II 
Calendar No. 252 
111TH CONGRESS 
2D SESSION 
H. R. 3961 
IN THE SENATE OF THE UNITED STATES 
NOVEMBER 20, 2009 
Received 
DECEMBER 24, 2009 
Read the first time 
JANUARY 20, 2010 
Read the second time and placed on the calendar 
AN ACT 
To amend title XVIII of the Social Security Act to reform 
the Medicare SGR payment system for physicians and 
to reinstitute and update the Pay-As-You-Go requirement 
of budget neutrality on new tax and mandatory spending 
legislation, enforced by the threat of annual, automatic 
sequestration. 
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
DIVISION A—MEDICARE PHYSI-
CIAN PAYMENT REFORM ACT 
OF 2009 
SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This division may be cited as the 
‘‘Medicare Physician Payment Reform Act of 2009’’. 
(b) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
DIVISION A—MEDICARE PHYSICIAN PAYMENT REFORM ACT OF 
2009 
Sec. 1. Short title; table of contents. 
Sec. 2. Medicare sustainable growth rate reform. 
DIVISION B—STATUTORY PAY-AS-YOU-GO ACT OF 2009 
Sec. 101. Short Title. 
Sec. 102. Purpose. 
Sec. 103. Definitions. 
Sec. 104. PAYGO estimates and PAYGO scorecards. 
Sec. 105. Annual report and sequestration order. 
Sec. 106. Calculating a sequestration. 
Sec. 107. Current policy adjustment to the CBO estimates. 
Sec. 108. Application of BBEDCA. 
Sec. 109. Technical corrections. 
Sec. 110. Conforming amendments. 
Sec. 111. Exempt programs and activities. 
SEC. 2. MEDICARE SUSTAINABLE GROWTH RATE REFORM. 
(a) TRANSITIONAL
UPDATE
FOR
2010.—Section 
1848(d) of the Social Security Act (42 U.S.C. 1395w– 
4(d)) is amended by adding at the end the following new 
paragraph: 
‘‘(10) UPDATE FOR 2010.—The update to the 
single conversion factor established in paragraph 
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(1)(C) for 2010 shall be the percentage increase in 
the MEI (as defined in section 1842(i)(3)) for that 
year.’’. 
(b) REBASING SGR USING 2009; LIMITATION ON 
CUMULATIVE ADJUSTMENT PERIOD.—Section 1848(d)(4) 
of such Act (42 U.S.C. 1395w–4(d)(4)) is amended— 
(1) in subparagraph (B), by striking ‘‘subpara-
graph (D)’’ and inserting ‘‘subparagraphs (D) and 
(G)’’; and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(G) REBASING USING 2009 FOR FUTURE 
UPDATE
ADJUSTMENTS.—In determining the 
update adjustment factor under subparagraph 
(B) for 2011 and subsequent years— 
‘‘(i) the allowed expenditures for 2009 
shall be equal to the amount of the actual 
expenditures for physicians’ services during 
2009; and 
‘‘(ii) the reference in subparagraph 
(B)(ii)(I) to ‘April 1, 1996’ shall be treat-
ed as a reference to ‘January 1, 2009 (or, 
if later, the first day of the fifth year be-
fore the year involved)’.’’. 
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(c) LIMITATION
ON
PHYSICIANS’ SERVICES
IN-
CLUDED IN TARGET GROWTH RATE COMPUTATION TO 
SERVICES COVERED UNDER PHYSICIAN FEE SCHED-
ULE.—Effective for services furnished on or after January 
1, 2009, section 1848(f)(4)(A) of such Act is amended by 
striking ‘‘(such as clinical’’ and all that follows through 
‘‘in a physician’s office’’ and inserting ‘‘for which payment 
under this part is made under the fee schedule under this 
section, for services for practitioners described in section 
1842(b)(18)(C) on a basis related to such fee schedule, 
or for services described in section 1861(p) (other than 
such services when furnished in the facility of a provider 
of services)’’. 
