Medicare SGR Formula Repealed by House

March 26, 2015

In a dramatic departure from partisan gridlock, the House voted overwhelmingly today to repeal Medicare's sustainable growth rate (SGR) formula for physician reimbursement and, in the process, avert a 21% pay cut scheduled for April 1.

Ayes outnumbered nays 392 to 37.

"Compromise is the essence of what we're doing here," said Rep. Jim McDermott, MD (D-WA), on the House floor shortly before the vote.

The legislation gives physicians a modest 0.5% bump in Medicare rates through 2019 while shifting reimbursement from fee-for-service to pay-for-performance. It also extends funding for the Children's Health Insurance Program (CHIP), which otherwise expires September 30, for 2 more years.

The $214 billion bill now goes to the Senate, where its fortunes are less certain. Some Democrat senators object to antiabortion language in the measure and advocate giving CHIP 4 more years of funding instead of 2. However, they ultimately may follow the lead of President Barack Obama, who has said he will sign the House bill.

One fly in the ointment is that even if the Senate catches the House's bipartisan spirit and eventually passes the bill, it may not do so until shortly after April 1. In that case, Congress could pass a temporary delay — perhaps for a month — of the 21% Medicare pay cut in the next few days, or it could settle on making the repeal bill retroactive to April 1.

Organized medicine has warned for years that a draconian rate reduction would cause droves of physicians to stop seeing seniors. It also has fumed at Congress for voting 17 times since 2003 to delay SGR-mandated pay cuts instead of repealing the formula, designed to curb Medicare spending. All the delayed cuts have accumulated into the 21% axe facing physicians on April 1.

"The bill will put an end to the cycle of Congress passing expensive patches to extend a policy that all agree was bad in the first place," said Robert Wah, MD, president of the American Medical Association, in a news release.

What the Compromise Was All About

In addition to replacing the SGR and giving CHIP 2 more years, the bill passed by the House extends a variety of federal healthcare programs that, among other things:

  • boost Medicare reimbursement for certain providers such as ambulance services and low-volume hospitals,

  • subsidize Medicare Part B premiums for low-income seniors, and

  • support diabetes research at the National Institutes of Health.

Another provision of the bill merges Medicare incentive programs for electronic health records, quality reporting, and the so-called value-based modifier to reduce their administrative burden on physician practices.

The core element of the bill — replacing the SGR formula with a new Medicare reimbursement scheme — was essentially lifted from a bipartisan bill introduced last year. Although Republicans and Democrats alike supported its provisions, they could not agree on how to offset its costs with spending cuts and revenue increases elsewhere in the budget, which is the standard operating procedure for a Congress resistant to deficit spending. Failure to find "pay-fors" killed the bill.

This time around, House Speaker John Boehner (R-OH) and Minority Leader Nancy Pelosi (D-CA) rallied the House behind a bipartisan solution: offset just $73 billion of the bill's price tag and put the remaining $141 billion on Uncle Sam's credit card. That $141 billion is roughly the cost of SGR repeal over 10 years, satisfying a debt created by all those deferred cuts. Republican leaders in the House and Senate have come to view this SGR debt as an artificial one — budget gimmickry, they call it — because Congress would never allow the likes of a 21% Medicare pay cut to happen.

The $73 billion in offsets pays for extensions of CHIP and other federal healthcare programs, as well as miscellaneous provisions in the bill. Of that $73 billion, $34.7 billion comes from Medicare beneficiaries assuming a bigger share of healthcare costs, mostly in the form of higher Part B and Part D premiums for more affluent beneficiaries, according to the nonpartisan Congressional Budget Office. Pay cuts for hospitals and so-called postacute providers such as skilled nursing homes account for an additional $34.6 billion. Other minor revenue changes bring the total to $73 billion.

The offsets that come at the expense of Medicare beneficiaries were hard for many House Democrats to swallow, but swallow them they did for the sake of compromise, just as House Republicans agreed to forgo offsets for the cost of SGR repeal.

Similar to other House members today, Rep. Mike Kelly (R-PA) exulted in the rediscovered sense of cooperation.

"Whether we're Republicans or Democrats, we are people representing people in the best interest of people," said Kelly on the House floor. "This piece of legislation today is truly a senior fix [and] a fix for the most vulnerable. I can think of nothing that we could do that is more important than giving peace of mind to those who have given so much to us as families, as states, and as a country.

"This is a brilliant piece of legislation. And while it may not satisfy all, it serves the needs of so many."

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