The year-end passage of bipartisan legislation to avert the reduction in Medicare physician payment rates required by Medicare’s sustainable growth rate (SGR) formula is nothing new. The SGR formula, enacted as part of the Balanced Budget Act of 1997—the last substantial legislation to reform Medicare payments and reduce the deficit—adjusts Medicare physician payment rates so that total spending on physician-related services increases in line with the overall economy.
Every year since 2001, the SGR formula has called for an across-the-board reduction in payment rates, because the overall increase in the volume and intensity of physician-related services has exceeded the target SGR. Since 2002, Congress has stepped in with short-term legislation to avert the payment reduction. These “patches” have failed to keep up with inflation over time and also have resulted in a divergence between the actual level of Medicare physician-related spending and the target in the SGR formula, so that the budgetary cost of permanently fixing the SGR runs into hundreds of billions of dollars.