Opening Statement of the Hon. Nancy L. Johnson, a Representative in
Congress from the State of Connecticut, and Chairman, Subcommittee on Health

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

Hearing on Physician Payments

February 28, 2002

Last year, we held over one dozen hearings on why Medicare must be reformed and modernized.  We unanimously reported and passed a bill to reduce the regulatory burden on our providers and to modernize Medicare’s contracting system.  Yet the Senate has failed to even hold a hearing on that issue.

Medicare’s erratic and unpredictable payments to physicians, clearly epitomizes just one more reason why we cannot wait any longer to fundamentally modernize Medicare.  When payments oscillate from 4.8 percent in 2001 to negative 5.4 percent in 2002, and actuaries project additional payment cuts in the future, something is wrong. 

The cost of practicing medicine will not get cheaper; it will get more expensive.  If we do not reform the so-called “sustainable growth rate” payment formula, I fear our seniors may suffer access problems and our physicians will only become more demoralized in dealing with Medicare.  I am committed to fixing this irrational payment formula as part of a larger Medicare modernization and prescription drug bill this year.

Driven by high growth in payments for physician services in the 1980s, the Medicare Volume Performance Standard (MVPS) was developed to give physicians an incentive to control volume and to limit the growth in Medicare expenditures for physician services.   In 1997, the Sustainable Growth Rate (SGR) replaced the MVPS, based on the recommendations of MedPAC and with the support of physician groups.  The SGR formula is linked to projected Gross Domestic Product so when the economy slows the update is reduced accordingly.  It is also tied to the difference between actual expenditures and target expenditures.   The SGR is used in combination with the Medicare Economic Index, a measure of the increase in physician office and salary costs. Therefore, the SGR is not a direct limit on expenditures -- payments are not withheld if the target is exceeded-- but the update is increased or decreased.

Today we will hear from MedPAC, who has recommended scrapping the SGR and liking payments to the Medicare Economic Index.  Secondly, the Congressional Budget Office will testify why payments to physicians and related providers are projected to be cut in the future, and the fiscal implications of reforming the SGR.  Finally, we will hear from an academic and several physician and provider groups about their ideas on reforming Medicare’s payments to physicians and providers.