Medicare Sustainable Growth Rate

The Medicare Sustainable Growth Rate (SGR) is a method currently used by the Centers for Medicare and Medicaid Services (CMS) in the United States to control spending by Medicare on physician services.[1] Enacted by the Balanced Budget Act of 1997 to amend Section 1848(f) of the Social Security Act, the SGR replaced the Medicare Volume Performance Standard (MVPS), which was the previous method that CMS used in an attempt to control costs.[2] Generally, this is a method to ensure that the yearly increase in the expense per Medicare beneficiary does not exceed the growth in GDP.[3] Every year, the CMS sends a report to the Medicare Payment Advisory Commission, which advises the U.S. Congress on the previous year's total expenditures and the target expenditures. The report also includes a conversion factor that will change the payments for physician services for the next year in order to match the target SGR. If the expenditures for the previous year exceeded the target expenditures, then the conversion factor will decrease payments for the next year. If the expenditures were less than expected, the conversion factor would increase the payments to physicians for the next year. On March 1 of each year, the physician fee schedule is updated accordingly. The implementation of the physician fee schedule update to meet the target SGR can be suspended or adjusted by Congress, as has been done regularly in the past (a doc fix).[4] The estimated SGR for 2010 is -8.8%, and the conversion factor for the physician fee schedule is -21.3%.[2] On December 16, 2010, President Obama signed the Medicare and Medicaid Extenders Act of 2010 into law, delaying the implementation of the SGR until January 1, 2012.[5] The implementation of the conversion factor had previously been delayed until December 1, 2010.[6] Physician groups, including the American Medical Association, lobby for a permanent reform to the SGR so that physician payment rates are not subject to annual cuts (a permanent doc fix).



Section 1848(f)2 of the Social Security Act specifies the formula for calculating the SGR.[2] There are four factors used in calculating the SGR:

  1. The estimated percentage change in fees for physicians’ services.
  2. The estimated percentage change in the average number of Medicare fee-for-service beneficiaries.
  3. The estimated 10-year average annual percentage change in real GDP per capita.
  4. The estimated percentage change in expenditures due to changes in law or regulations.

Prior to the enactment of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), the SGR was calculated using a single year's real GDP per capita. Since the MMA was enacted in 2003, the SGR is calculated using a 10-year annual average growth in real GDP per capita.

Conversion factor

In order to meet the target SGR for the next calendar year, the physician fee schedule is updated accordingly. The update is calculated using two factors:

  1. One plus the Medicare Economic Index (MEI)
  2. One plus the Update Adjustment Factor (UAF)

The MEI measures the weighted average price change for various inputs involved with producing physicians’ services.[2] The UAF compares actual and target expenditures, and is determined by a formula that includes the target and actual expenditures and the SGR. By law, the UAF can not exceed -7.0%.[2]

Past adjustments

Section 101 of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA) provided a 1-year update of 0% for the conversion factor for CY 2007 and specified that the conversion factor for CY 2008 must be computed as if the 1-year update had never applied. Section 101 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) provided a 6-month increase of 0.5% in the CY 2008 conversion factor, from January 1, 2008, through June 30, 2008, and specified that the conversion factor for the remaining portion of 2008 and the conversion factor s for CY 2009 and subsequent years must be computed as if the 6-month increase had never applied. Section 131 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) extended the increase in the CY 2008 conversion factor that was applicable for the first half of the year to the entire year, provided for a 1.1% increase to the CY 2009 conversion factor, and specified that the conversion factors for CY 2010 and subsequent years must be computed as if the increases had never applied.[2]

Previous MVPS/SGRs and Conversion factors

The table on the left is a table of past years' SGR.[2] Prior to the MMA, the MVPS was in use instead of the SGR. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) changed the calculation from fiscal year (FY) to calendar year (CY). The table on the right is a list of the actual yearly MEI and physician fee update conversion factor. The physician update reflects a weighted average for FY 1991-1993 when there were two different updates (one for surgery and one for other services), and for FY 1994 through FY 1997 when there were three different updates (for surgery, primary care, and other services).[2] The Balanced Budget Act of 1997 consolidated service-specific updates so that starting in FY 1998, primary care, surgical, and nonsurgical services were updated by the same rate.[7]

