Actions speak louder than words. After some complex political wrangling, Congress passed health-care reform legislation, the Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010. By passing a 1-year extension of current physician reimbursement rates, Congress did not show the same political will to address the sustainable growth rate (SGR) formula that has been a chronic problem for physician reimbursement with Medicare and TRICARE. If physician reimbursement took a back seat during the 2010 election cycle, what can be expected when it comes up again during the 2012 presidential election year, especially with the ongoing debates about the deficit and the health-care reform legislation?

History of SGR Reform

Facing a 21.3% cut in physician reimbursement in January 2010, SGR reform first surfaced in the aptly numbered Senate Bill (S.B.) 1776, on October 21, 2009. The Senate fell 13 votes short of eliminating the SGR formula and freezing physician payments for 10 years (yea, 47; nay, 53). Although not indexed to future inflation, physicians were willing to trade a decade of uncertainty with inflation for the uncertainties in Congressional inaction about the SGR formula.

What became known as the "Doc Fix," S.B. 1776 failed to pass because the bill was not compliant with the previously passed Congressional "pay-as-you-go" provisions. Spending cuts were not included in S.B. 1776 to offset the cost of avoiding the 21.2% cuts in physician reimbursement. Unlike the party-line Senate passage of the Patient Protection and Affordable Care Act on December 24, 2009, 12 Democratic Senators voted against S.B. 1776. Apparently the old adage of "you get your votes before you count your votes" wasn't sufficiently important in this case to ensure the bill's passage.

The House of Representatives passed the Medicare Physician Payment Reform Act of 2009 (H.R. 3961) on November 19, 2009. Busy with the health-care reform legislation, the Senate did not take up the bill. Instead, a 60-day extension of the 2009 conversion factor, expiring on March 1, 2010, was included in a Department of Defense appropriations bill that was passed at the end of December 2010.

Repeatedly Extended Deadlines

In early February 2010, rumors were circulating that another short-term patch was planned rather than pursuit of a long-term fix for the SGR issue. However, the deadline on March 1 to avert physician reimbursement cuts was missed again. In response, the Centers for Medicare and Medicaid Services (CMS) notified contractors, effective March 1, to hold Medicare physician claims for 10 business days. On the March 1 deadline, the House passed H.R. 4691, which extended a wide range of expiring programs in addition to postponing the SGR cuts until April 1, 2010. On March 2, 2010, the Senate passed H.R. 4691.

In mid-March, with the clock ticking, H.R. 4851 was passed to extend the deadline for the Doc Fix to May 1, 2010. The Senate, however, was unable to pass this bill before adjourning for the spring recess. On April 1, 2010, the 21.3% Medicare physician pay cut was scheduled to go into effect. Once again, these pay cuts were delayed 10 business days by CMS. On April 15, 3 days after returning from spring recess, the Senate passed H.R. 4851, which retroactively reinstated physician payments for Medicare patients in April, postponing the 21.3% pay cut until June 1, 2010. The Senate SGR proposal was then incorporated into H.R. 4213-the American Jobs and Closing Tax Loopholes Act of 2010-just before the Memorial Day holiday.

Congress once again failed to act before the deadline. For the third time in 5 months, CMS held claims an additional 10 business days, until June 14, 2010, to allow Congress another opportunity to consider the SGR issue. Given that half of 2010 had already passed, physicians realized that the cuts scheduled for January 2011 would increase to 32%.

On June 18, 2010, the Senate passed an amended version of H.R. 3962-the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010-by unanimous consent. The legislation provided a 2.2% Medicare physician payment update from June 1 to November 30, a month after the impending midterm elections and right around the Thanksgiving holiday recess. Following House passage of the reconciliation bill, the Act was signed into law on June 25, 2010.

Health-care Spending Unsustainable

Three months after the passage of the Patient Protection and Affordable Care Act, Douglas Elmendorf, Director of the Congressional Budget Office, reported to Congress on June 30, 2010, that federal spending on health care was unsustainable. Two factors-the aging population and the rapid growth of health-care costs per capita-accounted for the projected increases in federal health-care spending. Importantly, the health-care reform legislation "will cause major changes in the components of federal spending on health care," Mr. Elmendorf said.

Federal spending for Medicare would roughly double as a share of gross domestic product over the next 25 years, from 5.5% to more than 10% in 2035, because of (1) the 7% growth of the retirement age segment from 13% to 20% of the population; (2) significant expansions in Medicaid and the Children's Health Insurance Program eligibility under the Patient Protection and Affordable Care Act; and (3) insurance subsidies provided through the exchanges under the Act.

This expansion in the scope and cost of federal health-care programs was apparently not offset, as purported during the health-care reform debate, by a $500 billion reduction in Medicare benefits over the next decade.

As expected, the prospects of repealing the SGR formula after the November 2010 midterm elections proved unlikely, given the precipitous upward projections of health-care costs by the Congressional Budget Office under the Patient Protection and Affordable Care Act. That Office's recent health-care cost projections, which greatly exceeded the $900 billion estimate during the health-care debate, are particularly discouraging with the $500 billion reduction in Medicare benefits that underwrote over half of the estimated cost of the Act during the health-care debate. Cutting physician reimbursement approximately 30% under Medicare and TRICARE appeared to be an easy means of reducing the cost of health-care reform, but Congress delayed resolution of the SGR issue another year.

Other Concerns

Also discouraging was the failure of the Patient Protection and Affordable Care Act to address tort reform, given that the Congressional Budget Office projected such measures could have saved $54 billion in health-care costs. According to Former Democratic National Committee Chair Dr. Howard Dean, the Congress that drafted the health-care reform legislation failed to include tort reform under the Act because of the fear of "taking on" the trial lawyers. Obviously, Congress doesn't share the same concerns about physicians or Medicare recipients.

More worrisome is the future reimbursement of physician services as the percentage of patients under federal programs continues to increase and physician demographics change. If reimbursement falls precipitously in a year, many physicians may either retire or refuse to see Medicare patients, contributing to a shortage of physicians.

Under the Patient Protection and Affordable Care Act, the government also assumed control of all student loan programs. Students can repay their government-backed student loans if, as new physicians, they take low-wage jobs in government facilities, thereby having their monthly payments capped at 10% of income instead of the current 15%. After 20 years, any debts that remain would be cancelled. Middle-aged physicians, who on average carry $200,000 of educational debt at the higher rate, will be particularly affected if physician reimbursement is allowed to decline significantly. The middle-aged physician typically also has additional pressures of a house mortgage and children and is financially incapable of retiring from medicine.

The 111th Congress, which had unstoppable majorities in both the House and Senate, did not address the SGR issue within the more than 2,000 pages of the Patient Protection and Affordable Care Act. Yet again, a band-aid was placed on the pending reimbursement crisis for physicians who care for the elderly and military families under government programs.

The immediate message from this history is that physicians are not a priority.

The 1-year extension of physician reimbursement rates may not be the last, as one more 1-year extension should be expected in 2012 (during the presidential election year). More concerning for the long term, however, is the transformation of the health-care system under the health-care reform legislation that becomes fully implemented in 2013-2014. This transformation may be so profound that the SGR and the current system of physician reimbursement become irrelevant. With looming federal deficits, the $500 billion cuts in Medicare, and health-care costs burgeoning from the new regulations, changes in physician reimbursement cannot be positive. Time will tell. ■

Dr. Janjan is Senior Fellow and Dr. Goodman is President and CEO, National Center for Policy Analysis, a nonprofit conservative think tank headquartered in Dallas.

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