The Unsustainable SGR

So I must apologize.  Amidst my destroying your medical school innocence with posts about student debt, floundering federal GME, and the reality of the government shutdown, I referenced SGR but never actually shared that horror.  Maybe it was regression to a happier time, or a little folie à deux (can you tell I’ve had my Psych rotation?), but SGR has been the bane of my time in policy.  And I want it to be yours.

SGR, formally known as the Sustainable Growth Rate, was a formula developed under none other than the Balanced Budget Act (the same one that set the cap for GME-funded residency slots at 100,000) to determine the Centers for Medicare And Medicaid Services (CMS) reimbursement payments to physicians.  And because the universe loves a good cosmic joke, SGR had been developed to replace a flawed payment system.  At a basic level, the theory of this formula was that a conversion factor could be used to balance yearly spending in healthcare.

Here’s how the formula works.  Each year CMS projects their spending on healthcare for the coming year.  At the end of the year, if there is money left over, it gets rolled over to the next year’s budget by changing the conversion factor (guess how many times that has happened).  And if, by some unforeseeable tragedy, spending outstripped the projection, the deficit is taken from the next year, once more, by changing the conversion factor (now guess how many times that has happened).  This equation worked…for about two years, and then year over year healthcare spending was higher than estimated and the associated debt began to build.

Flickr | stuartpilbrow

Flickr | stuartpilbrow

Now you’re probably thinking to yourself “They have to get rid of this debt, right?  They can’t just let it pile up, can they?”  Remember, this is Congress we’re talking about.  You could believe that the “debt” is taken from the budget of future years, so it’s really just our government owing its future self, so no big deal, right?  You could also believe that going over-budget has never stopped us before.  Or, for those not as cynical as I, the debt that accumulated was not insignificant, and since it would be taken from physician payments and disproportionately affect primary care,  making physicians cover the cost was not a viable option.

Whatever your belief, the decision was made to make no decision, and instead Congress introduced the temporary patch.  Essentially, these were designed to delay the cuts mandated by SGR by keeping the payment system in a holding pattern until the patch expired (ranging anywhere from a few months to a year).  Why delay you ask?  Because even though the Congress in office at the time of the first patch didn’t have a solution, the next one would (obviously).  Now these patches are not cost-free.  Maintaining the status quo serves only to increase the deficit and delay definitive action.  The first patch cost $0.2 billion, and the next two each cost $1 billion…flash forward to today, 16 patches later, and $158 billion in accrued deficit (not counting the $16.1 billion slated for 2014 so far).

doctor stop

Gone are the days where our government can just forget its own debt.  Under this administration all legislation must be cost-neutral, so repealing SGR would require elimination of all the associated baggage.  Now an easy fix (from Congress’s standpoint) is to just cut physician payments until the balance is paid—right now to the tune of 24% reduction of Medicare reimbursements.  This would destroy many private practices.

So how do we get out from under this?  The Congressional Budget Office, who estimates cost projections (among a plethora of other duties) originally forecast the cost to remove SGR at $139 billion, but, wonder of wonders, healthcare costs actually grew slower than expected, and the newest projected cost of removal is $116 billion.  Further, healthcare is the sexy new thing on the Hill.  Everyone’s talking about it, and SGR repeal has bipartisan support in unprecedented numbers.  Finally, the current patch is set to expire on March 31.  It’s time to stop kicking the can and it’s time to shoot SGR dead.



Featured image from Flickr | stuartpilbrow
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Josh Lesko, MD

Josh Lesko is a flight surgeon based in San Diego, California, writing about health policy, organized medicine, and whatever else comes across his news desk.