Cutting Medicare rates to physicians could doom the program

Commercial health plans are difficult to deal with, but at least they represent revenue that is not subject to annual legislated reduction.

The average physician practice relies on Medicare for about 25 percent of its revenue. That revenue source is at risk every year because of the Sustainable Growth Rate (SGR), established in 1997 to keep Medicare from growing faster than the overall economy. The SGR formula factored in the rising number of people on Medicare. However, the per-beneficiary costs charged by providers rose at a faster rate than the economy. When that happens, the federal government is supposed to cut payments across the board to control costs. Every year since 2002, Congress has blocked these cuts. The proposed cumulative rate cut to satisfy the SGR was scheduled to be 24.7 percent in January 2014 if Congress did not step in again.

According to CMS actuaries, that cut would drop Medicare pay rates to 61 percent of what private insurers pay for the same services, and even drop below those of Medicaid. Rates are scheduled to drop further until, in 2050, Medicare falls below 40 percent of what private insurers pay. The actuaries  acknowledge it is unlikely that Congress would allow this scenario to play out. The annual threat of a proposed rate cut will continue until Congress fixes the formula.

Congress has overridden the SGR-mandated cuts a dozen times, substituting either pay freezes or small pay increases. The price tag for freezing physician rates has dropped significantly because of declines in health-care spending growth. According to a 2013 CBO report, the estimated 10-year cost  of repealing the SGR and freezing Medicare payments to physicians would be $116.5 billion, compared with the previous estimate of $244 billion.

Nevertheless, four former Medicare administrators told a Senate committee hearing in May 2012 that the SGR must be replaced.

The American Medical Association (AMA) and more than 100 state and specialty medical societies issued a set of principles in October 2012 that they said could support a transition from the SGR to “a higher-performing Medicare program.” They urged a plan that would allow physicians to choose their own payment models, eschewed penalties and allowed physicians to demonstrate that they are taking accountability for quality and cost control.

In October 2013, the Medicare Payment Advisory Commission (MedPAC) recommended eliminating the SGR formula by cutting fees for some specialists and imposing a 10-year freeze on rates for primary-care physicians. Predictably, the proposal was strongly opposed by health industry groups and the AMA.

Reps. Allyson Schwartz, D-Pa., and Joe Heck, R-Nev., an osteopathic physician, reintroduced legislation in February 2013 to repeal the SGR, increase payments to physicians for four years and test new payment and delivery models.

Alternatively, House Republican leaders have urged an SGR repeal plan that would freeze physician payment rates for the next decade, with future increases based on physicians’ quality and efficiency of care.

Health-care industry groups urged Congress to use projected Iraqi and Afghanistan war savings to repeal the SGR.

In its 2013 annual report, MedPAC said, “The SGR formula may have resulted in lower (reimbursement updates, but it has failed to restrain volume growth; in fact, for some specialties the formula may have exacerbated growth. In addition, the temporary increases, or ‘fixes,’ to override the SGR formula are undermining the credibility of Medicare by engendering uncertainty and frustration among providers, which may be causing anxiety among beneficiaries.”

Nearly all lawmakers want to repeal the SGR, but no one is willing to add to the federal deficit to accomplish that. The result is zombie public policy that annually creates anxiety in the provider community and offers another opportunity to heap scorn on Congress for burying its head in the sand.

The indecisiveness over the SGR has cost physicians dearly. Over the past decade, the cost of providing care has increased five times faster than Medicare reimbursement. Medicare patients require far more complex and time-consuming care for about 60 percent less reimbursement, compared with commercial insurance rates.

Forty-five percent of physicians say they would stop seeing Medicare patients if Congress enacts the Medicare physician rate cuts.

Despite current challenges, 82 percent of respondents said they would be willing to explore new payment and delivery models if a level of stability were restored to the Medicare physician-payment system, according to a Medical Group Management Association (MGMA) survey.

About 60 percent said they have delayed buying new facilities and equipment in the past decade because of the annual SGR uncertainty.

The uncertainty over that looming SGR rate cut was the No. 1 concern for physician practice managers, according to an MGMA survey.

Each time SGR cuts are scheduled for a congressional vote, the nation’s physicians become nervous and threaten to pull out of the program. According to the Texas Medical Association (TMA) website: “This decade-long and continued uncertainty is forcing some physicians to make a difficult decision to either opt out of Medicare, limit the number of patients they treat, or retire early. A TMA survey (from August 2011) indicates 50 percent of Texas physicians are considering opting out of the Medicare program altogether.”

So far, only about 1 percent of the nation’s physicians have opted out of Medicare, according to a Department of Health and Human Services Office of Inspector General (OIG) report. The OIG said it could not determine why these physicians are leaving the program and urged CMS to strengthen its data requirements to track opt-outs.