FAQ: What's in Proposal to Fix Medicare's Payments to Doctors

Mary Agnes Carey

March 23, 2015

It’s make-or-break time for a Medicare “doc fix” replacement.

The House is likely to vote this week on a proposal to scrap Medicare’s troubled physician payment formula, just days before a March 31 deadline when doctors who treat Medicare patients will see a 21 percent payment cut. Senate action could come this week as well, but probably not until the chamber completes a lengthy series of votes on the GOP’s fiscal 2016 budget package.

After negotiating behind closed doors for more than a week, Republican and Democratic leaders of two key House committees that handle Medicare unveiled details of the package late Friday. According to a summary of the deal, the current system would bescrapped and replaced with payment increases for doctors for the next five years as Medicare transitions to a new system focused “on quality, value and accountability.”

There’s enough in the wide-ranging deal for both sides to love or hate.

Senate Democrats have pressed to add to the proposal four years of funding for an unrelated program, the Children’s Health Insurance Program, or CHIP. The House package extends CHIP for two years. In a statement Saturday, Senate Finance Democrats said they were “united by the necessity of extending CHIP funding for another four years.”

Their statement also signaled other potential problems for the package in the Senate, including concerns about asking Medicare beneficiaries to pay for more of their medical care, the impact of the package on women’s health services and cuts to Medicare providers.

Still some Democratic allies said the CHIP disagreement should not undermine the proposal. Shortly after the package was unveiled Friday, Ron Pollack, executive director of the consumers group Families USA, said in a statement that “while we would have preferred a four-year extension, the House bill has our full support.”

Some GOP conservatives and Democrats will balk that the package isn’t fully paid for, with policy changes governing Medicare beneficiaries and providers paying for only about $70 billion of the approximately $200 billion package.

For doctors, the package offers an end to a familiar but frustrating rite. Lawmakers have invariably deferred the cuts prescribed by a 1997 reimbursement formula, which everyone agrees is broken beyond repair. But the deferrals have always been temporary because Congress has not agreed to offsetting cuts to pay for a permanent fix. In 2010, Congress delayed scheduled cuts five times. In a statement Sunday, the American Medical Association urged Congress “to seize the moment” to enact the changes.

Here are some answers to frequently asked questions about the proposal and the congressional ritual known as the doc fix. 

Q: How did this become an issue?

Today’s problem is a result of efforts years ago to control federal spending – a 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth, known as the “sustainable growth rate” (SGR). For the first few years, Medicare expenditures did not exceed the target and doctors received modest pay increases. But in 2002, doctors were furious when their payments were reduced 4.8 percent. Every year since, Congress has staved off the scheduled cuts. But each deferral just increased the size of the fix needed the next time.

The Medicare Payment Advisory Commission (MedPAC), which advises Congress, says the SGR is  “fundamentally flawed” and has called for its repeal. The SGR provides “no incentive for providers to restrain volume,” the agency said.

Q. Why haven’t lawmakers simply eliminated the formula before?

Money is the biggest problem. An earlier bipartisan, bicameral SGR overhaul plan produced jointly by three key congressional committees would cost $175 billion over the next decade, according to the Congressional Budget Office. While that’s far less than previous estimates for SGR repeal, it is difficult to find consensus on how to finance a fix.

For physicians, the prospect of facing big payment cuts is a source of mounting frustration. Some say the uncertainty has led them to quit the program, while others are threatening to do so. Still, defections have not been significant to date, according to MedPAC.

In a March 2014 report, the panel stated that beneficiaries’ access to physician services is “stable and similar to (or better than) access among privately insured individuals ages 50 to 64.” Those findings could change, however, if the full force of SGR cuts were ever implemented.

“The flawed Sustainable Growth Rate (SGR) formula and the cycle of patches to keep it from going into effect have created an unstable environment that hinders physicians’ ability to implement new models of care delivery that could improve care for patients,” said Dr. Robert M. Wah, president of the American Medical Association. “We support the policy to permanently eliminate the SGR and call on Congress to seize the moment and finally put in place reforms that will foster innovation and put us on a path towards a more sustainable Medicare program.”

Q: What are the options that Congress is looking at?

The House package would scrap the SGR and give doctors a 0.5 percent bump for each of the next five years as Medicare transitions to a payment system designed to reward physicians based on the quality of care provided, rather than the quantity of procedures performed, as the current payment formula does.

The measure, which builds upon last year’s legislation from the House Energy and Commerce and Ways and Means Committees and the Senate Finance Committee, would encourage better care coordination and chronic care management, ideas that experts have said are needed in the Medicare program. It would give a 5 percent payment bonus to providers who receive a “significant portion” of their revenue from an “alternative payment model” or patient-centered medical home. It would also allow broader use of Medicare data for “transparency and quality improvement” purposes.

“The SGR has generated repeated crises for nearly two decades,” Energy and Commerce Committee Chairman Fred Upton, R-Mich., one of the bill’s drafters, said in a statement. “We have a historic opportunity to finally move to a system that promotes quality over quantity and begins the important work of addressing Medicare’s structural issues.”

