Stabilizing Physician Payment: H.R. 2 and Alternative Payment Models

On March 26, 2015, the U.S. House of Representatives passed H.R. 2, the “Medicare Access & CHIP Reauthorization Act of 2015,” by a vote of 392-37.  H.R. 2, also known as the “Doc Fix,” would permanently repeal the sustainable growth rate (SGR) formula and, over time, introduce a new physician payment update system based in part on participation in an alternative payment model (APM).  As physicians and other stakeholders anxiously await the return of the U.S. Senate and a highly anticipated vote on H.R. 2 expected the week of April 11th, we examine the new Medicare physician payment proposal and what it means for physicians.

To understand the need for the APM proposal, 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 has had to step in multiple times to 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 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, H.R. 2 would permanently repeal the SGR and stabilize Medicare payments to physicians.  The updates are clearly defined in the legislation and would be as follows:

  • 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 proposal, 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 would establish a Merit-based Incentive Payment System (MIPS) for quality improvement which would consolidate, streamline, and decrease 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%).  H.R. 2 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, H.R. 2 proposes to liberalize prior restraints against gainsharing arrangements under the federal anti-kickback statute, 42 U.S.C. 1320a-7b.  Specifically, H.R. 2 includes a provision which would amend Section 1128A(b)(1) of the Social Security Act, which imposes civil monetary penalties on a hospital or a critical access hospital who knowingly makes a payment, directly or indirectly, to a physician as an inducement to reduce or limit services with respect to certain individuals.  H.R. 2 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 provides for 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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