The Future of the SGR: 2015 and Beyond

Kenneth J. Terry, MA

February 03, 2015

Is There Hope for an SGR Replacement Measure?

The clock is ticking toward April 1, when the latest sustainable growth rate (SGR) fix expires and physicians are due to get a 21% cut in Medicare payments. Some members of Congress are trying to eliminate the SGR payment methodology once again. In late January 2015, a House subcommittee held hearings on how to build upon last year's SGR replacement bill, which passed the House but died in the Senate after the parties were unable to agree on how to pay for it.

It's likely that an SGR replacement measure based on last year's bill will emerge from the full committee in the near future, judging by the statements of Rep. Fred Upton (R-Michigan), chair of the House Energy and Commerce Committee, and Rep. Joe Pitts (R-Pennsylvania), chair of its health subcommittee. But it will still have to win the backing of the House Ways and Means Committee, headed by Rep. Paul Ryan (R-Wisconsin), and the Senate Finance Committee, chaired by Sen. Orrin Hatch (R-Utah). In addition, it will need the support of the Congressional leadership to be voted on and passed.

Those are tall hurdles to surmount before April 1. Still, medical association leaders are optimistic that a bill along the lines of last year's legislation will be approved this time around.

For one thing, they note, the policies embodied in the 2014 measure have bipartisan support. Hatch and Upton were involved in formulating that bill and can be counted on to support it this year. Ryan has not staked out a position on it but will have to deal with the SGR issue soon because it's part of his committee's turf, notes Anders Gilberg, senior vice president of government affairs for the Medical Group Management Association (MGMA).

One hope has already been dashed. The hope of lobbyists for the American Medical Association (AMA) and the American Academy of Family Physicians (AAFP) has proved false. The association representatives believed that the new Republican majorities in both houses might be willing to approve the SGR bill without finding ways to offset its cost, estimated at $144 billion over 10 years. But in their statements at the health subcommittee hearing, Pitts and Upton said that the legislation must be paid for.

That was the sticking point last year, and it appears that it will continue to be a difficult issue to negotiate. "For me, it's a question of whether they can meet the March 31 deadline," said Julius Hobson, senior policy advisor to Polsinelli, a Washington, DC, law firm. The former AMA lobbyist added, "I'd anticipate some tweaks to the compromise bill they had last year. But that's not the problem. The real problem is pay-fors and how they're going to do that."

But Nobody Wants to Pay for It

In the past, when Congress has enacted a temporary "patch" to avert an SGR-mandated cut in physician payments, it has usually taken the money from someplace else in Medicare, Hobson pointed out. The 17 patches over the past decade have cost more than the price tag of the SGR measure. But other healthcare players will resist any bill that cuts $144 billion from Medicare at their expense, Hobson and Gilberg noted.

If a deal cannot be reached by March 31, Congress will enact yet another patch that will last either to the end of the year or for 21 months, Hobson predicted. The latter option would delay action on the SGR until after the next Presidential election.

Medical associations strongly oppose any further delay.

"Everybody recognizes that the SGR is a major problem, and it has cost us billions of dollars to patch it 17 times," said Robert Wah, MD, president of the AMA, in an interview with Medscape. "Nobody thinks it's a good idea to continue to patch it. It doesn't make any sense to continue a program that everyone agrees is flawed and heading us in the wrong direction. So the faster we can eliminate it and move on to other improvements in the Medicare system, the better for everyone."

"We really think it's important to resolve this issue," agreed Robert Wergin, MD, president of the AAFP. "Annual patches just perpetuate the problem."

Avoiding Specifics

So far, the medical associations have not made specific recommendations on how to pay for the SGR replacement bill. In testimony to the health subcommittee, AMA board chair Barbara McAneny, MD, did not mention the issue, beyond noting that new payment and care delivery models such as those promoted in last year's SGR bill can save money for Medicare.

Wah simply said that there are many options on the table. "We're hopeful that [members of Congress] will come together on the funding process, just as they came together on the policy part," he said.

Similarly, in a January 9 letter to Senate leaders about legislative issues of importance to physicians, American College of Physicians President David Fleming, MD, merely expressed support for last year's SGR bill without suggesting how to offset the cost.

Wergin was more explicit about how to fund the measure. He told Medscape that the AAFP is willing to support cuts in other areas of Medicare, such as the restoration of pharmaceutical rebate programs that were eliminated by the Affordable Care Act.

Other Ways to Pay (or Not) for the SGR

At the subcommittee hearing, experts and interest groups made their own recommendations about how and how not to pay for the SGR bill.

