The answer lies in a big budget bill Congress passed in 1997, which introduced something called the “sustainable growth rate” for Medicare. SGR has a complex formula but basically SGR says that the amount Medicare pays doctors for an average Medicare patient cannot grow faster than the economy as a whole.
Total payments to doctors can go up because the number of Medicare beneficiaries rises. And the average payment per beneficiary can rise along with the economy. But if growth in payments per beneficiary grows more than the economy as a whole, according to SGR you have to lower payments to doctors across the board to keep costs under control.
For the first few years since 1997, everything was fine — the economy was booming, and the increases in payments per beneficiary were no problem as far as the SGR was concerned. But as the economy slowed and healthcare spending skyrocketed early in this decade, finances started to get uncertain and reimbursements were cut in 2002. Every year since then, the SGR has called for more cuts, and every time Congress has stepped in to block the cuts.
Now, according to the SGR, reimbursements should actually be cut by more than 40%! A 40% cut in Medicare reimbursements is never going to happen. So we are stuck with continued short-term interventions until, some day, Congress come up with a whole new system to start the clock running again.