AMA Urges Congress to Repeal, Replace Medicare Physician Pay Formula

As January 1 rapidly approaches, more groups are calling on Congress to repeal the Medicare physician pay formula - also known as the sustainable growth rate (SGR). Without the repeal, physicians will experience a 30 percent pay cut for Medicare reimbursements with the beginning of the new year.

Recently the Medicare Payment Advisory Committee (MedPAC), which advises Congress on Medicare, and President Obama, both outlined separate proposals for repeal of the SGR.

The latest call for congressional action came from the AMA, who is urging the new “supercommittee” to address the formula in its budgetary review.

“On behalf of hundreds of thousands of physicians and other healthcare professionals, we are writing today to emphasize that it is critically important for the Joint Select Committee on Deficit Reduction to include a full repeal of the fatally flawed Medicare sustainable growth rate (SGR) formula in its final legislation,” the AMA, along with all state medical societies and many specialty societies, wrote in a letter to the committee.

A repeal of the SGR comes with a heavy price tag - it’s estimated to cost approximately $300 billion. But the AMA argues it’s a necessary step to take.

The scheduled 30 percent pay cut will, most likely, further exacerbate the physician shortage, reduce seniors’ access to medical care, and produce disastrous effects for already cost-stretched physicians’ practices.

According to the AMA, Medicare payments have not kept up with the cost of running a medical practice, leaving a 20 percent gap between reimbursement rates and practice expenses. A 30 percent cut would not only continue that problem, it would intensify it.

In addition, a failure to repeal the SGR now, will create more money problems down the road. The AMA estimates that if Congress continues to implement the same temporary fixes they have in the past, the cost of repeal will escalate to $600 billion by 2016.

“There is wide bipartisan agreement that the Medicare physician payment system is broken, and we know that continued reliance on recent policies will increase the cost of fixing the problem,” AMA President Peter Carmel, said in a statement. “The fiscally responsible action for the congressional deficit committee is to repeal the Medicare physician payment formula now.”

Here’s how the AMA proposes to do so:

In May, Cecil B. Wilson, AMA immediate past president, recommended a “three-pronged” approach: repeal the SGR, implement a five-year period of stable Medicare physician payments, and lay the pathway for a new payment system.

During the five-year period, a variety of new payment models designed to enhance care coordination, quality, appropriateness, and costs would be tested - such as ACOs, quality and cost incentives, bundled payments, etc.

The AMA is working with specialty and state medical societies to form a new Physician Payment Reform and Delivery Leadership Group. This group will include physicians who are currently participating in payment and delivery innovations and other experts.

“A replacement for the SGR should not be another one-size-fits-all formula,” Wilson said. “A new system should allow physicians to choose from a menu of new payment models that rewards physicians and hospitals for keeping patients healthy and managing chronic conditions.”