Blog Post

The Impact of the Sustainable Growth Rate


On February 6, a bipartisan, bicameral proposal was announced to replace the current Sustainable Growth Rate (SGR) formula and create new physician payment mechanisms. The SGR was enacted as part of the 1997 Balanced Budget Act and linked physician fees to growth in the U.S. gross domestic product (GDP). The original approach was intended to control costs. But if volume grows while per capita GDP slows, as has been the case over the past decade, then the formula calls for rate cuts – at a time when the total cost of providing patient care is increasing.

To combat the rate cuts, Congress has repeatedly suspended these adjustments. Those suspensions, however, have had an unintended consequence: the difference between the SGR actual vs. target spending begins to compound each year, leaving us with the current 24% mandated pay cut. According to the American Medical Association, the absence of SGR rate cuts has cost taxpayers $153.7 billion over the past decade.

The proposed repeal would eliminate the SGR formula and replace it with a new payment system that focuses on quality, value, and accountability. The preliminary legislation removes the threat of cuts to Medicare providers and ensures annual rate increases of 0.5% for 5 years, followed by an additional 5 years during which 2018 rates will be maintained. In addition, HHS would be directed to create a new methodology – the Merit-Based Incentive Payment System (MIPS) – for assessing the annual performance of professionals paid by Medicare.

MIPS would result in the consolidation of the three existing quality programs: the Electronic Health Record (EHR) Incentive Program, the Physician Quality Reporting System (PQRS), and the Value-Based Modifier. The rationale is that consolidating the three programs would eliminate conflicting or redundant metrics, enabling the government to reward performance based on a set of clearly defined, unified metrics. Continuing the push toward a value-based payment system, the new MIPS would thus assess the performance of eligible professionals in four categories: quality, resource use, EHR meaningful use, and clinical practice improvement. One additional provision of the proposed legislation also requires EHRs to be interoperable by 2017 and prohibits providers from deliberately blocking information sharing with other EHR vendor products.

The implications of these changes loom large. If the proposal passes, the focus then shifts to one of continuous performance improvement. Organizations will have to utilize their resources more efficiently, apply clinical pathways, and demonstrate actions within the practice that deliver a high-quality experience for Medicare beneficiaries. This will, in turn, require physician practices and medical groups to better manage information and performance at a detailed level.

Assuming that Congress can figure out a way to pay the projected $150 billion price tag of the repeal, and that the existing political climate within Congress doesn’t derail the bill, provider organizations will be looking to implement significant changes across revenue cycle processes, patient access protocols, and clinical operations.