It was adopted by Congress in 1997 almost as an afterthought — a new formula to keep Medicare spending on doctors from growing faster than the economy as a whole.
But like a snowball that swells in size as it rolls down a mountain, the rate-setting formula has transformed into a budget-busting juggernaut that will hit doctors with a 27.4 percent pay cut for their Medicare patients in January unless legislators step in.
A look at how the law got to the Supreme Court and the issues in play
The cost of congressional intervention has ballooned just as formidably: Postponing the cuts — the solution Congress has turned to every year since 2003 — would cost $21 billion for a one-year delay and $38.6 billion for two years. Fully repealing the formula would add nearly $300 billion to the deficit, according to the Congressional Budget Office.
On Tuesday, the Republican-led House voted for the two-year option — including it in a bill that would also extend the payroll tax cut and federal benefits for the long-term unemployed.
That bill is the subject of contentious negotiation with the Democratic majority in the Senate, but physicians’ groups remain hopeful that the two parties will agree on some way to avert the cut in doctors’ payments. Still, at best, this would represent yet another short-term fix, said the American Medical Association’s president-elect, Jeremy Lazarus.
“We’re doing the same old thing, and the result will be the same,” he said. “ We’re just going to make the problem worse down the line. By 2016, it’s going to cost $600 billion to eliminate this for good.”
Virtually no one imagined that the “sustainable growth rate” — or SGR — formula would wreak such havoc when it was adopted as a minor piece of the Balanced Budget Act of 1997. Back then, Medicare’s spending on physicians, which accounts for a small share of the program’s overall spending, wasn’t growing fast. The law also included other restraints that have since been repealed. Analysts predicted that, at most, the SGR formula would curb physician payments by a minimal amount.
“It wasn’t viewed as a big deal at the time,” said Paul Van de Water, an economist specializing in Medicare with the Center on Budget and Policy Priorities, a left-leaning research group. “They needed a few more billion dollars in savings [for the Balanced Budget Act], so they just tacked on the SGR arrangement.”
Its flaws became apparent by the end of 2001. Through a series of complicated calculations, the SGR formula in effect means that if spending due to increased use of services by Medicare patients rises faster than the nation’s gross domestic product, Medicare must compensate by cutting reimbursement rates for physicians enough to bring spending back in line with GDP growth.
The trouble is that much of the rise in the use of physician services in recent years has been a good thing, said Stuart Altman, a health economist at Brandeis University.
“The health-care system keeps coming up with more expensive procedures and techniques,” he said. Many improve health and save lives.
Of course, not all of the new techniques and procedures help patients, Altman added. There is concern, for example, that doctors are increasingly requesting expensive imaging tests based on symptoms that don’t call for such aggressive investigation.
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