What goes up may also come down: Congress and Medicare fee updates

A new survey of physicians finds just 7 percent support eliminating fee for service payments, but there’s good news: physicians support improving the quality of care and limiting services that provide little benefit. Rewarding quality of care and reducing unnecessary utilization is exactly the focus of a new bill in Congress to replace the current Sustainable Growth Rate (SGR) which is a formula that determines the annual updates applied to Medicare physician payments.

The current bill addresses a significant flaw in the SGR: payment updates are applied uniformly and nationally, regardless of individual or practice parsimony/excess. Originally, back in 1989, policy experts discussed the possibility of disaggregating the expenditure targets and updates by region (as it is in some countries), but that never happened.

So, acknowledging that the SGR is an imperfect cost containment mechanism, at least the SGR does try to reward providers when costs are contained, and correspondingly reduce fees when expenditure targets are exceeded. The latter situation is uncomfortable for all however; in practice, cost-containment is hard to do.  The payment update was supposed to fluctuate like a thermometer, based on success in meeting Medicare expenditure targets. When the thermometer is forecast to dip below zero, there is pressure on Congress to stop the mercury falling.  Here is an alarming video advertisement prepared by the Texas Medical Association that gives you a flavor of that pressure. Granted, 25% cuts are too large, but the cuts get more extreme precisely because Congress forestalled prior year cuts-something that is not made clear, as if the cuts today have little to do with the past.  As I have argued previously,  the problem is that Congress is like Ulysses and the Sirens. Congress is unable to resist intervening if there are cuts likely.

The bottom line: provide individual or practice-based updates for higher quality and cost-effective care. If that fails to hold down expenditure, Congress needs to let payment updates go up and down in order for the incentives to work.

Author: Miriam Laugesen

Miriam J. Laugesen is an Assistant Professor in the Department of Health Policy at Columbia University's Mailman School of Public Health. Much of her research is focused on the design and politics of physician payment policy within Medicare. Twitter:miriamlaugesen@

2 thoughts on “What goes up may also come down: Congress and Medicare fee updates”

  1. According to the linked article (I haven’t checked further) Rep. McDermott’s bill goes much further than updating the SGR:

    He has introduced separate legislation that would create a federal advisory committee that would weigh in on the values that determine physician pay — essentially giving the government an alternative to the recommendations of the AMA.

    Either way, such proposals presumably have no early chance of passing a House dedicated to making Obamacare unworkable if it can’t be repealed. However, they are the sort of thing that shifts the Overton window and brings the previously unthinkable into active policymaking.
    My pennyworth: McDermott’s independent committee should include a few foreign experts, and be required to consider best cost-setting practice in other OECD countries with superior health outcomes in each area.

  2. Miriam: Is there an assumption that cost-containment necessarily means higher quality care? Does the proposed policy make allowances for the fact that in many cases better care costs more?

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