House and Senate leaders have forged a bill (H.R. 4015/S. 2000) to repeal Medicare’s unworkable physician payment update formula, known as the Sustainable Growth Rate (SGR).

While the flawed SGR should be repealed, it should be done right. The legislation, however, falls far short of what should be done. Moreover, the Medicare SGR repeal would add an estimated $150 billion in new spending over the next 10 years and is not financed. Historically, temporary SGR “fixes” have been paid for by reducing other health care spending. But given the immense pressure to enact a permanent bill without even paying for it, taxpayers are endangered by yet another round of irresponsible deficit financing.

In 2012, some Members of Congress, backed by physician and hospital groups, considered using “war savings” from reductions in the Overseas Contingency Operations (OCO) of Afghanistan and Iraq to finance a 10-year SGR fix. But congressional skeptics properly realized that the use of “war savings” was not an option.

More recently, the Congressional Budget Office (CBO) has dumped a bucket of cold water on the OCO scheme. In his February 10 response to questions from House Budget Committee chairman Paul Ryan (R–WI), CBO director Douglas Elmendorf said that no OCO funds have been authorized or appropriated after 2014.

He added:

CBO would not consider the establishment of caps on OCO funding as an “offset” to a proposed increase in direct spending. Spending for OCO is discretionary—that is, it comes from funding provided in annual appropriation acts. In contrast, spending for such programs as Medicare, military pensions and unemployment compensation are considered direct spending; the authority for those programs comes from enabling laws (other than annual appropriations acts), and the spending for such programs is governed by rules regarding benefits and eligibility that generally remain in place from year to year. Congressional scorekeeping procedures do not permit budgetary effects in those two categories to be combined.

In short, caps on discretionary spending don’t offset mandatory spending.

If Congress repeals the SGR, it should be properly financed. A permanent spending increase to adequately pay doctors for treating Medicare patients should be balanced with benefit modernizations that guarantee permanent spending savings. For Medicare, structural changes can meet that goal. Forget the “funny money.”