At What Cost Is Repealing the SGR?

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  • September 29, 2011
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In the Medicare Payment Advisory Commission’s (MedPAC) Sept. 15 report “Moving Forward from the Sustainable Growth Rate System,” the agency addresses the problems with the Sustainable Growth Rate (SGR) system—namely, the current call for a 30 percent pay cut to 2012 physician fee schedule (PFS) services. But repealing the SGR and putting a recommended 10-year freeze across all services would cost in the neighborhood of $300 billion.
Paying for an SGR repeal would indeed require significant offsets. But which health care sector would be most affected, and how? MedPAC answered those questions in a draft options list it posted Sept. 20 on its website.
Draft options for offsetting the budgetary cost of SGR repeal under consideration by MedPAC are divided into two tiers:
Tier I – Would produce an estimated $50 billion from MedPAC past recommendations.
Tier II – Would produce an estimated $180 billion from other sources (Congressional Budget Office, U.S. Department of Health & Human Services (HHS) and its operating divisions, etc.) and MedPAC analysis.

Tier 1: MedPAC Work

The proposed offsets in this first tier include 13 actions that MedPAC has recommended in past Reports to Congress. They are:

  1. Copayment for home health episode
  2. Hospital update of 1 percent for 2012 and documentation and coding improvements (DCI) recovery
  3. Dialysis update of 1 percent for 2012
  4. Hospice update of 1 percent for 2012
  5. Apply the competitive bidding offset to all competition-eligible durable medical equipment (DME) categories starting in 2012
  6. Apply the competitive bidding offset to the DME categories never subject to competitive bidding
  7. Repeal Medicare Advantage (MA) quality bonus demonstration
  8. Rebase home health (HH) in 2013 and no update in 2012
  9. No inpatient rehabilitative facility (IRF) update in 2012
  10. No long-term care hospital (LTCH) update for 2012
  11. Raise the compliance threshold for IRFs to 75 percent
  12. Ambulatory surgery center (ASC) update of 0.5 percent for 2012 and report on cost and quality
  13. Program integrity: prior authorization for imaging by outlier physicians

Tier II: Other Medicare

A second tier would provide Congress further assistance in offsetting the budgetary cost of SGR repeal. Note, however, that the following 16 offsets have not been voted on or previously recommended by MedPAC.

  1. Part D LIS cost sharing policy to encourage substitution
  2. Apply an excise tax to medigap plans
  3. Program integrity: pre-payment review of power wheelchairs
  4. Require manufacturers to provide Medicaid-level rebates for dual eligibles
  5. Bundled payment for hospital and physician during the admission
  6. Pay evaluation and managment (E/M) visits in hospital outpatient departments at physician fee schedue (PFS) rates
  7. Reduce payments by 10 percent for clinical lab services
  8. Risk-adjustment validation audits in the MA program
  9. Bring employer group plan bids closer to other MA plan bids
  10. Hold the trust funds harmless for MA advance capitation payments
  11. Give the Secretary the authority to apply a least costly alternative policy
  12. Additional reductions through competitive bidding or fee schedule reductions to payments for home oxygen
  13. Rebase skilled nursing facilities (SNF)
  14. Apply readmissions policy to SNFs, HH, LTCHs, and IRFs
  15. Reduce hospice rates in nursing homes by 6 percent
  16. Program integrity: Validate physician orders for high cost services

A principle for repealing the SGR, MedPAC says, is to share the cost across physicians, other health professionals, providers in other sectors, and beneficiaries. Some sectors are feeling more put-upon than others by these draft options.
According to American Hospital Association (AHA) Executive Vice President Rick Pollack, “While the physician payment formula needs to be fixed and must be fixed, cutting Medicare funding for hospital care to pay for it is flat out wrong. Making such drastic cuts when hospitals are already paid less than the cost of providing care could endanger patients’ access to needed services.”
But, according to American Medical News, nonprimary care services would be hit the hardest. “Payment rates for primary care would remain flat over 10 years, while payments for nonprimary care services would decline 5.9% a year for three years and then remain flat.”
MedPAC may continue to revise its draft recommendations before voting on them sometime this month.

No Responses to “At What Cost Is Repealing the SGR?”

  1. Debbie Rakowski says:

    We could also do the following:
    1) Stop medicaid coverage for illegals
    2) Stop medicaid/medicare entitlements (or add penalties) for continuing to recieve services under the plan while being non compliant with plan of care and/or when these beneficiaries do not meet the payment obligations they agreed to when signing up for the plan.
    3) Those under age X on medicaid plans should have do demonstrate unemployability to continue benefits after a certain amount of time
    4) What about private physician groups who care for patients on medicaid ABW plans, who are provided free care when hospitalized while the physician recieves no payment yet retains all the liability.
    5) Implementing such measures would save millions of dollars. The government cannot continue to threaten physician payments while at the sametime impose so many new regulations, audits, compliance issues that require physicians to retain more staff, not less to ensure they are compliant with everything that is being thrown at them!
    Just my thoughts

  2. suzyq says:

    Amen, Debbie!

  3. Dan says:

    Tremendous ideas.
    How do we get our Reps in Congress to listen?

