The Medicare Payment Advisory Commission (MedPAC) recently unveiled a new approach to overhaul the complicated Medicare physician payment formula. Every year, that formula – known as the sustainable growth rate (SGR) – calculates larger and larger mandated cuts to doctors’ Medicare reimbursements, and each year, Congress acts to temporarily halt the cuts via short-term patches. The cost to overhaul the system and permanently correct the problem grows larger each year, making it a challenge to achieve in the current climate of deficit reduction.

As a solution, MedPAC proposed a four-step plan that is budget neutral, would replace the current system of reimbursing physicians and would replace it with a system that trims reimbursements to specialists for three years and then freezes them, while keeping reimbursements to primary care physicians flat.

To pay for the plan, MedPAC identified more than $230 billion in Medicare cuts across the healthcare industry – many of which are similar to those that have been put forth recently as ways to reach current deficit reduction goals (see below).

MedPAC will decide in October whether or not to formally recommend its proposal to Congress. However, even if that occurs, whether such a plan would ever be enacted by Congress appears unlikely, given potential industry opposition and the need to use Medicare cuts to trim the federal deficit.