Once Again, SGR Deadline Looms, as Ideas Emerge for a Permanent Fix

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Congress came close to adopting a value-based payment formula for physicians last year, but the problem of funding the SGR, which has grown to $175 billion, prevents a solution.

Without action by Congress, on April 1, 2015, Medicare will cut physician payments by 21% under the formula known as the Sustainable Growth Rate (SGR). No one thinks that will happen, of course; 17 times Congress has dodged the cuts through a series of short-term fixes or “patches,” and the same expected this year.

Congress came close to fixing the problem for good a year ago. The trouble is, everyone knows what the solution is, but no one wants to pay for it. No less than the Brookings Institution has referred to the annual SGR showdown and subsequent patch as “Groundhog Day,” while it proposes potential long-term answers.

The problem with SGR dates to 1997, when Congress created the formula in an effort to control spending. The formula was supposed to set realistic yearly and cumulative spending targets; if the cost of care exceeded the target in any given year, rates would be cut the following year to make up the difference. However, spending targets were unrealistic from the start and gaps between targets and actual costs emerged quickly. To create a permanent fix, Congress must eventually find funding to close the entire gap.

A year ago, members came close to changing the formula on a go-forward basis. The proposal called for giving physicians a choice of moving toward performance-based payments from Medicare or a system that accounts for both spending and quality. Since then, CMS has set goals of 30% value-based payments for Medicare by 2016 and 50% by 2018. The trouble is, the cost of the transition after all these patches is now $175 billion over 10 years, as outlined in estimates from the Congressional Budget Office.


A report published today by the Kaiser Family Foundation suggested that under current law, Medicare beneficiaries would automatically pay the cost of replacing SGR through Part B premium. The report estimated that the beneficiaries would pay an estimated $58 billion of $175 billion.

Proposals put forward by Brookings call for moving toward alternate payment models that move toward a pay for value approach, shifting away from fee-for-service while also eliminating differences in physician services in hospital settings vs. an office.

The Brookings proposal calls for greater emphasis on patient engagement and experience, and more focus on patient outcomes. Physicians, the proposal states, “should be eligible for a higher bonus payment if they report on more meaningful outcome measures.” Among those signing the Brookings proposal is Michael Chernew, PhD, of Harvard Medical School, co-editor in chief of The American Journal of Managed Care.

Other concepts for funding SGR call for combining Part A and Part B into a single deductible of $550, with a cap on out-of-pocket spending of $5500. This mechanism, from the American Hospital Association, could net Medicare $52 billion over 10 years. Other ideas call for asking more affluent Medicare beneficiaries to pay more for care; this idea has been endorsed by Brookings’ Alice Rivlin.

The different dynamic this year, of course, is that Congress has new leadership in both the House and the Senate. No matter what, any solution to SGR will have to have a funding mechanism attached.

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