November 7, 2011

Every November, the Centers for Medicare and Medicaid Services (CMS) issues a final version of the regulation updating the Physician Fee Schedule – and for the past eleven years, the update announced by CMS has been a decrease in payment rates, thanks to the Sustainable Growth Rate (SGR) formula. This year is no exception.

In 2012, unless Congress takes action, the Medicare conversion factors (CFs) will decrease by 27.4 percent. Outrageous as this number is, it is less than the 29.5 percent reduction that CMS had estimated in March of this year because Medicare spending growth has been lower than expected. As announced in the “Final Rule,” for 2012, the general CF is $24.6712. Because of a scheduled increase in the anesthesia practice expense allowance, the national average anesthesia CF is $15.5264, a decrease of 26.2 percent from the 2011 national average of $21.05.

In all but one of the last eleven years, i.e., 2002, Congress blocked the projected SGR cuts. Legislative action is required; the Administration is bound by the statutory SGR formula, which it says it is committed to fixing: “This payment rate cut would have dire consequences that should not be allowed to happen,” said Donald M. Berwick, M.D., CMS administrator. “We need a permanent SGR fix to solve this problem once and for all. That’s why the President’s Budget and his Plan for Economic Growth and Deficit Reduction call for permanent, fiscally responsible reform and why we are committed to working with the Congress to achieve a permanent and sustainable fix.” The Federal Register notice explaining the Final Rule itself states:

“While Congress has provided temporary relief from these reductions every year since 2003, a long-term solution is critical. We will continue to work with Congress to fix this untenable situation so doctors and beneficiaries no longer have to worry about the stability and adequacy of their payments from Medicare under the Physician Fee Schedule.”

Organized medicine has a new focus for lobbying. The Joint Select Committee on Deficit Reduction (the “Super Committee”) is due to present its recommendations by November 23, 2011. Noting that “Medicare payments already have fallen 20 percent below physicians' costs of caring for seniors,” AMA President Peter W. Carmel, MD has urged that the Super Committee “include repeal of the formula in their recommendation to Congress to protect access to care for seniors and stabilize the Medicare program” and add the cost of repeal to their final legislative package. (Final Medicare fee schedule rule emphasizes need to repeal SGR. AMAWire, November 2, 2011.)

The Medical Group Management Association (MGMA) has also been running a vigorous effort to persuade the Super Committee that this is the time to fix the SGR problem. Among the talking points with which MGMA has equipped its members, whom it has urged to participate in a grassroots campaign, are the following:

• The committee can play a critical role by fixing the SGR. Avoiding this issue or passing another short-term fix simply drives up the cost of a permanent solution. Had Congress acted in 2005, the 10-year cost of preventing future cuts would have been $48 billion. Today, it is estimated that averting the currently scheduled cuts would cost nearly $300 billion over the next 10 years. If Congress continues to follow the past practice of employing budget gimmicks to push cuts into the future, this cost will exceed $500 billion in only a few short years.
• Credible deficit reduction legislation cannot include a Medicare budget baseline that assumes future physician payment cuts totaling almost $300 billion. Previous deficit reduction proposals by the National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) and the Senate bi-partisan “Gang of Six” proposal included funding offsets to permanently repeal the SGR while also achieving nearly $4 trillion in overall deficit reductions. These proposals demonstrate that significant deficit reduction and the elimination of the SGR are compatible, achievable and necessary.

Stuart Guterman, vice president for Payment and System Reform at the Commonwealth Fund and executive director of the Commonwealth Fund's Commission on a High Performance Health System, lists the following arguments for repealing the SGR:

• It reduces payment rates across-the-board—every service, every specialty, every geographic area—regardless of performance;
• It maintains current incentives for each physician to increase the volume and intensity of services;
• It does not address the undervaluation of primary care services in the physician fee schedule;
• It has failed to control spending growth: in 2002, although physician fees were cut by 4.8 percent, physician spending per Medicare beneficiary rose by 5.2 percent, and from 2003 through 2005, although fees rose by only 1.4 to 1.5 percent each year, spending per beneficiary rose by almost 9 percent per year;
• It has led to increasing gaps between Medicare and private payment rates;
• It has undermined the credibility of the Medicare program with physicians; and
• It does not provide incentives to improve the quality, appropriateness, or coordination of care.

The most pointed criticism of the SGR in Guterman’s blog entry (http://www.commonwealthfund.org/Blog/2011/Nov/Medicare-Physician-Payment.aspx) is that the formula-driven nosedive in physician payment rates would defeat the basic principles and goals of healthcare reform:

We get what we pay for in our health system: an emphasis on the volume of services and complex and high-cost procedures rather than patients' needs. We need to start paying for what we want by rewarding providers for more coordinated, effective, and efficient care. But it's hard to offer effective rewards for better care if the baseline is a 27 percent across-the-board cut in fees, which hits all physicians regardless of the appropriateness, effectiveness, or cost of the care they provide or its impact on the health of the patient. (Emphasis added.)

The American Society of Anesthesiologists has begun to articulate strategies for “rewarding providers for more coordinated, effective, and efficient care, notably in the form of the “surgical home.” ABC is about to launch the Zenith Anesthesia Practice Network that will give participating clients a framework within which to develop coordinated care models, among other opportunities. It is critical that a 26.2 percent cut in Medicare payments not defeat and demoralize anesthesiologists at the very beginning of these exciting new ventures. For that reason, we urge our readers once again to join in the efforts of the ASA, the AMA, the MGMA and their other professional associations to bring about, once and for all, repeal of the SGR.

With best wishes,

Tony Mira
President and CEO