Sustainable Growth Rate Fix Won't Come Cheap or Easy


WASHINGTON — It won't be cheap to fix Medicare's problematic physician pay formula, but lawmakers aren't saving any money by waiting to replace it either, experts testified at a hearing of the Senate Finance Committee.

“We have been kicking this can down the road for the past 5 years. This committee, and certainly Congress, understands it's not going to get any easier,” said Dr. Cecil Wilson, board of trustees chairman for the American Medical Association.

The rising cost of health care is one of the biggest problems facing the government. At the current rate of growth, federal spending on Medicare and Medicaid will eventually consume 20% of the economy, according to Peter Orszag, Ph.D., director of the Congressional Budget Office.

“In health care, we get what we provide incentives for. We currently provide lots of incentives for advanced technologies and high-end treatment, and we get a lot of that. We provide very little incentive for preventive medicine and get very little of that,” testified Dr. Orszag.

Early in 2006, lawmakers asked the Medicare Physician Advisory Commission (MedPAC) to examine ways to shift those incentives. Their findings were presented to the committee a few days before MedPAC members presented the commission's annual report to Congress.

Although the report represents the consensus of the commission, commissioners were unable to forge a consensus on what should be done to replace the Sustainable Growth Rate (SGR) system, MedPAC Chairman Glenn Hackbarth testified.

Instead, the commission offered lawmakers two alternative approaches—one that doesn't include an SGR-like spending target and one that does.

Eliminating spending targets altogether would require Congress to create a whole new system with incentives to physicians to provide high-quality and low-cost care, Mr. Hackbarth said. Choosing to keep spending targets would simplify payment reform but still would require changes to make the system more equitable.

In opposition to spending targets, Dr. Wilson said, “No amount of tinkering can fix what is broken beyond repair.” While doctors account for a small portion of increasing premiums, they are the only group that has spending targets imposed on them, he added.

“The AMA asks that Congress ensure that physicians are treated like hospitals and other providers by repealing the SGR and enacting a payment system that provides updates that keep pace with increases in medical practice costs. We, in turn, are committed to helping assure appropriate use of services,” he said.

In cooperation with several other physician groups, the AMA brought to the hearing a list of recommendations to achieve those goals.

No matter whose plan is embraced, fixing the SGR system is unlikely to come cheap. The CBO has estimated that current proposals will cost anywhere between $22 billion and $330 billion over 10 years.

“There are lots of steps, including [health information technology] and comparative effectiveness, that offer at least the potential to bend that curve over the long term, but the cost savings may not show up in the next 10 years. That is just the way it is,” testified Dr. Orszag, adding that it will take time and resources to build a system in which Medicare pays for high-value instead of high-cost services. “Given the scale of the problems that we face, we need to be trying lots of different things and recalibrating all the time,” he said.

There are good ideas out there, testified Mr. Hackbarth, but the Centers for Medicare and Medicaid Services is the bottleneck. “We've got some very promising demonstrations under way, but it takes us forever to get them developed, in place, gather results, and translate them into policy,” he testified. The agency doesn't have the staff or information systems to move forward expeditiously.

“We're trying to run [Medicare] on the cheap. That won't work if we are trying to innovate at the same time,” said Mr. Hackbarth.

Asked by senators what to focus on first, Dr. Wilson responded, “It would be nice if we had the luxury of just having one thing on our plate and one magic bullet, but we don't.”

A Choice of Two Paths: Which One Leads to Better Care?

In testimony to the health subcommittee of the House Ways and Means Committee, Mr. Hackbarth explained that the MedPAC commissioners struggled with their task of choosing an alternative to the current sustainable growth rate (SGR) system. He reported that there were many tough debates, and that commissioners couldn't agree on just one solution. So instead they offered two proposals—ones they've deemed “Path 1” and “Path 2.”

Path 1 calls for repealing SGR and eliminating the system of expenditures targets. The MedPAC report suggests that Congress should implement new ways to improve incentives for physicians and other providers to offer quality care to their patients at lower costs. This could be done in the following ways:

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