Reduced projected Medicare spending for the next decade has lowered the estimated cost of repealing Medicare’s sustainable growth rate formula that helps determine physician pay.

Eliminating the SGR and freezing Medicare doctor pay rates over 10 years would cost $245 billion, according to new projections from the Congressional Budget Office. Officials previously had estimated that nearly $300 billion would be needed for a pay freeze. But with slower expected growth in program spending, the SGR formula — which decreases doctor pay when predetermined spending limits are exceeded — would not lower doctor rates as much and thus would be less costly to reverse.

Lawmakers said they will work to prevent a scheduled 27% SGR reduction to Medicare pay before it takes effect in 2013. Congress also faces other significant year-end fiscal challenges, including expiring tax cuts and automatic reductions of federal defense and non-defense spending.

Determining ways to pay for an SGR repeal is still a major challenge, but now a lower budgetary offset would be needed to cover the cost. Medicare spending in 2012 is expected to be $9 billion less than in 2011 due to the alignment of budgeting calendars, the CBO report states. But future estimates for spending growth also have been reduced, CBO Director Doug Elmendorf said during an Aug. 22 briefing with reporters. For instance, the agency has decreased Medicare cost projections for 2019 by $100 billion during the last three years.

Reduced expected spending on Medicare over the long term probably is responsible for dropping the projected cost to eliminate the SGR, said Paul Van de Water, PhD, a senior fellow at the Center on Budget and Policy Priorities in Washington. Overall, the slower growth is good news after years of large increases in health care spending, but it raises questions about whether there has been a major break in cost trends, he said.

“There has been no victory yet, but CBO thinks that there has been some improvement,” Van de Water said.

Lower projected spending in Medicare is consistent with other sectors of the health care industry, Elmendorf said. For instance, CBO has noted slower growth for private insurance premiums. This led analysts to decrease expectations for the costs of federal subsidies for lower-income people to purchase coverage on future health insurance exchanges.

“What exactly is going on in federal health programs and health system more generally is not entirely clear to us or other analysts,” Elmendorf said. “Presumably, the weak state of the economy is a factor, but given the magnitude of slowdown in national health spending and the timing of the slowdown that seems to have started before the recession, we and most analysts believe there are also structural factors at work as well.”

Structural changes include fewer blockbuster drugs entering the market and the introduction of generic alternatives to more expensive medicines, he said. Changes in the health care delivery system, efficiencies implemented by physicians and hospitals, and larger numbers of patients paying more of their bills out of pocket also are possible factors to explain slower growth.

The CBO report projects the 2% sequestration cuts scheduled to take effect in 2013 for Medicare spending would reduce program costs by $11 billion in 2013 and $123 billion through 2021. The estimate is in line with previous expectations.

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