Short-Term Fixes to the Sustainable Growth Rate Process . 1.0 Purpose and Overview


There has been considerable recent interest in revising the Sustainable Growth Rate (SGR) process of updating payments to physicians and other providers under the Medicare program.  Researchers at the Centers for Medicare & Medicaid Studies (CMS) and with the U.S. Government Accountability Office (GAO) have studied the implications of basing the payment update solely on estimates of the prices of inputs used by practitioners and implications of several other changes in the SGR formula.1  The objective of this study is to evaluate various revisions to the current SGR physician payment update methodology with a focus on changes to attributes of the SGR process that might be implemented in the short-run.  For example, short-run “fixes” of interest include: “increasing” the update floor to reduce the size of annual payment reductions in response to over-spending, and increasing the rate used to set spending targets, e.g., to account for new, cost-increasing but quality-enhancing technologies. 

The next section provides a context for this study, including a description of trends in spending for services and procedures affected by the SGR process.  The current SGR process is described and several criticisms of the process are noted.  Section 3.0 describes the analytic approach and structure of the spreadsheet model of the SGR process.  A brief description of how spending predictions for future years were obtained is provided in Section 3.0, and more details are provided in the Appendix.

Results are presented in Sections 4.0 and 5.0.  Several criteria are used to assess each refinement to the SGR process.  Primary criteria include the extent to which the refinement contains program spending, and the extent to which the refinement would affect stable, sustainable payment updates.  In this context, sustainability refers to the extent to which updates do not change dramatically from year to year and can stand alone, i.e., will not likely require Congressional intervention out of concerns that access to care by beneficiaries will be compromised.  A summary and discussion of implications comprise Section 6.0.

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