Updating Medicare's physician fees: the sustainable growth rate methodology.

Medicare's method to annually update the fees it pays physicians has been under fire for some time--specifically, since the method determined that physician fees should be reduced rather than increased. The update method, called the sustainable growth rate (SGR), was implemented to control the growth in Medicare physician spending. Yet Congress, in response to physician concerns about beneficiary access to care, has acted to avert physician fee cuts since 2003. Although this signals dissatisfaction with the SGR methodology, there is yet to be a widely accepted physician fee update proposal that balances federal budgetary realities with the need to ensure beneficiary access. And the cost of changing the update method continues to mount, adding to the difficulties of developing a solution that meets the needs of all stakeholders. This issue brief describes the SGR methodology, the reasons why projected physician fee updates are negative, and some options that have been proposed to remedy the current situation. This issue brief is the second of two related papers on physician spending and Medicare's sustainable growth rate methodology. The companion paper was published on October 9, 2006 (see Issue Brief 815, available at www.nhpf.org/pdfs_ib/IB815_PhysicianSpending_10-09-06.pdf).