Understanding the Sustainable Growth Rate (SGR) A.K.A the Doc Fix

Despite the monumental healthcare reforms enacted in the Affordable Care Act of 2010, there still remains one legislative fix that has plagued physicians and policymakers for years—the sustainable growth rate (SGR) formula for physician reimbursement under Medicare; also known as the “Doc Fix.”  A recent article from Kaiser Health News provided a good analysis of what the Doc Fix is and current proposals and concerns surrounding the issue. 

The Doc Fix resulted from efforts to control federal spending – a 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth—the SGR.  “For the first few years, Medicare expenditures did not exceed the target and doctors received modest pay increases.  But in 2002, doctors reacted with fury when they came in for a 4.8 percent pay cut.  Every year since, Congress has staved off the scheduled cuts.  But each deferral just increased the size – and price tag – of the fix needed the next time.” 

One of the major problems with the formula is that it reinforces the fee-for-service system, which rewards “doctors for providing more tests, more procedures and more visits, rather than for better, more effective care.”  In an Oct. 14, 2011, letter to lawmakers, the Medicare Payment Advisory Commission (MedPAC), which advises lawmakers on Medicare payments, called the formula “fundamentally flawed” and said it “has failed to restrain volume growth and, in fact, may have exacerbated it.” 

Legislators have been unable to address the problem largely because of the enormous price tag that has resulted in years of delay.  On February 5^th, the Congressional Budget Office estimate lowered the cost of the doc fix over the next decade to $138.8 billion due to lower Medicare spending on physician services over the last three years.  Last January CBO estimated the cost of the doc fix at $316 billion, which it reduced to $245 billion last August.  

In addition to these positive numbers, which boost hopes for passing a permanent fix, In addition House Majority Leader Eric Cantor recently listed Medicare reform as a top goal for House Republicans this session. 

On the other side of the issue, doctors have been expressing their concern and frustration with the prospect of payment cuts.  Some doctors “say the uncertainty has led them to quit the program, while others are threatening to do so.”  A MedPAC March 2012 report stated that while beneficiaries’ access to care was good, for some “finding a new primary care physician continues to be more difficult than finding a new specialist.” 

Many physician groups have continued to lobby Congress to repeal the SGR and to enact a permanent payment fix.  The deal Congress passed Jan. 1 to avoid the fiscal cliff by raising some taxes and putting off automatic budget cuts also stopped a 26.5 percent doctor pay cut but did not raise the level of Medicare reimbursement to physicians. 

Recommendations and Proposals

In October, 2011, MedPAC recommended eliminating the formula without increasing the deficit by cutting fees for specialists and imposing a 10-year freeze on rates for primary care physicians. That proposal was strongly opposed by health industry groups, as well as the American Medical Association (AMA). 

The American College of Physicians in a letter to lawmakers proposed a 5-year period between ending the SGR and starting to reward quality — enough time, the group says, to allow for a transition.  The AMA has also recommended a five-year transition fee scale that allows time to test new payment approaches, including several being tested as part of the 2010 health care law. 

Other options to fix the reimbursement formula include a bill introduced Feb. 5 by Rep. Allyson Schwartz, D-Pa., and Rep. Joe Heck, R-Nev., an osteopathic physician.  Among its provisions, the Medicare Physician Payment Innovation Act would repeal the SGR, maintain current payment levels through the end of 2014, increase payments to physicians for four years and test new payment and delivery models.  It also contains a “smorgasbord of provisions aimed at transitioning Medicare from the traditional fee-for-service model to new payment and delivery models, with the goal of having them in place by 2019.” 

The bill is virtually identical to a repeal plan offered by the same lawmakers last year — except that it would have paid for repealing the formula with unused funds from the wars being wound down in Iraq and Afghanistan.  “That was controversial among Republicans and some Democrats, so they stripped it out this time, leaving it up to lawmakers to find a pay-for,” reported POLITICO. 

“We firmly believe this legislation is the optimal vehicle to move the payment reform conversation forward,” said Martin Levine, immediate past president of the American Osteopathic Association, who attended the bill announcement event on the Hill. “There’s still a hill to climb, but it’s not the mountain it once was.” 

