SGR Formula Effect

1. SGR Formula Effect Prepared by: Lisa Patrick, MD Mount Sinai School of Medicine

2. What is the SGR? • The Sustainable Growth Rate (SGR) was implemented in 2003 to control Medicare spending on physician services

3. Objectives • Define the equation • Examine the problem • Discuss the impact

4. How Medicare Pays Physicians • Each • Patient Encounter • Procedure • Is assigned a relative value unit (RVU)

5. Relative value units (RVUs) • Relative value assigned to services • Orthopedic procedures > chest tube > incision & drainage > laceration > lumbar puncture

6. Who assigns a service its RVU? • Resource-Based Relative Value Scale Updates Committee (RUC) • Includes two emergency physicians • Designates an RVU to each billing code

7. How are RVU’s assigned? • Three Variables • Work = value of physician’s work • PE = value of non-physician clinical labor expenses • MP = amount of medical liability for the service

8. More Factors • Geographic Adjustment (GPCI) • Conversion Factor (CF) • In 2008, CF = $38.0869

9. The Whole Equation • [(Work RVU x Budget neutrality adjustor (0.8806)* x Work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x CF

10. Who assigns the conversion factor? • Calculated annually by the Center for Medicare and Medicaid Services (CMS) • SGR as target

11. SGR: Four Variables • Fees for physicians’ services, • Number of Medicare fee-for-service beneficiaries, • Gross domestic product (GDP) per capita, and • Expenditures due to changes in law or regulations

12. The Problem • Physician reimbursement by Medicare is tied to the GDP • But GDP is NOT tied to the cost of running a practice

13. The Problem • Physician costs keep rising • While the Gross Domestic Product falls with recessions and does not track costs

14. The Problem • Congress must act annually to override payment cuts dictated by the SGR

15. The Problem • Annual threatened cuts harm practices • Delays upgrades / capital purchases • Reduces accepting providers • Requires large lobbying efforts

16. Where do we go from here?

17. The Problem Revisited • The SGR takes into account GDP and NOT actual physician costs • As the GDP decreases, conversion factor decreases, which reduces physician reimbursement • Congress must act annually to override

18. Future impact • Payment rates to fall 41% over the next nine years* • The cost of a practice is expected to increase by nearly 20 percent* • *2007 Medicare Trustees Report

19. Future impact • 25% of Medicare patients looking for a new physician had difficulty finding one* • *2005 Medicare Payment Advisory Commission (MedPAC) survey • 67% of physicians say they will decrease or stop seeing new Medicare patients if the scheduled eight years of cuts under the SGR take place** • **2006 AMA Member Connect Survey

20. Conclusion • Necessity for long-term solution • Overcome perception of problem: “too difficult to solve”