The Standard Growth Rate (SGR) may finely die, but what’s next for Medicare physician payments?

In November the AMA House of Delegates held its interim meeting in Washington DC. While the spread of resolutions debated was vast and varied, the greatest focus of energy and emotion surrounded the repeal of the SGR. Of course we’ve been here before. Like Charlie Brown optimistically hoping that this time Lucy will hold the football steady, we keep landing on our backs as Congress applies a Band Aid and pushes the “doc fix” back another year.

“The AMA has heard the nation’s physicians, and we’re pulling out the stops to get Congress to act and take a fiscally responsible course that will stop the annual cycle of draconian Medicare cuts and short-term patches,” AMA President Ardis Dee Hoven, MD, said in a news release.  The difference this year is that there is truly reason to hope – the cost of repeal now makes clear economic sense, and Congress appears to be ready to act.

For those who need a refresher, the SGR (Sustainable Growth Rate) is a formula that was created in 1987 by the Balanced Budget Act as a way of controlling costs in Medicare. It was a formula devised to ensure that the yearly increase in expense per Medicare beneficiary does not exceed the growth in the GDP. It is one of the primary factors used in determining the Medicare Conversion Factor, which is the dollar value attached to an RVU (a Relative Value Unit) of any medical service provided to a Medicare beneficiary. Coincidentally, most insured health plans are negotiated at multiples of the Medicare Conversion Factor, so this issue is not restricted to care provided to Medicare enrollees.

Since 2002, there has been only one year that the SGR actually resulted in a positive figure, which would give a raise to the Medicare Conversion Factor. In most years, Congress has stepped in at the last moment (in fact, after the last moment in a couple of instances) to rescue the Medicare Conversion Factor from decreasing as would have been mandated by the SGR that year. This percentage of decrease is commonly referred to as the annual “SGR Cliff” and it will only grow until the formula is repealed. Overall, in the 15 years since its inception, there has been essentially no net increase in the SGR, which, when translated, means that there has been no increase in the payment to healthcare providers for Medicare patients, while the overhead expenses of the practices have increased.

Why is this year different? There are several reasons. First, the “cliff” has continued to increase (to 29%), to the point at which it would be truly catastrophic to the Medicare beneficiary community to allow it to happen. Imagine the dramatic influx to emergency departments if payments for Medicare patients were cut nearly 30%. Secondly, there is growing recognition that it actually costs the government (us taxpayers) more to annually postpone the SGR cut with a freeze than to simply abolish the SGR formula. The Congressional Budget Office has confirmed this with a projection that the cost of repeal ($139 B) is less than half the price of repeal in 2012, and that this figure is less than the cost of the temporary patches of the last decade ($148 B). Third, there are those in CMS who understand that their organization gets little added benefit (such as quality measures or value-based purchasing) for the current practice. 

There is guarded optimism in Congress and in the AMA and medical societies nationwide that this year is the year for the death of the SGR. Does this affect emergency physicians? Yes, but it depends on the employment setting. The greatest impact will be on community physicians which will indirectly affect emergency departments.

If this all sounds a little too good to be true, you’re probably right. There are strings attached, some of which may have not yet been identified. One is a pay freeze of the Medicare Conversion Factor for as long as 10 years. Another is an introduction of new quality measures in the form of Value-Based Purchasing that would penalize some providers and reward some others. The consensus among medical society leaders is that the first necessary step is the elimination of the SGR. Any accompanying conditions can be dealt with later. Stay tuned.

Michael Carius is a former president of the American College of Emergency Physicians.


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