Congress Votes for Permanent Physician Payment Fix

Posted by The Evidence Blog on April 21, 2015

By Beth Bontemps, Sr. Medical Research Analyst, Hayes, Inc.

After 13 years of legislating temporary patches to avert significant cuts to physician payment, Congress has finally voted in favor of legislation that will repeal the widely disputed Medicare sustainable growth rate (SGR) formula for determining payment rates. The bill, called the Medicare Access and CHIP Reauthorization Act (MACRA), is expected to be signed into law by President Obama.


The possibility of deep reimbursement cuts for physicians who treat Medicare beneficiaries is nothing new. In fact, legislators have blocked payment reductions annually since 2003. And while legislators have made repeated efforts to repeal the SGR, they ultimately failed to reach consensus, usually due to disagreements over how to fund a modified reimbursement system.

MACRA came just in time to prevent a 21% cut to physician payment scheduled to go into effect this month. The law freezes Medicare physician payment rates through June and then raises them 0.5% for the remainder of 2015. Additionally, the legislation preserves fee-for-service physician payment and guarantees annual 0.5% increases in payment rates through 2019. MACRA also provides for extensions of other spending policies.

Although fee-for-service payment is not going away yet, MACRA sets the stage for transition away from straight fee-for-service reimbursement toward pay-for-performance methodologies. Alternative payment models (APM) may include risk-based models such as accountable care organizations (ACOs), medical homes, and bundled payment models.

Risk-based models typically require a group of providers to team up and agree to a lump-sum reimbursement to care for a certain group of patients. Providers are incentivized to spend less than the lump reimbursement; the less they spend, the more they keep. Physicians won’t be required to participate in APMs, but those who choose to do so will be eligible for additional financial incentives.

Providers who choose not to participate in an APM may still be eligible for bonuses. Medicare’s current quality reporting programs will be rolled into one merit-based incentive payment system (MIPS), which will pay bonuses beginning in 2019 for fee-for-service physicians who score well in 4 categories: quality, resource use, meaningful use of electronic health records, and clinical practice improvement activities. MACRA favors APMs over MIPS, offering larger financial incentives for providers who elect to participate in risk-based healthcare delivery systems. Keep in mind that Medicare already bases some of its fee-for-service payments on quality and value. In fact, in 2014, an estimated 20% of Medicare reimbursements were linked to quality or value. The agency’s goal is to link 85% of all Medicare fee-for-services payments to quality or value by 2016, and 90% by 2018.

The cost of MACRA is estimated at $214 billion. The legislation includes provisions to offset roughly $72 billion of this cost by requiring higher-income Medicare beneficiaries to pay more for their care and reducing payments to hospitals and nursing homes.

While the legislation has been well received by the American Medical Association, the chief actuary for the Centers for Medicare & Medicaid Services (CMS) has cautioned that MACRA may not allow payment rates to keep pace with the average rate of physician cost increases.

Hayes is encouraged to see the recognition among stakeholders that better patient outcomes are not necessarily the result of more services and more spending. Within MACRA is the expectation that providers deliver more effective and efficient care, with rewards for keeping patients healthy and controlling costs by providing preventive services and reducing duplicative and unnecessary procedures. This shift from volume-based to value-based payment offers an opportunity to make real improvements in the outcomes and satisfaction of patients.

Topics: Hayes Blog

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