The History of the Sustainable Growth Rate, and How Its Repeal and ACOs are Linked

Ken Perez
Ken Perez

Guest post by Ken Perez, vice president of healthcare policy, Omnicell.

Section 4503 of the Balanced Budget Act of 1997, enacted on Aug. 5, 1997, replaced the Medicare Volume Performance Standard (MVPS) with the sustainable growth rate (SGR) provision, a formulaic approach intended to restrain the growth of Medicare spending on physician services. The SGR formula incorporates medical inflation, the projected growth of per capita gross domestic product (GDP), projected growth in the number of Medicare beneficiaries, and changes in law or regulation.

The SGR requires Medicare each year to set a total budget for spending on physician services for the following year. If actual spending exceeds that budget, the Medicare conversion factor that is applied to more than 7,400 unique covered physician and therapy services in subsequent years is to be reduced so that over time, cumulative actual spending will not exceed cumulative budgeted (targeted) spending, with April 1, 1996, as the starting point for both.

In part because of the effective lobbying efforts of physicians, Congress has temporarily suspended application of the SGR by passing legislative overrides or “doc fixes” 17 times from 2003 to 2014. (It utilized five different pieces of legislation in 2010 alone to avoid cuts exceeding 20 percent.) As a result, actual spending has exceeded budget every year during these years. Because the annual fee update must be adjusted not only for the prior year’s variance between budgeted and actual spending but also for the cumulative variance since 1996, the next proposed update, effective April 1, 2015, is a reduction in Medicare physician fees of 20.9 percent.

Those hoping for a permanent repeal of the SGR—which is pretty much everybody, given the almost universal disdain for it—entered 2014 with a sense of optimism that this would be the year. These hopes were fueled by bipartisan and bicameral support of SGR reform proposals that emerged at the end of 2013 and significantly lower estimates by the Congressional Budget Office (CBO) of the cost of a long-term doc fix.

Ultimately, the inability to figure out how to pay for the SGR repeal blocked the passage of the permanent reform bills, and Congress settled for yet another short-term patch. On March 27, 2014, the House of Representatives, under a suspension of normal rules, approved via a voice vote H.R. 4302, the Protecting Access to Medicare Act of 2014. The bill provides a patch to the SGR that would avoid a 24.4 percent reduction to Medicare’s Physician Fee Schedule (PFS), effective April 1, 2014, replacing the scheduled reduction with a 0.5 percent increase to the PFS through Dec. 31, 2014, and a 0 percent increase for Jan. 1, 2015, through March 31, 2015. Four days later, the Senate approved H.R. 4302 on a bipartisan 64-35 vote, and President Barack Obama signed the bill into law.

In April 2014, the CBO estimated that a permanent SGR fix—keeping physician payments level from 2015 to 2024 instead of implementing the cuts mandated by the SGR formula—will cost $124 billion.

In the June 12, 2014 issue of the New England Journal of Medicine, Stuart Guterman explained how permanent SGR reform is in some ways dependent on the success of healthcare delivery reforms such as ACOs, positing, “If Medicare spending per beneficiary continues to grow relatively slowly, and if the payment- and system-reform initiatives being implemented in both the public and private sectors [e.g., ACOs] can produce more solid evidence of success, the CBO estimates of the cost of SGR repeal may become even more favorable.”

Increasing the forecasted number of Medicare ACOs is one way to positively shape the CBO’s projections of the cost-reduction impact of ACOs. As a point of reference, the number of Medicare ACOs has grown steadily over the past four years, and currently there are over 360 Medicare ACOs.

This is the year for the Centers for Medicare & Medicaid Services (CMS) to take the feedback it has received and revamp its ACOs programs, the Pioneer ACO Model and Medicare Shared Savings Program (MSSP).

The proposed rule for Medicare’s 2015 Physician Fee Schedule, issued on June 19, 2014, included changes to the 33 quality measures for the MSSP. At a high level, the proposed rule recommended adding 12 new measures and retiring eight existing measures that have not kept up with clinical best practice, are redundant with other quality measures, or could be replaced by similar measures that are more appropriate for ACO quality reporting. The net result is a revised set of 37 quality measures.

Additionally, on June 26, 2014, the White House’s Office of Management and Budget (OMB) received CMS’s proposed rule for the next version of the MSSP, which will be published in the Federal Register after OMB’s review. This proposed rule will presumably include changes to the financial terms of the MSSP and thus will impact the overall risk-reward proposition for MSSP ACOs.

As for the Pioneer ACO Model, in December 2013, CMS’s Center for Medicare and Medicaid Innovation (CMMI) issued a request for information (RFI) seeking input on the Pioneer program and new ACO models. The RFI comment period ended March 1, 2014, and CMMI is expected to issue the details of the next generation of the Pioneer ACO Model later this year.

If CMS revises its ACO programs to make them more attractive to healthcare providers—an objective that CMS officials have expressed publicly—it could kill the proverbial two birds with one stone, retaining and increasing the number of Medicare ACOs, as well as increasing the likelihood of permanent SGR reform. Let’s hope it turns out that way.

Write a Comment

Your email address will not be published. Required fields are marked *