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.

Reason for optimism #2: It has enjoyed bipartisan and bicameral support.

At the end of 2013 and beginning of 2014, a number of SGR reform proposals enjoyed bipartisan and bicameral support. In January 2014, Rep. and physician Michael C. Burgess (R-Texas) introduced H.R. 4015, the SGR Repeal and Medicare Provider Payment Modernization Act of 2014. In mid-March 2014, Senate finance committee chairman Ron Wyden (D-Ore.) introduced S. 2110, the Medicare SGR Repeal and Beneficiary Access Improvement Act of 2014, and on March 25, 2014, a similar bill—S. 2157, the Commonsense Medicare SGR Repeal and Beneficiary Access Improvement Act of 2014—was introduced in the Senate by Sen. Wyden.

Although all of those bills ultimately succumbed to fiscal and political realities, Speaker of the House John Boehner (R-Ohio) and then Senate Majority Leader Harry Reid (D-Nev.) said they would continue to work toward a permanent SGR repeal.

Reason for optimism #3: It’s less controversial than repealing Obamacare.

As a result of the Republican Party’s gains in the 2014 midterm election, which gave the GOP a majority in the Senate and their largest majority in the House since the 1940s, Republicans can certainly stage a full vote on the repeal of Obamacare, which would force either a Democratic filibuster or a presidential veto. But the Democrats and the president will not allow the Obama administration’s signature piece of legislation to be undone, as long as President Obama remains in office. Two thirds of both houses of Congress are needed to overturn a veto by the president, and the Republicans lack such a majority in either house. Thus, any Republican-driven vote in Congress to repeal the Affordable Care Act would be pointless and viewed by much of the public as counterproductive political showmanship.

In contrast, a permanent repeal of the SGR—especially given the aforementioned bipartisan support for it—could be viewed as more politically feasible and an example of “the art of the possible.”

While all of the previously mentioned reasons for optimism are true, there are also valid reasons—all pertaining to fiscal realities—to be pessimistic about passage of a permanent doc fix in 2015.

Reason for pessimism #1: The American public is most concerned about the economy.

A preliminary national exit poll for the 2014 midterm election conducted by ABC News found that 45 percent of voters say the economy was the most important issue in their vote. Seven in 10 voters said the nation’s economy is in bad shape, and 78 percent are worried about the economy’s direction in the year ahead. If the federal government seeks to create jobs, as suggested by President Obama, by rebuilding the nation’s infrastructure—roads, bridges, ports and waterways—that could mean less money available to fund a permanent repeal of the SGR.

Reason for pessimism #2: The fights against Ebola and ISIL are urgent priorities.

During President Obama’s Nov. 5 news conference on the midterm election results, he stated that he will be submitting a couple of important near-term requests to Congress: 1) to fund American healthcare workers, scientists and troops in their efforts to combat the spread of Ebola in West Africa and to increase preparedness for any future cases in the United States; and 2) to authorize and support the use of military force against ISIL. These two initiatives—whose price tags are still to be determined—will take precedence and be costly.

Reason for pessimism #3: How to pay for a permanent SGR repeal remains an unanswered question.

All the previous permanent doc fix bills have either not specified any specific sources of funding—so-called “pay-fors” that would offset the increased government spending resulting from repeal of the SGR, thereby allowing the reform legislation to be deficit-neutral—or proposed sources that most Democrats or Republicans in Congress would not even be willing to consider. Some envision Congress passing a broad deficit-reduction plan that incorporates numerous new healthcare reform components that would collectively fund a permanent doc fix, but gaining passage of such a plan with a Republican-controlled Congress and a Democratic president would constitute a political miracle.

Unfortunately, and I hate to say it, in the final analysis, formidable competing fiscal priorities and the inexorable gravitational pull of the 2016 election will most likely relegate permanent SGR reform doc fix, yet again, to the back burner in 2015.


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