The Prospect of Permanent SGR Reform in 2015

Ken Perez
Ken Perez

Guest post by Ken Perez, vice president of healthcare policy, Omnicell.

In the wake of the U.S. 2014 midterm election, it’s natural to turn our eyes toward the future and begin to speculate about possible legislative developments, such as a permanent repeal of the sustainable growth rate (SGR), often referred to as a “doc fix.”

The SGR is a formulaic approach intended to restrain the growth of Medicare spending on physician services. The SGR requires Medicare each year to set a total budget for spending on physician services for the following year. If actual spending exceeds that budget, the Medicare conversion factor that is applied to more than 7,400 unique covered physician and therapy services in subsequent years is to be reduced so that over time, cumulative actual spending will not exceed cumulative budgeted (targeted) spending, with April 1, 1996, as the starting point for both.

In part because of the effective lobbying efforts of physicians, Congress has temporarily suspended application of the SGR by passing legislative overrides or doc fixes 17 times from 2003 to 2014. As a result, actual spending has exceeded budget every year during these years. Because the annual fee update must be adjusted not only for the prior year’s variance between budgeted and actual spending but also for the cumulative variance since 1996, the next proposed update, effective April 1, 2015, is a reduction in Medicare physician fees of 21.2 percent.

There are three reasons to be optimistic that a permanent doc fix will be passed in 2015.

Reason for optimism #1: It’s much cheaper than before.

Since 2012, the Congressional Budget Office (CBO) has released some 15 estimates of the 10-year cost of SGR fixes, usually assuming a freeze in rates (i.e., 0 percent annual updates to the physician fee schedule). These cost estimates have ranged from a low of $116.5 billion to a high of $376.6 billion. In August 2014, the CBO estimated that holding payment rates through 2024 at current levels would raise outlays by $131 billion, a figure near the low end of the range and relatively more affordable.

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