Former CMS Administrators Call for a 5 Year Suspension of SGR Updates

Two former CMS Administrators voiced support for a 5 year suspension of the sustainable growth rate (SGR) formula used to update the payment rate for physicians who provide services to Medicare beneficiaries at an Alliance for Health Reform Briefing held on January 24, 2014.   Mark McClellan, MD, PhD, and CMS Administrator from 2004 to 2006,  suggested that a five  year suspension of the SGR would be a better solution than the 10 year suspensions proposed in current legislation.  Gail Wilensky, PhD. who was CMS’ administrator from 1990 to 1992, agreed.  “You could do the first steps of what all that legislation does, which is provide a known piece of stability for several years and put in place some specific activities to try to move forward with performance metrics,” said Wilensky.   Both thought that this suspension would shift the focus of the debate away from the negative cuts the SGR system requires and towards evaluating payment systems that reward value and quality.

Value-Based Payments

Their main concern was that the proposals for a 10-year break from the SGR would cost in the neighborhood on $150  billion according to a Congressional Budget Office Report.  McClellan thought that if that cost were cut in half the legislation might get more support. In addition,  both thought that the five year time frame would be sufficient to get results from and analysis of  a variety of different payment models being tested across the country.

The real problem with the physician reimbursement system is not so much the SGR formula, but the fact that it is based on payment for services. Gail Wilensky said, “the relative values scales as it exists with billings for some eight to 9000 different codes, rewards volume rather than value.”  Stu Guterman, Vice President of Medicare and Cost Control at the Commonwealth Fund, which co-sponsored the briefing  said, “One of the problems is that the [SGR] formula cuts payment rates across the board, no matter how appropriate or inappropriate the service is and no matter what kind of physician is providing a service and how effective they are.” All three thought that simply suspending the SGR was not enough and that the physician reimbursement system needs to be moved from fee-for-service structure to one that pays for value and quality of care.


The SGR was designed as a mechanism for adjusting the total growth in spending on physician services.  The SGR is linked to changes in the U.S. gross domestic product. It is based on a formula at Soc. Sec. Act sec. 1848 (f)(2) that includes the following factors; (1) the estimated weighted average percentage increase in the fees for all physicians’ services; (2) the estimated percentage change in the average number of Part B beneficiaries from the previous year; (3) the estimated percentage growth in the real per capita GDP from the previous year; and (4) the estimated percentage change in expenditures for all physicians’ services that are attributable to changes in laws and regulations. The result being that in 2002, and every year since, the SGR has produced a negative update, or a reduction in spending on physician services from the previous year.  “The problem being,” said Guterman, “is as spending continues to exceed the target that is set under the formula, the formula produces large cuts in fees.”

Both Wilensky and McClellan noted several different payment methodologies for physicians from medical homes to accountable care organizations and a variety of other models that are being tested.  Both felt that it was too early in the process to come up with a payment system that would replace the fee-for-service system, but that by repealing the SGR for a five year period the focus of the debate would be taken off the annual cut to the physician fee system and focused on developing a physician reimbursement system based on value of care provided.


Top Health Wolters Kluwer Law & Business Posts of 2013

We wish everyone a happy end to 2013. Health Wolters Kluwer Law & Business will resume our regular posting schedule on Thursday, January 2nd. In the meantime, these were our top posts for 2013:

Our top page was Kusserow’s Corner followed by Net News and the  Resource Center.

The Medicare and Medicaid Guide—Highlights of All Explanations (White Paper)

Medicare is the single largest purchaser of health care in the United States, accounting for 23 percent ($522 billion) of the $2.3 trillion spent on health care in 2011, according to the Medicare Payment Advisory Commission. In 2012, Medicare covered 50.7 million people: 42.1 million aged 65 and older, and 8.5 million disabled, according to the 2013 Medicare Trustees Report. In 2011, Medicare paid for 27 percent of all hospital care, 23 percent of physician services, 44 percent of home health services, 25 percent of nursing home care, 20 percent of durable medical equipment, and 24 percent of prescription drugs.

Medicaid provides coverage for 58 million people, and accounts for 16 percent of all health care spending. With the expansion of Medicaid eligibility provided under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), Medicaid spending will continue to grow.

