Medicare Sustainable Growth Rate

In recent news, very exciting legislation regarding Medicare Sustainable Growth Rate (SGR) was passed this month. In the past, the SGR formula was enacted by the Balanced Budget Act of 1997 as a way to control Medicare spending. Each year, the annual change in Medicare spending per beneficiary is compared to GDP growth, and a conversion factor is implemented into the following year’s Annual Medicare Physician Fee Schedule that would raise or lower physician payments to balance this difference. During the first couple of years, this formula resulted in payment increases. However, with rising health care costs, it resulted negatively thereafter, reducing payments each year until 2002. Due to immense criticism, in 2002 Congress voted to temporarily “patch” the formula. During these short term “patches” that have occurred 17 times over the years, Congress basically suspends the automatic reduction and maintains current reimbursement levels. So, each year the budget shortfalls are just postponed and added to the next scheduled adjustment. As a result, now a 21% cut to Medicare physician payments would happen, if the Sustainable Growth Rate (SGR) is allowed to go into effect this year.

On March 26th the House of Representative passed legislation to permanently repeal the Medicare Sustainable Growth Rate (SGR) formula. Thereafter, Senate voted to approve the “Medicare Access and CHIP Reauthorization Act” on April 14, 2015. President Obama publicly stated that he will sign the bill into law.

With the “Medicare Access and CHIP Reauthorization Act”, the following items will be enacted:

  • All future SGR cuts will be erased, and it ensures that  a 5-year period of annual updates (of 0.5%) will help transition to the new payment system;
  • The Act provides additional financial incentives for providers who move into alternative payment models (APMs);
  • Medicare quality reporting programs will be streamlined into the Merit-Based Payment Incentive System (MIPS)
  • The Act reverses CMS’ decision to eliminate the use of 10 and 90–day global surgical codes in Medicare

For more information about the Medicare Sustainable Growth Rate, and recent “Medicare Access and CHIP Reauthorization Act”, please refer to: https://www.whitehouse.gov/blog/2015/04/21/celebrating-latest-law-improving-health-care-medicare-access-and-chip-reauthorizatio