American College of Physicians: Internal Medicine — Doctors for Adults ®


Politics and fee cuts: Is any real solution in sight?

From the December ACP Observer, copyright 2005 by the American College of Physicians.

By Robert B. Doherty

Here they go again.

As this column goes to press, members of Congress are scrambling to finish work on a broad legislative package that would cut spending on federal entitlement programs. The budget reconciliation package that would include relief from the 4.4% Medicare physician payment cut that could take effect Jan, 1, 2006, remains unresolved.

The scenario is depressingly familiar. In 2001, 2002 and 2003, Congress faced the prospect of similar payment cuts due to the flawed sustainable growth rate (SGR) formula. In each of those years, Congress went late into the closing days of the session before deciding whether or not to act.

The problem is that even when Congress does act, it approves only temporary reprieves. The most recent one—a 1.5% update in both 2004 and 2005 that was mandated by the prescription drug benefit legislation—expires at the end of this month.

That is why physicians again find themselves stuck in the familiar limbo of waiting to see if Congress will find a way to avert a 4.4% cut before it goes into effect next month. And once again, we're considering the prospect of achieving only a temporary fix that at best will result in a nominal fee increase, rather than a permanent solution.

Why Congress won't act

Why do lawmakers continue to go to the wire and enact temporary reprieves, rather than fixing the underlying SGR formula? Here are several reasons:

  • Money. The main reason is that replacing the SGR will cost billions of dollars. The SGR reduces physician fees whenever overall expenditures on physician and other services—such as lab tests and office-administered drugs—exceed growth in the overall economy, as measured by the per capita gross domestic product.

    Because expenditures on services included in the SGR formula continue to rise at a much faster rate than the economy, the SGR will continue to force deep cuts in payments. Cutting Medicare fees saves the government money, so legislation that would temporarily or permanently halt SGR cuts means spending money on physicians that otherwise could go to other programs.

    How much money? Experts estimate that positive updates equal to inflation would cost approximately $30 billion over two years, while repealing the SGR and replacing it with an inflation update could cost as much as $180 billion over 10 years. Those are dollars that wouldn't be available to fund the wars in Iraq and Afghanistan, spend down the deficit, help hurricane victims, extend tax cuts, or pay for any other Congressional priority.

  • Politics. Another reason we keep not getting permanent relief is that proposed SGR changes are usually attached to some large and controversial legislative package.

    In 2003, for instance, SGR relief was included in the legislation that created the new Medicare Part D drug program—an extremely controversial bill that barely passed late in the legislative year.

    This year, SGR relief is attached to the Senate's budget reconciliation bill. The bill includes a 1% fee update for physicians, but it also includes substantial cuts in other entitlement programs. The Senate bill also contains a controversial provision for a Medicare pay-for-performance program, which would mandate a 2% cut in Medicare payments to physicians unable or unwilling to report quality data to Medicare, starting in 2007.

  • "Inappropriate" medical spending. Many in Congress also believe that physicians are to blame, at least in part, for the predicament created by the SGR. They point to the fact that expenditures on physician services are increasing at double-digit rates, and they argue that the medical profession has not "done enough" to police itself or control costs. Many are concerned that if the SGR is repealed, Congress will have even less control over rising health care expenses.

  • Rising premiums. Fixing the SGR would mean that beneficiaries would pay more. By law, Medicare beneficiaries pay 25% of Medicare Part B costs through their premiums. This means that a quarter of the 10-year $180 billion price tag for repealing the SGR would be passed on to patients.

  • Few consequences. Finally, Congress has so far seen few ill effects from the SGR. Despite medicine's continued warnings that access will suffer, reputable beneficiary surveys have found little evidence that access problems are occurring. Of course, surveys can't show what may happen in the near future if Medicare payments are cut by 26% over the next five years.

Stepping out of the SGR box

Within the next few weeks, ACP's leadership will need to make some tough decisions on whether or not to accept another temporary reprieve to SGR cuts. This assumes, of course, that both the House and Senate are able to agree on a larger budget package that includes SGR relief.

The College will have to weigh the relief provided not only against the consequences for internists if cuts are allowed to go into effect. We must also consider whether the reprieve moves us toward a permanent solution or just makes it more expensive to replace the SGR in subsequent years.

We will need to consider if SGR relief is attached to other provisions, such as punitive pay-for-reporting mandates, that we do not support. And, of course, the possibility remains that Congress will just allow the 4.4% cut to take effect.

ACP members have done an extraordinary job telling their representatives in Congress about the consequences of the SGR cuts, generating approximately 6,000 e-mails, letters, phone calls and faxes to lawmakers since Labor Day.

In early November, representatives of ACP, the American Academy of Family Physicians and the American Osteopathic Association jointly visited members of the House and Senate to deliver first-hand stories from internists and family physicians on how cuts will affect their practices, communities and patients. And on Thursday, Nov.17, the College was invited to testify about the impact of the cuts on primary care at a House Energy and Commerce Subcommittee on Health hearing. Internists' voices are being heard, even though it appears that Congress will once again dodge the issue of a permanent SGR solution.

The College believes that rather than just engaging in repeated battles over the SGR, medicine needs to reframe the debate from just "halting the cuts" to fixing the dysfunctional Medicare payment system.

Over the next several months, ACP will release a series of position papers that will propose fundamental changes in the way medical care is organized, delivered, financed and reimbursed. In my view, that is the only way to stop the same sorry SGR scenario from repeating itself year after year after year.

Robert B. Doherty is ACP's Senior Vice President for Governmental Affairs and Public Policy.


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