Medicare Beneficiaries: Between a Rock and a SGR

 As the New Year begins, many of us have resolved to let go of 2011 and start with a clean slate. Fellow Chicago Bridge blogger Sharon Belloff described several ways to do just this in her January kick off post.   Unfortunately for Congress, the political atmosphere at the close of 2011 created considerable policy uncertainty for 2012. Most notably, the inability of our legislators to reach agreement on how to maintain current physician Medicare reimbursement rates will force this issue to resurface – now.  Medicare reimbursement rates for physicians were meant to receive a devastating 27 percent slash in 2012; however, a last-minute resolution passed by the House in December extends existing rates until the end of February. With the deadline less than a month away, Washington has some important work ahead of it. 

The History of Sustainable Growth Rates 

What is a Medicare reimbursement rate, exactly, and how does it affect doctors? Physicians who treat Medicare beneficiaries are reimbursed for their services by the government at a fixed rate, known as the sustainable growth rate, or SGR. This rate sprang from the 1997 Balanced Budget Act, as an attempt to control the rising Medicare costs by making sure that Medicare spending didn’t grow faster than the national economy. The exact SGR formula is quite complicated, but the rate does two things:
1)      It sets a projected amount for total Medicare spending on physician services in a given year. 2)      It also balances a physician’s reimbursement rate depending on the real growth of Medicare spending in that year.
In short, the SGR seeks to balance actual physician spending costs with the government’s Medicare spending target for that year. So, hypothetically, let’s suppose that 2011 had a projected spending of $500 billion Medicare dollars on physician services, but actual spending by physicians was more like $600 billion. The government, left with an unanticipated $100 billion tab, must compensate for the difference between these two spending patterns. Consequently, the SGR adjusts physician reimbursements downwards to resolve the issue.  Unfortunately for physicians, their Medicare costs have grown, on average, over five percent each year since 2000, meaning that physicians are spending more than the government has projected they would. Keeping in mind the $100 billion gap above, the SGR should have automatically resolved this issue yearly by reducing how much the government reimbursed physicians for Medicare services. But physicians have fought against these cuts because lower reimbursement rates translate into physicians receiving less money for the same exact services. Consequently, the projected SGR reductions haven’t actually been implemented since 2002, which brings us to the 27 percent cut currently facing Medicare physicians.

How it Affects the Public

The sustainable growth rate makes sense in theory, but in practice it is much more complicated. There is strong opposition to reducing doctor reimbursement rates, which might explain why Congress hasn’t done so in nearly a decade. This is because it may threaten the access to adequate health care for 45 million Medicare beneficiaries   With lower reimbursement rates, doctors are increasingly reluctant to provide services for existing Medicare patients, and many have refused to take on new Medicare patients altogether. According to data collected by the Office of the Inspector General (OIG), the physician opt-out rates from Medicare (the number of physicians refusing to take Medicare) have steadily increased since 2006. One study, released by the Texas Medical Association last August, saw a potential opt-out rate of nearly half its physicians if reimbursement rates are reduced further (although that projection seems awfully high in my opinion, even for Texas). 

How does this affect the Older Adult?

This doesn’t bode well for the millions of older adults relying on these physicians’ services. In the older adult population, where eight out of ten individuals have one chronic condition and half of the same population has two or more, seeing a health care provider is necessary and unavoidable. As disproportionately large consumers of health care, it is important that Medicare recipients have access to proper medical care.

The Counter Argument

The counter-argument to these worries, of course, is that every year we stall SGR reductions the government must foot the bill— a nine billion dollar expense in 2012.  If we stave off the SGR reductions for the next decade it will add an additional $316 billion to the federal budget deficit, according to estimates from the Congressional Budget Office.  Recently, several plans were introduced that propose new ways to pay for the costs of repealing the SGR, but partisan politics have yet again produced a large divide . It also appears that, as the deadline looms closer, many are proponents of doing away with the SGR altogether.

Is There Room for Social Work?

Is there any room for the voice of a social worker in this debate? Of course! As social workers, we are sometimes reluctant to dive into the policy arena and get our hands dirty. But we shouldn’t be. This policy debate affects 45 million people, many of who are our clients. As elder advocates, we must equip ourselves with the foundational knowledge to adequately understand how these policies affect those we serve. Although the solution to the SGR debate has yet to be written, I hope to have provided you with some important background on the subject. Yet, there is still much to be learned; the sustainable growth rate is just the tip of the health care iceberg.  *Thank you to 401K on flikr for allowing us to use the picture of this article. Jaimie Robinson was the editor of this article.


Alexi Vahlkamp is currently working toward her Master’s in Social Work at the University of Chicago School of Social Service Administration, with a concentration in older adult studies and administration. Particularly interested in the intersection of health care and social work, Alexi interns for the American Medical Association’s program in Aging and Community Health where she researches pertinent policy issues relating to both older adult patients and their physicians. In addition to her policy background, Alexi works in a clinical capacity with dementia residents at The Wealshire, a long-term care facility in the northern suburbs of Chicago. She received her B.A. in English & Creative Writing from the University of Illinois - Urban Champaign in 2009.

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