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Adam Swanson

Senior Policy Associate, National Council for Behavioral Health

Medicare Sustainable Growth Rate Formula & Doc Fix Explained

March 9, 2014 | Medicare | Comments
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Since 2003, Congress has passed more than a dozen temporary fixes to Medicare’s Sustainable Growth Rate (SGR) formula – often referred to as the “doc fix.” This winter, Congress has made unprecedented progress toward repealing the complex and unpopular formula used to determine Medicare reimbursement rates for physicians. Two committees in the House – the Ways and Means Committee and the Energy and Commerce Committee – have passed, along with the Senate Finance Committee, recent bipartisan legislation to repeal the SGR formula permanently.

  • What is the Sustainable Growth Rate formula? In an effort to lower costs, Congress adopted the SGR formula in the late-nineties to manage the rates at which physicians are reimbursed for the Medicare-covered services they provide. At the time of the SGR’s adoption, legislators feared the impending growth of Medicare enrollees had the potential to jeopardize the program’s future. The SGR formula links Medicare physician spending to the U.S. economy’s annual rate of growth. This system of cost controls was considered to be sustainable over the long term. However, in practice, enforcement of the SGR would require ever-increasing pay cuts to Medicare physicians because healthcare costs have risen faster than the economy’s growth. With little political appetite for such a move, since 2001 this formula of checks-and-balances has been overridden by Congress with temporary patches to prevent Medicare reimbursement cuts, also known as the “doc fix.”
  • What is the “doc fix” and how is it related to the SGR? In 2001, the SGR formula was scheduled to implement its first set of Medicare physician payment cuts. After pressure from medical groups and seniors’ advocates, Congress put a halt to these cuts. In place of the cuts, Congress passed a temporary patch known as a “doc fix,” temporarily delaying the cuts from going into effect. The “doc fix” prevented the automated payment reductions under the auspice that cuts to Medicare reimbursement rates would affect retirees’ ability to access doctors. Congress has since passed more than a dozen temporary “doc fix” bills, and today, if SGR cuts were allowed to go into effect, they would cut Medicare’s physician reimbursement rates by nearly 25%, according to a report from the Congressional Budget Office.
  • How does the SGR affect National Council members? For National Council members that provide services to Medicare enrollees, this means that payment rates could drop. While on average, about 4% of National Council members’ revenue is from Medicare, organizations operating on razor-thin margins can ill-afford to lose even a small portion of their revenue. Moreover, advocates and other provider groups are closely monitoring the SGR reform bills as these bills often provide the only legislative vehicle on which other health-related bills can move forward.
  • What is Congress doing about the SGR today? Given that the most recent SGR “doc fix” patch is set to expire at the end of the month, physician groups are pushing hard to prevent another temporary fix in place for a more permanent solution. Legislators also appear to be ready for longer-term reform, but they are stymied by the question of how to pay for it. Under congressional scoring rules, it would cost well over $1 billion to repeal the SGR and replace it with something else. Although legislators have expressed a desire to craft a permanent fix, it is far from clear whether they will be able to overcome this major hurdle.