There are two important measures that Congress has taken to restrain Medicare spending. First, the Medicare sustainable growth rate was defined in Section 1848(f) of the Social Security Act. The Sustainable Growth Rate (SGR) provision defines a formula that estimates yearly targets for spending on physician services under Medicare. The target spending limit is equal to the target expenditures from the previous year increased by the SGR. The Medicare Modernization Act of 2003 (MMA) amended the SGR to be calculated based on a 10-year average, not solely on the previous year’s estimates. A percentage SGR figure is computed by these four factors:
1. The estimated percentage change in fees for physicians’ services.
2. The estimated percentage change in the average number of Medicare Fee-for-Service beneficiaries.
3. The estimated 10-year average annual percentage change in real gross domestic product (GDP) per capita.
4. The estimated percentage change in expenditures due to changes in law or regulations.
The second important cost-control policy is being implemented as a provision of the Affordable Care Act (ACA) of 2010. Known as the Independent Payment Advisory Board (IPAB), this advisory body, if successfully implemented, will have a 15-person board of presidential- appointed medical professionals. The board will be charged with recommending proposals to reduce Medicare spending to achieve target spending levels. The first implementation is scheduled for 2015, which means its fate is uncertain. The proposals of IPAB are supposed to be “fast-tracked” through Congress.
If IPAB does not propose cost-saving recommendations, the secretary of the Department of Health and Human Services is, in the statutory plans, responsible for doing so. The board is to submit a proposal to Congress to reduce spending any time the projected five-year average growth rate in Medicare spending per beneficiary is projected to exceed the target growth rate. This board is considered an independent decision-making body, and is different from the Medicare Payment Advisory Commission (MedPAC). (MedPAC is not required to achieve budgetary targets and does not have independent decision-making authority.) The target growth rate used by IPAB is as follows:
• Prior to 2018, the target growth rate is the projected five-year average rate of change in the Consumer Price Index for All Urban Consumers (CPI-U) and the CPI for Medical Care (CPI-M) averaged together.
• In 2018 and beyond, the target growth rate is the projected five-year average percentage increase in the nominal per capita gross domestic product (GDP), plus one percentage point.
• Readers should regard all these projections as conditional claims, not predictions that can be fully expected to occur. That caution follows from the delays in implementation built into the health reform law of 2010.
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