What’s Behind the SGR Formula?

John M. Froelich, MD, and Roshan P. Shah, MD, JD

One of the most confusing subjects of any healthcare reform discussion is the Sustainable Growth Rate (SGR) formula. The SGR formula is used by the Centers for Medicare & Medicaid Services to control spending by Medicare on physician services. This article aims to demystify the concept and help readers better understand this aspect of U.S. healthcare policy.

In 1965, the United States government became the single largest healthcare insurance provider with the establishment of the Medicare and Medicaid programs. At first, Medicare reimbursed physicians for services provided based on a ‘usual, customary, and reasonable’ rate. Over the years, however, the cost of Medicare steadily crept higher.

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