Welcome to MedeAnalytics' Sustainable Growth Rate Resource Center! This resource center is an educational service designed for the benefit of the healthcare industry. It provides credible, timely and actionable information about the SGR.

The Balanced Budget Act of 1997 replaced the Medicare Volume Performance Standard (MVPS) with a sustainable growth rate provision, a formulaic approach intended to restrain the growth of Medicare spending on physician services. The SGR formula incorporates medical inflation, the projected growth of per capita gross domestic product (GDP), projected growth in the number of Medicare beneficiaries, and changes in law or regulation. The SGR requires Medicare each year to set a total budget for spending on physician services for the following year. If actual spending exceeds that budget, the Medicare conversion factor that is applied to more than 7,400 unique covered physician and therapy services in subsequent years is to be reduced so that over time, cumulative actual spending will not exceed cumulative budgeted (targeted) spending, with April 1, 1996 as the starting point for both.

Because the annual fee update must be adjusted not only for the prior year's variance between budgeted and actual spending but also for the cumulative variance since 1996, the proposed update for 2013 is a reduction in Medicare physician fees of 26.5 percent, per the Centers for Medicare and Medicaid Services (CMS).

For years, both Democrats and Republicans have called for a so-called “doc fix”—reform or repeal of the SGR—but none of these efforts has resulted in the passage of legislation providing a permanent solution.

Temporary, one-year SGR fixes in which physician payments are frozen have been derided as a "kick the can down the road" approach, which provides short-term relief, but increases—due to the SGR's requirement that the annual fee update be adjusted not only for the prior year's variance between budgeted (targeted) and actual spending but also for the cumulative variance since 1996—the budgetary cost of a permanent change to the SGR.

In August 2012, the Congressional Budget Office (CBO) estimated the cost of a permanent doc fix would be $245 billion and $10 billion for a one-year doc fix. However, in November 2012, the CBO raised its estimate for the cost of a one-year doc fix to $25 billion.

With the House of Representatives’ approval on New Year’s Day 2013 of the Senate’s last-minute fiscal cliff package, H.R. 8, the American Taxpayer Relief Act of 2012, Congress was able to avert the so-called fiscal cliff, avoiding cuts to the Affordable Care Act and preserving Medicare benefits, but for healthcare, the resolution in large measure amounted to yet another kicking of the can down the road.

The agreement included a one-year doc fix, avoiding the imposition of the 26.5 percent reduction to Medicare’s physician fee schedule for 2013, but the cost of that move will be borne by other healthcare providers, a “robbing Peter to pay Paul” approach. Hospitals will bear the majority of the $25 billion cost via a $10.5 billion documentation and coding adjustment that seeks to recoup past overpayments by Medicare to hospitals resulting from the shift to Medicare severity diagnosis-related groups (MS-DRGs) and a $4.2 billion rebasing of Medicaid disproportionate share hospital (DSH) payments. It is unclear whether the former adjustment is even valid, given that such adjustments have already been carefully implemented through the rulemaking process for the Hospital Inpatient Prospective Payment System (IPPS) during the past few years. Dialysis clinics and pharmacies will also bear some of the cost of this latest doc fix.

Given that the American Taxpayer Relief Act of 2012 constitutes yet another temporary, one-year “patch,” the SGR will undoubtedly continue to be an issue of concern. We would encourage you to visit this resource center often to keep abreast of the latest SGR-related developments.

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