Assessing Alternatives to the Sustainable Growth Rate System

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Abstract:

Chairman Stark, Ranking Member Camp, distinguished Subcommittee members, I am
Glenn Hackbarth, Chairman of the Medicare Payment Advisory Commission (MedPAC).
I appreciate the opportunity to be here with you this afternoon to discuss alternatives to
the sustainable growth rate (SGR) system used in Medicare’s physician payment system.
Medicare pays for physician services on a fee-for-service basis using a resource-based
relative value scale. Each service is assigned a weight reflecting the resources needed to
furnish it. Payment is determined by multiplying a service’s weight by a national
physician payment rate, called the conversion factor.
Currently, as specified in statute, the annual update to the conversion factor is determined
under the SGR, based on an expenditure target that is tied to growth in the gross domestic
product (GDP). The SGR is widely considered to be flawed; it neither rewards physicians
who restrain volume growth nor punishes those who prescribe unnecessary services.
Some critics contend the SGR may actually stimulate volume growth. Other observers
believe that, despite its flaws, the SGR has helped curb the increase in Medicare spending
for physician services by alerting policymakers that spending is rising more rapidly than
anticipated and constraining the ability of policymakers to increase fees.
Slowing the increase in Medicare outlays is important; indeed it is becoming urgent.
Medicare’s rising costs, particularly when coupled with the projected growth in the
number of beneficiaries, threaten to place a significant burden on taxpayers. Rapid
growth in expenditures also directly affects beneficiary out-of-pocket costs through
higher Part B and supplemental insurance premiums as well as higher copayments.