Why SGR was 'almost certain to fail'

Experts say the sustainable growth rate (SGR) Medicare payment formula was "almost certain to fail," according to MedPageToday.

The formula was flawed from the beginning, due largely to lack of precedent for tying such a formula to economic growth, according to Gail Wilensky, Ph.D., who served as chair of the Physician Payment Review Commission (PPRC) from 1995 to 1997.  Because of the strong economy in the mid-90s, few expected blowback from the formula, Wilensky said, but SGR critics feared a slowdown.

"It was clear at some point [the economy] would turn around, and giving larger-than-otherwise-expected fee increases--which was what was happening in 1997 and 1998--would turn around to bite them as soon as the economy slowed down, which, of course, it did around 2002," Wilensky said at an Alliance for Healthcare Reform event this week.

The SGR formula has also failed to limit volume growth, according to the article. "In the types of specialties where volume can be changed based on production, they just started cranking up the volume," James C. Capretta, a visiting fellow studying health policy at the American Enterprise Institute and former Senate Budget Committee staffer, told MedPageToday. "That's been a feature of the system pretty much ever since it was enacted."

Basing the formula on overall physician spending also meant individual doctors had no incentives to make their practices more efficient and get better outcomes, since no single provider or group would have any effect on overall payments, according to the article. "Focusing solely on physician fees represents a reinforcement of the various silos in the healthcare system that we keep saying we're trying to move away from," said Bruce Vladeck, Ph.D., who headed the Healthcare Financing Administration from 1993 to 1997.

Legislation to repeal the SGR, endorsed by the American Medical Association, advanced in both houses of Congress last year, FierceHealthFinance previously reported.

To learn more:
- read the MedPageToday article