How the SGR Medicare physician-payment formula became flawed and why a fix is unlikely in 2014

Even before its passage into law in 1997, the Sustainable Growth Rate (SGR) Medicare physician-payment formula was inherently flawed and doomed to worsen the problem it was intended to fix. By artificially, and unfairly, linking physician payments under Medicare to changes in the gross domestic product (GDP), the Balanced Budget Act of 1997 established a system of payment that has actually worsened spiraling spending in the Medicare program. Since 2002, the SGR has likely led to higher Medicare spending by encouraging physicians to increase the volume of services provided to compensate for negative or negligible updates in reimbursement. Because everyone in the universe agrees that the SGR system is broken, physician advocacy groups, like the American Medical Association (AMA) and ACEP, annually parade to Capitol Hill to beg, plead, and demand that Congress fix the problem and replace the flawed formula. Unfortunately, more political posturing and a lack of true leadership in Congress will likely have us parading up to Capitol Hill again this year. How we ended up with a broken formula is easy to understand, but how to fix is not.

The History of Medicare Physician-Payment Reform and the SGR

Close your eyes, and imagine you are a “GP” back in the early 1970s. In many cases, after a claim for services was submitted, the check that arrived was actually for the full amount you billed, assuming the Medicare carrier felt the charge was reasonable under the “customary, prevailing, and reasonable” (CPR) system. There were no hard limits on payment per service. Now, I know many of you have opened your eyes and have screamed, “No way!” Better yet, if Medicare didn’t pay you the full amount billed, you could legally balance-bill your patient. Well, to no one’s surprise, Medicare expenditures began to rise under this system as more people enrolled in Medicare and more services were provided. Since the mid-’70s, Congress has failed to limit the amount of spending for Medicare Part B payments to physicians.

“Those who cannot remember the past are condemned to repeat it.” —George Santayana

Starting in 1975, Congress has attempted to reduce Medicare spending on physician services through a series of equally ineffective spending-control systems (eg, Medicare Economic Index [MEI], Medicare Fee Schedule [MFS], Resource-Based Relative Value Scale [RBRVS], and Medicare Volume Performance Standards [MVPS]). None of them worked.