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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. 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.
While groups such as the American Medical Association have criticized the SGR, they are also worried that the system created to replace it will be worse.