Senate Passes 3-Month SGR 'Doc Fix'

December 18, 2013

Physicians have received another holiday season reprieve from financial disaster as the Senate today easily approved a bipartisan budget deal — already passed by the House — that delays an almost 24% reduction in Medicare pay from January 1 to April 1.

The Senate voted 64 to 36 in favor of the 2-year budget deal. The House of Representatives approved the measure 332 to 94 on December 12.

Now lawmakers will turn their attention to other bipartisan legislation that would repeal the Medicare compensation formula responsible for the scheduled cut, and others like it, scheduled over the course of the last 10 years. Congress has typically postponed the reductions in December weeks or days before the rate change, stoking uncertainty for physicians in the run-up.

The 3-month "doc fix" in the budget bill, which President Barack Obama has promised to sign, will give physicians a 0.5% raise for the first 3 months of 2014, much to the delight of organized medicine. However, medical societies did not get everything they wanted. The bill both preserves an annual 2% reduction to Medicare rates called for by the across-the-board budget cuts called sequestration and extends it 2 years beyond its original expiration date of 2021.

Aside from the temporary doc fix, the bill approved by the Senate today will replace $63 billion worth of sequester cuts over the course of 2 years in both defense and nondefense programs and reduces the budget deficit by a net $23 billion. It sets the stage for lawmakers to forge an even more comprehensive budget agreement early next year, which is needed to forestall another partial government shutdown, such as the one in October, and to avoid defaulting on federal debt.

10-Year Rate Freeze or a Modest, Temporary Raise?

Now that the Senate has passed the budget bill, lawmakers have a little more than 3 months to consider 2 very similar bipartisan bills in the House and Senate that would repeal Medicare's sustainable growth rate (SGR) formula for physician pay. Both measures would shift compensation from fee-for-service to pay-for-performance and consolidate 3 Medicare incentive programs, including meaningful use of electronic health records, into a single program.

The Senate Finance Committee and the House Ways and Means Committee each approved its version of SGR repeal last week. The American Medical Association (AMA) and other medical societies prefer the House bill because it gives physicians an annual Medicare update, or raise, of 0.5% from 2014 through 2016. In contrast, the Senate bill freezes Medicare rates at their current levels for 10 years.

"Reliable payment updates are essential to supporting physician practice investments and advancing health system innovation that will improve care for patients," said AMA President Ardis Dee Hoven, MD, in a news release last week.

A Medicare rate increase makes any SGR repeal bill more costly, and therefore harder to pass in an era of fiscal austerity. The Congressional Budget Office (CBO) recently put the cost of repealing the SGR formula and freezing rates for 10 years at $116.5 billion. The price tag would increase by additional $19.6 billion if physicians received an annual 0.5% raise for 10 years, according to the CBO. So over the course of 3 years, an annual 0.5% raise would send the cost to easily more than $120 billion.

Because lawmakers do not want to fund measures such as SGR repeal with deficit spending, they seek to offset their cost with revenue increases, and even more so with spending cuts elsewhere in the budget. Democrats and Republicans frequently squabble over such "pay-for's," as they tend to come at the expense of their opponent's favorite programs. The SGR repeal bills in the Senate and House do not identify any pay-for's. That can be handled, however, in future legislation.

On the positive side, the challenge of paying for SGR repeal is not as daunting as it was in August 2012, when the estimated cost of freezing Medicare rates for 10 years was $245 billion. Reduced Medicare spending on physician services has caused the CBO to lower its estimate several times since then.


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