For over a decade, the sustainable growth rate (SGR) has been a source of financial worry for physicians who serve Medicare patients. Medicare’s physician payment rate is based on a composite measure of the cost of care, multiplied by a factor derived from the SGR formula. Every year since 2002, the SGR has called for decreases in Medicare physician payments. But every year, Congress passes a temporary fix to prevent payment rate cuts, a measure known as the doc fix. The latest doc fix put off a 27 percent cut in physician fees until the end of 2013.

The cycle of temporary fixes to the SGR creates a great deal of uncertainty for physicians and patients with health coverage through Medicare fee-for-service or Medicare Advantage. Physician groups and hospital systems for years have advocated for a permanent fix to the SGR. But Congress would need to find at least $138 billion to offset the cost of a permanent doc fix, a major sticking point and a big part of the reason why temporary fixes have become the norm.

The ongoing uncertainty and annual threat of huge payment cuts has also meant that physicians rarely receive an annual rate increase.  Since 1998 when Congress enacted the SGR formula, most years physicians have received either no rate increase or a modest one percent increase. As a result, Medicare reimbursement has fallen far behind increases in cost of running physician practices.

MedPAC Recommendations for the SGR:

Around this time every year, the excellent staff at the Medicare Payment Advisory Commission (MedPAC) makes recommendations to Congress about Medicare payment policies. Once again this year, MedPAC’s report has recommended that Congress get rid of the SGR as soon as possible. If left unchanged, MedPAC says, the policy has the potential to cause doctors to drop Medicare patients, destabilizing the Medicare program, and limiting access to physician services for beneficiaries.

MedPAC suggests a four-part plan to get rid of the SGR:

1. Repeal the SGR and avoid linking future Medicare physician payments to cumulative payments for services.

The quantity of services provided is part of the SGR’s formula. As quantity increases, payment rates decrease, which was intended to discourage physicians from charging Medicare for unnecessary medical care. But, as MedPAC points out, the SGR has no mechanism for rewarding physicians who reduce the quantity of services. Under the SGR, if the aggregate amount of services increases payment rates go down for everyone. Instead of the SGR, Congress should enact a 10-year fee payment schedule, with different, improved Medicare Part B rates for primary care services.

2. CMS should collect data to improve Medicare payment accuracy and identify overpriced services within the fee schedule.
3. Medicare should encourage physicians to move from traditional fee-for-service Medicare into Accountable Care Organizations.

Accountable Care Organizations (ACOs) are composed of multiple providers, mostly hospitals, physicians, and health systems. Through the Medicare Shared Savings Program, ACOs can earn a portion of savings by controlling health costs and spending.

ACOs and other payment reforms present major challenges, as well as opportunities, for physicians. See my previous post on this issue for some ideas on how physicians can ready themselves for payment reforms ahead, at Physician Payment Reform: Preparing for Value-Based Reimbursement.

4. SGR repeal must be fiscally responsible.

Earlier this year, the Congressional Budget Office (CBO) dramatically reduced its estimate of how much it would cost Medicare to repeal the SGR and hold its payment rates constant. Though previous estimates put the 10-year cost around $250 billion, the CBO now expects the cost to be $138 billion. That still is a lot of money. Congress could try to offset the costs with cuts throughout the Medicare budget. For example, MedPAC’s report says, Congress could reduce payment rates for providers – such as hospitals, home health care providers, and nursing homes – and it could increase out-of-pocket costs for Medicare beneficiaries.

MedPAC Data on Access to Physician Services:

MedPAC’s report to Congress also includes some interesting data on whether Medicare beneficiaries have adequate access to physicians. A few highlights from the report:

  • In a 2012 MedPAC survey, 77 percent Medicare beneficiaries said they never had to wait longer than they wanted to for routine care. Seventy two percent said so among people ages 50 to 64 years in private health plans.
  • 72 percent of Medicare beneficiaries said they had no trouble finding a primary care physician to treat them, according to the 2012 survey. Seventy five percent said so among those ages 50 to 64 years with private health insurance.
  • Minorities in Medicare have less trouble waiting for care than do minorities with private health insurance.
  • There are no statistically significant differences in access to care among rural and urban Medicare enrollees.
  • 30 percent of beneficiaries saw physician assistants or nurse practitioners for some or all of their care. The figure was slightly higher, 36 percent, for those with commercial health coverage.
  • From 2009 to 2011, the number of physicians and other health professionals providing services to Medicare beneficiaries kept pace with growth in the beneficiary population.

The physician payment section of MedPAC’s report is full of additional data on utilization rates and physician participation rates. You can read the physician chapter here, and access the full report here.