Senate Votes to Delay 2010 Medicare Pay Cut Until February 28

December 18, 2009

December 18, 2009 — Following the lead of the House earlier this week, the Senate approved a defense spending bill in the early hours of Friday morning (December 18)  that, as part of an add-on measure, would push the effective date for a scheduled Medicare pay cut of 21.2% for physicians from January 1 to February 28.

Now approved by both chambers of Congress, the bill awaits the signature of President Obama. It gives Congress — bogged down in the healthcare reform debate — a little more time to pass legislation that would not only avert the massive pay cut in 2010, but perhaps even revamp Medicare's method of setting physician reimbursement on a permanent basis.

Right now, Medicare relies on the controversial Sustainable Growth Rate (SGR) formula for determining how much to pay physicians — and calculating reductions like the one planned for next year. Organized medicine, by and large, has maintained that meaningful healthcare reform must include a new formula, or else underpaid physicians would be forced to turn away Medicare patients.

Physicians also do not want a repeat of what has happened every year since 2002 — Congress enacting 1-year "patches" at the last minute that postpone scheduled Medicare cuts but only make the next cut even larger.

"Every year, they just kick the can down the road," says Lori Heim, MD, president of the American Academy of Family Physicians. "This makes physicians feel insecure. If you're a business, how can you plan ahead when you could be facing a 21% cut? Hiring staff, putting in an electronic health record — any innovations stop because you don't have financial security."

A Merry-Go-Round of SRG Legislation

The defense spending bill that delays next year's Medicare pay cut for 2 month joins a merry-go-round of bills that attempt to deal with the SGR controversy. The House last month voted along partisan lines to replace the SGR formula with one that is more physician friendly. The bill, which also would repeal next year's pay reduction, would add $210 billion to the federal deficit during 10 years, according to the Congressional Budget Office.

Back in October, the Senate rejected a similar SGR fix that was even costlier. Theoretically, it could still vote the House bill up or down before its Christmas break, but the Senate has more pressing business at hand — healthcare reform legislation. The reform bill that it has been debating day and night — the Patient Protection and Affordable Care Act — would replace the 21.2% pay cut in 2010 with a 0.5% raise. However, the bill preserves the SGR formula, which would trigger a 23% pay cut in 2011. In other words, it is a familiar 1-year patch.

The healthcare reform bill will not be the last word on overhauling Medicare reimbursement, according to Senate Majority Leader Harry Reid (D-NV). Senator Reid has said that he hopes that once Congress passes healthcare reform legislation, it can turn to a "multiyear fix."

The trouble for physicians is that any passage of reform legislation may not occur until shortly before the Christmas break. That means that a multiyear SGR fix would not come before Congress until January. Because the 21.2% pay cut is scheduled for January 1, Congress had all the more reason to delay it by 2 months as part of the defense spending bill.

Delaying SGR Reform Will Only Make it More Expensive, Say Physicians

At the root of the SGR controversy is how the formula attempts to prevent Medicare costs from skyrocketing out of control. It sets a target each year for expenditure on physician services based on growth in the gross domestic product (GDP). If these expenditures surpass the target, Medicare tries to recoup the difference by reducing physician reimbursement the following year. The SGR has triggered such pay cuts each year since 2002, but Congress has always called them off.

However, the difference between targeted and actual spending on physician services does not disappear but accumulates. As a consequence, a postponed pay cut translates into a bigger one the following year.

Pegging physician reimbursement to GDP growth is a mistake, according to organized medicine. It argues that the cost of running a medical practice typically grows at a higher rate than the GDP.

The SRG fix approved by the House is more to physicians' liking. It would erase accumulated SGR debt from the books and give physicians a 1.2% raise in 2010 based on the Medicare Economic Index, which measures inflation in physician-practice costs. After 2010, the formula reverts to growth in GDP as a benchmark but adds some financial sweeteners. There would be 2 spending targets — one for evaluation and management services and preventive care based on the GDP plus 2%, and another for spending on all other physician services based on the GDP plus 1%.

Such a long-term solution would add more than $200 billion to the federal deficit, primarily because it is wiping out accumulated SGR debt. However, physician leaders such as Dr. Heim say 1-year postponements only mark up the price tag in the future. "If Congress had fixed this problem years ago, the cost wouldn't have ballooned to where it is now," she said.

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