The Unsustainable Sustainable Growth Rate

The ideological rift between Republicans and Democrats in Washington has never been wider, but there is one issue that enjoys broad bipartisan support: Fixing the SGR. Sure, it’s not a permanent fix, but as of December 18th, both houses of Congress have passed budgets that delay a 24 percent cut in Medicare fees dictated by the current Sustainable Growth Rate (SGR) formula. The budget deal also lays the groundwork for permanently repealing the SGR, and for creating a Medicare payment system that rewards quality and provides other incentives for primary care physicians.

The battle over Medicare physician payment rates has become an annual ritual for Congress—and a perennial headache for physicians. In 1997, Congress created the Sustainable Growth Rate formula as part of the Balanced Budget Act. The concept was based on the notion that growth in Medicare payments to physicians should not exceed the growth in Gross Domestic Product. The SGR formula is supposed to adjust the physician fee schedule such that total payment for all Medicare physician services does not exceed a “sustainable” level. This sounds like a good idea on paper, but in practice, the SGR has been a complete disaster. Two years ago, MedPAC (Medicare Payment Advisory Commission), the entity that advises Congress on Medicare fees, declared the SGR a failure and recommended a total repeal of the law.

Rather than restrain costs in the Medicare program, the SGR has actually exacerbated the problem. By restricting fee increases, the SGR incentivizes physicians to increase the volume of services provided to Medicare patients in order to maintain their share of the fixed budget “pie.” Even worse, the SGR harms primary care physicians by undermining efforts to maintain payment parity between procedure-based specialties and cognitive-based specialties. Specialties that derive the greater part of their revenue from procedures have greater latitude to increase their volumes, while cognitive services such as primary care are disadvantaged by having limited capacity to increase volume.

Wait, it gets worse. Because the SGR ties total Medicare payments to growth in GDP, downturns in the economy result in downward adjustments to the physician fee schedule. Consequently, compliance with the SGR formula would have resulted in steep cuts in reimbursement every year since 2002. Over the past 10 years, the AAFP and other physician groups—along with consumer groups like the AARP who rightly worry that drastic cuts would limit patient access—have successfully pressured Congress to override the SGR adjustment. Each year Congress has delayed the cuts in cliffhanger fashion, hence the projected 24 percent cut looming over this year’s budget negotiations.

Faced with indisputable evidence of the failure of the SGR, and with bipartisan support for repeal, you may wonder why it has taken so long for Congress to get around to addressing this issue. While it is easy to point out the obvious flaws in the current system, finding a replacement for the SGR is not a simple task. It will be very expensive, costing between $116 billion and $153 billion over the next 10 years according to Congressional Budget Office projections. Repealing the SGR will also force us to make some difficult choices. Among physician specialties, there will likely be winners and losers as Medicare moves away from the current volume-driven system, and implements new payment models proposed by SGR reformers.

Despite these obstacles, a bipartisan consensus is emerging on Medicare payment reform after the SGR is finally repealed. Although the details have not been worked out, the following concepts are gaining support:
  • Freezing or severely limiting physician fee increases under the fee-for-service system for the next 10 years.
  • Moving away from fee-for-service to alternative payment models based on outcomes and quality.
  • Consolidating existing quality improvement programs (PQRS, Meaningful Use) into a single Value-Based Performance Payment Program
  • Providing reimbursement for complex chronic care services, a concept long supported by primary care groups.
  • Promoting evidence-based care, and eliminating payment for services that do not meet standards of efficacy.
  • Identifying mis-valued (i.e., overpriced) services and redistributing savings derived from reductions in reimbursement for these services.
Our Academy has been an active player in promoting Medicare payment reform, and supporting these efforts should be a priority for all family physicians. Fixing the SGR will preserve the financial viability of primary care practices, maintain patient access, and end the perverse incentives that reward volume at the expense of quality. Replacing the broken fee-for-service system with a payment model based on value will improve the care received by our patients, and insure the financial stability of the Medicare program. Repealing the SGR may be difficult and expensive, but the cost of continuing this failed policy is truly unsustainable.

This article was published in South Carolina Family Physician.