5 Key Facts About the Medicare SGR

Physicians have continually faced the prospect of steep pay cuts because of Medicare's sustainable growth rate formula.

For years, Congress has temporarily bypassed the SGR so physicians wouldn't have to endure double-digit reimbursement reductions. However, policymakers face growing pressure to repeal and replace the flawed payment formula, giving physicians permanent relief from looming pay cuts.

Here are five key things to know about the SGR and the push to eliminate it once and for all.

1. The Balanced Budget Act of 1997 amended the Social Security Act to create the SGR formula, which was meant to control growth in Medicare spending for physicians' services, according to CMS. The formula takes into account the estimated percentage change in fees for physicians' services, the estimated percentage change in expenditures due to changes in laws or regulations, the change in the average number of Medicare fee-for-service beneficiaries and the estimated 10-year average annual percentage change in real gross domestic product per capita.

2. The Medicare Payment Advisory Commission has informed Congress the SGR is "fundamentally flawed and is creating instability in the Medicare program for providers and beneficiaries." The formula's methodology of tying annual payment increases to cumulative expenditures has encouraged providers to administer higher volumes of services and has disproportionately burdened those in specialties with little ability to provide higher volumes of care, according to MedPAC.

Consequently, the commission has recommended that Congress repeal the SGR. Provider groups such as the American Medical Association have also urged policymakers to permanently fix the SGR.

3. Every year since 2003, Congress has enacted a short-term legislative patch to delay the SGR cuts, a practice MedPAC said has provoked uncertainty and anger among providers and anxiety among beneficiaries. The latest patch — passed as part of the Bipartisan Budget Act of 2013 — will delay a required 24 percent Medicare pay cut and provide a 0.5 percent payment update for physicians through March.  

4. Repealing the SGR would come at a cost. The Congressional Budget Office has estimated the cost of a House bill approved last year that would repeal and replace the formula would be $153.2 billion from 2014 to 2023. The bill would get rid of the SGR as of next year, and physicians would receive a 0.5 percent increase in Medicare reimbursements every year until 2018, after which they would receive payments based on quality reporting and outcomes. Starting in 2019, physicians could gain or lose 1 percent of their Medicare payments, depending on their quality scores.

5. Members of the House and Senate have been working to find a permanent solution to the SGR. In addition to the House bill approved last summer, the Senate Finance and House Ways and Means committees issued a proposal earlier this year that would repeal and replace the physician pay formula. Last month, the Senate Finance and House Ways and Means committees both passed separate but similar bills to replace the SGR.

Both measures would replace the flawed Medicare physician payment formula with a value-based payment system beginning in 2017. The house bill includes a 0.5 percent annual payment update through 2017, while the senate proposal would freeze current payment levels until 2023.

More Articles on Medicare's SGR:
President Obama Signs 2014 Budget Bill: What It Means for Hospitals  
House, Senate Approve Bills to Fix Medicare SGR

CBO Reduces Expected Cost of SGR Repeal to $153.2B 

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