FY 1990 9.1%
FY 1991 7.3%
FY 1992 10.0%
FY 1993 10.0%
FY 1994 9.4%
FY 1995 7.5%
FY 1996 1.8%
FY 1997 -0.3%
FY 1998 3.2%
FY 1999 4.2%
FY 2000 6.9%
CY 2000 7.3%
CY 2001 4.5%
CY 2002 8.3%
CY 2003 7.3%
CY 2004 6.6%
CY 2005 4.2%
CY 2006 1.5%
CY 2007 3.5%
CY 2008 4.5%
Year Physician MEI Increase Physician Update
1992 3.2% 1.9%
1993 2.7% 1.4%
1994 2.3% 7.0%
1995 2.1% 7.5%
1996 2.0% 0.8%
1997 2.0% 0.6%
1998 2.2% 2.3%
1999 2.3% 2.3%
2000 2.4% 5.5%
2001 2.1% 5.0%
2002 2.6% −4.8%
2003 3.0% 1.7%
2004 2.9% 1.5%
2005 3.1% 1.5%
2006 2.8% 0.2%
2007 2.1% 0.0%
2008 1.8% 0.5%
2009 1.6% 1.1%
2010 1.2% −21.3%

Impact of 2010 SGR

On March 3, 2010, Congress delayed the enforcement of the conversion factor until April 1, 2010.[8][9] On April 15, 2010, Congress voted to again delay the implementation and extended the 2009 rate to June 1, 2010.[10] On June 25, 2010, President Obama signed legislation that not only delayed implementation of the conversion factor until December 1, 2010 but also increased reimbursements by 2.2%.[6] The 2.2% increase was retroactive to June 1, 2010, and expired on November 30, 2010. The Medicare and Medicaid Extenders Act of 2010 prevented a 25% decrease in Medicare reimbursements from taking effect on January 1, 2011, and further extended the delay until January 1, 2012.[5]

Based on data from community oncology practices across the nation, the Community Oncology Alliance (COA) estimates that the implementation of the 2010 conversion factor will result in a staggering 38% annual average reduction in Medicare reimbursement for chemotherapy infusion services alone. The COA estimated the likely impact of the Medicare cuts on actual reimbursement using a financial analytical tool it developed based on the data provided in the proposed CMS rule. Detailed data from nearly 200,000 patient visits was submitted to a certified public accountant that aggregated the results.

Additional data from COA shows that, on average, current Medicare payments to community oncologists cover only 55% of the costs of services associated with the delivery of cancer care. Data was obtained through COA’s “Components of Care” study, a survey of oncology practices across the nation that quantified the clinical and operational components and associated costs for delivering cancer care.

See also


  1. ^ "Sustainable Growth Rates & Conversion Factors". CMS. Retrieved 2010-03-02. 
  2. ^ a b c d e f g h "Sustainable Growth Rates & Conversion Factors". CMS. Retrieved 2010-03-02. 
  3. ^ Jacob Goldstein (July 10, 2008). "Why Medicare Pay Cuts for Doctors Will Be Back". Wall Street Journal Health Blog. 
  4. ^ Ezra Klein (June 26, 2010). "What to do about the doc fix?" The Washington Post Accessed July 27, 2011.
  5. ^ a b Associated Press (December 15, 2010), "Obama signs bill to delay Medicare doctor pay cuts", Washington Post,, retrieved December 18, 2010 
  6. ^ a b "Obama signs 6-month fix for medicare reimbursements to doctors". Kaiser Health News. June 25, 2010. Retrieved July 31, 2010. 
  7. ^ Miriam J. Laugesen (2009). "Siren Song: Physicians, Congress and Medicare Fees". Journal of Health Politics, Policy and Law 34 (2): 157–179. doi:10.1215/03616878-2008-043. PMID 19276315. 
  8. ^ James Arvantes (March 3, 2010), "21.2 Percent Medicare Cut Averted: Senate Acts to Reverse Deep Reductions in Physician Payments", AAFP News Now, 
  9. ^ Mike Lillis (March 24, 2010), "On Health Care Reform, a Major Step Remains: Newly Passed Bill Doesn't Address Medicare Payment Flaw", Washington Independent, 
  10. ^ AMA (May 18, 2010), Medicare physician payment reform, 

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