The American Medical Association stopped short of endorsing this particular bill, but AMA President Jeremy Lazarus said it’s “an important part of the continuing discussion on the future of Medicare and the end of the SGR.”  He repeated the AMA’s desire to “move past the SGR and transition to an array of Medicare delivery and payment options that give physicians the flexibility they need to help lower costs and improve the quality of care for their patients.”  The AMA has recommended a five-year transition fee scale that allows time to test new payment approaches, including several being tested as part of the 2010 health care law. 

John Rother, president and CEO of the National Coalition on Health Care, which represents businesses, medical societies, unions, insurers, healthcare providers, and patients, noted in the press release that “This bipartisan legislation would help deliver the real reform we need, moving us away from today’s fee-for-service system to higher-quality, lower-cost care.”

Some key House Republicans also have a plan as well.  The chairmen of the Energy and Commerce and the Ways and Means committees, as well as subcommittee leaders, unveiled an SGR repeal plan that would freeze physician payment rates at their current levels for the next 10 years with future increased based individual physicians’ quality of care and efficiency.  They have promised any fix “will not add a dime to the deficit.”  They are seeking comments on the proposal, which are due February 25th.   

Health Subcommittee Chairman Kevin Brady (R-Texas) has said he’ll introduce legislation later this year.  Democrats also have a strong backer for SGR repeal in Rep. Jim McDermott, MD (D-Wash.), a psychiatrist who takes over as the subcommittee’s top Democrat after last year’s defeat of longtime congressman Pete Stark (D-Calif.).  The House Republicans stated that SGR Reform must: 

• Not increase the deficit;
• Involve the physician community and other stakeholders;
• Foster clinically meaningful (not government determined) care for patients;
• Encourage achievable improvements in quality, efficiency, and patient outcomes based on physician-endorsed measures;
• Be applicable to all specialties, practice arrangements, and geographic locations;
• Reward the value rather than the volume of services;
• Motivate all stakeholders to adopt reforms; and
• Strengthen Medicare for seniors. 

The proposal, modeled after reimbursement systems that are employed widely in the private sector, improves upon Medicare’s outdated system by: 

• Fully repealing the SGR and eliminating the estimated 25 percent across-the-board rate cut in 2014 and any future rate cuts called for under the SGR;
• Establishing a period of predictable, statutorily-defined payment rates, enabling physicians to prepare for and participate in payment reform;
• Empowering physicians to determine the quality and efficiency measures that are clinically meaningful for Medicare beneficiaries;
• Rewarding physicians who deliver high-quality and efficient care rather than continuing the current system that encourages volume and unnecessary spending;
• Requiring the Centers for Medicare & Medicaid Services (CMS) to provide timely feedback and data to physicians, enabling physicians to make adjustments to improve patient care and their assessed performance;
• Providing reimbursement options – instead of the current one-size fits all approach – that enable physicians to select the Medicare payment system that best fits their practice; and
• Engaging the physician community in efforts to improve, reform, and update Medicare’s outdated physician reimbursement system 

The SGR Reform proposal would be rolled out in three (3) Phases.

PHASE 1: Repeal SGR and provide a period of predictable, statutorily-defined payment rates. 

While the duration and size of the payment rates to be set in statute are not yet determined, this phase will provide physicians time to transition to, and play a prominent role in, reforming the Medicare FFS physician payment system. 

PHASE 2: Reform Medicare’s FFS payment system to better reflect the quality of care provided. 

• Reform is needed to maintain a viable FFS system and an emphasis on value mirrors many private payer efforts.
• After the period of stability, physician fee schedule payment updates will be based on performance on meaningful, physician-endorsed measures of care quality and participation in clinical improvement activities (e.g., reporting clinical data to a registry or employing shareddecision making tools).
• Medical specialty societies will develop meaningful quality measures and clinical improvement activities using a standard process.
• Performance will be based on both risk-adjusted relative rankings amongst physician specialty peer groups and improvement on quality over time.
• Physicians will be provided with timely access to their quality performance score as well as with an appeals process to ensure accuracy.
• This proposal will reduce the reporting burden on physician practices, override the current ineffective CMS quality measurement programs, and align Medicare payment initiatives with private payer initiatives.
• Physicians who are participating in certain alternative reimbursement models under Medicare may opt out of this modified FFS payment system. 

PHASE 3: Further reform Medicare’s FFS payment system to also account for the efficiency of care provided. 

