MedPAC Report Urges Repeal of SGR, Aims to Balance Payments for All Providers

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Nathaniel Weixel  

Medicare Payment Advisory Commission Chairman Glenn M. Hackbarth told a panel of House lawmakers March 15 that the sustainable growth rate (SGR) system needs to be repealed to improve the accuracy of Medicare payments for physicians and encourage the move toward new models of care delivery.

Testifying before the Ways and Means Subcommittee on Health, Hackbarth said repealing the SGR is “urgent” if Congress wants to keep Medicare solvent. Hackbarth said the current physician payment system should be replaced because it is creating uncertainty for physicians and beneficiaries. And he said the system is harming beneficiaries' access to care, especially those who want primary care.

To help phase out the SGR in a fiscally responsible way, Hackbarth said MedPAC outlined a 10-year path of legislated payment updates, including updates for primary care services that are different from those for other services. He said the Centers for Medicare & Medicaid Services should identify overpriced services and be required by Congress to achieve an annual numeric goal for their reduction.

Subcommittee Chairman Kevin Brady (R-Texas) noted the need for bipartisan support for SGR repeal. “Democrat or Republican, enough is enough,” Brady said, and vowed action this year. “We have a golden opportunity to eliminate the long-problematic SGR once and for all. This is the time to act. Shame on us if we don't.”

Report Issued

Hackbarth was testifying to discuss recommendations in MedPAC's report to Congress, which was also released March 15.

“We recognize that managing updates and relative payment rates alone will not solve the fundamental problem with current Medicare FFS payment systems--that providers are paid more when they deliver more services without regard to the quality or value of those additional services,” the report said.  

In the report, MedPAC made recommendations to Congress intended to balance payment updates to providers and streamline Medicare by encouraging payment and delivery system reforms. Congress does not have to follow the recommendations.

MedPAC recommended no update or increase in 2014 for five fee-for-service payment systems and a 1 percent update or increase for the hospital inpatient and outpatient payment systems. In three sectors (physician, skilled nursing, and home health), the commission evaluated current payment adequacy indicators but did not take new votes on recommended payment updates. The report addressed the need to manage the current fee-for-service (FFS) system, even as initial delivery system reforms, such as accountable care organizations and bundled payments, are being adopted.

“We recognize that managing updates and relative payment rates alone will not solve the fundamental problem with current Medicare FFS payment systems--that providers are paid more when they deliver more services without regard to the quality or value of those additional services,” the report said.

The report noted that FFS is not going to be phased out immediately. In his testimony, Hackbarth told lawmakers that although FFS reform is essential, “it will take time to develop.” In the interim, providers should be encouraged to form new relationships to improve care delivery.

“It is imperative that the current FFS payment systems be managed carefully,” the report said. “Medicare is likely to continue using its current payment systems for some years into the future. This fact alone makes unit prices--their overall level, the relative prices of different services in a sector, and the relative prices of the same services across sectors--an important topic. In addition, constraining unit prices could create pressure on providers to control their own costs and to be more receptive to new payment methods and delivery system reforms.”

Report Details SGR Repeal

The report reproduces recommendations MedPAC made in 2011 about ways to get rid of the SGR system. It recommends replacing it with legislated updates that would no longer be based on an expenditure-control formula, improving equity among primary care and specialty services, and creating incentives to move to more organized health care delivery systems.

According to MedPAC, temporary, stopgap fixes to override the SGR undermine Medicare's credibility because they engender uncertainty and anger among physicians and other health professionals, which may cause anxiety among beneficiaries.

“It is critical for the Congress to act now to resolve the SGR. Delay will not leave the Congress with a better set of choices, providers' frustration with the SGR is increasing, and recent changes in [Congressional Budget Office] scoring have substantially reduced the cost of repeal,” the report said. “We have offered the Congress a set of ideas for offsetting the cost of an SGR repeal within the Medicare program, but it is the prerogative of the Congress to choose among those and other options as it determines how best to finance SGR repeal.”

Payment Recommendations

The report also presents the commission's recommendations for 2014 rate adjustments in fee-for-service Medicare. These “update” recommendations--which MedPAC is required by law to submit each year--are based on an assessment of payment adequacy, taking into account beneficiaries' access to care, the quality of the care they receive, supply of providers, and providers' costs and Medicare's payments.

In this year's report, MedPAC said it continues to make recommendations to find ways to provide high-quality care for Medicare beneficiaries at lower costs to the program. The 1 percent increase to inpatient and outpatient hospitals was approved in January (09 HCDR, 1/14/13).

For two sectors, skilled nursing facilities and home health agencies, the report reiterates previous recommendations calling for an array of reforms including rebasing (lowering the base rate), creating incentives to improve quality, and increasing program integrity. For the physician and other health professional payment system, the report calls for making the system fairer and for repeal of the SGR.

Hospital Increase

According to MedPAC, the 1 percent increase for inpatient and outpatient hospitals is less than the 1.8 percent increase scheduled for inpatient hospitals under federal law for 2014. Outpatient payments are scheduled to increase by 2 percent. According to MedPAC, the inpatient hospital increase is scheduled to take effect Oct. 1, and the outpatient increase will begin Jan. 1, 2014.

According to the recommendation, the 0.8 percent difference between the statutory update (1.8 percent) for inpatient hospitals and the recommended update of 1 percent should be used to recover past overpayments based on documentation and coding adjustments and restore budget neutrality.

Coding offsets are based on the assumption that hospital payments have increased solely due to changes in coding or classification of patients and not because patients are actually getting sicker. According to MedPAC, CMS reduced payments in 2011 and 2012 to offset the effects of documentation and coding that occurred in 2008 and 2009. In addition, CMS has stated that it still needs to reduce inpatient rates to account for further documentation and coding changes hospitals made in 2010.

The American Taxpayer Relief Act (ATRA) of 2012 (Pub. L. No. 112-240), also known as the “fiscal cliff” legislation, authorized CMS to recover $11 billion in overpayments from 2014 through 2017. The Department of Health and Human Services secretary has authority with respect to the timing of the recoveries, MedPAC explained. If the recoveries were done equally over the four years, payments would be reduced by roughly 2.4 percent per year. This process would result in lower inpatient payment rates in 2014 than in 2013.

“Because the policy environment is fluid, we want to be clear: The recommendation should be interpreted as a net increase in per case payments to hospitals in 2014 relative to 2013. That is, when all policy changes affecting base payments are made (i.e., recovery of overpayment due to documentation and coding changes, prevention of future overpayments, and the sequester), the net increase in payment should be 1 percent,” MedPAC said in the report.

By Nathaniel Weixel  

The full report is at

Request Health Care on Bloomberg Law