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CBO Analyzes Cost of Medicare Doc Payment Fix

APRIL 15, 2005 — Proposed options to prevent a scheduled Medicare physician payment cut over the next five years range between $10 billion to $50 billion, according to estimates from the Congressional Budget Office (CBO). Medicare payments to physicians are scheduled to decline by 5 percent in 2006 unless Congress takes action to stop the cuts. Earlier this month, an American Medical Association survey found that 38 percent of physicians said they would reduce the number of Medicare patients they will accept if the cuts proceed as scheduled.

"Everyone says you're going to get the fix but there's no one saying it's a done deal," said a lobbyist representing physicians. According to the CBO analysis, which is dated March 24, freezing physician payments at the 2005 level would cost about $27 billion over five years and $48.6 billion over ten.

The Medicare Payment Advisory Commission recommended that payments be adjusted each year to reflect the changing costs of delivering physician care, known as "sustainable growth rate." Replacing the current sustainable growth rate formula for setting physician payments would cost nearly $50 billion over the next five years and $154.5 billion over the next decade.

In order to avert a scheduled pay cut to physicians in 2004 and 2005, the Medicare drug bill (PL 108-173) included a 1.5 percent payment increase for each of those years. Extending that update through 2006 would cost $9.7 billion over the next five years. Hiking payments 1.5 percent in 2006 and by another 1.5 percent in 2007 would cost $20.8 billion from 2005 through 2010.

Recognizing changes in the Medicare drug bill as "changes in law" for purposes of calculating the sustainable growth rate would cost $12.8 billion over five years and $46.1 billion over ten, according to the CBO document. Retrospectively and prospectively removing physician administered drugs from the sustainable growth rate would cost $46.5 billion from 2005 to 2010 and $114.2 billion from 2005 through 2015, according to the CBO analysis.

It is unlikely that Congress will tackle a broader overhaul of the way Medicare pays physicians this year. "It's too expensive," said the lobbyist representing physicians.

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