Health Law News From Arnold & Porter

Health Law News From Arnold & Porter

May 29, 2013
3 min read

Momentum builds for repealing SGR; could ‘doc fix’ be next?

You've successfully added to your alerts. You will receive an email when new content is published.

Click Here to Manage Email Alerts

We were unable to process your request. Please try again later. If you continue to have this issue please contact

From international law firm Arnold & Porter LLP comes timely views on current regulatory and legislative topics that weigh on the minds of today’s physicians and health care executives.

Since the late 1990s, Medicare payments to participating physicians have been linked to changes in the country’s gross domestic product through the program’s sustainable growth rate (SGR) formula. As readers of this blog are well aware, this formula produces an automatic reduction in payments to physicians if overall program spending exceeds a pre-determined target. Of course, Congress has suspended these automatic cuts each year since 2002 through a series of temporary “doc fixes.” If Congress fails to enact a similar suspension this year, the SGR formula could result in a 24.4% cut in Medicare’s payments to physicians in 2014.


This annual exercise in Medicare brinksmanship highlights the need for a well-informed debate on the long-term implications of the program’s current fee-for-service (FFS) reimbursement system. Historically, Congress has reserved any serious conversations on reforming or repealing the SGR until late in the legislative session (in other words, shortly before any payment reductions are scheduled to take effect). Things may be different this time around, however, as both houses of Congress have indicated a willingness to tackle this difficult issue well before the August break in the legislative calendar.

On May 10, Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Orrin G. Hatch (R-Utah) released an open letter to the provider community that reiterated their support for repealing the SGR and requested advice on how to create a payment system “that results in high quality, affordable care for seniors.” In addition to making a general call for action and engagement, the letter solicited feedback from providers on three questions:

1.  What reforms should be made to Medicare’s physician fee schedule to ensure that physician services are valued appropriately?

2.  What policies should be implemented that could coexist with the current FFS physician payment system and would identify and reduce unnecessary utilization?

3.  Within the context of the current FFS system, how can Medicare incentivize physician practices to undertake the structural, behavioral and other changes needed to participate in alternative payment models?

Ted Lotchin

The committee followed this letter with a hearing on May 14 to discuss different options for reforming Medicare’s current FFS physician payment system. Not surprisingly, all of the invited witnesses recognized that the SGR has not achieved its intended purpose. The executive director of the Medicare Payment Advisory Commission (MedPAC) even testified that his organization “believes that the SGR is fundamentally flawed and is creating instability in the Medicare program for providers and beneficiaries, and that the time to repeal the SGR is now.” The witnesses also noted, however, that developing an effective replacement for Medicare’s current system will be much more complicated.

The Senate hearings come on the heels of an ongoing dialogue between the provider community and Republicans on the House Ways and Means and Energy and Commerce committees. In open letters that were released in February and April, committee leaders outlined a framework for replacing the SGR with a reimbursement methodology based on measures of quality and efficiency. These letters also solicited feedback on the framework’s proposal to repeal the SGR and provide for a period of predictable, statutorily defined physician payment rates in order to cushion the transition to a new payment system.

At first glance, this increased attention to the SGR’s structural shortcomings by both chambers of Congress appears to be a net positive for physicians who participate in the Medicare program. It remains to be seen, however, whether existing measures of quality and efficiency in the delivery of medical care are robust enough to use as the foundation of a new payment system and, if so, whether the resulting system will be more equitable across different specialties than the existing one. Since the cost of replacing the SGR with a system that would simply keep Medicare payments stable through 2023 may be as high as $139.1 billion, these are obviously questions that policymakers need to get right.

Ted Lotchin, JD, MPH, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004-1206; 202-942-5250; email: