The Sustainable Growth Rate Formula: Medicare’s Payment to Doctors

December 15, 2011

The Sustainable Growth Rate Formula:
Medicare’s Payment to Doctors

Think the “automatic cuts” triggered by the Super Committee’s failure will actually happen? Not so fast. If we look to “cuts” triggered by the Balanced Budget Act of 1997, history shows us that Congress routinely blocks this deficit reduction measure from taking effect.

Budget Gimmicking at Its Finest

- What is the SGR?

- A Costly Fix

- Budget Gimmicks

- History of Congressional Action

What is the SGR?

In 1997, Congress passed the Balanced Budget Act in an effort to reduce budget deficits. Part of this law outlined a “sustainable growth rate” (SGR) for Medicare payments to doctors under Medicare Part B (for an explanation of Medicare Part B, check out our Budget Briefing Book). The SGR attempted to control the growth rate for Medicare Part B expenditures.[1] Medicare Part B’s expenditures come from a fee schedule that contains a list of “…over 7,000 tasks and services for which physicians bill Medicare[2].” In other words, this fee schedule determines what Medicare Part B pays doctors.

The SGR was created because of the concern that what Medicare Part B pays doctors would not constrain spending increases for doctors’ services. Thus, the formula was created to attempt to constrain growth in Medicare spending.[3] The 1997 law limited Medicare’s reimbursement to doctors so the “total pay for physicians could not exceed the growth rate of the rest of the economy.”[4] The only time the cuts called for in the 1997 Balanced Budget Act ever went into effect was in 2002, which was the first time the formula called for cuts (of 4.8 percent). In every year since then, Congress has taken actions to override the reductions called for in the SGR formula.[5] The current SGR block lasts until the end of this year.

A Costly Fix

Why has Congress only enacted temporary fixes for the SGR? Generally, its because it “costs” too much to eliminate the SGR on a permanent basis.[6] Last June, the independent Congressional Budget Office estimated that for a ten-year period, it would cost $275 billion to “maintain physician pay at current levels over the next ten years” (emphasis added because these payments have been increased over time).[7]

Late last year, Congress passed a bill that blocked the SGR until the end of this year. This one-year patch cost $14.9 billion.[8] If Congress doesn’t act and SGR is allowed to go forward in 2012, payments to doctors for certain Medicare services would fall by nearly 30 percent. If this were to happen, many believe that a large amount of doctors would stop seeing Medicare patients altogether.[9] Based upon Congress’ past actions, it is very unlikely that Congress would allow the SGR to take effect.

Budget Gimmicks

Instead of dealing with the SGR issue in a responsible way, Congress has primarily used two strategies to deal with Medicare’s payments to physicians: clawback and cliff legislation.

1)    Clawback legislation (used from 2004 through 2006): temporarily prevents the scheduled SGR reductions but allows the SGR to make up for the additional spending in future years. By 2007, the clawback mechanism could no longer be used because it could no longer recoup the costs within Congress’ traditional ten-year budgeting window.[10]

Simply put, the clawback is a budget gimmick because Congress’ past actions have proved it had no intention of allowing such a decrease to go into effect.

2)    Cliff legislation (primarily used since 2007): temporarily prevents the scheduled SGR reductions but overrides the law that caps the reduction in proceeding years. Specifically, cliff legislation overrides the law that says that rate reductions cannot be more than seven percent in any year. This means that if the SGR was enacted next year, there is a 29.4 percent cliff. If nothing is done before the end of this year, payments to doctors for Medicare Part B services would fall 29.4 percent[11].

Simply put, the cliff is also a budget gimmick because the cost of the legislation is zero outside of the temporary fix and Congress’ past actions have proved it has no intention of allowing such a decrease to go into effect.

History of the SGR[12]

2002 First time the Medicare formula created by the 1997 Balanced Budget Act triggered cuts in Medicare spending; payments to physicians were reduced by 4.8 percent.
2003 Congress overrode scheduled reduction and instituted a 1.4 percent increase.
2004 Congress overrode the scheduled reduction and instituted a 1.5 percent increase for both 2004 and 2005.
2006 Congress overrode the scheduled reduction and froze payments at the 2005 level.
2007 Congress overrode the scheduled reduction and froze payments at the 2006 level.
2008 Congress overrode the scheduled reduction and allowed for a 0.5 percent increase from January to June of 2008.
2009 Congress overrode the scheduled reduction and allowed a 0.5 percent increase from July to December 2008 and a 1.1 percent increase for 2009.
2010 Congress overrode the scheduled reduction; froze payments at the 2009 level through June 2010; increased payments by 2.2 percent through December 2010.
2011 Congress overrode the scheduled reduction and froze rates at the December 2010 level.

 


[1] Congress Research Service:  Medicare Physician Payment Updates and the Sustainable Growth Rate System, August 6, 2010

http://aging.senate.gov/crs/medicare15.pdf

[2] Congressional Research Service:  Medicare Physician Payment Updates and the Sustainable Growth Rate System, November 30, 2011. P. 1.

[3]Congressional Research Service:  Medicare Physician Payment Updates and the Sustainable Growth Rate System, November 30, 2011. P. 2.

[4] The Fiscal Times: Is There a Doctor Fix in the House…and Senate? November 23, 2011. http://www.thefiscaltimes.com/Articles/2011/11/23/Is-There-a-Doctor-Fix-in-the-House-and-Senate.aspx#page1

[5] Congressional Budget Office:  Medicare’s Payment to Physicians.  June 2011

http://www.cbo.gov/ftpdocs/122xx/doc12240/SGR_Menu_2011.pdf

[6] Annual Report of the Boards of Trustees of the Federal Hospital Insurance Fund and Federal Supplemental Medical Insurance Trust Funds. https://www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf. Pp. 210 – 211.

[7] The Fiscal Times: Is There a Doctor Fix in the House…and Senate? November 23, 2011. http://www.thefiscaltimes.com/Articles/2011/11/23/Is-There-a-Doctor-Fix-in-the-House-and-Senate.aspx#page1

[8] CQ.com.  Fact Sheet on Legislative Week of December 6, 2010.  Subscription required.

[9] Annual Report of the Boards of Trustees of the Federal Hospital Insurance Fund and Federal Supplemental Medical Insurance Trust Funds:

https://www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf. Pp. 210 – 211.

[10]Congressional Budget Office:  Medicare’s Payment to Physicians.  June 2011.

http://www.cbo.gov/ftpdocs/122xx/doc12240/SGR_Menu_2011.pdf

[11]Congressional Budget Office:  Medicare’s Payment to Physicians.  June 2011.

http://www.cbo.gov/ftpdocs/122xx/doc12240/SGR_Menu_2011.pdf

[12] Congressional Budget Office:  Medicare’s Payment to Physicians.  June 2011. http://www.cbo.gov/ftpdocs/122xx/doc12240/SGR_Menu_2011.pdf

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