SGR Introduction and History

1965 Medicare is born.

1984-1991 Congress Votes Annually to Increase MEI

1998 Balanced Budget Act

2010 Extenders Act & ACA signed into law

2011 Congress Votes to increase physician fee schedule

1975 MEI created

1992 Omnibus Budget Reconciliation Act

2003 Medicare Modernization Act

Removal of Physician Administered Drugs and changes to RVU in SGR

Source: Hahn, J. and Mulvey, J. Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System. Congressional Research Service. February 17, 2012. R40907

Need for SGR

Spending for health care has grown continuously since its creation MEI alone unable to constrain federal spending because no cap on spending
In 2000, Physician fees explode to twice MEI

Real Costs of Medicare in Isolation

SGR established as mechanism to constrain increases in physician fees

Source: Krugman, P. Its the Health Care Costs, Stupid. The New York Times. June 11, 2011

http://krugman.blogs.nytimes.com/2011/06/12/its-the-healthcare-costs-stupid/

Why are Healthcare Costs So High?

Its the Prices, Stupid Medicare costs and Private Health Insurance costs have increased at different rates. United States spends almost double per capita health care spending ($4631 vs. $1637) Health care currently accounts for 17 percent of the GDP US has lower hospital admissions, length of stay, and acute care per capita Due to high per capita cost and high percentage of GDP- expenditure for the United States is much higher Inputs are more expensive, stays more service intensive, health care system is less efficient
Keehan, S. Sisko, A. Truffer, C., Smith, S, Cowan, C., Poisal j., and Clemens, K. Health Spending Projections Through 2017: The Baby Boom Generation is Coming to Medicare. Health Affairs. 27 no 2 (2008): w125-w1 Anderson, GF, Reinhardt, UE, Hussey, PS, Petrosyn, V. Its the Prices Stupid: They the United States is So Different From Other Countries. Health Affairs, 22, no 3 (2003): 89-105 Krugman, P. Its the Health Care Costs, Stupid. The New York Times. June 11, 2011 http://krugman.blogs.nytimes.com/2011/06/12/its-the-health-care-costs-stupid/

Sustainable Growth Rate (SGR) Formula

Goals of Formula:
Provide access to physicians Control federal spending in a predictable way

Composed of three factors

1. Expenditure Targets 2. Growth Rate (SGR) 3. Annual adjustments for physicians services (MEI and UAF)

How Does the SGR Mechanism Work?

Target Expenditures

UAF

SGR

Over/Under spending from Prior Year

Cumulative Over/Under spending

MEI and Other Costs

Real GDP

Enrollment

Laws and Regulations

MEI Adjustment Factor

Current Implications
SGR Limits the amount that Medicare Part B will pay for each service but does not limit the volume or mix of the services Andy to cover

Current Recommendations
Freezes Physician Reduces Payment Rates Physician Payment Rates Future penalties to physicians who overspend? Increases Financial Responsibility to Medicare Beneficiaries Invest in CMS to create revised payment system Total Projected Costs over 10 years

Simpson-Bowles

(Through 2013)

Reduces payments by 1% for 2014

$261.7 billion

Obama Administration Budget (10 year freeze) Proposal 2011 PPACA 2010

$293 billion

PCORI Bundling ACO

MedPAC

10 year freeze, 3 Cuts rates by year price 5.9% annually for reduction, 7 year each of 3 years freeze

$200 billion

AMA CBO Cliff CBO Claw

$107.7 Billion $218.5 Billion

Health Policy Brief: Medicare Payments to Physicians," Health Affairs, November 3, 2011 http://www.healthaffairs.org/healthpolicybriefs/

Recommendations/Analysis