The House and Senate have approved statutory “pay-as-you-go” (dubbed “PAYGO”) budget rules as part of legislation increasing the public debt limit (H.J.Res. 45). Under the PAYGO rules, future legislation reducing revenues or increasing spending, including entitlement spending, must be offset over five and 10 years by other savings. Certain spending would be exempt from the PAYGO rules, including legislation providing relief from a 21.2% cut in Medicare physician fee schedule payments scheduled to go into effect March 1, 2010 under the statutory Sustainable Growth Rate (SGR) formula. Specifically, the legislation would only count for PAYGO purposes the costs of SGR reforms to the extent that they exceed the cost of a five-year freeze in rates at 2009 levels. While this PAYGO exception does not actually reform the SGR policy, it frees Congress from the obligation of finding offsetting revenue for the full cost of SGR reforms, brightening the prospects for legislative action on this issue. The debt limit bill is now awaiting the President’s signature. Note that a draft Senate Finance Committee jobs bill released February 11 includes a number of Medicare policy “extenders,” including a 7-month extension of the Medicare physician fee schedule freeze (further delaying the 21.2% cut until October 1, 2010). More information on the jobs bill is available in a separate posting.