Medical Care blog

Comments from the scientific community regarding Medical Care.

Monday, May 11, 2015

Medicare’s new method for paying physicians

By Lisa M. Lines, PhD, MPH and Yiyan Liu, PhD

On April 16th, 2015, President Obama signed into law the permanent “doc fix”, as part of the Medicare Access and CHIP (Children’s Health Insurance Program) Reauthorization Act (MACRA), repealing the current Sustainable Growth Rate (SGR) formula in the Medicare Physician Fee Schedule (PFS). Beginning this year through 2019, PFS payment rates will be increased by 0.5% annually. Starting in 2019, the payment rates will be updated through the new Merit-Based Incentive Payment System (MIPS), which consolidates four physician performance categories into a composite MIPS performance score: quality, resource use, meaningful use of electronic health records (EHRs), and clinical practice improvement. Providers can opt out of MIPS if they participate in an Alternative Payment Model (APM), such as an Accountable Care Organization (ACO), and receive a 5% annual lump sum bonus on PFS payments each year from 2019 to 2024. In addition, MACRA temporarily extends the CHIP program and increases premiums for Part B and Part D of Medicare for beneficiaries with income above certain levels.

Health economists and health policy researchers have advocated for value-based payments for years over the current fee-for-service system, so it’s no surprise that the news about the new legislation was met with praise - and some hat-eating - from around the health policy blogosphere. The law also received applause from the American College of Physicians.

During the first decade under MACRA, both the Congressional Budget Office (CBO) and the Centers for Medicare & Medicaid Services (CMS) predict that the new physician payment updates will cost the federal government more than $100 billion compared to the current-law baseline. However, the CBO also projects that MACRA reforms will cost $0.9 billion less than freezing payment rates for physicians’ services over the 2015-2025 period. Over the long run, CMS anticipates lower physician payments because MACRA-based payments do not include any adjustment for inflation.

The law provides incentives to physicians to join one or both of two key payment reform movements: pay for performance/value-based purchasing (through the MIPS provisions), and alternatives to fee-for-service reimbursement, such as capitation and bundling (through the APM provisions).

While many physicians rejoiced at the death of the broken SGR, some believe that there are too many quality measures already, while others have concerns about the ability of risk adjustment to adequately control for differences in patient populations -- especially among disadvantaged populations.

In addition, some have voiced concerns about the value of a continued focus on process measures, instead of outcome measures; for example, on the current Hospital Compare website, most of the measures are process measures. Others argue that too much of a focus on outcomes would be unfair to providers, who may have little control or influence over whether their patients take their medications as prescribed or make lifestyle changes to improve their health.

CMS wants more and more reimbursement to be made under APMs like ACOs and the Oncology Care Model, which use various forms of global budgets, bundled payments, and partial capitation. However, setting up equitable and fair merit-based payment systems remains a challenge -- one that demands rigorous attention to not just the minutia of reimbursement rules, but also the potential for unintended consequences. With this new legislation, we enter a new phase of the ongoing, and much needed, journey away from payment based on the number of procedures performed and toward a system that focuses on the quality of the care that is delivered. As always, the devil will be in the details.

Lisa Lines is a health services researcher at RTI International. Yiyan Liu is a research economist in the Health Care Financing and Payment Program at RTI International. The views expressed are those of the authors and do not necessarily reflect the views of RTI International.