What CBO’s $5 Billion Estimate Means for Medicare Payment Reform

The Provider Reimbursement Stability Act received a significant (but more complicated than it appears) price tag

The Congressional Budget Office (CBO) has estimated that one of HRA’s legislative priorities, the Provider Reimbursement Stability Act (H.R. 8163), would increase federal spending by approximately $5 billion over ten years.

At first glance, that number may sound like a major setback for legislation intended to bring greater stability and accuracy to Medicare physician payment. A closer look at the estimate, however, shows that nearly the entire cost is associated with one provision and that the bill’s other structural reforms would have virtually no effect on federal spending.

What the bill would do

Under Medicare’s physician fee schedule, changes expected to increase spending beyond a statutory threshold must generally be offset by reductions elsewhere. Because the threshold and other parts of the budget-neutrality system have not kept pace with the size and complexity of modern medical practice, changes to individual services can trigger broader payment reductions across the physician fee schedule.

H.R. 8163 would make several targeted reforms. It would:

• Increase and periodically update the threshold that triggers budget-neutrality adjustments;

• Require CMS to update the data used to calculate practice expenses at least once every five years;

• Limit annual budget-neutrality adjustments to the Medicare conversion factor to no more than 2.5% in either direction; and

• Require CMS to examine actual claims data and prospectively correct payment rates when its original estimates of service utilization prove substantially inaccurate.

That final provision is responsible for nearly all of CBO’s projected cost.

Where the $5 billion comes from

When CMS creates or revalues a medical service, it estimates how frequently that service will be provided. Those estimates help determine whether CMS must make an across-the-board adjustment to keep the physician fee schedule budget neutral.

If CMS overestimates utilization, physicians can experience payment reductions larger than ultimately necessary. H.R. 8163 would require CMS to compare its estimates with actual claims data and make a prospective correction when a material error has occurred.

CBO assumes that these corrections would increase the Medicare conversion factor by an average of approximately 0.10% per year. It estimates that the resulting increase in traditional Medicare spending would total approximately $2.5 billion over ten years.

The remainder of the $5 billion score largely reflects the interaction between traditional Medicare and Medicare Advantage. Because Medicare Advantage benchmarks are tied partly to spending in traditional Medicare, higher fee-for-service spending can also increase payments to Medicare Advantage plans. Additional Part B premium collections would offset a portion of those costs. 

CBO acknowledges that this estimate is subject to “considerable uncertainty.” Predicting the number, size and direction of future utilization-estimation errors is inherently difficult.

What about the other reforms

This is the most encouraging part of CBO’s final evaluation of the bill. CBO concluded that the bill’s other major provisions, the updated budget-neutrality threshold, regular practice-expense updates and 2.5% annual payment guardrail, would collectively affect federal spending by less than $500,000 over ten years.

In other words, the estimate does not suggest that the bill’s overall approach is prohibitively expensive. It identifies one specific provision as the source of nearly the entire cost.

Does the score hurt the bill’s chances?

It makes passage of H.R. 8163 in its current form more difficult, particularly as a stand-alone bill.

A $5 billion measure would generally require Congress to identify an acceptable way to offset the cost. That task has become more challenging because lawmakers face numerous competing healthcare priorities and fewer readily available Medicare savings. 

The legislation still has important advantages. It advanced unanimously through the House Ways and Means Committee, has a bipartisan Senate companion and enjoys broad support throughout the physician community.

The score may nevertheless lead lawmakers to modify the utilization-correction provision. Congress could narrow it, cap its fiscal effect, phase it in or temporarily set it aside while advancing the other reforms. The bill’s provisions could also be incorporated into a broader year-end Medicare package rather than passed independently.

What it means for electrophysiology

EP practices are particularly vulnerable to instability in the physician fee schedule. Electrophysiologists depend on highly trained clinical teams, specialized technology and reliable payment policies to sustain access to complex procedures and ongoing patient management.

HRA will continue supporting comprehensive Medicare physician-payment reform. At the same time, CBO’s analysis gives advocates a clear and pragmatic message: Congress should not allow questions surrounding one provision to prevent enactment of reforms that would make the system more accurate, predictable and stable at virtually no federal cost.