Medicare Physician Payments: Considerations for Reforming the Sustainable Growth Rate System: GAO-05-326T

Steinwald, A. Bruce
February 2005
GAO Reports;2/10/2005, p1
Government Documents
Concerns were raised about the system Medicare uses to determine annual changes to physician fees--the sustainable growth rate (SGR) system--when it reduced physician fees by almost 5 percent in 2002. Subsequent administrative and legislative actions modified or overrode the SGR system to avert fee declines in 2003, 2004, and 2005. However, projected fee reductions for 2006 to 2012 have raised new concerns about the SGR system. Policymakers question the appropriateness of the SGR system for updating physician fees and its effect on physicians' continued participation in the Medicare program if fees are permitted to decline. At the same time, there are concerns about the impact of increased spending on the long-term fiscal sustainability of Medicare. GAO was asked to discuss the SGR system. Specifically, this statement addresses the following: (1) how the SGR system is designed to moderate the growth in spending for physician services, (2) why physician fees are projected to decline under the SGR system, and (3) options for revising or replacing the SGR system and their implications for physician fee updates and Medicare spending. This statement is based on GAO's most recent report on the SGR system, Medicare Physician Payments: Concerns about Spending Target System Prompt Interest in Considering Reforms (GAO-05-85). To moderate Medicare spending for physician services, the SGR system sets spending targets and adjusts physician fees based on the extent to which actual spending aligns with specified targets. If growth in the number of services provided to each beneficiary--referred to as volume--and in the average complexity and costliness of services--referred to as intensity--is high enough, spending will exceed the SGR target. While the SGR system allows for some volume and intensity spending growth, this allowance is limited. If such growth exceeds the average growth in the national economy, as measured by the gross domestic product per capita, fee updates are set lower than inflation in the cost of operating a medical practice. A large gap between spending and the target may result in fee reductions. There are two principal reasons why physician fees are projected to decline under the SGR system beginning in 2006. One problem is that projected volume and intensity spending growth exceeds the SGR allowance for such growth. Second, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) increased the update for 2004 and 2005--thus increasing spending--but did not raise the spending targets for those years. The SGR system, which is designed to keep spending in line with its targets, must reduce fees beginning in 2006 to offset excess spending attributable to both volume and intensity growth and the MMA provision. In general, proposals to reform Medicare's method for updating physician fees would either (1) eliminate spending targets and establish new considerations for the annual fee updates or (2) retain spending targets, but modify certain aspects of the current system. The first approach emphasizes stable and positive fee updates, while the second approach automatically applies financial brakes whenever spending for physician services exceeds predefined spending targets. Either approach could be complemented by focused efforts to moderate volume and intensity growth directly. As policymakers consider options for updating physician fees, it is important to be mindful of the serious financial challenges facing Medicare and the need to design policies that help ensure the long-term sustainability and affordability of the program.


Related Articles

  • Physicians see 4.4% cut in fees. Webb, Jennifer A. // Ophthalmology Times;12/1/2005, Vol. 30 Issue 23, p1 

    The article focuses on the 2006 phisician's fee schedule released by Centers for Medicare and Medicaid Services (CMS). In an attempt to control Medicare spending, CMS relies on the Sustainable Growth Rate (SGR), which was linked to the gross domestic product. According to DeChane Dorsey, the...

  • CMS Offers Mixed Bag Ophthalmology for 2006.  // Review of Ophthalmology;Dec2005, Vol. 12 Issue 12, p4 

    This article focuses on the 2006 physician fee schedule, which was published by the Centers for Medicare & Medicaid Services (CMS) in the United States. The schedule contains an expected 4.4-percent decrease in physician fees. The CMS announced that it would not go forward with the physician fee...

  • Washington Link.  // MGMA Connexion;Nov/Dec2004, Vol. 4 Issue 10, p20 

    The article reports that the United States Centers for Medicare and Medicaid Services (CMS) published a notice of proposed rule-making for the 2005 Medicare physician fee schedule on August 5, 2004. The notice included numerous proposals that would greatly affect medical group practices. Voicing...

  • LTCH PPS Rule Adopts New Labor Market Areas.  // hfm (Healthcare Financial Management);Jun2005, Vol. 59 Issue 6, p14 

    Reports on the plan to increase Medicare payment rates for long-term hospitals for the rate year July 1, 2005 to June 30, 2006 in the U.S. Estimate of the federal rate; Adoption of new labor market area definitions based on the core-based statistical areas; Assessment of the three-day-or-less...

  • Incorporating statistical uncertainty in the use of physician cost profiles. Adams, John L.; McGlynn, Elizabeth A.; Thomas, J. William; Mehrotra, Ateev // BMC Health Services Research;2010, Vol. 10, p57 

    Background: Physician cost profiles (also called efficiency or economic profiles) compare the costs of care provided by a physician to his or her peers. These profiles are increasingly being used as the basis for policy applications such as tiered physician networks. Tiers (low, average, high...

  • the challenge of Medicare physician spending. Wilensky, Gail R. // hfm (Healthcare Financial Management);Dec2006, Vol. 60 Issue 12, p38 

    The article assesses the physician's Medicare fee spending in the U.S. According to the author, the challenges of providing high-quality and efficient care have become more daunting. He suggests that the solution for the dilemma is to devise a physician payment strategy that promotes the...

  • Trends in National and Medicare Physician Expenditures: CYs 1970-92.  // Health Care Financing Review;Summer94 Supplement, Vol. 15, p82 

    The article reports on trends in national and Medicare physician expenditures in the U.S. between 1970 and 1992. Total personal health care expenditure for physician services amounted to $151.8 billion in 1992 compared with $13.6 billion in 1970. Medicare Part B expenditures for physician...

  • Incident To: Cull Out Deserving Dollars Following These Guidelines.  // Podiatry Coding & Billing Alert;Nov2010, Vol. 2 Issue 11, p84 

    The article presents guidelines regarding the incident-to service payment purposes of physicians in the U.S. It notes that nonphysician practitioners (NPPs) are recognized by the Centers for Medicare & Medicaid Services (CMS) for payment purpose through reimbursement of physicians for the...

  • Docs turn to Congress to stop Medicare cuts. Snyder, Alison // Long Island Business News (7/1993 to 5/2009);12/7/2007, Vol. 54 Issue 64, p7A 

    The article reports that physician groups are aggressively lobbying U.S. Congress to stop a controversial 10% cut in Medicare reimbursements, which doctors on Long Island argue would force some to stop taking the government-sponsored health plan. Doctors called the cuts unacceptable and are...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics