How Will Repeal of SGR Affect Hospitals?

After many years of postponing cuts mandated by the sustainable growth (SGR) rate formula, Congress finally repealed it last week within hours of a 21 percent fee cut for physicians. The SGR was intended to control Medicare costs by holding physician payments closer to U.S. economic growth. It was part of the Balanced Budget Act of 1997.


Hospitals joined physicians and other providers to back the measure, which would “replace the fee-for-service payment system with one that aims to move most physicians into quality-based payment models,” according to the Healthcare Financial Management Association’s analysis. (“Congress Repeals SGR, Includes Hospital Provisions,” HFMA Weekly News, April 17, 2014)


Total cuts to cover the repeal of the SGR amount to $70 billion. $141 billion of the cost will not be offset, however, according to a Congressional Budget Office estimate.


The new legislation also included many temporary and permanent policy changes for hospitals.


Provisions in the legislation include:

  • $19 billion in hospital cuts to help offset the cost of the physician payment changes. Cuts would come from replacing a planned one-time Medicare hospital payment increase of 3.2 percentage points in 2018 with a six-year phase-in of the increase, and by increasing scheduled Medicaid disproportionate share hospital (DSH) payment cuts from $35 billion to $43 billion, but delaying the start of the cuts until FY2018.
  • $6 billion in new Medicare spending through a limited extension of expiring payment provisions for rural hospitals that are paid based on a blend of current prospective payment system rates and costs.
  • Two year extensions for the Low-Volume Hospital program, work geographic index floor for the Medicare physician fee schedule, rural and super-rural ambulance add-on payments and an exceptions process for Medicare therapy caps.
  • Extension of funding for two years to community health centers, National Health Service Corp and teaching health centers.
  • Extension through October 1 of a ban on status reviews of hospital inpatient stays by recovery audit contractors. “Probe and educate” activities by contractors will continue to inform hospitals of improper billing of short stays under the two-midnight rule.
  • Bars civil monetary penalties against hospitals and critical access hospitals that compensate physicians for reducing medically unnecessary services. Federal law “previously discouraged full-scale gainsharing partnerships between hospitals and their medical staffs.” (“Congress Repeals SGR, Includes Hospital Provisions,” HFMA Weekly News, April 17, 2014)




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