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SGR and Physician Payment

Sustainable Growth Rate

Established in the Balanced Budget Act of 1997, the Sustainable Growth Rate (SGR) is a formula designed to provide predictable control for federal spending in Medicare by providing yearly updates to the Medicare physician reimbursement rates. By adjusting the payment rates, the SGR was supposed to help control the cost of healthcare by linking it more closely with national growth and changes in the Medicare-eligible population.

Since 2002, the SGR has recommended negative updates to physician payment rates, meaning that actual expenditures outstripped target expenditures. However, since 2003, Congress has acted to override the formula update, adding cumulatively to the difference between the target and actual expenditures for each subsequent year. Barring Congressional action, the SGR is scheduled to cut Medicare physician reimbursement rates on December 31, 2013.

SHM has been actively supporting H.R. 5707, a bill sponsored by Rep. Allyson Schwartz (D-PA-13) that would repeal and replace the SGR. It would stabilize payments at current rates for 2013 and replace scheduled reductions with positive and predictable updates from 2014 to 2017 before transitioning to new payment systems focused around improving quality and reducing costs.

Budget Sequester

As part of the Budget Control Act of 2011, Congress agreed to submit to across the board budget cuts if the Joint Select Committee on Deficit Reduction (the super committee) did not achieve at least $1.5 trillion in budgetary savings over ten years. Since the super committee was unable to come to consensus, the budget sequester will cut $85 billion next year and more than $1 trillion over the next 10 years from the federal budget. These cuts were delayed from January 2, 2013 to March 27, 2013, and would go into effect unless Congress acts again to override them.

Under the sequestration, Medicare payments to providers and plans would face a 2% cut in 2013. Federal agencies face 7.8% cuts in their individual budgets. In addition, the sequestration would result in $3.6 billion in cuts for medical research in 2013, including eliminating more than 2,300 NIH research grants.


March 1, 2013 President required to order Budget Sequester.
March 27, 2013 Budget Sequester goes into effect.
December 31, 2013 SGR goes into effect.

What can you do?

  • Use the Legislative Action Center to contact your member of Congress about the SGR and the budget sequester.
  • Stay informed. Congress and federal agencies are often discussing and working on Medicare payments systems and the federal budget.
  • Get involved in the conversation on the Advocacy and Public Policy community on Hospital Medicine Exchange.

What is SHM doing?

  • Partnering with Rep. Allyson Schwartz (D-PA-13) by continuing to support H.R. 5707, a bill to repeal and replace the SGR.
    • Sent a letter to Rep. Schwartz and Rep. Joe Heck (R-3-NV) commending their introduction of the bill.
    • Encouraged the members to get involved and contact their Representatives in the Legislative Action Center.
  • SHM created a FAQ on the sequester and its impact for hospitalists.

Background Materials

Fact Sheet on the SGR for 2013 This fact sheet explains the timeline for the 2013
SGR patch and the federal budget offsets being used to prevent the 27% cut to physician payment under Medicare.

The SGR formula was created in the Balanced Budget Act of 1997.

The legislative authority for the budget sequester comes from the Budget Control Act of 2011.

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