• Home
  • 2014-03-March
  • Prospects Brighten for Sustainable Growth Rate and Therapy Cap Repeal

Prospects Brighten for Sustainable Growth Rate and Therapy Cap Repeal

By Jerome Connolly, PT, CAE
March 3, 2014

Congress must have been affected by the holiday spirit in December when two key committees passed separate bills that would lead to repeal of the long dysfunctional sustainable growth rate (SGR) formula used to calculate therapist and physician payments under the Medicare Physician Fee Schedule.

Congress has been providing waivers and short-term patches to the policy almost annually since 2003. And three committees of jurisdiction expressed sincere interest in early 2013 in enacting legislation that would finally repeal the arcane formula. The congressional committees got off to an early start last year in circulating concept papers, holding hearings, and seeking extensive input from stakeholders. PPS participated vigorously in that process.

Enacted in 1997 as part of the “Balanced Budget Act,” the SGR has been a source of continued concern for physical therapists (PTs) who serve Medicare beneficiaries and for the beneficiaries themselves. Long recognized as an imperfect solution that rewards quantity of services rather than the quality of care, Congress has repeatedly implemented a temporary “doc fix” to prevent substantial Medicare reimbursement rate cuts, which it is believed could result in fewer therapists and physicians being willing to serve Medicare patients.

The House Energy and Commerce Committee led the formal repeal effort in July by unanimously passing H.R. 2810, the Medicare Patient Access and Quality Improvement Act of 2013, a bipartisan effort to transform the Medicare physician payment system in a number of important ways. First and foremost, this bill repeals the flawed SGR formula and replaces it with a stable and more predictable system of payments. Instead of looming annual cuts, therapists and physicians will be rewarded for the quality of care they provide to Medicare beneficiaries. The legislation also includes new transparency and collaboration requirements, as well as directives to solicit input from expert medical organizations and other groups on the development and selection of quality measures. The bill also provides additional revenues for development of new payment and care delivery models. H.R. 2810 passed the full committee by a 51-0 bipartisan vote on July 31, 2013. PPS advocacy was involved in every step of the Energy and Commerce Committee’s deliberative process.

Health staffers from the House Ways and Means Committee and the Senate Finance Committee outlined the intentions of their respective committees to repeal and replace the SGR and also deal with other items of interest to physical therapists and their patients, namely the arbitrary annual per beneficiary therapy caps, locum tenens and other policies. Karen Fisher (Finance) and Brett Baker (Ways and Means) were on the program at the first ever PPS Federal Advocacy Forum convened in Washington, DC, July 23-24, 2013.

Their efforts continued through the August congressional recess, but became bogged down in October when a stalemate in Congress over funding the Affordable Care Act resulted in a 16-day government shutdown. When the committees were able to return to work, they began producing separate bills. The Ways and Means bill resembled the approach taken by Energy and Commerce in that it limited the policy changes to repealing the SGR and replacing it with a payment system that would reward value over volume. The Senate Finance Committee took a broader approach that included repeal of the therapy caps extension and modification of the geographic practice cost index (GPCI) and other issues.

Both committees passed their respective bills on December 12, meaning that the general framework of the policy changes necessary to get rid of the SGR and fee-for-service payment was agreed upon. Considerable detail was lacking, but most importantly, none of the three pieces of legislation included a provision that would describe how to pay for the legislation. Since the SGR was originally enacted as a cost-containment measure, repealing it carries a price and congress must include provisions that would cut the budget elsewhere to offset the funds necessary to repeal and replace the SGR formula.

Both versions of the SGR reform proposal would consolidate and restructure existing quality improvement incentive programs—including meaningful use of electronic health records, the Physician Quality Reporting System and the value-based modifier—to reduce the administrative and financial burden on providers.

Medicare payments would be tied to quality measures that include “clinical care, patient safety, care coordination, patient and caregiver experience and population health.” To be eligible for bonus payments, clinicians would be compared to their peers and measures would be updated every year by the United States Secretary of Health and Human Services (HHS).

The Senate Finance Committee’s proposal for reform of the SGR, therapy caps and other Medicare policy specifically:

  • Repeals the SGR formula and freezes baseline outpatient Medicare payments (i.e., a flat update) for 10 years (providers could receive payments above the base rate by participating in value-based incentive programs and transitioning to alternative payment models);
  • Repeals the Medicare therapy caps effective upon passage of the legislation, eliminating the requirement for a KX modifier at $1,900 and the need for yearly extensions;
  • Keeps manual medical review at $3,700 through 2014, then transitions to a new medical review program in 2015. The new program would use prior authorization to allow therapists to request blocks of visits. The HHS Secretary would determine the level at which prior authorization applies and what services are subject to review;
  • Calls for a new data collection system to replace current functional limitation reporting procedures to be operational in or around 2017;
  • Requires claim forms submitted in 2015 to indicate whether the outpatient therapy services provided were rendered by a physical therapist assistant (PTA);
  • Extends the 1.00 floor for the “work” GPCI through 2014. In 2015, the floor would become 0.995, and in 2016 and beyond, the floor would be set at 0.99.

