Congress Holds Hearings Fixing Flawed Medicare Physician Payment Formula

Congress has held a series of hearings in recent weeks on how to address the flawed Medicare physician payment formula. Physician groups have been called to testify about innovative alternatives. So far no consensus has emerged on a replacement for the current payment system.

The physician payment formula, known as the Sustainable Growth Rate (SGR), was put in place to help control the burgeoning cost of physician services under Medicare. However, the application of the formula would have made significant reductions in physician payments almost since the inception of the formula. Congress has enacted a series of short term fixes to prevent cuts each year, offset by cutting payments to other Medicare providers.

The cost of a permanent fix has been estimated by CBO to be around $300 billion over then years. Congress has been unable to agree on how to pay for a permanent fix. The last short term physician fix holding rates flat expires at the end of 2012. If nothing is done, physician payments will be cut by 27 percent in January 2013. The expectations on Capitol Hill are that Congress will likely do another short term fix during the lame duck session of Congress after the election, possibly as short as a few months or up to a year depending upon whether agreement can be reached on offsets. A one year fix is estimated by CBO to cost $18.5 billion. The most likely scenario is a short extension into early 2013 to allow the new Congress to grapple with the issue. It’s possible that Congress could forgo dealing with it this year and try to provide retroactive relief in the first months of 2013.

Several bills have been recently introduced to provide relief from the scheduled cuts in physician payments, including H.R. 6152 that would provide a one year extension of current payments to provide more time to come up with an alternative and H.R. 5707 that would provide for a five year transition period for testing new models. However, the issue of offsets would remain.

The last physician fix was paid for partly by cuts in hospital and skilled nursing facility payments. Home health and hospice were spared, but many on Capitol Hill expect that savings may be sought from all sectors of Medicare to pay for the next physician fix. The Medicare Payment Advisory Commission included home health and hospice payment cuts and home health copays in its list of potential offsets for the physician fix.

There was a spirited discussion of potential offsets at the recent House Energy and Commerce Committee hearing. Democrats on the Committee proposed to pay for the physician fix with the savings from the drawdown of forces in Iraq and Afghanistan, known as the Overseas Contingency Fund (OCF). Republicans objected to this approach, insisting that savings be found in federal health care programs.

House Energy and Commerce Health Subcommittee ranking member Rep. Frank Pallone (D-NJ), is reported to have remarked, “This idea of constantly picking at other providers—whether it’s hospitals or it’s nursing homes or it’s home health care providers—is not the way.”

HCAF and the National Association for Home Care & Hospice supports efforts to fix the physician payment formula, but strongly opposes home health and hospice payment cuts and copays as a means to pay for the physician fix. Home health and hospice payments received substantial cuts to help pay for the Affordable Care Act. More payment cuts, or the addition of copays, would prevent access to care and put many home health care agencies and hospices at risk of closing.

To weigh in with your Members of Congress against home health cuts and copays to pay for a physician fix or for other purposes, click here to access HCAF’s Legislative Action Center and send an email now.

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