Ken PerezEach year during the past decade, after Thanksgiving, the nation’s capitol has seen an annual rite heat up in healthcare policy circles: the yearly fretting about a looming sharp decrease to the Medicare physician fee schedule that will take effect on the first day of the coming year. The worries are usually compounded by a lack of any obvious funding source to cover the cost of a permanent repeal of the culprit, the sustainable growth rate (SGR) provision. 

The current SGR threat is a 24.4 percent decrease to the physician fee schedule on Jan. 1, 2014. The latest, most promising proposal for a permanent SGR repeal or “doc fix” was floated as a draft proposal by the chairs of the Senate Finance and House Ways and Means committees at the end of October. 

The bipartisan and bicameral draft proposal would freeze current Medicare payment rates for 2014-23. Starting in 2017, it would impose a mandatory, budget-neutral Value-Based Performance (VBP) Payment Program, with payments based on a physician’s performance in a prior period. Physicians who receive a significant portion of their revenue from an alternative payment model (APM)—e.g., accountable care organizations and patient-centered medical homes—would be exempted from the VBP program and receive a 5 percent bonus each year from 2016 through 2021. 

The Congressional Budget Office has not estimated the cost of the draft proposal, although one could surmise that the price tag would be the sum of the CBO’s latest estimate for freezing Medicare physician rates for 10 years ($139.1 billion, released in May) and the net effect of payments to physicians who meet the APM revenue thresholds—i.e., whether the savings to Medicare from the APMs are more or less than the 5 percent annual bonus payments from Medicare to APM-qualified physicians for 2016-21—relative to what would have been paid under frozen rates.

As with the vast majority of previous attempts at permanent repeals of the SGR, the draft proposal does not specify a source of funding—a so-called “pay-for”—to cover the increased government spending that would result. Some have thought that SGR reform could be included as part of a more comprehensive deficit-reduction piece of legislation, but with Congress currently struggling to put together even a “small potatoes” fiscal agreement, that would seem to be highly unlikely. SGR reform, with its high cost, remains the elephant in the room of deficit reduction. 

But all is not lost. Sen. Jay Rockefeller (D-W.Va.), Chairman of the Health Care Subcommittee of the Senate Finance Committee, is urging the Senate to pass the Medicare Drug Savings Act (S. 740/H.R. 1588), a bill that would require drug companies to provide rebates to the federal government on drugs used by dual eligibles—people eligible for both Medicare and Medicaid. The CBO estimates this change would reduce Medicare’s payments to drug manufacturers by $141.2 billion over 10 years. Senator Rockefeller proposes that those savings be used to cover the cost of a permanent doc fix. The bill, introduced in mid-April, was originally presented as a deficit-reduction measure. As one would expect, the Pharmaceutical Research and Manufacturers of America (PhRMA) opposes the legislation. 

In simple terms, the economic effect of these two potentially linked bills would constitute a robbing of Peter to pay Paul—basically a wealth transfer from big pharma to physicians.

With bipartisan and bicameral support, the draft proposal to repeal the SGR is that rare, substantive piece of legislation that has a chance of making it through both houses of Congress, but it comes with a price that will need to paid for somehow, perhaps by passage of the Medicare Drug Savings Act, which does not enjoy bipartisan support. Let’s see if Congress can practice the art of compromise to solve the longstanding puzzle of the SGR. Stay tuned! 


Ken Perez  is a healthcare IT marketing and policy consultant in Menlo Park, Calif.

Publication Date: Monday, December 02, 2013