If the formula used to calculate physician Medicare payment updates isn't revised or eliminated, spending per beneficiary will increase faster than the formula permits and, as a result, doctors will see significant pay cuts beginning in 2006, a new General Accounting Office study has concluded.
Under the sustainable growth rate formula, or SGR, the federal government sets a spending target and physician fees are adjusted up or down based on whether spending comes in below or above the target.
The system, established in the 1980s to rein in costs, "is a budgetary device, not a health policy tool," said Douglas Holtz-Eakin, director of the Congressional Budget Office, in testimony he gave today to the House Energy and Commerce Committee.
The SGR, added a GAO official, is "a very blunt instrument."
According to the GAO, even if the SGR was eliminated, a plan favored by the Medicare Payment Advisory Commission, recent increases in volume and intensity suggest that "Medicare faces a fundamental physician spending growth problem."
Provisions in last year's Medicare reform law give physicians a 1.5% payment increase in 2004 and 2005, averting a scheduled decrease for those years under SGR.
The Medicare law did not, however, make corresponding revisions to SGR's spending targets.
As a result, the GAO said, without changes to the SGR, physicians will see annual pay cuts of roughly 5% for seven consecutive years beginning in 2006.
Rep. Sherrod Brown (D-Ohio) suggested in the Energy and Commerce hearing that the $12 billion allocated by the Medicare law to boost private health plan payments should be used to address the physician payment problem.
MedPAC Chairman Glenn Hackbarth said none of the options available to slow the increase in Medicare costs can be employed without controversy.
According to the AMA, doing nothing with SRG will be just as controversial.
"What we've said repeatedly is we need to get rid of the SGR formula," said AMA President Donald Palmisano, M.D.
"You can't price fix and limit physician payments when costs are going up at a 45-degree angle," Palmisano said. "You keep doing these cuts after 2005, what's going to happen is loss of access to care."
Joseph Conn contributed to this story.