SGR Bill Rolls Meaningful Use Into New Incentive Program

February 10, 2014

A new bill that would repeal Medicare's sustainable growth rate (SGR) formula for setting physician pay also would roll 3 Medicare bonus-and-penalty programs, including the one for meaningful use of electronic health record (EHR) systems, into one big enchilada.

The new program, called the Merit-Based Incentive Payment System (MIPS), is designed to shift Medicare reimbursement from fee-for-service to pay-for-performance. Above-par performance could earn a physician a bonus as high as 12% in 2018 and 27% by 2021, according to a summary of the bill prepared by lawmakers. However, physicians also would risk incurring substantial penalties, starting at 4% in 2018 and reaching 9% in 2021, if they fall below par.

Before Medicare starts applying these carrots and sticks, physician compensation would remain essentially in a holding pattern, with annual rate increases of 0.5% from 2014 through 2018 under the bill. By abolishing the SGR formula, the legislation also would avert a 23.7% rate reduction scheduled for April 1.

The bipartisan bill was introduced last week by the leadership of the House Ways and Means Committee, the House Energy and Commerce Committee, and the Senate Finance Committee.

A Zero-Sum Game of Bonuses and Penalties

The new jumbo incentive program in the SGR repeal bill would incorporate not only the meaningful use program, but also the Physician Quality Reporting System (PQRS) and the Value-Based Payment Modifier. The bill eliminates individual bonuses and penalties in these incentive programs at the end of 2017. These include the 3% penalty for failing to achieve meaningful use of an EHR and the 2% penalty for not reporting performance measures in PQRS.

The proposed MIPS program would assess physicians in 4 categories: the quality of their care, EHR meaningful use, use of healthcare resources (eg, ordering too many tests), and activities undertaken to improve clinical practice. Physicians would receive a score of 0 to 100, according to their performance in each of the 4 categories.

Medicare would compare a physician's composite core with a performance threshold that would be either the mean or the median of the scores for all clinicians subject to MIPS. In a zero-sum game, clinicians who score above this threshold would receive bonuses funded by the penalties imposed on physicians who fall below the threshold. Bonuses would max out at 3 times the penalties, which are capped at 4% in 2018, 5% in 2019, 7% in 2020, and 9% in 2021. The law would award an additional $500 million per year from 2018 through 2023 to exceptional performers.

Physicians would not be graded and paid under MIPS if they receive a significant amount of their revenue through an alternative payment model (APM), which puts them at risk of losing money. Accountable care organizations and medical homes are examples of APMs. Physicians on the APM track would receive an annual Medicare bonus of 5% from 2018 through 2023. An APM taking the form of a medical home does not have to satisfy the financial risk requirement "if proven to work in the Medicare population," according to the lawmakers' summary of the bill.

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