The Congressional Budget Office (CBO) has raised the specter that pending legislation to reform the Medicare physician fee schedule statutory update formula could increase the likelihood that the Affordable Care Act’s (ACA) Independent Payment Advisory Board (IPAB) mechanism would be triggered – potentially resulting in as much as $0.6 billion in Medicare provider cuts during the 2015-2023 period. 

As previously reported, House and Senate panels are proceeding with plans to reform the unpopular “sustainable growth rate” (SGR) formula – the statutory provision that outlines how Medicare physician fee schedule rates are updated annually.  In recent years, the formula has called for deep cuts in Medicare rates – although Congress has routinely stepped in with temporary patches to avert the full application of the formula.  Most recently, the SGR contributed to a 20.1% cut in the Medicare physician fee schedule update for 2014 – but Congress approved the Bipartisan Budget Act of 2013 in December to replace that cut with a 0.5% increase for services provided only during the first three months of 2014.  The temporary patch is intended to give lawmakers time to finalize pending bipartisan proposals to permanently repeal the SGR policy and replace it with a period of stable payment followed by reimbursement linked to quality of care.

Congressional panels tasked with drafting the SGR legislation have not yet revealed how they intend to pay for the costs of their bills.  In the absence of such offsets, the CBO has estimated that the version of the legislation approved by the House Ways and Means Committee in December (H.R. 2810) would increase spending by about $121 billion over the 2014-2023 period, while the Senate Finance Committee package (S. 1871) would increase direct spending by $150.4 billion during that period.  According to the CBO, such spending increases would result in the IPAB mechanism being triggered.

By way of background, under the ACA, the IPAB is charged with submitting detailed proposals to Congress and the President to reduce Medicare per-capita spending if projected spending growth exceeds a specified target based on inflation and growth in the economy, beginning in 2015.  IPAB’s proposals will go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions).  The IPAB is barred from submitting proposals that reduce Medicare payments prior to 2020 for providers that had reimbursement cuts under the ACA beyond a productivity adjustment (such as acute care hospitals, long-term care hospitals, inpatient rehabilitation facilities, and outpatient hospital services, among others), thereby potentially increasing the impact of the IPAB cuts on physicians and Medicare Advantage and Part D plan sponsors.  Note that none of the 15 members of the IPAB have actually been nominated yet, so the panel currently exists in name only (but failure to appoint a panel would not forestall the cuts – if IPAB does not submit a plan, the responsibility falls to the HHS Secretary).  

Last May, the CBO had projected that Medicare per-beneficiary spending would be below the IPAB triggers for fiscal years 2015 through 2023.  In budget estimates released last week, however, the CBO estimates that under the House SGR reform bill, the IPAB mechanism would be required to produce a $0.5 billion reduction in Medicare spending over the 2015-2023 period.  The Senate Finance SGR package would require even higher IPAB savings -- $0.6 billion over the same period. 

Congressional negotiators finalizing the SGR package are expected to eventually identify their own spending offsets, which could impact spending on a potentially broader range of health care provider types, health plans, and drug manufacturers, but minimize the potential that the IPAB makes those decisions.  The question now – if SGR reform actually proceeds -- is whether it will be Congress or the IPAB panel that identifies the offsetting savings.  Either way, however, it appears that SGR reform could be a good news/bad news proposition, with long-overdue SGR reforms adopted, but at a currently-unknown price.