What was the Medicare Sustainable Growth Rate Formula? (the “Doc Fix”)

The SGR formula was the method used by CMS (Center for Medicare and Medicaid Services) to control the rate of Medicare spending for physician services. The SGR was part of the Balanced Budget Act enacted by Congress in 1997. This flawed formula was not influenced by the volume of services provided, by the quality of patient care, nor the efficiency of health care delivery. Every year since 2001, the formula led to the threat of cuts in Medicare fee schedule payments to physicians. Congress voted annually to defer action on the SGR-mandated cuts, the recurring “Doc-Fix” crisis. However, by 2015, the cumulative SGR-mandated reductions in physician fees paid by Medicare reached an estimated 21%. (Were you ever prepared to take a 21% reduction in Medicare reimbursement for your services?)

Why did Congress not repeal the SGR and fix the problem?

In policy and politics, money matters, and BIG money really matters! In past years, the Congressional Budget Office (CBO) estimated the cost to repeal the SGR formula at about $320 billion! That is, if Congress failed to implement the SGR-mandated cuts, Medicare costs would supposedly increase by about $320 billion. However, this year the CBO estimated that repeal of the SGR would only result in increased Medicare costs of about $130 billion. Technically, if Congress voted to repeal the SGR, it needed to identify the source for revenues to offset eliminating the SGR-mandated cuts. This year, however, Congress finally repealed the SGR – hooray! While Congress did repeal the SGR, it did not identify other revenues to cover the increased Medicare spending (known as deficit spending). The level of bipartisan cooperation was remarkable given the level of acrimony often on display in Congress. In the House of Representatives, the vote to repeal the SGR was 392 to 37, and in the Senate, it was 92 to 8.

How will this new legislation work?

In April 2015, the Congress passed comprehensive legislation to repeal the SGR formula and adopt a new value-based reimbursement system focused on patients and the quality of care – this is the Medicare Access and CHIP (Children’s Health Insurance Program) Reauthorization ACT (H.R. 2). The President promptly signed this new law. Therefore, no physician will face the threatened 21% reduction in Medicare fees scheduled for this year! With the permanent elimination of the SGR formula, physicians will experience stable payments during a transition period to the new payment system. The legislation specifies annual physician fee increases of 0.5%/year through 2019. After 2019, physicians will be incentivized (bonuses or penalties) according to their performance, as assessed by the federal government. A new “merit-based” incentive payment system (MIPS) will be constructed to reward (or penalize) performance in four areas: quality of care, clinical practice improvement efforts, resource use, and performance on meaningful use of the electronic medical record. Exactly how this incentive payment system will work is not yet determined. The new law includes several other important elements. For example, Congress extended the CHIP program with no cuts for another 2 years. The legislation extended funding also to support community health centers for the next 2 years ($7 billion).

For additional information, see HJ Aaron. Three Cheers for Logrolling – The Demise of the SGR. N Eng J Med 2015; 372: 1977-79.

Coming Next: Optimism for increased science funding – the 21st Century Cures Bill