Everything you need to know about the sustainable growth rate

Unless Congress takes action by the end of this month, doctors who treat Medicare patients will see a 21 percent payment cut.

With a deadline fast approaching, bipartisan negotiations are heating up in the House to find a permanent replacement for Medicare’s physician payment formula. But the tentative package being hammered out behind closed doors contains some key provisions that are likely to raise objections from both Republicans and Democrats.

Unless Congress takes action by the end of this month, doctors who treat Medicare patients will see a 21 percent payment cut.

For doctors, the nail-biter has become a familiar but frustrating rite. Lawmakers invariably defer the cuts prescribed by the 1997 reimbursement formula, which everyone agrees is broken beyond repair. But the deferrals have always been temporary because Congress has not agreed to offsetting cuts to pay for a permanent fix. In 2010, Congress delayed scheduled cuts five times.

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The current proposal for a permanent fix may not include full financing for repealing the payment formula, according to congressional aides and industry lobbyists who have been briefed on the talks but spoke on the condition of not being named because of the sensitivity of the discussions. That provision could run into concerns from many Republicans and some Democrats.

In addition, Senate Democrats are leery of another provision reportedly part of the negotiations – charging wealthier Medicare beneficiaries more for their coverage, according to top Senate aides who briefed reporters Sunday. They also noted that although Democrats are eager to attach to a deal an unrelated measure to extend the Children’s Health Insurance Program, they would like it to cover four years, not the two years that the House is reportedly considering.

Still, they said, with some changes in the package, Senate Democrats might be able to support the developing House package.

“Our members would like to get there,” one of the aides said.

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Here are some answers to frequently asked questions about the congressional ritual known as the doc fix.

Q: How did this become an issue?

Today’s problem is a result of efforts years ago to control federal spending – a 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth, known as the “sustainable growth rate” (SGR). For the first few years, Medicare expenditures did not exceed the target and doctors received modest pay increases. But in 2002, doctors were furious when they came in for a 4.8 percent pay cut. Every year since, Congress has staved off the scheduled cuts. But each deferral just increased the size of the fix needed the next time.

The Medicare Payment Advisory Commission (MedPAC), which advises Congress, says the SGR is “fundamentally flawed” and has called for its repeal. The SGR provides “no incentive for providers to restrain volume,” the agency said.

Q. Why don’t lawmakers simply eliminate the formula?

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Money is the biggest problem. An earlier bipartisan, bicameral SGR overhaul plan produced jointly by three key congressional committees would cost $175 billion over the next decade, according to the Congressional Budget Office. While that’s far less than previous estimates for an SGR repeal, it is difficult to find consensus on how to finance a fix.

For physicians, the prospect of facing big payment cuts is a source of mounting frustration. Some say the uncertainty has led them to quit the program, while others are threatening to do so. Still, defections have not been significant to date, according to MedPAC.

In a March 2014 report, the panel stated that beneficiaries’ access to physician services is “stable and similar to (or better than) access among privately insured individuals ages 50 to 64.” Those findings could change, however, if the full force of SGR cuts were ever implemented.

Q: What are the options that Congress is looking at?

A: The bipartisan negotiations among key House leadership and staff from committees with jurisdiction over the SGR have been behind closed doors, and the offices of both House Speaker John Boehner, D-Ohio, and House Minority Leader Nancy Pelosi, D-Calif., declined to comment on the negotiations. But some details are emerging.

Late Friday, the bipartisan leadership of the House Ways and Means and Energy and Commerce committees – the two House panels with jurisdiction over the SGR – said in a statement that “we are now engaging in active discussions on a bipartisan basis – following up on the work done by leadership – to try to achieve an effective permanent resolution to the SGR problem, strengthen Medicare for our seniors, and extend the popular Children’s Health Insurance Program.”

Last year’s proposal from the House Energy and Commerce and Ways and Means committees and the Senate Finance Committee is reportedly the basis of the current SGR talks, according to the lobbyists and aides, in part because it enjoyed bipartisan support and would encourage better care coordination and chronic care management, ideas that experts have said are needed in the Medicare program.

That proposal would have scrapped the SGR and given doctors an 0.5 percent bump for each of the next five years as Medicare transitions to a payment system designed to reward physicians based on the quality of care provided, rather than the quantity of procedures performed, as the current payment formula does.

Tacking on a package of other health measures – known as extenders – that Congress renews each year during the SGR debate would push the cost even higher. They include additional funding for therapy services, ambulance services and rural hospitals, as well as continuing a program that allows low-income people to keep their Medicaid coverage as they transition into employment and earn more money.

