SGR Formula Effect
Prepared by:
Lisa Patrick, MD
Mount Sinai School of Medicine
What is the SGR?
• The Sustainable Growth Rate (SGR) was
implemented in 2003 to control Medicare
spending on physician services
Objectives
• Define the equation
• Examine the problem
• Discuss the impact
How Medicare Pays Physicians
• Each
– Patient Encounter
– Procedure
• Is assigned a relative value unit (RVU)
Relative value units (RVUs)
• Relative value assigned to services
• Orthopedic procedures > chest tube >
incision & drainage > laceration >
lumbar puncture
Who assigns a service its RVU?
• Resource-Based Relative Value Scale
Updates Committee (RUC)
– Includes two emergency physicians
– Designates an RVU to each billing code
How are RVU’s assigned?
• Three Variables
– Work = value of physician’s work
– PE = value of non-physician clinical labor
expenses
– MP = amount of medical liability for the
service
More Factors
• Geographic Adjustment (GPCI)
• Conversion Factor (CF)
– In 2008, CF = $38.0869
The Whole Equation
• [(Work RVU x Budget neutrality adjustor
(0.8806)* x Work GPCI) + (PE RVU x PE
GPCI) + (MP RVU x MP GPCI)] x CF
Who assigns the conversion factor?
• Calculated annually by the Center for
Medicare and Medicaid Services (CMS)
• SGR as target
SGR: Four Variables
1. Fees for physicians’ services,
2. Number of Medicare fee-for-service
beneficiaries,
3. Gross domestic product (GDP) per
capita, and
4. Expenditures due to changes in law or
regulations
The Problem
• Physician reimbursement by Medicare is
tied to the GDP
• But GDP is NOT tied to the cost of running
a practice
The Problem
• Physician costs keep rising
• While the Gross Domestic Product falls
with recessions and does not track costs
The Problem
• Congress must act annually to override
payment cuts dictated by the SGR
The Problem
• Annual threatened cuts harm practices
– Delays upgrades / capital purchases
– Reduces accepting providers
– Requires large lobbying efforts
Where do we go from here?
The Problem Revisited
• The SGR takes into account GDP and
NOT actual physician costs
• As the GDP decreases, conversion factor
decreases, which reduces physician
reimbursement
• Congress must act annually to override
Future impact
• Payment rates to fall 41% over the next
nine years*
• The cost of a practice is expected to
increase by nearly 20 percent*
• *2007 Medicare Trustees Report
Future impact
• 25% of Medicare patients looking for a
new physician had difficulty finding one*
• *2005 Medicare Payment Advisory Commission
(MedPAC) survey
• 67% of physicians say they will decrease
or stop seeing new Medicare patients if
the scheduled eight years of cuts under
the SGR take place**
• **2006 AMA Member Connect Survey
Conclusion
• Necessity for long-term solution
• Overcome perception of problem: “too
difficult to solve”