Performance Improvement 2008. Can Increases in Physician Payments Be Made Systematically, Reasonably, and Conflict Free?


This study assessed effects various changes would have on the Sustainable Growth Rate (SGR) system, the process used to updated Medicare physician payment amounts. A spreadsheet model of the sustainable growth rate process was developed to examine changes in conversion factors and program spending in response to changes in the process, including changes to the formula and in the formation and composition of target spending, or allowed spending, under the SGR process. The spreadsheet model was used to study effects of two fundamental types of revisions to the process. Researchers first studied effects of changes in various attributes of the SGR formula. Attributes of interest included: the Medicare Economic Index, effects of not adjusting the index for economy-wide changes in productivity; the design of the Update Adjustment Factor , which translates the SGR into a multiplier for calculating a new base payment amount for physician services, effects of changing the UAF floor, and the severity of penalties on over-spending in the previous year and cumulated over time. Researchers then studied the effects of several changes in the definition of target spending. Finally, the effects of increases in the sustainable growth rate were examined.

Actual spending by the Medicare program for physician services will likely continue to exceed target spending. An increase in the size of targets, for example, to reflect a strengthening of preferences for more health care spending by program beneficiaries over time, should reduce the size of future payment update reductions, as actual spending would more closely track target spending.

Report Title: Short-Term Fixes to the Sustainable Growth Rate Process,
Agency Sponsor:
ASPE-OHP, Office of Health Policy
Federal Contact: Lynn Nonnemaker, 202-690-7807
Performer: National Opinion Research Center (NORC)
PIC ID: 8575

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