Discussion Draft: SGR Repeal and Medicare Physician Payment Reform

Background 
The Sustainable Growth Rate (SGR) formula – the mechanism that ties physician payment updates to the relationship between overall fee schedule spending and growth in gross domestic product (GDP) – is fundamentally broken. Although originally introduced as a mechanism to contain the growth in spending on physicians’ services, a decade of short-term “patches” has frustrated providers, threatened access for beneficiaries, and created a budgetary dilemma from which Congress has struggled to emerge. Unless Congress acts by January 1, physician payments will be cut by approximately 24.4 percent in 2014. Over the last decade, Congress has spent nearly $150 billion on short-term SGR overrides to prevent pending cuts. 
 
The 113th Congress has brought renewed commitment to repealing and replacing the flawed SGR update mechanism. This effort has been helped by the significantly reduced Congressional Budget Office score for a freeze of physician payments over the next ten years ($139 billion) and the bipartisan proposal reported out by the House Energy & Commerce Committee in July. Building on that effort, this bipartisan, bicameral discussion draft from the House Ways & Means and Senate Finance Committees seeks to move away from the current volume-based payment system to one that rewards quality, efficiency, and innovation. 
 
Summary 
The proposal would permanently repeal the SGR update mechanism, reform the fee-for-service (FFS) payment system through greater focus on value over volume, and encourage participation in alternative payment models (APM). The revised FFS system would freeze current payment levels through the ten-year budget window, while allowing individual physicians and other health care professionals (subsequently referred to collectively as “professionals”) to earn performance-based incentive payments through a compulsory budget-neutral program. By combining the current quality incentive programs into one comprehensive program, this proposal would further value-based purchasing within the overall Medicare program while maintaining and improving the efficiency of the underlying structure with which professionals are already familiar.

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