Medicare Physician Compensation

What’s wrong with the SGR?

Why are doctor’s always complaining about the sustainable growth rate (SGR) issue? What is the SGR?

The Brookings blog has a nice primer on the SGR.

What is the SGR

Put in place through the Balanced Budget Act of 1997, the SGR is a system designed to control the costs of Medicare payments for physicians. The SGR formula was aimed at limiting the annual increase in cost per Medicare beneficiary to the growth in the national economy. The SGR is layered on top of a system for paying physicians known as a “physician fee schedule,” which pays physicians for delivering a number of individual Medicare services

What is wrong with the SGR?

Imagine you are at your job today. Let’s say you earn $50,000 per year. What would you think if all of a sudden, your boss decided to cut your wages by over $10,000? You would be upset. Well, that is exactly what the SGR does. If the SGR is not reversed, it would cut payment rates to physicians by over 20% this year.

The graph below shows the Medicare Economic Index (MEI) which tracks inflation for physicians offices. It measures changes in employee labor costs, office rent expenses, malpractice expenses and other costs. MEI has increased between 1-4% every year. The SGR, as it stands on the books, would lead to cuts in payment rates each year. However, each year Congress reverses the SGR. As of now, if nothing is done, physician payment rates would fall by 21.2%.


Why don’t we fix it?

In a word, money. Fixing the SGR would cost over $100 billion. These costs are someone imaginary since Congress has reversed the SGR every year and will be likely to do so in the coming years. In fact, although the CBO is mandated to score each budget based on current law, it’s alternative fiscal scenario long-term projections assume that “Lawmakers would act to maintain Medicare’s payment rates for physicians at current levels” (i.e., SGR would be reversed indefinitely).

1 Comment

  1. Interesting, but incomplete explanation of SRG. 1) As stated, it is meant to control physician costs. In other words if costs run over the minimal amount set by congress. If costs go over, physicians reimbursement is cut by the amount necessary to get back to the set amount. 2) But physician charges are not ALL that go into “physician costs.” It also contains the cost of DME, Physical Therapy, certain drugs and laboratory testing. 3) DME dealers, physical therapists, drug manufacturers, pharmacies, and testing laboratories are NOT subject to SRG. Only doctors pay. 4) No consideration is given to the enormous costs that physicians are forced to bear related to the biggest government failure in healthcare, Electronic Medical Records . Oh yeah, by all means, lets keep the SRG.

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