The Sources of the SGR “Hole”


The sustainable growth rate (SGR) formula was implemented to curb the growth in expenditures on physicians’ services, and is used to determine annual adjustments to payments for those services. The SGR system sets a target for aggregate nationwide expenditures on the basis of growth in the per capita gross domestic product, growth in the number of Medicare Part B enrollees, changes in physicians’ fees, and changes in laws or regulations. The actual expenditures on physicians’ services are then compared with the target, and prices are adjusted to achieve the cumulative target over time. Since these cuts are applied evenly across all states and across all specialties and services (with the potential exception of fees for primary care), some health care providers will receive cuts in pay despite the fact that they contributed little to the increases in the volume of services delivered that resulted in the SGR-dictated cuts. A post-SGR payment system should ideally encourage the creation of organizational structures that can accept global payments or payments bundled by episode of care. These alternative forms of reimbursement give provider organizations and physicians the incentives to capture gains from eliminating lower-value therapies and delivering higher-value health care. This approach is likely to be superior to pure cost containment strategies in which physician fees decrease in an arbitrary and across-the-board manner.

Keywords: Physicians, Gross Domestic Product, Medicare Part B, Episode of Care, Primary Health Care

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