CBO Projects Physician Pay Cut for 2012
The Congressional Budget Office (CBO) projects that, under current law, payment rates for physician services provided to Medicare beneficiaries will be reduced by 29.4 percent in 2012. The large pay cut follows several years of legislative action to either maintain or increase physician payment rates under the Medicare Part B program when those rates were otherwise scheduled to decrease under the Sustainable Growth Rate (SGR) mechanism. Is it time to pay the piper?
According to the CBO’s June 2011 report, “Changes in Payments to Physicians,” it’s unlikely that updates to physician pay rates will actually be subjected to the maximum reduction at any point during the remaining 10-year budget window. The CBO says this is because:
- physician-administered drugs were removed from the SGR formula in 2009; and
- the Centers for Medicare & Medicaid Services (CMS) recently reported substantially slower-than-expected growth in Medicare spending for physicians’ services in 2010.
These two factors should help offset the deficit that has been steadily growing since 2003, when Congress began overriding the SGR.
Another Fine Mess
Cumulative spending exceeded target spending in 2001, and pay rates were systematically reduced by 4.8 percent in 2002 (the theory behind the SGR formula). Since then, however, Congress has taken actions to override further reductions using two types of legislation, commonly referred to as the “clawback” and the “cliff.”
In the case of the clawback approach, the legislation providing for a short-term adjustment in payment rates also overrides the provision in underlying Medicare law that requires that the SGR target be adjusted to accommodate changes in spending that result from changes in law or regulatory action. The effect of that override is that the additional spending that results from the adjustment in payment rates (compared with the spending that would have occurred if the scheduled reduction in payment rates had gone into effect) is counted as excess spending above the target. Under current law, application of the SGR mechanism will eventually recoup (or claw back) that excess spending through further reductions to payment rates in subsequent years.
Clawbacks were used in the Medicare Modernization Act of 2004, allowing for updates of 1.5 percent in both 2004 and 2005; and in the Deficit Reduction Act of 2006, which froze pay rates at the 2005 level for 2006.
“Each time the clawback approach was used, more of the subsequent years became subject to the maximum reduction of MEI [Medicare Economic Index] minus 7 percent,” the CBO says in the report. The SGR formula limits the amount of an increase in pay rates to inflation plus 3 percent, and it limits a decrease in pay rates to inflation minus 7 percent.
In the case of the cliff mechanism, the legislation providing for a short-term adjustment in payment rates also overrides the provision in current law that would cap the reduction at MEI minus 7 percent in the year following the adjustment. Further, the cliff mechanism specifies that the payment rate update in the year that the override expires “shall be calculated as if that freeze (or increase) had not been enacted.” Unlike clawback legislation, which limits future rate reductions to no more than 7 percent in any given year, cliff provisions can result in a very large rate reduction in the year following a short-term rate adjustment.
Cliffs have been used in the Tax Relief and Health Care Act of 2007, which froze payment rates at the 2006 level; the Medicare, Medicaid, and SCHIP Extension Act of 2008, which gave physicians a 0.5 percent increase for January 2008 through June 2008; the Medicare Improvements for Patients and Providers Act of 2009, which increased pay rates by 0.5 percent for July 2008 through December 2008 and by 1.1 percent for 2009. Also using the cliff mechanism, additional legislation froze pay rates at the 2009 level through June 2010; increased pay rates for physician services by 2.2 percent through December 2010; and, in the 2010 Act to Extend Certain Expiring Medicare and Medicaid Provisions, froze pay rates for 2011 at the December 2010 level.
The cliff policy would result in no additional spending provided the scheduled adjustments were imposed. However, the CBO says, “The current projection of a 29.4 percent cliff at the start of calendar year 2012 reflects the cumulative affect of all reductions called for under the SGR formula but overridden by Congress since 2007.”
The CBO report shows the financial impact legislation has had on physician payments.