Senate Realizing that Sustainable Growth Rate Not So Sustainable After All

Earlier this year the United States Senate Committee on Finance began a series of roundtable discussions regarding Medicare’s Sustainable Growth Rate (SGR) and the future of physician payments under Medicare.  Most recent figures place a $271 billion price tag on a permanent repeal of the flawed formula. Without this permanent fix, Congress will be forced to kick the can further down the road with a temporary patch, or allow a 27% reduction in physician rates to take effect in January 2013.  That is something that Congress has been doing for more than ten years.

Roundtable discussions have been occurring monthly throughout the summer with the goal of taking a look at the history of physician payments under Medicare, including the SGR, as well as lessons that can be learned from the private sector in repairing such a broken methodology.  Physician feedback was provided at the most recent meeting in July. 

It is unlikely that changes will come during the lame duck session; however, the NCMS is hopeful that the work of the Senate Committee on Finance will prepare lawmakers for swift action early in 2013.

The Sustainable Growth Rate was enacted as part of the 1997 Balanced Budget Act and is unlike any other payment formula used previously in that it limits the growth of health care spending to growth in the overall economy.    This benchmark also applies to only one area of Medicare spending, physician services, which comprise less than a quarter of total Medicare outlays. 

Why is this distinction so important? When Medicare officials inaccurately predict expenditure growth in any non-physician services, it is able to compensate for such an error in other areas of the Medicare budget.  Where physician services are concerned, the SGR binds the program to compound errors in the next year, magnifying the cost of a permanent solution. Cuts which began at 4.8% in 2002 have quickly grown to 27% in 2012 and 2013.

While optimistic, the balancing of physician service spending against real GDP, a figure outside of the healthcare system, sets the formula up for failure. The looming 27% reduction to physician payments represents a difference of just over 1% of the total outlays predicted back in 1997.  This represents $13 billion becoming $271 billion as a result of annual compounding with the only means of payment coming from physicians. As we all have seen, this Sustainable Growth Rate is not so sustainable after all.

As the work of the Senate Committee on Finance continues, your NCMS policy team will continue to offer updates and evaluations on the progress made with hopes for real change in the future. Suggestions made during roundtable discussion have varied from overhauling the current RVU system completely, to bolstering primary care rates, to bundling all Medicare payments. As you can see, the best mechanism for replacing the SGR is not yet obvious or agreed upon.

Until this occurs it is imperative that NCMS members reach out to their Congressman and Senators and explain the flawed mechanics of the SGR and encourage them to seek real solutions before the January deadline.

Roundtable documents and video of the proceedings can be accessed by visiting the Committee’s website here:


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