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President Obama And The Sustainable Growth (SGR) Formula For Medicare Reimbursement

Stanley Feld M.D.,FACP,MACE

President Obama promised the AMA he would fix the defective Medicare Sustainable Growth Rate formula for calculating Medicare reimbursement to physicians. As a result of that promise the AMA supported President Obama’s healthcare reform bill.

The AMA made a big mistake supporting President Obama’s healthcare reform bill. It was as if the AMA did not evaluate the bill’s obvious unintended consequences for both patients and physicians.

The AMA lost support from not only 85% of physicians that are not members of the AMA but also from the 15% of physicians that are members.

The SGR formula makes no sense. Medicare has reduced physician reimbursement to physicians as physicians’ expenses have increased. A 21.2% decrease in reimbursement will result in physicians losing money seeing Medicare patients.


It is stupid to lose money seeing patients. President Obama’s unintended consequence will be physicians will stop seeing Medicare patients. Physicians cannot make up the loss by increasing the volume of patients seen.

Most physicians are decreasing expenses by installing electronic medical records. The available EMRs are not fully functional. The capital expenditure is too high for most physicians. They cannot afford an electronic medical record even with President Obama’s subsidy.

A New York Times article explains the conventional wisdoms. However, there is little proof that the conventional wisdom is correct.


There will likely be no real solution until the American health care system moves away from unfettered fee-for-service payments that encourage doctors to perform unnecessary and costly tests and procedures and pays them instead for better management of a patient’s care over time.”

My interpretation is physicians should get paid a salary by the government as the single party payer.

The media ignores the fact that most physicians do not get paid for the unnecessary and costly procedures.

Hospital systems and national laboratories do the tests and receive the reimbursement. The majority of physicians are single practitioners. Family Physicians and Internists cannot afford the equipment necessary to do testing in office. It is against the law for physicians to bill for testing done outside their office.

Physicians might order multiple tests that could be considered unnecessary by some. They order these tests as part of the defense against malpractice suits. Malpractice reform has been totally ignored by President Obama’s healthcare reform bill.

Until there is significant malpractice reform defensive medicine and the resulting “unnecessary testing” will not disappear. The use of appropriate data can alert the government and the healthcare insurance industry when a physician abuses the system.

The excuse of over testing does not warrant a reduction in reimbursement to Family Physicians and Internists. Doctors cannot afford to see Medicare and Medicaid patients at a loss.

It is obvious that there will be a physician shortage, long waiting periods to see a physician and rationing of care. I will discuss the complexity of the issue in detail shortly.

Family physicians and internists only have time and intellectual property to sell. The Medicare fee schedule recognizes prevention. However, Medicare does not reimburse for prevention, telephone calls or emails. President Obama talks a good game but has done nothing to correct SGR.

The “sustainable growth rate” (SGR) formula was enacted in 1997. Policy wonks concluded it was a way to restrain Medicare spending. I do not think the Policy wonks intended the consequences. The SGR set annual limits for the total amount of money to be paid in the traditional Medicare program. It also included allowances for inflation in the cost of operating a medical practice, for growth in the elderly population, and even a little extra money to pay for increases in the volume and complexity of services performed. It sounded reasonable.

The blue represents physicians’ increased in billings. The red represent application of the SGR formula. In 2007- 2009 Congress waived application of the SGR.


The fatal flaw in the formula was that it had no way to limit the array of services doctors provided or distinguish between valuable and needless treatments.”

“If doctors in the aggregate billings drove Medicare expenditures above the limit set by SGR, the SGR formula called for fees in the following year to be reduced.”

That aggregate punishment was not enough to persuade individual doctors to change behavior.”

Off course it would not change behavior. The threat of a malpractice trumps a punitive monetary penalty. It is not wise to create a punitive environment for any workers. It encourages bad behavior. Why can’t the government find the specific individuals it claims abuse the system and deal with them? The SGR is defective and needs changing. It needs to be changed along with the rules in the malpractice system.

Congress has waived the SGR formula since 2007 after physicians screamed for help. Congress did not suspend the proposed cuts. The accumulation of the yearly suspended cuts resulted in the 21.2% reduction in reimbursement this year.

I said physicians would stop seeing Medicare patients at a loss. This would hurt seniors’ access to medical care.

President Obama ignored the call for help until June 12th. He has had one and one half years to proclaim his support for eliminating the faulty SGR formula. He used the 21.2% reduction to calculate the deficit reduction effect of his healthcare reform bill.

Republicans are screaming that President Obama is spending money like a drunken sailor. Republicans decided to put their foot down. SGR was the wrong issue to put their foot down on. President Obama placed the blame on the Republicans in his weekly radio address.



This year, a majority of Congress is willing to prevent a pay cut of 21% — a pay cut that would undoubtedly force some doctors to stop seeing Medicare patients altogether. But this time, some Senate Republicans may even block a vote on this issue. After years of voting to defer these cuts, the other party is now willing to walk away from the needs of our doctors and our seniors.”

President Obama knew Democrats did not have the votes to eliminate the SGR formula when President Obama made his grandstanding radio announcement. The suspension of SGR failed to pass. Physicians are now going to see a 21.2% reduction in Medicare
reimbursement. The AMA’s deal with President Obama did not work. It was never going to work.

The American public should be getting tired of President Obama’s games. Barney Frank and John Kerry summed up the strategy that had been developed by the Democrats long ago. No one listened. Listen again.

Now President Obama doesn’t need congressional approval to get a single party payer system. He will do it by administrative regulation.

I do not think President Obama has thought out the unintended consequences. The burden to the American public will be huge .

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

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