SGR Repeal and Replace Effort Makes Progress

Congressional Republicans and Democrats continued to make progress on enacting bi-partisan legislation to repeal and replace the much-maligned Sustainable Growth Rate (SGR) formula used to annually update Medicare Physician Fee Schedule payments. 

On July 31st, the House Energy and Commerce Committee, by a vote of 51 – 0, approved legislation (H.R 2810) repealing and replacing the SGR formula effective January 1, 2014. 

Here is a partial list of what the legislation would do:

  1. Repeal the current SGR formula, effective for services provided on or after January 1, 2014;
  2. Set a 0.5% increase in the Conversion Factor (CF) for each year for the next 5 years (2014 – 2018).
  3. Beginning in 2019, the CF would continue to be permanently updated with 0.5% increases;
  4. Beginning in 2019 and thereafter, fee schedule payments would also be adjusted by “quality adjusters”;
  5. “Eligible professionals” would have the option to move from traditional fee-for-service payments using the fee schedule and the conversion factor, to an alternative payment model;
  6. Beginning in 2014, CMS would work with physician organizations and other stakeholders to develop the alternative payment models (APMs);
  7. The Secretary shall establish a quality adjustment scale based upon the clinical quality measures.  Scores will range from 0 – 100;
  8. The quality adjustment score shall have three outcomes: 1% increase, 0% increase or -1% adjustment based upon the providers score on the quality adjustment scale;
  9. Each year’s score will only affect payments for that year;
  10. New provider’s payments will be frozen (i.e. score of 0) for one year after entering the program (i.e. no increase or decrease);
  11. If a provider opting for the Alternative Payment Model fails to report quality measures, the provider’s payments would be based upon 95% of the fee schedule amount;
  12. CMS is directed to coordinate the new initiative with both the PQRS program and the EHR incentive program;
  13. If an APM results in higher payments than would have otherwise occurred or if the APM results in lower quality than the Secretary deems appropriate, the Secretary is authorized to immediately terminate the APM.

Noticeably absent from the Committee-approved legislation is any indication of how it will be paid for.  According to the Congressional Budget Office (CBO), repealing the SGR formula would cost the Medicare Trust Fund approximately $139 billion over 10 years.  The House Leadership has said that whatever is adopted, will be paid for – meaning there will be offsets.

Break Away from the Static

Recently, the GOP Leadership of the House Ways and Means Committee began floating various ideas on ways to lower Medicare costs.  Keep in mind that in Congressional parlance, something that lowers costs can be a change that reduces actual provider payments for services OR a change that increases the amount of revenue the beneficiary spends out-of-pocket.

On July 19th, the following ideas were shared with the stakeholder community in an attempt to elicit feedback on these proposals:

  • Increase the Medicare Part B deductible for NEW enrollees;
  • Increase the income related premiums that higher income Medicare beneficiaries pay;
  • Establish a co-payment for Medicare-covered home health services. 

According to the CBO, adoption of these initiatives would result in the following savings:


10 Year Savings Estimate

Increase the income-related premium for Medicare Parts B and D

$56.3 billion

Increase the annual Medicare Part B deductible

$3.3 billion

Establish a home health co-payment

$700 million

As you will no doubt notice, the total savings for these three initiatives combined would be approximately $60 billion over 10 years.  The CBO estimate for permanently fixing the SGR is approximately $139 billion.  So the Committee is still a long way from reaching the goal of making changes that will fully offset the cost of fixing the SGR, and that’s assuming these three initiatives could get enacted. 

While there are numerous other ideas for either raising revenue or reducing costs, each comes with a political cost.  Reducing provider payments is likely to result in opposition from the providers whose payments would be cut and raising beneficiary out-of-pocket expenses is likely to result in opposition from beneficiaries.  Each has allies in Congress who will advocate aggressively against proposals that are deemed harmful to these constituencies. 

Not to be ignored, a bi-partisan group of Senators announced that they are working on their own version of an SGR repeal and replace bill.  They expect to announce their proposal sometime in September.  Indications are that they will have some of the same concepts (i.e. quality, value, etc.) as H.R. 2810 but may have some significant differences in terms of the details.

Should the Senate and House both pass SGR repeal and replace legislation (likely) then these bills will have to be reconciled.  President Obama has indicated he supports repealing and replacing the SGR and it is expected that if the House and Senate are able to reach a common solution, the President will sign that legislation into law. 

ADVOCATE will continue to provide updates as information becomes available.

Best Regards,
Kirk Reinitz, CPA