Background Briefing on the SGR

What's At Stake?

The Sustainable Growth Rate (SGR) formula - the mechanism that ties physician payment updates to the relationship between overall fee schedule spending and growth in gross domestic product - is fundamentally broken.

Although originally introduced as a mechanism to contain the growth in spending on physicians' services, a decade of short-term "patches" has frustrated providers, threatened access for beneficiaries, and created a budgetary dilemma from which Congress has struggled to emerge. Unless Congress acts by January 1, 2014, physician payments will be cut by approximately 24.4 percent in 2014. Over the last decade, Congress has spent nearly $150 billion on short-term SGR overrides to prevent pending cuts.

The 113th Congress has brought renewed commitment to repealing and replacing the flawed SGR update mechanism. This effort has been helped by the significantly reduced Congressional Budget Office score for a freeze of physician payments over the next 10 years ($116 billion) and the bipartisan proposal reported out by the House Energy & Commerce Committee in July.

The Legislation

Building on that effort, this bipartisan, bicameral discussion draft from the House Ways & Means and Senate Finance Committees seeks to move away from the current volume-based payment system to one that rewards quality, efficiency, and innovation.

The proposal would permanently repeal the SGR update mechanism, reform the fee-for-service (FFS) payment system through greater focus on value over volume, and encourage participation in alternative payment models (APM). The revised FFS system would freeze current payment levels through the 10-year budget window, while allowing individual physicians and other health care professionals to earn performance-based incentive payments through a compulsory budget-neutral program.

By combining the current quality incentive programs into one comprehensive program, this proposal would further value-based purchasing within the overall Medicare program while maintaining and improving the efficiency of the underlying structure with which professionals are already familiar.

Professionals who receive a significant portion of their revenue from an APM(s) that involves two-sided financial risk and a quality measurement component (referred to as an "advanced APM") would be exempted from the performance-based incentive program, and would instead receive a bonus payment starting in 2016. By providing funding for measure development priorities for professionals, the proposal would address the current gaps in quality measurement programs and ensure meaningful measures on which to assess professionals.

The proposal would encourage care management services for individuals with complex chronic care needs through the development of new payment codes for such services, as well as leverage physician-developed standard of care guidelines to avoid the unnecessary provision of services.

It would also improve the accuracy of the physician fee schedule by setting a target for correcting misvalued services and allow for the collection of information on resources used in furnishing services. The proposal would involve the health care professional community in furthering the measurement of resource use.

Recognizing the role of quality and resource use data in helping consumers make informed purchasing decisions and helping professionals improve their performance, the proposal would expand the data available to qualified entities (QEs) for quality improvement activities, as well as the information available on the Physician Compare website. 

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