The End of SGR: What Took So Long?

For more than a decade, it has been an annual ritual to read headlines about a crisis brewing in Congress as it struggled to avert a looming Medicare disaster stemming from the imminent pay cut to Medicare physicians mandated by the “SGR” (Sustainable Growth Rate). Like a broken record each time, spurred by warnings of physician groups of the dire consequences the slash in Medicare fees would have on medical practices and Medicare patients, Congress scrambled at the 12^th hour to put off the mandated cuts for another year.

This year marks the end of such fiscal chicanery. On March 26, the House of Representatives passed bipartisan legislation which not only repealed Medicare’s SGR but also ensured physicians an annual 0.5% rise in Medicare rates through 2019 and created incentives starting in 2019 to pay physicians based on performance. On April 14, this $214 billion bill was passed in the U.S. Senate and signed into law by President Obama 2 days later.

What was the SGR? The Medicare Sustainable Growth Rate (SGR) was enacted by the Balanced Budget Act of 1997 as part of an ill-conceived strategy by Congress designed to control health care costs by controlling the cost of Medicare payments to physicians. The SGR formula was developed with the intent of ensuring the yearly expenditure per Medicare beneficiary did not exceed the growth in the gross domestic product.

Using this formula, the Center for Medicare and Medicaid (CMS) was directed to employ a conversion factor for adjusting the compensation to physicians who see Medicare patients based on whether Medicare payments for physician services the preceding year matched the target SGR. Although the law required that on March 1 of each year CMS adjust the physician fee schedule up or down depending on expenditures the preceding year, it also created a backdoor for Congress to suspend or adjust its implementation as it deemed appropriate.

How well did it work? Suffice it say that any plan to limit Medicare payment rates for physicians without limiting growth or the complexity of their services was doomed to failure from the start. In each year since 2003, Congress voted to postpone the automatic pay cut scheduled under the law with the any lost revenue accruing over time. As a result, nearly $150 billion in federal debt accumulated (arising from the deferred cuts) and, without Congressional intervention, Medicare physician payment rates were scheduled to be cut a whopping 21% this month.

In addition, by its fixation solely on the GDP and the annual threat to trigger “across the board” cuts to all physicians regardless of the quality of care provided, the formula did nothing to encourage or facilitate the provision of better healthcare. If anything, it functioned as a financial disincentive for physicians to see Medicare patients, and evolved into an annually recurring distraction not only for physicians but also for a Congress that was forced each year to come up with temporizing “stop-gap” patches.

Although the “Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)” signed by President Obama is not without flaws, it nevertheless represents a step in the right direction. The SGR formula proved to be a miserable failure and its perpetuation was nothing more than an exercise in futility.

By prioritizing healthcare quality and performance over “fee for service” and by eliminating the fiscal “Sword of Damocles” that was hung annually over the heads of Medicare patients and their doctors for nearly 2 decades. MACRA, at the very least, brings us closer to the structural and conceptual changes required in Medicare (and our healthcare system) if the “Triple Aim” (i.e. better population health, better patient experience, lower per capita costs) is ever to be achieved.