Here We Go Again: Another SGR Temporary Fix?

The current temporary Medicare physician payment fix [Sustainable Growth Rate (SGR)] and several Medicare extenders expire March 31st.   When the House returns from its current district work period, there will be eight (8) legislative days left before the deadline.  Both Houses are scheduled to recess on March 26 and return the week of April 13th.

All of the key congressional policy makers have stated there is not enough time to craft a permanent fix with the necessary budget offsets.  However, we have learned the staffs of House Speaker John Boehner and Democratic Leader Nancy Pelosi are trying to reach a deal on a permanent bill.  The base legislative vehicle is the compromise bill developed during the last Congress (113th).  The question is whether they can reach agreement, with budget offsets, prior to the March 31st deadline.  If not, then another temporary fix will have to be enacted.

To recap, SGR was enacted in 1997 as a part of the Balanced Budget Act of 1997.  The first two years of implementation resulted in physicians getting a little over a five percent increase in Medicare payments.  Thereafter, more accurate volume reporting projected payment reductions in order to maintain budget neutrality.  For 2002, Congress failed to enact a fix.  Thereafter, Congress has acted 17 times to temporarily address the problem.  Those temporary fixes ranged from as short as 30 days to as long as two years.

The problem for physicians in private practice is they operate a business.  During these years of short-term temporary laws, getting bank loans or lines of credit were problematic for some physicians given the uncertainty to the legislative environment.  After all, Congress has missed the deadline twice and subsequently enacted retroactive fixes.

There are some new additional factors.  First, last month the Congressional Budget Office (CBO) updated its estimate of the SGR compromise bills (H.R. 4015 and S. 2000) from the last Congress at $177.4 billion over 10 years.  The increased cost was based on the Tax Increase Prevention Act of 2014 (P.L. 113-295), which contained some provisions from the compromise bills and thus requiring CBO to produce a new and higher cost estimate.  With bipartisan agreement on the policy fix, the problem is Republicans and Democrats can’t agree on how to pay for permanent SGR repeal.

Second, Medicare Part B requires a 25 percent beneficiary copayment.  Beneficiary groups are concerned a permanent SGR fix would add to the patient costs over time.  Higher physician payments could translate into higher patient copayments.  For example, the Kaiser Family Foundation recently posted a blog claiming Medicare beneficiaries would pay at least $58 billion more over ten years in Part B premiums under the bipartisan agreement.  AARP has long advocated for SGR permanent repeal but not at the expense of beneficiary copayments.  As difficult as it is to agree on the necessary budget offsets, it becomes harder if beneficiary groups openly oppose the deal.

Third, earlier this month CBO released its updated budget baseline.  With regard to health care there was good news.  Annual increases in health care spending have been declining.  CBO now projects lower spending for Medicaid and the Children’s Health Insurance Program (CHIP).  Moreover, reestimates of the Affordable Care Act (ACA) project lower spending.  This includes lower spending for health insurance exchanges and projected health insurance premiums.

Fourth, in February, the House Energy and Commerce Committee Subcommittee on Health held a hearing on the SGR problem.  Witnesses representing beneficiaries, physicians, nurses, and hospitals asked that Congress refrain from using Medicare cuts to offset the cost of repealing the SGR formula.  They were met with silence.  Thus, any legislation to either produce another short term fix or permanent repeal will most certainly use Medicare as the budget offset.  That makes moving such legislation more difficult at those entities getting cut will not be supportive of a permanent repeal.

Fifth, some Democrats have said projected Medicare physician payment  reductions will never happen.  As such, Congress ought to repeal the SGR formula without budget offsets.  Part of the argument in support of this position is some of the temporary fixes were paid for with questionable budget offsets.

No matter what happens, here we go again—another fix.  This will be number 18, whether temporary or permanent.



Julius W. Hobson, Jr. is Senior Policy Advisor at Polsinelli P.C. and Adjunct Professor of Political Management, Graduate School of Political Management, George Washington University