SGR Formula Does Not Work, AAFP Tells Congress

The AAFP, in response to a congressionally mandated report on physician payment rates under Medicare, has urged Congress to replace the current payment structure with a system that compensates physicians for care coordination services and creates incentives for the establishment of patient-centered medical homes.

The Academy was responding to a March 1 report to Congress from the Medicare Payment Advisory Commission, or MedPAC. In written testimony to the Senate Finance Committee, the AAFP said MedPAC's report "falls short of offering achievable alternatives to the physician payment formula that would support the health care that Medicare beneficiaries need." Report recommendations "are administratively unworkable and do not address the real problem with a Medicare payment formula that does not promote the effective coordination of care," the AAFP said.

The current Medicare payment program operates on a fee-for-service basis, a type of system that "rewards individual physicians for ordering more tests and performing more procedures," said the Academy. "The system lacks incentives for physicians to coordinate the tests, procedures, or patient health care generally, including preventive and health-maintenance services." As a result, the Medicare payment method has "produced expensive, fragmented health care."

The MedPAC report, (PDF file: 236 pages / 5.5 MB. More about PDFs.) which was mandated by the Deficit Reduction Act of 2005, serves as a starting point for negotiations with Congress about the sustainable growth rate formula, or SGR, that is used to establish payment levels for Medicare physician services. In the past five years, basing payments on the SGR has led to the threat of extreme cuts in physician payment rates.

Under the SGR, physicians face steadily declining payments into the foreseeable future -- nearly 40 percent over the next nine years -- even while their practice costs continue to increase. "The Academy has always recognized that medicine is negatively impacted by the SGR formula," said AAFP President Rick Kellerman, M.D., of Wichita, Kan., in an interview. "We (medical associations) should be working together to advance patient care."

In its report, MedPAC explores two possible paths that Congress could take to establish a new payment system. One path would establish expenditure targets based on geographic location and physician subspecialty, a recommendation opposed by the Academy. The other path would repeal the SGR and would not replace it with a specific substitute payment system. This path would require Congress to make decisions on how to update physician payments.

"Family physicians bring great value to patients and to the health care system in general," said Kellerman. "The Medicare reimbursement structure should recognize and reward family physicians for the value they provide."

In order to do so, the AAFP and three other physician-led organizations -- the American College of Physicians, the American Osteopathic Association and the American Academy of Pediatrics -- are working with the National Committee for Quality Assurance, or NCQA to develop a recognition program for physician practices that want to serve as a patient-centered medical home. Together, the four organizations represent 333,000 physicians.

The coalition is advancing a plan that incorporates a patient-centered, physician-guided medical home. "We would recommend that … Congress might make a physician practice eligible for a per-patient, per month care management medical home fee if that practice has received independent recognition by NCQA or another nonprofit third-party," the Academy said.

The coalition plan includes the following components:

The Academy concluded its testimony by encouraging Congress to reform the Medicare physician payment system by