Former CMS Administrators Call for a 5 Year Suspension of SGR Updates

Two former CMS Administrators voiced support for a 5 year suspension of the sustainable growth rate (SGR) formula used to update the payment rate for physicians who provide services to Medicare beneficiaries at an Alliance for Health Reform Briefing held on January 24, 2014.   Mark McClellan, MD, PhD, and CMS Administrator from 2004 to 2006,  suggested that a five  year suspension of the SGR would be a better solution than the 10 year suspensions proposed in current legislation.  Gail Wilensky, PhD. who was CMS’ administrator from 1990 to 1992, agreed.  “You could do the first steps of what all that legislation does, which is provide a known piece of stability for several years and put in place some specific activities to try to move forward with performance metrics,” said Wilensky.   Both thought that this suspension would shift the focus of the debate away from the negative cuts the SGR system requires and towards evaluating payment systems that reward value and quality.

Value-Based Payments

Their main concern was that the proposals for a 10-year break from the SGR would cost in the neighborhood on $150  billion according to a Congressional Budget Office Report.  McClellan thought that if that cost were cut in half the legislation might get more support. In addition,  both thought that the five year time frame would be sufficient to get results from and analysis of  a variety of different payment models being tested across the country.

The real problem with the physician reimbursement system is not so much the SGR formula, but the fact that it is based on payment for services. Gail Wilensky said, “the relative values scales as it exists with billings for some eight to 9000 different codes, rewards volume rather than value.”  Stu Guterman, Vice President of Medicare and Cost Control at the Commonwealth Fund, which co-sponsored the briefing  said, “One of the problems is that the [SGR] formula cuts payment rates across the board, no matter how appropriate or inappropriate the service is and no matter what kind of physician is providing a service and how effective they are.” All three thought that simply suspending the SGR was not enough and that the physician reimbursement system needs to be moved from fee-for-service structure to one that pays for value and quality of care.


The SGR was designed as a mechanism for adjusting the total growth in spending on physician services.  The SGR is linked to changes in the U.S. gross domestic product. It is based on a formula at Soc. Sec. Act sec. 1848 (f)(2) that includes the following factors; (1) the estimated weighted average percentage increase in the fees for all physicians’ services; (2) the estimated percentage change in the average number of Part B beneficiaries from the previous year; (3) the estimated percentage growth in the real per capita GDP from the previous year; and (4) the estimated percentage change in expenditures for all physicians’ services that are attributable to changes in laws and regulations. The result being that in 2002, and every year since, the SGR has produced a negative update, or a reduction in spending on physician services from the previous year.  “The problem being,” said Guterman, “is as spending continues to exceed the target that is set under the formula, the formula produces large cuts in fees.”

Both Wilensky and McClellan noted several different payment methodologies for physicians from medical homes to accountable care organizations and a variety of other models that are being tested.  Both felt that it was too early in the process to come up with a payment system that would replace the fee-for-service system, but that by repealing the SGR for a five year period the focus of the debate would be taken off the annual cut to the physician fee system and focused on developing a physician reimbursement system based on value of care provided.