Public Policy

Bipartisan Proposal to Repeal SGR Plan Likely to be Reintroduced


As the Obama administration begins its second term, a great deal of attention is being paid to the advance of its healthcare reform agenda. Long overdue for reform is the sustainable growth rate (SGR) formula—an ill-fated attempt to provide predictable control for federal spending on Medicare by providing yearly updates (i.e. reductions) to Medicare’s physician reimbursement rates.

By adjusting the payment rates, the SGR was supposed to help control the cost of healthcare by linking it more closely with national growth and changes in the Medicare-eligible population. With each passing year, however, bipartisan consensus has grown stronger, the message being that a straight, fee-for-service system that is updated annually based on an expenditure target cannot substitute for fundamental delivery system reforms.


Congress has acted to override the SGR’s implementation every year since 2003, with the latest round being a potential 27% gutting of Medicare reimbursement rates. This cycle is not only tiresome, but threatens a massive disruption to physician practices and to seniors’ access to the Medicare program.

“The SGR, while well-intentioned, is flawed, and Congress can provide its temporary override for only so long, while Medicare spending continues to grow,” says Ryan Genzink, PA-C, an SHM Public Policy Committee member and a physician assistant with IPC: The Hospitalist Co. in Grand Rapids, Mich.

Repeal and Reform

Although various SGR repeal bills have been introduced over the years, only one—the Medicare Physician Payment Innovation Act of 2012 (H.R. 5707)—supplements repeal with a realistic plan to move away from the current fee-for-service payment system (and its inherent inefficiencies) toward more cost-effective reimbursement models that are designed to promote quality and value through coordinated patient care.

This bipartisan bill, introduced by U.S. Reps. Allyson Schwartz (D-Pa.) and Joe Heck, DO (R-Nev.), would repeal the SGR, stabilize payments at current rates for 2013, replace scheduled reductions with positive and predictable updates from 2014 to 2017, and set an aggressive timetable for testing and evaluating new payment systems focused on improving quality and reducing costs (see “Specific Components of the Schwartz-Heck Proposal,” left). The bill is expected to be reintroduced in 2013.

“SHM agrees that it is time finally to eliminate the SGR and move away from the prevailing fee-for-service payment system, which rewards physicians for simply providing more services, to one that provides incentives to deliver higher-quality, cost-effective care to our nation’s seniors,” wrote SHM President Shaun Frost, MD, SFHM, in a letter of support last year to Schwartz and Heck, commending them for introducing their bill.

“By providing a menu of options for physician participation, including an alternative, value-driven fee-for-service system for physicians who are not able to participate in one of the new payment and delivery models, the legislation does not force all providers into a ‘one size fits all’ solution, allowing for broader support, innovation, and flexibility,” Dr. Frost said.

Advancing New Reimbursement Models

The Schwartz-Heck bill “gives a timeline for CMS to test and adopt different reimbursement models, which presents advantageous options for hospitalists,” says Lauren Doctoroff, MD, an SHM Public Policy Committee member, hospitalist, and medical director of the post-discharge clinic at Beth Israel Deaconess Medical Center in Boston. “Hospitalists already focus on providing higher-quality, lower-cost care to hospitalized patients in their daily practice. We build effective care transitions to the outpatient and extended care settings. Our strengths are perfectly aligned to help these new, value-based payment models succeed.”

Dr. Doctoroff

In fact, Dr. Doctoroff notes, Beth Israel is a participant in CMS’ Medicare Pioneer Accountable Care Organization project as well as Massachusetts Blue Cross Blue Shield’s Alternative Quality Contract, both of which use a risk-sharing global payment model in which the hospital and its physician network agree to provide for the healthcare needs of a defined population for a pre-arranged reimbursement amount.

“The global payment model is an attractive one for hospitalists because we play a key role in managing hospitalized patients efficiently and well, while also encouraging collaboration between inpatient and outpatient providers to avoid duplication of services,” Dr. Doctoroff says. “Some bundled payment models, which tie reimbursement to a defined episode of care, also could be advantageous for hospitalists, who coordinate the patient’s care throughout their entire healthcare episode, from inpatient diagnosis through post-discharge.”

Alternative Fee-for-Service System

For physicians who choose not to adopt one of the new reimbursement models, the bill directs CMS to offer an alternative fee-for-service system with incentives for improved quality and lower cost. This alternative would be available to physicians (including hospitalists) who participate in approved quality-reporting options, including the Physician Quality Reporting System (PQRS) or an approved Maintenance of Certification (MOC) program with quality registries. It also would apply to physicians who fall into the top 25% of CMS’ Value-Based Payment Modifier program (VBPM).

Boosting Primary Care

In addition to expediting the rollout of CMS-endorsed alternate payment models, the Schwartz bill recognizes the importance of primary care as the foundation of an effective healthcare delivery system and redresses its undervaluation with a 2.5% reimbursement update for physicians and other healthcare professionals for whom 60% of their Medicare physician fee schedule allowable charges are from a designated set of primary-care, preventive, and care-coordination codes.

“SHM specifically advocated for the inclusion of primary-care billing codes that hospitalists use,” Dr. Doctoroff says, “including hospital inpatient visits and observational services.”

“Of all the attempts to deal with the SGR over the past several years, Rep. Schwartz’s bill makes the most sense,” Genzink says. “While it doesn’t answer all of the healthcare system’s problems, it encapsulates many of the goals of reform—especially the shift from fee-for-service toward a payment system based on quality and outcomes. It recognizes that no one model will work for all physicians and offers the flexibility of multiple pathways. And it has bipartisan support, which seems to be a rarity these days.”

Chris Guadagnino is a freelance medical writer in Philadelphia.

Specific Components of the Schwartz-Heck Proposal

  • Repeals the SGR.
  • Stabilizes payments through 2018 by continuing current Medicare rates through 2013.
  • Provides positive reimbursement updates of 0.5% to all physicians and redresses the undervaluation of primary care with a positive 2.5% update for designated primary-care, preventive, and coordinated-care services in calendar years 2014-2017, then extends the 2017 rates through 2018.
  • Requires CMS to evaluate and implement a menu of at least four of the most effective delivery model options with various levels of risk and integration, to ensure maximum participation by physicians in diverse practice settings and geographic regions.
  • Transitions to the new reimbursement models by January 2019.
  • Offers an alternative fee-for-service system with new incentives for care coordination, management of high-risk patients, improved quality, and lower cost.
  • Incentivizes physician adoption of one of the selected new reimbursement models, or the alternative value-based fee-for-service system, by reducing payments in years 2019 through 2022 (with limited exemptions on a case-by-case basis) to physicians who choose not to adopt a new model.
  • Pays for the cost of SGR repeal with congressionally allocated military spending
  • that is no longer required because of ceased military operations in Iraq and the winding down of operations in Afghanistan.

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