The current SGR process was implemented with an initial target level based on actual spending levels in the late 1990s. Since that time, each year’s target has been increased using the SGR. Over time, the rate of spending has increased and the cumulated difference between annual actual and target spending levels has grown rapidly.
A fundamental explanation for payment update declines that have been recently experienced and are likely in the near future without significant changes to the SGR process is that spending increases faster than target spending levels. This over-spending determines the penalty of the UAF, which can more than offset the MEI when the update is calcu
Changes in the UAF formula can be used to change the size of penalties/rewards associated with over-/under-spending, which in turn changes the rate at which provider payments would change year to year. An alternative approach is to alter the way in which target spending is defined or the composition of spending that is counted towards target spe
In addition to changes in the UAF penalty floor, the size of the UAF penalty for over-spending can be reduced by lowering the weights applied to the measures of over-spending in the previous year and cumulated spending. A rationale for the cumulated spending term of the UAF is that CFs can be adjusted to help the Medicare program recover a porti
An option that retains some cost-containment incentives but does not lead to negative payment updates is to set the UAF floor such that the largest over-spending penalty would completely offset the MEI. Under this option, the floor is a negative percent that would be just large enough in magnitude to offset the MEI, producing a 0-percent update.
As indicated in the summary discussion of the current SGR update process, the magnitude of the UAF is a key determinant of the size of Medicare payment updates. Without the UAF portion of the SGR process, payments would be updated using the MEI. The UAF is the means by which the update process recovers over-spending.
Short-Term Fixes to the Sustainable Growth Rate Process . 4.1 Changes in the Measure of the Costs of Practice
The MEI is a fixed-weight input price index reflecting average annual changes in prices for inputs required to produce physician services, namely the physician’s own time and practice expense. The MEI is an important ingredient in the SGR process, affecting payment updates in two ways (Figure 2). The measure is used directly in the c
On the surface, study of the SGR payment process is straightforward. The process can be described as a recursive model, consisting of a set of algebraic relationships that are linked over time. This view, however, is somewhat naïve, as noted above. Changes in data alter future but not past values of SGR process relationships, and prediction
Analysis of the SGR process might be helpful in setting the stage for refinements that can be implemented to overcome current flaws resulting from the formula, as well as suggesting longer run changes that might be considered for more substantive changes to the payment update process in the future. A spreadsheet model of the SGR process was cons
Advocates for SGR reform cite significant flaws with the current process. First, recent updates have been large and negative, a consequence of over-spending. A string of negative updates has pressured Congress to intervene legislatively, as large and widespread changes in provider behavior are necessary to overcome the negative impacts on paym
The VPS was replaced with the SGR process, following passage of the Balanced Budget Act of 1997. As was VPS, the SGR process was designed to allow for increases in Medicare payments while ensuring that growth in aggregate spending would be contained. 4 Unlike the VPS when it was replaced, the SGR system produces a single update. Figure 2.
Over time, a variety of policy measures designed to help contain costs has been incorporated into the Medicare program. But policymakers have also demonstrated concerns with maintaining efficiencies and not introducing policies with incentives that distort the health care system and lead to undesirable distributional outcomes. Prospective paym
Some of the changes in spending displayed in Figure 1 are due to changes in price and changes in the number of Medicare beneficiaries over time. Year-to-year changes in total spending were decomposed into changes attributable to price, the number of traditional fee-for-service Part B program beneficiaries, and intensity – changes in ut
On a per beneficiary basis, SGR spending increased from $1,371 in 1996 to $2,376 in 2004 – a total of 73 percent (61 percent of spending if drugs and lab tests are excluded) (Table 1). It is clear that growth in spending varies by type of service from one year to the next, as changes in price (as measured by the update), impact most ty
Medicare allowed charges increased from a total of just under $45 billion in 1996 to almost $82 billion in 2004, a 51 percent increase (Figure 1) 2 . Most of this spending was for physician services included in spending estimates used in the SGR payment update process. If spending on chemotherapy and other drugs and on lab tests are subtracted
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.