Analysis of S. 1776, Medicare Physicians Fairness Act of 2009, as Introduced

October 26, 2009

Today CBO released a letter responding to a request from the Ranking Members of the House and Senate Budget Committees for information on the effects of S. 1776, the Medicare Physicians Fairness Act of 2009. Under current law, CBO estimates that Medicares payment rates for physicians services will be reduced by about 21 percent in January 2010 and by about 6 percent annually for several subsequent years. S. 1776 would repeal the Sustainable Growth Rate (SGR) formula, which determines the updates to those payment rates, and permanently freeze those rates. CBO estimates that enacting S. 1776 would increase net direct spending by $247 billion over the 2010-2019 period, relative to CBOs current baseline projections, which assume the reductions in payment rates outlined above. Enacting the legislation would increase net federal spending by about $40 billion in 2019, which is equivalent to about a 5 percent increase in net Medicare spending projected for that year.

CBOs estimate consists of three major components. First, repealing the SGR formula and replacing it with a freeze of payment rates would increase the fees paid to physicians under Medicare by about $236 billion over the 10-year budget projection window. Second, that increase in Medicare spending for physicians services would also result in higher spending for both the Medicare Advantage program and the Department of Defenses TRICARE program. CBO estimates those changes would sum to about $80 billion over the budget window.

Third, over the 2011-2019 period, CBO estimates that aggregate Part B premiums would increase by about $70 billion. Premium collections are recorded as offsetting receipts (a credit against direct spending). Beneficiaries enrolled in Part B of Medicare pay premiums that offset about 25 percent of the costs of those benefits. (All of the changes in Medicare spending that would result from enacting S. 1776 would be for Part B benefits.) Therefore, about one-quarter of the increase in Medicare spending would be offset by changes in those premium receipts. The premium for 2010 has already been set and will not be changed, so S. 1776 would have no effect on Part B premium receipts until 2011.

On July 13, 2009, the Department of Health and Human Services issued a proposed rule that would remove physician-administered(P-A) drugs from the calculation of the SGR retroactively and prospectively. If the rule becomes final, baseline physician spending would be higher over the next 10 years. Because the rule is proposed, CBO has incorporated 50 percent of the effect into its scorekeeping baseline; it will incorporate the entire effect if the rule becomes final in early November. The estimate of S. 1776s impact on direct spending would be about $40 billion lower over the 2010-2019 period if the rule, as proposed, becomes final.