Will the SGR Ever Get Fixed?

Harris Meyer


April 10, 2013

In This Article


Thanks to Medicare's sharp cost slowdown, Congress now has the best opportunity in many years to solve the festering problem of the sustainable growth rate (SGR) system for setting physician pay, experts say.

There's near-universal agreement that the Medicare SGR formula has been a disaster and should be scrapped. It's also widely agreed that the solution should include an accelerated shift from fee-for-service -- which is widely blamed for the federal program's cost problems -- to alternative, performance-based payment models. In addition, reformers want a broad package of Medicare cost-saving changes that affect all stakeholders. Some want to pay primary care physicians more and procedural specialists less as part of the deal.

A bipartisan House bill to junk the SGR formula and replace Medicare fee-for-service payment was introduced in February. Some key members of Congress say a standalone solution is possible this year, whereas others insist an SGR fix must be part of a broad budget deal. Although Democrats and Republicans agree on the general outline of a physician payment reform package including the SGR repeal, it's not at all clear whether the 2 parties can resolve their perennial battle over how to pay for it.

Many Stumbling Blocks

Clouding the picture further, SGR repeal-and-replace proposals are likely to run into tough political resistance from some physician and healthcare industry groups because they involve financial pain. Physician specialty groups are hardly thrilled about having their rates curbed to boost primary care payments. And hospitals, pharmaceutical companies, and other providers and suppliers don't want offsetting cost reductions to come out of their hides either.

"The solution to the SGR has to be part of a bigger package of cost reductions," says Jeff Goldsmith, a veteran health policy analyst based in Charlottesville, Virginia. who just wrote a policy blueprint on physician payment for The Physicians Foundation. "I like the idea of broadening it beyond just doctors."

Despite the tough odds, there's more hope this year than in past years. "I'm guardedly optimistic it may get fixed this year," says Paul Ginsburg, President of the Center for Studying Health System Change. "The combination of the lower price tag and the potential of a debt reduction package makes 2013 a much better opportunity for a permanent fix than we've ever had before. But it's still a heavy lift."

The new wrinkle making a solution more likely is that the nonpartisan Congressional Budget Office (CBO) projected in February that repealing the SGR formula and simply freezing current Medicare physician payment rates for 10 years would cost $138 billion. That's far less than the $245 billion the CBO estimated last summer, or the $316 billion the agency estimated at the start of 2012.

That cost projection has plummeted because growth in Medicare spending on physician services has slowed over the past 3 years. For example, the volume of diagnostic imaging services, which soared in the early 2000s, has flattened since 2008.

"The $138 billion number is small enough that a bipartisan package of Medicare reforms and cuts probably could get through," says Tom Scully, a partner at the investment firm Welsh, Carson, Anderson & Stowe who served as Medicare chief under the President George W. Bush. He oversaw the only SGR formula cuts ever carried out, and faced the heat from physicians.