After a decade of short-term actions, congressional leaders are pushing this week to permanently repeal the Sustainable Growth Rate (SGR) formula that governs Medicare physician payment rates, and replace the system with one that values quality outcomes. The SGR formula has called for dramatic cuts every year for the past 10 years, but Congress has passed several temporary “patches” over the formula since then to keep physician payments steady. Without congressional intervention, doctors will face a 21% reduction in Medicare payments rates after the current patch expires on March 31.

The House plans to vote March 26 on a legislative package that will permanently repeal the SGR formula and extend the Children’s Health Insurance Program (CHIP) for two years. As of Tuesday evening, some Senators were still talking about passing a 30-day extension, to allow for more time to garner more support in their chamber. But House Speaker John Boehner (R-OH) told reporters that the House will not pass any temporary extensions, putting pressure on the Senate to pass the House bill (presuming it passes in the House on Thursday) before Congress goes into spring recess at the end of this week.

The Centers for Medicare and Medicaid Services (CMS) can hold Medicare claims for two weeks if Congress goes into recess without passing any legislation to halt the pay cut, but this is not being widely discussed as a backup option in congressional circles.

Opposition in the Senate

Some Senate Democrats are skeptical of the House bill because it only extends CHIP for two years instead of four years. But House Democratic leaders Nancy Pelosi (D-CA) and Steny Hoyer (D-MD) have both urged Senate Democrats to support the bill, noting that the alternative may be no extension of CHIP at all. Some senators are also concerned about language in the bill restricting abortion services at community health centers, although Minority Leader Pelosi has said that the language does not constitute any change in current policy. Other Senate opposition stems from concerns over Medicare means-testing provisions. Several senators have said they first want to read the entire bill after it passes in the House and may be waiting to see whether it gets significant bipartisan support in the House vote before they get behind it.

Details of the Bill

The Medicare Access and CHIP Reauthorization Act (H.R. 2), builds upon legislation released last week (H.R. 1470). The bill would permanently repeal the SGR formula and replace it with a payment system designed to focus on quality instead of volume. It would consolidate the three existing Medicare fee-for-service quality programs into one streamlined program that would reward providers meeting certain performance thresholds. It also aims to encourage providers to move away from traditional fee for service through alternative payment models that focus on prevention and coordinated care. The bill would provide an annual 0.5 percent payment increase for physicians through 2019 as the system transitions.

The total package is expected to cost over $200 billion. Only about $70 billion of that cost is expected to be offset by spending cuts, roughly split between cuts to Medicare beneficiaries and cuts to provider payments. Some offsets include increasing Medicare premiums for higher income seniors, delaying Medicaid disproportionate share hospital (DSH) changes until FY 2018 (and extending cuts through 2025), and allowing the IRS to impose a levy of up to 100 percent on tax delinquent Medicare service providers. The proposed legislation would also reduce post-acute care providers’ payment increase to 1 percent in 2018. It would also incrementally phase in the 3.2 percent payment increase hospitals were supposed to get in FY 2018.

Some additional proposals include modifications to Medicare’s durable medical equipment competitive bidding program; enhancing Medicare’s fraud, waste and abuse program, in part by removing Social Security numbers from Medicare cards; and delaying enforcement of CMS’s two-midnight policy for short hospital stays, allowing continued use of the Medicare Administrative Contractor (MAC) “probe and educate” program through September 30, 2015.

A section-by-section summary of the legislative package is available on the House Energy and Commerce Committee website.