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CBO Report Could Be Game Changer for SGR Overhaul

By John Reichard, CQ HealthBeat Editor

February 5, 2013 -- Buried deep inside a Congressional Budget Office (CBO) report released last week is an estimate that overhauling the Medicare physician payment formula over the next decade would cost just $138 billion.

That's dramatically lower than the roughly $300 billion CBO has previously estimated.

American Medical Association President Jeremy Lazarus seized on that nugget from page 31 of the report, issuing a statement saying "now is the time to end this failed policy once and for all and protect access to care for seniors now and in the future."

The "sustainable growth rate" (SGR) formula used to determine payment levels under the Medicare physician fee schedule targets projected Medicare spending on physician services. When actual spending exceeds the target, the SGR requires offsetting cuts the following year.

The CBO report though shows that Medicare spending has been growing at a much slower clip than previous CBO.

As a result, CBO is lowering its estimates of how much spending in the future will miss the yearly targets—if at all. That margin of difference has shrunk dramatically, and so too the cost of eliminating the SGR.

The $138 billion is what it would cost to freeze payments to doctors over the next 10 years. For that figure to hold, an SGR overhaul would have to keep payments flat, and the kind of SGR overhaul physician groups envision would increase payments somewhat each year. So, depending on the terms of an SGR overhaul, it could cost considerably more than $138 billion. But the cost would be nothing like previous cost estimates.

CBO actually began revising downward the cost of a 10-year freeze last summer, pegging it at $245 billion over a decade's time, as estimates of Medicare spending growth began to slow.

The report also notes that cuts under the current formula, while big next year, would not continue the following year. The 2014 cut is projected to be 25 percent but payments "will increase by small amounts in subsequent years," CBO projected. This year, had Congress not stepped in last month, physician payments would have been cut by 27 percent starting Jan. 1.

Holding payment rates through 2023 "at the levels they are now would raise outlays for Medicare ... by $14 billion in 2014 and about $138 billion (or about 2 percent) between 2014 and 2023," the CBO report says. In a footnote, it explains that the cost is lower than previously estimated "primarily because of lower spending for physicians' services in recent years. Under the sustainable growth rate, future payment updates depend on the difference between spending in prior years and spending targets established in law."

The report adds that "actual spending has been lower than projected—and lower than the spending targets inherent in the sustainable growth rate—for the past three years. Because actual spending has been lower than spending targets, CBO now estimates that payment rates will increase beginning in 2015. Those higher payments narrow the difference between growth under current law and a freeze at current levels, thereby reducing the estimated cost of restricting the payment rates."

The lower figures could aid an effort in the House to develop an alternative to the SGR on a bipartisan basis. However, finding offsets totaling $138 billion over 10 years is still a huge undertaking, raising the question whether lawmakers will actually bite the bullet and do it.

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