ANALYSIS: Medicare Payments for Physician Services in 2012

Between now and Jan. 1, 2012, physicians can anticipate frequent speculation from industry analysts about how Congress will address the next scheduled reduction to physician Medicare payments.  With the Medicare sustainable growth rate (SGR) formula scheduled to cut the 2012 payments by approximately 29.5 percent, Congress will have to impose another short-term fix or develop a permanent solution.

Either option has substantial budget implications.  President Obama’s proposed 2012 budget calls for another short-term fix by maintaining the current payment levels for 2012 and 2013 at an estimated cost of $62 billion. Recently the AASM and 130 other state and specialty medical societies signed a letter urging Congress to find a permanent replacement for the current SGR payment formula before 2012. However, replacing the current payment formula with modest increases in physician payments would cost a projected $350 to $370 billion over the next 10 years.

Although the federal Medicare Payment Advisory Commission (MedPAC) has the issue on its agenda, it isn’t scheduled to make recommendations to Congress until October. The bottom line is that an atmosphere of uncertainty will continue to prevail while physicians await Congressional action that is unlikely to occur until the end of the year.

SGR Background

Congress adopted the SGR formula in the 1997 Balanced Budget Act (BBA, P.L. 105-33). This was seen as a better alternative than other physician payment proposals on the table, such as setting physician payments on diagnosis-related groups, the methodology Medicare uses in setting hospital payments.

The SGR created a process by which Medicare spending updates for physician services were set according to an annual spending target based on the growth of the overall U.S. economy. Under this formula, spending that exceeded the target must be recouped in payment cuts the following year.

With spending for health and medical expenses increasing faster than most other spending, the target was exceeded in almost all of the years after enactment of the BBA. Short-term “fixes” do not address the budget scoring implications that should accrue from the SGR. Because of this, the formula for 2012 is projected to result in the massive 29.5-percent cut.