The package, which House Speaker John Boehner, R-Ohio, and Minority Leader Nancy Pelosi, D-Calif., began negotiating weeks ago, also includes an additional $7.2 billion for community health centers over the next two years.  NARAL Pro-Choice Americadenounced the deal because the health center funding would be subject to the Hyde Amendment, a common legislative provision that says federal money can be used for abortions only when a pregnancy is the result of rape, incest or to save the life of the mother.

In a letter to Democratic colleagues, Pelosi said the funding would occur “under the same terms that Members have previously supported and voted on almost every year since 1979.” In a statement, the National Association of Community Health Centers said the proposal “represents no change in current policy for Health Centers, and would not change anything about how Health Centers operate today.”

The “working summary” of the House plan says the package also includes other health measures – known as extenders – that Congress has renewed each year during the SGR debate. The list includes funding for therapy services, ambulance services and rural hospitals, as well as continuing a program that allows low-income people to keep their Medicaid coverage as they transition into employment and earn more money. The deal also would permanently extend the Qualifying Individual, or QI program, which helps low-income seniors pay their Medicare premiums.

Q. What is the plan for CHIP?

The House plan would add two years of funding for CHIP, a federal-state program that provides insurance for low-income children whose families earned too much money to qualify for Medicaid. While the health law continues CHIP authorization through 2019, funding for the program has not been extended beyond the end of September.

The length of the proposed extension could cause strains with Senate Democrats beyond those on the Finance panel who have raised objections to the House package. Last month, the Senate Democratic caucus signed on to legislation from Sen. Sherrod Brown, D-Ohio, calling for a four-year extension of the current CHIP program.

Q: How would Congress pay for all of that?

It might not. That would be a major departure from the GOP’s mantra that all legislation must be financed. Tired of the yearly SGR battle, veteran members in both chambers may be willing to repeal the SGR on the basis that it’s a budget gimmick – the cuts are never made – and therefore financing is unnecessary. But that strategy could run into stiff opposition from Republican lawmakers and some Democrats

Most lawmakers are expected to feel the need to find financing for the Medicare extenders, the CHIP extension and any increase in physician payments over the current pay schedule. Those items would account for about $70 billion of financing in an approximately $200 billion package.

Conservative groups are urging Republicans to fully finance any SGR repeal. “Americans didn’t hand Republicans a historic House majority to engage in more deficit spending and budget gimmickry,” Dan Holler, communications director for Heritage Action for America, said earlier this month.

Q. Will seniors and Medicare providers have to help pay for the plan?

Starting in 2018, wealthier Medicare beneficiaries (individuals with incomes between $133,500 to $214,000, with thresholds likely higher for couples) would pay more for their Medicare coverage, a provision impacting just 2 percent of beneficiaries, according to the summary.

Starting in 2020,   “first-dollar” supplemental Medicare insurance known as “Medigap”  would not be able to cover the Part B deductible for new beneficiaries, which is currently$147 per year but has increased in past years.

But the effect of that change may be mitigated, according to one analysis.

“Because Medigap policies would no longer pay the Part B deductible, Medigap premiums for the affected policies would go down. Most affected beneficiaries would come out ahead — the drop in their Medigap premiums would exceed the increase in their cost sharing for health services,” according to an analysis from the Center on Budget and Policy Priorities, a left-leaning think tank. “Some others would come out behind. In both cases, the effect would be small — generally no more than $100 a year.”

Experts contend that the “first-dollar” plans, which cover nearly all deductibles and co-payments, keep beneficiaries from being judicious when making medical decisions. According to lobbyists and aides, an earlier version of the “doc fix” legislation that negotiators considered would have prohibited “first dollar” plans from covering the first $250 in costs for new beneficiaries.

Post-acute providers, such as long-term care and inpatient rehabilitation hospitals, skilled nursing facilities and home health and hospice organizations, would help finance the repealreceiving base pay increases of 1 percent in 2018, about half of what was previously expected.

Other changes include phasing in a one-time 3.2 percentage-point boost in the base payment rate for hospitals currently scheduled to take effect in fiscal 2018. The number of years of the phase-in isn’t specified in the bill summary.

Scheduled reductions in Medicaid “disproportionate share” payments to hospitals that care for large numbers of people who are uninsured or covered by Medicaid would be delayed by one year to fiscal 2018 but extended for an additional year to fiscal 2025.

Q. How quickly could Congress act?

Legislation to repeal the SGR is expected to move in the House this week. The House is scheduled to begin a two-week recess March 27.

Senate Democrats and Republicans may want to offer amendments to the emerging House package, which could mean that the chamber does not resolve the SGR issue before the Senate’s two-week break, which is scheduled to begin starting March 30.

If the SGR issue can’t be resolved by March 31, Congress could pass a temporary patch as negotiations continue or ask the Centers for Medicare and Medicaid Services, which oversees Medicare, to hold the claims in order to avoid physicians seeing their payments cut 21 percent.

This article was updated to include details about the House package unveiled Friday night, March 20.

maryagnesc@kff.org | @MaryAgnesCarey

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