After several years of negotiations and discussions, a bipartisan group in Congress recently reached a deal to permanently reform the Sustainable Growth Rate (SGR) formula for Part B physician payment. The measure, the Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act reforms the Medicare physician payment system, helps slow healthcare cost growth, and extends healthcare coverage for children. On April 15, the U.S. Congress, in a historic vote, overwhelmingly passed the measure, which also passed the House by a partisan vote of
392 to 37. President Obama signed the legislation into law on April 16, officially ending the SGR era.
What is the Sustainable Growth Rate (SGR)?
Medicare payments to physicians are determined under the SGR formula. First passed into law in 1997, SGR was intended to control physician spending by linking it to the nation’s economic growth. The formula has called for reductions in physician payment rates since 2002, but Congress has spent nearly $150 billion in 17 short-term patches to avoid the cuts. The most recent patch was to expire on March 31, 2015. If Congress hadn’t acted, providers would have received a 21% reimbursement rate cut in April.
The permanent repeal of SGR ends two decades of work by lawmakers to avoid significant payment cuts required under the formula for the Medicare payment policy. Prior to its decision, Congress could only reach consensus on patching the SGR. With its decision, Congress has given providers the long-term payment predictability that they so disparately needed and eliminated the annual artificial need to identify spending cuts.
What Does the Bill Do?
The legislation returns certainty to Medicare reimbursement, incentivizes quality and value, slows the growth of healthcare spending, and extends health coverage for children. Most significantly, the law shifts Medicare Physician Fee Schedule payment to two value-based payment tracks: fee-for-service and incentive-based (or value-based). Specific provisions of the bill:
- Reform the Medicare physician fee-for-service payment system track by providing a 0.5% annual increase for
Medicare providers for the next four years;
- Transition to an incentive-based, or value-based, payment system track in 2019 with potential for increased payment rates for providers participating in alternative payment models (APMs) based on patient outcomes that hold providers financially accountable;
- Require electronic health records (EHRs) to be interoperable by 2018 and prohibits providers from deliberately blocking information sharing with other EHR vendor products;
- Extends funding for CHIP and Community Health Centers for an additional two years; and
- Extends for six months a moratorium on enforcement of the “two-midnight” rule for short inpatient hospital stays.
The 5% bonus payment for physicians participating in APMs with financial risk may lead many physicians to reconsider joining two-sided risk models. Currently, few ACOs take on downside financial risk like that offered in Track 2 of the Medicare Shared Savings Program. The new incentives might drive providers to participate in these models.
The law also extends funding for CHIP for two years, increases Medicare premiums for high-income beneficiaries, cuts Medicare payments to hospitals and post-acute providers, and eliminates first-dollar Medigap coverage. This change in Medigap coverage eliminates Medicare beneficiaries’ ability to purchase first-dollar Medigap coverage and increases
the share of premiums paid by high-income beneficiaries, exposing them to greater out-of-pocket costs. This mirrors the trend of patients covered by private insurance who are experiencing rising costs in the shift toward a retail healthcare market.
The Centers for Medicare & Medicaid Services (CMS) recently set goals for transitioning to value-based payments. Both of the new Medicare physician payment tracks — fee for service and APMs — significantly expand incentives for high- value care. Whether or not physicians participate in the APM track, they will see an increased percentage of their revenue tied to quality and efficiency. This certainty helps providers considering investments and initiatives designed to transform their business model for value-based payments.
The guaranteed payment increase over the next four years will introduce mid-term stability and predictability for Medicare providers before they are transitioned to a new value-based system. The bill also supports providers as they navigate participation in APMs, with the potential for increased reimbursement rates.
However, the new payment system heightens the obligation on providers to track, report, and improve quality performance. Over the next 10 years, annual updates to Medicare Physician Fee Schedule payment rates will range from 0.0% to 0.75%, consistent with the pace of updates over the past 10 years.
Though hospitals, nursing homes and rehabilitation centers will only see a base pay increase of 1% in 2018 — about half of the increase without passage of the legislation —they largely backed the bill. In a letter, the American Hospital Association commended Congress for delaying cuts to the Medicaid Disproportionate Share Hospital program an additional year, until 2018, and extending the partial enforcement delay on Medicare’s “two-midnight” policy for an additional 6 months.
Additionally, the bill helps hospitals, clinics, and providers who treat children enrolled in the CHIP program; without the two-year extension, approximately two million children would lose access to healthcare, and more than eight million children could lose access to specialty care.
Finally, the bill requires EHRs to be interoperable by 2018 and prohibits providers from deliberately blocking information sharing with other EHR vendor products. It also leverages EHRs for quality reporting and requires the exchange of healthcare information to manage patient care across care settings.
To read more about this legislation, see the official House Energy and Commerce Committee detailed summary here.