(d) 
ESTABLISHMENT
OF
SEPARATE
TARGET 
GROWTH RATES FOR CATEGORIES OF SERVICES.— 
(1) 
ESTABLISHMENT
OF
SERVICE
CAT-
EGORIES.—Subsection (j) of section 1848 of the So-
cial Security Act (42 U.S.C. 1395w–4) is amended 
by adding at the end the following new paragraph: 
‘‘(5) SERVICE CATEGORIES.—For services fur-
nished on or after January 1, 2009, each of the fol-
lowing categories of physicians’ services (as defined 
in paragraph (3)) shall be treated as a separate 
‘service category’: 
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‘‘(A) Evaluation and management services 
that are procedure codes (for services covered 
under this title) for— 
‘‘(i) services in the category des-
ignated Evaluation and Management in the 
Health Care Common Procedure Coding 
System (established by the Secretary under 
subsection (c)(5) as of December 31, 2009, 
and as subsequently modified by the Sec-
retary); and 
‘‘(ii) preventive services (as defined in 
section 1861(iii)) for which payment is 
made under this section. 
‘‘(B) All other services not described in 
subparagraph (A). 
Service categories established under this paragraph 
shall apply without regard to the specialty of the 
physician furnishing the service.’’. 
(2) ESTABLISHMENT
OF
SEPARATE
CONVER-
SION
FACTORS
FOR
EACH
SERVICE
CATEGORY.— 
Subsection (d)(1) of section 1848 of the Social Secu-
rity Act (42 U.S.C. 1395w–4) is amended— 
(A) in subparagraph (A)— 
(i) by designating the sentence begin-
ning ‘‘The conversion factor’’ as clause (i) 
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with the heading ‘‘APPLICATION OF SIN-
GLE
CONVERSION
FACTOR.—’’ and with 
appropriate indentation; 
(ii) by striking ‘‘The conversion fac-
tor’’ and inserting ‘‘Subject to clause (ii), 
the conversion factor’’; and 
(iii) by adding at the end the fol-
lowing new clause: 
‘‘(ii) APPLICATION OF MULTIPLE CON-
VERSION
FACTORS
BEGINNING
WITH 
2011.— 
‘‘(I) IN
GENERAL.—In applying 
clause (i) for years beginning with 
2011, separate conversion factors 
shall be established for each service 
category of physicians’ services (as de-
fined in subsection (j)(5)) and any 
reference in this section to a conver-
sion factor for such years shall be 
deemed to be a reference to the con-
version factor for each of such cat-
egories. 
‘‘(II) INITIAL CONVERSION FAC-
TORS.—Such factors for 2011 shall be 
based upon the single conversion fac-
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tor for the previous year multiplied by 
the update established under para-
graph (11) for such category for 
2011. 
‘‘(III) UPDATING
OF
CONVER-
SION
FACTORS.—Such factor for a 
service category for a subsequent year 
shall be based upon the conversion 
factor for such category for the pre-
vious year and adjusted by the update 
established for such category under 
paragraph (11) for the year in-
volved.’’; and 
(B) in subparagraph (D), by striking 
‘‘other physicians’ services’’ and inserting ‘‘for 
physicians’ services described in the service cat-
egory described in subsection (j)(5)(B)’’. 
(3) ESTABLISHING UPDATES FOR CONVERSION 
FACTORS
FOR
SERVICE
CATEGORIES.—Section 
1848(d) of the Social Security Act (42 U.S.C. 
1395w–4(d)), as amended by subsection (a), is 
amended— 
(A) in paragraph (4)(C)(iii), by striking 
‘‘The allowed’’ and inserting ‘‘Subject to para-
graph (11)(B), the allowed’’; and 
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(B) by adding at the end the following new 
paragraph: 
‘‘(11) UPDATES FOR SERVICE CATEGORIES BE-
GINNING WITH 2011.— 
‘‘(A) IN GENERAL.—In applying paragraph 
(4) for a year beginning with 2011, the fol-
lowing rules apply: 
‘‘(i) APPLICATION OF SEPARATE UP-
DATE ADJUSTMENTS FOR EACH SERVICE 
CATEGORY.—Pursuant 
to 
paragraph 
(1)(A)(ii)(I), the update shall be made to 
the conversion factor for each service cat-
egory (as defined in subsection (j)(5)) 
based upon an update adjustment factor 
for the respective category and year and 
the update adjustment factor shall be com-
puted, for a year, separately for each serv-
ice category. 
