This year Medicare physicians face a 24 percent pay cut. The reason: Medicare payment is fixed by statute, including the Sustainable Growth Rate (SGR) update formula. And, as in the past, that Medicare formula requires another deep cut.
While complex, the SGR formula basically attempts to limit the growth in Medicare physician payment to growth in the nation’s economy, as measured by Gross Domestic Product (GDP). If physician payments are less than the GDP growth in any given year, then physician payments would automatically increase the following year. But, as has been the case for many years, when growth in physician payments exceed GDP growth in any given year, payments are automatically reduced the following year. Because physician payment has routinely exceeded economic growth, the law has triggered payment cuts. Since 2003, Congress has intervened and routinely stopped the doctors’ payment cuts from going into effect. But delays have a cumulative effect, and result in even deeper cuts and higher costs the following year.
A Potential Fix. Congressional leaders are thus planning to do more than a temporary fix in the flawed formula this year and are actively considering proposals to repeal the SGR entirely and replace it with an alternative payment program. The House Energy and Commerce Committee, the House Ways and Means Committee and the Senate Finance Committee have developed alternative proposals. All are structured to provide payment stability over the next few years and are designed to increase physician payment based on quality measures or performance standards. For example, the House Energy and Commerce Committee measure (H.R.2810) would tie pay increases to quality measures and clinical practice guidelines set by medical professional organizations. Doctors would get positive or negative pay adjustments depending upon their compliance with these standards. The bill would also give doctors the opportunity to participate in “alternative payment models.” The idea of alternative payment models is promising, if, and only if, they include free market payment arrangements.
The abolition of the Medicare SGR presents Congress with an opportunity to advance the doctor-patient relationship, guarantee greater transparency in medical pricing and performance, inspire clinical innovation and promote personalized medicine. These are the principles that should govern any legislative fix.
With the enactment of Medicare in 1965, Congress wisely provided: “Nothing in this title shall be construed to authorize any federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided….” (42 U.S.C.1395). In any Medicare payment reform, what is needed is a statutory guarantee that the Secretary of HHS, or her agents, will not interfere with the practice of medicine. Moreover, the pay-setting process itself should insulated as much as possible from the kind of political manipulation that often governs Medicare payment today. That is why the introduction of free market pricing into Medicare would be innovative and economically beneficial.
A Crucial Condition. The danger is that Congress will inadvertently further compromise physicians’ professional independence, force doctors into greater compliance with an already rigid regulatory regime, and add another layer of administrative complexity that will discourage physician participation. As Scott Gottlieb M.D., a fellow of the American Enterprise Institute, observes “It should be clear to everyone by now that the delivery of medical care isn’t something that can be micromanaged from Washington or be administered by a Secretary of Health and Human Services with wide latitude to interpret and reinterpret the rules.”
In any final legislation, Congress must not retreat from the principle enshrined in the original Medicare statute of 1965, insulating the practice of medicine from government interference. Congress must reaffirm that principle and protect the professional independence and integrity of the medical profession.