Medicare Payments to Physicians and the Sustainable Growth Rate (SGR) | RMHP

On January 1, 2013, physicians face a 27% cut in Medicare reimbursement.

While this is not likely to happen, it highlights a significant problem in the way Medicare pays physicians.  It also begs the question:  How did we get ourselves into this situation?

It began when Congress passed The Balanced Budget ACT of 1997.

The Act introduced a new formula for updating the Medicare fee schedule: the Sustainable Growth Rate or SGR.

While the formula considers a number of factors, it ties the rate of growth in Medicare spending for Part B services to the overall rate of growth in the economy.

Very broadly, here is how it works.

The SGR sets a target for expenditures and then compares this number to the actual expenses incurred.  If actual expenses, driven by the mix and frequency of services, are less than the target, Medicare increases the fee schedule.  If expenses are more, Medicare payments go down.

Initially, the formula worked well.  In the first few years of its implementation, payments to physicians increased.  However, starting in 2002, the opposite occurred.  This situation has continued ever since.

In 2002, Medicare cut the fee schedule by 4.8%.  Each year thereafter Congress has passed legislation to override the reduction.

However, these actions created another problem.  Congress did not change the SGR methodology.  It simply deferred the cut to the next year.  As a result, the gap gets bigger and bigger, and the potential cuts larger and larger.

In 2010, the SGR called for a cut of 21.2%.  Today, as noted above, the number is 27%.

In testimony before the Senate Finance Committee in October of this year, the American Medical Association, along with a number of other physician organizations, urged Congress to abandon the SGR.

They warned the threat of cuts to Medicare reimbursement makes it more difficult for Medicare beneficiaries to get appointments with physicians.  They also said Medicare payments to physicians are barely above their 2001 levels.

Despite this, physicians continue to see Medicare patients.

A 2012 survey conducted by The Physician Foundation found only 8.6% of physicians have closed their practices to new Medicare patients.

According to a recent article in Health Affairs, Medicare beneficiaries report fewer problems with access to care than do their younger counterparts,

However, physicians are not likely to provide the same level of access, if the pending cuts in reimbursement were to go through.

The Physicians Foundation survey found 89.3% of physicians would take action to limit access for Medicare beneficiaries, if the cut occurred.

So, why hasn’t Congress replaced the SGR?

The reason is the budget deficit.

According to the Congressional Budget Office (CBO), the elimination of the SGR could add $273.3 million to the budget deficit over the period 2013 – 2022.

Hospitals try to make up for the shortfall in Medicare and Medicaid reimbursement by shifting the cost to the private sector.  (See the article Who Pays the Bill, June 7, 2012)

This is more difficult for physicians.  They have far less leverage over insurance carriers when it comes to negotiating higher fees.

With Medicare reimbursement basically flat since 2001, this puts significant pressure on physician incomes.

It may be one reason physicians are giving up their individual practices and joining larger groups.

According to the consulting firm Accenture, the number of physicians operating as independent practitioners has dropped from 57% in 2000 to a projection 33% in 2013.

It may also be a reason why so many physicians are pessimistic about the future of their profession, and why they would not recommend the profession to their children.

According to the Physicians Foundation survey, 77.4% of physicians are either somewhat or very pessimistic about the future of their profession.  Fifty eight percent would not recommend medicine as a career for their children.

The problem with the SGR formula is Medicare costs are rising faster than the growth of the general economy.

To reduce cost, health policy experts have recommended a number of actions: better coordination of patient care among providers; the use of electronic medical records;  increased patient accountability; the elimination of duplicative or unnecessary tests; and, the replacement of the fee-for-service method of reimbursement with models that do not reward physicians based on the number of services they perform.

Congress needs to replace the SGR.  The problem is what to replace it with?

The most plausible proposal may be to implement a temporary freeze on payment, while Congress comes up with a new approach.  This would eliminate the previous reductions and allow us to start fresh.

It will cost money to do this at a time when no one wants to add to the deficit.  But, at least, this proposal does not pretend we are not already doing so by deferring action and building a bigger and bigger IOU we never intend to collect.

6 Responses to Medicare Payments to Physicians and the Sustainable Growth Rate (SGR) | RMHP

  1. Day by day more complicated problems are been arising for the health!Moreover all policies have been implemented but the result is not in the expected level and most of the doctor’s will not accept the policies!

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