MedPAC has released a draft to Congress a proposal calling for the repeal of the sustainable Growth Rate or SGR that is slated to cut physician's pay by 30% starting January 1, 2012.  To offset the revenues incurred to Medicare by the repeal of the SGR, MedPAC recommends freezing physician pay for 10 years, and reducing pay for specialists by 5.9% for the first three of those ten years.  Even with theses drastic reductions and freeze, however, it would only offset 1/3 of the anticipated lost savings from the scheduled SGR reductions, so additional revenue sources are needed.  The remaining $235 billion would come from reductions in other healthcare services:

•  35% from Drugs 

o  Part D Low Income Subsidy cost sharing policy to encourage substitution

o  Require manufacturers to provide Medicaid-level rebates for dual eligible

•  21% from Post-acute care

o  Rebase SNF

o  Apply readmission policy to SNFs, HH, LTCHs and IRFs

o  Reduce hospice rates in nursing homes by 6%

•  14% from Beneficiaries

o  Copayment for home health episode

•  11% from Hospitals

o  Bundled payment for hospital and physician during the admission

o  Pay E&M visits in hospital outpatient departments at physician fee schedule rates

•  9% from Labs

o  Require prior authorization for imaging by outlier physicians

o  Reduce payments by 10% for clinical lab services

•  6% from Durable Medical Equipment

o  Apply competitive bidding offset to all DME categories

•  5% from Medicare Advantage

•  2% from Other

The MedPAC commission also supports an analysis of efficient practices to establish the service volume and work time rather than a sample of all practices, and then use their findings to establish the fee schedule and relative value units.  Fee for Service is inherently flawed and additional incentives should be created, such as increased shared savings, to move providers into ACOs or other capitated/bundled payment systems. 

AMA and American College of Radiology have already objected to the provisions saying it would lead to access problems for Medicare beneficiaries and would prevent providers from getting the people and equipment necessary to provide the best quality of care.  The current Medicare payments already fall 20% behind the cost of running a practice even by Medicare's own estimates, and a larger gap would be unsustainable.  The ACR also stated that it would undermine the move towards Accountable Care Organizations and multispecialty coordination of care.

These MedPAC provisions if adopted by Congress , could impact pharmaceutical revenues, patient copays, and reduction in provider revenues.  Will  providers shift to lower co-pays for patients?  What will be the provider office and hospital  strategies in response to these changes?   Now, there is an opportunity to proactively influence these provisions by commenting by  October 6-7, 2011.  SMT is available to assist in building a strategy that is supported by comments  that address those changes which may impact your product sales.  The SGR shift  to preserve physician revenues will need funding and drugs are a target.  Please contact Nevin Whitelaw at nevin@smt-inc.net to discuss the Risks and Opportunities available to pharma to influence these proposed changes.