SGR Repeal May Cost $175.5 Billion Over 10 Years

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According to the Congressional Budget Office (CBO) cost estimate, passing H.R. 2810: The Medicare Patient Access and Quality Improvement Act of 2013 as it currently stands will increase direct government spending by about $175.5 billion over the 2014-2023 period. That is 26 percent higher than the previous CBO cost estimate of $139 billion that lawmakers had in mind when the House Energy and Commerce Committee voted to approve H.R. 2810 at the end of July.

The CBO estimate includes the extra cost of covering the automatic payment reductions to Medicare physician reimbursement that would occur if the sustainable growth rate (SGR) formula was left in place, as well as the 0.5 percent per year automatic updates to payment rates for services on the physician fee schedule that H.R. 2810 calls for. According to the CBO, the automatic updates alone would increase direct spending by $63.5 billion through 2018.

In addition, the CBO report takes a skeptical view of the bill’s provisions to hold down health care costs by rewarding providers for improved outcomes, better quality and more efficient delivery of health care services.

If H.R. 2810 is passed, beginning in 2019, providers would get to pick between being paid under a Quality Update Incentive Program (QUIP) — which would tie bonuses and penalties to certain quality measures — and some as yet unspecified alternative payment models. Reviewing this idea, the CBO assumes that providers will pick whatever payment system will allow them to earn the highest reimbursement levels.

In addition, the report authors also did not seem impressed by the effectiveness of current payment programs that seek to reward providers for efficiency in health care delivery. “CBO’s review of numerous Medicare demonstration projects found that very few succeeded in reducing Medicare spending,” the authors wrote.

Overall the CBO experts predicted that most of the alternative payment models that would be created under the legislation would increase Medicare spending. They then went on to predict that because physicians would help set the quality measures in the QUIP program, the standards would be written so that relatively few providers would see payment reductions under QUIP and those that did would be the ones that had relatively few Medicare patients to begin with. “As a result, CBO anticipates that a very small share of Medicare spending for physician services would be subject to those reductions,” the report stated.

If Medicare provider rates go up overall under the legislation, the cost of the Department of Defense’s TRICARE program, which pays coinsurance and deductibles for military retires, would also go up, the CBO noted. Its estimate was a $68 billion increase for TRICARE over 10 years.

The government would be able to collect somewhat more from beneficiary Part B premiums to offset the cost of H.R. 2810, but not in the first year as the legislation is unlikely to be passed in time to adjust premiums for 2014, the report authors wrote.

The Pay-As-You-Go Act of 2010 requires the federal government to find ways to fund laws that increase the deficit through either new revenue (taxes) or cuts in other government spending. Congress can postpone some of these decisions for the future, but they will need to immediately find $9 billion to cover the net increase in the deficit just for 2014.

Because spending debates can be difficult, H.R. 2810 was passed by the House Committee on Energy and Commerce without any provisions on how it would be paid for. These would need to be included in a final version of the bill.