  4. Marlene Wright says:

    First and foremost we need to stop the fraud and abuse going on in our Country. The number of physicians who seem to think its OK to employee non-physician practitioners who see patients while they are not on site and then bill for them as if they saw the patient is running rampant. The payment as you know for a non-physician practitioner is 85% of the medicare fee schedule while a physician’s is 100% of the medicare fee schedule. I have been in the billing business for many years and have had to terminate contracts with providers due to this. The government does not have enough fraud investigators out there to even try and control this. Secondly, hospitals buying up private practices and charging 5 times as much to see a patient has got to be looked into. How can Medicare, Medicaid and private carriers justify paying for example 15.00 one day for an EKG or test and the very next day having to fork out 3 to 5 times as much just because that office was bought by a hospital. NONSENSE

  5. Carolyn says:

    More rules = more fraud = more rules = more fraud. Both posts are correct. We need to remember the old saying. KISS. Don’t add more regulations. Remove the barriers. Let the best (not the craftyest) win.

  6. Helen says:

    I agree with Carolyn. Less is More, especially when it comes to government regulations.

  7. Karen says:

    The rate we are going those who need medical care the most will not be able to get it. SAD.

  8. Diane says:

    The people who will be most affected by this are the older people, the “Baby boomers”, who have worked and put money into this system all their lives. Now, when they finally qualify for Medicare and need “return on their investment”, they can’t find a physician who will accept Medicare. WHY? Because physicians are moving out of private practice because they can’t afford the cost, due to Medicare cutbacks. A sad state of affairs.

  9. Jegawa says:

    Dear Mr. PresidentI sense that you are struggling with maganing the budget and its seems that you and the MEDPAC committee are having trouble finding ways to save money and increase the value to the system of providing medical care. I have good news . It’s really not all that difficult and it can be done without cutting the throat of Doctors who are underpaid for their services by Medicare currently.For many years now many healthcare providers have taken advantage of a loophole in the payment rules and allowed hospitals to bill for their services. These services are identical to services provided by other physicians except that they are reimbursed at rates varying from 20-150% or more than identical services provided to Medicare beneficiaries. Apparently a long time ago, someone convinced the government that services provided in a hospital based clinic were worth more than services provided by private practice physicians and considerations such as regulatory compliance should be an allowable expense to the Medicare system. I personally think this is hogwash and we should have one fee schedule for all physicians. If I have done the math properly, a few hundred billion a year are spent on physician services and if 50% of the physicians in this country now work for hospitals then stopping this horrible overpayment will result in savings of tens of billions of dollars each year and will be more than enough to plug the SGR gap without cutting rates for physicians who more than earn their money.I will admit to being a simple country Doctor and high finance isn’t my forte but I believe this would help fix one of the looming problems in medicine. I am a simple man and I like simple solutions. Another problem with the current Medicare system is the gaming of the observation vs 1 day admission rules. The current system encourages hospitals to over document and stretch the rules that are used to review one day admissions. Outliers on the high end of costs compose about 3% of claims at some hospitals but approximately 12-18% of admission in hospitals are single day admissions. This low end anomaly costs the Medicare system hundreds of billions of dollars of costs each year. The RAC system seems to be having a major impact recovering these overpayments. Since I’m a simple guy , I would propose that we pay all hospitalizations under Medicare and Medicaid at observation rates if they last less than 48 hours. The savings will be large and immediate and again in the billions of dollars range.A similar problem is patients who are readmitted within 30 days. Eliminate the first day charge differentials for all these admissions and require a comprehensive plan for avoiding these admissions at all at each facility providing acute cae hospital services to patients. The personnel who are charged with gaming the observation rules can be refocused on maganing patients for a revenue neutral proposal for the hospitals. Again the savings would amount to hundreds of millions of dollars since 20-30% of Medicare beneficiaries admitted to the hospital are readmitted within 30 days. A more reasonable rate of 10% should be easily achievable and create large savings for the Medicare program.As I suggested, it’s not all that hard to create savings for services that are overcompensated and continuing to pay other physicians at fairer rates. I might point out that we have studied and have established that Medical homes provide higher quality and better valued services to Medicare beneficiaries than non medical home practices. Perhaps rather than experimenting with someone’s pipedreams, we should establish criteria for being a medical home and establish a fee schedule with savings from the above suggestions to fund this change and create more savings for the Medicare system. I’m not against experiments but perhaps we should go with tried and proven rather than follow the drug induced whims of policy wonks who have no clue about how to fix the problems in Medicine. Mr. President I hope my suggestions are helpful to you and lead you to better solutions that some of the Alice in Wonderland suggestions that have been provided by other advisors to you.Lastly, I’d like to point out that Medicare as it has been modified and added to is a failed system. We need to reexamine the system in terms of current research and alter the program to correct design flaws to prevent costs of not being able to afford quality primary care services. Instead of a confusing 20% after meeting a deductible after allowable charges scheme, perhaps we should adopt the Federal employees and Medicare Advantage model and move to a no deductable co pay system so patients know how much they owe and offices can easily explain the charges and owed amounts to the patient. By increasing access to quality primary care we should eb able to manage conditions and avoid unnecessary costs to the system such as ED visits and emergency admissions for UTI’s and problems that can be easily managed as an outpatient. This increase in quality primary care costs should lead to a decrease in avoidable medical procedures such as cardiac services and cancer care that are largely avoidable or have the ability to be much less than current incidence rates of these conditions. I realize that we will never eliminate all problems but correcting design problems in our current system would go a long way to fixing the problems. I hope my suggestions have been useful to you. They are a result of a medical career spanning 26 years in a rural area that have exposed me to a number of experiences that have shaped my thoughts. If I can ever help you or provide further information on my thoughts to you, please feel free to contact me.Sincerely yoursKerry A Willis MDPS I’m still waiting to hear from you