Vachette Pathology

Federal law requires Medicare payments to be adjusted yearly using the Sustainable Growth Rate (SGR) formula. The SGR is a major component of Medicare’s current formula for determining annual updates to physician reimbursements. The SGR was intended to be a budgetary restraint on Medicare’s total expenditures to maintain budget neutrality. The Economic and Budget Issue Brief, September 6, 2006, states policymakers had two main goals in mind when they adopted the SGR Mechanism in 1998:

1. ensuring adequate access to physicians’ services, and
2. controlling federal spending for those services in a more predictable way than the previous Volume Performance Standard (VPS) did.

The SGR is based on the following factors:

1. Estimated change in fees for physician’s services
2. Estimated change in enrollment
3. Estimated growth in real gross domestic product per capita
4. Estimated change due to law and regulations

According to a 2009 Federal Legislative Issue Brief titled Medicare Sustainable Growth Rate; while physician fees continue to go down, Medicare payments to hospitals continue to go up because they are tied to the Medicare Economic Index (MEI), which is Medicare’s measure of the increasing costs of providing medical services. Payments to Medicare Advantage plans have also risen steadily. A Robert Wood Johnson Foundation-backed study found private fee-for-service (PFFS) plans in 2008 cost $2.5 billion more than it would have under traditional Medicare.

It has become a classic example of robbing Peter to pay Paul. Looking at Medicare’s fee schedule for the past ten years, Medicare has cut physician fees almost every year. In fact, the National Intelligence Report Vol. 09, Iss. 8 states in 2010, fees are scheduled to be cut by 21% under the SGR unless Congress intervenes. The American Medical Association (AMA) reports Medicare physician payments will be cut about 40% by 2016 with practice costs rising nearly 20% during this same time.

For more information, contact Mick Raich.