Policy Documents

Medicare’s Sustainable Growth Rate: Principles for Reform

Chris Jacobs –
July 18, 2013

In this Policy Report in the Foundry at Heritage, the author writes that Congress may soon revisit the issue of Medicare physician reimbursement. Much of the discussion will focus on the sustainable growth rate (SGR), enacted in 1997 as a mechanism to update yearly Medicare physician payments. Under the SGR, the federal government computes an annual target for Medicare physician spending based in large part on annual changes in economic growth as measured by GDP. Physician spending exceeding the growth in GDP in any given year will result in an automatic, proportional cut in physician reimbursement the following year. Physician spending routinely exceeds annual targets, and the SGR has proven unworkable. Since 2003, Congress has blocked the SGR formula from going into effect because the applicable cuts would threaten seniors’ access to care. For 2014, the formula calls for a reimbursement cut of almost 25 percent. Many policymakers have concluded that the SGR must be reformed. They are right, but Congress must ensure that any fundamental reform of the SGR is accompanied by fundamental Medicare reform.