• After several years of risk-adjusted quality-based payments, physicians who perform well on quality measurement will be afforded the opportunity to earn additional payments based on the efficiency of care.
• Physicians will be provided with timely access to their efficiency performance score as well as with an appeals process to ensure accuracy.
• This proposal will reduce the reporting burden on physician practices and align Medicare payment initiatives with private payer initiatives.
• Physicians who are participating in alternative reimbursement models under Medicare may opt out of this modified FFS payment system. 

ASSESSMENT OF MEDICARE PHYSICIAN PAYMENT OPTIONS: Providing information for further improvements. 

• An assessment of the reformed FFS payment system and alternative Medicare and private sector delivery models will help to ensure that physicians can select from payment system options.
• The Department of Health and Human Services will provide an annual report to Congress on the reformed FFS payment system and alternative model options that include recommendations, as appropriate.
• Congress will solicit recommendations from physician societies and other relevant stakeholders on how to further reform and improve the Medicare physician payment system. 

OTHER ISSUES FOR CONSIDERATION: Developing complementary reforms to improve the practice environment 

• Medical liability reform.
• IPAB repeal.
• Private contracting/balance billing in Medicare without penalty to providers or patients to ensure patient choice and access.
• Gainsharing for improvements in quality and efficiency across defined patient populations 

Schwartz said there are a lot of similarities between her bill and the Ways and Means Republicans’ approach. 

In October, 2011, MedPAC recommended eliminating the formula without increasing the deficit by cutting fees for specialists and imposing a 10-year freeze on rates for primary care physicians. That proposal was strongly opposed by health industry groups, as well as the American Medical Association (AMA).  

The current fix expires on Dec. 31, but a permanent fix would likely have to be melded into larger financial reforms.  “Meanwhile, doctors could still face a more moderate Medicare pay cut this year.  A series of automatic cuts in federal spending, called sequestration, was put off for two months by the Congress with the Jan. 1 vote. Those cuts include a 2 percent reduction to physicians and other Medicare providers – including hospitals.”

Hearing on SGR Repeal 

In addition to the developments noted above, the House Energy & Commerce Committee, Subcommittee on Health, also held a hearing on SGR and how to Build a Future Medicare Physician Payment System.  The panel heard testimony from: 

• Glenn M. Hackbarth, J.D., Chairman of MedPAC
• Harold D. Miller, Executive  Director, Center for Healthcare Quality and Payment Reform
• Elizabeth Mitchell, CEO, Maine Health Management Coalition
• Robert Berenson, M.D., Institute Fellow, Urban Institute; and
• Cheryl L. Damberg, Ph.D., Senior Policy Researcher; Professor, Pardee RAND Graduate School 

As reported by Medpage Today, “multiple lawmakers questioned whether Medicare’s current attempts at paying for quality and outcomes — accountable care organizations (ACOs) and bundled payments for episodes of care, both of which are currently voluntary or in a pilot stage — would work for all providers, including those in rural areas or small practices.” 

“The ACO model by design is a flexible model,” Hackbarth said in its defense. “It does not dictate a particular form of medical practice or a particular way for money to be distributed within the ACO.” 

Harold Miller, executive director of the Center for Healthcare Quality and Payment Reform in Pittsburgh, said some models currently being tested may not work.  “Many current payment reform efforts, I think, will have limited success because they leave the current broken fee-for-service system in place,” Miller told lawmakers.  In particular, some systems result in physicians losing money even as Medicare makes money, he said. 

Rep. Mike Burgess, MD (R-Texas), defended the Republican framework released last week because it would allow for flexibility, while noting that a fee-for-service model — criticized for paying for quantity, not quality — may not disappear.  “The framework realizes there are always going to be areas where providers choose or need to practice in a fee-for-service model,” Burgess said.  “That doesn’t mean there aren’t better ways to revamp fee-for-service, but it does mean that fee-for-service may continue to exist.” 

Medpage noted that “There was agreement that physician specialty groups have a hand in crafting some details of performance metrics that an SGR replacement would hold. Rep. Henry Waxman (D-Calif.), the top Democrat on the full committee, said lawmakers must seek input from beneficiaries and nonphysician providers as well.” 

Whatever is done, Hackbarth, as MedPAC has done before, called for a re-basing of physician fee schedules to better incentivize primary care.  “The fee schedule doesn’t recognize all of the activities that make primary care important for the care delivery system,” Hackbarth said, such as the patient education, care coordination, and follow-up care that primary care physicians provide. Hackbarth also suggested Congress lift the caps on graduate medical education to allow for more residents — both primary care and specialists — to be trained, reported MedPage.