Medicare Sustainable Growth Rate

Background of the Medicare Sustainable Growth Rate

The Medicare Sustainable Growth Rate, SGR came into effect following the enactment of the Balanced Budget Act of 1997. Until April 2015 when the President signed the Medicare Access and CHIP Reauthorization Act of 2015, the Centers for Medicare and Medicaid Services (CMS) used SGR as a method of regulating Medicare physician services. CMS always developed a report, detailing the previous year’s expenditure to allow Congress adjust the payments for Medicare physician services.

How Medicare Sustainable Growth Rate worked

In recent years, SGR’s payment system recommended drastic reduction of Medicare physician services. However, this did not happen, as it would have forced many physicians to exit the Medicare system, resulting into a deficit in personnel.

Congress adopted SGR in 1997 by amending the Social Security Act, replacing the Medicare Volume Performance Standard (MVPS), a formula that CMS applied to tame costs. The main reason behind Medicare Sustainable Growth Rate was to ensure that the cost per American benefiting from Medicare did not surpass the country’s growth in Gross Domestic Product, GDP. Thus, CMS was tasked with submitting a report to the Medicare Payment Advisory Commission, which made recommended recommendations to the Congress, on previous and target expenditures.

CMS report also carried a conversion factor, which was likely to alter payments for Medicare physician services during the following year in order to tally with the target of SGR. If previous expenditure fell below the target expenditure, then the conversion factor would increase payment for physician services for the next year and vice versa. However, the execution of the physician fee to agree with SGR target could be adjusted by Congress or suspended. This phenomenon, which was regular, was called doc fix. This repeated job of executing a doc fix that resulted into permanent annulment of the SGR in April 2015.

The Status of Medicare Sustainable Growth Rate

Prior to the repeal of Medicare Sustainable Growth Rate permanently, Congress and the House of Representatives engaged in high-level efforts to beat deadlines. For example, in March 2014, the House of Republicans endorsed the H.R. 4015, which was reviewed to support the bill. This was aimed at delaying the Affordable Care Act’s personal mandate provision that would last five years. However, President Obama observed that it was impossible for the Democratic-controlled Senate to pass the bill with the provision.

With the repeal of the SGR, it is clear that American now has permanent changes in the manner in which physicians conducting advanced imaging services are paid. This would allow the use of an appropriate criterion. By the 2017, the Secretary of Health and Human Services must have in place a program that supports the use of AUCs for advanced diagnostic imaging services (ADIS). In addition, by November 15, 2015, the Secretary, upon consulting all the stakeholders will identify AUCs that will be part of the program.

The effects of the Medicare Sustainable Growth Rate

Even with its repeal of the Medicare Sustainable Growth Rate, it is evident that the formula had significant impact. For example, SGR led to an increase in the payment rates, especially in cases when Medicare physician services cost fell below the GDP. It also reduced provider payments whenever the payment for the services exceeded the GDP. Because of this regulatory mechanism, SGR was the reason behind the unpredictable number of Medicare beneficiaries, service cost, and changes in legislation, according to the Health Affairs.
In addition, SGR encouraged Medicare providers to deliver more and more services. This led to an increase in services provided, to surpass the GDP. Consequently, there was always need to slash provider pay. This had negative impact as fewer and fewer providers were willing to serve Medicare patients. This forced Congress to take several actions to adjust the pay, and keep it competitive to retain service providers.

With the adoption of MACRA, payment of Medicare participants was shifted to a Merit-Based Payment Incentive System (MIPS). This will ensure that the payment of a provider will depend on performance and the quality of services rendered to patients. With a new system already in place, only time will tell if SGR was the best method or an obsolete formula whose time was gone.


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