For now, all those physicians who threatened to make a mass exodus from Medicare can take a breather. Last week, the House voted to once again delay the mandated 21% cut in physician fees by another six months; thereby ensuring that the fight over the sustainable growth rate (SGR) will be resurrected sometime around Thanksgiving.

So far, Congress has kicked the SGR can down the road 10 times since 2003—four times just this year alone. The targets have long been considered unobtainable and the mandated physician payment cuts are opposed in Congress by Democrats as well as Republicans and supported by nearly no one. The level of anxiety among doctors continues to escalate every time the issue is raised—even though the cuts have never gone into effect for more than a couple of weeks. Why not get rid of this devilishly frustrating formula once and for all?

The short answer is that getting rid of the SGR—even though it has never led to any savings in Medicare—is just too expensive on paper. The Congressional Budget Office establishes a “baseline” projection of future spending and revenue that takes into account that all current laws will be enforced. Legislation that eliminates the SGR targets would then be scored by the CBO as adding to the deficit—to the tune of $276 billion between 2011 and 2020 even if Medicare payment rates to doctors were frozen at 2009 levels. In the current economic climate, it will be very hard to get enough members of Congress to agree to a permanent “doc fix” that eliminates the SGR targets without also finding a way to pay for it.

In light of this conundrum, Health Affairs published a policy brief last week that looks at the range of proposals for “fixing the doc-fix;” offering details on the costs and benefits of several possible strategies but, unfortunately, supporting no clear choice. Frustrating as that may be for those of us who want solutions, this is not just an editorial oversight: In conversations with experts in the field, it became clear to me that uncertainty is the rule of the game right now. Even the AMA and various doctor groups aren’t offering up a long-term solution—they just want the SGR to be gone. Now.

Everyone agrees that the SGR targets are unworkable. Most believe they will never be enforced. One key problem is that they don’t distinguish between those providers who are “gaming the system”—providing extra services in an effort to make money in the short-term—from those who are actively trying to meet Medicare’s targets. There’s just no incentive to even bother trying to meet the targets. “The biggest challenge from the SGR from the physician perspective is that if individual physicians or practices meet spending targets for that given year but our colleagues don’t, the SGR gets applied across the board,” says Valerie Arkoosh, president of the National Physician’s Alliance; a group that supports the move toward accountable care organizations. “It was a flawed formula from the beginning.”

The Health Affairs brief, “Paying Physicians For Medicare Services,” sets out several long-term options for “fixing the doc-fix;” each with its own set of problems and unknown consequences. I’ve summarized them below, but the brief is worth reading because it provides greater detail:

–Do nothing and allow SGR cuts to take effect. Because this could lead to a 40% drop in physician payments over the next several years, there is a risk that many doctors would stop seeing Medicare patients and access to care for seniors will become a serious problem. Also, the savings achieved by making these cuts across the board would not be that significant, according to Paul Ginsburg, president of the Center for Studying Health System Change and Henry Aaron, a health care expert at the Brookings Institute. “A 25 percent cut in payments for physician services over the next decade (which would imply a far larger drop in physician income, because practice expenses would not fall commensurately) would lower the projected annual growth of U.S. health care spending only from 6.2 percent to 5.7 percent,” they write in Health Affairs. For all these reasons, it’s highly unlikely that this option would be adopted by Congress.

–Abandon the SGR system—or at least shelve the problem for several years, rather than just for a few months at a time in hopes that Congress will in the meantime work out another solution. But even that would be costly: according to the brief, “the CBO estimates that freezing the rates through 2014 would raise the deficit by $89 billion.”

–Modify the SGR system. Such modifications could include;
    1) “Rebasing”: wiping the slate clean and basing future target levels on actual spending. (This would also be expensive—the CBO estimates rebasing would raise the deficit by $194 billion)
     2) Create separate spending targets based on area of specialty (allow more growth in payments for primary care, for example, and less in imaging services), geographic area, or for individual physicians (penalize “outlier” doctors who provide or order an unusually high number of services).

–Phase out SGR over several years and institute major payment reforms that move away from fee-for-service. “Paying service by service may encourage the fragmentation of care and the delivery of unnecessary services,” writes Mark Merlis, author of the brief. Instead, physician payment can be moved toward bundled payments and the development of accountable care organizations that are reimbursed on a capitated basis for each member or episode of care.

This final option really gets at the heart of Medicare—and health reform in general. It is what people like Donald Berwick (the current head of the Institute for Healthcare Improvement and Obama’s pick to head up CMS) see as the way to “bend the cost curve” on health costs.

Glenn Steele, President and CEO of the Geisinger Health System sees the health care system—and especially doctors—as heading into a transition period where fee-for-service will be blended with other payment schemes (per patient, or per episode of care, for example). “On the fee-for-service side, we’re continuing to be incentivized by piece-rate payment and pushing more units of work, and at the same time we’re trying to get a grip on payment for outcomes, whether it’s some sort of bundled payments, or quasi-capitation, or a shared-savings reimbursement incentive,” he told Health Affairs this month in an interview.   “It’s going to be hard to have two quite different incentive models running at the same time through operations, whether you’re talking about the administrative aspect of running a hospital or a system, or whether you’re talking about the physicians. We’re going to have to work through a two-tiered reimbursement hybrid fairly quickly.”

What I’ve taken away from this exploration into a permanent “doc-fix” is that we are going to have to be patient. The new Center for Medicare and Medicaid Innovation will be charged with developing pilot projects and testing new innovations for payment and service delivery reform. The potential payout from these innovations could be significant—but they will take years to realize. In the meantime, the short-term fixes on the SGR-mandated fee cuts will likely continue and the formula will become less and less relevant.

More than half of the $938 billion price tag for the Affordable Care Act is to be paid for by wringing savings from Medicare. Eliminating over-payments to Medicare Advantage will lead to an estimated $132 billion in savings over 10 years, according to Robert Berenson, vice-chair of the Medicare Payment Advisory Commission (MedPAC). And, he adds, “the ACA also produces nearly $200 billion in savings by assuming that providers can improve their productivity as firms in other industries have done.” Instead of wasting their time and energy lobbying against the SGR, the American Medical Association, the state medical academies and all the other physician groups that are vexed and outraged by the continual threat of Medicare payment cuts need to redirect their energy toward participating in and encouraging the kind of experiments that will truly
reform physician payment, increase quality of care and cut the waste out of our health care system.