	Introduction

The Sustainable Growth Rate (SGR) is the statutory method for determining the annual updates to the Medicare physician fee schedule (MPFS). In the first few years of the SGR system, the actual expenditures did not exceed the targets and the updates to the physician fee schedule were close to the Medicare economic index (MEI, a price index of inputs required to produce physician services). With the exception of 2002, when a 4.8% decrease was applied, Congress has enacted a series of laws to override the reductions. If expenditures over a period are less than the cumulative spending target for the period, the update is increased. However, if spending exceeds the cumulative spending target over a certain period, the update for a future year is reduced, with the goal to bring spending back in line with the target. However, beginning in 2002, the actual expenditures exceeded allowed targets and the discrepancy has grown with each year. Issues for Congress: Concerns About SGR

There is a growing consensus among observers that the SGR system is fundamentally flawed and is creating instability in the Medicare program for providers and beneficiaries. Potential Impact on Beneficiary Access to Services

There has been an increased concern that continued declines in physician payment rates, especially among primary care specialties, may potentially jeopardize access to services. On February 5, 2013, CBO released a report stating that its estimate of the cost of overriding the SGR with a 10-year freeze in payments had fallen by more than $100 billion over 10 years compared to its July 2012 estimate of $273.3 billion (see above). In December 2013, CBO issued another score indicating that a 10-year freeze in MPFS payment levels would add $116.5 billion over 10 years. Each of the three committees of jurisdiction passed bills in 2013 that would repeal the SGR system (see Table 2 ). First, each of the bills would provide an initial period of payment stability: the Energy and Commerce bill would increase MPFS payments by 0.5% each year from 2014 to 2018, the Senate Finance Committee bill would freeze the payments (0% increase) for 10 years from 2014 to 2023, and the Ways and Means bill would increase payments by 0.5% in 2015 and 2016. Second, they each establish the development of new payment systems while maintaining fee-for-service payment in a manner similar to the existing system. Third, they each create incentives for physicians to transition to the new payment systems over time, generally by establishing different rates of increase over time for the new payment systems compared to fee-for-service. On December 26, 2013, the President signed into law H.J.Res. Section 1101 of the Pathway for SGR Reform Act provided for a 0.5% increase in MPFS payments for three months, from January 1, 2014, through March 31, 2014. On April 1, 2014, the Protecting Access to Medicare Act (PAMA, P.L. 113-93 ) was signed into law. The PAMA provided a 12-month override of the SGR-directed payment reduction and keeps Medicare physician fee schedule payments at the current level through March 31, 2015.
The Sustainable Growth Rate (SGR) is the statutory method for determining the annual updates to the Medicare physician fee schedule (MPFS). Under the SGR formula, if expenditures over a period are less than the cumulative spending target for the period, the annual update is increased. However, if spending exceeds the cumulative spending target over a certain period, future updates are reduced to bring spending back in line with the target.
In the first few years of the SGR system, the actual expenditures did not exceed the targets and the updates to the physician fee schedule were close to the Medicare economic index (MEI, a price index of inputs required to produce physician services). Beginning in 2002, the actual expenditure exceeded allowed targets, and the discrepancy has grown with each year. However, with the exception of 2002, when a 4.8% decrease was applied, Congress has enacted a series of laws to override the reductions.
Most observers agree that the SGR system is fundamentally flawed and is creating instability in the Medicare program for providers and beneficiaries: (1) the SGR system treats all services and physicians equally in the calculation of the annual payment update, which is applied uniformly with no distinction across specialties; (2) continued declines in physician payment rates, especially among primary care specialties, may potentially jeopardize access to services; and (3) legislative overrides have provided only temporary reprieve from projected reductions in payments under the SGR calculation, requiring even steeper future reductions in payment rates.
On February 5, 2013, CBO stated that its estimate of the cost of a 10-year freeze in payments had fallen to $138 billion over 10 years, more than $100 billion less than its August 2012 estimate, primarily due to lower spending for physician services. In December 2013, CBO issued another score indicating that a 10-year freeze would cost $116.5 billion over 10 years.
Each of the three committees of jurisdiction passed bills in 2013 that would repeal the SGR system. The bills would provide an initial period of payment stability: the Energy and Commerce bill would increase MPFS payments by 0.5% each year from 2014 to 2018, the Senate Finance Committee bill would freeze the payments (0% increase) for 10 years from 2014 to 2023, and the Ways and Means bill would increase payments by 0.5% in 2015 and 2016. Second, they each establish the development of new payment systems while maintaining fee-for-service payment in a manner similar to the existing system. Third, they each create incentives for physicians to transition to the new payment systems over time, generally by establishing different rates of increase over time for the new payment systems compared to fee-for-service. However, none of the bills was passed by both houses of Congress.
H.J.Res. 59 (signed into law on December 26, 2013) included the Pathway for SGR Reform Act, which provided for a 0.5% increase in MPFS payments for three months, from January 1, 2014, through March 31, 2014. The Protecting Access to Medicare Act (PAMA, P.L. 113-93) was signed into law on April 1, 2014, and provided a 12-month override of the SGR-directed payment reduction, keeping Medicare fee schedule payments at the current level through March 31, 2015.