The Weak Underbelly of Sustainable Growth Rate Reform Proposals


Guest post by Ken Perez, Director of Healthcare Policy and Senior Vice President of Marketing, MedeAnalytics, Inc.

What do all of these pieces of legislation or plans have in common?

All of them seek to permanently repeal the sustainable growth rate (SGR) provision, an arcane, but no longer obscure formulaic approach designed to control the growth of Medicare spending on physician services.

In February of this year, the Congressional Budget Office estimated that the cost of a permanent SGR repeal or “doc fix” had  decreased to $138 billion, significantly lower than prior year’s estimates that ranged from $200 billion to almost $400 billion. The latest estimate was based on a freezing of all Medicare physician rates for a decade, but every one of the previously mentioned legislative proposals includes provisions that would likely increase the price tag of reform or at least introduce uncertainty into the fiscal impact calculation.

Furthermore, each of the proposals either lacks a pay-for to cover the increased government spending that would result or proposes funding sources that have been generally deemed specious or questionable.

Regarding the latter, for example, the Access to Physicians in Medicare Act proposed a repeal of the expanded healthcare subsidies under the Patient Protection and Affordable Care Act — which is obviously not in the realm of possibility given President Obama’s re-election and the Democrats’ retention of a majority in the Senate. Also, the Medicare Physician Payment Innovation Act of 2012 proposed tapping savings from the reduction in military operations in Iraq and Afghanistan, but that source of funding is already being used by the Obama administration to pay for new infrastructure proposals and short-term economic recovery measures.

For hospitals, the obvious and perennial concern with SGR reform proposals has been the “robbing Peter to pay Paul” scenario, in which hospitals receive less funding from Medicare so that physicians can be paid more. This concern is not unfounded. The American Taxpayer Relief Act of 2012, passed by the House on Jan. 2, 2013, implemented a one-year, $25 billion doc fix for this year, the majority of which will be paid for by hospitals.

President Obama’s fiscal year 2014 budget proposal supports permanent repeal of the SGR, but rather than providing specific funding sources (which would undoubtedly elicit some political opposition), the administration’s budget proposal seeks to cover the cost of a permanent doc fix as part of a broad deficit-reduction plan.

The plan includes health savings of about $400 billion that “build on the health reform law and strengthens Medicare,” but over $150 billion of the savings will come from reduced funding of healthcare providers. Thus, SGR reform is like a tantalizingly delicious meal at an elegant restaurant, but ultimately, someone has to pay the bill.

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