The ideological rift between Republicans and Democrats in Washington has never been wider, but there is one issue that enjoys broad bipartisan support: Fixing the SGR. Sure, it’s not a permanent fix, but as of December 18th, both houses of Congress have passed budgets that delay a 24 percent cut in Medicare fees dictated by the current Sustainable Growth Rate (SGR) formula. The budget deal also lays the groundwork for permanently repealing the SGR, and for creating a Medicare payment system that rewards quality and provides other incentives for primary care physicians.
The battle over Medicare physician payment rates has become an annual ritual for Congress—and a perennial headache for physicians. In 1997, Congress created the Sustainable Growth Rate formula as part of the Balanced Budget Act. The concept was based on the notion that growth in Medicare payments to physicians should not exceed the growth in Gross Domestic Product. The SGR formula is supposed to adjust the physician fee schedule such that total payment for all Medicare physician services does not exceed a “sustainable” level. This sounds like a good idea on paper, but in practice, the SGR has been a complete disaster. Two years ago, MedPAC (Medicare Payment Advisory Commission), the entity that advises Congress on Medicare fees, declared the SGR a failure and recommended a total repeal of the law.
Rather than restrain costs in the Medicare program, the SGR has actually exacerbated the problem. By restricting fee increases, the SGR incentivizes physicians to increase the volume of services provided to Medicare patients in order to maintain their share of the fixed budget “pie.” Even worse, the SGR harms primary care physicians by undermining efforts to maintain payment parity between procedure-based specialties and cognitive-based specialties. Specialties that derive the greater part of their revenue from procedures have greater latitude to increase their volumes, while cognitive services such as primary care are disadvantaged by having limited capacity to increase volume.
Wait, it gets worse.