SGR Repeal Dilemma Could Make Passage Harder

January 11, 2012

January 11, 2012 — Repealing Medicare's sustainable growth rate (SGR) formula for physician pay — a goal that always seems just out of reach — poses a dilemma for lawmakers that could make the measure even harder to pass.

The dilemma is described in a study issued last month by the Congressional Research Service (CRS), an arm of the Library of Congress. It states that passage of an ambitious "doc fix" to the Medicare reimbursement crisis would force lawmakers to choose whether Medicare beneficiaries or taxpayers in general would suffer financially from one of the measure's overlooked consequences.

The SGR formula had called for a 27.4% cut in Medicare rates on January 1, but Congress voted in late December to extend the deadline to March 1. Exasperated by continual short-term postponements of scheduled cuts since 2003, organized medicine has lobbied Congress to replace the SGR formula with one more equitable for physicians.

Democrats and Republicans alike pay lip service to repealing the SGR formula, but the high price involved deters them from following through, especially in a Congress leery of deficit spending. The Congressional Budget Office (CBO) has estimated that junking the SGR and freezing Medicare rates for 10 years would cost roughly $300 billion over that time frame.

Such a measure, expensive as it is, would impose a little-discussed penalty on seniors. Increasing Medicare's budget for physician reimbursement would drive up the premiums owed by beneficiaries in traditional fee-for-service Medicare, according to the CRS study. By law, beneficiary premiums must equal roughly 25% of the total cost of the Medicare Part B program, which pays for physician and outpatient services. A premium increase, which represents more revenue for the government, is factored into the $300 billion cost of SGR repeal as calculated by the CBO.

Congress could spare seniors the higher Medicare premiums by attaching a "premium hold-harmless" provision to an SGR repeal bill. However, this provision would increase the cost of repeal by approximately 25%, based on past CBO calculations. So a $300 billion doc fix would swell to $375 billion.

The CRS has been warning Congress about the relationship of SGR repeal and beneficiary premiums for several years. When medical societies such as the American Medical Association and the American College of Physicians refer to the cost of eliminating the SGR formula, they typically cite the $300 billion figure, which assumes the premium increase for seniors.

Will Savings From Military Pullbacks Finance SGR Repeal?

A congressional conference committee composed of Senate and House members from both parties may convene as early as next week to begin hammering out legislation to stave off the 27.4% Medicare pay cut set for March 1. Another item on its agenda, and more controversial, is extending unemployment benefits and a cut in the Social Security payroll tax for another year. Lawmakers could not reach common ground on these issues in December 2011 and settled for a 2-month deal instead. They left it to the conference committee to resume where they left off.

Doc-fix plans now circulating in Washington, DC, range from postponing the massive pay cut for another year or two to repealing the SGR outright. Some lawmakers have proposed offsetting the $300 billion cost of a repeal with savings gleaned from the United States' military pullback in Iraq and Afghanistan.


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