Massachusetts Medical Society: The Facts About the SGR

The Facts About the SGR

The Sustainable Growth Rate (SGR) is an element of the Medicare physician payment formula that ties annual changes in payment rates to fluctuations in various economic benchmarks. There is bipartisan agreement that the formula inaccurately compensates physicians for the cost of medical practice, and has destabilized the finances of the Medicare program.

  • In 2002, the Medicare conversion factor was reduced by 5 percent due to the SGR. From 2003 through 2014, Congress enacted 16 separate laws to prevent additional SGR-driven pay cuts.
  • From 2001 to 2014, the average annual Medicare physician payment update has been about 0.3 percent—barely above a freeze.
  • The Congressional Budget Office (CBO) cost estimate for replacing the 2007 SGR cut with a freeze was $3 billion (over 10 years). The CBO score for preventing the 2014 SGR cut for only three months was more than $7 billion.
  • In 2007, the SGR would have cut Medicare physician payment rates by 5 percent. By 2014, the size of the cut had grown to about 24 percent, with an additional 2 percent cut required by the Budget Control Act of 2011.
  • Congress should take advantage of the new, significantly reduced CBO cost estimate of $116 billion to prevent SGR cuts for 10 years and act immediately to repeal the SGR formula.
  • According to the Medicare Payment Advisory Commission, Congress will never have a better opportunity to eliminate the formula than it does right now. The Commission believes SGR repeal is an urgent matter.
  • The combined cost of the 16 bills that Congress has already enacted that temporarily stopped SGR cuts for periods of from one month to two years was $154 billion. Instead of investing these funds in real physician payment reform, however, these temporary patches have left the same failed formula in place.
  • Although Medicare physician payment rates have barely moved since 2001, the government’s measure of inflation in medical practice costs has risen 26 percent. From 2001 to 2012, average inflation-adjusted Medicare payment rates fell by 17 percent.

- American Medical Association

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