What is SGR

What is SGR, What is Conversion factor (CF) and how they are calculated?

Medicare annually updates payment rates for inflation for most provider services, physician services are updated by a formula mandated in legislation known as the Sustainable Growth Rate (SGR).

The conversion factor (CF) for a year is based on the prior year’s CF adjusted for inflation by the Medicare Economic Index (MEI) and performance under the SGR. The SGR is a cumulative target whereby actual expenditures for all physician services are compared to a target rate of spending. The target is based on a statutory formula and includes an allowance for changes in the Medicare population, statutory and regulatory changes, and an allowance for volume and intensity growth based on GDP growth. If the SGR target is exceeded, the update to the CF is reduced and, conversely, if actual spending is less than the target, the CF is increased. For a number of years the actual expenditures for all physician services exceeded the target suggesting a need for a substantial reduction in the CF. Most observers believe that the statutory formula using GDP as a proxy for appropriate volume and intensity growth is flawed by not providing adequately for changes due to new technology, medical improvements, transfer of services from the hospital and other reasons. The Congress has acted each year since 2003 to prevent reductions in the CF from occurring. Since the SGR is a cumulative target, the potential reductions have reached massive proportions.

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