THE SUSTAINABLE GROWTH RATE: Bringing The SGR To Individual Providers
February 20th, 2008
 by
Frank Opelka
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Editor’s Note: This is the fifth post in a Health Affairs Blog series on Medicare physician compensation and the Sustainable Growth Rate mechanism. Paul Ginsburg, Robert Berenson, Mina Matin, and Jay Crosson have contributed earlier posts, and in the coming days the series will feature posts by Eugene Rich and Gail Wilensky.
There will be little relief in Medicare expenditures in the coming years as the number of beneficiaries continues to increase. Beyond simple growth in numbers, the costs of new medications, improved diagnostic imaging, and technological advances will cause further struggles for Medicare spending. The current approach to moderating this spending for physician services, known as the Sustainable Growth Rate (SGR) system, is a blunt and ineffective instrument that has not been successful in achieving its goal. The SGR applies financial brakes to spending without addressing the real need for a sustainable, clinically focused Medicare program in which high-quality and efficient care is rewarded.
The failure of the current SGR includes the lack of quality and appropriateness metrics and the inability to modify provider behavior as intended. If the SGR cannot be replaced, it must be modified into a more clinically focused and fiscally responsible program that will incentivize appropriate physician behavior and decrease per capita spending. Currently, the SGR treats all growth in volume and intensity in the same manner with no regard for the clinical appropriateness of the treatment being provided. A test given at the right time for the right reason receives the same payment as a test given at the wrong time for the wrong reason. The current SGR rewards efficiency and inefficiency equally.
The blunt nature of the current SGR instrument drives an annual adjustment in the conversion factor for the Medicare physician fee schedule, which determines relative payments for physician services. A key feature of the SGR is that current expenditures above the annual spending target are paid for by decreased payments in future years. The obscure metrics that define the SGR and, subsequently, physician payments, are too far removed from individual providers to truly encourage reduced spending. Unfortunately, the current system includes a perverse incentive for individual providers to increase volume and intensity in an effort to supplement decreasing payments levels.
The SGR’s link to the gross domestic product (GDP) seeks to ask the question, “How much of our limited resources do we wish to spend on our nation’s health care system?” As a nation, it seems that we are unprepared to answer that question. Consequently, in recent years, as health care spending has continued to increase beyond projections, Congress has found a means for delaying the SGR impact by providing limited updates to physicians and other health care professionals. If the true effects of the SGR were felt, physicians would have experienced 5-10 percent cuts in reimbursement over the last few years affecting every facet of the health care system. The SGR concept is simply too broad and removed to cultivate a meaningful solution at the point of care.
The SGR’s failure as an all-encompassing solution affects physician services equally, including areas of clinical care that are already undervalued and can least afford decreased reimbursement. Overvalued services manage to absorb the losses to a degree, but their long-term viability remains in question. Undervalued clinical services struggle to survive within the framework of medical inflation, and, consequently, patients’ access to these services becomes a concern. The SGR’s failure to redirect clinical care into critical areas becomes especially clear when unfocused reductions are combined with shortages in the health care workforce. We have witnessed this effect in areas such as chronic disease management.
Improving Medicare Physician Payment
Modifications to the SGR payment model in combination with quality metrics could help reach individual providers and protect patients’ access to needed services. By sharpening the focus of expenditure targets, the SGR could more successfully increase provider awareness about unsustainable volumes and intensities for providers within specific areas of the Medicare program. With the addition of provider incentives, the program could further encourage high-quality and efficient care by correcting volume and intensity of services to coincide with best (better) practices.
The Deficit Reduction Act (DRA) mandated that the Medicare Payment Advisory Commission (MedPAC) study a variety of SGR reforms, such as setting regional, rather than national, spending targets. Among other SGR alternatives, MedPAC considered creating unique Service Category Growth Rate (SCGR) targets as well as payments based on participation in a system of care. In each proposal, the goal is to avoid the blunt, lofty economic drivers and provide physician incentives to moderate growth in volume and intensity within a geographic setting, specialty base, or system of care.
If spending targets are focused in a more detailed framework rather than the current national expenditure target, several questions surface, such as, “How do we clinically discourage excessive care or correct for underutilization?” In previous years of the SGR, performance measurement tools were not as accepted or readily available for all areas of health care. In recent years, public-private partnerships have formed to bring provider measurement and reporting to the forefront. These quality tools could serve as a valuable resource for regions and systems of care to promote evidence-based, efficient care. Physicians, medical groups, and hospitals will need to use the current measurements available for comparison against their peers and national benchmarks. Through payment incentives and a clinically focused approach, regional efforts and systems of care will have a greater opportunity to reach individual providers.
Challenges For SGR Reform
Any model for refinement of the SGR will face challenges. A regional spending target will face technical and political obstacles. Regional proposals, which could be based on systems of care, will run into the obstacle that most physicians are currently independent. Regional spending target programs will have major challenges in bringing clinical disciplines together except in existing integrated systems. Each region will need to compare its current performance against benchmarks and seek opportunities for improvement. Incentives must align the cross-functional nature of the regional providers into a common goal through gain-sharing efforts based on measurable efficiencies and the quality of care provided. Evidence-based guidelines will prove helpful once they are available and universally accepted from a national endorsement process. Toolkits for regional entities to implement the program will facilitate the implementation and likelihood of overall success.
The American College of Surgeons (ACS) and the American Osteopathic Association (AOA) jointly sponsored a proposal for the Service Category Growth Rate (SCGR) targets. Others, such as the Minnesota Universal Health Care Coalition, also encourage setting spending targets by specialty. The SCGR encourages providers to be prudent stewards in their area of expertise. The proposal allows for expert guidelines to focus on specifically reducing the waste and inefficiency in a given clinical domain.
The challenges faced within the SCGR model involves defining the national priorities and the spending targets within each service category, as well as coordination of care as drivers between service categories. A MedPAC analysis defined multiple service categories, and the ACS-AOA proposed six service categories. A central system would track spending growth within these six categories, review the current growth, and link future growth targets to clinical needs. Based on spending targets and on the need for growth or contraction of services, each service category would receive its own conversion factor.
A challenge similar to the geographic model is that multiple specialties would need to work together to reduce spending, except that this time it would be a single national effort rather than multiple regional efforts. For example, controlling imaging growth requires a cross-functional collaboration between those who perform imaging and those who request the diagnostic and therapeutic images. In the modification, it will be important to reward providers for working together to reduce waste instead of placing blame for spending growth.
The best model for modifying the SGR likely includes both regional targets and assessment of spending by specialty. The true answer lies in changing the reward system so that physicians are rewarded for collaborating and making decisions in the best interest of the patient and the overall health care system. The payment system can no longer pay blindly on volume, but must instead financially encourage providers to remove waste and promote efficient, high-quality care. The SGR is too far removed to change behavior at the individual provider level. Regional and service category proposals will bring the requirements closer to the individual, but it is important that unintended consequences be modeled in advance and offset by mandatory quality targets.
