House Bill Would Eliminate SGR-Based Payment System by 2010

By James Arvantes
7/20/2007

A soon-to-be introduced House bill would eliminate the sustainable growth rate, or SGR, formula by 2010, while providing slight increases in Medicare physician payment rates for the next two years as an alternative to steep payment cuts called for under the SGR formula.

The House Energy and Commerce Committee and the House Ways and Means Committee have drafted legislation to reauthorize the State Children's Health Insurance Program and have included a provision in that bill to repeal the SGR and provide a 0.5 percent increase in physician payment rates under Medicare in both 2008 and 2009, according to Kevin Burke, director of government relations for the AAFP. This proposal would negate a 9.9 percent cut in physician payment rates in 2008 and another 5 percent reduction in 2009 called for under the SGR formula used to determine Medicare physician payment levels.

"We're particularly pleased that this year Congress is attempting to address this payment problem early to give family physicians the chance to plan for next year," Burke said.

The SGR-based system relies on aligning actual spending rates with specified expenditure targets to determine Medicare payment levels. In the past six years, spending has exceeded targeted rates, triggering steep reductions in physician payments that have been averted only by last-minute congressional intervention. Without congressional action, use of the SGR is projected to cause a 40 percent reduction in physician payment rates during the next eight years.

The AAFP and other physician organizations have repeatedly called for an immediate repeal of the SGR, but that may not be economically or politically feasible. Immediate elimination of the SGR could cost as much as $318 billion, according to the Congressional Budget Office. The estimated costs of preventing the SGR reductions during the next two years, along with the two successive 0.5 percent increases, would total more than $30 million, Burke said.

The draft legislation also includes the following:

inclusion of two primary care medical home demonstration grants -- one of which would provide funds for patient-centered medical homes that serve underserved minorities or rural patients, and another that would require applicant practices to use advanced health information technology with electronic health records to collect aggregate data on best treatments;
a reconfiguration of the Medicare payment formula into six categories with their own individual expenditure targets and conversion rates;
an increase in the expenditure targets for primary care and preventive services of at least 3 percent above the gross domestic product, a provision that indicates the committees are specifically trying to increase payments to primary care physicians, according to Burke ;
creation of a new advisory committee to determine what services are overvalued and make recommendations to HHS to bring payment in line with appropriate values; and
a provision that would provide physicians with feedback about their usage and practice patterns, with comparative data presented by region.

The AAFP, in a letter to the chairs of the Energy and Commerce Committee and the House Ways and Means Health Subcommittee, (PDF file: 2 pages / 236 KB. More about PDFs.) praised both committees for their "response to our request for a positive update for at least the next two years," and for "proposing to actually pay for this increase in the current budget."

"We understand the great fiscal pressure that the Congress is working with and the expense involved in resolving the problems created by the SGR," the letter says. "But we would urge the committees to increase the stipulated minimum rate in light of the several years of frozen payments that physicians have experienced."

In the letter, the AAFP also urges the committees to "consider an accelerated use of the patient-centered medical home as a payment mechanism to control costs and improve quality."

"This would include the use of a care management (per patient per month) fee to the patient's qualified medical home in addition to fee for service," says the letter. "Important data and experience demonstrate that this care management fee will not require 'new money' but rather would be covered by savings elsewhere in the system over time."

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