‘‘(ii) COMPUTATION OF ALLOWED AND 
ACTUAL EXPENDITURES BASED ON SERV-
ICE CATEGORIES.—In computing the prior 
year adjustment component and the cumu-
lative adjustment component under clauses 
(i) and (ii) of paragraph (4)(B), the fol-
lowing rules apply: 
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‘‘(I) APPLICATION
BASED
ON 
SERVICE
CATEGORIES.—The allowed 
expenditures and actual expenditures 
shall be the allowed and actual ex-
penditures for the service category, as 
determined under subparagraph (B). 
‘‘(II) APPLICATION OF CATEGORY 
SPECIFIC
TARGET
GROWTH
RATE.— 
The growth rate applied under clause 
(ii)(II) of such paragraph shall be the 
target growth rate for the service cat-
egory involved under subsection (f)(5). 
‘‘(B) DETERMINATION
OF
ALLOWED
EX-
PENDITURES.—In applying paragraph (4) for a 
year beginning with 2010, notwithstanding sub-
paragraph (C)(iii) of such paragraph, the al-
lowed expenditures for a service category for a 
year is an amount computed by the Secretary 
as follows: 
‘‘(i) FOR 2010.—For 2010: 
‘‘(I) TOTAL
2009
ACTUAL
EX-
PENDITURES FOR ALL SERVICES IN-
CLUDED
IN
SGR
COMPUTATION
FOR 
EACH SERVICE CATEGORY.—Compute 
total actual expenditures for physi-
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cians’ services (as defined in sub-
section (f)(4)(A)) for 2009 for each 
service category. 
‘‘(II) 
INCREASE
BY
GROWTH 
RATE TO OBTAIN 2010 ALLOWED EX-
PENDITURES
FOR
SERVICE
CAT-
EGORY.—Compute allowed expendi-
tures for the service category for 2010 
by increasing the allowed expenditures 
for the service category for 2009 com-
puted under subclause (I) by the tar-
get growth rate for such service cat-
egory under subsection (f) for 2010. 
‘‘(ii) FOR SUBSEQUENT YEARS.—For 
a subsequent year, take the amount of al-
lowed expenditures for such category for 
the preceding year (under clause (i) or this 
clause) and increase it by the target 
growth rate determined under subsection 
(f) for such category and year.’’. 
(4) 
APPLICATION
OF
SEPARATE
TARGET 
GROWTH RATES FOR EACH CATEGORY.— 
(A) IN GENERAL.—Section 1848(f) of the 
Social Security Act (42 U.S.C. 1395w–4(f)) is 
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amended by adding at the end the following 
new paragraph: 
‘‘(5) APPLICATION
OF
SEPARATE
TARGET 
GROWTH RATES FOR EACH SERVICE CATEGORY BE-
GINNING WITH 2010.—The target growth rate for a 
year beginning with 2010 shall be computed and ap-
plied separately under this subsection for each serv-
ice category (as defined in subsection (j)(5)) and 
shall be computed using the same method for com-
puting the target growth rate except that the factor 
described in paragraph (2)(C) for— 
‘‘(A) the service category described in sub-
section (j)(5)(A) shall be increased by 0.02; and 
‘‘(B) the service category described in sub-
section (j)(5)(B) shall be increased by 0.01.’’. 
