Senate Passes Permanent SGR Repeal

Hours before physicians would have seen a sharp pay cut go into effect, lawmakers voted to "retire the outdated, inefficiency-rewarding, commonsense-defying Medicare reimbursement system," as one senator put it.

A bipartisan U.S. Senate late Tuesday overwhelmingly approved a sweeping $145 billion healthcare reforms package that centers on a permanent repeal of Medicare's reviled Sustainable Growth Rate physician payment formula.

The 92-8 vote was recorded at 9:47 PM Tuesday, less than three hours before a 21% "negative update" in Medicare payments to doctors would have gone on the books.

President Obama has said he would sign H.R.2 as soon as the Senate passes it. The bill cleared the House in late March on a 392-37 vote.

"This bill represents two years of hard work on both sides of the Capitol and it represents a real step forward for bipartisan healthcare policy," Senate Finance Committee Chairman Orrin Hatch, (R-UT), told colleagues just before the vote.

SGR is Dead. What Happens Next?

"It's a monumental achievement. It is something that has been long in the offing, and I want to thank everybody on both sides for the cooperation we've had."

Sen. Ron Wyden, (D-OR), called the bill "a milestone for the Medicare program, a lifeline for millions of older people….Tonight the Senate is voting to retire the outdated, inefficiency-rewarding, commonsense-defying Medicare reimbursement system."

The SGR was enacted by Congress in 1997 to control Medicare cost growth, but lawmakers stepped in to delay the cuts as they accrued each year. Rather than permanently fix the problem, Congress instead spent $150 billion in 17 short-term fixes since 2003 in an annual sideshow derisively referred to as the "doc fix."

Technically, the 21% cut in Medicare payments went into effect on April 1, one day after the Senate balked on an earlier opportunity to vote on the House bill before a two-week recess. The Centers for Medicare & Medicaid Services said in the interim, however, that there would be a two-week lag to process the claims, which effectively pushed the deadline to April 14.

H.R.2 removes the threat of draconian cuts and replaces the SGR with an annual automatic payment update of 0.5% each year over the next five years.

Although repeal of the SGR is the centerpiece of H.R.2, the bill is the largest package of healthcare legislation before Congress since the passage of the Affordable Care Act in 2010. In addition to repealing the SGR, the bill also:

• Delays disproportionate share payment cuts to safety net hospitals until 2018 and extends the DSH policy through 2025.
• Delays until Sept. 30 changes in the two-midnight rule on inpatient billing that were set to take effect at the end of this month.
• Fully funds the Children's Health Insurance program through Sept. 30, 2017.
• Preserves all extenders included in 2014's temporary SGR patch, including addition to funding for Community Health Centers through 2017.
• Provides incentive bonuses to providers who receive a significant portion of their revenue from an alternative payment model or patient centered medical home.
• Permanently extend Medicare's Qualifying Individual program for low-income seniors, and the Transitional Medical Assistance program that helps families on Medicaid keep their coverage as they transition from welfare to work.

Physicians Euphoric
The Senate vote was met with unabashed glee from the American Medical Association and other physicians' societies that have made the permanent repeal of the SGR a top legislative priority for more than a decade.

"Passage of this historic legislation finally brings an end to an era of uncertainty for Medicare beneficiaries and their physicians—facilitating the implementation of innovative care models that will improve care quality and lower costs," AMA CEO James L. Madara, MD, said in prepared remarks.

"In addition to eliminating the flawed Sustainable Growth Rate formula, we applaud our policymakers for ensuring access to care for children, low-income individuals and families by extending funds for the Children's Health Insurance Program and community health centers."

Halee Fischer-Wright, MD, president and CEO of the Medical Group Management Association, called the vote "historic."

"The dark cloud over physician group practices has been lifted," Fisher-Wright said in prepared remarks. "The Senate vote to permanently repeal the SGR returns stability to physicians and Medicare patients alike."

