Life Science Compliance Update

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. 

March 25, 2015

SGR Repeal: Bipartisan Leaders Announce Repeal To Be Considered Before March 31 Deadline


This time last year, we analyzed 2014’s sustainable growth rate (SGR) fix. Although a bipartisan group of lawmakers announced they had reached a deal on legislation to repeal the SGR, it ultimately gave way to a temporary solution. One year later we find ourselves with that temporary solution in need of yet another, hopefully permanent, fix. 

An SGR agreement negotiated by Speaker of the House, John Boehner and the House Democratic leader, Nancy Pelosi, would repeal the Medicare formula that threatens to cut doctors’ fees each year. In its place, Congress would establish an “incentive payment system” to reward doctors who receive high performance scores from the government. Scores would be based on factors like the ability to keep patients healthy while controlling costs, notes the New York Times

The bill, H.R. 1470 (found here) and S. 810, is an updated version of the policies set forth in last year’s bipartisan, bicameral Medicare payment reform bill. The House is expected to vote on the entire proposal before the March 31 expiration date of the current patch.

Just yesterday, the House Energy and Commerce and House Ways and Means Committees introduced H.R. 2, the Medicare Access and CHIP Reauthorization Act, to permanently replace Medicare’s SGR. The agreement builds upon H.R. 1470. Notably, the top Republicans and Democrats from the key committees of jurisdiction are all cited as co-sponsors, indicating strong bipartisan support.

Read the complete bill online here

Read a section by section outline here.


Currently, the annual Medicare update for physician services would result in a 21.2% cut on April 1, 2015. Future cuts could exceed 25%. 

As explained by the American Society of Anesthesiologists, the authors of this new legislation claim it would replace the current system with “an improved payment system that rewards quality, efficiency, and innovation.”  In this SGR replacement, physicians would receive a 0.5 percent update for the initial five years of the law while a new system, known as the Merit-Based Incentive Payment System or MIPS, is implemented. The MIPS program goes into effect in 2019. 

The MIPS incentive payment program "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." Specifically, the MIPS streamlines and improves on:

  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; and
  3. Meaningful use of EHRs (EHR MU) that entails meeting certain requirements in the use of certified EHR systems.

Further, the new bill provides financial incentives for professionals to participate in tests of alternative payment models (APMs).

For a detailed look at the SGR Repeal language, here is a section by section outline by the House Energy and Commerce Committee

Political Hurdles

Several Senate Democrats have raised objections to the draft bill, citing three major areas of concern. First, that the package will extend the Children’s Health Insurance Program (CHIP) for only two-years, rather than the four-year extension that every Democrat in the Senate has cosponsored. Second, that beneficiary-oriented reforms—such as increased means testing of Part B and D premiums, or limits on first-dollar coverage in Medigap—have come under scrutiny from advocacy groups such as AARP. Third, an abortion policy rider, the Hyde amendment, would bar federal funds from abortions at community health centers. 

Read a comprehensive analysis of the "top five questions" about the SGR deal by Shea McCarthy of Thorn Run Partners.

House Statement

“We can see the light at the end of the SGR tunnel - finally. Our bipartisan product begins the task of strengthening Medicare over the long term,” said Energy and Commerce Committee Chairman Fred Upton (R–MI). “This responsible legislative package reflects years of bipartisan work, is a good deal for seniors, and a good deal for children too. It’s time to put a stop once and for all to the repeated SGR crises and start to put Medicare on a stronger path forward for our seniors.”

“Finally, after a decade of trying, we have a bipartisan bill that will permanently repeal the flawed SGR and move Medicare to a health care system based on quality and efficiency, that is good for seniors and doctors alike.” said Energy and Commerce Committee Ranking Member Frank Pallone (D-NJ).  “As with any bipartisan effort, this legislation reflects give and take on both sides.  However, we have come to a balanced compromise that will end uncertainty in the system, extend the Children’s Health Insurance Program (CHIP), fund Community Health Centers, and make permanent the Qualifying Individual (QI) program that helps low income seniors pay their Medicare premiums.”


Legislation to permanently repeal the Medicare SGR is an exciting breaking story. We will continue to follow the legislative and political developments as this issue dominates Washington in the coming days. There is currently no “patch” in the wings should this effort fail.

March 27, 2014

SGR Temporary Fix to March 2015 Likely to Sail Through Congress, Includes ICD-10 Delay to October 1, 2015

In early March, we wrote that a bipartisan group of congressional lawmakers announced they had reached a deal on legislation to repeal Medicare's widely criticized sustainable growth rate (SGR) formula, replacing volume-based payments with measures that reward care efficiency and quality. However, it was noted that the legislation faced steep political challenges in Congress.

