The failure of the Super Committee to achieve any measure of “go forward” spending reform left unresolved, a whole host of Medicare program spending messes, many of which will rear their ugly heads come January 1. While many lament the Committee’s failure to resolve equitably, what is set to become automatic cuts, the truth of the matter is that the automatic cuts are literally far-off (politically speaking) and unlikely to occur as specified by current law. More problematic at current are issues such as the continuing (sad) saga of the Medicare Physician Fee Schedule. Recall that for the literally the past years, Congress has employed a series of stop-gap legislative measures staving off cuts to the fee schedule. The latest legislative band-aid will expire on December 31 and if not again patched, cuts of 27.4% are set to occur. Additionally, the same formulaic mess that calls for the reduction in physician payments rolls through to other certain providers such as outpatient therapies (Physical, Occupational, and Speech) inclusive of the reinstitution of a hard cap of $1,800 on outpatient therapy charges.
For readers somewhat unfamiliar with the “devil in the details” of this issue, here’s a brief summary. The current system, based on a formulaic provision known as the SGR (Sustainable Growth Rate) enacted in 1997 as part of the Balanced Budget Act. The purpose of the SGR is to constrain the rate of expenditure growth under Medicare for fee schedule related services (physicians being the most prevalent). Under this system, spending is constrained by annual GDP growth, growth in the number of Medicare beneficiaries, inflation in practice costs for physicians and other outpatient providers, and spending required by regulation or law. Weighting these four factors leads to a change (plus or minus) in the schedule of payments that is fundamentally influenced by economic activity or more precisely, changes in GDP. In simplest terms, if spending in any one year exceeds GDP growth for the same period, the formula looks to reign in spending via cuts in future years. As volume is a contributor as is inflation in practice related costs, the issue becomes somewhat of a ratio analysis; the rate of change in one is offset somewhat by the rate of change in the other or others.
In the earliest years of implementation, GDP growth was healthier than programmatic outlays (the target). The net result until 2001 was a series of fee schedule increases, often at rates greater than inflation for the affected year. Since 2001, expenditures have exceeded the growth target (fundamentally GDP growth) and the formula has triggered cuts. With the exception of 2002, Congress has acted to override the required cuts. Each action by Congress, up to 2007, produced a growing negative balance under the SGR methodology, leading to the current forecast of required reductions equalling 27.4%. Given the requirements under current law and the SGR, forecasts for 2013 and 2014 foreshadow additional cuts.
Logical and illogical arguments abound as to why the system has failed so dramatically; perhaps most logical is that payment discussions (increases and decreases) correlate with beneficiary access. Illogical is that payment reductions impacting certain specialties would lead to wholesale access problems for heart procedures, neuro procedures, etc. Most acutely impacted would be primary care access, already a significant problem in rural and distinct urban areas. Additionally, access to other fee schedule providers such as outpatient therapies would certainly be negatively impacted. In the end, Congress has proven unwilling to allow cuts of the current magnitude to roll forward.
As January 1 is rapidly approaching, here’s my insight into what happens next. First the backdrop of reality. This issue is square on the tables of the group (Congress) that proved incapable of finding $1.2 trillion in deficit reduction over ten years. Being honest, finding $1.2 trillion over ten years is akin to finding apples on the ground in large orchard; this isn’t even low-hanging fruit. Further, this is an election year issue during a period where the economy is stuck in near-neutral. Finally, political cover is scarce and the back and forth rhetoric is furious; tough to find cooler heads. The best that will come forward is a quick D.C. two-step; a patch to resolve the immediate fear of cuts followed by other patches that serve the same purpose but in pieces, appear small while continuing the saga of an aggregate amount of dollars that simply, won’t go away. In as much as it is time or has been time long past, to fix this issue, nothing immediate will occur of this sort. For providers, more nail chewing for Christmas.