SGR not the only healthcare issue in the federal budget bill

On December 26, 2013, President Obama signed into law H.J. Res. 59, the Bipartisan Budget Act of 2013, which includes the Pathway for SGR Reform Act of 2013 (“the Act”). In addition to establishing federal budget targets for fiscal years (FYs) 2014 and 2015, the Act includes a number of provisions impacting the Medicare and Medicaid programs.

Most notably, the Act provides a short-term reprieve from a looming Medicare physician fee schedule cut while lawmakers work to finalize a longer-term solution. It also extends Medicare provider payment cuts under existing sequestration authority for two years and makes a variety of other policy changes. The Act’s major Medicare and Medicaid provisions are summarized below.

Short-Term Medicare Physician Fee Schedule Patch. The final Medicare physician fee schedule rule, which was published on December 10, 2013, called for a 20.1 percent reduction in the fee schedule update for 2014, largely as a result of the statutory sustainable growth rate (SGR) formula. The Act blocks the 20.1 percent cut and replaces it with a 0.5 percent increase for services provided through March 31, 2014, resulting in a 2014 conversion factor after all adjustments of $35.8228 (note that Medicare sequestration cuts applicable to the MPFS and other Medicare payment systems continue, as described below.)

This temporary payment boost is intended to provide Congress with additional time to finalize pending legislation that would permanently repeal the SGR policy and replace it with a period of stable payment followed by reimbursement linked to quality of care. Bipartisan SGR reform bills have been overwhelmingly approved by the Senate Finance Committee, the House Ways and Means Committee, and the House Energy and Commerce Committee, but differences in the measures must still be resolved and spending offsets need to be identified.

2-Year Extension of Medicare Sequestration Cuts. While the Act provides limited relief from sequestration cuts for certain defense and non-defense spending for FYs 2014 and 2015, the Act does not extend relief to sequestration reductions impacting mandatory programs such as Medicare; the 2 percent reduction to Medicare provider and plan payments therefore will continue in 2014 unless additional Congressional action is taken. In fact, the Act achieves new savings by extending sequestration for mandatory programs – including Medicare – for another two years, through 2023.

The Act also “realigns” the Medicare sequestration amounts for FY 2023 to capture more of the sequestration savings during the first half of FY 2023, which falls in the legislation’s 10-year budget window. Specifically, the 2 percent cap on Medicare provider payment cuts will be raised to 2.9 percent for the first 6 months of FY 2023, and then drop to 1.11 percent for the second half of FY 2023. This change “scores” as $2.1 billion in savings, although the provision is billed as not increasing the overall effect of the sequester on Medicare providers. Obviously, there is a hope that Congress will adopt an alternative deficit reduction framework well before the sequestration extension would be triggered.