SGR Has Finally Been Repealed – But What Happens Next?

Michael Cassidy

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Michael A. Cassidy, Esq.
Tucker Arensberg Attorneys


After a long and tortured history, the Medicare Sustainable Growth Rate (SGR) problem has been repealed.


SGR was an integral component of the Medicare physician fee schedule, enacted in the mid 1990’s as part of the Medicare Resource Based Relative Value System (RB-RVS).  This is the Medicare physician payment schedule that introduced Work Relative Value Units (WRVUs).


SGR was the “volume gatekeeper” for the physician payment system.  The program was adopted as part of a long range budget which assumed both increases in physician fee schedule payments and increases in utilization over a 20 year long planning corridor, but SGR was the safety net which automatically reduced physician payments if utilization exceeded the budget projections.  The implementation mechanism was the Medicare conversion factor.  For those of you who are following the formula, the WRVUs, malpractice RVUs, and overhead expense RVUs were added to provide a total relative value unit sum for each service, and that unit value was multiplied by a Medicare conversion factor.  The conversion factor in 2014 was $35.82.  This conversion factor was the result of Congress again postponing the SGR reduction in 2014, and it was scheduled to be reduced to $28.35 in 2015, which was also postponed by Congress.

In fact, Congress has been postponing the SGR mandated decrease in the Medicare physician fee schedule since 2002.  The problem was created because actual utilization exceeded projected utilization by a significant amount, thereby necessitating the decrease in order to continue to meet budget.  The continued postponement of the scheduled decreases has had the same impact as missing your minimum credit card payment; the missed payment and the missed reduction simply results in compounding the problem in future years.  The only solution was to repeal or modify the SGR formula so that it would not continually statutorily impose Medicare physician fee schedule reductions.  Rather than enact any permanent remedy, Congress simply resorted to postponing the reduction each year.


Now Congress and the President have actually repealed SGR, but have they fixed the Medicare payment system?  The Medicare Access and CHIP Reauthorization Act just signed by President Obama does the following three things:


  1. It permanently repeals SGR;


  1. It provides for a .5% increase in Medicare physician fee schedule payments for each of the next 5 years through June 2019 but freezes the base fee schedule from 2019 through 2025; and


  1. It directs HHS to establish MIPS – the Merit Based Incentive Payment System.


The problem is that the new legislation doesn’t actually establish any specific payment opportunities.  The law states that the Secretary of Health and Human Services will have substantial flexibility, within guidelines, to specify the quality measures to be used in determining the new Merit Based Incentive Payment System (MIPS) which is targeted for 2019.  MIPS will replace three existing incentive programs, i.e., Value Based Payment Program, Meaningful Use, and the Quality Reporting Incentive Program.  Oddly, the value based payment modifier was not scheduled to become effective until 2015 and the incentive payments under meaningful use have already ceased.  The legislation directs HHS to design a merit based payment system to reward:


  • Quality
  • Resource use
  • Clinical practice improvement activities
  • Meaningful use of certified EHR technology


Beginning in the year 2026, fees would increase by .75% each year for providers who participate in an alternative payment model and only .25% per year for those who do not.


The significant problem with this legislation is the Congressional Budget Office estimates that, over the next decade, federal spending will be $141 billion higher than it would be under the current law, which you must remember includes the automatic required reductions by SGR.  The new alternative payment systems, which have yet to be designed, are intended to produce savings but, since the project is only theoretical at this point, there is no hard evidence that those savings can be achieved.


Noting the lack of definition of a future payment system and the broad latitude provided to the Secretary of HHS, it will be critical for physicians and their professional associations to be involved in changes to this legislation and to the design of the payment system to assure that the federal budget is not balanced on the reduction of payment for medical services for Medicare recipients.
















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