Lament for Medicare’s Sustainable Growth Rate

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from NCPA,

Supported by health-care interests, Medicare beneficiaries, and an overwhelming bipartisan consensus in Congress, President Obama has signed a law that will change how Medicare pays doctors — for the worse.

Critics note the law will dramatically increase federal control of medicine and add $141 billion in deficits through 2025, a violation of Republican and Democratic pledges made since 2010, says NCPA senior fellow John R. Graham.

The old system, called the Sustainable Growth Rate, was hardly perfect. Now that it is dead, it is time to give the SGR a fitting eulogy — to bury it, but also, for once, to praise it. Whatever its flaws, the SGR was this nation’s only attempt to connect the cost of an entitlement to our ability to afford it.

The premiums seniors pay for Medicare’s physician benefit cover only one-quarter of the cost of the program. The rest is funded by general revenues. The SGR was an elegantly simple formula to keep that spending under control. There were only four inputs: changes in the estimated costs to operate a physician’s practice, changes in real per capita GDP, changes in the number of Medicare beneficiaries and changes in laws or regulations that would have an impact on costs.

The genius of the SGR was that if doctors’ productivity improved more than the nation’s overall productivity, they got a raise. However, if their productivity increase was slower, they got a pay cut — at least they were supposed to.

The SGR might not have been the right formula; perhaps it should have better accounted for unavoidable limits on physicians’ productivity improvements. Nevertheless, the principle that Medicare’s physician payments should be based on the nation’s ability to pay, rather than on the cries of physicians’ lobbyists, is one we have jettisoned at our fiscal peril.

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