The Medicare Payment Advisory Committee (MedPAC), an independent Congressional agency, on Oct. 6 voted to finalize draft recommendations to replace the Medicare sustainable growth rate (SGR) formula. 

The draft includes 10 years of statutory updates that would freeze payment rates for primary care services and cut payment rates for specialists nearly 18 percent during the next three years, followed by a seven-year payment freeze. The MedPAC will present the following set of recommendations to Congress in its annual report in March:

Draft recommendation one: Congress should repeal the SGR system and replace it with a 10-year path of statutory fee schedule updates. This path is comprised of a freeze in current payment levels for primary care and, for all other services, annual payment reductions of 5.9 percent for three years, followed by a freeze. The Commission is offering a list of proposals for the Congress to consider in offsetting the budgetary cost of repealing the SGR system.

Draft recommendation two: Congress should direct the secretary to regularly collect data — including service volume and work time — to establish more accurate work and practice expense values. The data should be collected from efficient practices rather than a sample of all practices. The initial round of data collection should be completed within three years.

Draft recommendation three: Congress should direct the secretary to use data specified in the chairman’s draft recommendation two to identify overpriced fee schedule services and reduce their relative value units (RVUs) accordingly. These reductions should be budget neutral within the fee schedule. Congress should specify that the RVU reductions should achieve an annual numeric goal — for each of five consecutive years — of at least 1 percent of fee schedule spending.

Draft recommendation four: Under the 10-year update path specified in draft recommendation one, the secretary should increase the shared savings opportunity for physicians and health professionals who join or lead ACOs within a two-sided risk model. The secretary should compute spending benchmarks for two-sided risk ACOs using 2011 fee schedule rates.

The Academy offered recommendations to repeal the SGR that would avoid significant and successive payment reductions. 

The full Commission supported recommendation one, with the exception of two members. Karen Borman, MD, a hospital-based general surgeon in Pennsylvania and Ronald Castellanos, MD, a private-practice urologist from Florida opposed the recommendation, noting concerns with unintended consequences.

The Commission voted unanimously in support of the second recommendation. Recommendations three and four also were approved by the Commission without Dr. Borman’s support. Michael Chernew, MD, abstained from voting on the last recommendation.

The AADA has long supported replacement of the SGR with a more stable payment system. In a letter to MedPAC, the Academy firmly opposed recommendation one and urged the Commission to refrain from proposing a fix by cutting payment for specialty physicians. 

The proposal, if implemented, would erode the ability for specialists to serve the Medicare population in the future and exacerbate problems with access to care. Instead, the Academy offered recommendations to repeal the SGR that would avoid significant and successive payment reductions. Also, five years of positive statutory updates would reflect the cost of operating a practice and would permit further piloting of alternative payment models during the transition period.

MedPAC's plan to fix the SGR was met with disapproval from several physician advocate groups. The AADA, along with more than 40 other physician groups, signed on to an American Medical Association letter to the MedPAC criticizing its plan to repeal the SGR as problematic at a time when physicians already have faced 10 years of nearly frozen rates.

Lawmakers are expected to consider MedPAC’s recommendations as they attempt to craft legislation to fix the SGR to avert a 29.5 percent cut in Medicare physician fee schedule payments on Jan. 1, 2012.