2.2% increase from 2009 that itself was a “doc fix” passed 6 months ago.  This latest patch will cost $1 billion, and, after it’s passed by the House and signed by the President, will relieve the anxieties of physicians and seniors for … one more month.

That’s right. One more month. The minority party in the Senate blocked a longer fix during this lame-duck session, promising—as Congress does every year—to take it up next year and find a way to pay for it.

And so the can is kicked farther and farther down the road.

The word “flawed” has become tethered to the SGR whenever it’s mentioned, a perfect example of the problems of national health care expenditures overall. In the 1980s, Medicare recognized that the private sector’s “usual and customary” fee-for-service schedule of physician reimbursement was too expensive for seniors’ care. The Resource-Based Relative Value System (RBRVS) and Volume Performance Standard (VPS) also didn’t work despite attempting an external ceiling on payments. Then the SGR was passed in 1997, indexing aggregate payments to the growth in the U.S. economy, as well as enrollment and physician costs. It seemed to work at first because volume and intensity of medical care had slowed down.  In truth, health financing gurus like Gail Wilensky knew that it wouldn’t last. Sure enough, health care expenditures started outstripping the GDP again. In 2002, the first cut of 4.5% was made, and the hatred among doctors began.

Policy wonks and the Medicare Payment Advisory Commission have known the basic problem: the Medicare reimbursement system provides little incentive for physicians to provide value rather than volume, quality rather than quantity.  Therefore, the intensity and complexity of services continue to grow. The SGR only limits the rates at which these interventions are paid. There are no rewards for those primary care docs who keep their patients healthy, and no disincentives for procedures that may be of low marginal value.

So, why does Congress merely patch up this ratty old formula each year? Instead of scrapping it and replacing it? Because of the stark truth:  A real fix to the SGR would cost a lot of money.

If, as the AMA and other physicians’ groups demand, the formula is indexed more accurately to physicians’ stated costs to care for seniors currently, then a permanent fix would add to the 10-year federal deficit by $439 billion to $556 billion, not including the added interest on the national debt. The fixes that have been passed in the last decade have cost a similar amount. Physician expenses are among the fastest growing expenditures for Medicare: Part B has been growing at rates of 10 to 12 percent per year through much of the decade.  There is nothing sustainable about this.

It’s not clear that doctors are conscious of these facts.  Many are busy struggling in heavy Medicare and Medicaid-funded practices to stay afloat. But their professional groups cannot be so naïve. Despite this, their focus is clearly on raising rates overall. In fact, when the SGR originally passed, the AMA did not protest and enjoyed the positive growth. Now, the hated/ feared/ flawed SGR might be competing with tort reform as the top target on their legislative agendas. The AMA has launched an instructional course for its members called “Understanding your Medicare Choices,” including the pros and cons of opting out of Medicare. In its advocacy e-mail, the ACP instructed me on communicating the threat to Congress: “Also, be sure they are aware that, amid physicians’ anxiety about the future stability of Medicare payments, you must now decide on your participation status in Medicare for 2011—including how many Medicare patients you can care for.”  Despite the concern for seniors in their ads and the partnering up with the AARP, one wonders what the latter group thinks of these threats.

The issue is not easy. It will require courage from Congress, from physicians, and from the American public. Several tough questions need to be asked:

  1. If the AMA truly wants seniors to get the health care that they need, then is it responsible to educate its members on pulling out of Medicare? Instead of supporting meaningful payment reform that fairly pays for needed services but dis-incentivizes unneeded ones?  Instead of supporting Primary Care, prevention, and coordination? For example, the ACA promotes the non-binding study of bundled payments, accountable care organizations, value-based insurance design, reporting of quality measures, and the collection of information on physicians’ costs.
  2. Opponents of the Patient Protection and Affordable Care Act and real fiscal conservatives claim that the November election results demonstrated voters’ discontent about federal budget deficits. If so, then instead of myth-mongering, wasting time in calling for its repeal, or threatening to de-fund its implementation, shouldn’t we acknowledge what the CBO has told us repeatedly about the ACA’s deficit-cutting power? If we acknowledge this, and support payment reform, then we can embark on an SGR fix with truly honest accounting.
  3. If the American public wants to preserve and expand the highest quality health care in the world, shouldn’t we make an investment in the health care system to promote public health now? To provide economic security, prevent chronic diseases, and to expand health insurance so that Medicare is not overwhelmed by an aging population?

Yesterday was the 47th anniversary of the assassination of John F. Kennedy, whose most-remembered line was a clarion call to Americans to ask themselves how they could sacrifice for their country. In addressing the flaws in our health care system and in making tough decisions, a call to look upon ourselves as physicians is in order, to invest in reform for the sake of our patients.  It’s time to break the cycle of this broken record.

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