AGA eDigest

July 27, 2006

Energy and Commerce Hearing Held on Medicare Physician Payment

On July 25, the Energy and Commerce Committee’s Subcommittee on Health held its first of two hearings entitled “Medicare Physician Payment: How to Build a Payment System that Provides Quality, Efficient Care for Medicare Beneficiaries.”

Invited witnesses included the Congressional Budget Office, the Government Accountability Office, the Medicare Payment Advisory Commission (MedPAC) and The Commonwealth Fund. The Alliance of Specialty Medicine, of which AGA is a founding member, provided written testimony (LINK).

The main focus of the hearing was to address problems in the sustainable growth rate (SGR) formula and its negative impact on providing fair payments to physicians. The SGR unfairly uses a volume control mechanism that is tied to the gross domestic product. Unless the flaws in the SGR are addressed, physicians are facing a payment update of -4.6 percent for 2007 and almost 5 percent negative updates per year through 2013. MedPAC has specifically recommended that the SGR be eliminated and replaced by the Medicare Economic Index (MEI), though MedPAC has also stated that physicians may not receive the full MEI each year. In March 2007, MedPAC will report to Congress on alternatives to the SGR.

At this time, there are several bills under development in Congress to address the SGR issue. Representative Michael Burgess, R-TX, introduced legislation to replace the SGR with the MEI on Jan. 1, 2007. Representative John Dingell, D-MI, stated that he plans on introducing legislation to provide two years of positive physician updates until there is a permanent solution. Due to the elections and the abbreviated legislative session, Congress has little time this year to address a permanent solution, but it is possible there may be a short-term fix enacted in a post-election lame duck session of Congress.

Subcommittee members commented that there have been no cost solutions proposed to pay for elimination of the SGR. The committee will work on determining possible areas for cost savings. Every year that the expenditure target is exceeded contributes to higher negative updates in future years since remedies in past years have “borrowed” from future payments (with the exception of the remedy enacted last year). At this time, it is estimated to cost at least $180 billion over 10 years to fix the SGR system. One possible area of cost savings discussed is to explore lowering payments to Medicare HMO plans.

Issues surrounding quality of care and pay for performance will be addressed at the next hearing.