The Medicare Sustainable Growth (SGR) formula was enacted by Congress as part of the Balanced Budget Act of 1997. The intent of the formula was to control the growth of Medicare spending for physician services by tying Medicare payment for services to physicians to the overall status of the economy. Basically, if the U.S. gross domestic product (GDP) does well, doctors get more money, and if it does poorly, doctors get less money. It is a commonly used theory in businesses.
However, the SGR has a fatal flaw when it comes to healthcare organizations. SGR does not control volume and, in fact, cuts payments without regard to the quality or efficiency of care provided by an individual physician.
Every year, the formula threatens to impose steep cuts in Medicare Physician Fee Schedule (MPFS) payments. Since 2003, Congress has intervened 17 times with legislation overriding these cuts. Come April 1, 2015 if Congress does not again intervene, current law requires rates to be reduced by an average of 21.2% - a devastating blow to a practices revenue cycle.
Congress came close to a resolution in 2014 with the Medicare Provider Payment Modernization Act of 2014. It had support from both bodies of Congress, but ultimately failed to pass before the legislative term ended in December due to disputes over funding. Instead Congress passed The Protecting Access to Medicare Act of 2014 which curtailed a 24% reduction in MPFS and also delayed the implementation of ICD-10 to Oct. 2015.
Earlier this week, the House Energy and Commerce Subcommittee on Health re-launched efforts in the 114th Congress to implement a permanent solution to the SGR formula. Rep. Joe Pitts (R-Pa.), subcommittee chairman, who authored the House-approved SGR-fix bill last year, called a two-day hearing to discuss how to address the issue in a "fiscally responsible manner." Now the SGR problem is back on the table with a focus on how to resolve it while offsetting the estimated cost of approximately $140 billion.