Protect Patient Access to Care
Fix the Flawed Medicare Formula

The Formula is Flawed:

The current Sustainable Growth Rate (SGR) formula for determining the annual Medicare payment to physicians has significant flaws, causing steep reductions in physician reimbursement. These flaws include, but are not limited to:

• Including the costs of Medicare-covered outpatient drugs and biologicals in setting the expenditure target for physicians’ services, even though these items are not physicians’ services but contribute substantially, under the formula, to decreases in the annual payment update;
• Linking Medicare physician fees to the Gross Domestic Product (GDP), which does not accurately reflect changes in the cost of caring for Medicare patients;
• Inadequately accounting for changes in the volume of services provided to Medicare patients due to new preventative screening benefits, national coverage decisions that increase the demand for services, and a greater awareness of covered health benefits and practices due to educational outreach efforts; and
• Improperly accounting for costs and savings associated with new technologies.

The Flaws Must be Fixed this Year:

• Without congressional action, physicians face a payment cut of 5% each year from 2007 through 2012.
• Continued instability in the Medicare physician reimbursement system is eroding access to quality care for beneficiaries.

The Formula Must be Fixed before implementing Mandatory Pay-for-Performance

• The variability among physician specialties in terms of preparation and appropriateness to participate in such payment options is a concern.
• Successful implementation of pay-for-performance will require additional funding rather than a budget neutral redistribution of funds among physicians.

AAOS supports:

• Replacing the SGR Formula with a system that adequately accounts for the true costs of delivering healthcare services.
• Removing retroactively Medicare-covered outpatient drugs and other incident-to services that are included in the expenditure target.
• Fixing the flawed formula before implementing mandatory pay-for-performance.

Please support congressional action to fix the flawed formula.

For additional information, please contact Kathryn Pontzer, AAOS Washington Office, at (202) 546-4430