Consensus: SGR formula not sustainable. Now what?


For more than a decade, Congress and physicians have agreed that the Sustainable Growth Rate isn't sustainable. Noted at a recent hearing, the 29.4% cut in reimbursement scheduled for January 1, 2012, would have a "disastrous effect on access to care for Medicare beneficiaries," which in turn may cause 82% of physicians to "make significant changes in their practices that will affect access to care."


Since 1997, Medicare has reimbursed physicians according to the Sustainable Growth Rate (SGR) formula, a plan that critics say is fundamentally flawed. The SGR formula follows a target growth rate model linked to GDP. Thanks to an aging population and advances in technology, Medicare costs have outpaced the target.

Now, however, the major players are starting to agree that it’s time to stop relying on last-minute reprieves (five in 2010 alone) to avert drastic cuts in reimbursement rates and find a Medicare payment structure that controls costs and reimburses physicians fairly.

Rep. Joseph Pitts, R-PA, chairman of the House Energy and Commerce Subcommittee on Health said at a hearing on May 5 that the 29.4% cut in reimbursement scheduled for January 1, 2012, would have a “disastrous effect on access to care for Medicare beneficiaries.” He cited an American Medical Association (AMA) survey indicating that, faced with payment reductions of that magnitude, 82% of physicians would “make significant changes in their practices that will affect access to care.”

Wiping out Medicare’s accumulated debt would cost almost $300 billion, according to the Congressional Budget Office, and maintaining it with 0% updates until the end of the decade would cost more than $275 billion. With the current focus on reducing the deficit, neither of those options looks appealing.

In Pitts’ hearing a consensus emerged among experts. The key recommendations entailed scrapping SGR, initiating a 5-year period in which to test a variety of structures designed to control costs and improve care, then allowing providers and beneficiaries to choose the model that works best for them.

AMA President Cecil Wilson, MD, said in his testimony, “The only way to start on a path to permanently reform the physician payment system is to repeal the SGR.” He argued that physicians should be “provided with positive Medicare physician payment updates that keep pace with the growth in medical practice costs,” a reference to the costs of ICD-10 conversion, EHR implementation, and the costs associated with the formation of accountable care organizations, all of which fall hardest on primary care physicians (PCPs).

Former Centers for Medicaid and Medicare Services Administrator Mark McClellan encouraged the committee to consider aligning some of the current programs with proposed changes to the SGR, in order to ease that burden.

Roland Goertz, MD, president of the American Academy of Family Physicians (AAFP), recommended that Congress grant PCPs an additional 2% above the mandated payment update during the transition period. He also asked Congress to continue a temporary primary care incentive bonus in the healthcare law and increase it from 10% to 20%. In addition, AAFP would like to make permanent the law’s support for a 2-year Medicaid payment boost for PCPs, he said.

Goertz said that the current fee-for-service formula cannot pay for “the value that comes from managing the care of the whole person, as well as the value that comes from avoiding unnecessary care. It also cannot adequately value the coordination of care in a highly fragmented healthcare system.”

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