Ask the Expert

What You Need to Know About the Latest SGR Patch

April 02, 2014 03:40 pm Michael Laff

With so much optimism circulating about a possible permanent repeal of the Medicare sustainable growth rate (SGR) formula this year, passage of a one-year patch comes as a great disappointment to the AAFP and other physician groups.

[Headshot - Kavita Patel, M.D.]

Kavita Patel, M.D.

The Senate passed the Protecting Access to Medicare Act of 2014( this week, and the House passed it last week. This bill represents the 17th patch enacted during the past 11 years to temporarily halt pending Medicare payment cuts to physicians. The temporary patches, or "doc fixes," have cost more than $160 billion during that time. If the House and Senate had not voted to implement the patch, physicians would have faced a 24 percent cut in Medicare payments.

To make sense of the latest SGR patch, the AAFP asked Kavita Patel, M.D., who practices primary care medicine at Johns Hopkins Medicine in Baltimore, and who is the Merkin Fellow for Finance Reform and Clinical Leadership and managing director for clinical transformation and delivery at the Brookings Institution's Engelberg Center for Health Care Reform, to explain the significance of the most recent action.

Q. Is this year's SGR patch legislation the same as that passed in previous years?

A. No. Several provisions included in the current bill were not part of previous legislative efforts addressing the SGR. A number of these policies were recommended in March 2013 by the National Commission for Physician Payment Reform( and hit on important areas within health care.

For example, in response to physician groups, the bill delays the nationwide conversion to the ICD-10 diagnostic and procedural codes for billing procedures. Many family physicians in small or solo practices, especially, will welcome the new October 2015 start date for implementing the codes because of their high complexity.

Q. Are there any other positive developments in the current patch legislation?

A. Yes. Although physicians did not get a permanent repeal of the SGR as hoped, there are reasons for optimism about the future.

For example, in the past, mental health was not covered or reimbursed despite the glaring need for such care. The legislation supports community-based mental health centers and provides funding for outpatient mental health services. Payments for Medicare Advantage recipients with special needs were increased. Some great strides were made in overall (payment) reform, which could lead to a permanent repeal in the future.

Q. Will Medicare payment rates for physicians change with the latest patch?

A. The bill calls for a 0.5 percent update through December 31 and a 0 percent update from January 1, 2015, through March 31, 2015.

Q. Is passing a permanent repeal of the SGR just a matter of paying for it?

A. In a word, yes. A three-month patch was adopted in December 2013 that expired on March 31. Both the House and Senate worked to craft a bipartisan bill that called for slight payment increases until physicians transitioned into an alternative payment model (based on quality).

The (bicameral, bipartisan) bill was introduced in February, and, with just a few weeks before the three-month deadline expired, it was an uphill battle to get it passed. Because of the partisan divide on Capitol Hill, neither side could come up with an agreement on how to offset the projected costs.

Q. If the SGR is repealed permanently, how much does it really save compared with the cost of annual patches?

A. Budget estimates are a moving target because they are regularly updated by the Congressional Budget Office. During the past 12 years, the cost of the temporary patches is more than $160 billion. The cost of a permanent repeal was estimated at about $138 billion, and the current patch is costing an estimated $22.5 billion.

Sen. Ron Wyden, D-Ore., who chairs the Senate Finance Committee and supported repeal of SGR, said the permanent repeal would cost as much as the previous 16 patches.

Q. What is wrong with simply applying an annual one-year patch? How do physicians handle it?

A. An annual cycle of one-year patches makes it difficult for many primary care physicians, especially ones working in smaller practices, to manage their office long term. If the physician treats a large portion of Medicare patients, she cannot anticipate her operating costs if Medicare payments are undecided from year to year.

Furthermore, it is really difficult to think about making investments in practice transformation when the future of reimbursement remains uncertain. Will we move away from fee-for-service or won't we? And how fast will it happen?

In such a scenario, how does a physician know whether she has the budget in a year or two to hire another nurse or a practice manager? A physician cannot make any long-term decisions about the practice.

Q. Is it possible that the House and Senate could pass the current SGR repeal bill before the March 31, 2015, deadline?

A. The current deadline was established so lawmakers would not have to deal with the issue until after the mid-term elections, so I would not count on it. However, the original legislation (H.R. 4015 and S. 2000) remains in play until the end of the current session of Congress, which would be in the fall of 2014. It is conceivable that the leadership could bring either bill up for a floor vote if there is an agreement on how to pay for it.

Q. Could the SGR be repealed next year or are annual patches something that physicians will have to live with indefinitely?

A. From a political perspective, it is easy to be skeptical about the long-term prospects for permanent repeal. With the mid-term elections upcoming and the 2016 presidential elections closer than we think, achieving a bipartisan agreement on spending cuts to offset the cost of a permanent SGR repeal is a lot to ask. That does not mean the bill could not be revisited later this year or next.

On the brighter side, the latest efforts to introduce a bipartisan bill repealing the SGR indicate that it is one of the few issues that enjoys wide support among Democrats and Republicans and could be adopted by both chambers and eventually signed by the president.