Life Science Compliance Update

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April 20, 2015

Obama Signs SGR Repeal Legislation; Value-Based Payment Model Comes Into Full Force in 2019


On Thursday, April 16, President Obama signed into law the legislation ending and replacing the Sustainable Growth Rate (SGR) Formula, which would have reduced Medicare physician payments by 21 percent. Perhaps foreshadowing the dawn of a new age of physician reimbursement, Obama signed the bill outside on a beautiful spring day.  

Late Tuesday, the Senate voted 92-8 to approve the legislation. The American Medical Association (AMA) responded favorably to the news, stating that the bill, entitled the Medicare and CHIP Reauthorization Act (MACRA), “will ensure access to care for seniors, military personnel and their families, children and low income adults.” The Act “once and for all gets rid of the flawed [SGR] formula that has plagued the health care system for more than a decade, paving the way for physicians to implement new delivery and payment reforms that will improve quality of care and reduce costs.”

Under SGR, Medicare’s budget was calculated by linking Medicare spending to economic growth. However, once health care costs began rising faster than the growth of the economy, physicians were at continual risk for cuts to their reimbursements. For over a decade Congress passed temporary “doc fixes” to keep the reimbursements steady. The new legislation eliminates the need for repeated fixes by repealing the SGR law and replacing it with a new system that eventually ties payments to participation in value-based payment models. Most of the changes are not slated to take effect until 2019. Doctors will receive an annual update of 0.5 percent in each of the years 2015 through 2019.

In 2019, the payment models change significantly. The National Review summarizes the value-based goals:

The heart of the bill is a new, two-tiered indexing system for physician fees. Physicians who agree to participate in Medicare Accountable Care Organizations (ACOs)--or in similar alternative payment models--will receive a permanent 0.75 percent increase in their fees each year. Physicians that don’t join an ACO will be placed into the “Merit-Based Incentive Payment System,” or MIPS. On average, physicians in MIPS will receive a payment increase of 0.25 percent every year — far below the annual payment increase for physicians in ACOs.

Merit-Based Incentive Payment System (MIPS)

In addition to MACRA's payment incentives to encourage providers to participate in alternative payment models--like medical homes, accountable care organizations, and bundled care--the law introduces the concept of the Merit-Based Incentive Payment System for physicians not in these alternative models. MIPS “consolidates the three existing incentive programs, continuing the focus on quality, resource use, and meaningful electronic health record (EHR) use with which professionals are familiar, but in a cohesive program that avoids redundancies,” states the House Bill explainer.

Under MIPS Medicare’s current quality reporting programs will be streamlined and simplified into one merit-based incentive payment system, referred to as “MIPS.” This consolidation will reduce the aggregate level of financial penalties physicians otherwise could have faced. The three programs contemplated by the bill to be consolidated into the MIPS are:

  • The Physician Quality Reporting System (PQRS), which incentivizes professionals to report on quality of care measures through a combination of incentive payments and negative payment adjustments (View CMS's page on PQRS here);
  • The Value-Based Modifier (VBM) Program, which adjusts payment based on performance on PQRS quality measures (and Medicare cost data), though the value modifier (VM) is a separate adjustment from the PQRS payment adjustment (CMS's page here); and
  • "Meaningful Use" of EHRs, which stipulates certain requirements in the use of certified EHR systems (Health IT's page here).

Under MACRA, starting in 2019, payments will be adjusted based on provider performance in the MIPS, rather than the above individual programs. Each year, HHS will establish a list of MIPS quality measures through rulemaking. Eligible professionals will be assessed in four performance categories, namely:

  • Quality (using measures from existing quality programs and new ones developed by professional organizations);
  • Resource use, using measures developed by the current VBM program;
  • EHR ‘meaningful use’ (using requirements established under current regulation); and,
  • A new component, “clinical practice improvement activities,” which “gives credit to professionals working to improve their practices and facilitates future participation in APMs.”

Professionals will receive a “composite performance score” based on their performance in each of the above categories. 

As noted above, the MIPS quality measures will be fleshed out in rulemaking--and here is where the rubber will hit the road for the future of healthcare delivery. Matching up the proper incentives with the most cost-effective quality care is a topic for another day. 

Several interesting articles have been written about what quality metrics should dictate payments to physicians. The Wall Street Journal's "What Measures Should Be Used To Evaluate Health Care?" provides a variety of viewpoints about the best measures for patient care. 

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