SGR Repeal Bill Will Harm Medicare Patients

The word “bipartisan” is considered by many inside the Beltway to be one of the highest honors that can be bestowed on a piece of legislation. That’s unfortunate because, too often, bipartisanship means Republicans and Democrats are supporting a bill that is all but certain to produce bad outcomes.

The latest example of such bipartisanship is the “Medicare Access and CHIP Reauthorization Act” (MACR). Passed Thursday by the House of Representatives, the bill would, among other things, remove the unworkable Sustainable Growth Rate (SGR) from Medicare’s payment system.

The problem is that it would replace it with a payment system that is even worse.

The SGR is a formula that is supposed to help control Medicare’s costs by limiting payments to physicians. Each year the SGR sets an expenditure target for the amount Medicare spends on physicians’ fees. If the amount that Medicare actually spends exceeds the expenditure target, then physicians’ fees are supposed to be cut the following year by an amount that brings Medicare spending back into line with expenditure targets.

Physician groups have rebelled at the prospect of such cuts, telling Congress they have a harder time treating seniors on Medicare under such a payment regime. Wary of lots of angry seniors showing up at the ballot box, Congress has suspended the SGR 17 times since 2003. But the prospect of the SGR cuts going into effect has still caused many physicians to limit the number of Medicare patients they see.1

While the MACR ends the SGR, it replaces it with a new payments system that will cause the sickest Medicare patients to suffer the most. The bill’s new payment system is based on three Medicare programs — the “Physician Quality Reporting Program”, the “Value-Based Modifier” and “Meaningful Use of Electronic Health Records” — all of which are supposed to improve the quality of treatment for Medicare beneficiaries. None of these programs have demonstrated any quality improvements on their own,2 yet the MACR now seeks to lump them all into one program called the “Merit-Based Incentive Payment System” (MIPS).3

Under MIPS, physicians will be rewarded or penalized based on how well they do on various quality measures that are selected by physician specialty organizations and approved by the Medicare bureaucracy. How much a physician will be paid depends on how well he scores relative to the average score. If a physician is deemed average, he receives his usual fees with no bonus or penalty. A physician receives a bonus for scoring above the average, with the bonus increasing the higher he scores. He is penalized if he scores below the average. The penalties become more severe the lower he scores. The maximum penalties are a four percent cut in 2019, five percent in 2020, seven percent in 2021 and nine percent in 2022. Physicians who score between zero and one-fourth of the average will receive the maximum penalty.4

It can be expected that MIPS scoring will encourage physicians to “game the system” by eschewing sicker patients. Consider A1c, the level of a patient’s blood sugar and a common quality measure for diabetics. Physicians who are subject to this quality measure can boost their score by limiting their diabetic patients to those who watch what they eat, exercise regularly and adhere to their medication. They will avoid diabetic patients who need much more encouragement and monitoring, since taking on too many of those patients could result in a below average score on the A1c measure and, hence, a penalty.

MIPS will also incentivize the most talented physicians to pursue the least challenging avenues of medicine. The least challenging areas of health care will be the ones where it will be easiest to achieve high scores on quality measures and thus receive bonuses. It likely won’t be long before the “best and brightest” in medicine figure that out. Since the least challenging areas will also probably contain the healthiest patients, then the most talented physicians will not be treating the sickest patients.

Ultimately, the sickest patients will suffer as MIPS incentivizes the best physicians to avoid them.

This is actually not just theory. Many companies in the private sector once used a similar system to evaluate employees called “stack ranking.” Under this system, employees in a company were graded on a curve, with those at the bottom of the curve getting the worst ratings regardless of whether they were talented employees. Microsoft instituted this system in 2002 with the result being that more talented employees avoided challenging environments. According to one article, “a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings.”5 Most companies have since abandoned stack ranking. It caused Microsoft’s stock to remain flat for most of the last decade. The CEO who implemented it, Steve Ballmer, stepped down in 2013.

Yet Medicare does not have stockholders who can hold a CEO accountable and force the abandonment of a counterproductive reward system. Thus, it is imperative that Congress gets policy right the first time.

Ridding Medicare of the SGR would be huge step in the right direction.6 But, for every good step, MACR takes ten in the wrong direction.

In addition to establishing a flawed payment system, MACR also worsens the budget deficit by $141 billion over ten years. There are many changes to Medicare included in the Obama Administration’s budget that could be used to plug that $141 billion hole.7 The Senate should add those and eliminate MIPS. Then we’d have a bill that repeals SGR and won’t harm the sickest patients.

David Hogberg, Ph. D., is senior fellow for health care policy at the National Center for Public Policy Research.


1 David Hogberg, “The Next Exodus: Primary-Care Physicians and Medicare,” National Policy Analysis, No. 640, National Center for Public Policy Research, August 2012, at (March 25, 2015).

2 “Physician Quality Reporting System and Electronic Prescribing (eRx) Incentive Program: 2012 Reporting Experience Including Trends (2007-2013),” Centers for Medicare and Medicaid Services, March 14, 2014; Aubrey Westgate, “Three Problems with Medicare’s Value-Based Payment Modifier,” Physicians Practice, April 20, 2012, at (March 25, 2015); and John R. Graham, “3 of 4 Physicians Say Government-Sponsored EHRs Not Worth the Cost,” Health Policy Blog, National Center for Policy Analysis, September 24, 2014, at (March 25, 2015).

3 “SGR Repeal and Medicare Provider Payment Modernization Act, Section by Section,” House Ways and Means Committee, pp. 3-4, at (March 25, 2014).

4 Ibid, p. 4.

5 Kurt Eichenwald, “Microsoft’s Lost Decade,” Vanity Fair, August 2012, at (March 25, 2015).

6 David Hogberg, “To bring doctors back to Medicare, fix the ‘doc fix’,” The Washington Examiner, November 21, 2014, at (March 25, 2015).

7 David Hogberg, “Repealing the SGR Without Adding (Too Much) to the Deficit,” Amy Ridenour’s National Center Blog, National Center for Public Policy Research, March 26, 2015, at (March 26, 2015).

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