SGR Repeal/Replace Proposal

government_400A bi-partisan group of members from both the House and Senate have released a draft proposal for repealing and replacing the Sustainable Growth Rate (SGR) formula. The group included the Chairmen and Ranking Minority Members of the House Ways and Means Committee and the Senate Finance Committee. These are two of the primary Committees with jurisdiction over the SGR issue.

This is an important next step in the process of permanently replacing the flawed SGR formula.  If enacted, this proposal would dramatically alter the way physician fee schedule payments are determined.  The financial and administrative implications for physicians are very significant.  For physicians wishing to continue to receive Fee-for-Service payments from Medicare, the amount of data that physicians will be asked to compile and report will be significant.

Because of the new data reporting requirements, it appears that there may be a strong incentive for providers to move to what the proposal refers to as alternative payment models (APMs).

Although not specifically stated in the summary released by the Committee leadership, it would appear that the phrase alternative payment model is a proxy for Accountable Care Organizations or Bundled Payments.  There appears to be a strong desire on the part of the authors of this initiative to want to move physicians from a payment model that places financial risk for clinical decision making on the payer (i.e. fee-for-service) to one where financial risk for clinical decision making is shifted to the provider.

Prior to adoption of the SGR formula for determining annual adjustments in physician fee schedule payment, physicians could expect an annual inflationary adjustment in their fee-for-service payments.  Since the adoption of the SGR, physicians have been threatened with ever increasing cuts in physician fee schedule payments and even when Congress stepped in to prevent these draconian cuts, the annual adjustments approved by Congress have been either non-existent or so nominal that the increases hardly kept pace with medical inflation.

Under the bi-partisan proposal, there will be no automatic annual adjustments in the physician fee schedule for 10 years.  Beginning in 2024, providers still in the fee-for-service system would receive a 1% annual inflationary adjustment.  Providers enrolled in one of the “to be approved” Medicare APMs would get a 2% inflationary update beginning in 2024.

There will be no inflationary updates for fee for service providers from 2014 to 2017.  The only changes in fee-for-service payments during that 3-year period would be for “misvalued” codes.


  1. Beginning in 2017, annual updates to the fee schedule would be physician specific and they would be “performance based” incentive adjustments – called the Value-Based Performance Program (VBP).  Physician scores on a prior year (not specified) would be used to determine the incentive adjustment.
  2. Performance based incentive adjustments would be based on a composite score, which would be a combination of:
  • Quality Score
  • Resource Use Score
  • Clinical Practice Improvement Activity
  • EHR Meaningful Use

3. Payment reductions for failure to report (PQRS) or meaningfully use EHR; and the Value-       based modifier penalties would be repealed.

4.  Physicians with low APB scores would see a reduction in their payments for that year.

5.  The VPB payment incentive (and penalties) program would be expanded to include PAs and NPs in 2018 and all others (subject to Secretarial discretion) paid under the fee schedule,    beginning in 2019.

Incentive payment scoring can occur either at an individual level or at the group level for providers who belong to a group.  There is a special process that could be used by “facility-based” professionals to determine their quality score.  Providers would receive “timely” updates indicating how they are doing through the course of the year.

As noted earlier, the overall goal of the initiative appears to be to encourage providers to move to an APM.  Physicians who receive a significant percentage of their Medicare revenue through a risk-sharing Alternative Payment Model, will receive an automatic 5% annual increase in payments between 2016 and 2021.

The proposal would also direct the GAO to undertake a study of the Relative Value Scale Update Committee (RUC) process for determining the “valuation of physician services.”  Concern has been expressed that organized medicine exercises too much control over the RUC process and as a consequence, efforts to adjust so-called “misvalued” codes have been undermined by physician specialty organizations.

Information for determining value would be obtained from “selected health professionals” rather than from physician organizations.  The proposal makes a vague reference to providers who submit the requested information being eligible for additional compensation.  However, should a provider fail to assist in the data gathering effort, they would be assessed a penalty – a 10% payment reduction.

The Secretary of Health and Human Services would also be directed to undertake an analysis of global surgical payments for work, focusing on post-surgical visits.

Finally, it should be noted that the proposal does not address how these changes will be “paid for.”  Under the budget rules governing the Congress, any change in the Medicare program that would increase Medicare expenditures above what had previously been budgeted, must be offset by either additional revenues or cuts elsewhere in the Medicare program.

Currently, the Congressional Budget Office (CBO) says that repealing the SGR and simply freezing payments for 10 years would result in higher Medicare expenditures of approximately $138 Billion.  CBO has not provided an estimate for the cost of this repeal/replace initiative.

To comply with the budget rules Congress must offset the cost of the SGR repeal/replace proposal with additional revenue into the Medicare Trust Fund or cut payments to other providers.

Here is the draft proposal for your review.