6 sustainable growth rate alternatives

If the sustainable growth rate (SGR) formula was a human being, it would have just entered adolescence, spending much of its time negotiating the potentially treacherous slopes toward becoming an adult. But since the SGR is a financial concept drafted by politicians, it was declared doddering and obsolete not long after Congress conjured it to life a decade and a half ago.

The SGR concept is a formula intended to ensure Medicare payments to physicians do not exceed the annual growth of the gross domestic product. Enacted into law as part of the Balanced Budget Act of 1997, it replaced the Medicare Volume Performance Standard formula, which was a mere five years old before being retired. That was a variant on the original Medicare Economic Index, which having survived for 18 years, was the elder statesman of pay formulas. 

SGR's predecessors relied on increases in the cost of medical inflation and general earnings levels of physicians and other medical professionals. SGR was simultaneously more complex--and potentially far more regressive. It benchmarked Medicare expenditures against specific growth targets. If the expenditures exceeded targets in a specific year, reductions would kick in the following year. If expenditures were below targets, they would be adjusted upward. 

Under SGR, there had been only one year with a reduction: 2002, when payments dropped 4.8 percent. Not coincidentally, that was also when physicians began to ask for revisions to SGR or its outright repeal.

The average increase during SGR's lifetime has been barely more than 2 percent, but during the last decade it has rarely topped 1 percent. According to the American Medical Association, reimbursements have risen a net 4 percent during the past decade, while practice costs have risen about 24 percent.

However, the 2010 update called for a 21.3 percent reduction in payments, prompting Congress to call off implementing the 2010 formula until at least 2012. Were it to be implemented early next year, physicians would see a cut totaling 29.5 percent.

Given the already pinched financial times, the medical community is now trying to eradicate SGR in much the same fashion it eliminated smallpox from the planet in the 1970s. However, the so-called "doc fix" won't be cheap: Government and non-governmental entities estimate eliminating SGR will cost $300 billion over ten years.

With the Medicare Payment Advisory Commission (MedPAC) pronouncing SGR as unsustainable, its brief time on this planet is likely coming to an end. Unlike the demise of other adolescents, there will be no farewell trips sponsored by the Make-A-Wish Foundation, tear-filled funerals, or testimonials that its passing occurred too soon. There will only be a replacement. It, too, will likely be the result of a process more political and financial. But as Churchill once said, "You can always count on Americans to do the right thing--after they've tried everything else."

Here, FierceHealthFinance presents six alternatives to the sustainable growth rate formula to consider and analyzes their likelihood of being adopted. Click on the links below to get started.

• Another Temporary Fix
• The MedPAC Proposal
• The AMA and AAFP Proposal
• An SGR "Reset"
• Subdividing the SGR
• Private contracting within Medicare