Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System

Jim Hahn
Specialist in Health Care Financing

Janemarie Mulvey
Specialist in Health Care Financing

The Sustainable Growth Rate (SGR) is the statutory method for determining the annual updates to the Medicare physician fee schedule. The SGR system was established because of the concern that the Medicare fee schedule itself would not adequately constrain overall increases in spending for physicians’ services. While the fee schedule limits the amount that Medicare will pay for each service, there are no limits on the volume or mix of services. Under the SGR formula, if expenditures over a period are less than the cumulative spending target for the period, the annual update is increased. However, if spending exceeds the cumulative spending target over a certain period, future updates are reduced to bring spending back in line with the target.

In the first few years of the SGR system, the actual expenditures did not exceed the targets and the updates to the physician fee schedule were close to the Medicare economic index (MEI, a price index of inputs required to produce physician services). For the next two years, in 2000 and 2001, the actual physician fee schedule update was more than twice the MEI for those years. Beginning in 2002, the actual expenditure exceeded allowed targets, and the discrepancy has grown with each year. However, with the exception of 2002, when a 4.8% decrease was applied, Congress has enacted a series of laws to override the reductions.

There is a growing consensus among observers that the SGR system is fundamentally flawed and is creating instability in the Medicare program for providers and beneficiaries. The SGR system treats all services and physicians equally in the calculation of the annual payment update, which is applied uniformly with no distinction across specialties. In addition, there has been an increased concern that continued declines in physician payment rates, especially among primary care specialties, may potentially jeopardize access to services. Finally, legislative overrides since 2002 have only provided temporary reprieve from projected reductions in payments under the SGR calculation, requiring even steeper reductions in payment rates in the future.

Unless Congress enacts legislation to override projected SGR changes, physician fees would be reduced by 27.4% in calendar year 2012. A one-year freeze to physician payments would cost an estimated $11 billion in FY2012 and $21 billion over 10 years (2012 to 2021), according to the Congressional Budget Office (CBO); a long-term fix such as a repeal of SGR combined with a freeze in physician pay rates over the next 10 years would cost about $290 billion.

On October 14, 2011, the Medicare Payment Advisory Commission (MedPAC) sent its recommendations for addressing the SGR and Medicare physician payments to Congress. The commission recommends that Congress repeal the SGR system and replace it with a 10-year schedule of specified updates for the physician fee schedule. Specifically, primary care practitioners would have a 0% update over the next 10 years, while non-primary care practitioners would experience a 5.9% decline in payment rates the first three years and 0% thereafter. MedPAC estimates this would cost about $200 billion over 10 years and provided some options to offset this cost, spread across other providers and Medicare beneficiaries.

On December 13, 2011, the House passed H.R. 3630, which included a 1% increase in physician fee schedule reimbursements each year for 2012 and for 2013. On December 17, 2011, the Senate passed an amended version of H.R. 3630 that included a two-month override through February 2012, freezing reimbursement rates at 2011 levels. On December 23, 2011, H.R. 3765, which contained a two-month override through February 2012, was passed by both the House and the Senate by unanimous consent and was signed into law. On February 16, 2012, House and Senate conferees came to an agreement on a conference report for H.R. 3630 that extends the override through December 31, 2012, maintaining physician fee schedule payments at the current level.


Date of Report: February 17, 2012
Number of Pages: 24
Order Number: R40907
Price: $29.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Community Living Assistance Services and Supports (CLASS) Provisions in the Patient Protection and Affordable Care Act (ACA)

Janemarie Mulvey
Specialist in Health Care Financing

Kirsten J. Colello
Specialist in Health and Aging Policy

Under current law, the majority of paid long-term services and supports (LTSS) are funded by public programs, such as Medicaid and Medicare. However, these programs are limited in scope and continue to face increased financial pressures. Although private long-term care (LTC) insurance is available to provide some financial protection against an individual’s risk of the potentially high cost of LTSS, fewer than 10% of individuals aged 50 and older own such a policy. Thus, for the majority of older Americans, the out-of-pocket cost of obtaining paid help for these services may far exceed their financial resources. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) establishes a federally administered voluntary LTC insurance program entitled the Community Living Assistance Services and Supports (CLASS) program. The stated purpose of the CLASS program, among other things, is to provide a financing mechanism for long-term care services that supports personal choice and independence to live in the community. However, a number of concerns have been raised about the long-run sustainability of the program.

