Fixing Medicare's Unsustainable Growth Rate
In a move that should amaze and astound all health policy wonks, a bipartisan repeal of Medicare’s dreaded sustainable growth rate (SGR) mechanism is in sight. It is not perfect, and will likely face unjustified budget pressures
, but it is far better than the status quo.
Medicare’s SGR was devised in 1997 to try to keep annual growth in Medicare per-capita spending below the growth rate of GDP. Each year, Centers for Medicare & Medicaid Services (CMS) looks at Medicare spending over the past year and compares it to the target expenditures. If spending was greater than the target amount, then the SGR conversion factor is supposed to reduce reimbursements to physicians for the next year. However, simply put, this system has failed—miserably—because Congress has always revoked the required cuts.
From 2001 to 2012, Medicare spending per beneficiary grew an average of about 6 percent annually—that includes the recent slowdown in Medicare spending growth. Over the same period, U.S. GDP growth averaged 3.9 percent—a full 2.1 percentage points slower than the growth in Medicare spending. This means that over these 12 years, Medicare has gradually taken up a larger share of the U.S. economy.
But the reason that the SGR failed to control Medicare spending is not necessarily a problem with the mechanism itself—rather, the reason is political. Almost every year that physician payment rates were due to fall, Congress has enacted a “doc fix” to prevent rates from plummeting. Most recently, rates were scheduled to fall by about 24 percent (Congress passed a temporary 3-month patch shortly before the new year.) The fear has been that a significant drop in physician payments would lead to a reduction in physician access for Medicare beneficiaries. This fear is well-grounded, because physicians do not have to participate in Medicare. These annual “doc fixes” have ended up costing somewhere around $150 billion over the past ten years.
This annual stand-off between the law, the doctors, and the politicians is why groups such as the American Medical Association have repeatedly called for a permanent fix to the SGR mess. And as 2013 drew to a close, the year ended on somewhat of a positive note, even though the SGR had been, once more, kicked down the road like the proverbial can. Indeed, work began on a bill by late July, and by December, the Senate Finance and House Ways and Means committees each passed their own versions of SGR repeal bills. But the government shutdown and the Obamacare rollout disaster drew attention away, and the year ended with a three-month patch.
The latest bipartisan proposal, authored by three congressional committees, strikes a middle-ground between previous bills and would provide a 0.5 percent annual payment increase for five years. The bill would also incentivize physicians with bonuses for participation in alternative payment models and would “make payment data on providers more publicly available.”
This is, in no uncertain terms, a leap in the right direction. Nevertheless, the bill will face obstacles. The Congressional Budget Office will score the bill as costing between $120 and $150 billion over ten years. And fiscal hawks may attack the bill because of this. Yet, legislators should bear in mind that these are not “real” costs—the SGR cuts would not be allowed to happen without the repeal, and the money would be spent either way.
There are still other weaknesses in the proposal. While the incentives for alternative payer models are laudable, they also amount to increased micromanaging of physicians. SGR reformers would be better off encouraging existing value-based payment models (such as those that have permeated Medicare Advantage), or by tying payment increases to health outcome measures.
No proposal is perfect. But if this proposal represents the limit of bipartisan agreement on SGR repeal, we could have done much worse.
Yevgeniy Feyman is a fellow at the Manhattan Institute for Policy Research and a contributor to e21. You can follow him on Twitter here.