As part of the proposal, the House members are also talking about adding two years of funding for the Children’s Health Insurance Program, a federal-state program that provides insurance for low-income children whose families earned too much money to qualify for Medicaid, according to the lobbyists. While the health law continues CHIP authorization through 2019, funding for the program has not been extended beyond the end of September.

The length of the extension could cause strains with Senate Democrats. Last month, the Senate Democratic caucus signed on to legislation from Sen. Sherrod Brown, D-Ohio, calling for a four-year extension of the current CHIP program, according to senior Senate Democratic aides. Democrats want that CHIP language in the SGR deal because “this may be the only health care vehicle moving,” said one of the Senate aides.

Just two years of additional CHIP funding is non-starter for Democrats. “We need to make sure that Children’s Health Insurance Program is on a sustainable path,” the aide said.

Q: How would Congress pay for all of that?

A: It might not. That would be a major departure from the GOP’s mantra that all legislation must be financed. Tired of the yearly SGR battle, veteran members in both chambers may be willing to repeal the SGR on the basis that it’s a budget gimmick – the cuts are never made – and therefore financing is unnecessary.

But that strategy could run into stiff opposition from Republican lawmakers and some Democrats. Most lawmakers are expected to feel the need to find financing for the Medicare extenders, the CHIP extension and any increase in physician payments over the current pay schedule. Those items would account for about $60 billion of financing in an approximately $200 billion package.

Conservative groups are urging Republicans to fully pay for any SGR repeal.

“Americans didn’t hand Republicans a historic House majority to engage in more deficit spending and budget gimmickry,” Dan Holler, communications director for Heritage Action for America, said in a statement. “Any deal that offsets a fraction of the cost, like the one currently being discussed behind closed doors and leaked to the press, is a non-starter for conservatives.”

But physicians and other analysts make the point that Congress has already paid out billions on temporary patches that don’t fix the problem.

“Congress has spent a staggering $170 billion on 17 patches in a 12-year period, the cost of which has far exceeded the cost of eliminating the SGR altogether,” American Medical Association President Robert M. Wah wrote last month. “This continuous cycle of putting a Band-Aid on the real problem, creates an unpredictable environment that makes it difficult for physicians to budget and plan for practice innovations that could improve quality and reduce costs.”

Q. Will seniors and Medicare providers have to help pay for the plan?

According to the lobbyists and aides, the potential financing options being looked at by House negotiators include charging wealthier Medicare beneficiaries – who already pay a higher premium – even more and introducing a surcharge on the popular “first-dollar” supplemental Medicare insurance known as “Medigap.” Experts contend that the “first-dollar” plans, which cover nearly all deductibles and co-payments, keep beneficiaries from being judicious when making medical decisions. The change could convince them to reduce opt against treatment they don’t need, thus saving Medicare money. President Barack Obama’s fiscal 2016 budget plan includes similar provisions.

Congress could also extend the automatic 2 percent Medicare cuts in place as part of budget sequestration, but those cuts would face stiff opposition from Medicare providers and the groups they serve.

Senate aides said Democrats there are likely to take issue with the provisions to reduce reimbursements to Medicare providers and to require seniors to pay more.

Medicare beneficiaries already pay 25 percent of all Part B costs (physician services are included in Medicare Part B), so an increase in Medicare reimbursements to physicians would increase what seniors in the traditional Medicare program pay for premiums, deductibles and co-insurance, according to an analysis from the Kaiser Family Foundation. According to the report, half of all people on Medicare live on incomes of about $23,500 or less, and seniors spend three times more than younger households on health care as a share of their household budgets. (KHN is an editorially independent program of the foundation.)

Asking seniors to pay more for their Medicare in exchange for higher Medicare payments to physicians “doesn’t seem like a very fair thing to do for seniors,” a senior Senate Democratic aide said.  Using payment cuts to other Medicare providers, like hospitals, may be problematic as well because such steps “always sort of generate opposition and heartburn for both sides of the aisle,” the aide said.

Q. How quickly could Congress act?

Legislation to repeal the SGR could move in the House as early as the week of March 16, the lobbyists said.

The Senate Democratic aides said that they expected Democrats and Republicans in that chamber will want to offer amendments to the emerging House package, making it extremely difficult to pass any overhaul before the Senate’s two-week break scheduled to begin starting March 30.

If the SGR issue can’t be resolved by March 31, expect Congress to pass a temporary patch as negotiations continue.

Kaiser Health News  is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.