Once the CLASS program is established, employed individuals aged 18 and older can voluntarily enroll in the CLASS program. This is a voluntary program and employers would have the option of participating. The ACA specifies two processes for enrollment into the CLASS program. The first is an automatic enrollment process. Within the automatic enrollment process, employers who choose to participate would be responsible for withholding CLASS premiums through payroll deductions. Employees would then have the opportunity to “opt-out” if they do not want to participate. These enrollment procedures for employers in the CLASS program are intended to be similar to those currently established for 401(k) and other similar retirement plans by the Internal Revenue Service. An alternative enrollment process would also be developed for self-employed individuals, those with more than one employer, and those who have an employer that does not elect to participate in the automatic enrollment process.

Premiums for the CLASS program are to be determined by the Secretary based on 75-year actuarial estimates of expected future use and expenditures. Premiums would vary by age at enrollment. The ACA also includes premium subsidies for workers with incomes below the federal poverty level and full-time students aged 18 to 21 who currently are working. To be eligible to receive benefits an individual must be an active enrollee who meets the five-year vesting and minimum earnings requirements. In addition, an eligible individual must have a functional limitation, as certified by a licensed health care practitioner, that is expected to last for 90 days. Benefits to eligible recipients include a cash benefit of at least an average of $50 a day. Other benefits include advocacy services, and advice and assistance counseling on accessing and coordinating LTSS.

On October 14, 2011, the Department of Health and Human Services (HHS) sent a letter to Congress stating that after careful examination of how the Administration might implement a long-term financially stable CLASS program, HHS does not see a viable path forward for implementation at this time. On February 1, 2012, the House passed H.R. 1173 (as amended), which would repeal the CLASS program. The bill has now been sent to the Senate for consideration. This CRS report first discusses the cost and financing for LTSS and the current market for private LTC insurance. It then details the various CLASS program requirements. Finally, it provides a discussion of the long-run sustainability concerns, the status of implementation, and recent legislative activity.


Date of Report: February 15, 2012
Number of Pages: 20
Order Number: R40842
Price: $29.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Preventive Health Services Regulations: Religious Institutions’ Objections to Contraceptive Coverage

Cynthia Brougher
Legislative Attorney

Since the enactment of the Patient Protection and Affordable Care Act (ACA) in 2010, controversy has surrounded the applicability of requirements for health plans and health insurers to cover certain recommended preventive health services, including a range of contraceptive services, without cost sharing. The U.S. Departments of Health and Human Services, Labor, and Treasury have issued regulations that provide an exemption from ACA for certain religious employers who have religious objections to contraceptives. The exemption appears to cover churches and church associations, but potentially does not extend to other religiously affiliated employers, such as universities and hospitals. The scope of the exemption has been the subject of intense debate and has raised questions of the legal protections for religious institutions.

Both constitutional and statutory rules govern whether a religious exemption from the coverage requirement is required and what the scope of that exemption may be. Courts have generally held that exemptions to legal mandates that conflict with religious beliefs are permissible, but not required under the First Amendment. The U.S. Supreme Court has indicated in several decisions that a religious exemption is not required for neutral laws of general applicability, and state courts have applied the Court’s analysis to state contraceptive requirements. The Court has explicitly noted, however, that an exemption may be included or broadened at the discretion of Congress.

As a statutory protection, the Religious Freedom Restoration Act of 1993 (RFRA) requires that any federal action that substantially burdens religious exercise must (1) further a compelling interest and (2) use the least restrictive means to further that interest. Because the contraceptive coverage requirement is a federal action subject to RFRA, a court must find that the requirement serves a compelling interest and is implemented to burden as few religious objectors as possible without undermining that interest. Courts, including state courts considering challenges to similar provisions in state law, have recognized at least two of the stated purposes of the requirement— public health and gender equity—as compelling interests. State courts have also upheld exemptions that are essentially identical to the one included in the federal rule as sufficient accommodations which use the least restrictive means to avoid undermining that interest.

Employers with health plans that fail to offer the required coverage of contraceptives and do not qualify for an exemption may be subject to penalties or other liability. With respect to the preventive health services requirement, ACA does not expressly include a means of enforcing the provision. However, if a health plan or health insurer does not provide contraceptive coverage, it is possible that enforcement mechanisms found in the Employer Retirement Income Security Act, the Public Health Service Act, and the Internal Revenue Code could be applied. Furthermore, employers who do not cover contraceptives may be subject to liability for sex discrimination under Title VII of the Civil Rights Act of 1964, even if the employer qualifies for the religious exemption.

This report provides an overview of the preventive health services requirements and the exemption for religious employers. It analyzes the legal protections for religious organizations with objections to the requirements and examines state court decisions upholding similar requirements. The report also discusses the implications of non-compliance for organizations that do not qualify for the exemption and fail to provide the required coverage. Finally, the report analyzes several legislative proposals for statutory exemptions (H.R. 3897/S. 2043; H.R. 1179/S. 1467) and provides examples of religious exemptions in other federal laws and in state contraceptive coverage laws.


