A SGR replacement bill has been introduced, but who is picking up the tab?

The day the physician community has been waiting for since the implementation of the sustainable growth rate (SGR) in the late 1990s has come. On February 6, 2014 the leadership of the House Ways and Means and Energy and Commerce Committees and the Senate Finance Committee released a bi-partisan and bicameral bill to repeal the Sustainable Growth Rate (SGR) formula that has driven annual reductions in Medicare payment for physician services. The catch is that the $128 billion SGR Repeal and Medicare Provider Payment Modernization Act of 2014 (H.R. 4015/ S. 2000) does not include any offsets.

Besides repealing the SGR formula, the legislation provides for annual 0.5 percent updates in fees for the first 5 years followed by a payment freeze for until 2023. Beginning in 2024, an annual 0.5% update will be provided for all physicians except those participating in Alternative Payment Models, who will receive a 1% update. The legislation consolidates the existing quality reporting programs in to one Merit-Based Incentive Payment System (MIPS) through which physicians would be required to report if they are not participating in an Alternative Payment Model (APM). The goal is to increase the quality of cost and patient satisfaction while reducing cost.

The clock is ticking for Congress to act. The payment bridge passed at the end of 2013 expires on March 31, meaning without Congressional intervention physicians will face a 24 percent cut in reimbursement. A cut of this magnitude would threaten Medicare beneficiary access, which the legislation is striving to protect.

While the Committees are hopeful Congress can act before April 1, negotiating palatable offsets not be easy. The Congressional Budget Office (CBO) released a report last November enumerating options to reduce the deficit, like raising the Medicare eligibility age to 67, phasing in higher premiums for Medicare Parts A and D, and requiring drug makers to pay rebates to Medicare in Part D as they do for Medicaid, to name a few. None of these options is very attractive to Democrats or Republicans.

On the Democratic side, there are still discussions about using the Overseas Contingency Operations (OCO) fund, money that was not spent on the Afghanistan and Iraq wars. Republicans oppose this for being a complete gimmick. The Senate Finance Committee compiled a list of potential offsets from programs within the Medicare program, including programs like Graduate Medical Education (GME) and the Clinical Lab Fee Schedule. Hospital groups are vehemently opposed to more Medicare cuts as an offset. Beneficiary groups are advocating against increased cost sharing for beneficiaries.

With hospitals, physicians, and beneficiaries all clamoring to protect their piece of the Medicare pie, what’s left? It is clear that finding $128 billion dollars will not be easy and most stakeholders will be forced to feel some pain. Given that the 2 percent Medicare cut included in the sequester shields beneficiaries, it is unlikely that a SGR fix will be paid for by increasing beneficiary cost sharing. While my crystal ball is currently not working, I’d guess that drug makers and hospitals will feel some pain before this process is over.

That assumes that Congress will pass this bill before April 1. If an agreement cannot be reached on offsets, there are discussions about a 9-month bridge, which would punt this conversation to the lame duck session. Stay tuned…

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