The Medicare Payment Advisory Commission (MedPAC) voted 15-2 to approve its $220 billion plan to replace the sustainable growth rate (SGR) formula, which sets Medicare physician payment rates. Since 2002, Congress annually has passed a series of short-term bills to block scheduled cuts to Medicare reimbursement rates under the SGR. The most recent fix will expire on January 1, 2012, at which point physicians face a 29.4% payment rate cut.

The MedPAC recommendations include updating hospital payments by 1% in 2012 and altering home health care payments in 2013. Further recommendations involve changing reimbursements for some categories of durable medical equipment and repealing bonus payments for quality improvements in Medicare Advantage.

In addition, MedPAC recommendations include replacing the SGR formula with a 10-year fee schedule that would freeze primary care payment rates and cut rates for other providers by 5.9% for three years before also being capped.

It is important to understand that recommendations by MedPAC are non-binding and lawmakers have often ignored past committee proposals.