Updating this story, it has been reported that the House of Representatives has reached a deal to delay physician Medicare reimbursement cuts under the sustainable growth rate (SGR) formula for another year.

According to the 121-page bill, the House will pass a year-long extension, through the end of March 2015. The bill also extends several related healthcare measures until the end of March 2015.

The year-long patch is not paid for over the long term. Instead, the bill shifts around Medicare sequester cuts due to take place in 2024, so that all of them happen in fiscal year 2024, instead of having them split between fiscal years 2024 and 2025. But that language only helps pay for the doc fix over a 10-year window, and creates no actual budget savings over a longer term. As a result, the bill also includes language exempting it from "PAYGO" rules that require new spending to be offset with new revenues or cuts.

"This is a one-year patch for the SGR, something that was worked out between Speaker (John) Boehner and Sen. Majority Leader (Harry) Reid," said Stanley Nachimson, principal of Nachimson Advisors, a healthcare information technology consultancy specializing in ICD coding. "We should know by this weekend if it happens."

Both leaders have pledged to allow an up or down vote, Nachimson said, with the House going first on Thursday and the Senate Friday. "This thing, I think, came up rather quickly. It caught a few people by surprise, including me."

Ultimately, the last-minute agreement will likely disappoint physicians, most of whom support a previous bipartisan deal to permanently repeal the much hated payment formula. But that deal hit a snag this month when lawmakers inserted measures in the bill tying it to a delay in the Affordable Care Act's mandate requiring all individuals to obtain health insurance

The cost to permanently repeal the SGR with the ACA delay will total more than $180 billion, according to a report from the Congressional Budget Office.

Additionally, the bill also contains language that would delay ICD-10 implementation until 2015according to a statement from the American Health Information Management Association. Specifically, Section 212 of the proposed bill states that "The Secretary of Health and Human Services may not, prior to October 1, 2015, adopt ICD–10 code sets as the standard for code sets under section 1173(c) of the Social Security Act (42 U.S.C. 1320d–2(c)) and section 162.1002 of title 45, Code of Federal Regulations."

In response to this legislation, Ardis Dee Hoven, M.D., President of the American Medical Association, issued the following statement opposing the bill:

"Facing another self-imposed deadline, the House of Representatives is scheduled to vote Thursday on the "Protecting Access to Medicare Act," which would enact the 17th temporary "patch" to avert a 24 percent payment cut. Today, the American Medical Association and other physician groups are calling on House members to vote no on this legislation. Full repeal of the sustainable growth rate formula is the answer to strengthening the Medicare program, not another patch.

"The case for repeal of the so-called SGR is stronger than ever. The bipartisan, bicameral agreement by the three congressional committees of jurisdiction for the Medicare program would improve quality, increase care coordination and lower total costs and is strongly supported by the AMA and over 600 other physician organizations.

Unfortunately, differences on budgetary issues have thus far stymied final passage.

By extending the Medicare provider sequester and "cherry picking" a number of cost savings provisions included in the bipartisan, bicameral framework, the "Protecting Access to Medicare Act" actually undermines future passage of the permanent repeal framework. Further, it would perpetuate the program instability that now impedes the development and adoption of health care delivery and payment innovation that can improve health care and strengthen the Medicare program. 

We urge the House and the Senate to continue to pursue bipartisan negotiations on permanent SGR repeal legislation and for both chambers to oppose The Protecting Access to Medicare Act."

Additionally, Senate Finance Committee Chairman Ron Wyden, D-Ore., issued the following statement:

"We have a choice. We can either continue on with the status quo in Medicare by enacting a 17th patch – reinforcing a flawed payment formula that jeopardizes seniors' access to their doctors, pits provider groups against each other, and fails to actually improve the Medicare program.

Or, we can end the budget fiction that is the SGR, provide certainty to seniors and their doctors, and get the ball moving on bipartisan Medicare reforms – paying for value, managing chronic illness, increasing data transparency, and finally moving away from fee-for-service payment that got us into this mess.

My choice is to end the status quo in Medicare by permanently repealing and replacing the SGR. There is no reason to wait."

We will report more information as it becomes available.


March 27, 2014, 12:33pm: The House passed a one-year “doc fix” patch by voice vote, approximately two hours after the vote was temporarily pulled from the floor.

The bill would avoid a cut in Medicare reimbursement rates until March 2015.  Bipartisan legislators in the House were uncertain that the bill would get the two-thirds majority required to pass under a suspension of the rules, but the measure was quickly moved through the floor on a voice vote despite concerns that a recorded vote may not have yielded a favorable result. 

Passage of the bill comes on the heels of opposition from Senate Finance Chairman Ron Wyden (D-OR) and a myriad of physician groups, who have pushed for a more permanent fix to Medicare’s sustainable growth rate (SGR).



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