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SGR Development in the Senate


Senator Debbie Stabanow introduced a bill last week that would eliminate Medicare's Sustainable Growth Rate from the physician payment formula.

The Sustainable Growth Rate, linking Medicare payments to physicians to growth of the economy, was intended to help control health care costs. There is, by now, near universal recognition that this approach does not work. Because health care costs have grown much faster than the economy has, the flawed approach ends up mandating an increasingly severe cut to physician payments every year. To date, Congress has voted, at the last minute, to avoid these cuts each year. These year-by-year cuts are no substitute for a more substantial re-evaluation of the payment system, including a permanent solution to the SGR.


The Sustainable Growth Rate (SGR) is a formula that was created in 1997 designed to prevent Medicare physician payments from skyrocketing. The formula indexes physician reimbursements to the economy as a whole. However, because healthcare costs have increased so much more rapidly than the GDP, the SGR has in fact called for major cuts in physician reimbursements every year since 2002. To prevent these cuts from actually taking effect, Congress has voted nearly every year to temporarily reverse the formula for that year. While these year-by-year "patches" have temporarily prevented massive reductions in reimbursements, the net effect of has been that the SGR has called for even larger increases in subsequent years. In fact, the SGR calls for a 21.5% reduction in Medicare reimbursements to physicians in January 2010.


Last week, Senator Debbie Stabenow (D-Michigan) introduced a stand-alone bill, "The Medicare Physician Fairness Act of 2009" (S1776), which would permanently eliminate the SGR formula beginning in 2010, thereby stopping all future scheduled cuts in Medicare payments to physicians. Senator Stabenow's bill seeks to separate the SGR issue from the health reform bill being debated in the Senate right now.

S1776 establishes a new baseline for Medicare physician payments and would also freeze Medicare payment increases. Once the SGR is eliminated, Congress would still have to design a new system for determining and updating physician payments. Such a new system is not described in this bill.

Both the House and Senate bills contain provisions to fix the SGR, but each bill handles the issue differently. The Senate Finance bill contains a one-year fix of the SGR by replacing the planned 21.5% cut with a 0.5% payment increase for 2010, at a cost of about $11 billion. The House bill contains a permanent repeal of the SGR, replacing it with a new formula designed to provide pay increases for physicians (with higher cost growth rates for primary care fields). The SGR provisions in the House bill would cost about $230 billion over 10 years. This provision for the SGR fix in the House Bill is the only provision for which they have not yet designated a payment source.

Senator Stabenow's bill is expected to result in an increase of $245 billion over 10 years in the Medicare budget. Notably, the bill is not paid for with offsetting spending cuts or tax increases.


Some lawmakers have expressed opposition to S1776 because it does not contain provisions to pay for the 10-year $245 billion increase in spending. House Democratic leaders as well as President Obama have embraced a self-imposed pay-as-you-go budgetary rule (also known as paygo), which states that new spending must be paid for with spending cuts or revenue increases. President Obama has argued that the health reform bill can not add a single dime to the budget deficit, and some argue that the SGR fix is part of the health reform legislation. It is worth noting that in his statement in support of paygo rules in June, the President noted that Medicare payments to doctors should be exempt from paygo rules. In contrast, Speaker Pelosi issued a promise last April that she would attach paygo to the House's SGR fix; she reiterated that promise in a statement on Thursday. The Senate leaders have generally been less committed to the self-imposed paygo rules.

Moderate democrats in the Senate who oppose the bill -- including Evan Bayh (D-Indiana), Kent Conrad (D-North Dakota), and Ben Nelson (D-Nebraska) -- have said that they will vote against S1776 if it does not include a way to pay for the $245 billion cost of the SGR repeal. Senate Minority Leader Micth McConnel said that Republicans will offer amendments to offset the cost of the bill

Senate leader Harry Reid (D-Nevada) is using a procedural move that will allow S1776 to bypass the committee process and move straight to the Senate floor. In order to reach the Senate floor, the bill needs the support of at least 60 senators on three procedural votes, the first of which is expected this week.

Here is a snapshot of the current tenor of the discussion:

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