Understanding the Medicare Sustainable Growth Rate formula
September 13, 2012
Medicare, once again, is on the brink of a staggering cut to reimbursement come the end of 2011. The rationale is buried on page 158 of the Physician Fee Schedule Federal Register as follows -
"We currently estimate that the statutory formula used to determine the physician update will result in a CY 2012 conversion factor of $23.9635 which represents a PFS update of 29.5 percent. By law, we are required to make these reductions in accordance with section 1848(d) and (f) of the Act, and these reductions can only be averted by an Act of the Congress. While the Congress has provided temporary relief from these reductions for every year since 2003, a long-term solution is critical. We are committed to working with the Congress to permanently reform the SGR methodology for
Medicare physician fee schedule updates."
As you receive requests from different sources to contact your legislators to oppose the decrease, it is of course preferable to know what you are working to oppose. The Sustainable Growth Rate is based on GDP and not on actual health care practice costs, and is used as a target for expenditures on physician services. When actual expenditures exceed the SGR, physicians’ payments are cut, regardless if the actual cost of treatment exceeds the SGR. SGR is determined by the following factors:
-Estimated change in fees for physician’s services
-Estimated change in beneficiaries enrolled in Medicare’s fee-for-service program
-Estimated growth in real gross domestic product (GDP) per capita
-Estimated change in expenditures due to law and regulation
So, irregardless of the cost associated with your services, Medicare can and will only pay the money available in its coffers. For those of you reading with constructive ideas regarding payment, I encourage you to take the time to reach out to your medical society, or better yet, Medicare directly. I don't have a tally of other industries, but if I had the opportunity to wager, I would bet that the government employees dictating Medicare's policies, including the legislatures behind formulating payment structures, would not work for "amounts allocated as available, and available as allocated."
Alternatives to the SGR method of reimbursing for services rendered are being offered by way of new "shared savings" models such as "medical homes" and "accountable care organizations", both of which we have discussed in prior emails and will address in the near future as government deadlines approach for same. The stark difference in those models are you are compensated partially fee-for-service and also compensated a percentage of "shared savings". Unfortunately the question remains if you are compensated a percentage of shared savings and the savings are $0 because Medicare is under-funded, what is x% of $0? For these new initiatives, time will tell...
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