United States: MACRA, The Sustainable Growth Rate (SGR) Reform Bill, Signed Into Law

CMS Quality Reporting Programs and Value-Based Payments Will Be Significantly Impacted

Miranda A. Franco is a Sr Public Affairs Advisor in our Washington DC office .


  • The Medicare Access and Children's Health Insurance Program (CHIP) Reauthorization Act, or MACRA, was signed into law on April 16, 2015.
  • The legislation averted a 21 percent cut to Medicare physician rates and permanently repealed the flawed Medicare Sustainable Growth Rate (SGR) formula.
  • The law replaces the SGR formula with statutorily prescribed physician payment updates and provisions that will likely accelerate progress toward physician-hospital integration.
  • The MACRA legislation has broad implications on the current reimbursement system by setting up a new two-track payment system designed to prod eligible professionals (EPs) to move more of their patients into risk-based payment models.                

The Medicare Access and Children's Health Insurance Program (CHIP) Reauthorization Act, or MACRA, was signed into law on April 16, 2015. The law replaces the sustainable growth rate (SGR) formula with statutorily prescribed physician payment updates and provisions. In addition, Congress included a two-year extension of the CHIP and reinstated global surgical bundles as part of the legislation.  

The vote came after years of negotiations to get rid of the SGR formula, which linked physician reimbursement under Medicare to increases in gross domestic product. The much maligned formula invariably resulted in payment cuts for physicians. The cuts were staved off each year by a series of payment "patches" passed by Congress.

To offset the budgetary cost of these provisions, the law cut Medicare payments to hospitals and post-acute providers; eliminated first-dollar Medigap coverage; and required high-income beneficiaries to pay a greater portion of Medicare premiums. In all, about $70 billion of the $210 billion legislation was offset.

The SGR formula has been repealed, but it contains significant shifts in future Medicare payments to EPs. Although physicians experience the most direct impact of SGR changes, life sciences companies also track the effect of the SGR on physician services related to their drugs and devices. Further, hospitals should track the structural reforms to the Medicare program.

This alert summarizes the major Medicare payment reform provisions of MACRA.

SGR Repeal and Payment Updates

The core of the law is repeal of the SGR and abandonment of the 21 percent cut in Medicare physician fees it called for in 2015. In its place is a new method of paying physicians under Medicare. Some elements are specified in law; some are to be introduced later. The hard-wired elements include annual physician fee updates of 0.5 percent per year through 2019 and 0 percent from 2020 through 2025, along with a "merit-based incentive payment system" (MIPS) that will replace current incentive programs.

SGR Repeal: The flawed SGR formula is permanently repealed, averting a 21.2 percent reduction in payment rates under the Medicare Physician Fee Schedule (MPFS).

Payment Updates 1: Eligible Professionals (EPs) will receive an annual update of 0.5 percent through 2019. There will be no increases in the MPFS rates from 2020-2025.

Payment Updates 2: Physicians will also be eligible for additional updates through the new Merit-Based Incentive Program (MIPS) (which is discussed further below).

Payment Updates 3: In 2026 and in subsequent years, professionals participating in Alternative Payment Models (APMs) that meet certain criteria would receive annual updates of 0.75 percent while all other professionals would receive annual updates of 0.25 percent.

Payment Modernization – Moving from Volume to Value

Merit-Based Incentive Payment System (MIPS)

The MIPS program consolidates existing Medicare quality reporting programs into the Merit-Based Payment Incentive System (MIPS). The new program will assess performance in four categories: quality of care; resource use; meaningful use of electronic health records; and clinical practice improvement activities.

Payments to professionals will be adjusted based on performance in the unified MIPS starting in 2019. The MIPS comprises three distinct current law incentive programs:

  1. the Physician Quality Reporting System (PQRS) that incentivizes professionals to report on quality of care measures
  2. the Value-Based Modifier (VBM) that adjusts payment based on quality and resource use in a budget-neutral manner
  3. meaningful use of EHRs (EHR MU) that entails meeting certain requirements in the use of certified EHR systems

MIPS Eligible Professionals

For the first two years, the MIPS applies to physicians, physician assistants, nurse practitioners, clinical nurse specialists and certified registered nurse anesthetists, as well as group practices that include such professionals. In subsequent years, the secretary may include other eligible professionals. A MIPS eligible professional does not include qualifying or certain partial-qualifying APM participants (discussed below), or professionals who do not exceed a low-volume threshold measure. Those professionals participating in an APM are eligible for bonus payments under the APM track and thus excluded from payment adjustments under the MIPS.

