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Non-Attorney Professionals


Federal Update: Replacing the SGR  
Health Law Perspectives
February 1, 2014

On February 6, a bipartisan, bicameral proposal to replace the Medicare physician payment system was announced by the Chairmen and Ranking Members of the Senate Finance Committee, House Ways and Means Committee and House Energy and Commerce Committee. Such political consensus is rare in Washington and lawmakers deserve credit for the agreement that has been reached. However, a bill to replace the Sustainable Growth Rate (SGR) could easily cost in the range of $125 billion over ten years, and if a number of expiring provisions are added, as seems likely, the cost could rise to $150 billion–$170 billion. Forging consensus around the set of policy changes that will offset this cost may prove a more daunting task.

Every year since 2002, Congress has found a way to avoid the scheduled reductions in payments to physicians. This year, the temporary patch protecting physician payments from a 24% cut expires on March 31.

Likelihood of Near-term Legislative Action on a Replacement to the SGR

With still-high deficits and very high federal debt levels, enactment of a replacement to the SGR will require an offsetting package of budget cuts totaling $125 billion–$170 billion. Prospects for such offsets passing Congress by the end of March appear low. There has been little discussion of what the package will include, enormous resistance from other providers, and division between the parties over whether to consider changes that affect beneficiaries. With further complications caused by the midterm elections in November, it is very hard to see how Congress could develop and act on such a package in the short term. Of course, it is possible that Congress could decide not to offset the cost of the bill and just pass it, but that seems unlikely. In the short term, then, the most likely scenario is another temporary postponement of the scheduled cuts by means of another round of reductions in other federal health payments.

Alternatively, action in the lame duck session is a possibility, though also a tall order, as there is a certain degree of momentum involved in the legislative process. This will depend to some extent on the outcome of the November elections. 

Key Elements of Agreement

There are four key elements to the physician agreement. While detailed summaries of the agreement have been published, legislative language –  which may differ or raise other issues – has not been released.

  1. The agreement assures a steady base for physician payments for the future. Physicians would receive a 0.5% update each year from 2014 to 2018. After that, the basic payment rate would be kept at the 2018 level through 2023.
  2. The agreement consolidates Meaningful Use, Value-Based Payment Modifier, and Physician Quality Reporting System into a single program. The agreement also combines into a single overall score the measures for quality, resource use, EHR meaningful use, and clinical practice improvement. This score would be measured against a threshold, with some positive adjustment for those above the threshold and negative adjustment for those below.
  3. The agreement sets in motion a process that would move physicians away from the standard fee schedule model of payment toward Alternative Payment Models (APMs) and puts in place a system to reward physicians who move to adopt the new models. A system of bonus payments would begin in 2018, and the standards – expressed as a percentage of payments received under the new models from either Medicare or Medicare and other payors – would increase over time.
  4. The agreement would expand the use of Medicare data (e.g., posting quality and utilization data on the Physician Compare website) and encourage the development of quality measures and data sharing.

Of specific interest in California, beginning in 2017, the fee schedule areas used for payment would move from a county base to a metropolitan statistical area base. There would be a six-year transition to help prevent negative adjustments.

Perhaps most interesting, the agreement leaves the new APMs to be defined by the Secretary of HHS. In the short term, there is probably no other choice to set payment reform in motion and stabilize the physician payment system. However, this is a very significant grant of authority to the Secretary. Moreover, many of these models will have to be developed, tested, and ultimately put in place in regulation. This could be a long process.

Next Steps

Even if broad physician payment reform is not achieved in the coming months, Congress will need to enact legislation to avoid the 24% cut in physician reimbursement scheduled for April 1 and such legislation will likely contain some cuts to other providers. HLB Government Relations and Public Policy Department closely monitors these legislative developments and can provide additional information to interested parties.

 For additional information, please contact Keith Fontenot, Marty Corry or Alex Brill  in  Washington, D.C. at 202.580.7700.



For media assistance, please contact Maura Fisher at 202-580-7714.