Bill Would Repeal SGR, Phase Out Medicare Fee-for-Service

May 09, 2012

May 9, 2012 — A bipartisan bill introduced in the House today would avert a Medicare pay cut of roughly 30% in 2013 by repealing the program's sustainable growth rate (SGR) formula. It also would phase out its fee-for-service payment system.

The ambitious plan has garnered loud applause from organized medicine, but its prospects of passage look cloudy in a hyper-partisan presidential election year, especially in light of its price tag. The Congressional Budget Office (CBO) recently reported that eliminating the SGR formula — created in 1997 to set physician reimbursement — and merely freezing Medicare rates for 10 years would cost $316 billion. That figure essentially represents debt that Congress has put on the Medicare books by postponing physician pay cuts going back to 2003.

Adding to the cost of the bill, called the Medicare Physician Payment Innovation Act of 2012, are modest raises from 2014 through 2017.

The bill, sponsored by Rep. Allyson Schwartz (D-PA) and Rep. Joe Heck, MD (R-NV), would cover all these costs with future savings from the military pull-out from Iraq and Afghanistan. However, Republicans who control the House have been divided on allocating war savings this way, with some calling it a gimmicky way to balance the budget.

Fee-for-Service Medicare Rates Would Shrink After 2018

The Schwartz-Heck bill lays out a complicated timetable for reforming Medicare's system for paying physicians:

  • In 2013, reimbursement rates would remain at 2012 levels.

  • From 2014 to 2017, Medicare would raise rates by an annual 2.5% for primary care, preventive, and care-coordination services. Rates for all other physician services would increase by 0.5% annually. The differential represents an attempt to emphasize primary care over procedure-oriented specialty care.

  • In 2018, new payment models that reward physicians for "high quality, high value care" as opposed to the volume of services will make their debut. These new models will build on Medicare demonstration projects now underway for accountable care organizations, medical homes, and shared savings. Because 2018 is considered a transitional year, Medicare will continue to pay physicians on a fee-for-service basis, but only at 2017 levels.

  • Beginning in 2019, physicians who stick with fee-for-service reimbursement will suffer pay cuts: 2% in 2019, 3% in 2020, 4% in 2021, and 5% in 2022. Fee-for-service rates will remain frozen at 2022 levels in the years beyond. In contrast, physicians participating in the new payment models "will continue to receive stable reimbursement" with the opportunity to earn even more based on their performance.

Medical Society Endorsements Were Lined Up

Organized medicine has lobbied Congress long and hard to repeal the SGR formula, warning that physicians will abandon Medicare in droves if a massive pay cut takes effect. Not surprisingly, Schwartz and Dr. Heck had endorsements from leading medical societies lined up before introducing their legislation today. These groups include the American Academy of Family Physicians, the American College of Cardiology, the American Academy of Neurology, the American Osteopathic Association, and the American College of Physicians (ACP).

"We enthusiastically support this legislation," ACP President David Bronson said in a press release issued by the lawmakers. "It not only addresses the continued threat of the SGR formula, it also addresses moving us beyond the fee-for-service payment model toward new models that better align payment with value."

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