Amendments Fail
The bill survived six amendment attempts by Republicans and Democrats on issues ranging from the repeal of the Patient Protection and Affordable Care Act's individual mandate, to a four-year funding extension for CHIP.

Had any of the amendments passed, the bill would have been sent back to the House for prickly reconsideration and the deadline for the pay cuts would have kicked in.

Hatch, who ushered the bill through the Senate, reminded colleagues throughout the debate about the looming deadline. He acknowledged that the bill "isn't perfect, but it's a good bill and it's coming at the right time."

"As I see it, we have two options," Hatch said. "We can hold out for a better bill, one that satisfies every demand and subject ourselves to many more years of the last-minute time-consuming SGR patches that are loathed by everyone in Congress and everyone in the healthcare industry. Or, we can pass a bipartisan bicameral bill we have before us now, fixing the SGR problem once and for all, and setting the stage for future entitlement reform."

H.R.2 offsets target means testing for Medicare recipients that could generate savings. For example, starting in 2018, the premiums would increase from 50% to 65% for Part B and D beneficiaries who earn between $133,500 and $160,000 ($267,000 − $320,000 for a couple). For those in higher income brackets, the premiums would increase from 65% to 75%.

The plan also calls for limits on first-dollar coverage for some Medigap plans, starting in 2020. The IRS would also be authorized to impose levies of up to 100% on tax delinquent Medicare providers. Currently, the maximum levy is 30%. In addition, Medicare reimbursements would be increased by no more than 1% in 2018 for post-acute care providers.

H.R.2 increases direct spending by $145 billion from 2015–2025, according to the Congressional Budget Office. The bill would also generate about $4 billion in offsetting revenues over the period. The bill represents the largest expenditure on healthcare since the passing of the Affordable Care Act in 2010. And though the price is steep, CBO says it's cheaper than doing nothing, because the status quo would cost $900 million more than the proposed reforms over the next 10 years.

A Permanent Fix?
CMS Chief Actuary Paul Spitalnic caused a stir this week after he reported that H.R.2 is not the "permanent fix," as its supporters claim, and that lawmakers will be back to address funding shortfalls in another 10 years.

"While H.R.2 avoids the significant short-range physician payment issues resulting from the current SGR system approach, it nevertheless raises important long-range concerns that would almost certainly need to be addressed by future legislation," Spitalnic wrote.

"In particular, additional updates totaling $500 million per year and a 5% annual bonus are scheduled to expire in 2025, resulting in a payment reduction for most physicians. In addition, this bill specifies the physician payment update amounts for all years in the future, and these amounts do not vary based on underlying economic conditions, nor are they expected to keep pace with the average rate of physician cost increases."

Spitalnic said the specified rate updates would not cover years when inflation is higher, nor would it keep pace with the "cumulative effect of price updates not keeping up with physician costs becomes too large."

"We anticipate that physician payment rates under H.R.2 would be lower than scheduled under the current SGR formula by 2048 and would continue to worsen thereafter. Absent a change in the method or level of update by subsequent legislation, we expect access to Medicare-participating physicians to become a significant issue in the long term under HR2."

Spitalnic's report brought down the ire of AMA President Robert M. Wah, MD, who said the actuary's estimate "presents an argument for maintaining the status quo that is illogical, flawed and dangerous for patient access to high quality healthcare."

"The OACT report assumes that under current law, which requires an immediate 21% Medicare payment cut, physicians will receive upwards adjustments annually for decades to come, which is simply unbelievable given our long history with the flawed SGR formula," Wah said in a written statement. "Fluctuations in just two of the factors that affect SGR calculations—GDP growth and Medicare spending growth—are far too unpredictable to make this a reasonable assumption.

"The report also fails to take into account the long-range negative impact such a drastic payment cut would have on quality and access for Medicare beneficiaries, or the many options H.R. 2 will make available to physicians for avoiding onerous penalties under current law and the significant positive updates that high performers can earn," Wah said.