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SGR Payment Method Is Focus of MedPAC Report to Congress

May 18, 2011:

Nannette Orme, CPC, CCS-P, CPMA, CEMC; Clinical/Technical Editor

Misplaced incentives and inequalities in physician reimbursement are discussed at length in the Medicare Payment Advisory Commission’s (MedPAC) latest report to congress. The report, released March 2011, analyzes the methodology of sustainable growth rate (SGR) used to determine physician reimbursement.

The report notes that the SGR does not counter volume incentives inherent in a fee-for-service (FFS) payment system. It also notes that the SGR does not reward physicians who “restrain unnecessary volume growth,” nor does it penalize those with high-volume increases. In addition, it notes that primary care physicians receive less reimbursement than do other specialty providers.

The commission was established as part of the Balanced Budget Act of 1997. The 17 members from a variety of backgrounds meet and discuss issues related to Medicare, publishing reports in March and June of each year.

Under the current SGR system, Medicare payments to physicians would be cut by more than 30 percent in the near future. MedPAC notes that this could hinder beneficiary access to care. The commission also points out that current difficulties beneficiaries have accessing care are more prevalent in the primary care setting than in other physician specialties.

When cuts to the physician conversion factor have been imminent during the last 10 years, the legislative bodies have enacted stop-gap measures to maintain or slightly increase physician reimbursement. However, the five updates to the physician FFS conversion factor in 2010 were particularly expensive and frustrating because they required reprocessing of claims using the conversion factor Congress devised.

MedPAC is looking at several alternatives to the SGR methodology, considering:

  • Number of providers providing services to beneficiaries
  • Volume of services—increasing 3.3 percent per beneficiary in 2009
  • Quality of care provided to beneficiaries
  • Provider’s cost of doing business
  • Medicare Economic Index (MEI) increases (estimated to be 0.7 to 1.0 percent for 2012)

Some of the suggested methodology changes include looking at category of service, changes to the SGR formula, exemptions for accountable care organizations (ACOs), and a broader expenditure target to spread over multiple providers and not focus just on physicians.

As the changes to the SGR and other methodologies are still being discussed, it should be noted that MedPAC recommended a 1 percent increase in physician pay rather than the proposed 29.5 percent cut if the SGR were to be followed. This change in conversion factor would require legislative confirmation.


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