CBO Delivers Cost Estimate for Physician Payment Updates

Yesterday the CBO delivered a cost estimate for instituting permanent Medicare physician payment updates by repealing the sustainable growth rate (SGR) formula. The CBO estimates that repealing SGR, as S. 1776 calls for, would increase spending by $247 over the next ten years.

Since 2003 Congress has been overriding scheduled payment cuts on an ad-hoc basis. Without action next year there will be a 21 percent reduction in physician payments.

Although CBO’s estimate is $247 billion, in reality the fix would cost either $207 or $287 billion depending on whether a proposed administrative rule change takes effect. That change would increase federal spending on physician payments by $80 billion over the next ten years by taking physician-administered drugs out of the SGR, and therefore reduce the cost of the updates by the equivalent amount. Unsure of whether this rule change will be enacted, the CBO used half the increase in its baseline. If the rule goes into effect, the CBO’s cost estimate would be $40 billion lower over 2010-2019. The estimate would be $40 billion higher if the rule does not go into effect.

Last week the threat of filibuster ended consideration of this legislation for now, but a similar provision could still end up in the final version of the health care bill. As CRFB noted, if the bill includes the cost of reforming the fee schedule, it should, at a bare minimum, be fully offset.