Medicare's Sustainable Growth Rate (SGR) Formula

How SDCMS Helps You: The Fight to Fix the (Un)Sustainable Growth Rate Formula

This past July's Medicare victory in Congress speaks for itself to the power and value of organized medicine, but this win was not magic, not a miracle, not even amazing. It was, simply put, the product of incredible work by CMA staff in Washington, DC, by AMA, by county medical societies, and by the hundreds of physicians who got involved in California and the thousands who did so across the nation. The power of physicians to make and shape policy has lain mostly dormant for years. As CMA works to become a more aggressive advocate for physicians, it will be able to better direct and unleash this power. Instead of constantly fighting to maintain the status quo, we physicians will be positioned to advance our cause and our agenda. In the years to come, we will need every physician's voice as we work to find a permanent fix to this grossly flawed Medicare SGR formula.

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[Note: From the Centers for Medicare and Medicaid Services]

Section 1848(f) of the Act, as amended by section 4503 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, replaced the Medicare Volume Performance Standard (MVPS) with a Sustainable Growth Rate (SGR) provision. Section 1848(f)(2) of the Act specifies the formula for establishing yearly SGR targets for physicians' services under Medicare. The use of SGR targets is intended to control the growth in aggregate Medicare expenditures for physicians' services.

The SGR targets are not direct limits on expenditures. Payments for services are not withheld if the SGR target is exceeded by actual expenditures. Rather, the fee schedule update, as specified in section 1848(d)(4) of the Act, is adjusted to reflect the comparison of actual expenditures to target expenditures. If expenditures exceed the target, the update is reduced. If expenditures are less than the target, the update is increased. Under the statute, the update for a year is determined by comparing cumulative actual expenditures to cumulative target expenditures (referred to as "allowed expenditures" in the statute) from April 1, 1996 through the end of the year preceding the year at issue. For instance, the 2009 update will reflect a comparison of cumulative actual to cumulative target expenditures from April 1, 1996 through December 31, 2008. Target expenditures for each year are equal to target expenditures from the previous year increased by the SGR (which is a percentage figure computed by combining four factors specified below).

The statute specifies a formula to calculate the SGR based on our estimate of the change in each of four factors. The four factors for calculating the SGR are as follows:

1. The estimated percentage change in fees for physicians' services.
2. The estimated percentage change in the average number of Medicare fee-for-service beneficiaries.
3. The estimated 10-year average annual percentage change in real gross domestic product (GDP) per capita.
4. The estimated percentage change in expenditures due to changes in law or regulations.

Prior to enactment of the Medicare Prescription Drug, Improvement and Modernization Act (also known as the Medicare Modernization Act, or MMA), the statute required the SGR to be calculated using estimated projected growth in real GDP per capita. That is, the Secretary was required to use an estimate of a single year's real GDP per capita to determine the SGR. However, section 1848(f)(2)(c) of the Act, as amended by section 601(b) of the MMA, requires the Secretary to calculate the SGR using the 10-year annual average growth in real gross domestic product per capita.

Section 1848(d)(1)(E) of the Act requires publication in the Federal Register no later than November 1 of each year (beginning with 2000) of the actual conversion factor, update and allowed expenditures that will apply to physicians' services for the succeeding year. Another section of the law (section 1848(f)(1)) requires that we publish in the Federal Register no later than November 1 of each year, using the best available data as of September 1, the SGR for the following year, the contemporaneous year, and the preceding year. By November 1, 2008, we are required to publish, based on the best data available to us as of September 1, 2008, the SGRs for CY 2007, CY 2008, and CY 2009. We plan to implement these provisions as part of the physician fee schedule final rule for 2009. Thus, in this document, we are providing (i) our current estimates (as of March 1, 2008) of the SGRs for CY 2007, CY 2008, and CY 2009, (ii) our current estimate of allowed expenditures under the SGR system through the end of 2009, and (iii) our current estimate of the physician fee schedule update and conversion factor for 2009. We will be providing updates of all this information using more recent data in the physician fee schedule final rule for 2009. The updated values scheduled to be published in the final rule by November 1, 2008 will be used to determine the actual update for physician payments in CY 2009.