Position Statement

The Sustainable Growth Rate Formula Must Be Fixed

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The Medicare Physician Reimbursement System Is Flawed

Each year, CMS, based on a number of factors, establishes an “expenditure target” for all physician services. If expenditures for physician services fall short of the target, physician reimbursement rises. Conversely, if expenditures surpass the target, CMS must impose a reduction in physician reimbursement. While there are limits on the magnitude of the cuts in any given year, the law requires excess spending be recouped in future years. The debt accumulates and makes it more difficult for physicians to escape from the reimbursement hole.   

The current sustainable growth rate (SGR) formula has many flaws.

  • It links reimbursement to the gross domestic product, which does not accurately reflect changes in the costs and expenses of caring for Medicare beneficiaries.

  • It does not account for increased patient volume driven by new preventive screening benefits, national coverage decisions or new technologies.

  • It does not adjust for greater reliance on drugs to treat illnesses.

  • It does not properly account for costs or savings associated with new technologies.

Beneficiaries are Losing Access to Quality Care

The problems with the SGR formula have led to an unstable payment rate, which means that physicians are unable to forecast practice costs and have difficulties investing in health information technology and quality improvement initiatives. Under this environment patients risk losing access to quality care.


Short-Term Fixes Provide Temporary Relief

The SGR was established in 1997, and its flaws have caused such disruption that Congress has been forced to enact temporary measures to prevent cuts in physician reimbursement and to keep the system functioning. In the 111th Congress alone, five short-term fixes were enacted to prevent a 21 percent cut in physician payments. These short-term patches are no longer acceptable and have only exacerbated the problem since the cost of a long term fix now exceeds $300 billion.


Permanent Solution to the SGR is Necessary to Preserve Medicare

The AGA understands and appreciates the concerns about government spending, but steps must be taken to protect and strengthen the Medicare program. Before access to care is further threatened for the millions of patients who depend on the Medicare program, Congress must replace the SGR formula with a stable and equitable payment mechanism that reflects the costs of caring for Medicare beneficiaries and ensures access to high quality care.     


Updated: June 2011