The time to fix SGR is now

“When one door closes another door opens; but we so often look so long and so regretfully upon the closed door, that we do not see the ones which open for us.”

—Alexander Graham Bell

October's government shutdown and debt-ceiling discussions have closed some doors for healthcare reform and created a heightened degree of political posturing and discord. Stalemate has further soured public perception of Congress. Lawmakers essentially have two choices: either dwell on what could have been and continue pushing increasingly partisan agendas or work toward real bipartisan agreement.

We believe an open door is staring Congress in the face. Working together, lawmakers should fix the sustainable-growth rate, or SGR, mechanism for paying physicians under Medicare, which could ultimately help lower Medicare costs, enhance the patient-care experience and reduce the uncertainty that has been vexing physicians for more than 10 years.

Limited success in addressing rapid growth in Medicare physician spending led to the SGR legislation in the Balanced Budget Act of 1997. Under this formula, cumulative expenditures would be limited to a level consistent with growth in the overall economy. In practice, the average cost of physician services per beneficiary had been growing much faster than per-capita GDP, and it has continued to do so in almost all years since the introduction of the SGR formula.

In 2002, a physician payment rate reduction of 4.8% was required—and implemented—under the SGR mechanism. For each year 2003 through 2013, however, Congress acted to override the formula and prevent further reductions. These overrides were designed to avoid an immediate rate reduction but require larger ones in the future, to prevent a permanent increase in spending. As a result of this “kicking the can” approach, a reduction of about 24% is currently required for Medicare payments to physicians starting in 2014 absent a fix beyond the recent budget deal.

The SGR “experiment” has failed. An unrealistic growth target has led to repeated congressional overrides, with Medicare per-enrollee expenditures for physician services increasing more than 50% faster than the growth in GDP per capita from 1998 through 2012. Medicare payments to physicians should be revised to a workable—and truly sustainable—basis. Continuing to address the problem through a series of annual “doc fixes” is a needless diversion from other pressing issues. Moreover, financial projections for Medicare are biased downward as a result of the statutory SGR formula, and both the annual Medicare trustees report and president's budget require special disclosures to avoid being misleading.

As a practical matter, the current Congressional Budget Office 10-year cost estimate for elimination of the SGR is $138 billion, which is less than half of recent years' estimates. More importantly, the cost will be incurred regardless of whether a sensible, permanent solution is enacted now or a further series of last-minute “crisis” measures are passed each year.

We are encouraged by the concepts embedded within recent bipartisan congressional proposals. We recommend that Congress act to reform Medicare physician payments immediately and propose three principles that should guide their efforts, with the goals of fairness and effectiveness for beneficiaries, physicians and taxpayers alike.

First, Medicare payments to physicians should be fair as well as adequate to ensure that beneficiaries have access to services. Consider the very low payment rates that many state Medicaid programs impose and the resulting difficulties beneficiaries face in finding doctors who will treat them. For Medicare to continue to fulfill its purpose, Congress must craft a plan that ensures Medicare patients will have access to the services they need because doctors are willing to participate in the program.

Second, a return to a completely unconstrained basis for physician spending would be undesirable, given past trends and practices. It would be reasonable to institute some form of restraint to help prevent unnecessary—and potentially harmful—services and payment abuses.

Third, changes to physician reimbursement rules should be made in the context of policies to better integrate care among doctors, hospitals and other healthcare providers and to pay providers on a consolidated basis. This change might not be feasible initially, but should be part of a longer-term goal.

We believe that these broader reforms have significant potential to improve the quality of care and its cost-effectiveness. By acting now and crafting legislation that follows these principles, Congress has an excellent chance to walk through an open door to bipartisan reform.