SGR Formula Demystified

  Changes to Medicare to focus on quality rather than quantity


In today’s healthcare world; Incentives, Medicare, and Medicaid are frequently heard terminologies. The physicians receive their Medicare reimbursements through a complicated formula (based on economic growth) known as Sustainable Growth Rate (SGR) that was prescribed back in 1997. Most physicians do not agree with this formula and they refer to it as “broken beyond repair”. On most occasions, these cuts are deferred but no permanent solution was framed. It was deferred to the extent that back in 2010, Congress delayed the scheduled cuts 5 times with the longest duration lasting about a year.

To fix the old payment formula, the bipartisan leadership of three Senate and House committees introduced legislation on Thursday (February 6, 2014) to overhaul the way Medicare pays the physicians. Though it does not specify how the reimbursements would be paid, the newer legislation will change the way physicians will be paid. Physicians would receive a 0.5 percent increase for each of the next five years, as Medicare will move towards an alternate payment model designed to reward physicians based on the quality of care provided, rather than the quantity, as the current payment formula does.

“This legislation today provides stability for physicians so they will no longer face the uncertainty of massive cuts, but also begins the process of improving how we pay for medical care to focus on positive results for seniors," Ways and Means Committee Chairman Dave Camp, R-Mich., said in a statement.”

However, this legislation does not include the funding for a package of Medicare policies – known as extenders. These include additional funding for therapy services, ambulance services and rural hospitals and a program that allows low-income people to keep their Medicaid coverage as they transition into employment and earn more money.

“Congress has spent a decade lurching from one 'doc fix' to the next, creating a new, unnecessary threat to seniors’ care each time. Enough is enough. This proposal would bring that cycle to an end and fix the broken system.” said the new U.S. ambassador to China, Max Baucus (D-Mont.)

“The American Medical Association (AMA) welcomed this move and requested the lawmakers to set this legislation into action before April 1 when the current SGR expires. Physicians are bound to face a whopping 24 percent cut in their Medicare reimbursements if the Congress doesn’t implement this new policy.

Author’s Viewpoint:

How did this creep into such a big issue??

Any problem in today’s world can be directly related to yesterday’s actions!! The origin of this problem dates back to 1997 when the Medicare payment formula was introduced based on the economic growth. Initially, the expenditures were well within the target and everything went well. But in 2002, the physicians received 4.8 percent cut in their reimbursements. Since then, even Congress started to defer these scheduled pay cuts. But it was all temporary and this called for a fix to the system.

How proposed SGR will affect the Meaningful Use Incentives

The proposed legislation by the bipartisan bill sets a streamlined incentive payment program known as Merit-Based Incentive Payment System (MIPS) that consolidates the Meaningful Use, Physician Quality Reporting System (PQRS) and the Value-based modifier. MIPS is set to identify the performance of doctors (a.k.a. eligible professionals) in four different categories – foremost being quality, followed by resource use, Meaningful Use, and clinical practice improvement. Depending on the total of the four categories, the doctors will receive negative or positive payment adjustments.

The payment adjustment for failing to meet the Meaningful Use requirements ends in 2017. In addition, the proposed legislation also requires the EHR system to be interoperable by 2017.


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