Removing the Medicare SGR Formula and Incentivizing Quality of Care

July 22, 2013

The House will discuss a bill this week to reform the Medicare SGR formula and replace it with annual pay raises. Here's what it means for physicians.

In a yet to be named bill, the House recently provided a copy of a discussion draft, which would reform the Sustainable Growth Rate formula (SGR) and Medicare payment system for physicians’ services. In short, the bill, scheduled for Markup to the Energy and Commerce Committee today (July 22, 2013) and a vote on July 23, 2013, provides five years of stable Medicare payments beginning in 2014 and fully replacing it with a model that incentivizes quality and efficiency.

For physicians, this means consistent payments at an increase of 0.5 percent each year. Otherwise, as anyone who follows the annual cycle can appreciate, Congress, at the last minute (and sometimes shortly thereafter) votes to delay cuts to the program and physician reimbursement. This only increases the amount of the cut for the next year. For example, in 2014, physicians would face a 25 percent reduction in payment.

As for the new program, it mirrors the Medicare Shared Savings Programs (i.e. value-based purchasing and bundle payments) in that quality of patient care and cost efficiency form the basis for reimbursement. By 2019, physicians, especially those participating in accountable care organizations should already be acclimated to this type of payment, compared to traditional fee-for-service. Therefore, they should be well poised to participate in this type of payment model.

What most providers forget is that by improving patient care, the incidence of medical negligence claims can also be reduced. So, when looking at the overall impact of such care on an entity’s financial statements, this is an opportunity not to be overlooked. In sum, it will be interesting to see if and how this change is implement. Fortunately, there is an implementation period, so those physicians not as familiar with reimbursement for these measures can ease into the program.