You cannot open a medical journal or read a practice management blog without hearing about the Sustainable Growth Rate (SGR). Each year the American Medical Association, the Medical Group Management Association and various specialty societies across the country have worked tirelessly to bring awareness in order to repeal the fundamentally flawed SGR formula.
The Sustainable Growth Rate was a key provision in the Balanced Budget Act of 1997 that sought to control the growth of Medicare spending for physician services. The same formula or theory can be found in any organization and business currently in operation. SGR is defined as a measure of how much a business can grow without borrowing more money. After passing this rate, the company must borrow funds from another source to facilitate growth.
Sustainable Growth Rate is calculated by using four measures:
- Estimated percentage change in fees for physicians’ services
- Estimated percentage change in the average number of Medicare fee-for-services beneficiaries
- Estimated 10-year average annual percentage change in real gross domestic product per capita
- Estimated percentage change in expenditures due to changes in law or regulation
Sustainable Growth Rate was planned to be a budgetary restraint on Medicare’s expenditures in order to maintain a balanced budget. Every year practice costs continue to rise, and without congressional intervention, the SGR will continue to reduce physician reimbursements. Each year Congress has provided a temporary fix bypassing the SGR formula and instead making small cuts to physician fees instead of larger more drastic cuts if the SGR was formula was followed.
The fatal flaw of the Sustainable Growth Rate formula is that it any yearly deficit is carried over from year to year until it is either paid off or balanced. With the arrival of baby boomers into the Medicare pool, expenditures will continue to grow even larger. The original intent to control Medicare expenditures from surpassing the federal budget was good in theory. However tying the reimbursement rates to the United States’ Gross Domestic Product or the general performance of the economy is flawed.
“At stake are innovations that would make Medicare more cost-effective for current and future generations of seniors. These innovations are not possible if physicians are worried about drastic cuts to Medicare rates that have remained almost flat since 2001, while the cost of caring for patients has gone up by 25%.”, said American Medical Association’s President Ardis Dee Hoven. The current SGR methodology does not account for the annual increased cost of operating medical facilities and providing quality medical care. Instead under the Sustainable Growth Rate formula payment cuts are applied across all Medicare Part B providers regardless of their professional specialty. In some instances, the proposed reimbursements cuts are well below the cost for supplies needed to perform the procedure.
In July 2013, Centers for Medicare & Medicaid Services (CMS) announced that they were proposing drastic cuts to non-facility physician reimbursements. In some specialties the proposed reimbursement cuts were close to 60%. Jonathan Blum, principal deputy administrator for CMS said, “Health care is changing, and part of delivery system reform is recognizing this and making sure payment systems account for these changes.”
Thankfully, on November 27, 1013 CMS acknowledged that their methodology was flawed and that they were tabling the discussion for a later date.
SGR is flawed, and until a permanent solution is found physicians seeing Medicare patients will continue to hold their breath. If physician reimbursement rates are not increased to absorb the annual increase in medical expenses the cost of caring for Medicare patients will become economically impossible.