CBO Releases New Doc Fix Bill Estimates

On Friday, the Congressional Budget Office (CBO) released cost estimates for two bills to permanently replace the Sustainable Growth Rate (SGR) formula that determines Medicare payments to physicians -- one from the House Ways and Means Committee and another from the Senate Finance Committee.

The House bill is estimated to cost $121 billion through 2023 and $137 billion through 2024, primarily reflecting the cost of providing 0.5 percent payment increases to physicians through 2016 while alternative payment models (APMs) are given time to develop, and frozen base payments at those levels through 2023.  Alternatively, under current law, the SGR is set to cut physician payments in Medicare by nearly 25 percent on April 1.

CBO estimates that the Senate bill will cost $150 billion through 2023 and $168 billion through 2024. But the Senate bill also permanently extends a host of other temporary policies, generally referred to as the "health care extenders," that comprise roughly $39 billion of the cost through 2023 and $44 billion through 2024. Therefore, the SGR fix portion of the Senate Finance proposal would be less expensive than that proposed by Ways and Means, costing $112 billion through 2023 and around $124 billion through 2024. The main reason for the lower cost is that the Senate bill would freeze physician payments at 2013 levels through 2016, rather than provide 0.5 percent payment updates as the House bill does.

These scores from CBO put the cost of both bills somewhat above the cost of a simple freeze in payments, which CBO estimates would cost roughly $109 billion through 2023.

In House score, the trajectory of the score's cost in the 2022-2024 period is particularly interesting. The cost dips from $16.5 billion in 2022 to $15.5 billion in 2023, then it rises back up to $16.2 billion in 2024. Some of what is going is due to the calendar: capitated payments to Medicare Advantage plans are made on the first of the month, and when the first falls on a weekend, those payments are pushed forward (and Medicare Advantage is projected to make up roughly one-third of Medicare's Part A and B costs by the end of the 10-year window). Because October 1, 2022 falls on a weekend, a payment from FY 2023 is pushed into FY 2022, meaning that there are 13 payments in the latter year. In addition, a payment is pushed from FY 2024 into FY 2023, meaning that there are only 11 payments made in FY 2024.

There is one more Medicare Advantage payment in FY 2023 than FY 2024 results in projected spending appearing higher in FY 2023 than it normally would be and lower in FY 2024. This timing quirk is important because it partially obscures the true amount that costs are growing under the House bill from FY 2023-2024 once payment updates become unfrozen and begin increasing at either 1 or 2 percent annually. That is, on an apples-to-apples basis, comparable costs are increasing even faster than the $15.5 billion to $16.2 billion jump from FY 2023-2024 would indicate.

Below is our rough estimate of the various components of each bill.

2014-2024 Cost/Savings (-) in the Doc Fix Bills (billions)
Policy House Ways and Means
 Senate Finance
Payment Updates $130 $115
Alternate Payment Models $6 $6
Other Payment Changes -$3 -$6
Effect on Medicare Advantage $45 $44
Effect on Part B Premiums -$40 -$35
Effect on IPAB -$1 -$1
Effect on TRICARE $1 $1
Subtotal, SGR Replacement $137 $124
Medicare Extenders $0 $27
Medicaid/CHIP Extenders $0 $9
Other Extenders $0 $8
Subtotal, Health Extenders $0 $44
Total $137  $168
Memo: Freeze payments at 2013 levels through 2024 $124
Memo: Energy and Commerce Committee Doc Fix $175

Source: CBO, CRFB rough extrapolations

The growing cost of the replacement system over the longer term means that lawmakers should focus on health care offsets with savings that also grow over time. At a minimum, the offsets should be growing as fast as costs of the replacement system and fully offset the cost in FY 2024, when annual increases in payments begin to ensure that the legislation will not increase the deficit after 2024. Replacing the SGR would be a useful case to request a score that goes beyond ten years to see what costs are in the out-years and make sure that policymakers are not increasing health spending later on. It also means that they certainly should not resort to using timing gimmicks -- like they did for the three-month doc fix -- or war funding as offsets.

Replacing the SGR permanently represents a great opportunity both to reform the physician payment system and to make the provision of federal health care more efficient as a whole.