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Medicare SGR Repeal and What It Means for Our Future

Here’s the problem: Medicare’s physician payment formula has not been working. Since 1992, Medicare has reimbursed physicians on a fee-for-service basis. In 1997, Congress implemented the sustainable growth rate (SGR) to control Medicare spending and make sure that growth in physician reimbursement does not exceed growth in the gross domestic product (GDP). This is problematic because the cost of medical care in the United States has increased faster than its GDP. In fact, health care expenses currently make up 18% of GDP, while in 1998 they made up only 13.4%. In the past, Congress has had to continually override the SGR because of concerns that reduced payments to physicians would limit patients’ access to care. Congress has implemented only short-term legislation every year since 2002.

Each year, the Centers for Medicare and Medicaid Services (CMS) sends a report to Congress about the previous year’s costs as well as a conversion factor that changes the payments for physician services for the next year in order to match the target SGR. For example, if 2013 expenditures exceeded the target (which they did), then the conversion factor would decrease payments for 2014. If the expenditures were less than expected (guess how many times that has happened), the opposite would happen. These changes take place on the first of March, every year. As it stands, without congressional action, Medicare physician services face a 23.7% cut on April 1st of this year. Furthermore, if the trend continues, it is projected that average 2021 Medicare payments will be just half of what they were in 2001 (adjusted for inflation).

Decreasing Medicare reimbursement to physicians makes it harder for Medicare patients to find a doctor who will see them. For many of these patients, the change is not as easy as simply switching to a new doctor, as other social issues play into accessing health care as well (e.g. transportation). As future physicians, this is not a system we want to inherit. Change is needed.

The major barrier to repealing the SGR is the cost. The Congressional Budget Office (CBO) estimates that the repeal will cost $117 billion over 10 years, although this is a significant improvement from last year’s estimate of $297 billion. However, there are a number of cost-containing measures in the bill, such as incentives for the use of accountable care organizations and other alternative payment models, so repealing the SGR would be more sustainable over time than the current system.

There is currently joint legislation to repeal the SGR (H.R. 4015/S. 2000). The SGR Repeal and Medicare Provider Payment Modernization Act will allow for a more stable Medicare physician payment policy that better serves Medicare patients. In addition to repealing the SGR, this bill will provide a 0.5% increase in payment each year through 2018. Then in 2018, doctors will receive incentives for using alternative payment models, such as accountable care organizations. Additionally, the CMS will create a billing code for managing complex chronic conditions. The Department of Health and Human Services must also publish a plan for developing quality measures for the incentive payment system.

The current system with SGR is flawed and unsustainable. Tell your members of Congress to vote as soon as possible in support of repealing the SGR formula and reforming the Medicare physician payment system. Take a moment to send them an email, or go to this website to submit a pre-written statement to your senator and congressperson.

Ryan Denu Ryan Denu (8 Posts)

Contributing Writer

University of Wisconsin School of Medicine and Public Health

Ryan is a Class of 2020 MD/PhD student at the University of Wisconsin School of Medicine and Public Health. He graduated in May 2012 from the University of Wisconsin-Madison with a BS in molecular biology. He enjoys thinking and writing about health care policy, and is also an avid tennis player, instructor, coach, umpire, and fan.