MedPAC: The Time is Now for SGR Repeal

We've discussed many times before the important role entitlement reform plays in addressing our long-term debt. As the baby boomer generation continues to age and health care costs continue to grow faster than the economy, federal health care spending is expected to rise and comprise a growing share of the federal budget.

The latest biannual report from the Medicare Payment Advisory Commission (MedPAC) notes that in the next ten years, Social Security, Medicare, Medicaid, other health insurance programs, and net interest expenses stemming from them will account for more than 16 percent of GDP, while total federal revenues have averaged 18.5 percent of GDP in the past 40 years. MedPAC emphasizes the need for an efficient health care system, one in which beneficiaries are able to access top-quality care at reasonable prices.

In order to increase the efficiency of Medicare, the report makes a strong call for the repeal of the sustainable growth rate (SGR) formula, which links physician fees to Medicare spending growth in setting payment amounts for fee-schedule services. Since 2002, the SGR has called for annual negative update to fee-for-service physician payments. However, for every year since 2003, including 2013, Congress has also temporarily overridden these cuts to physician payments, thus snowballing the effect of the cuts over time (although that trend has reversed a bit recently). Over the years, last minute "doc fixes" have frustrated providers and delayed submission and processing of claims. On the whole, the report argues that the SGR system has failed to restrain health care utilization effectively and may actually have exacerbated it, in part because it does not discriminate between physicians who work to restrain volume growth and those who don’t.

In their report, MedPAC emphasizes five key aspects to SGR repeal:

• Repeal is urgent. Delay will not provide more favorable options, and repeal is likely to become more costly over time.

• Beneficiary access must be preserved.

• The physician fee schedule must be rebalanced to achieve equity of payments between primary care and other services.

• Pressure on FFS must encourage movement toward new payment models and delivery systems.

• Repeal of the SGR must be fiscally responsible.

MedPAC has called for reform of the SGR many times before, but this report makes a particularly strong case for the urgency of repeal today. This comes as a result of new CBO projections which reduced the cost of repealing SGR from $250 billion over the next decade in their August baseline to $140 billion in their February baseline. MedPAC says:

Repeal is now less costly than it has been for many years and it could be accomplished – depending on how the Congress decides to finance it – with less burden on physicians, other providers, beneficiaries, and taxpayers.

MedPAC also cautions that the budget score is volatile, and the cost of repeal could rise again as enrollment and volume of services per beneficiary increases.

^{Source: MedPAC}

Last month, CRFB blogged about potential repeal packages for the SGR. MedPAC's October 2011 proposal, referred to in today's report, would repeal the SGR, freeze payment rates for primary care providers, and provide non-primary care specialists with a 5.9 percent reduction for three years and then freeze them through the end of the decade. The budgetary impact of this would be slightly less than a strict freeze (which is the CBO option), and MedPAC agrees that the repeal's cost should be paid for either with Medicare or other savings. 

In addition to their SGR recommendation, MedPAC's report offers numerous other recommendations regarding provider payments and Medicare Advantage, along with providing an update on the Medicare Part D program. As lawmakers continue to look for ways to improve and reduce federal health spending, MedPAC's recommendations should be part of the menu of options they consider moving forward.