Health Law News From Arnold & Porter

Health Law News From Arnold & Porter

August 19, 2013
3 min read

Quality, access or efficiency? Proposals to fix SGR attempt to meet all three goals

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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.

For two parties that rarely agree on anything, Republicans and Democrats from both houses of Congress have found common ground on one issue: Medicare’s sustainable growth rate (SGR) formula for calculating physician reimbursement is broken. It remains to be seen, however, whether that bipartisan consensus means that the problem can be fixed.

Medicare payments to participating physicians have been linked for more than 10 years to changes in the country’s gross domestic product through the SGR. As discussed in previous coverage, the SGR reduces physician payments automatically if program spending exceeds a pre-determined target. These reductions have never been implemented, as Congress has adopted a series of temporary “doc fixes” each year since 2002. Without a similar suspension, the SGR formula could result in a 24.4% cut in Medicare’s payments to physicians in 2014.


Ted Lotchin

From an operational perspective, this unpredictable process disrupts business planning efforts by adding an element of uncertainty to a practice’s revenue cycle. From a theoretical perspective, Medicare’s fee-for-service (FFS) physician payment system creates inappropriate incentives that reward physicians for volume. Although there has been little historic disagreement over the SGR’s shortcomings, previous discussions regarding a legislative solution have stalled over the potential price tag. Since the Congressional Budget Office (CBO) lowered its estimate for a 10-year SGR fix to $138 billion, momentum has been building to craft a legislative solution to the SGR problem. Now, committees from both houses of Congress have re-engaged in the debate.


Most notably, the House Energy and Commerce Committee has made the greatest strides in committing a set of guiding principles to paper. The committee has held a series of hearings in the last 2 years to address these concerns and also has reached out to the provider community for guidance and assistance in developing a solution. The committee’s current proposal, which was passed unanimously on July 31, would repeal the SGR and replace it with a 5-year “period of stability” during which Medicare’s payments to physicians would increase by 0.5% each year. A new “enhanced Physician Quality Reporting System” would then be phased in during this period to give providers who have the strongest performance on specialty-specific quality requirements an additional payment increase. Low-performing providers would see their reimbursements decrease. The current draft also would let providers opt out of the revised FFS system and participate in “alternative payment models,” such as patient-centered medical homes and episodes of care.

Although the Energy and Commerce legislation is clearly a significant step forward in this debate, the devil is always in the details. In the coming weeks and months, the House Ways and Means Committee will struggle with how to pay for the proposed SGR fix. The Senate Finance Committee, which already has held several hearings on the SGR, also is expected to begin working on its own SGR replacement bill.

As these parallel conversations move forward, physicians and other providers should be aware of several important decision points. Initially, it remains to be seen how the CBO’s score of the SGR reform bill will change the debate. If the bill’s price increases beyond the CBO’s most recent estimate for the cost of freezing physician pay, then stakeholders will likely be looking for more aggressive measures to fund the necessary changes. Although intense lobbying by provider groups limited the impact of a proposal for CMS to cut up to 1% from Medicare’s physician pay pool by adjusting “overvalued” codes, the bill’s final score may push lawmakers to put this proposal back into play.


In addition, changes to the definition of a “provider” in the draft legislation will arguably permit nurse practitioners and physician assistants to assume a greater role in operating medical homes with limited physician oversight. The bill remains somewhat vague on this point, however, so that question may be left to CMS to clarify during the implementation process.

Finally, although the current draft legislation does not include an earlier requirement to evaluate physicians in the enhanced FFS alternative on their “efficiency,” subsequent amendments may reinsert this language as a means to fund the measure.

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