Paying for value: replacing Medicare's sustainable growth rate formula with incentives to improve care

This brief sets forth a set of policy options to improve the way health care providers are paid by Medicare. The authors suggest repealing Medicare's sustain­able growth rate (SGR) formula for physician fees and replacing it with a pay-for-value approach that would: 1) increase payments over time only for physicians and other provid­ers who participate in innovative care arrangements; 2) strengthen primary care and care teams; and 3) implement bundled payments for hospital-related care. These reforms would be adopted by Medicare, Medicaid, and private plans in the new insurance marketplaces, with the goal of accelerating innovation in care delivery throughout the health system. Together, these policies could more than offset the cost of repealing the SGR formula, saving $788 billion for the federal government over 10 years and $1.3 trillion nationwide. Savings also would accrue to state and local governments ($163 billion), private employ­ers ($91 billion), and households ($291 billion).