The SGR: The madness behind physician payment fee cuts

Publication
Article
Oncology NEWS InternationalOncology NEWS International Vol 16 No 10
Volume 16
Issue 10

Reimbursement for medical practices was once based on what was known as "customary, prevailing, and reasonable charges." This system was felt to be inequitable and inflationary.

Reimbursement for medical practices was once based on what was known as "customary, prevailing, and reasonable charges." This system was felt to be inequitable and inflationary.

In 1992, Medicare instituted the resource-based relative value scale (RBRVS), which significantly changed the way physicians are paid. The RBRVS aimed to decrease payment for procedure-oriented specialties and increase it for specialties, such as oncology, considered to be "cognitive" in nature.

The RBRVS includes "relative values" for each Current Procedural Terminology (CPT) code based on estimates of the amount of physician work, practice cost, and medical liability premium costs involved. Each of these components is geographically adjusted and then multiplied by a conversion factor that translates the total unit value for the CPT code into a dollar amount.

The value of the conversion factor is determined annually by the Centers for Medicare & Medicaid Services using a complex formula defined by federal statute that reflects Medicare's inflation rate—the Medicare economic index (MEI)—and an "adjustment factor" based on the sustainable growth rate (SGR).

The SGR was created by Congress in 1999 to control Medicare spending on physicians' services. It sets expenditure targets that take into account the number of fee-for-service Medicare beneficiaries and the nation's overall economic growth.

If total physician spending exceeds the spending target set by SGR, a negative adjustment of up to 7% is applied to the MEI when the conversion factor is updated each year. Conversely, if total spending is below the SGR, a bonus of up to 3% may be applied to the MEI.

One problem with the SGR is that it attempts to set prices for individual services while at the same time controlling total Medicare spending. These two goals can very seldom be accomplished simultaneously because as the number of Medicare beneficiaries increases and the services provided to them get more complex and costly, the total spending for Medicare part B expands. To control this expansion in Medicare spending, reimbursement for individual services, as reflected by the value of the conversion factor, has to drop in order to meet SGR targets.

The Medicare Payment Advisory Commission (MedPAC) warned in its report to Congress as early as 2002 that this method used to determine the value of the conversion factor is flawed. MedPAC recommended that Congress repeal the SGR, and predicted 4 years of negative impact on the value of the conversion factor if this system was not repealed. As we all know, MedPAC's prediction proved true. The debate over how cancer physicians are reimbursed is ongoing. It is important for the oncology community to be actively involved in the process so that when change occurs, it is in our best interest.

Recent Videos
Future findings from a translational analysis of the OVATION-2 trial may corroborate prior clinical data with IMNN-001 in advanced ovarian cancer.
The dual high-affinity binding observed with ISB 2001 may avoid resistance mechanisms reported with other BCMA-targeted therapies.
The use of chemotherapy trended towards improved recurrence-free intervals in older patients with high-risk tumors as determined via the MammaPrint assay.
Use of a pharmacist-directed resource appears to improve provider confidence and adverse effect monitoring for patients undergoing infusion therapy.
Reshma L. Mahtani, DO, describes how updates from the DESTINY-Breast09, ASCENT-04, and VERITAC-2 trials may shift practices in the breast cancer field.
2 experts in this video
Related Content