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The Medicare Sustainable Growth Rate (SGR) is a method currently used by the Centers for Medicare and Medicaid Services (CMS) in the United States to control spending by Medicare on physician services. Enacted by the Balanced Budget Act of 1997 to amend Section 1848(f) of the Social Security Act, the SGR replaced the Medicare Volume Performance Standard (MVPS), which was the previous method that CMS used in an attempt to control costs. Generally, this is a method to ensure that the yearly increase in the expense per Medicare beneficiary does not exceed the growth in GDP. Every year, the CMS sends a report to the Medicare Payment Advisory Commission, which advises the U.S. Congress on the previous year's total expenditures and the target expenditures. The report also includes a conversion factor that will change the payments for physician services for the next year in order to match the target SGR. If the expenditures for the previous year exceeded the target expenditures, then the conversion factor will decrease payments for the next year. If the expenditures were less than expected, the conversion factor would increase the payments to physicians for the next year. On March 1 of each year, the physician fee schedule is updated accordingly. The implementation of the physician fee schedule update to meet the target SGR can be suspended or adjusted by Congress, as has been done regularly in the past (a doc fix). Physician groups, including the American Medical Association and the American Osteopathic Association, lobby for a permanent reform to the SGR so that physician payment rates are not subject to annual cuts (a permanent doc fix).
Section 1848(f)2 of the Social Security Act specifies the formula for calculating the SGR. There are four factors used in calculating the SGR:
Prior to the enactment of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), the SGR was calculated using a single year's real GDP per capita. Since the MMA was enacted in 2003, the SGR is calculated using a 10-year annual average growth in real GDP per capita.
In order to meet the target SGR for the next calendar year, the physician fee schedule is updated accordingly. The update is calculated using two factors:
The MEI measures the weighted average price change for various inputs involved with producing physicians’ services. The UAF compares actual and target expenditures, and is determined by a formula that includes the target and actual expenditures and the SGR. By law, the UAF can not exceed -7.0%.
Section 101 of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA) provided a 1-year update of 0% for the conversion factor for CY 2007 and specified that the conversion factor for CY 2008 must be computed as if the 1-year update had never applied. Section 101 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) provided a 6-month increase of 0.5% in the CY 2008 conversion factor, from January 1, 2008, through June 30, 2008, and specified that the conversion factor for the remaining portion of 2008 and the conversion factors for CY 2009 and subsequent years must be computed as if the 6-month increase had never applied. Section 131 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) extended the increase in the CY 2008 conversion factor that was applicable for the first half of the year to the entire year, provided for a 1.1% increase to the CY 2009 conversion factor, and specified that the conversion factors for CY 2010 and subsequent years must be computed as if the increases had never applied.
The estimated SGR to go into effect on March 1, 2010 was -8.8%, and the conversion factor for the physician fee schedule was -21.3%. On March 3, 2010, Congress delayed the enforcement of the conversion factor until April 1, 2010 with the passage of the Temporary Extension Act of 2010. On April 15, 2010, Congress enacted the Continuing Extension Act of 2010 to again delay the implementation and extended the 2009 rate to June 1, 2010. On June 25, 2010, President Obama signed the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 that not only delayed implementation of the conversion factor until December 1, 2010 but also increased reimbursements by 2.2%. The 2.2% increase was retroactive to June 1, 2010, and expired on November 30, 2010. On December 16, 2010, President Obama signed the Medicare and Medicaid Extenders Act of 2010 into law, delaying the implementation of the SGR until January 1, 2012. This prevented a 25% decrease in Medicare reimbursements from taking effect on January 1, 2011.
When President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012 on February 22, 2012, the implementation of the conversion factor was again delayed until January 1, 2013, when the cut was estimated to be 27.4%. Congress passed the American Taxpayer Relief Act of 2012 on January 1, 2013, which states in section 601 that the conversion factor for 2013 "shall be zero percent." This delays the implementation of the conversion factor until January 1, 2014.
On March 14, 2014, the United States House of Representatives passed the SGR Repeal and Medicare Provider Payment Modernization Act of 2014 (H.R. 4015; 113th Congress), a bill that would have replaced the SGR formula with new systems for establishing those payment rates. The Congressional Budget Office (CBO) estimated that enacting H.R. 4015 would increase direct spending by about $138 billion over the 2014-2024 period. The American Medical Association's president Ardis Dee Hoven argued strongly in favor of the bill, calling the current SGR "fiscally foolish" and "fatally-flawed." According to Dr. Hoven, the costs associated with caring for seniors have risen 25 percent since 2001, but Medicare payments to doctors have not even increased 4 percent over the same time period. The Medicare portions of the bill had broad support and reflected a year's worth of debate and negotiation. However, House Republicans attached provisions to delay the individual mandate for five years to the bill, arguing that people should not have to buy insurance or pay a fine due to the wide variety of delays and exemptions that businesses had received. Delaying the individual mandate would also have the unexpected effect of saving the government money, since fewer people would sign up and would require fewer subsidies to pay for their insurance. The proposal to pay for the expensive change to the Medicare payment system by delaying the individual mandate was made by Rep. Dave Camp (R-MI). This action, according to the Congressional Budget Office, would save the government $170 billion.
The SGR was supposed to trigger the next set of Medicare reimbursement cuts on April 1, 2014, for cuts of 24 percent. In order to avoid this, the House and Senate turned to yet another bill to delay the SGR cuts until March 2015. That bill was the Protecting Access to Medicare Act of 2014 (H.R. 4302; 113th Congress).
The table on the left is a table of past years' SGR. Prior to the MMA, the MVPS was in use instead of the SGR. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) changed the calculation from fiscal year (FY) to calendar year (CY). The table on the right is a list of the actual yearly MEI and physician fee update conversion factor. The physician update reflects a weighted average for FY 1991-1993 when there were two different updates (one for surgery and one for other services), and for FY 1994 through FY 1997 when there were three different updates (for surgery, primary care, and other services). The Balanced Budget Act of 1997 consolidated service-specific updates so that starting in FY 1998, primary care, surgical, and nonsurgical services were updated by the same rate.