The Need for Reform to the Sustainable Growth Rate in Medicare and Problems with the Current Payment System

The Medicare scare for physicians is currently on rinse and repeat. Every year since 2003, Congress must legislate an alternative to pending physician payment rate cuts that are called for in the Sustainable Growth Rate in Medicare’s plan. In 2015, physicians anticipate a cut to payments amounting to 21.2 percent. This untenable situation has called for a repeal of the Sustainable Growth Rate (SGR) with the bicameral and bilateral support of the proposed legislation, the SGR Repeal and Medicare Provider Payment Modernization Act of 2014, and the backing of over 600 physician associations. However, a review of the issues with the SGR assists in understanding the need for reform whether or not current the proposed legislation is the right fix for the situation.

In the Beginning

Sustainable Growth Rate
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The Sustainable Growth Rate in Medicare is a system that was enacted with the Balanced Budget Act of 1997. SGR is a Medicare payment system that controls the costs of payments for physicians. The formula used was constructed to limit the annual increase in cost to growth in the nation’s economy. The SGR system works with a “volume” based physician fee schedule that delivers payments dependent upon how many individuals are seen.

When overall physician costs exceed target expenditures, an overall reduction in payments occurs to all physicians. Since being enacted, there has been a substantial difference between the target set forth in the SGR formula and Medicare physician-based spending.

Sustainable Growth Rate in Medicare has addressed a significant problem and earlier attempts at establishing controls of the cost of physician spending under Medicare proved ineffective so the SGR became the new system. From 1997 to 2003, the formula worked well as economic growth was high and no cuts were necessary. 2001 brought a declining GPD coupled with increased medical costs that led to the beginning of Sustained Growth Rate physician payment rate cuts. Congress borrowed from Peter to pay Paul and the “doc fix” placed a bigger burden on following years, increasing their upcoming reduction rates to pay for the current payment fiasco.

Why Does SGR Need Reform?

No system will be perfect. The SGR has proven to be ineffective during times of a recession and slow economic growth. Physicians need to be able to depend on approximate steady payments in order to invest more within their own practices and offer more to their patients. The following are a few areas wherein SGR has negatively impacted physicians, patient care and future expectations.

Sustainabe Growth Rate
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There is no incentive within the formula. SGR pays out on volume and is a system set up to control budgets. Physicians who offer quality care and better outcomes and those who perform poorly all get cut equally when spending exceeds SGR targets SGR creates an uncertain future. With looming yearly threats of payment cuts, physicians are hindered from incorporating new clinical initiatives and installing long-term improvements within a practice Costs get deferred indefinitely. It would cost about 150 billion dollars over a decade to permanently repeal SGR. Annual extensions have not addressed the problem but have inflated cuts to be incorporated into the following years. Real reform is necessary to the SGR formula and payment system. Working on alternative payment models and articulating areas that should be adapted have fallen to the wayside A poor economy should not affect physicians from getting adequate payment for services. When physicians have to see more patients to address shortfalls, patient care is negatively impacted. It is time for a Sustainable Growth Rate in Medicare reform that improves patient care and guarantees consistent payment of services.