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Sen. Edward Kennedy
Sen. Edward Kennedy in July 2008 returns to the Capitol for the first time since brain surgery to help stop an SGR-driven Medicare physician pay cut.
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A tradition of 'kick the can'

Repeated SGR fixes succeeded in capping doc pay


By Andis Robeznieks
Posted: December 22, 2012 - 12:01 am ET
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If something happens three times, some folks call that a trend. If it happens again and again over 10 years, it's a tradition—and not all traditions are good.

Congress has now voted persistently for a decade to temporarily suspend Medicare physician payment decreases called for by the sustainable growth-rate reimbursement formula. Each year, the threatened cut gets bigger and the budgetary hole created by suspending the cuts gets deeper. Under the SGR, a 26.5% pay cut is scheduled to take effect Jan. 1.

The Congressional Budget Office estimates that the cost to suspend the cut for a single year—or “to kick the can down the road,” as this practice has become to be known—is now $25.2 billion. The cost to fill the entire budget hole created by this decade of can kicking is now estimated at $300 billion. The predicament has become a significant hurdle for White House and congressional negotiators to overcome in reaching short- and long-term tax and spending deals.

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Included in the 1997 Balanced Budget Act, the SGR links physician fees and costs (as calculated by the Medicare Economic Index) to the U.S. gross domestic product. The SGR includes a “clawback” mechanism for rolling back Medicare fees if spending targets were exceeded in the previous year. “It was assumed that physicians would learn to be more productive,” said Uwe Reinhardt, an economist at Princeton University. It didn't happen.

The first suspension, or SGR “patch,” was included in the Consolidated Appropriations Resolution of 2003 signed by then-President George W. Bush on Feb. 20, 2003. The practice of passing last-minute legislation averting an SGR-driven cut continues to this day, and the outcry over the maligned formula gets louder as the threatened cut grows with each kick of the can. Practices say they hold off on investments so resources are in place in case an increasingly dysfunctional Congress fails to stop the cut.

One close call came in July 2008 when a 10.6% cut was set to go in effect after Bush vetoed a bill stopping the decrease. Congress overrode the veto, but not without some added drama. A GOP filibuster in the Senate ended with a surprise appearance by an ailing Sen. Edward Kennedy. In 2010, Congress had to act four times to arrive at another one-year patch.

The SGR worked until the 2002 recession, according to Kavita Patel, a fellow in economic studies and managing director of the Brookings Institution's Engelberg Center for Health Care Reform. That's when the rate of spending per Medicare beneficiary exceeded the GDP. This resulted in a 4.8% payment cut in 2002, which remains the only SGR-driven decrease not suspended by Congress.

By 2005, expenditures counted under the SGR equaled $94.5 billion or $14 billion more than the $80.4 billion target (and $30 billion over cumulative targets), according to a 2006 CBO issue brief. By law, physician fees needed to be reduced to make up the difference and put spending back in line with targets. They weren't, a pattern that continues to this day.

“The system is broken,” Patel said in her testimony.

But Reinhardt, who has financial interests in the healthcare field, said this is not necessarily so. Within the various SGR patches, Congress has included either physician pay freezes or small increases, which Reinhardt said average 0.8%.

“I would argue it actually did work,” he said. “Suppose you never had an SGR formula. Do you think Congress would get away with raising physician fees by only 0.8%?”

“A huge hue and cry goes up and the media has a field day writing stories and scaring doctors,” Reinhardt said, adding that this also benefits physician professional organizations such as the American Medical Association. “The AMA finds this very useful because professional organizations essentially sell paranoia,” he explained. “They say, 'You need me or you'll be in deep doo doo.' ”

Then, instead of the “calamity” of a deep pay cut, a mere 0.8% pay increase is then spun into a victory, Reinhardt said. “Everybody wins.”

Dr. Peter Duffy, an interventional cardiologist with FirstHealth Cardiology Services-Pinehurst (N.C.), disagreed. With Medicare beneficiaries making up 65% of the practice's patient population, the annual Medicare uncertainty was a factor in the decision to sell the five-doctor operation Oct. 1 to FirstHealth of the Carolinas, a Pinehurst-based hospital system.

Duffy said the SGR uncertainty has led to the loss of staff, now down to 17 from a high of 21. “They say, 'I don't know if I'll have a job next year,' ” Duffy said, so they leave in search of more stability. Duffy said he believes physician fees will drop sharply once a certain percentage of doctors are hospital employed. “You have to get all the fish in the barrel before you can shoot them,” he said.

Dr. Michael Schweitz, with Arthritis and Rheumatology Associates in Palm Beach, Fla., said the uncertainty over Medicare pay has stopped his seven-doctor practice from adding an eighth physician and from adding a satellite office. It also can no longer afford the maintenance contract on its bone-density machine, Schweitz said. “If the machine breaks down, it won't be replaced and women won't be able to get a bone-density study in our office.”

Schweitz predicted another SGR patch would be approved at 11:58 p.m. on Dec. 31. “Then we'll applaud and say, 'Thank you,' ” he said. “We've been doing that for 10 years, and that's sad.


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