“We need to bring an end to constant uncertainty for doctors and patients,” HHS Secretary Kathleen Sebelius told AMA President Jeremy A. Lazarus, MD, (at left) and other attendees at the AMA National Advocacy Conference on Feb. 12 in Washington. Doctors at the conference discussed health policy issues, such as Medicare payment, with lawmakers and other officials. Photo by Ted Grudzinski / AMA

Medicare SGR repeal price tag plummets

Declines in health spending growth have lowered the projected 10-year cost of freezing doctor pay rates from $244 billion to $138 billion.

By Charles Fiegl amednews staff — Posted Feb. 18, 2013

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The amount of funding that Congress needs to eliminate the Medicare sustainable growth rate formula that helps determine physician pay has dropped significantly after years of lower-than-expected gains in health care spending, according to federal budget authorities.

The dramatically lower offset figure to repeal the SGR as calculated by the independent Congressional Budget Office caught many by surprise on Feb. 5 and led to reinvigorated calls to push forward with permanent Medicare payment reforms. The 10-year cost of stabilizing physician pay rates had approached $300 billion in recent years but now appears much more within reach.

Health and Human Services Secretary Kathleen Sebelius told physicians attending the American Medical Association National Advocacy Conference in Washington on Feb. 12 that the Obama administration remains committed to ending the SGR. In January, Congress and President Obama delayed a 26.5% rate cut from going into effect, but the temporary measure lasting only until 2014 does not provide the certainty that doctors and patients need, she said.

“Ultimately, only Congress can pass a permanent SGR fix,” Sebelius said. “But this administration is committed to doing what we can to make that happen.”

The CBO regularly provides lawmakers with estimates on potential reforms to Medicare policy and scores how legislation would affect the federal budget. For years, the CBO has projected costs for holding Medicare pay rates stable over a decade, and that cost estimate peaked in 2011 at more than double what it is now.

The February CBO projection was much lower than the previous $244 billion estimate in November 2012. That's because of slower spending growth on physician services in the past three years compared with previous projections, said Steven M. Lieberman, a health care policy analyst and consultant who is a former CBO official. The complex SGR formula works by cutting doctor rates when spending on physician services exceeds certain targets — the lower the actual spending growth figures, the less the formula will reduce pay over time.

With the newest revisions to spending growth figures, the SGR now is scheduled to start increasing physician pay soon instead of just prompting drastic annual decreases over the decade. Furthermore, if the SGR formula were rebased so that a new baseline were established, that would lead to additional positive payment updates for doctors, Lieberman said.

“Because actual spending has been lower than spending targets, CBO now estimates that payment rates will increase beginning in 2015,” the report states. “Those higher payment rates narrow the difference between growth under current law and a [pay] freeze at current levels, thereby reducing the estimated cost of restricting payment rates.”

Organized medicine groups welcomed the news of the lower offset figure. The AMA is among those urging lawmakers to seize the new opportunity to take the next step toward permanent Medicare pay system reform by eliminating the SGR.

“The rate of Medicare spending growth declined compared to historical trends, and spending for physician services affected by the SGR is projected to be far less than previously estimated,” said AMA President Jeremy A. Lazarus, MD. “Now is the time to end this failed policy once and for all and protect access to care for seniors now and in the future. We urge Congress and the administration to take advantage of the fact that the cost of repealing the SGR is lower than it has been in many years and move promptly to replace the formula with a new system that encourages quality care while reducing costs.”

Ideas to replace the SGR

Reforming Medicare's pay system and continuing the trends of slower growth rates in health spending is seen as very desirable in Washington. Achieving savings in the $592 billion entitlement program for seniors would go a long way toward reducing future federal budget deficits.

The Republican House leadership has developed an SGR repeal and reform proposal that aims to modernize the Medicare pay system without adding to deficits. An earlier version of the framework had assumed the higher CBO estimate of how much money would be required to stabilize doctor pay rates, but lawmakers from the House Ways and Means Committee and the House Energy and Commerce Committee updated the reform proposal's overview statement to reflect the latest projections.

The main component of the GOP framework is a three-step approach to overhauling Medicare. First, the SGR would be repealed and replaced with statutorily defined pay rates. Reforms then would be made to the fee-for-service system to reward doctors for high-quality care. Finally, further improvements would be implemented to reward physicians who deliver care more efficiently.