Richard Umbdenstock, president and CEO of the American Hospital Association, made it clear that AHA members would fight any cuts to hospital payments. "The AHA can't support any proposal to fix the physician payment problem at the expense of funding for services provided by other caregivers," he declared.

Umbdenstock called for combining Parts A and B of Medicare and creating a single deductible of $550, with a cap on out-of-pocket spending of $5500. He said the Congressional Budget Office (CBO) has estimated that that change could net Medicare $52 billion over 10 years. AHA also would increase the income-related premiums already paid by more affluent Medicare beneficiaries; CBO said that could bring in another $52 billion, according to Umbdenstock.

Other commentators, including former Senator Joe Lieberman and Alice Rivlin, a Brookings Institution fellow and co-chair of the Delivery System Reform Initiative of the Bipartisan Policy Center (BPC), also favored more means-testing of Medicare premiums and combining Parts A and B with a single deductible. In addition, Rivlin said, Medicare should limit supplemental Medigap policies, because first-dollar coverage increases health spending.

To cushion the impact of these changes on Medicare patients, BPC would exempt office visits from the combined deductible to protect low-income seniors. Its proposal would also set a dollar limit on out-of-pocket spending by Medicare beneficiaries. And the think tank would use a portion of the revenue from expanding means testing to help low-income beneficiaries.

Don't Shift Cost to Older People!

Naturally, AARP is not buying the idea of shifting more costs to Medicare beneficiaries, as a combined deductible would do. Eric Schneidewind, president-elect of the AARP, said that changes in Medicare policy on prescription drugs could save $150 billion a year. Those changes include letting the Department of Health and Human Services (HHS) negotiate drug prices with pharmaceutical companies—something that Republicans have long opposed.

Rivlin admitted that "finding sufficient offsets will be a heavy lift, and it may prove impossible to find enough. In that situation, a semi-permanent [SGR] fix...would be far better than another 1-year patch."

This approach, developed by Rivlin and her Brookings colleagues, would include a 5-year period of payment stability, costing about $50-$60 billion, which could be paid by raising Medicare premiums on affluent citizens. During this period, the government would give physicians stronger incentives to participate in alternative payment models (APMs) such as accountable care organizations, patient-centered medical homes, and bundled payments, Rivlin said. But she didn't explain how this would lead to a repeal of the SGR.

Approaches That Purportedly Could Save Money

Medical associations would probably not support Brookings' proposal. But they do believe that the transition to APMs, which would be accelerated by the merit-based incentive program in last year's SGR bill, will lower Medicare costs in the long run.

Moving from fee-for-service to value-based reimbursement, Wergin said, would reduce ER visits and hospitalizations by encouraging physicians to improve preventive and chronic care and undertake more population health management. He cited studies showing that patient-centered medical homes saved money. Because the SGR bill promotes APMs such as medical homes, he said, it should cut Medicare costs.

This type of argument has been used before to justify lowering cost projections for certain legislative proposals. Democrats tried to use it to minimize the estimated cost of the Affordable Care Act, and the AAFP used it in arguing that Congress should maintain the parity between Medicare and Medicaid payments to physicians. But up to now, Hobson notes, the CBO, which estimates the cost of bills, has not bought the argument that improved population health can lower government costs.

Up to now, CBO cost estimates haven't reflected changes in behavior that would affect total output in the economy—an approach known as "dynamic scoring." But now that Republicans control both houses of Congress, they have enacted rule changes requiring the CBO to incorporate macroeconomic effects in cost estimates for certain kinds of bills. For the most part, Republicans want CBO to use dynamic scoring to lower the cost of their tax reform proposals.

It's unknown whether dynamic scoring could be applied to the SGR replacement bill, which would not affect more than a small percentage of the gross domestic product. Yet medical associations are looking at the possibility of using this tool to lower the estimated cost of the SGR measure. According to Wergin, AAFP lobbyists have already made this point to members of Congress.

Similarly, Wah told Medscape, "The options on the table can include dynamic scoring. In that discussion, we're hopeful that they'll recognize that by eliminating the SGR and improving the Medicare payment system, there are opportunities for savings overall."

However, he added, "We're not in a position to support any of these options at present because they're not a topic of discussion."

In the long run, Wah said, SGR repeal and replacement is "the only sane pathway" forward." Passing the SGR bill now, he stated, is "a way for Congress to show they're committed to taking action and getting something done," after being criticized for inaction in the past. "It would be a great way for Congress to start out by saying they've achieved a major piece of work and completed it early."