Medicare Compliance & Reimbursement

Find out what's on deck if SGR formula gets scrapped

The Medicare Payment Advisory Commission wants Congress to replace the current system of automatic formula-driven annual payment updates for Medicare physicians with a new system "based on an analysis of payment adequacy." That's what MedPAC Chair Glenn Hackbarth told the House Ways and Means Health Subcommittee Feb. 10.

And while it still doesn't seem likely that Congress will manage a long-term fix for physician payments in this busy and increasingly contentious legislative year, many are growing frustrated with the failure of their past attempts to mend the current "sustainable growth rate" formula by tinkering.

In addition, changing to a payment-adequacy-based system would give physicians an update mechanism more similar to those Medicare uses for other provider groups, such as hospitals, and would make it easier to tie payments to quality and efficiency measures, as many lawmakers are interested in doing, Hackbarth suggested.

Furthermore, because updates wouldn't be automatic under an adequacy-based system, it would be valuable to lawmakers in times when budgets were tight, Hackbarth said. "The reality is that in any given year Medicare might need to exercise budget restraints," and having MedPAC analyze physician payment adequacy as it does for other provider sectors "would serve as one input to Congress' decision-making process."

Repeating a recommendation that MedPAC has made for the past few years, Hackbarth reminded the panel that an annual analysis of payment adequacy "would include the estimated change in input prices for the coming year, less an adjustment for multifactor productivity." Under a new system, "updates would not be automatic (required in statute) but be informed by changes in beneficiaries' access to physician services, the quality of services being provided," and other factors.

The productivity adjustment is intended to nudge physicians toward delivering health care more efficiently and should include both labor-related and non-labor-related factors, MedPAC argues. "Productivity gains are certainly possible in physician services and should be taken into account" when setting appropriate payments (i.e., payments that are adequate to reward efficiently practicing providers), Hackbarth explained in 2002 testimony to Ways and Means. "For example, research suggests that doubling the size of a physician practice (from the current average 2.5 physicians to five physicians) increases productivity by 9 percent with no increase in practice expense per physicians."

With the current SGR formula producing practically and politically impossible 4- to 5-percent cuts for physicians over the past few years, MedPAC has had the task of recommending to Congress one-year-at-a-time updates for docs. To develop those recommendations, MedPAC uses the payment-adequacy approach, Hackbarth noted Feb. 10.