Senate Democrats

S. 1776, the Medicare Physician Fairness Act


On October 13, 2009, Senator Stabenow introduced S.1776, the Medicare Physician Fairness Act of 2009.  The bill would sunset the Sustainable Growth Rate (SGR), which is currently used to calculate the annual update to the Medicare physician payment fee schedule, replacing it with no annual update for 2010 and subsequent years.  Pursuant to Rule XIV, Senator Reid placed the bill on the Senate calendar on October 14, 2009.  The Senate is expected to begin consideration of this legislation during the week of October 19, 2009.


This section summarizes information from the Congressional Research Service (CRS).

Medicare payments for services of physicians and certain non-physician practitioners are made on the basis of a fee schedule.  The fee schedule assigns relative values to services that reflect physician work (i.e., time, skill, and intensity required to provide the service), practice expenses, and malpractice costs.  The relative values are adjusted for geographic variation in costs.  The adjusted relative values are then converted into a dollar payment amount by a conversion factor.  The law specifies a formula, commonly referred to as the sustainable growth rate (SGR) system, for calculating the annual update to the conversion factors and the resultant fees.

If cumulative physician expenditures are below the expenditure target, then an annual update is calculated based on several variables including the Medicare Economic Index (MEI).  However, when cumulative physician expenditures exceed the expenditure target, the SGR system reduces the annual update factor (and therefore, all physician reimbursements under the fee schedule) to attempt to bring cumulative expenditures in line with the target.

Reductions resulting from application of the SGR have been frequently overridden by legislation.  For example, Section 101 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, P.L. 110-173) increased the update to the conversion factor for Medicare physician payment by 0.5 percent compared with 2007 rates for the first six months of 2008.  The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, P.L. 110-275) extended the 0.5 percent increase in the physician fee schedule that was set to expire on June 30, 2008, through the end of 2008 and set the update to the conversion factor to 1.1 percent for 2009.  Under current law, the conversion factor for 2010 and subsequent years will be computed as if this modification had never applied, so unless further legislation is passed, the update formula will require a 21 percent reduction in physician fees beginning January 1, 2010 and by additional amounts annually for at least several years thereafter.

Medicare payments to certain non-physicians practitioners, such as physician assistants, nurse practitioners, clinical nurse specialists, nurse midwives, certified registered nurse anesthetists, clinical psychologists, clinical social workers, and payments for outpatient physical and occupational therapy are based on the physician fee schedule.  Therefore, changes made to the SGR system also affect Medicare reimbursement for these health care providers.  In addition, TRICARE reimbursement rates are tied by statute to Medicare rates. 

The calculation of the expenditure target has been criticized for including items that are not reimbursed under the Medicare physician fee schedule.  Specifically, the Medicare Payment Advisory Commission (MedPAC) and various physician organizations have suggested removing Part B drugs from the calculation of the baseline and growth targets.  In its proposed rule for payment for physicians’ services in 2010, CMS proposed removing Part B drugs from those targets. 

Major Provisions

S.1776 would amend the Social Security Act to include a zero percent update to the conversion factor described above, beginning in 2010 and for future years.  S.1776 would also sunset the SGR.

Legislative History

On October 13, 2009, Senator Stabenow introduced S.1776, the Medicare Physician Fairness Act of 2009, and pursuant to Rule XIV, the bill was placed on the calendar on October 14, 2009.  As of this writing, the legislation is cosponsored by Senators Begich, Casey, Leahy, and TomUdall.  


Amendments are expected to S.1776.  Updated information will be sent to the DPC e-mail lists.

Administration Position

As of this writing, the Obama Administration has not released a Statement of Administration Policy.


Democratic Policy Committee, Fixing Medicare Payments to Physicians, Laying the Groundwork for Health Insurance Reform, 10/16/2009

Congressional Research Service, Medicare Payment Policies (RL30526)

Medicare Payment Advisory Commission, Payment Basics: Physician Services Payment System, 10/2009