House Bill Repealing SGR Proposes Raises and Cuts

July 19, 2013

The latest version of a House plan repealing Medicare's sustainable growth rate (SGR) formula for setting physician compensation calls for an annual 0.5% raise for 5 years, a transition to pay-for-performance, and a permanent 5% cut for those who stick with traditional fee-for-service (FFS) reimbursement after 2018.

Organized medicine has long clamored for the demise of the SGR formula, which will trigger a 24.4% pay cut in 2014 unless Congress acts to avert it as it has done with past SGR-mandated reductions. At the same time, many medical societies agree that Medicare reimbursement must shift from the FFS model to one that rewards physicians for high-quality, low-cost care. Draft legislation released yesterday by the health subcommittee of the House Energy & Commerce Committee is designed to wean physicians from traditional FFS reimbursement as well as nix the SGR formula.

Sponsors of the draft legislation include both Democratic and Republican members of the House Energy & Commerce Committee. Because of that bipartisanship, the bill "has a reasonably good chance of making it through the House of Representatives," said Robert Doherty, senior vice president of government affairs and public policy at the American College of Physicians (ACP), in a blog posting today on the group's Web site.

The House health subcommittee will begin reviewing and possibly amending the draft legislation the week of July 22. The plan is for the full Energy & Commerce Committee to approve the measure before Congress recesses on August 2 for 5 weeks, according to Richard Trachtman, the ACP's director of legislative affairs. Then the full, Republican-controlled House would take up the bill.

Although bipartisanship on the SGR issue in an otherwise hyperpartisan Congress bodes well for passage, the harmony may break down once lawmakers begin discussing how to pay for the plan, which could hinge on cutting the federal budget elsewhere. Budget projections assume that the 24.4% Medicare pay cut scheduled for January 1 will take place. In May, the Congressional Budget Office (CBO) estimated that repealing the SGR formula and freezing Medicare rates at their current level for 10 years would cost $139 billion. Giving physicians an annual 1% raise over 10 years would cost almost $178 billion. The CBO has not yet calculated or scored the cost of the draft legislation released yesterday.

Traditional Medicare FFS Could Wither

The draft legislation adds fine print to earlier outlines of Medicare payment reform that House Republicans floated earlier this year.

Repealing the SGR is just the start of a phased-in transition to pay-for-performance models. The first phase is payment stability — no one will have to wonder what next year's Medicare FFS rates will be. From 2014 through 2018, physicians in the Medicare program would receive annual raises of 0.5%.

This 5-year breather would give physicians and other healthcare industry stakeholders time to perfect "clinical improvement activities" and measures of clinical quality that Medicare would use to adjust FFS rates up or down beginning in 2019. Bill sponsors call this an enhanced version of the current Physician Quality Reporting System. Depending on their quality scores, physicians could receive annual raises of either 1.5% or 0.5%, or a 0.5% pay cut in this modified version of FFS, the ACP's Robert Doherty said in his analysis of the bill.

During this second phase, physicians also could choose to participate in so-called alternative payment models such as accountable care organizations, medical homes, and bundled-payment programs, which also stress high-quality, low-cost care.

A third option — besides an alternative payment model or FFS modified by quality scores — is remaining in traditional Medicare FFS. Physicians who go that route, however, would receive only 95% of the Medicare fee schedule after 2018. That punishment for FFS traditionalists did not appear in earlier versions of this SGR repeal plan. The change brings the bill closer to another repeal measure introduced this year by Rep. Allyson Schwartz (D-PA) and Rep. Joe Heck, DO (R-NV). Their legislation also makes reimbursement miserable for physicians who choose traditional FFS.

Primary Care Slighted?

The initial reaction of organized medicine to the SGR repeal bill from the health subcommittee of the House Energy & Commerce Committee is mostly positive with notes of dissatisfaction, particularly about primary care pay.

Ardis Hoven, MD, the president of the American Medical Association (AMA), said in a news release that the bill represents progress toward reforming Medicare pay, but "work remains to be done," said Dr. Hoven. When asked for specifics on that remaining work, an AMA spokesperson replied that the bill "is still under review."

Going up a notch in enthusiasm, the American Academy of Family Physicians (AAFP) applauds the bill, as AAFP President Jeffrey Cain, MD, put it in a news release. However, Dr. Cain faulted the bill for not setting "a higher base payment rate for those services provided by primary care physicians." The bill introduced by Schwartz and Heck did just that, raising rates for primary care services by 2.5% each year from 2015 through 2018, and raising rates for all other physician services by 0.5%.

In an interview with Medscape Medical News, Dr. Cain said that the draft legislation leaves the door open to higher rates for primary care. For one thing, the bill directs the Department of Health and Human Services to examine and correct "misvalued physician services." These would include evaluation and management services, which are undervalued, he said.

ACP President Molly Cooke, MD, echoed the AAFP concern about primary care pay in a letter today to the House Energy & Commerce Committee. While expressing support for the bill, Dr. Cooke noted that the annual 0.5% raise, or update, in FFS rates through 2018 lags behind inflation. Congress, she said, should monitor whether this small rate increase affects patient access to care — presumably, whether it would prompt physicians to turn away new Medicare patients or leave the program — and make the raise bigger if need be. Congress could go one step further, she said, "with the addition of higher baseline updates for undervalued evaluation and management services."

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