(B) USE OF TARGET GROWTH RATES.— 
Section 1848 of such Act is further amended— 
(i) in subsection (d)— 
(I) in paragraph (1)(E)(ii), by in-
serting ‘‘or target’’ after ‘‘sustain-
able’’; and 
(II) in paragraph (4)(B)(ii)(II), 
by inserting ‘‘or target’’ after ‘‘sus-
tainable’’; 
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(ii) in the heading of subsection (f), 
by inserting ‘‘AND
TARGET
GROWTH 
RATE’’ 
after 
‘‘SUSTAINABLE
GROWTH 
RATE’’; 
(iii) in subsection (f)(1)— 
(I) by striking ‘‘and’’ at the end 
of subparagraph (A); 
(II) in subparagraph (B), by in-
serting ‘‘before 2010’’ after ‘‘each 
succeeding year’’ and by striking the 
period at the end and inserting ‘‘; 
and’’; and 
(III) by adding at the end the 
following new subparagraph: 
‘‘(C) November 1 of each succeeding year 
the target growth rate for such succeeding year 
and each of the 2 preceding years.’’; and 
(iv) in subsection (f)(2), in the matter 
before subparagraph (A), by inserting after 
‘‘beginning with 2000’’ the following: ‘‘and 
ending with 2009’’. 
(e) APPLICATION TO HEALTH CARE GROUP DEM-
ONSTRATION PROGRAM AND SUCCESSOR ACCOUNTABLE 
CARE ORGANIZATION PILOT PROGRAM.—In applying the 
target growth rate under subsections (d) and (f) of section 
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DIVISION B—STATUTORY PAY- 
AS-YOU-GO ACT OF 2009 
SEC. 101. SHORT TITLE. 
This division may be cited as the ‘‘Statutory Pay-As- 
You-Go Act of 2009’’. 
SEC. 102. PURPOSE. 
The purpose of this division is to reestablish a statu-
tory procedure to enforce a rule of budget neutrality on 
new revenue and direct spending legislation. 
SEC. 103. DEFINITIONS. 
As used in this division— 
(1) The term ‘‘BBEDCA’’ means the Balanced 
Budget and Emergency Deficit Control Act of 1985. 
(2) The definitions set forth in section 3 of the 
Congressional Budget and Impoundment Control 
Act of 1974 and in section 250 of BBEDCA shall 
apply to this division, except to the extent that they 
are specifically modified as follows: 
(A) The term ‘‘outyear’’ means a fiscal 
year that occurs one or more years after the 
budget year. 
(B) In section 250(c)(8)(C), the reference 
to the food stamp program shall be deemed to 
be a reference to the Supplemental Nutrition 
Assistance Program. 
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(3) The term ‘‘AMT’’ means the Alternative 
Minimum Tax for individuals under sections 55–59 
of the Internal Revenue Code of 1986, the term 
‘‘EGTRRA’’ means the Economic Growth and Tax 
Relief Reconciliation Act of 2001 (Public Law 107– 
16), and the term ‘‘JGTRRA’’ means the Jobs and 
Growth Tax Relief and Reconciliation Act of 2003 
(Public Law 108–27). 
(4)(A) The term ‘‘budgetary effects’’ means the 
amounts by which PAYGO legislation changes direct 
spending or revenues relative to the baseline and 
shall be determined on the basis of estimates in-
cluded by reference in the PAYGO Act or prepared 
under section 104(d)(3), as applicable. Budgetary 
effects that increase direct spending or decrease rev-
enues are termed ‘‘costs’’ and budgetary effects that 
increase revenues or decrease direct spending are 
termed ‘‘savings’’. 
(B) For purposes of these definitions, off-budg-
et effects shall be counted as budgetary effects un-
less such changes flow directly from amendments to 
title II of the Social Security Act and related provi-
sions of the Internal Revenue Code of 1986 and debt 
service effects shall not be counted as budgetary ef-
fects. 
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(C) Solely for purposes of recording entries on 
a PAYGO scorecard, provisions in appropriations 
Acts are also considered to be budgetary effects for 
purposes of this division if such provisions make out-
year modifications to substantive law, except that 
provisions for which the outlay effects net to zero 
over a period consisting of the current year, the 
budget year, and the 4 subsequent years shall not be 
considered budgetary effects. For purposes of this 
paragraph, the term, ‘‘modifications to substantive 
law’’ refers to changes to or restrictions on entitle-
ment law or other mandatory spending contained in 
appropriations 
Acts, 
notwithstanding 
section 
250(c)(8) of BBEDCA. Provisions in appropriations 
Acts that are neither outyear modifications to sub-
stantive law nor changes in revenues have no budg-
etary effects for purposes of this division. 
