Hospital / ACA Cuts to Offset Delay in SGR Adjustment for 10 Months

President Obama signed legislation today, passed by Congress last week, that delays the SGR adjustment to physician payment by 10 months; the costs of which are accomplished in reductions to Medicare, Medicaid and some ACA-designated funds.

The Sustainable Growth Rate (SGR) is used by CMS as part of the physician payment system and was developed to control Medicare spending on physician services as part of the Balanced Budget Act of 1997. The SGR formula includes growth in per capita gross domestic product (GDP), growth in Medicare Part B enrollees, changes in physician fees, and changes in laws or regulations. The SGR formula ties physician payment to a targeted nationwide expenditure based on these variables and adjusts physician payment over time to remain within the nationwide expenditure target. For an overview of SGR, please see www.cms.gov/SustainableGRatesConFact/.

Expenditures have exceeded targets every year since 2002 but have only resulted in a decrease in physician payment once (in 2003).^[1] Since then, Congress has continued to delay implementation of reductions in physician payment. Medicare physician reimbursement would have been reduced by 27.4 percent this year.

Legislation signed today delays the SGR reduction by 10 months. The political will to implement the physician payment reductions required by the SGR has been lacking since 2003. The reliance on Congress to pass a “doc fix” each year is becoming more tenuous, as the federal deficit has soared after the recession.

The 10-month delay required cuts to hospitals and Affordable Care Act (ACA) -developed programs, as keeping physician reimbursement rates at 2011 levels will cost approximately $18 billion. Reductions to other healthcare spending include:

• Medicare bad debt reimbursement will move to 65 percent of costs from 75 percent, achieving a $6 billion reduction over 10 years
• Medicaid Disproportionate Share Hospital (DSH) payments will be reduced by $4 billion over 10 years
• The Prevention and Public Health Fund, established as part of ACA, will be reduced by $5 billion, leaving $13.5 billion in the fund
• Funds for healthcare expenditures in disaster recovery will be reduced by $2.5 billion

What This Means for You

Reductions in healthcare spending are coming. The particulars will continue to unfold, although limited/no substantive changes are expected in a presidential election year where federal spending is concerned. A continued focus on cost reduction is paramount, as is increased attention to reimbursement models and care delivery models that demonstrate improved outcomes and value. The efforts and infrastructure needed to achieve the Triple Aim will require dedicated resources and focus. Any new investments, even those required to achieve the Triple Aim, will need to be done cost effectively, with declining resources.

A permanent fix for the SGR formula is warranted. Proposals for a permanent fix may merit more consideration and weighing in on how SGR might be “fixed” or what might replace it.

Published February 23, 2012