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Ouch: CBO Releases Cost Estimates of Next Doctor Payment Patch

By John Reichard, CQ HealthBeat Editor

July 31, 2012 -- A one-year Medicare physician payment patch that would block a scheduled 27 percent reimbursement cut Jan. 1 and instead continue the same rates doctors now receive would require offsets totaling $18.5 billion over 10 years, says the Congressional Budget Office (CBO).

If Congress wanted to block the 27 percent cut and hold rates flat for two years—2013 and 2014—it would require offsets totaling $48 billion over the period of fiscal 2013 to 2022, CBO says in a new scoring document.

The estimates are important because they represent the amount of money lawmakers would try to cut elsewhere in Medicare unless they decided to let deficit spending grow, raise taxes or cut federal spending outside of health care program for seniors and the disabled.

Congress hasn’t decided how long the next patch will be. Senate Finance Chairman Max Baucus, D-Mont., has said he wants it to last at least a year.

Both estimates assume a “cliff” approach that involves overriding the existing Sustainable Growth Rate (SGR) formula during the period of the physician payment patch but not doing away with the formula entirely.

“The payment rate in the year immediately following the period of the override would be set as if the override had not happened,” the document says.

As a result, there would be a sharp cut—a so-called cliff—that would vary from 22 percent to 26 percent in the year after the patch, it added.

Physician groups have expressed support for a period of three or more years during which rates aren’t cut or rise modestly while Medicare experiments with approaches to paying doctors other than the SGR. The groups say that would help identify the best approach to scrapping the SGR. To do that, Congress would have to find offsets totaling $72 billion in fiscal 2013–22 to block the 27 percent cut and let rates rise modestly with medical inflation in 2013, 2014, and 2015.

If Congress took the same approach, but limited the expected inflation update to 2013 and 2014, the cost would total $45.5 billion. The inflation updates would be 0.6 percent in 2013, 1.7 percent in 2014, and 2.2 percent in 2016, by CBO’s reckoning.

A different approach called the “clawback,” which would recapture the additional money spent on physician payments during the period the SGR was overridden, would require much larger offsets. For example, blocking the 27 percent cut only for the year 2013 would cost $94 billion in fiscal 2013-2022, the document says. The CBO document does not detail why the clawback scenario would cost so much more.

A health care lobbyist who requested anonymity predicted that the next payment patch would last no more than six months to one year. “They can’t afford any more than that,” the lobbyist said, adding that lawmakers would choose the less costly cliff approach.

CBO also estimated the cost of scrapping the SGR entirely or of keeping it, but doing a “reset.” A reset would in essence say the formula going forward would not try to recoup the past accumulation of money by which actual Medicare spending on doctor payments exceeded yearly spending targets set under the SGR.

The reset approach would recognize that Congress isn’t going to bite the bullet and make huge spending cuts or adopt big tax hikes to offset the accumulated above-target spending. “It makes sense because everyone knows the big hit isn’t going to happen,” says Julius Hobson, a senior policy adviser with the law firm Polsinelli Shughart. That above-target accumulation would, in effect, become part of the federal debt.

But the reset tactic would eventually lead to another accumulation of above-target spending leading to doctor payment cuts.

CBO estimated the cost of six different approaches to scrapping the SGR or resetting it. The proposals range in cost between $254 billion in fiscal 2013–2022 and $377 billion over that period. The lowest cost option that costs $254 billion would involve doing a reset and would entail making payment cuts again starting in 2016.

John Reichard can be reached at [email protected].

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