Doc Costs Outpace Doc Pay Long-Term in SGR Bill, Says CMS

April 13, 2015

Medicare pay to physicians would not keep pace with their practice costs in the long run under a bipartisan bill before the Senate that would repeal the program's sustainable growth rate (SGR) formula, according to a study from the chief actuary of the Centers for Medicare & Medicaid Services (CMS).

The result could be worse than if Congress fails to kills off the SGR formula, the study warned.

Organized medicine strongly supports the repeal bill, which passed overwhelmingly in the House, because it averts a 21% Medicare pay cut that technically took effect on April 1. Titled the Medicare Access and CHIP Reauthorization Act (MACRA), the measure boosts fee-for-service (FFS) reimbursement rates by 0.5% for the last half of 2015 and for each following year through 2019. Rates stay frozen at 2019 levels through 2025.

Beginning in 2019, MACRA shifts reimbursement from FFS to pay-for-performance, an arrangement hailed by healthcare reformers as a means to improve the quality of care and lower costs. Pay-for-performance will take the form of two programs — the Alternative Payment Model (APM) and the Merit-Based Incentive Payment System (MIPS).

The April 9 report from CMS Chief Actuary Paul Spitalnic essentially said that MACRA would translate into not-so-much-pay-for-performance and could drive physicians out of the program, threatening access to care for seniors. The problem, Spitalnic writes, is that annual physician practice costs as measured by the program's Medicare Economic Index (MEI) will grow faster than yearly rate increases.

The trend isn't so pronounced through 2025. Beginning in 2019, MACRA will inject tens of billions of extra dollars into physician reimbursement in the form of lump-sum payments and bonuses — rewards for those who do well at pay-for-performance. However, this money disappears in 2025.

In 2026, physicians in the APM and MIPS programs will begin to receive yearly FFS rate hikes of 0.75% and 0.25%, respectively. In contrast, physician practice expenses are expected to increase on average by 2.3% per year after 2025. By 2048, Medicare payments would cover only about 55% of what they'd be if they tracked MEI practice expenses — a bigger shortfall than if Congress had allowed the SGR-mandated 21% pay cut to take effect.

"By 2087, they would be just one-third of prices based on the MEI update," Spitalnic writes. This gap "raises significant long-term implications."

"While [MACRA] addresses the near-term concerns of the SGR system, the issues of inadequate physician payment rates are ultimately greater," he writes. "If Medicare payments were to fall to a fraction of payments based on cost drivers, there would be reason to expect that access to physicians' services for Medicare beneficiaries would be severely compromised. Similarly, the quality of care provided to Medicare beneficiaries would likely not keep pace with the care furnished to other types of patients."

Spitalnic's gloomy analysis of MACRA could figure into the Senate's deliberations on the bill, which began today. Because the Senate did not vote on SGR repeal in late March on the heels of the House vote, the 21% cut mandated by the formula kicked in April 1 for claims on services performed after March 31. CMS routinely waits 14 calendar days before it pays an electronic claim, so physicians won't see the massive rate reduction until April 15.

That timetable gives the Senate until midnight tomorrow to pass MACRA and allow CMS to process April claims at the pre-April rate come Wednesday. However, it's also possible that the Senate may settle for another short-term postponement of the cut with the hope of passing MACRA after April 14. The House would have to concur in that action.

A copy of the CMS actuarial study of MACRA is available on the agency's website.


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