Obama's Fiscal-Cliff Plan Said to Repeal SGR

December 19, 2012

President Barack Obama's latest plan to save the nation from the fiscal cliff includes a repeal of Medicare's sustainable growth rate (SGR) formula that otherwise will trigger a 26.5% cut in physician reimbursement on January 1, according to a source familiar with negotiations between Congress and the White House.

The Medicare rate reduction is part of the automatic spending cuts and tax increases dubbed the "fiscal cliff" that take effect in January. Although the fiscal cliff would do wonders for the budget deficit, economists say it could plunge the nation into another recession. Congressional Republicans and Democrats, along with the president, are attempting to devise a less draconian way to make ends meet.

The SGR crisis, a yearly event for physicians over the past decade, is a fiscal-cliff sideshow. Most of the jawboning between Obama, Senate Democrats who rule that chamber, and House Speaker John Boehner (R-OH), has been over the expiration of the Bush-era tax cuts, which will raise everyone's rates. Obama originally wanted to extend the cuts for anyone earning less than $250,000 a year, while Boehner advocated extending them for everyone.

On Monday, Obama edged toward middle ground by raising the income threshold for his proposed tax-cut extension to $400,000. Boehner called the President's plan unbalanced because net spending reductions, which he put at $850 billion, fell far short of the $1.3 trillion raised in new revenue.

Boehner said that while negotiations with the White House and Congressional Democrats would proceed on a grand fiscal-cliff deal, he was proposing a backup solution just in case. Boehner's Plan B, as he calls it, would extend the Bush tax cuts for anyone earning less than $1 million.

Today, the White House released a detailed critique of Plan B that faulted it for raising too little revenue. The administration also said that, unlike the president's latest proposal, Plan B does nothing to avert the 26.5% Medicare pay cut facing physicians on January 1. (Boehner reportedly has said that House Republicans are still determining whether to fold a "doc fix" for the Medicare reimbursement crisis into their Plan B.)

According to some media reports, the president's doc fix would permanently repeal the SGR formula, as organized medicine has urged lawmakers to do for years. Such an act is no small fiscal feat; the Congressional Budget Office estimated in August that merely freezing Medicare rates for 10 years would cost $245 billion. Giving physicians a modest raise would cost even more.

In today's deficit-phobic Congress, this expense must be offset by either spending cuts elsewhere in the budget, or new revenue. The White House has not publicly released any details on what these offsets, or pay-for's, would be. However, a source familiar with the negotiations told Medscape Medical News that the president's plan includes $400 billion in health savings in addition to an SGR repeal.

At least one medical society has understood Obama's plan as specifying a 1-year delay of the 26.5% pay cut, and a commitment to repeal the SGR sometime in 2013. The White House declined to confirm whether this was the case when asked by Medscape Medical News.

CMS Getting Ready to Implement Pay Cut

With the White House and Congressional Republicans still at loggerheads, negotiations on averting a massive Medicare pay cut and the fiscal cliff will likely resume after a short Christmas break. In the meantime, the Centers for Medicare & Services (CMS) warned today that, in light of Congressional inaction on a doc fix, it must "take steps to implement the negative update."

All claims for services rendered on or before December 31 will be paid at current rates, the agency said. As a matter of course, claims for services rendered after December 31 will not be paid any sooner than 14 calendar days, provided they are transmitted electronically and free of error, according to CMS. Clean paper claims for services performed in January will be paid no sooner than 29 calendar days.

This time-lag in payment would allow CMS to refrain from immediately processing claims for services in January at the reduced rate if Congress misses the December 31 deadline for enacting a doc fix. CMS could put a hold on the claims in hopes that Congress would retroactively freeze rates in the first few weeks of the year, allowing the agency to process the claims at the current rates. CMS has resorted to this tactic in previous SGR crises. However, organized medicine complains that when CMS puts claims on hold like this, it slows down physician cash flow, forcing practices to take out loans to keep operating.

The CMS announcement got the angry attention of the American Medical Association. Its executive vice president and CEO, James Madara, MD, sent a letter today to Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY) urging them to stop playing "political chicken" and avert the massive Medicare pay cut before year's end. Dr. Madara said the failure of Congress to give physicians and beneficiaries certainty about future payments is "inexcusable."

"This uncertainty and the threat to practice viability is increasingly causing physicians to re-evaluate their policies on acceptance of Medicare patients," Dr. Madara wrote. "Physicians cannot defer their payroll and other financial obligations."