Medicare SGR flaws may drive rising healthcare costs

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William F. Jessee, MD, president and CEO of MGMA. Source: MGMA  

LAS VEGAS–The Sustainable Growth Rate (SGR) formula used by the Centers for Medicare & Medicaid Services (CMS) to calculate the rate for physician reimbursement is inherently flawed and may be a prime driver in the growth of ancillary service utilization, such as in-office diagnostic imaging, according to William F. Jessee, MD, president and CEO of the Medical Group Management Association (MGMA). 

Jessee delivered his perspective on what he termed the “sad state of U.S. healthcare” at the 2008 Radiology Business Management Association (RBMA) Radiology summit on Monday.

“The decline in physician reimbursement was scheduled to be 10.1 percent,” Jessee said. “This cut was postponed until July 1.”

Postponements seem to be the legislative reaction to the draconian cuts that SGR calculations propose to enact, according to Jessee. However, temporary delays just make the hole deeper, he observed.

Over the past eight years (through 2007), Jessee noted that the consumer price index has risen 30.7 percent, a little over 3 percent annually. During that same period, medical practice operating expenses have increased 63.6 percent, slightly more than 6 percent annually. Part B Medicare reimbursement (physician payment) has grown 9.1 percent over the past decade, less than 1 percent annually.

“If the SGR delays were to be repealed, there would be a negative 1.9 percent growth in Part B payments over the past decade,” he said.

Basic economics come into play for physicians who see their practice costs rise 6 percent each year, the cost of living rising more than 3 percent, and their reimbursement growing less than 1 percent. These factors, Jessee argued, are undoubtedly key influencers in the development of alternate income streams, such as in-office diagnostic imaging, to make up the shortfall in revenue.

The flawed SGR formula has consequences more profound than driving up healthcare costs through over-utilization of ancillary services. According to Jessee, a survey conducted of MGMA members found that 42 percent of practices will limit the number of Medicare patients they treat. In addition, 19 percent plan to close the practice to new Medicare patients.

As the bulk of the baby-boom generation prepares to avail itself of Medicare services over the next few years, if one in five practices are closed to this population, the remainder of the healthcare service market may well be stretched beyond the breaking point.

With patient volumes already straining the healthcare system, 45 percent of MGMA respondents indicated that they planned to reduce their staff to compensate for Medicare physician reimbursement cuts. Almost 60 percent plan to reduce physician compensation, while 53 percent stated that they will be reducing IT investments. This last data point is particularly onerous, as the federal government has stated that wider deployment of healthcare IT is a prime method of reducing costs and increasing efficiency.

Even more troubling, the MGMA survey found that 57 percent of medical practices plan to reduce staff health insurance coverage.

“This is perhaps the supreme irony of SGR compensation cuts, physician practices cutting employee healthcare coverage,” Jessee stated.