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Since 1997 when Congress passed the Balanced Budget Act that created the Sustainable Growth Rate (SGR) formula, physicians have lived with the threat of increasing payment cuts from the Centers for Medicare and Medicaid Services (CMS). This legislation was designed to contain the growth rate of medical spending by tying it to the inflation rate, but it has not been implemented since 2010 because of periodic patches by Congress, resulting in the possibility of larger mandated cuts every year. This cycle of threatened spending cuts and temporary patches ended permanently with the passage in April 2015 of the Medicare Access and CHIP Reauthorization Act (MACRA). MACRA replaced the SGR with a modest yearly increase of 0.5% in the Medicare Physician Fee Schedule (MPFS) from 2016 to 2019.  While this increase does not keep pace with overall inflation, it is certainly more welcome than threatened cuts of 21.2%.

With much less fanfare, MACRA also created dramatic changes in the manner in which physicians will be paid. CMS had already indicated that there would be a shift away from the traditional fee-for-service model of healthcare payments toward rewarding value and quality over volume of care. Under MACRA, the initial payment incentive programs of the Physician Quality Reporting System (PQRS), Value Based Modifiers (VBM), and Meaningful Use (MU) will be rolled into one program call the Merit-Based Incentive Payment System (MIPS).

MIPS will be similar to the older value-based payment incentives which were tacked onto the fee-for-service payment model, but with much larger potential penalties and rewards. While some physician groups could see rewards of up to 12% in 2019 for providing, measuring, and reporting high quality care, physicians that fail to do so could face payment fines of up to 4% of CMS payments.  These rewards and penalties will increase every year to a maximum 27% reward or 9% penalty in 2022. Private insurers have already signaled their intentions to match or exceed the CMS plan to shift toward paying for quality.

Ultimately, the goal of CMS with MACRA is not simply to incentivize quality care under a fee-for-service model, but to move physicians away from fee-for-service altogether.  Beginning in 2019, physicians may choose one of two models of payments. They may continue with the MIPS, or they can participate in an Alternative Payment Model (APM) program.

APM programs may include participation in an Accountable Care Organization, bundled payment programs, or other performance-based contracts which involves assumption of risk by physicians for the cost and quality of care they provide. While the requirements for participation in the APM pathway are more stringent, there are significantly greater financial rewards for physicians that choose this route. Physicians that choose the APM pathway but fail to meet requirements may still participate in MIPS and avoid penalties.

The defining feature of MACRA is the reduction of healthcare spending. CMS projects that over time MACRA will decrease healthcare spending more than had the SGR program continued. Additionally, the program is structured to be budget neutral. Payment bonuses for eligible providers will be paid for by the penalties collected from others. Practices that are already working to measure, report, and improve their quality of care are in the best position to weather these changes.

Through reforming the methods of payment to physicians, MACRA has great potential to encourage quality improvement in healthcare while decreasing waste and inefficiency, leading to increased value to patients. Despite the threat of payment reduction, some practices will either fail to appreciate the significance of MACRA, or choose not participate in MIPS or an APM. As the penalties for failure to participate increase each year, these physicians will find it harder to stay in practice. The economist Edwards Deming once said, “It is not necessary to change. Survival is optional.”

Additional Resources

“An Update on the Division of Professional Affairs MACRA Strategy: Quality Reporting and Contribution to Savings” by Stanley W. Stead, MD, MBA:
http://www.asahq.org/sitecore/content/ASAHQ/resources/publications/newsletter-articles/2015/july-2015/administrative-update?ArticleID=%7bDE166E82-8FEE-49A9-AEC9-0FCE4294A165%7d

H.R.2 – Medicare Access and CHIP Reauthorization Act of 2015:
https://www.congress.gov/bill/114th-congress/house-bill/2

Estimated Financial Effects of the Medicare Access and CHIP Reauthorization Act of 2015, Centers for Medicare and Medicaid Services:
http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/2015HR2a.pdf