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The Medicare Payment Advisory Commission has recommended Congress eliminate the sustainable growth rate (SGR) factor from the equation used to set annual updates in Medicare’s physician fee schedule. The SGR sets a target spending level for physicians. Payments for services then rise or fall depending on whether actual physician spending exceeds, meets, or falls below the target.
"After reviewing the design of the SGR system, MedPAC concludes that it cannot maintain payment rates at the right level," says a MedPAC report. "The system does not adequately account for all relevant factors that affect the cost of providing physician services."
Providers have filed a series of complaints in recent years about how the SGR is determined and used.
In its place, MedPAC is recommending Congress create a new system to account for physicians’ costs of providing Medicare services. While not advocating a specific approach, the commission’s report did point out that the existing Medicare Economic Index could be used to calculate an annual increase in physician payments. The index already measures inflationary changes in doctors’ costs, such as office expenses, medical materials and supplies, and liability insurance.
MedPAC also noted that additional changes to the update may be necessary even if the index is used as a base to calculate physician payment increases. For example, annual increases may need to reflect whether scientific and technological advances have upped costs of providing patient care.
While groups such as the American Medical Association have criticized the SGR, they are also worry that the system created to replace it will be worse. Under the initial estimates released by the Health Care Financing Administration on March 1, the 2002 SGR would increase 6% — the highest preliminary estimated hike ever. Other recommendations contained in the Medicare Payment Advisory Commission’s report include:
• The Department of Health and Human Services should study the geographic variations in fee-for-service Medicare spending to determine how much of the difference is based on costs and health risks and how much is based on physicians’ and other health professionals’ practice patterns.
• Congress should eliminate a Medicare graduate medical education payment policy that may give hospitals a financial disincentive to support subspecialty residency training programs. Some experts worry this could shift money away from primary care residencies into specialty programs.
• HHS should recognize the costs of new and substantially improved technologies in the hospital outpatient payment system by developing formal procedures for quickly assigning codes.