Why YOU Should Care About the SGR

Everyone knows what Medicare is. Everyone knows our seniors currently rely on it to provide health coverage for them. Most have heard a lot of talk in the past couple years about Medicare reform, our out of control spending on healthcare and the pressing need to fix it before Medicare becomes insolvent. But apparently very few people actually know what the SGR is, or why it’s so key to this issue, and that scares me a little.

Before your eyes roll back in your head of boredom, let me point out the SGR affects everyone. If you or your loved ones are on Medicare or Tricare (the military healthcare program), or you know anyone that works for a hospital, doctor, or any aspect of the healthcare system, SGR affects you. So what the heck is it? The SGR is the Medicare Sustainable Growth Rate, and it was created in the Balanced Budget Act of 1997. The idea sounded brilliant: a formula to control Medicare spending by ensuring that the per patient cost did not increase faster than the GDP over time. The mechanism used to “enforce” this would be annual updates to physician payments. If a year came in under budget, doctors got paid more the next year for their services. If a year was over budget, they took a cut the next year. Sounds good right? Well, let’s say that the patients start spending a lot more each year than they paid into the system through increased utilization of services. Say Medicare starts expanding services covered that patients can now take advantage of. Say the economy goes to crap and the growth of GDP comes to a grinding halt. Sounds like that formula isn’t going to work out if any of those things happen, right? Well, what if they all happen at once?

The short answer is it becomes a total mess where Medicare spending increases drastically and doctors are told well, this increased spending is no good, so we’re going to have to cut what we pay you drastically. Doctors then point out that Medicare payments over the last decade have been flat while the cost of practicing medicine continues to increase (ironically, some of that increased cost has been directly caused by new Medicare requirements) and they can’t take any cut and still make enough to keep the doors of their practice open. (See graph below, note the effect the 2012 cut could have):

Medicare reimbursment

Too bad, Medicare says, this is the formula and that’s how we control our costs. Congress then steps in and says “this won’t work, if we let that happen then doctors will just quit accepting Medicare and our seniors won’t have healthcare”, and they’re right. Doctors do quit accepting Medicare because of looming cuts, even though most of the serious cuts were never implemented, being avoided at the last minute by congressional action that delayed the cuts for short periods of time. That’s not the point though, the point is the instability this creates for healthcare providers and how it motivates them to just leave the unstable system for smoother waters. Congress sees this happening. But in their infinite wisdom, Congress never decides to try to fix the formula, so each delay simply increases the size of the next cut. The payment cut we were just facing was 27.4%, up from 21.3% last year, and projected to hit over 30% shortly. These cuts have been averted just weeks before the cuts were scheduled to take place, leaving doctors and hospitals not knowing if they will be able to make their budget for the next month or not. No sane person would choose to accept a payment system that threatens to cut their income by over 20% next month, maybe, if Congress doesn’t figure out how to fix it. But that’s exactly what doctors, hospitals, and other clinics are expected to do. Add in that the SGR also directs the Tricare reimbursement rate, which covers all our military families, and private insurers seem to be using Medicare rates as an excuse to cut their own payments, and you’ve got a real mess.

So why doesn’t Congress fix the SGR so that doctors and hospitals aren’t held hostage by the whims of a dysfunctional political body and can do their jobs without worrying if they’ll be able to afford to care for America’s seniors and military families next month? Well… see my previous post. Some people are trying to yell at Congress to fix it, primarily the AMA and other physicians’ and hospital groups. The bulk of what we were asked to do this weekend in D.C. was to ask our congressmen and senators to consider a permanent repeal of the SGR. Naturally, with the financial mess our country is in, a $300 billion+ measure isn’t going to be popular. So the AMA says, why not “pay” for this with the OCO funds (money “saved” by not still being in Iraq and drawing down troops in Afghanistan) and put this issue to bed while Medicare and Congress figure out realistic ways to lower healthcare costs? That’s the question/suggestion I was asked to take to my elected officials, and I did discuss it with them as one of the proposed mechanisms for repealing SGR, but our discussions always came around to the one weakness of both the SGR and the OCO funds: they’re really stupid.

The SGR is a budgetary construct. It says because we spent more than we planned in one year we’ll make it up in the next, but we don’t let that happen because “making it up” would gut Medicare as we know it and the whole thing would collapse. So then we claim the money we didn’t save that year is now “debt” and gets added on to the amount we have to “save” next year, making it even more impossible to ever make it up with “savings” in future years. So you have an endlessly growing pile of somewhat imaginary “debt” because our seniors are using more healthcare services and the GDP isn’t growing. But since we don’t want to appear to be rationing care or telling our seniors “You’re spending more than you ever paid in, this was supposed to be an insurance program not welfare and you’ll have to play by fiscally responsible rules.”, we keep letting this formula float and keep holding healthcare providers hostage. The OCO funds are equally, if not more so, stupid. The “money” in OCO funds is supposedly the savings from not still being in Iraq, etc. So basically our government is saying because we aren’t spending as much as we thought we would, we’re now saving money! Never mind that trillion dollar plus deficit, we’ve got these savings to spend since we didn’t spend as much on war as planned. That’s like me saying that I planned to spend $50,000 I have to borrow on a new car, but I decided not to buy the car so I have an extra $50,000 lying around to spend! And you wonder why our government is a mess?

The point is, the SGR is just as ridiculous as the OCO funds but with the serious side effect of discouraging doctors and hospitals from treating our seniors, military, and anyone else affected by changes in the SGR payment formula. It’s time to stop letting Congress and the Center for Medicare and Medicaid Services play fast and loose with the future of our healthcare. They need to stop pretending this formula works and get serious about fixing the actual problems driving the increased costs in Medicare. The fixes won’t be politically popular, but the longer we put them off the worse the problem gets and the less likely it is that our seniors and military will be able to have their choice of doctors. You should care about this issue, and you should demand more from the people you elect to represent you. Tell them to fix this and tell them you’ll be watching to make sure they do.

-M

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