Medicare Physician Payment Cuts – Sustainable Growth Rate

Issue: Medicare payments to physicians are governed by a fixed formula, the sustainable growth rate (SGR), that governs the overall amount of monies paid to physicians for their Medicare services in any given year. Unfortunately, this formula is fundamentally flawed, because it does not increase payments to physicians based on usage or costs, but rather on an indexed rate unrelated to the cost borne by physicians or the needs of their patients. In essence, the greater the number of patients who are eligible for Medicare, and the more services those patients use, the lower the payments made to physicians. This is so even though governmental programs encourage patients to seek medical care and despite the fact that the medical care they receive is allowing patients to live longer and healthier lives.

The impact on all Medicare patients, current and future, as well as to military families on TRICARE can be devastating.

• A Medicare Payment Advisory Commission (MedPAC) (an independent federal body established by the Balanced Budget Act of 1997 to advise the U.S. Congress on issues affecting the Medicare program) survey found that, in 2005, 25% of Medicare patients looking for a new primary care physician had some problem finding one and that a growing number had a “big problem.” It concluded that some beneficiaries “may be experiencing more difficulty accessing primary care physicians in recent years and to a greater degree than privately insured individuals.”
• A recent AMA Member Connect® survey found that access has already deteriorated, and additional cuts will create even greater problems. Of the more than 8,000 physicians respondents, almost two-thirds (65%) said more Medicare patients in their community are being treated in emergency rooms rather than physicians’ offices, and three-fifths (60%) said more patients are putting off needed care. If payments are cut in 2007 as projected, nearly half (45%) will either decrease the number of Medicare patients they see or stop accepting new Medicare patients in 2007; and 50% of physicians plan to defer the purchase of information technology.
• The Military Officers Association of America (MOAA) has stated that payment cuts under the SGR would significantly damage military beneficiaries’ access to care under TRICARE, and this will have long-term retention and readiness consequences.
• The MOA A states that the cuts in Medicare physician rates would be devastating for access to care for military families, many of whom already have difficulty finding TRICARE providers.
• In the long-run, all patients—especially baby boomers—may find it more difficult to find a physician. The congressionally created Council on Graduate Medical Education is already predicting a shortage of 85,000 physicians by 2020, and multi-year cuts in Medicare are nearly certain to exacerbate this shortage by making medicine a less attractive career and encouraging retirements among the 35% of physicians who are 55 or older.

MSNJ Position: There is a consensus that the following changes are needed:

• Congress needs to take immediate action to prevent the scheduled 5% cut in Medicare that will take effect on January 1, 2007.
• There is widespread consensus that the SGR formula needs to be replaced.
• MedPAC has recommended that the SGR be replaced with a system that reflects increases in practice costs.
• A new Medicare physician-payment system is needed that adequately reflects increases in the cost of practicing medicine.
• As MedPAC and others have recommended, Congress should scrap the SGR formula and, instead, adopt the same approach for physician-payment updates that is used for hospitals, nursing homes, and other Medicare providers. Under this approach, payments would accurately reflect practice cost increases.
• For 2007, the Medicare Payment Advisory Commission has recommended that Medicare physician payment rates be increased by 2.1%.

MSNJ Action: MSNJ has been engaged, along with the AMA and state societies throughout the nation, in a public education and lobbying campaign to avert the upcoming payment cuts, provide a positive increase in 2007, and, ultimately, abandon the use of the SGR in favor of a system that recognizes increased practice costs and utilization. In October, physician leaders from MSNJ traveled to Washington, D.C., and met with nearly our entire congressional delegation. We secured their unanimous support to help fix this pending crisis.

MSNJ urges its members and all patients to contact their congressional Representatives and Senators and tell them to stop the Medicare payment cuts to physicians and provide a positive increase that reflects the costs of inflation.

For more information on the impacts of Medicare cuts on patients, see the Patient Flyer.

MSNJ Positions on Key Public Policy Issues