SGR Formula Effect

Prepared by:Lisa Patrick, MD

Mount Sinai School of Medicine

What is the SGR?

• The Sustainable Growth Rate (SGR) was implemented in 2003 to control Medicare spending on physician services

Objectives

• Define the equation

• Examine the problem

• Discuss the impact

How Medicare Pays Physicians

• Each– Patient Encounter– Procedure

• Is assigned a relative value unit (RVU)

Relative value units (RVUs)

• Relative value assigned to services

• Orthopedic procedures > chest tube > incision & drainage > laceration > lumbar puncture

Who assigns a service its RVU?

• Resource-Based Relative Value Scale Updates Committee (RUC) – Includes two emergency physicians – Designates an RVU to each billing code

How are RVU’s assigned?

• Three Variables – Work = value of physician’s work– PE = value of non-physician clinical labor

expenses – MP = amount of medical liability for the

service

More Factors

• Geographic Adjustment (GPCI)

• Conversion Factor (CF) – In 2008, CF = $38.0869

The Whole Equation

• [(Work RVU x Budget neutrality adjustor (0.8806)* x Work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x CF

Who assigns the conversion factor?

• Calculated annually by the Center for Medicare and Medicaid Services (CMS)

• SGR as target

SGR: Four Variables

1. Fees for physicians’ services,

2. Number of Medicare fee-for-service beneficiaries,

3. Gross domestic product (GDP) per capita, and

4. Expenditures due to changes in law or regulations

The Problem

• Physician reimbursement by Medicare is tied to the GDP

• But GDP is NOT tied to the cost of running a practice

The Problem

• Physician costs keep rising

• While the Gross Domestic Product falls with recessions and does not track costs

The Problem

• Congress must act annually to override payment cuts dictated by the SGR

The Problem

• Annual threatened cuts harm practices

– Delays upgrades / capital purchases

– Reduces accepting providers

– Requires large lobbying efforts

Where do we go from here?

The Problem Revisited

• The SGR takes into account GDP and NOT actual physician costs

• As the GDP decreases, conversion factor decreases, which reduces physician reimbursement

• Congress must act annually to override

Future impact

• Payment rates to fall 41% over the next nine years*

• The cost of a practice is expected to increase by nearly 20 percent*

• *2007 Medicare Trustees Report

Future impact

• 25% of Medicare patients looking for a new physician had difficulty finding one*

• *2005 Medicare Payment Advisory Commission (MedPAC) survey

• 67% of physicians say they will decrease or stop seeing new Medicare patients if the scheduled eight years of cuts under the SGR take place**

• **2006 AMA Member Connect Survey

Conclusion

• Necessity for long-term solution

• Overcome perception of problem: “too difficult to solve”