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Abolishing The SGR Abolishing The SGR

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Abolishing The SGR

As lawmakers consider ways to pay for health reform, use our glossary of potential offsets to get caught up fast.

Updated at 2:10 p.m. on Nov. 23 to reflect continuing legislation.


The sustainable growth rate mechanism that determines how much doctors are paid by Medicare would be replaced with a formula that adjusts to the changing costs of patient care.


Executive Summary

Consensus among stakeholders in the health care debate has always been elusive, but the biggest health care groups agree on at least one thing -- the Sustainable Growth Rate mechanism used to pay physicians has to go. The high cost of paying doctors more without any offsets doomed its inclusion in a health care bill, though it is still a key issue for Congress.

The AMA has declared reforming SGR to be this year's top priority and in March called on Congress to incorporate a new payment plan into health care reforms. And in June, 64 health care groups signed onto a recommendation to eliminate the SGR by replacing it with a plan tied to changing costs.

"[SGR is] flawed, it's been flawed for a long time and everyone knows that it's flawed," said Mandy Krauthamer, the policy director of Doctors For America. "Health care is subtle and the costs are always changing, so doing something like hatcheting the overall caps is hard to do."


SGR sets yearly and cumulative targets for Medicare spending on physicians and updates those marks annually to tie them to the overall growth of the economy. Physician payments can't grow faster than the economy, which has consistently meant cuts over the past decade. According to the Centers for Medicare and Medicaid Services fee schedule, physicians would face a 21 percent cut in payments in 2010.

Congress has been responsive to doctors' cries, stemming SGR cuts whenever requested, and CMS proposed modifying the formula in June to accommodate rising drug costs. A long-term fix, though, has been elusive because of costs that could reach more than $250 billion over 10 years. The Congressional Budget Office outlined alternatives that include freezing payment rates at their 2009 levels for the next 10 years, but SGR will more likely be replaced with a model that provides annual adjustments alongside the Medicare Economic Index. The MEI measures inflation for physician expenditures, including increases in treatment and drug costs and changes in volume of patients.

Rather than considering all types of treatment as one equal group to calculate the SGR, which leaves low-cost primary care doctors with the same rates as those providing expensive treatments, different billing groups would be created. This is intended to ensure payments adjust according to doctors' specific services rather than letting larger spending trends decide.

Another proposal pays doctors a direct salary. Proponents say this would discourage doctors from stockpiling patients to turn a profit and encourage them to spend more time organizing a care package for each individual. However, a salary is unlikely to happen in lieu of SGR reform or other payment change.


Though a physician pay fix will not be in a final plan, doctors expect to see some sort of reform pass. The House passed a more substantial physician payment reform, but a massive bill failed in the Senate. A short-term fix is more likely.

Max Savings

The CBO estimates that changes to SGR wouldn't save any money to pay for health care. In its December 2008 report, the CBO projected that creating a service-specific update for physician payment rates would actually cost $73 billion by 2014, and $184 billion by 2019. A system that uses the MEI to update physician payment rates would cost $88 billion by 2014 and $253 billion by 2019. What it lacks in dollars, physicians say it makes up in saved headaches.


The original House bill called for a restructured formula, setting reimbursement rates to reflect inflation. However, it was ultimately cut to reduce the bill’s price tag, and the fix was left out of the Senate plan. A bill to permanently repeal the SGR passed the House but fell in the Senate. Observers say a short-term fix that eliminates the 21 percent cut and may extend over two to three years is more likely.


AMA names SGR reform its top priority

AMA: Medicare Physician Reform needed this year

Joint recommendations on eliminating the SGR

CMS physician fee schedule for 2010

In 2008, Senate votes to block pay cuts for doctors

Medicare proposes incorporating Plan B drug costs into SGR

CMS analysis on the effect of MEI on the physician pay update

• House votes to scrap Medicare doctor pay formula

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