If Congress does nothing, physicians will experience a 20% reduction in the reimbursements that they receive from Medicare. The cause of this reduction is a federal law that establishes the "Sustainable Growth Rate" formula for changes in Medicare payments.
The SGR formula is established by law and is used to calculate annual changes to the rates that doctors may charge Medicare for services. Instead of simply allowing the reimbursement rate to increase in line with inflation, adjustments are made on the basis of the average of several factors, including changes in national worker productivity and changes in the Gross Domestic Product.
The "long version" explaining how the SGR is calculated may be examined in this article from the Congressional Budget Office published in 2006 and this 2009 report from the Centers for Medicare and Medicaid.
The "short version" is much simpler. For the past several years, the SGR formula would have mandated low increases or even reductions in physician fee schedules under Medicare. Congress responded by overriding the changes to the fee schedule that would have been required by the SGR formula, and year-by-year enacted ad hoc increases for physicians participating in Medicare. However, Congress never repealed the SGR formula, and under the law the changes mandated by SGR are cumulative – the scheduled reductions have built up to the point that Congress does not act physician's fee schedules will have to be reduced by more than 20% in 2010, with further reductions of about 6% annually stretching into the future. This would certainly discourage physicians – and might discouage them from caring for Medicare patients altogether.
From the standpoint of physicians, the cure, of course, is to abolish the SGR formula. This is precisely what Senator Debbie Stabenow tried to do with her bill, S. 1776, the "Medicare Physician Fairness Act of 2009." This very short bill abolishes the SGR formula and freezes physician reimbursement rates at present levels. On October 21 this bill was defeated on a cloture motion 47-53, and Senator Stabenow released this statement vowing to continue to fight to bring the bill to the floor of the Senate.
How much more will we spend on Medicare if the SGR formula is abolished? The CBO answered this question in a letter dated October 26, 2009. The CBO estimated that the government would save tens of billions of dollars annually if the fee reductions go into effect this year – as much as $42 billion in the year 2019 alone.
On the other hand, Stabenow's bill would certainly be cheaper than having Congress enact annual increases in the Medicare reimbursement rate.
In this article by Emily Walker of MedPage Today, it is suggested that SGR reform is a hostage of the broader package of health care financing reform. Walker states:
On Wednesday, a cloture vote to end debate on the bill that would eliminate the sustainable growth rate (SGR) formula used to determine Medicare reimbursements to physicians was defeated in the Senate 53 to 47. Had it passed, the cloture vote would have moved the bill itself, sponsored by Debbie Stabenow (D-Mich.), to a vote.
…
The AMA, a major backer of the SGR bill, said it was "deeply disappointed," but earlier in the week, the group's president had refused to back the Finance Committee's healthcare reform bill, the quid in a rumored quid-pro-quo deal trading a vote on the SGR bill for support on the broad reform package.
If a physicians suddenly throw their backing behind one of the health care financing reform bills, it will probably be because the bill has been amended to abolish SGR.
