Kicking the Can: Congress Fails to Pass Bipartisan SGR Repeal/Replacement Legislation

And Why You Should Care

Despite a successful vote in the House the previous day, last week the Senate failed to bring legislation to repeal the flawed Medicare Sustainable Growth Rate (SGR) formula to a vote before leaving for April recess.  The medical community is extremely disappointed that the Senate failed to enact permanent SGR repeal legislation before the March 31 deadline, thus allowing a 21% physician payment cut to take effect April 1.  Its leadership is urging citizens to contact their federal legislators, as it is imperative that the Senate return from recess ready to pass this legislation.

Perhaps you don’t care about physicians’ pay, or you think they get paid too much anyway, so you tune out when talk turns to the SGR.  It really is a boring topic.  However, you should care, because the short and long term consequences of failure to reform this system are all negative, for patients of all ages, and the economy as a whole.

What is the Flawed SGR formula?

VERY simply put, since 1997, the rates physicians are paid to provide services to Medicare beneficiaries have been determined by the SGR formula.  If spending on physician services exceeds the targeted rate of growth in the national economy in a given calendar year, the physician fee schedule is supposed to be automatically reduced across the board the following year in order to make up the difference.  Payment rates to other providers, such as hospitals and nursing homes, are not subject to this formula.  You might think that ‘physicians just charge whatever they want’, but, unlike many other businesses, the vast majority of physicians’ payments  are based on fixed fee schedules, and they are unable to raise those fees or tack on surcharges such as what you might see at your dry cleaner’s, in order to stay viable.

Kicking the Can

Aware of the many flaws, 18 times since 2002 Congress has enacted last minute, short-term legislation, which you might have heard referred to as the ‘Doc-Fix’, to ward off the payment reduction.  While not as devastating as SGR formula dictated cuts, the short-term patches have kept the physician fee schedule increases below inflation.  Also, when they enacted these short-term patches, Congress didn’t do the hard work of making up the rest of the difference via other budgetary measures or solving the fundamental issues.  These short term fixes, otherwise known as ‘kicking the can’, have resulted in a continually widening gap between the actual level of Medicare physician-related spending and the target in the SGR formula.  That gap now stands at just over 130 billion dollars, and as per the SGR formula, the Medicare physician fee schedule is set to be cut by 21% today (April 1st).

Hold Your Claims

The Centers for Medicare & Medicaid Services (CMS) stated in its March 24 Provider eNews that, “[U]nder current law, electronic claims are not paid sooner than 14 calendar days (29 days for paper claims) after the date of receipt. CMS will notify [providers] on or before April 11, 2015, with more information about the status of congressional action to avert the negative update and next steps.”   … in other words, hold your claims (invoices for services provided to Medicare beneficiaries) with the hope this will all work itself out!

Flawed Formula’s Effect on Medical Practices

While there are many flaws in this formula, I’m only going to focus on the fact that it fails to take into account the annual increases in costs which affect all business owners.  As business owners with continually decreasing revenue in the midst of rising expenses, many physicians, particularly those in primary care, are struggling to even keep their practices afloat, never mind make the infrastructure investments necessary to survive under CMS’ (Medicare’s) new value-based reimbursement models.  A 21% payment reduction would certainly put them out of business, and some of them might not even survive the short term loss of revenue due to delayed billing.  And, given the constant threat of drastic reimbursement cuts, it’s understandable that those physicians who have managed to stay financially sound are hesitant to make long-term financial commitments.  If they can’t stay in business, not only will physicians be unable to care for their Medicare and Medicaid patients, they won’t be there for any patients.  In addition, the related layoffs and severed purchasing relationships will have a significant negative downstream effect on the economy.  So while SGR talk might bore you, and you might not care about physicians’ pay, I assure, you that, on some level, in some way, this will directly or indirectly affect you and/or someone you love.

I’m hopeful that you now understand that the physician fee schedule is about much more than just physicians’ pay, and that failure to fix the formula by which it is set will negatively affect us all.    The good news is that the medical community is optimistic about the recently introduced legislation, which addresses the primary concerns raised by its leadership. Medical societies across the nation, including the Medical Group Managers Association (MGMA) are urging their members and fellow citizens to contact their federal legislators in support of SGR reform.  “By passing this bill, lawmakers will stabilize Medicare, address the dual challenges of improved care and lower cost, and bring peace of mind to their elderly and disabled constituents,” said Robert Wergin, MD, president of the American Academy of Family Physicians (AAFP) in a news release.

Make your voice heard!  Urge your Senators to repeal the SGR now.  For more information and assistance with contacting your federal legislators, visit