Congress Repeals Medicare SGR Formula

April 14, 2015

Done. Mission accomplished. Set off the fireworks.

After 17 previous Congressional holding actions going back to February 13, 2003, the Senate today clinched the approval of a bipartisan bill that finally repeals Medicare's sustainable growth rate (SGR) formula for physician compensation and averts a 21% pay cut this year.

The Senate vote was 92 to 8.

The House overwhelmingly approved the bill, called the Medicare Access and CHIP Reauthorization Act (MACRA), last month. Now the legislation goes to President Barack Obama, who has promised to sign it.

The bill will freeze Medicare rates at pre-April levels through June, and then raise them 0.5% in the second half of the year. They will continue to increase 0.5% each year from 2016 through 2019. At the same time, MACRA will shift Medicare compensation from fee-for-service to pay-for-performance.

The bill also extends the life of the Children's Health Insurance Program (CHIP) for 2 more years, in addition to approving other spending policies that benefit select providers, researchers, and low-income beneficiaries. It offsets $73 billion of the measure's $214 billion cost by making wealthier seniors pay more for their care and reducing payments for hospitals and nursing homes. The bill's authors opted not to offset the remaining $141 billion of the price tag, which roughly represents the cost of not cutting reimbursement rates by 21%. They reasoned that Congress would never allow that axe to fall, making the $141 billion cost more theoretical than real. However, some Republican budget hawks bristled at the idea of adding more red ink to the deficit.

The Senate vote was a nail biter, given the time crunch it faced: A 21% Medicare rate reduction triggered by the SGR formula took effect on April 1, applying to all services performed starting on that date. However, the Centers for Medicare & Medicaid Services (CMS) routinely waits 14 calendar days before paying an electronic claim, meaning that physicians would not see the massive cut until April 15. If Obama signs MACRA immediately, CMS can process all April claims at pre-April rates.

Some in organized medicine feared that various amendments promised by Democrat and Republican senators alike would delay passage of MACRA or make it unacceptable to the House. Six amendments came up for votes today, including one that would fund CHIP for 4 years instead of 2, but none of them passed.

For years, organized medicine warned that a rate reduction on the magnitude of 21% would drive physicians out of Medicare and leave seniors in a lurch. Likewise, medical societies constantly chastised Congress for postponing past SGR-triggered pay cuts — kicking the can down the road, they called it — instead of repealing the formula outright. Such "doc fixes," in Congressional parlance, caused the cuts to accumulate into the monster that came to life on April 1.

Organized medicine now has its SGR victory, but not everyone is sanguine about the future of Medicare reimbursement. Last week, the chief actuary of CMS issued a report saying that under MACRA, annual Medicare raises for physicians would not keep pace with rising practice costs in the long run. By 2048, the gap between payments and practice expenses would be greater than if Congress had let the SGR formula take effect, according to the report.

Doc Fixes Began With "The Biggest Backroom Deal"

Congress created the SGR formula in 1997 to put the brakes on Medicare spending for physician services. The formula sets annual spending targets based partly on changes in the gross domestic product. If Medicare spending comes under the target, physician payment rates go up the following year. But if spending exceeds the target, rates are reduced to make up the difference.

The formula became a definite nemesis of organized medicine in 2002 when SGR math yielded a 4.8% pay cut. Another 4.8% dip followed in 2003, and on February 13 of that year, Congress enacted the first of its doc fixes, replacing the 4.8% cut with a 1.4% raise.

The first doc fix was a backwater provision in an omnibus appropriations bill that one lawmaker called the "biggest backroom deal" in the history of Congressional spending, according to the New York Times. It was a 338 to 83 vote in that House that day, 76 to 20 in the Senate.

As they do now, Republicans controlled both chambers in 2003. Lawmakers at the time seemed more preoccupied with the threat — now seen as fictitious — of weapons of mass destruction in Iraq than the federal budget. The second Iraq war would erupt in less than 5 weeks.

Today's legislative action followed an eerily similar script: Senators were busy forging a bill allowing Congress to vote on any deal that the White House negotiates with Iran to keep it from developing nuclear weapons.

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