SGR Repeal Is a Temporary Victory

On April 14, after 17 years, eight months, nine days and 17 eleventh-hour "doc fixes," Congress voted to repeal Medicare's Sustainable Growth Rate (SGR) formula for physician reimbursement. President Obama signed the bill into law just hours before a 21 percent physician pay cut would have taken effect.
The new law is a victory on many levels. It culminates almost two decades of hard work by consumer advocates and physician groups like the American Medical Association and American Osteopathic Association. It's also the first major bipartisan effort to come out of the 114th Congress.
But while this is all great news, it doesn't mean that stakeholders can sit back, relax and trust that all will be well. In this post, I'll share some thoughts on what the new law means for providers, politicians and the rest of us.

How We Got Here

The Medicare Access and CHIP Reauthorization Act of 2015 replaces the fatally flawed SGR formula of physician reimbursement that tied payments to Medicare spending. The old law worked as planned for a few years, but then healthcare expenditures began rising faster than expected. In 2002, providers took a 4.8 percent pay cut.
Obviously, it's in our national interests for physicians to care for Medicare beneficiaries. So over the next few years, Congress deferred the pay cuts with a series of 17 stopgap laws. The "doc fix" became a perennial circus at the Capitol; more often than not, it passed into law hours before the previous fix expired.
So why did this continue for 17 years? For one, the Congressional Budget Office (CBO) estimated that a permanent fix would cost $175 billion, and there was widespread disagreement about where this money should come from. Also, the fixes deferred cuts rather than eliminating them, allowing Congress to balance its budget (at least on paper).

Turning the Corner

After years of short-term solutions, Congress gradually came around to the fact that the SGR deferments were nothing more than a gimmick. Time and energy were being wasted in order to create the illusion of a balanced budget. Meanwhile, Medicare providers and beneficiaries were living in limbo. 
With this in mind, House Speaker John Boehner, R-Ohio, and Minority Leader Nancy Pelosi, D-Calif., came together to hammer out a solution. Their $210 billion, largely unfunded plan, passed by a vote of 392–37 in the House, followed by a 92–8 vote in the Senate.
Under the new law, Medicare providers will receive annual 0.5 percent pay increases through 2019. From 2019 onward, there will be no automatic raises. Instead, providers will be reimbursed based on their participation in value-based reimbursement models. Those who derive at least 25 percent of their income from eligible programs will qualify for 5 percent annual bonus payments through 2024 (and for smaller bonuses after that).
So what exactly will this new value-based reimbursement scheme look like? Well, no one knows yet. Rather than laying out specific criteria by which physicians will be evaluated, the law authorizes creation of a "technical advisory committee" to hammer out the details.
As with any big piece of legislation, there were winners, losers and many questions yet to be answered. Let's take a closer look at what the law really means for stakeholders.

For Physicians

In a way, the new law does for providers what the Affordable Care Act did for hospitals. It puts physicians on a trajectory for public reporting of yet-to-be-determined cost and outcome metrics.
The law's open-ended nature is a double-edged sword. On a positive note, it leaves the responsibility of defining clinical quality to experts. And if done well, care standardization and increased transparency could have significant benefits for patients. But under the wrong measures and reimbursement mechanism, providers may end up wishing they'd taken a 21 percent pay cut instead.
Needless to say, much rests on the shoulders of the yet-unnamed technical advisory committee. It's also important that physician groups make themselves heard in this matter. They will be much more effective in their campaigning if they send a strong, unified voice across specialties. For this reason, it's crucial for all providers to take political action and participate in consensus building.

For Hospitals

Under the new law, acute care hospitals receive modest annual raises in their Medicare payments, plus a larger 3.2 percent "bonus" in 2018. To fund this, Congress will reduce a similar bonus slated for post-acute hospitals from 2 percent to 1.
As a result, rehab, skilled nursing and long-term care facilities will still get payment increases, but these will be much smaller than expected. In reality, they will feel more like budget cuts. Expect some resistance from that side of the industry.

For Politicians

The SGR repeal suggests there's hope for this very divided Congress. It also has some interesting implications for the 2016 presidential race.
Former Sen. Hillary Clinton, probable frontrunner for the Democratic nomination, has been vocal in her support of the bill. By contrast, Republican hopefuls senators Rand Paul, R-Ky.; Ted Cruz, R-Tex.; and Marco Rubio, R-Fla. were among the very few in Congress who voted against it.
I suppose they could be sending a message about fiscal responsibility. But it's not exactly an inspiring show of bipartisanship to vote against the first unified legislation to come out of this congressional session. Does that mean these candidates won't work with the other side?
I also wonder how providers feel about this. Historically, physicians have tended to vote Republican (though this has changed in recent years). I for one will be thrilled if this issue comes up again in the debates.

For All of Us 

The new law will cost an estimated $210 billion. About $70 million will be funded by shifting some Medicare costs to high-income beneficiaries. The balance will be added to the federal deficit.
Starting in 2018, individual Medicare beneficiaries earning more than $133,500 annually (more for couples) will pay higher monthly premiums. About 2 percent of the current Medicare population will be affected.
Starting in 2020, people enrolling in first-dollar Medicare and Medigap plans will be responsible for paying their Medicare Part B deductible out-of-pocket. The amount is currently around $147, but will likely increase over the next five years. Such plans are currently used by 10 percent of the Medicare population.

Change Is Here

While the new law brings a rather messy era of healthcare policy to a close, it raises new challenges and questions. Most significantly, it will bring providers firmly under the value-based reimbursement umbrella, which will no doubt impact the way healthcare is delivered in this country.
The law's financial impact is hazier. Some Republicans see it as fiscally irresponsible. But at least one major player believes it doesn't go far enough. According to a report released by Medicare's chief actuary, the new payment schedule will soon fall behind inflation — and could end up costing physicians more down the road than an immediate 21 percent pay cut.
That could very well be true. However, I think it's safe to assume that the coming decades will bring fundamental changes to healthcare delivery and reimbursement. If providers and consumers make our voices heard, there's a decent chance we'll create a system that benefits patients, providers and the country as a whole.