The Medicare Sustainable Growth Rate (SGR) was initiated as part of the 1997 Balanced Budget Act with the goal of controlling Medicare Part B spending for physician services. When Medicare spending under a year’s physician fee schedule exceeded the rate of growth of the covered Medicare population and the rise of GDP, then the law mandated that there would be across the board cuts in physician payments the following year to offset this imbalance. However, this fee-for-service payment structure rewarded physicians only for the volume of services rendered by all providers regardless of clinical results or cost (efficiency). Moreover, all physicians were subject to the aggregate cuts which were determined by factors outside his or her individual practice performance and thus incentivized ordering as many tests and doing as many procedures as possible.
During the initial years, Medicare had 3-5% reimbursement reductions; however, the skyrocketing rise in aggregate expenditure mandated by law led to more significant fee reductions. Fearing a dramatic impact on physicians’ fee schedule would drive many providers away from accepting Medicare patients, Congress would annually “patch” the SGR-mandated cut, but deferral of the overspending “debt” was carried over and still expected to be “paid” at some future date by the physician community. Obviously, this provided a continuously insecure economic environment in which all physicians had to conduct their practices. This kicking the can down the road nonsolution diminished any confidence that Congress could make Medicare spending sustainable and still maintain access for our seniors to adequate medical care. Eventually, growth in overall healthcare spending eased concomitant with the recent great recession, thus allowing a bipartisan discussion that resulted in repeal of SGR in 2015.
Is this a reprieve from a projected 21% fee reduction, or a Pyrrhic victory? Much depends upon the means of implementing the Merit-Based Incentive Payment System (MIPS) that will be phased in to replace the current fee-for-service model over the next decade. Physician compensation will be determined by an individually derived MIPS score based on quality improvement, electronic health record usage, resource usage and clinical practice improvement activities. Concomitantly, the Centers for Medicare and Medicaid Services will be rewarding innovation and participation in alternative payment models with bonuses (to the order of 5%) to the practitioner’s aggregate fees. This is a giant experiment leading medicine from an eat-what-you-kill payment structure to one rewarding quality, wellness, and efficiency. We will live in interesting times.
By Norman Silverman, MD, with Ryan McKennon, DO and Ren Carlton