Medicare Physician Fee Schedule Fact Sheet


Medicare payment rates for physicians are updated annually by a calculation based on inflation in physician costs and then adjusted further according to how Medicare spending compares with a target rate of growth, known as the sustainable growth rate (SGR).  The SGR is based on the Gross Domestic Product (GDP) of the entire U.S. economy irrespective of increases in health care costs.  If spending is less than the SGR, physicians’ payment rates are increased.  If the costs were more than the SGR, physicians would see a reduction in rates they are reimbursed.

In the last ten years, Congress has acted 14 times to avert reductions in payments to physicians that had been scheduled to take effect in accordance with the SGR formula.  The most recent Congressional action occurred on February 17, 2012 when both the House of Representatives and the Senate approved legislation to provide a ten-month reprieve from a 27 percent reduction in Medicare payments to physicians that had been scheduled for March 1, 2012.  That payment freeze will be in effect through December 31, 2012.  That bipartisan agreement, which was part of a bill to extend the payroll tax cut and unemployment benefits, was signed into law by President Obama on February 22, 2012. 

For years Congress has been grappling with this issue, as Medicare’s reimbursement system has resulted in reimbursement cuts annually that have had to be prevented through Congressional action.  Rather than permanently fixing the system or adopting a new one, lawmakers have opted instead to implement a series of short-term fixes that have canceled the cuts but have left the underlying flawed system in place.  The action taken in February 2012 was again a serious missed opportunity to end this problem.

Because Congress once again failed to repeal the SGR, it has been projected that the next Medicare reimbursement cut, scheduled to occur on January 1, 2013, will be approximately 32 percent.

AAGP Position

While AAGP is pleased that the 27 percent cut in Medicare reimbursement to physicians was averted this year, there is still a serious need to permanently replace the flawed Medicare physician payment formula and protect access to care for older adults.  Postponing the cuts this year, without a permanent solution, does nothing but set the stage for a higher cut next year, while increasing the cost of a permanent solution by several billion dollars.  It is critical that

Congress reform the broken Medicare payment formula.  Recognizing that physicians cannot afford to accept an unlimited number of Medicare patients into their practices while they are facing the possibility of ongoing payment reductions, AAGP remains committed to continuing it work with other medical organizations and consumer organizations to reform the Medicare payment system on a permanent basis.  There needs to be a permanent solution to this problem in order to preserve Medicare beneficiaries’ access to care and provide for fair reimbursement for all practitioners under the Medicare system.

(March 8, 2012)