What Now? Replacing Medicare’s Failed Sustainable Growth Rate (SGR)
April 16, 2015
The worlds of Washington and health policy were abuzz last month as House leaders from both parties announced a permanent solution to Medicare’s “sustainable growth rate” formula that has been a legislative thorn for almost two decades.
The formula, introduced in 1997, limits increases in the amount that Medicare pays physicians. Each year, when healthcare cost growth has exceeded this growth target, Congress has passed a short-term measure called a “doc fix” to avoid making the stipulated cuts. While these temporary fixes have been funded by cuts elsewhere and by anticipated healthcare savings down the road, saving about $165 billion over time, many observers have called for a permanent repeal and substantive solution.
Last month, the House passed the legislation – “SGR Repeal and Medicare Provider Payment Modernization Act of 2015” which includes repeal in addition to cost-saving strategies. It was introduced by Rep. Michael Burgess, MD (R-Texas) and has 20 co-sponsorships, including 14 Republicans and six Democrats, and the public support of Speaker Boehner and Minority Leader Pelosi. The bill is an attempt to replace the faulty SGR formula and shift Medicare spending from a volume-based to value-based system by rewarding high quality care and not the sheer number of procedures performed. The bill is part of a larger package that includes two years of extended Children’s Health Insurance Program (CHIP) funding.
As always, paying for the bill was an issue. Senate Republicans in particular had reservations about the bill’s costs: its ten year cost is estimated at $200 billion. However, these numbers may be largely offset by not having to pay for future SGR patches—on which Congress spent $170 billion over the last twelve years—potentially bringing the cost down to $60-70 billion. 
The Senate reconvened this week and passed the bill within 48 hours; without the repeal of the SGR, physicians with patients, who are program beneficiaries, would have sustained pay cuts of 21%. Nominally, these cuts already went into effect on April 1st, but the Centers for Medicare and Medicaid Services (CMS) stated that they would not process payments until April 15th.
Many Republicans did not want to add more to the deficit with a bill that is not fully financed, while several Democrats, including all twelve on the Senate Finance Committee, had expressed discontent that CHIP funding is only guaranteed extension through fiscal year 2017 and would prefer extension through 2019. The impending deadline and the overwhelming desire to repeal the SGR pushed Senators displeased with several of the bill’s stipulations toward supporting it.
The payment-focused strategies have received the most media attention, as they are the direct successors to the SGR formula. These cost-saving measures include the following: rates paid to physicians will grow by 0.5 percent through 2019, freeze between 2020-2025, and grow by 0.5 percent or 1 percent (depending on whether a provider is in Advanced Payment Model programs) beyond. Other savings will come from higher premium payments from wealthier Medicare beneficiaries, higher out-of-pocket payment from Medigap beneficiaries (people who get supplemental coverage for services not include in their Medicare plans), and more limited payment increases to nursing homes and hospice and home care agencies.
There are also several delivery system-focused strategies that also have important cost-saving implications. These measures provide funding for chronic care management, more transparency on physician cost and service data, expanded availability of claims data, and measures to reduce administrative burdens faced by providers.
The chronic care management provision, effective from January 1st of this year, allows payment of $40.39 per member per month to physicians, physician assistants, nurse practitioners and midwives who provide at least 20 minutes of non-face-to-face care management activities for a patient with multiple chronic diseases. An analysis showed that a family practitioner can earn more than $200,000 in annual gross revenue from this program alone.  There is an unanswered question, though: will the value of these several minutes of chronic care management make a significant impact on downstream costs per patient and drive lower Medicare spending?
The provider transparency provision, beginning this year, makes available information about payments made to physicians in the Medicare program, as well as the kind and frequency of services each unique physician offers. The Medicare Physician Compare website is currently limited to basic information about each provider, but there is a plan to add service, cost and quality information “as soon as technically feasible.” This information is intended to make it easier for beneficiaries to select providers appropriate for their needs.
The expanded data availability provision, beginning in July 2016, allows qualified entities to analyze combined (both claims and non-claims) Medicare datasets to help private healthcare providers and physicians improve their quality of care, better understand their populations, and develop new models of care. The data must be provided free of charge and will be subject to privacy protections, but the provision represents a relaxation of previous constraints.
The provision to reduce administrative burden emphasizes EHR interoperability and telehealth. The bill sets a goal to achieve “widespread exchange of health information through interoperable certified EHR technology nationwide” by the end of 2018 and proposes creating a website that helps providers choose the best systems for their practice. The bill also encourages research on telehealth and remote patient monitoring services, where devices are used to gather information and ask questions, the data from which can be interpreted by a healthcare professional.
In the context of the long history of failed sustainable growth rate fixes, as well as the future trillions of dollars in unfunded liabilities for the Medicare program, there is uncertainty for the future. The issue now facing legislators and policymakers is this: how do we make up for the savings that the SGR was supposed to create now that it might be repealed?
1. Joyce Frieden, “Negotiations Heat Up on Permanent SGR Fix,” MedPage Today, March 17, 2015. http://www.medpagetoday.com/PublicHealthPolicy/Medicare/50515.
2. Jon Reid, “Political Pressure Could Stifle Amendments to SGR Repeal,” Morning Consult, April 3, 2015. http://morningconsult.com/2015/04/political-pressure-could-stifle-amendments-to-sgr-repeal/.
Additional Blog Posts
Student Blog Disclaimer
The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.