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Why Do These Things Keep Happening to Us?

Posted by John McDonough  December 15, 2011 10:40 PM

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Action movie fans may remember that line delivered by actress Bonnie Bedelia to Bruce Willis at the end of the flick, Die Hard II. I recall it when I consider the dilemma facing physicians in the Medicare program who are facing a drastic 27% cut in payments unless Congress once again addresses a flawed reimbursement formula known as the "Sustainable Growth Rate" (SGR) before January 1.

Unlike Die Hard, the reasons for this recurring and painful episode are more understandable. Way back in July 1997, when Bill Clinton was President, Cong. Newt Gingrich (R-GA) was Speaker of the House, and Sen. Trent Lott (R-MS) was Senate Majority Leader, Congress passed and Clinton signed the Balanced Budget Act (BBA) to balance the federal budget within five years.

The biggest spending cuts in the BBA came from Medicare, especially from hospitals and home health agencies.  At first, the law worked so well, Congress came back twice in succeeding years to restore some of the funding reductions, and the budget was balanced in only three years (a big economic boom also helped). 


Physicians participating in Medicare also saw changes via the SGR, though it was designed to be a door that swings in two directions.   If total Medicare physician spending in a given year ended up below the SGR spending target, physicians would be rewarded with higher reimbursements, and if spending went over the target, they would face automatic payment cuts.  In the first few years, when Congress fixed other parts of the BBA, docs got small payment boosts because of the SGR. 


Beginning in 2002 and since then, docs have been overshooting the SGR target and facing increasingly large cuts in payments.  Since 2003, Congress has repeatedly stepped in by passing temporary laws to prevent payment cuts for fixed periods of 6-12-18-24 months.  Had Congress just repealed the SGR anytime between 2002 and 2006, hardly anyone would have noticed and a big, recurring headache would have been averted.


Beginning in 2007, when Democrats reclaimed control of the House and Senate, the leaders instituted so-called “pay-go” rules requiring that any new spending be offset by revenues, cuts, or savings over a ten year budget window.  From then on, any SGR “fixes” had to be accompanied by new revenues, cuts, or savings.  The other difficult dynamic is that the cost of the “fix” gets more expensive every year, so much so that the ten-year cost of eliminating SGR today is estimated at around $300 billion. 


Democrats and Republicans both agree that the SGR should be junked as it is based on a flawed idea – any practicing physician who voluntarily reduces his or her volume of business faces a double hit of less revenue and an SGR-tied payment cut.  Just about every doc in the nation would like to see it gone.  The problem is that Members of Congress are unable to agree on a path to pay for its elimination.  So instead of a full elimination, Congress averts a payment cut by agreeing to a short term “patch.”  Right now, Congress can’t agree on how to pay for even that to avoid a 27% cut on January 1, 2012. 


During the debate on the Affordable Care Act, both House and Senate leaders promised physician organizations such as the American Medical Association that they would include outright repeal in a health reform bill – but again the cost was too high to sustain and it got removed from the bill.  Some may recall the dramatic moment in mid-July 2008 when an ailing Senator Edward Kennedy, less than two months after his first stroke, dramatically appeared in the Senate to vote on a health care related bill – that was the 2008 SGR patch.


And once again, we’re on the edge of another SGR cliff, coming on January 1.  If the federal Centers for Medicare and Medicaid Services (CMS) believes Congress will soon provide another patch, they can slow down physician payments while a deal gets worked out.  Lots of parties have proposed various solutions, and none can surmount the partisan divide. 


Why not just let docs take a 27% pay cut?  Aside from a half million physicians’ anger, it is believed that growing numbers of docs will simply withdraw from the program and stop offering treatment to 48 million Medicare patients who can’t pay out of pocket.  The growth of concierge medicine in the U.S. is evidence that more and more docs have the realistic option to simply opt-out. 


When SGR was created in the 1997 BBA, it was regarded as one of the smaller changes in the law; today, when critics say Congress never keeps its word on cuts, SGR is pulled out as Exhibit A.  But more than 70% of the BBA cuts were implemented and have stuck.  SGR is Exhibit A that seemingly small policies can come back and haunt the body politic in surprising and uncomfortable ways.


And that’s why these things keep happening to us.
This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »


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