Proposed SGR Fix Adds $141B to Deficit, Says CBO

While the price of ending the Sustainable Growth Rate formula is steep, the Congressional Budget Office says it's cheaper than doing nothing, because the status quo would cost $900 million more than the proposed reforms over the next 10 years.

A bill before Congress that would eliminate Medicare's Sustainable Growth Rate funding formula would also add about $141 billion to federal budget deficits over the next 10 years, the nonpartisan Congressional Budget Office said Wednesday.

The bipartisan bill, H.R.2, would increase direct spending by $145 billion from 2015–2025. It would also generate about $4 billion in offsetting revenues over the period, CBO said in a letter to House Speaker John Boehner (R-OH).

Bipartisan SGR Bill Unveiled in House

While the price is steep, CBO says it's cheaper than doing nothing, because the status quo would cost $900 million more than the proposed reforms over the next 10 years.

"The nonpartisan Congressional Budget Office confirmed today that H.R. 2, bipartisan legislation to strengthen Medicare and permanently repeal the Sustainable Growth Rate, will save taxpayers money and put the nation's budget on a more sustainable path," Boehner's office said in a statement.

That $900 million savings could make the bill more palatable for Republicans in Congress who have been loath to raise taxes, and have resisted deficit spending, and have insisted on budget cuts to offset new spending.

It appears that they are waiving those demands for H.R.2, which reportedly has broad bipartisan support in the House, where a vote is scheduled on Thursday. President Obama said Wednesday, "I have my pen ready to sign a good bipartisan bill," according to an Associated Press report.

The CBO said that there is potential for even greater savings beyond 2025 as the incentives and reforms in H.R.2 push the healthcare sector toward value-based care, population health, and alternative payment models.

Some Value-Based Models Ready to Scale, Says CMS

The SGR was enacted by Congress in 1997 to control Medicare cost growth but lawmakers stepped in to delay the cuts as they accrued each year. Rather than permanently fix the problem Congress has instead spent $150 billion in 17 short-term fixes since 2003. The most recent patch is scheduled to expire on April 1, which would leave physicians with a 21% cut in Medicare payments

H.R.2 eliminates the SGR and replaces it with new systems to update Medicare payments for physicians. The sweeping bill also:

• Provides 0.5% annual increases to Medicare payments for the next five years to provide a period of stability.
• Delays disproportionate share payment cuts to safety net hospitals until 2018 and extend the DSH policy through 2025.
• Delays until Sept. 30 changes in the two-midnight rule on inpatient billing that were set to take effect at the end of this month.
• Fully funds the Children's Health Insurance program through Sept. 30, 2017.
• Preserves all extenders included in 2014's temporary SGR patch, including addition to funding for Community Health Centers through 2017.
• Provides incentive bonuses to providers who receive a significant portion of their revenue from an alternative payment model or patient centered medical home.
• Permanently extend Medicare's Qualifying Individual program for low-income seniors, and the Transitional Medical Assistance program that helps families on Medicaid keep their coverage as they transition from welfare to work.

Senate Democrats support the SGR repeal, but have threatened to pull their support any remedy that does not include at least four years of funding for the Children's Health Insurance Program. H.R. 2 provides two years of funding for CHIP.

H.R.2 offsets target means testing for Medicare recipients that could generate savings. For example, starting in 2018, the premiums would increase from 50% to 65% for Part B and D beneficiaries who earn between $133,500 and $160,000 ($267,000 − $320,000 for a couple). For those in higher income brackets, the premiums would increase from 65% to 75%.

The plan also calls for limits on first dollar coverage for some Medigap plans, starting in 2020. The IRS would also be authorized to impose levies of up to 100% on tax delinquent Medicare providers. Currently, the maximum levy is 30%.

In addition, Medicare reimbursements would be increased by no more than 1% in 2018 for post-acute care providers.