Reach For A Permanent Medicare Physician Payment System

As a part of the Balanced Budget Act of 1997 [P.L. 105-33], the Congress created a new physician Medicare payment system called “Sustainable Growth Rate” (SGR).  The new formula was designed to decrease spending by controlling volume through a cumulative spending target, tied to gross domestic product (GDP).  During the first two years of implementation, physicians received annual pay increases exceeding five percent.  Since then, it has been all downhill.

In 2002, physicians took a 4.8 percent cut in Medicare payments.  Thereafter, Congress has acted almost 20 times to prevent cuts, and provided for increases ranging from zero to 2.2 percent.  These temporary fixes lasted as short as 30 days and as long as two years.

Until three years ago, the temporary fixes Congress enacted were offset with cuts in various parts of the Medicare program.  This process did not create any enemies.  But the temporary fixes enacted during the 2011-2013 period included cuts to hospitals.  From an advocacy perspective, this has produced a problem leading to a permanent fix.  The latest temporary fix, which expires in March 2015, included budget offsets from physicians.

At the beginning of the 113th Congress, the Committees of jurisdiction—House Energy and Commerce, House Ways and Means, and Senate Finance—began a determined effort to enact legislation to repeal the SGR and replace it with a different formula.  The Committees decided to work only on new policy without considering budget offsets.  From this process, emerged compromise legislation which would repeal the SGR formula and provide incentives to move away from fee-for-service (FFS) and towards quality.

The quality issue is one which has been growing on Capitol Hill.  The compromise bill would raise the Medicare payment rates by 0.5 percent a year from 2015 through 2018.  Payment rates would remain at the 2018 level through 2023.  But there would be two adjustment mechanisms.  Physicians could choose between the Alternative Payment Model (APM) or the Merit-Based Incentive Payment Systems (MIPS).  From 2024 onward, there would be two payment rates for physicians under the fee schedule.  Under the MIPS program payment rates would increase by 0.5 percent a year.  But the payments would be subject to positive or negative performance adjustments.  Those adjustments would be designed to be offsetting in aggregate, so that they would have no net effect on overall payments.  The individual physician’s performance would be compared to a performance threshold.

The APM rates would increase 1 percent annually.  From 2018 through 2023, provider participants would receive a lump-sum payment equal to 5 percent of their Medicare payments in the prior year for services paid according to the physician fee schedule.  Physicians and other providers with revenue close to the APM revenue threshold would receive either no adjustment if they reported measures and activities in that program.

Congress is on the verge of enacting the permanent fix for the Medicare physician payments. There are few legislative days remaining in the 113th Congress and thus few days to achieve a compromise on a comprehensive bill. Moreover, the process has stalled for two reasons.  First, is the inability of Democrats and Republicans to agree on the budget offsets.  Republicans want to pay for the SGR fix with cuts in the Affordable Care Act (ACA).  Democrats want to use the Overseas Contingency Operations (OCO) [Afghanistan withdrawal].

Democrats will not surrender what they consider to be a major achievement of the Obama Administration in passage of the ACA.  The Congressional Budget Office (CBO) will not score such a proposal because the SGR fix involves entitlement spending and the OCO funds involve appropriated discretionary funds.  Under budget law and rules, mixing the two would be like mixing oil and water.

One other budget offset matter could also derail the bill.  That is whether Congress decides to make hospital payment reductions a part of the budget offsets.  Until now, hospitals have supported a permanent Medicare physician payment fix.  But if that fix comes at the expense of hospitals, they will certainly oppose the final product.

Second, the 2014 elections have come into play.  Republicans need a net gain of just six seats to take back control of the Senate.  Many Republicans want to wait until 2015 when they believe they will be in control of the Senate.  Whether or not a permanent bill is enacted this year will almost certainly depend on the political outcome in November.

What is so disappointing is that both Houses of Congress and both parties essentially agree on the policy but can’t get to the finish line due to politics outside the purview of the legislative process.  Completion of the final product may greatly depend upon advocacy by the House of Medicine and other providers.


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, where he teaches courses on Lobbying, Electoral and Legislative Processes, and Legislative Writing and Research.

Morning Consult