Federal law mandates that a formula known as the Sustainable Growth Rate (SGR) be used to modify Medicare payments to physicians each year. Flaws in the formula, however, have required reductions in the physician fee schedule in recent years. Only short-term Congressional fixes have averted these cuts. If Congress does not act to replace the SGR now, the formula will continue to mandate physician fee schedule cuts. The 2005 Medicare Trustees report forecasts a 26% cut from 2006 through 2011.

The SGR links physician payment updates to the gross domestic product (GDP). However, the fluctuations measured by the GDP have very little correlation to the actual cost of providing patient care. Elements of the SGR were originally designed to control utilization by reducing physician fees. Physicians however, have very little control over the primary utilization drivers, which in reality are new or improved technologies, increased patient awareness of potential treatment options, and a general move from in-patient to out-patient care.

The cost of drugs delivered in physician offices is also inappropriately included in the payment formula. CMS has the authority to remove drugs from the formula and should do so.

The Medicare Payment Advisory Commission (MedPAC) has recommended that Congress eliminate the SGR and instead adopt the same approach for physician payment updates that is used for hospitals, nursing homes, and other Medicare providers. Under this approach, payments would reflect actual practice cost increases. If Congress does not act it will become increasingly difficult for heart rhythm specialists to provide services to Medicare recipients.

For more detailed information visit the American Medical Association’s website on Medicare Physician Payments.