April 2015 Edition Vol.9, Issue 4

SUCCESS! Repeal of the Sustainable Growth Rate Formula

SUCCESS! Repeal of the Sustainable Growth Rate Formula

By Arthur Johns


With the historic bipartisan repeal of the Sustainable Growth Rate (SGR) by Congress, Medicare can now get on with the business of revising their reimbursement fee schedule and payment reform. Physicians treating patients with Medicare can finally breathe easier knowing that The Medicare Access and CHIP Reauthorization Act (MACRA) will provide annual payments of 5% starting this July and staying in effect for the next five years, through 2019.

The repeal paves a pathway that can foster high-quality, value-based healthcare to people with cancer.  The American Society of Clinical Oncology (ASCO) has long been a vocal advocate for the repeal and lauds the success of the demise of the SGR flawed formula. Peter Yu, MD, ASCO President praised the 92 Senators and 392 House members who voted ‘yes’ on the repeal. “The Congressional bipartisan, bicameral leadership that forged this much-anticipated resolution has taken an important step to restore stability and confidence in Medicare,” he said on the ASCO Web site. 

In an American Medical Association wire, AMA Executive Vice President and CEO James L. Madara, MD, indicated that the passage of this legislation would bring to an end an era of uncertainty for Medicare beneficiaries and their physicians. “Patients will be able to get the care they need and deserve.”

The approved legislation replaces SGR with a value-based system that includes quality and accountability. In addition, current quality reporting will be streamlined into a payment system based on merit, called the Merit Incentive Payment System (MIPS). MIPS will consolidate the three current reporting systems (Physician Quality Reporting System, the Value-based Modifier program, and Meaningful Use with Electronic Health Systems). The consolidation is posited to circumvent redundancies and inconsistencies with the existing programs, and will become the only quality reporting program required by Medicare.

Physicians reporting into MIPS will receive a performance score (1-100), with performance measures based on four measures: quality, resource use, meaningful use, and clinical practice improvement activities. The quality measures would be reported through a certified electronic health system or through qualified clinical data registries, which would count as a clinical practice improvement action. MIPS will allow for bonuses ranging from 4% to 9% for those who score above the threshold. For those physicians who fall below the threshold, they may receive a payment cut by as much as 4% by 2019. Payment cuts will continue to increase by as much as 9% for poor performers by 2022.

Centers for Medicare and Medicaid Services (CMS) will apply the MIPS reporting incentive to doctors of osteopathy, dental surgery, podiatry, optometry, chiropractors, physician assistants, nurse practitioners, clinical nurse specialists, and certified registered nurse anesthetists. Other professional groups will be included starting 2021, at the discretion of CMS.   

According to the AMA, the MIPS program is “the first real opportunity for high-performing physicians to earn substantial bonuses, and for all physicians to avoid penalties if they meet prospectively-established quality thresholds.”  

Other key features of the new bill include:

  • Physicians participating in alternative payment models (APMs) such as Patient Centered Medical Homes will receive the 5% bonus beyond 2019 to 2024
  • Beginning in 2026, physicians in APMs would qualify for a 75% update; while everyone else would receive an annual update of 25%
  • Participation in APMs is voluntary and the fee-for-service model stays in place
  • For smaller practices, technical support is available to help them get started in an APM or the new fee-for-service incentive program
  • For quality measure development, funding is also available
  • Quality incentive and payment programs will be consolidated to reduce financial penalties to practices

The new bill doesn’t eliminate fee-for-service entirely for Medicare Part B services, but includes incentives and support for physicians to implement and participate in new payment models. The new payment models will have technical support funds for small practices, but participation in new payment model is not mandatory. 

Historically, the SGR was enacted by Congress in 1997. It was used as a budgetary restraint tool which set a target amount based on several factors including, the gross domestic product (GDP) per capita, the number of Medicare Part B enrollees, changes in physician’s fees, and changes in policies or regulations. The actual expenditures on services were then compared with that target estimate, and Medicare payment fees were adjusted. However, a key flaw with SGR methodology was that it was based on estimated changes in fees for physician’s services; estimated changes in the number of beneficiaries enrolled in Medicare’s fee-for-service program; estimated growth in real gross domestic product (GDP) per capita, and estimated change in expenditures due to law and regulation. Inputs for the SGR formula were independent of the real costs of a medical practice, and the result for physicians was that SGR payment updates calculated using the SGR formula fell well below the Medicare Economic Index (MEI). The MEI is a measure used to estimate what the annual changes in physicians’ operating costs and earnings levels would be for that year. The MEI is also used as a baseline for each year’s payment calculation. 

Since 2002, actual expenditures on physician services had surpassed the MEI target estimates, and in 2002 the SGR formula mandated a 4.8% payment cut in that year. But Congress has not mandated any further cuts since then, instead, every year when the issue of the SGR formula reared its ugly head and threatened physicians and patients access to healthcare, seniors in particular, Congress put off resolution to the formula creating a free fall. This year, if Congress had not intervened, physicians would have experienced Medicare payment cuts of 21%. The SGR formula did not impact calculations for drug payments.

Enacting the new MACRA bill doesn’t come without some level of controversy. According to Congressional Budget Office (CBO) estimates, repealing the SGR and enacting the bill will result in a $141 billion increase in federal budget deficits over the next 10 years. The CBO states, “Such an investment in funds needs to be accompanied by fiscally responsible fundamental reform of the Medicare fee-for-service payment system.”

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