(D) If a provision is designated as an emer-
gency requirement under this division and is also 
designated as an emergency requirement under the 
applicable rules of the House of Representatives, 
CBO shall not include the cost of such a provision 
in its estimate of the PAYGO legislation’s budgetary 
effects. 
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(5) The term ‘‘debit’’ refers to the net total 
amount, when positive, by which costs recorded on 
the PAYGO scorecards for a fiscal year exceed sav-
ings recorded on those scorecards for that year. 
(6) The term ‘‘entitlement law’’ refers to a sec-
tion of law which provides entitlement authority. 
(7) The term ‘‘PAYGO legislation’’ or a 
‘‘PAYGO Act’’ refers to a bill or joint resolution 
that affects direct spending or revenue relative to 
the baseline. The budgetary effects of changes in 
revenues and outyear modifications to substantive 
law included in appropriation Acts as defined in 
paragraph (4) shall be treated as if they were con-
tained in PAYGO legislation. 
(8) The term ‘‘timing shift’’ refers to a delay of 
the date on which direct spending would otherwise 
occur from the ninth outyear to the tenth outyear or 
an acceleration of the date on which revenues would 
otherwise occur from the tenth outyear to the ninth 
outyear. 
SEC. 104. PAYGO ESTIMATES AND PAYGO SCORECARDS. 
(a) PAYGO ESTIMATES.—(1) A PAYGO Act shall in-
clude by reference an estimate of its budgetary effects as 
determined under section 308(a)(3) of the Congressional 
Budget Act of 1974, if timely submitted for printing in 
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the Congressional Record by the chairs of the Committees 
on the Budget of the House of Representatives and the 
Senate, as applicable, before the vote on the PAYGO legis-
lation. The Clerk of the House or the Secretary of the 
Senate, as applicable, shall also incorporate by reference 
such estimate printed in the relevant portion of the Con-
gressional Record under section 308(a)(3) of the Congres-
sional Budget Act of 1974 into the enrollment of a 
PAYGO Act. Budgetary effects that are not so included 
shall be determined under section 104(d)(3). 
(2)(A) Section 308(a) of the Congressional Budget 
Act of 1974 is amended by adding at the end the following 
new paragraph: 
‘‘(3) CBO PAYGO ESTIMATES.—Before a vote in 
either House on a PAYGO Act that, if determined 
in the affirmative, would clear such Act for enroll-
ment, the chairs of the Committees on the Budget 
of the House and Senate, as applicable, shall request 
from the Director of the Congressional Budget Of-
fice an estimate of the budgetary effects of such Act 
under the Statutory Pay-As-You-Go Act of 2009. If 
such an estimate is timely provided, the chairs of the 
Committees on the Budget of the House of Rep-
resentatives and the Senate shall post such estimate 
on their respective committee websites and cause it 
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to be printed in the Congressional Record under the 
heading ‘PAYGO ESTIMATE’. For purposes of this 
section, the Director of the Congressional Budget 
Office shall not count timing shifts in his estimates 
of the budgetary effects of PAYGO legislation (as 
defined in section 103 of the Statutory Pay-As-You- 
Go Act of 2009).’’. 
(B) The side heading of section 308(a) of the Con-
gressional Budget Act of 1974 is amended by striking 
‘‘REPORTS ON’’. 
(b) Section 308 of the Congressional Budget Act of 
1974 is amended by adding at the end the following new 
subsection: 
‘‘(d) SCOREKEEPING GUIDELINES.—The Director of 
the Congressional Budget Office shall provide estimates 
under this section in accordance with the scorekeeping 
guidelines determined under section 252(d)(5) of the Bal-
anced Budget and Emergency Deficit Control Act of 1985. 
Upon agreement, the chairs of the Committees on the 
Budget of the House of Representatives and the Senate 
shall submit updates to such guidelines for printing in the 
Congressional Record.’’. 
(c) CURRENT POLICY ADJUSTMENTS FOR CERTAIN 
LEGISLATION.—For purposes of calculating budgetary ef-
fects under this division, CBO shall adjust its estimates 
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