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

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

Objectives Define the equation Examine the problem Discuss the impact

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

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

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

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

More Factors Geographic Adjustment (GPCI) Conversion Factor (CF) –In 2008, CF = $

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

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

SGR: Four Variables 1.Fees for physicians’ services, 2.Number of Medicare fee-for-service beneficiaries, 3.Gross domestic product (GDP) per capita, and 4.Expenditures due to changes in law or regulations

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

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

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

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

Where do we go from here?

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

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

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

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