United States: Five Things To Know About The Medicare SGR Fix

H.R. 2, the Medicare Access and CHIP Reauthorization Act (MACRA), was signed into law by President Obama on April 16, 2015. A broad bipartisan compromise measure, MACRA repeals the much-maligned sustainable growth rate (SGR) formula used to determine physician payment rates and replaces it with a new incentive payment system; extends funding for the Children's Health Insurance Program (CHIP) for two years; imposes Medicare beneficiary reforms and offsets impacting provider payment; temporarily extends a number of Medicare and Medicaid policies and payments; and incorporates new provisions targeting fraud and abuse. Costing approximately $214 billion and coming in at close to 300 pages, MACRA is the most significant healthcare bill signed into law since the enactment of the Affordable Care Act. The full impact of the new law, which could fundamentally alter the delivery of healthcare, is likely to be unknown for several years, as much is dependent upon regulatory actions.

1. Bye, Bye SGR. Hello Uncertainty?

MACRA permanently repeals the current SGR reimbursement formula and provides for a 10-year transition period during which the SGR will be replaced with a new performance-based payment system and financial incentives for participation in alternative payment models. Although the SGR repeal ends the current cycle of large payment reduction threats, it is not clear whether the MACRA updates will be sufficient in the long range to avoid another round of SGR-like demands by physicians for payment relief. Citing concerns, among others, that the payment updates may prove inadequate given the likelihood of higher inflation and physician cost increases, the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary warned that "absent a change in the method or level of update by subsequent legislation ... access to, and quality of, physicians' services would deteriorate over time."

The First Five Years – SGR Repeal and Automatic Updates

MACRA replaces the current SGR reimbursement formula with annual 0.5 percent payment increases over the next five years. These increases are well below historic CPI averages for increases in physician charges, which have averaged about 2.4 percent per annum since 2009. It is likely that these limitations will also impact increases paid by other third-party payers for physician services.

The Next Five Years – Pay for Performance (MIPS) and Risk (APMs)

Beginning in 2019, there will be no further automatic increases. Physician compensation will be adjusted based on performance under the new law's Merit-Based Payment Incentive System (MIPS), consisting of existing CMS payment incentive/penalty programs (e.g., the Physician Quality Reporting System (PQRS), EHR/Meaningful Use Incentive Program, and Value-Based Payment Modifier (VBPM)). In addition to physicians, the MIPS will apply to dentists, podiatrists, optometrists, chiropractors, physician assistants, nurse practitioners, clinical nurse specialists, and certified registered nurse anesthetists. Professionals who treat few Medicare patients, or those who receive a significant share of their revenue from eligible Alternative Payment Models (APMs) will be excluded from the MIPS.

Under the new law, the MIPS will be based on four categories of annually developed metrics:

  • Quality
  • Resource use/efficiency (using measures similar to the current VBPM program)
  • Meaningful use of electronic health records
  • Clinical practice improvement activities

The metrics will be selected from measures suggested by professional entities and stakeholders and will be designed to address the following quality domains:

  • Clinical care
  • Safety
  • Care coordination
  • Patient and caregiver experience
  • Population health and prevention

Professionals will receive confidential feedback on their performance in the quality and resource use categories at least quarterly. Doctors with low MIPS composite scores will have their payments reduced in proportion to their scores. Negative payment adjustments will be capped at 4 percent in 2019, 5 percent in 2020, 7 percent in 2021, and 9 percent in 2022. Eligible professionals with composite scores above the threshold will receive positive payment adjustments. Incentive payments are capped annually at $500 million from 2019 through 2024.

Value-based payment increases beginning in 2019 are likely to be quite uncertain. If the initial results from CMS's VBPM program are a guide, physicians may be in trouble. Participation in the current program is voluntary and open only to groups of 100 or more eligible professionals (approximately 1,278 medical groups) of which only 106 elected to actively participate. Of those, only 14 were eligible for an upward payment adjustment. Eleven incurred a downward payment adjustment with the remaining 81 receiving no adjustment. These results were rather surprising given that the groups were self-selecting and likely sophisticated, considering their size.

Alternative Payment Models

Also beginning in 2019, physicians who significantly participate in an APM, or patient-centered medical home (PCMH) model that involves risk of financial losses and a quality measurement component, will receive a 5 percent payment bonus. PCMHs will be exempted from the downside financial risk requirement if proven to work in the Medicare population. Similarly, Medicaid medical homes will be exempted if proven to work in the Medicaid population.

