On May 13, the Centers for Medicare & Medicaid Services’ (CMS) independent actuary projected that reversing scheduled Medicare physician reimbursement rate reductions will raise spending $28 billion.  Currently, Medicare is scheduled to reduce physician reimbursements by 29 percent in 2012, resulting in a projected $220 billion in physician reimbursement spending.  Without the cut, the actuary estimates physician reimbursements will total $248 billion, or 12.6 percent more than expected under the current law outlined in the 2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds .  Additionally, unlike the trustees report, the actuary’s projection estimates that reductions in Medicare hospital reimbursements through improved efficiency are not sustainable in the long-term, because the rate of improvement cannot continue indefinitely.  The report concludes that the trustees’ report is not an accurate projection of likely future Medicare spending but rather a demonstration of the impact of permanently reduced cost growth.

From the report:

One of the most important factors in projecting Medicare expenditures are the annual payment updates to Medicare providers. The estimates shown in the 2011 Trustees Report are complicated substantially by mandated reductions in these payment updates for most Medicare services. In particular, Medicare payment rates for physician services as determined by the Sustainable Growth Rate (SGR) system are scheduled to be reduced by roughly 30 percent in 2012. For most of the other categories of Medicare providers, the recently enacted Patient Protection and Affordable Care Act (ACA), as amended, calls for a reduction in payment rate updates equal to the increase in economy-wide multifactor productivity.2 As described in more detail below, in our view the scheduled physician payment reduction is implausible and there is a strong likelihood that the productivity adjustments will not be sustainable in the long range. It is reasonable to expect that Congress would find it necessary to legislatively override or otherwise modify the reductions in the future to ensure that Medicare beneficiaries continue to have access to health care services.

First Report: Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers (PDF | 345 KB)