The Sustainable Growth Rate or SGR is a formula adopted by Congress in 1998 to determine payment to physicians for services provided to Supplemental Medical Insurance (Part B of Medicare) patients. The SGR was established to manage spending on physician services. Part B of Medicare also pays for outpatient hospital services, durable medical equipment, physical therapy, and other outpatient services, but payments for these services are adjusted each year for inflation.
The SGR is designed to control spending on medical services by setting an annual target for spending on physician services including laboratory testing, imaging services, and physician-administered drugs. This target is measured on an annual and cumulative basis. If spending is less than the target amount, payments to physicians for services will be increased. If spending is more than the target amount, payments will be decreased.
Since 2002, spending on physician services have been above the targets set by the law. At the end of 2005, spending was approximately 30 billion dollars over the target level. Fees paid to physicians should have been cut by 25 -35% but lobbying postponed these cuts.
How is the Sustainable Growth Rate determined?
According to the Congressional Budget Office, the SGR uses spending that occurred from April 1, 1996 and March 31, 1997 as the base for future spending counted toward the target. The amount paid for services in that time period was $48.9 billion dollars. This amount is multiplied by a complicated growth rate formula which includes:
- adjustments for inflation
- Medicare enrollment
- a 2.2% estimation of the 10 year annual change in gross domestic product (GDP) per capita
- and a measure of how changes in law will effect spending for services.
Payments determined by the SGR have been lower than the Medicare Economic Index (MEI), which measures changes in the cost of physician time and operating expenses since 2002. Congress reduced payments to physicians by 4.8% in 2002. Since then, Congress has frozen or deferred the reduction in payments to physicians due to concerns that physicians will not see Medicare beneficiaries.
SGR from the New England Journal of Medicine
What does SGR mean to me?
Without Congressional intervention by the end of 2011, physicians are projected to have a 29.5% reduction in Medicare reimbursements on January 1, 2012. Since 2002 physicians and Congress have grappled time and again with the scheduled cuts to reimbursements. The scheduled cuts have consistently been postponed. The Congressional Budget Office acknowledges in their 2006 brief, that physicians have compensated for falling reimbursement rates by increasing the number of patients whom they see. As reimbursement rates fall and practice expenses rise, the ability of physicians to see Medicare patients becomes compromised. Both the American Medical Association and the Medical Society of Virginia are organizing efforts to repeal the SGR.
5 Things You Should Know About Medicare Reimbursement History
- When Medicare was created in 1965, Medicare compensated physicians based on their charges. Additionally, physicians could bill patients for the full amount above what Medicare paid for the service.
- In 1975, reimbursement was still linked to physician fees but they could not increase annually more than the Medical Economic Index (MEI).
- Frustrated by rising costs, the yearly changes in fees were set by policy makers between 1984 and 1991.
- In 1992, the payment system based on physician charges was replaced by a fee schedule. The purpose of this fee schedule was to redistribute spending among various physician specialties.
- In 1998, the SGR was created. Between 1998 and 2005, spending per beneficiary under this schedule grew by 65%.
Much of the information used to compile this was summarized from the Congressional Budget Office Economic Budget and Issue Brief 9/6/06.