Two tracks will be available for professionals to qualify for the bonus. The first option is based on receiving a significant percentage of Medicare revenue through an APM; the second is based on receiving a significant percentage of APM revenue combined from Medicare and other payers. The second option makes it possible for professionals to qualify for the bonus even if no Medicare APM options are available in their area. Similarly, if no Medicaid APM is available, a professional's Medicaid revenue will not be counted against the proportion of revenue in an APM.

Medicare in 2026 will transition to a two-track payment system: (1) a new system focused "on quality, value, and accountability" (the APMs), and (2) a less desirable fee-for-service option, particularly for rural physicians and specialties for which an APM may not work.

To date, CMS's experience with APMs has been a mixed bag in terms of overall shared savings and losses, provider participation levels, and expenses associated with the development of a data-driven infrastructure for managing patient care. Key findings from a March 2015 study sponsored by the American Medical Association concerning the impact of APMs on physicians and their practices show that physicians "need help with successfully managing increasing amounts of data and figuring out how to respond to the diversity of programs and quality metrics from different payers." Whether these clinical and operational issues can be ironed out in time to achieve the restructuring envisioned by MACRA in 2026 is a key challenge for the new law.

2. We're in the Money ... at Least Temporarily

CHIP and Community Health Centers

MACRA extends federal funding for CHIP for an additional two years with $19.3 billion for FY 2016 and $20.4 billion for FY 2017 at an enhanced matching rate, which makes CHIP more desirable in terms of drawing down federal funds. CHIP is designed to provide coverage to children and pregnant women in families that do not qualify for Medicaid but are unable to afford private health insurance by providing a low-cost option for purchasing coverage. Approximately 8 million children are currently covered by CHIP, and although the program is administered by the states, it is predominately funded by the federal government.

Mandatory funding for community health centers, authorized under the Affordable Care Act, is extended through FY 2017 at the FY 2015 level of $3.6 billion each year. Community health centers provide primary care, dental care, and other health and supportive services to individuals in medically underserved areas. More than 9,000 community health center sites serve over 23 million people throughout the U.S. and its territories.

Other Extensions of Expiring Provisions

MACRA extends various Medicare and Medicaid policies and payments, typically for one to three years. Highlights include the following:

MACRA Provision


§ 201 Geographic Practice Cost Index (GPCI) Floor

Extends the 1.00 floor on the physician work cost index until January 1, 2018

§ 202 Therapy Cap Exceptions

Extends the exception process until January 1, 2018

§ 203 Ambulance Add-ons

Extends super rural, rural & urban add-ons until January 1, 2018

§ 204 Medicare Low Volume Hospital Payments

Extends the program until October 1, 2017

§ 205 Medicare Dependent Hospital (MDH) Program

Extends the MDH program until October 1, 2017

§ 206 Special Needs Medicare Advantage Plans (SNPs)

Extends authority for SNP plans through December 31, 2018

§ 210 Medicare Rural Home Health Add-on Payment

Extends 3 percent add-on until January 1, 2018

§ 218 Maternal, Infant, and Early Childhood Home Visiting Programs

Extends the programs through FY 2017

§ 221 Community-Based Residency Training

Adds additional funding for the Teaching Health Center Graduate Medical Education Program through FY 2017

3. Somebody Has to Pay!

Estimates are that MACRA will cost $214 billion and add $141 billion to federal budget deficits over 10 years. That's because spending reduction offsets would cover only about one-third of the price tag ($73 billion). Offsets intended to produce savings and defray a portion of the cost of the new law include policy changes aimed at Medicare beneficiaries and providers.

Medicare Beneficiaries

Higher income beneficiaries, currently subject to income-related premiums (means testing) under Medicare Parts B and D, will pay a greater portion of their premiums starting in 2018. The minimum income threshold for income-related premiums will be adjusted upwards starting in 2020 and indexed for inflation going forward. Also beginning in 2020, Medigap plans sold to new beneficiaries will be required to limit their coverage to the cost above the Part B deductible (currently $147/year).