Current-law Penalties: The payment implications associated with the current law incentive program penalties are sunset at the end of 2017, including the 2 percent penalty for failure to report PQRS quality measures and the 3 percent (increasing to 5 percent in 2019) penalty for failure to meet EHR MU requirements.

Penalties Realigned: The money from penalties that would have been assessed will now remain in the physician fee schedule, significantly increasing total payments compared to the current law baseline.

Performance Assessment: Physicians will receive a composite performance score of 0-100 based on their performance in each of the four performance categories listed below:

  1. Quality (30 percent) – measures from PQRS, VBM, EHR MU; and those from qualified clinical data registries
  2. Resource Use (30 percent) – will engage physicians to ensure accurate resource use assessments. The methodology that CMS is currently developing to identify resources associated with specific care episodes will be enhanced through public input and an additional process that directly engages professionals.
  3. EHR Meaningful Use (25 percent)
  4. Clinical Improvement Activities (15 percent) – includes a menu of activities: expanded practice access; population management; care coordination (including remote monitoring or telehealth); beneficiary engagement; patient safety; and participation in an APM

These weights would change over time. For example, should the percentage of meaningful EHR users exceed 75 percent, the secretary of the Department of Health and Human Services could reduce the weight for that category, but not below 15 percent, with the other weights increased appropriately.

Under MIPS, physicians will also receive credit for improvement from one year to the next in the determination of their quality and resource use performance category score and may receive credit for improvement in clinical practice improvement activities.

Performance Threshold: Each EP's composite score will be compared to a performance threshold that will be established during a period prior to the period being measured. Therefore, EPs will know what composite score they must achieve to obtain incentive payments and to avoid penalties at the beginning of each performance period.

Payment Adjustments: Payment adjustments (negative for those below the threshold; zero for those at the threshold; positive for those above the threshold):

2019: capped at +/- 4 percent

2020: capped at +/- 5 percent

2021: capped at +/- 7 percent

2022 and beyond: capped at +/- 9 percent; plus the potential for additional incentive payments for exceptional performance

Technical Assistance: Technical assistance will be available to help practices with 15 or fewer professionals improve MIPS performance or transition to alternative payment models (APMs) (discussed further below). Funding will be $20 million annually from 2016 to 2020.

Feedback: In order to provide feedback to EPs to improve performance, beginning July 1, 2017, the secretary will make available timely (such as quarterly) confidential feedback to each MIPS eligible professional on the individual's performance with respect to the quality and resource use performance categories.

Alternative Payment Models (APMs)

Incentive payments will be available to EPs who engage in APMs that typically will move away from fee-for-service payment. These and other provisions will ramp up pressure on physicians and other providers to move from traditional individual or small-group fee-for-service practices into risk-based settings.

APMs are defined as:

  • those that involve risk of financial losses and a quality measure component (e.g., the Medicare Shared Savings Program)
  • a model under the Center for Medicare and Medicaid Innovation CMMI
  • a demonstration under section 1866C of the SSA (the Health Care Quality Demonstration Program that is designed to examine the extent to which financial incentives promote improvements in care)
  • a demonstration required by federal law
  • Patient Centered Medical Homes (PCMHs) that have been proven to work with the Medicare population – PCMH APMs are exempt from the financial risk requirement

To encourage physicians to take on this risk, and to provide a financial cushion, the legislation provides 5 percent incentive payments from 2019 to 2023 for those who join new models.

Participants need to receive at least 25 percent of their Medicare revenue through an APM in 2019 to 2020. This threshold increases over time. The policy also incentivizes participation in private-payer APMs.

EPs would only be subject to the quality reporting requirements for their APM; they would be exempt from the new MIPS quality program.

To advise and evaluate the development of alternative payment models, the bill will establish an ad hoc committee to be known as the "Physician-Focused Payment Models Technical Advisory Committee." The committee will provide comments and recommendations to the secretary as to whether the alternative payment models meet the criteria (to be established by the secretary) for assessing physician-focused payment models.

Likely Uncertainty for Future Medicare Payments

The SGR formula has been repealed, but it contains significant shifts in future Medicare payments to providers. While there is relief among the physician community that the annual SGR drama is over, the new physician payment framework may lead to issues as times goes on. Specifically, in an April 9, 2015, memo, the chief actuary warns that MIPS updates totaling $500 million per year and a 5 percent annual APM bonus are scheduled to expire in 2025, which will again trigger physician payment reductions. Thus, while the immediate payment problems with the SGR formula are solved, Congress may have to address the continued complex issues of Medicare physician reimbursement methodology in the years to come. 

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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