The House Ways and Means Committee’s proposal for reform of the SGR includes the following:

  • Repeals the SGR formula and allows for a 0.5% payment increase per year until 2017 and flat payments through 2023;
  • Makes providers eligible for payment increases through value-based quality incentive programs and by transitioning to alternative payment systems in 2017 when the yearly 0.5% increase ends;
  • Consolidates existing payment incentive programs into a single Value-Based Performance (VBP) incentive program, in which high-performing professionals would earn payment increases;
  • Provides a 5.0% bonus for providers participating in an alternative payment model (APM) that meets certain requirements;
  • Improves the development of quality metrics used in the VBP and APMs, supplementing those currently used by Medicare and aligning with those used in private sector programs and integrated delivery systems;
  • Requires the HHS Secretary to finalize a plan to develop and prioritize measure development and annually report on the progress made against the plan;
  • Provides funding for the development of quality measures that would be available to physician specialty societies and other organizations;
  • Increases payment accuracy by improving the valuation of services under the physician fee schedule through the voluntary collection of information from physicians and professionals and other sources; provides funding to compensate providers who submit data;
  • Requires appropriate use criteria for advanced diagnostic imaging;
  • Makes payment data on providers more publicly available;
  • Sets a deadline of 2017 for electronic health record vendors to make their EHRs interoperable;
  • Allows physicians who privately contract with Medicare patients to automatically renew their 2-year opt-out at the conclusion of each cycle;
  • Improves data publicly available for beneficiaries regarding health care professionals. Professionals will be able to review and correct information before it is made public;
  • Expands the ability of qualified entities (QEs) to make Medicare analyses and data available to physicians and others for the use in quality improvement and other activities;
  • Requires that Medicare claims data be made available to qualified clinical data registries for the use in quality improvement and patient safety activities.

The Ways and Means bill did not include Medicare extenders, such as the Medicare therapy caps. However, during the Committee mark-up, Chairman David Camp (R-MI) said that the Medicare extenders are important and that he plans to address those policies as the SGR reform package moves forward in the House. PPS will continue to engage in advocacy efforts in working with Congress to ensure that a repeal of the therapy caps and other important provisions are included in the final SGR bill.

Because these bills were passed only in committee and did not include the budgetary offsets, and because the current SGR formula called for a 20.1% cut in Medicare reimbursement rates on January 1, Congress chose to enact a three-month patch with the intent of providing time to enact the sweeping reform upon returning to Washington after the holidays. This temporary funding measure for Medicare provided a 0.5% increase in the Medicare rate and also included a three-month extension of the therapy caps exceptions process.

All this meant that Congress needed to return to work after its holiday recess to refine and finalize the legislation and decide on a strategy for moving it the rest of the way through Congress and onto the President’s desk. Despite the groundswell of congressional support at the committee level for reforming the SGR, the way it is paid for will be considerably more contentious.

A budgetary offset PPS continues to offer is a change in the physician self-referral statute known as the in-office ancillary services exception (IOASE). Private, academic, and governmental studies alike have shown a considerable propensity for overutilization of services when physicians are allowed to refer to therapy, imaging, and laboratory entities in which they have ownership. By removing physical therapy (along with laboratory and imaging) services from the IOASE, inappropriate utilization can be curbed and billions of dollars can be saved. PPS members are urged to contact their senators and their representative to suggest that this policy change be included as it is not only a cost-saver, but that the change would be good for patients as well. The easiest way to convey this message to your legislators is to urge them to incorporate the language in HR 2914 into the repeal of the SGR and therapy caps.

Members are also asked to mention to their legislators the importance of including physical therapists in the locum tenens provision (HR 3426) and allowing therapists to opt-out of Medicare (HR 1310).

Including these policy measures in the long overdue Medicare payment reform and therapy caps repeal bill is important for our patients and our practices, but is also beneficial for the sustainability of the Medicare program.


Jerome Connolly, PT, CAE, is a registered federal lobbyist whose firm Connolly Strategies & Initiatives has been retained by PPS. A physical therapist by training, he is a former private practitioner who throughout his career has served in leadership roles of PPS and APTA. Connolly also served as APTA’s Senior Vice President for Health Policy from 1995 – 2001.

Follow your lobbyist and legislative activities on Twitter: @TherapyPolicy.

Copyright © 2018, Private Practice Section of the American Physical Therapy Association. All Rights Reserved.

Are you a PPS Member?
Please sign in to access site.
Enter Site!