“For too long, doctors and the Medicare patients they service have been trapped in an outdated and inefficient one-size-fits-all payment system that penalizes doctors who deliver high-quality, efficient and effective care,” said Ways and Means Committee Chair Dave Camp (R, Mich.). “It is time to bring Medicare into the 21st century. Achieving that goal will be an all-hands-on-deck effort, and we want all the stakeholders — doctors, patients and others — to be a part of that process.”

The reformed system would provide payment updates based on physician-endorsed measures on quality and clinical improvement activities developed by medical specialty societies. For instance, reporting data through a registry or using a shared decision-making tool would affect pay. Quality programs would risk-adjust patient outcome measures when comparing individual doctors' scores with those of their peers.

Bipartisan legislation that encompasses several components of the committees' framework was introduced by Reps. Joe Heck, DO (R, Nev.), and Allyson Schwartz (D, Pa.) on Feb. 6. The Medicare Physician Payment Innovation Act would repeal the SGR and provide five years of stable payments to doctors while new payment models are tested. Physicians then would receive incentives to move toward coordinated care models.

Organized medicine groups voiced support for the legislation. Physicians are tired of the constant threat of SGR cuts to Medicare and the chaos that surround it, said Charles Cutler, MD, chair-elect of the American College of Physicians Board of Regents.

“It is difficult for physicians to keep their doors open, especially for our members in small or solo practices, with the constant threat of Medicare payments being cut by 25% or more,” Dr. Cutler said.

The AMA thanked lawmakers for continuing to work on ending the flawed Medicare payment formula, Dr. Lazarus said. Ending the decade-long cycle of scheduled cuts being avoided through last-minute, temporary patches would protect beneficiaries' access to care, while improving quality and reducing costs, he said.

“This legislation is an important part of the continuing discussion on the future of Medicare and the end of the SGR,” Dr. Lazarus said. “We look forward to continuing to work with Reps. Schwartz and Heck and their colleagues on both sides of the aisle to move past the SGR and transition to an array of Medicare delivery and payment options that give physicians the flexibility they need to help lower costs and improve the quality of care for their patients.”

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10-year SGR freeze estimate a moving target

The cost of replacing Medicare's sustainable growth rate formula has ranged from almost $50 billion to nearly $300 billion. Recently, however, the Congressional Budget Office cut by nearly half its cost estimate for freezing doctor pay rates over a decade. So lawmakers could find a more permanent Medicare pay solution for less.

Date of projection 10-year freeze estimate (in billions)
March 2005 $48.6
March 2006 $127.1
March 2007 $177.4
March 2008 $220.1
June 2009 $285.0
June 2010 $275.8
June 2011 $297.6
July 2012 $271.0
November 2012 $243.7
February 2013 $138.0

Source: Congressional Budget Office cost reports

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What might happen after an SGR repeal?

House GOP committee members have outlined a proposal that would repeal the Medicare sustainable growth rate formula and modernize the entitlement program's payment system. They say their proposal would improve the Medicare system by:

  • Fully repealing the SGR, eliminating the estimated 25% across-the-board rate cut in 2014 and any future rate cuts.
  • Establishing a period of predictable payment rates and enabling physicians to prepare for reform.
  • Empowering physicians to determine the quality and efficiency measures that are meaningful to beneficiaries.
  • Rewarding physicians who deliver high-quality and efficient care rather than continuing to encourage volume and unnecessary spending.
  • Requiring the Centers for Medicare & Medicaid Services to provide timely feedback and data to physicians, allowing them to improve patient care and performance results.
  • Providing payment options for physicians to select the Medicare payment system that best fits their practices.
  • Engaging the physician community in efforts to improve, reform and update Medicare's outdated physician pay system.

Source: “Overview of SGR Repeal and Reform Proposal,” Ways and Means and Energy and Commerce Committees' Republican staff, Feb. 7 (link)

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External links

“The Budget and Economic Outlook: Fiscal Years 2013 to 2023,” Congressional Budget Office, February (link)

“Overview of SGR Repeal and Reform Proposal,” Ways and Means and Energy and Commerce Committees' Republican staff, Feb. 7 (link)

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