Senate Passes Repeal of SGR Physician Payment Formula

On April 14, 2015, the U.S. Senate passed H.R. 2, the “Medicare Access & CHIP Reauthorization Act of 2015,” by a vote of 92 to 8.  This historic vote follows passage of the bill in the U.S. House of Representatives by a vote of 392-37.  President Obama is expected to sign the bill when it comes to his desk, making the bill’s repeal of the sustainable growth rate (SGR) formula, and introduction of a new physician payment update system based in part on participation in an alternative payment models (APM), a reality.  Here we examine the new Medicare physician payment programs as outlined in the bill and what they mean for physicians. 

To understand the need for the Medicare Access & CHIP Reauthorization Act of 2015, one must understand SGR and the difficulty it has perennially posed for physicians and patients.  Under Section 1848(f) of the Social Security Act, the SGR is calculated on an annual basis using several factors, including the change in Gross Domestic Product (GDP) per capita.  Over the past decade, this formula has repeatedly posed significant cuts to physician payment.  Congress had to step in multiple times to divert scheduled cuts and ensure Medicare patient access to physician services, resulting in nearly $170 billion in so-called “patches,” often at the last minute with significant administrative hassle.

At the same time that the SGR has come under criticism, a movement spearheaded by policymakers and other stakeholders—and further developed in the Affordable Care Act (ACA)— has been underfoot to achieve the “Triple Aim”: to improve the quality and experience of care, improve the health of populations, and reduce the per capita costs of healthcare.  Under this rubric, there has been a shift among policymakers to emphasize physician payment based on the achievement of higher care quality and lower cost, rather than physician payment based on volume of services.

The Innovation Center at the Centers for Medicare & Medicaid Services (CMS) and private payers have developed new payment and delivery models geared toward achieving these goals, and alternative payment models, such as bundled or pay-for-performance models, are increasingly being utilized for physician services.  CMS has also instituted some reforms in its own rules and payment schedules, most notably the Value Based Modifier (VBM) program and the Physician Quality Reporting Program (PQRS), but many stakeholders say that because these programs have not been physician-driven, they suffer from significant operational problems.

Within this landscape, lawmakers developed H.R. 2.  Among other provisions, the bill permanently repeals the SGR and stabilizes Medicare payments to physicians.  The updates are clearly defined in the legislation:

  •  0% 1/1/15 - 6/30/15

  • 0.5% 7/1/15 - 12/31/19

  • 0% 2020 - 2025

  • 0.75% for eligible APMs 1/1/2026 +, 0.25% all others

Under the APM provisions of the bill, a physician could develop their own APM and then apply to a special advisory committee made up of experts in physician payment.  That committee would make recommendations about the APM to CMS, who would then review the APM and award incentive payments to physicians who are deemed to be qualifying APM participants.  This process would allow physicians to develop, implement, and be rewarded for models of care that work best for their medical specialty and patient population.

On the quality improvement side, H.R. 2 establishes a Merit-based Incentive Payment System (MIPS) for quality improvement which consolidates, streamlines, and decreases the administrative burden of several current CMS initiatives, namely, PQRS, VBM, and the electronic health record incentive program, also known as Meaningful Use (MU).  Under MIPS, maximum bonuses and penalties would be 4% in 2019, 5% in 2020, 7% in 2021, and 9% in 2022 and beyond.  In addition, $500 million would be set aside annually to provide bonuses of 10% for exceptional performance.  MIPS scores would rely on four factors, which would be adjustable for individual physicians or group practices: quality (PQRS/30%); resource use (VBM/30%); MU (25%); and clinical practice improvement activities (15%).  The bill also provides $75 million for quality measure development and $100 million for technical assistance for small practices of up to 15 professionals.

Also of note in regard to the advent of alternative payment models, the bill proposes to liberalize prior restraints against gainsharing arrangements under the federal anti-kickback statute, 42 U.S.C. 1320a-7b.  Specifically, H.R. 2 amends Section 1128A(b)(1) of the Social Security Act, which imposes civil monetary penalties on a hospital or a critical access hospital who knowingly make a payment, directly or indirectly, to a physician as an inducement to reduce or limit services with respect to certain individuals.  The bill limits that prohibition to the reduction or limitation of “medically necessary” services, thereby leaving the door open to certain gainsharing programs that aim for cost savings by reducing services which are not medically necessary.  Further, H.R. 2 requires a study and report by the Office of the Inspector General of the U.S. Department of Health & Human Services (OIG-HHS) on gainsharing.

Other resources:

H.R. 2 Section-by-Section

H.R. 2 Full Text

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