April 13, 2015

A Doc Fix Comes to the Senate


  1. H.R. 2 contains a permanent “doc fix” and aims to improve quality and value for Medicare patients.

  2. Congress has enacted 17 short-term “doc fixes” since 2002. Without a fix, doctors will experience a 21 percent cut in Medicare fees.

  3. H.R. 2 increases means testing for high income seniors and extends funding for the Children’s Health Insurance Program.


This week, the Senate will consider H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015, which contains a permanent “doc fix.” On March 26, the House passed H.R. 2 by a 392 to 37 vote. The legislation repeals Medicare’s Sustainable Growth Rate Formula. It also changes how Medicare pays doctors to encourage quality and value; increases means testing of Medicare benefits for high income seniors; alters fee schedules for certain providers; and extends funding for the Children’s Health Insurance Program for two years. Because the legislation increases the deficit in the 10-year window, it waives the pay-go procedures that would otherwise apply.

Permanent Doc Fix

With the enactment of Medicare in 1965, the federal government assumed the role of setting prices in the health care sector. Since government price controls produce distortions and unintended consequences, Medicare overpaid for some services and underpaid for others. Manipulation of the government fee schedule occurred, and federal health care spending grew larger than anticipated.

In 1997, Congress came up with the SGR, which was designed to cap Medicare payments to doctors. If total payments exceeded the SGR cap in a year, Washington would make across-the-board cuts to payment rates the following year. Because adhering to the SGR cap over time would make large cuts to provider payment rates, Congress and presidents of both parties have repeatedly refused to let the cuts take effect.

Since 2002, there have been 17 short-term patches to the SGR. Although the cost of these patches generally has been offset with health care program savings, the total amount of past doc fixes was nearly $170 billion. H.R. 2 permanently ends these repeated “doc fix” exercises. Repealing the SGR will result in greater certainty for doctors about Medicare payments and less legislative time spent on constructing patches and offsets.

H.R. 2 increases Medicare’s payment rates for services on the physician fee schedule by 0.5 percent annually through 2019 and then freezes rates through 2025. Value-based adjustments to those rates begin in 2019, aimed at rewarding doctors who meet performance goals. Some conservative health policy experts are concerned about whether the value-based payment system can work as intended. According to the analysis of the chief actuary at CMS, many of the incentive payments expire in 2025, which would result in payment reductions at that time for most physicians.

Budgetary Impact

According to the Committee for a Responsible Federal Budget, 98 percent of the total cost of prior doc fixes has been offset. Only about a third of the total cost of H.R. 2 is offset.

Relative to a baseline that freezes Medicare payments at current levels, CBO estimates that H.R. 2 will decrease federal deficits by about $1 billion over the next decade. Using this baseline, CBO estimates that “the budgetary effects of the legislation could represent net savings or net costs in the second decade after enactment, but the center of the distribution of possible outcomes is small net savings.”

Relative to a current law baseline that unrealistically assumes the SGR cuts happen, CBO estimates that H.R. 2 increases the 10-year deficit by $141 billion. CBO’s current law baseline relies on either Congress continuing to find budgetary offsets for future doc fixes or the SGR cuts actually occurring.

Medicare Program Changes

H.R. 2 increases out-of-pocket Medicare premiums for high income seniors. Beginning in 2018, seniors with incomes between $133,500 and $160,000 ($267,001 to $320,000 for a couple) will see their share of Part B premiums rise to 65 percent, from their current 50 percent. Part B covers physician services and other outpatient care. Beginning in 2018, seniors with incomes above $160,000 ($320,000 for a couple) will see their share of those premiums increase to 75 percent, from their current 65 percent. Out-of-pocket premiums for Part D, which covers prescription drugs, will also increase for high income seniors. These premium increases will initially effect only two percent of Medicare beneficiaries but will affect more over time. CBO estimates that these changes will reduce federal spending on Medicare by $34 billion by 2025.

Starting in 2018, H.R. 2 reduces Medicare’s payment rates for certain providers of post-acute care and long-term care. CBO estimates that these provisions would reduce direct spending by about $15 billion by 2025. The legislation also changes hospital inpatient service payment rates beginning in 2018. CBO estimates that these changes will decrease direct spending by another $15 billion.

H.R. 2 also reforms Medigap by prohibiting its coverage of the Part B deductible. Prohibiting Medigap coverage of Part B’s deductibles, equal to $147 this year, will marginally reduce spending. The Medigap provisions begin in 2020, but only for people who enroll in Medicare starting that year. CBO estimates that this change will reduce Medicare spending by $400 million by 2025. These savings will be larger in the future as more beneficiaries are impacted.

CHIP Funding

The legislation provides nearly $40 billion to extend CHIP through 2017. In its baseline, CBO already assumes that expiring programs, such as CHIP, continue beyond the expiration date. CBO estimates that this provision increases federal costs by $5.6 billion over the next decade.

Issue Tag: Health Care