Cost provisions aimed at producing savings through Medicare provider payment changes include the following:

MACRA Provision


§ 411 Post Acute Market Basket

Market basket will increase by no more than 1 percent in FY 2018

§ 412 Disproportionate Share Payments (DSH)

Delays DSH reductions until FY 2018 and extends DSH cuts through FY 2025

§ 414 Inpatient Hospital Rates

Phases in a one-time 3.2 percent increase due in FY 2018 over six years beginning in FY 2018 through FY 2025

§ 413 Provider Tax Offset (levy authority)

Permits Treasury to levy 100 percent of provider payments for back taxes rather than current 30 percent limit

4. Fraudsters Beware!

he new law provides for a host of Medicare anti-fraud initiatives and provisions, including the following:

  • Beneficiary Cards. Requires the Secretary of the U.S. Department of Health and Human Services (HHS) to remove Social Security numbers from beneficiary Medicare cards within four years after enactment and to consider the feasibility of using smart card technology for beneficiary cards.
  • Gainsharing. Enables hospital payments to physicians to reduce or limit services to patients unless the services are "medically necessary" without being subject to civil monetary penalties effective as of enactment. Directs the Secretary of HHS to issue a report recommending how a permanent physician-hospital gainsharing program can be established.
  • Wrongful Payments. Directs the Secretary of HHS to establish policies and claims edits that would prevent improper Medicare payments for incarcerated individuals, unlawfully present aliens, and deceased individuals.
  • Improper Payments. Compels Medicare administrative contractors (MACs) to establish improper payment outreach and education programs for providers. Requires CMS to provide each MAC with a complete list of the types of improper payments identified by the recovery audit contractors, including lists of providers and suppliers with the highest rate of improper payments and the greatest total dollar amounts of improper payments.
  • Payment of Pharmacy Claims. Requires pharmacy claims to have valid prescriber national provider identifiers (NPIs) beginning in CY 2016.
  • Payment for Global Surgical Packages. Reverses a November 2014 CMS rule to eliminate bundled payment for surgical services that span 10 to 90 days and implements an information collection requirement beginning no later than 2017.
  • Payment for Spinal Subluxation Services. Requires the Secretary of HHS to establish a medical review process of spinal subluxation services for certain types of chiropractic claims submitted after December 21, 2016.
  • Payment for Repetitive Scheduled Non-Emergent Ambulance Transport. Extends the prior authorization model for certain repetitive scheduled non-emergent ambulance transport starting no later than January 1, 2016.
  • Home Health Surety Bonds. Requires home health agencies to post a surety bond in an amount that is not less than the minimum of $50,000 or an amount commensurate with the volume of payments to the home health agency and makes the four-year bond period a permanent requirement.
  • DME Surety Bonds. Requires durable medical equipment (DME) bidders to be licensed in each state and to have obtained a surety bond, beginning January 1, 2017. A DME bidder's surety bond will be forfeited in certain cases if a bid is awarded but the bidder doesn't accept the contract.
  • DME Face-to-Face Encounter Requirement. Modifies the DME face-to-face encounter documentation requirement to allow physician assistants, nurse practitioners, or clinical nurse specialists as well as physicians to document the face-to-face encounter.

5. Don't Overlook These Other Provisions

Two Midnight Rule

MACRA both extends a general prohibition regarding the enforcement of the "two midnight rule" concerning inpatient hospital services and continues CMS's "probe and educate" program to assess compliance through September 30, 2015.

Care Management Codes

While the new law codifies payment for chronic care management under the Medicare physician fee schedule, effective immediately, it leaves many of the details largely to CMS's discretion.

Additional Sunshine

In addition to the quality and resource use information posted through the MIPS, MACRA directs CMS to publish utilization and payment data for physicians and others (including the number of services furnished and submitted charges and payments for such services). The information will be searchable by at least the eligible professional's name, location, and services furnished. The new law also directs CMS to make claims data available to certain qualified entities for non-public analyses (as determined appropriate by CMS) and to provide or sell such analyses to authorized users for nonpublic use, including assisting providers and suppliers in the development of quality and patient care improvement activities and new models of care.

Malpractice Standard of Care

MACRA provides that guidelines or standards developed for any federal healthcare program, including Medicare, cannot be construed as establishing a standard or duty of care owed by a healthcare professional to a patient in any medical malpractice or medical product liability action or claim. Practically, however, this provision may have a short-term impact as the standards developed and implemented under these programs will likely become the de facto community standard of care.

Electronic Health Records

Electronic Health Records (EHR) must be interoperable by 2018, according to the new law, which also prohibits providers from deliberately blocking information sharing with other EHR vendor products. "Interoperability" for purposes of MACRA "means the ability of two or more health information systems or components to exchange clinical and other information and to use the information that has been exchanged using common standards as to provide access to longitudinal information for health care providers in order to facilitate coordinated care and improved patient outcomes." Interoperability may require significant expenditures by some providers currently using proprietary systems. Hospitals and physicians will have to attest or otherwise demonstrate on an annual basis that they have not knowingly and willfully taken action (such as to disable functionality) to limit or restrict the compatibility or interoperability of their certified EHR technology.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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