Medicare SGR Formula Triggers 21% Pay Cut Today

April 01, 2015

Today is April Fools' Day, but for physicians, it also could be called Day One of Medicare Payment Limbo.

After all, Medicare technically is reducing its reimbursement rates for physician services rendered after March 31 by roughly 21% as of today, a cut triggered by the program's notorious sustainable growth rate (SGR) formula. However, physicians may not see any change in their Medicare pay if the Senate passes a bipartisan SGR repeal bill by April 14, a bill President Barack Obama has promised to sign.

Given this big "if," physicians are left wondering.

The House did its part in trying to avert a pay cut that threatened to drive many physicians out of Medicare and leave seniors in a lurch. On March 26, in an overwhelming bipartisan 392–37 vote, it passed an SGR repeal bill that raises reimbursement rates 0.5% in the last half of 2015 and annually through 2019, while shifting the program from fee-for-service to pay-for-performance.

On the other side of the US Capitol, however, the Senate recessed on March 27 for its spring break without taking any action on the legislation. Senate Majority Leader Mitch McConnell (R-KY) said his chamber needed more time to resolve disagreements about the bill, called the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, and promised a vote as soon as the Senate reconvened on April 13.

The timing is fortuitous for physicians. By regulation, the Centers for Medicare and Medicaid Services (CMS) cannot pay clean electronic claims any sooner than 14 calendar days after receipt (29 days for hard copy claims). Senate passage of MACRA and the president's signature by April 14 would allow CMS to retroactively cancel the 21% rate reduction and pay all claims for services performed after March 31 at pre-April levels.

What Not To Do

So what should physicians do, if anything, during Medicare Payment Limbo? Here's what they should not do, according to organized medicine: voluntarily mark down their Medicare claims by 21% (officially, 21.2%) for the work they do on and after April 1, with the hopes of getting it back when the Senate approves the SGR repeal bill.

The trouble with this maneuver is that CMS is obliged to pay the lesser of the submitted charge or the Medicare approved rate, said Kent Moore, senior strategist for physician payment at the American Academy of Family Physicians.

Consider a physician who performs a hypothetical service that Medicare approves for $100. When the physician bills for this amount, the program pays him or her 80%, or $80, with the patient owing the remaining 20%, or $20, in the form of coinsurance (this assumes the annual deductible has been met). However, if the physician marks down the submitted charge 21.2%, to $78.80, Medicare ignores its standard $100 rate and pays the physician 80% of $78.80, or $63.04, Moore told Medscape Medical News. The patient would owe 20% of $78.80, or $15.76. If the SGR repeal bill is eventually passed by the Senate, CMS would not reprocess such a claim at pre-April rate levels and send the physician the difference between $80 and $63.04.

Moore and others point to two sound choices physicians have during Medicare Payment Limbo. The first, and perhaps the easiest, is to continue submitting Medicare claims at the old rates and hope the Senate passes the repeal bill by April 14. This approach comes with the risk that the Senate may not do its part until after April 14. In that case, CMS will begin to pay claims for prior April services at rates reflecting the 21% reduction. All is not lost in this event, however: if the Senate were to pass the repeal bill on, say, April 20, CMS would reprocess the shrunken claims at the old rates. But cash flow would be disrupted.

The other choice is for physicians to hold on to Medicare claims for services rendered beginning April 1 and wait for final passage of the repeal bill — or a temporary delay of the 21% cut — before submitting them. This approach spares physicians the hassle of having their claims reprocessed if the cut goes into effect for a few days or weeks because the Senate acted after the April 14 deadline. The downside is that Medicare cash flow gets clogged up for 2 weeks or more. For some medical practices that treat a lot of seniors, this increase in Medicare accounts receivable could mean dipping into a bank line of credit to meet payroll, said Moore.

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