A Fix for the Medicare Sustainable Growth Rate Formula

Last week, BPC responded to a request for comments from Senate Finance Committee Chairman Max Baucus and Ranking member Orrin Hatch on ways to improve Medicare’s physician payment system and, specifically, suggestions on how to repeal the flawed sustainable growth rate (SGR) formula, which dictates annual provider payment updates and is threatening a 25 percent reduction in physician reimbursements in 2014. The text of the letter, submitted to the Committee and outlining several recent BPC recommendations to improve quality and reduce costs across the health system, is below.

The Bipartisan Policy Center (BPC) recently released A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment, which included a multitude of recommendations to spur improvement in system-wide health care quality and efficiency. This effort, led by former senators Tom Daschle, Bill Frist, Pete Domenici, and former OMB and CBO Director Dr. Alice Rivlin, focused extensively on reforms to Medicare that would result in higher quality care and reduce cost growth for beneficiaries and taxpayers. A central aim of our recommendations, which incorporate an SGR fix, is to create strong incentives for the full range of providers to transition from the volume-based payment methods that predominate in Medicare today to advanced payment and delivery models that promote accountability for quality outcomes, patient satisfaction and value.

Reforming the SGR presents a critical opportunity for Congress to enact comprehensive Medicare reimbursement reforms that prioritize quality and value. A fix to the SGR formula should be contingent upon additional incentives to improve quality and value.

There is an emerging consensus among providers and policymakers regarding the need to move away from fee-for-service payment, which we have identified as a major driver of health care cost growth, as well as a contributor to the lack of coordination of care that many patients experience. Proposals to replace SGR from members of both parties are based on the idea that future payment updates for physicians should be tied to participation in advanced payment models with the goal of increasing quality and value of care. BPC’s proposed approach to SGR is similar. First, we propose that, beginning in 2017, future updates for all providers participating in traditional Medicare, not only physicians, be contingent on participation in a payment model that includes accountability for cost, quality, and payment satisfaction. Second, we specify a potential new payment and delivery model for traditional Medicare, a significantly enhanced version of Accountable Care Organizations (ACOs) that we call “Medicare Networks.” Medicare Networks, like ACOs, would be formed and led by providers who want to work together to deliver high quality, high value care. A critical difference, however, is that Medicare Networks would have more tools to achieve these goals. Beneficiaries and providers would also have strong incentives to participate, but the existing fee-for-service system would remain an option.

Read the full letter to the Senate Finance Committee here.