Medicare's Payments to Physicians: The Budgetary Impact of Alternative Policies Relative to CBO's March 2012 Baseline

July 31, 2012

Medicare’s payment rates for physicians’ services are scheduled to be reduced by 27 percent in 2013, CBO estimates, under the provisions of law known as Medicare’s Sustainable Growth Rate (SGR) mechanism. The SGR mechanism consists of expenditure targets, which are established by applying a growth rate (calculated by formula) to spending for physicians’ services and certain related services in a base period, and annual adjustments to the payment rates, which are designed to bring spending in line with the expenditure targets over time. (For further discussion of the SGR, see the appendix of Changes in Payments to Physicians.) In each of the past several years, legislation has been enacted to override the SGR and to either maintain or increase those payment rates when they were otherwise scheduled to decrease.

The attached tables show CBO’s estimates of the budgetary impact over the 2013–2022 period of various alternative policies for modifying the payment rates that are scheduled to take effect under the SGR mechanism. The options in the tables are listed in three categories: “cliff” options, “clawback” options, and others. (See the descriptions of those terms in the attached document; both “cliff” and “clawback” approaches have been adopted since the Congress began overriding scheduled reductions in physician payment updates in 2003.)

The estimates in the tables are relative to CBO’s March 2012 baseline, which is used for Congressional scorekeeping purposes. Both the scorekeeping baseline and the estimates of the impact of the policy options are likely to change when the final rule setting the physician fee schedule for 2013 is issued by the Administration in early November.

updatenovember 21, 2012

On November 1, 2012, the Centers for Medicare and Medicaid Services (CMS) issued a final rule in which CMS announced that the update to Medicare’s payment rates for services on the Physician Fee Schedule (PFS) will be a reduction of 26.5 percent for services furnished during calendar year 2013. The revised reduction in payments for calendar year 2013, as well as other information provided in the final rule, change CBO’s projections of Medicare payment rates for services provided on the PFS for 2013 and for future years. Following standard practice, CBO will incorporate that information in its next regular baseline update. It will also immediately take that information into account when analyzing legislation being considered by the Congress.

Updated SGR Table