According to the Congressional Budget Office, the share of gross domestic product (GDP) devoted to federal health care spending will almost double in the next 25 years, from 4.6 percent of GDP in 2013 to 8 percent of GDP in 2038. With one-third of the U.S. population receiving health coverage through either Medicare or Medicaid, it will continue to be important for health care providers and practitioners, the legal and business advisors who support them, the legislators who pass laws amending the programs, and the administrators who regulate the programs, to stay on top of changes in the programs.

The Medicare and Medicaid Guide has been published since 1969. Available both in print and online, the Guide offers daily updates of new laws, regulations, court decisions, administrative decisions, and other guidance about these two health programs, in addition to over 500 explanations about how these programs work. The explanations cover all areas of both programs – who is eligible to get coverage; who is eligible to provide coverage; what types of services are covered; how the programs are financed and administered; how the government monitors fraud and abuse in the programs; just to name a few subject areas.

Wolters Kluwer editors have prepared a white paper which includes summaries of each explanation section of the Medicare and Medicaid Guide. It is designed as a supplement to what current subscribers of the Guide already receive with their subscriptions, but it can also be used as an introduction to the product for non-customers.

The complexity of the Medicare and Medicaid programs is often commented upon by judges when they write decisions based on the programs’ laws, regulations and other guidance. This overview highlights the complexity, but also provides a hint at the breadth of coverage in this product.

Physician Fee Schedule Formula Change Would Cost $176 Billion Over 10 Years

Legislation under consideration in the House of Representatives to change the current formula for how physicians are reimbursed by Medicare would increase federal direct spending by $176 billion from 2014 to 2023, according to the Congressional Budget Office (CBO). The “Medicare Patient Access and Quality Improvement Act of 2013″ (HR 2810) would replace the existing Sustainable Growth Rate (SGR) formula with a new system of determining physician reimbursement rates. Under the existing SGR formula, Medicare payment rates for physicians would be cut by 24 percent starting January 1, 2014.

History of SGR

The Balanced Budget Act of 1997 (P.L. 105-133) authorized the use of the SGR to determine the rate at which Medicare would pay physicians for their services. As the CBO explains, “payment rates are based on a measure of the resources required to provide a given service (measured in relative value units or RVUs), adjusted to account for geographical differences in input prices, and translated into a dollar amount by applying a ‘conversion factor.’ The SGR formula determines the annual update to the conversion factor.”

The SGR was supposed to balance increases in health care costs with other economic factors, however, health care costs began to increase at higher than expected rates. If implemented annually, the SGR formula would have dramatically decreased Medicare payments to physicians—which may have led physicians to stop accepting Medicare patients. Congress recognized this problem, and has annually voted to postpone the SGR increase for more than a decade. Had cuts gone into effect on January 1, 2013, for example, physicians would have seen a drastic 27 percent cut in payments. Instead, Congress extended current physician payment rates through December 31, 2013.

HR 2820

The legislation under consideration by the House would repeal the SGR and replace it with a five-year period of stable payments, beginning in 2014 and ending in 2018, with annual adjustments for inflation of 0.5 percent. This time period would allow stakeholders to develop and test quality measures and clinical practice improvement activities. Beginning in 2019, physicians would participate in a Physician Quality Reporting System (PQRS), which would set provider benchmarks for excellence in health care. Providers who meet or exceed benchmarks could receive an additional positive update of 1 percent; underperforming physicians could lose 1 percent. Alternatively, physicians could opt-out of the fee-for-service program and choose to engage in alternative payment models (APMs), which could include patient-centered medical homes, specialty models, and bundles or episodes of care, among other possibilities.

CBO Analysis

The CBO noted that the legislation would eliminate the cuts in physician payment rates that will occur under current law and instead set updates to payment rates for services on the physician fee schedule at 0.5 percent a year. The CBO estimates those automatic updates would increase direct spending by $63.5 billion through 2018, relative to the level of spending that CBO projects based on the payment rates under current law.

CBO said it estimates that the balance of additional spending starting in 2019 depends on which payment model physicians choose. While physicians are likely to choose the payment option that maximizes their payments, “there is significant uncertainty about the alternative payment arrangements that would be offered, how rates would be set, how many models would be adopted, how many providers would participate, how beneficiaries would be assigned, and other issues.”

The House Committee on Energy and Commerce previously approved the legislation on August 1. It was referred for further consideration to the House Judiciary Committee Subcommittee on the Constitution and Social Justice on September 13, 2013.