Daily Briefing primer: The sustainable growth rate formula

The formula that sets Medicare payment rates: Then, now… and forever?

Topics: Finance, Reimbursement, Medicare, Physician Issues, Compensation, Labor Expense

July 1, 2013

Lawmakers are seriously considering abolishing Medicare's much-maligned physician payment formula, rather than passing yet another short-term "doc fix" to stave off the payment cuts. The move would be a significant departure from years past; since 2002, Congress has voted 14 times to override the payment formula and keep doctors' pay stable.

How it happened

The doc fixes have been necessitated by the Sustainable Growth Rate formula, or SGR.

Although it is a complex formula, put simply, the SGR sets a target for spending on Medicare, relative to other factors, such as Medicare enrollment and the gross domestic product. The formula's basic goal is to keep spending per beneficiary from growing faster than the per capita increase in gross domestic product.

The SGR first took effect in 1998, but the formula was fairly low-profile until 2001, when the Medicare Payment Advisory Commission advocated in an annual report to Congress that lawmakers "scrap" the SGR in favor of a system similar to the one used to determine Medicare payment increases for hospitals.

However, nothing came of that report, and the SGR first took effect in 2002, to the tune of a 4.8% cut to physicians' Medicare reimbursements. It was then that doctors and lawmakers determined that there was something "wrong" with the formula, and the "fixing" began.

Ten years of doc fixes

Feb. 20, 2003: 10-month fix. The first doc fix included $54 billion to boost Medicare physician reimbursements by 1.6% and eliminated a 4.4% reduction in payment rates scheduled for March 1.

Dec. 8, 2003: Two-year fix. The legislation included a two-year doc fix—the longest ever—and enacted the biggest change to the Medicare program since its creation in 1965: a prescription drug benefit.

Feb. 8, 2005: One-year fix. The fiscal year 2006 budget reconciliation bill contained $40 billion in spending reductions to health care programs. It also canceled a scheduled reduction called for under the SGR.

Dec. 21, 2006: One-year fix. The measure reversed a 5.1% reduction in Medicare physician fees and increases payments by 1.5% to physicians who agreed to report data on certain quality measures.

Dec. 20, 2007: Six-month fix. The bill increased Medicare physician fees by 0.5% and extended higher Medicare reimbursement rates for rural health care providers and hospital laboratories.

July 15, 2008: 18-month fix. Congress voted to override President Bush's veto of a bill, thereby avoiding a 10.6% reduction in Medicare physician payments. Separately, CMS delayed processing claims in order to give lawmakers time to reach a consensus.

Dec. 21, 2009: Two-month fix. President Obama signed a FY 2010 defense spending bill delaying a 21% payment reduction that was scheduled to take effect Jan. 1, 2010.

March 2, 2010: One-month fix. Obama signed a jobs bill that averted a 21% cut to Medicare physician reimbursements.

April 15, 2010: One-month fix. Obama signed legislation that again delayed the scheduled 21% cut to Medicare physician payments. The cut went into effect on April 1, but CMS again delayed payments.

June 25, 2010: Six-month fix.The$6.5 billion, six-month stand-alone doc fix delayed a 21% cut to physicians' Medicare reimbursements. The measure boosted Medicare payments by 2.2%.

Nov. 29, 2010: One-month fix. The legislation postponed a scheduled 23% cut in physician payment rates, increased payments to physicians by 2.2%, and cost nearly $1 billion over a decade.

Dec. 15, 2010: One-year fix. The bill—which was estimated to cost $14.9 billion over 10 years— also included extensions to several other expiring Medicare programs at an estimated cost of $4.6 billion.

Dec. 23, 2011: Two-month fix. A two-month extension of the payroll tax cut included a two-month delat to a 27% payment cut that would have taken effect on Jan. 1, 2012.

Feb. 22, 2012: 10-month fix. The $148 billion legislative package delayed the Medicare rate cut, which would have been nearly 30%, until 2012.

Jan. 1, 2013: One-year fix. As part of a last-minute deal to avert the "fiscal cliff," lawmakers voted to delay a 26.5% reduction in physician payments at a cost of nearly $30 billion over a decade.

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