Date of Report: February 22, 2012
Number of Pages: 30
Order Number: R42370
Price: $29.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

The Combating Autism Act: Overview and Funding

Amalia K. Corby-Edwards
Analyst in Public Health and Epidemiology

Autism spectrum disorder (ASD) and autism are general terms for a group of developmental disabilities that cause impairments in social skills and communication, and are often characterized by certain atypical behaviors. The federal government has a role in the financing (through Medicaid and State Children’s Health Insurance Programs) and delivery (through funding of developmental disabilities programming in schools, Title V Maternal and Child Health funding, and other sources) of treatment for ASD. The number of autism cases and their appropriate diagnosis and treatment affect federal and state expenditures. As such, Congress has shown interest in financing research on ASD prevalence, causes, and optimal treatment for individuals with ASD.

On September 26, 2011, the 112th Congress passed the Combating Autism Reauthorization Act (CARA, P.L. 112-32), which reauthorized funding for autism research authorized under the Combating Autism Act of 2006 (CAA, P.L. 109-416). The CAA was enacted to address public and congressional concern with growing rates of autism; to increase existing autism research funding authorizations; and to stimulate state-level coordination of health, education, and disability programs. The CAA authorizes funding for ASD surveillance, research, and education at the Department of Health and Human Services (HHS), at the Centers for Disease Control and Prevention (CDC), the Health Resources and Services Administration (HRSA), and the National Institutes of Health (NIH).

The CAA authorizes funding for the CDC to administer a grant program for states and other entities to conduct surveillance on ASD and developmental disabilities, and to establish regional centers of excellence in ASD epidemiology. These funds have been used to develop a multi-state network for the collection, analysis, and reporting multiple years of state and local data on ASD prevalence to the CDC.

The CAA authorizes funding for the HRSA to support autism education, intervention, and early detection. These activities are designed to increase ASD awareness, to reduce barriers to screening and diagnosis, and to promote evidence-based interventions.

NIH is authorized under the CAA to conduct and fund basic scientific research on autism and other developmental disabilities. In addition, NIH is tasked with the coordination of all research, screening, intervention, and education efforts through the Interagency Autism Coordinating Committee.

The Combating Autism Act authorized appropriations for these activities from FY2007 through FY2011. The Combating Autism Reauthorization Act of 2011 extends authorizations of appropriations at FY2011 levels for FY2012 through FY2014. This report presents an overview of the CAA and CARA, HHS funding and activities under the CAA and CARA for FY2007 through FY2012 and the FY2013 President’s budget request, other federal activities related to autism, and selected issues for Congress.


Date of Report: February 22, 2012
Number of Pages: 16
Order Number: R42369
Price: $29.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Centers for Medicare & Medicaid Services: President’s FY2013 Budget

Alison Mitchell, Coordinator
Analyst in Health Care Financing

Paulette C. Morgan, Coordinator
Specialist in Health Care Financing

Federal law requires the President to submit an annual budget to Congress no later than the first Monday in February. The budget informs Congress of the President’s overall federal fiscal policy based on proposed spending levels, revenues, and deficit (or surplus) levels. The budget request lays out the President’s relative priorities for federal programs, such as how much should be spent on defense, education, health, and other federal programs. The President’s budget may also include legislative proposals for spending and tax policy changes. While the President is not required to propose legislative changes for those parts of the budget that are governed by permanent law, such as Medicare benefits, such changes are generally included in the budget. President Obama submitted his FY2013 budget to Congress on February 13, 2012.

The Centers for Medicare & Medicaid Services (CMS) is the division of the Department of Health and Human Services (HHS) that is responsible for administering Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), among other activities. The President’s budget estimates CMS’s net mandatory and discretionary outlays will be $829.4 billion in FY2013, which is an increase of $72.3 billion, or 9.5%, over the net outlays for FY2012. This estimate includes a Medicare physician payment adjustment, the estimated impact of the legislative proposals, and the estimated savings from program integrity investments.

For budgetary purposes, CMS is divided into the following sections: Medicare, Medicaid, CHIP, program integrity, state grants and demonstrations, private health insurance protections and programs, the Center for Medicare and Medicaid Innovation, and program management. The President’s FY2013 budget contains a number of legislative proposals that would affect the CMS budget. Some are program expansions, and others are designed to reduce federal spending.

This report summarizes the President’s budget estimates for each section of the CMS budget. Then, for each legislative proposal included in the President’s budget, this report provides a description of current law and the President’s proposal. The explanations of the President’s legislative proposals are grouped by the following program areas: Medicare, Medicaid, program integrity, and health insurance programs. At the end of each of these sections, there is a table summarizing the estimated costs or savings for each legislative proposal.


Date of Report: February 21, 2012
Number of Pages: 43
Order Number: R42368
Price: $29.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.