Physicians Decry Broken Promise of Medicare Raise in 2016

November 03, 2015

The law that repealed Medicare's sustainable growth rate (SGR) formula for physician pay called for an annual raise of 0.5% from 2016 through 2019 as part of a transition to value-based reimbursement.

When Congress passed the law in April, some leaders of organized medicine noted that the modest raise lagged behind the inflation rate, but said it was better than nothing. It was certainly better than the disastrous 21% pay cut that the SGR formula would have triggered in 2016. Medical societies sold their membership on the legislation, called the Medicare Access and CHIP Reauthorization Act (MACRA), in part by saying it would stabilize Medicare rates for several years.

However, the promised raise of 0.5% turned into a 0.3% pay cut in the fine print of the final 2016 Medicare fee schedule released last week. The reason? The Affordable Care Act (ACA) and several other laws that set Medicare reimbursement policy trumped MACRA.

Organized medicine isn't taking it too well.

"Physicians were told that they would get an increase, and they're not," said Wanda Filer, MD, president of the American Academy of Family Physicians (AAFP). "It's a morale breaker."

In its 2016 fee schedule, the Centers for Medicare and Medicaid Services (CMS) walked through the math that produced the tiny pay cut in 2016. It involves the fee schedule conversion factor, a dollar amount that gets multiplied by the relative value units (RVUs) assigned to thousands of physician services. A mid-level office visit (CPT billing code 99213) with an established patient, for example, is worth 2.04 RVUs. The current conversion factor is roughly $35.93. Multiplying 2.04 by that amount yields a national payment amount of $73.30.

MACRA duly increases that conversion factor by 0.5%. However, CMS math also lowers the conversion factor by 0.02% to reflect a RVU "budget neutrality adjustment," a routine bookkeeping exercise. That adjustment alone would not have wiped out the MACRA increase and then some. The real culprit was an additional 0.77% decrease that CMS introduced because it did not meet a certain cost-savings target.

That savings target originated with the ACA, which requires CMS to periodically identify and adjust RVUs for physician services that are underpaid or overpaid, with an emphasis on overpaid. These misvalued services, or misvalued codes as they're often called, typically arise when advances in medical technology shorten the time and expense needed to perform a service while the payment rate remains the same.

This ACA provision was the prelude to a law called the Protecting Access to Medicare Act (PAMA) of 2014, which told CMS to fix enough misvalued services to reduce Medicare fee-for-service spending on physician services by 0.5% each year from 2017 to 2020. On the heels of PAMA, the Achieve a Better Life Experience (ABLE) Act of 2014 moved the start date up to 2016, and increased the savings target to 1.0% for that year.

CMS managed to only correct enough misvalued codes for a savings of 0.23%, according to the 2016 fee schedule. Because it fell short of the 1% mark, the agency said, it is obliged under PAMA to reduce total fee-for-service spending on physicians by 0.77% to make up the difference.

The two reductions cancelled the MACRA increase and yielded a conversion factor of roughly $35.83 in 2016, 0.3% less than in 2015.

Calculation of the CY 2016 Physician Fee Schedule Conversion Factor

Conversion factor in effect in CY 2015 35.9335
Update factor 0.5% (1.005)
CY 2016 RVU budget neutrality adjustment -0.02% (0.9998)
CY 2016 target recapture amount -0.77% (0.9923)
CY 2016 conversion factor 35.8279

Source: CMS

Bound by "Current Law"

Organized medicine saw the stealth pay cut coming in the 2016 fee schedule when it was released in draft form last summer for public comment. At that time, CMS said that its misvalued codes initiative had reduced fee-for-service spending by roughly 0.25%. In response, medical societies such as the AAFP, the American College of Physicians, and the American Medical Association, as well as the Medical Group Management Association (MGMA), urged CMS to tweak its methodology for essentially repricing codes and calculating the savings so it could hit the 1% target and avoid canceling the MACRA raise. MGMA called the agency's approach "narrow." The association recommended, among other things, that CMS base its calculations on a broader group of repriced codes than what the agency used.

In the final fee schedule issued last week, CMS stood its ground. "We continue to believe this approach is appropriate and compliant with statutory directives," it said. The agency repeatedly stated that it was bound by "current law" — in other words, MACRA, the ACA, PAMA, and ABLE.

Halee Fischer-Wright, MD, the president and CEO of MGMA, said her group is "extremely disappointed that CMS failed to meet the [1%] target set by Congress."

"Instead, CMS's inaction will result in an across-the-board cut to physicians in 2016," Dr Fischer-Wright said in a statement given to Medscape Medical News. "For all the ambitious plans touted by the agency to move Medicare toward a value-based payment system for physicians, its inability to adequately review misvalued codes under current fee-for-service calls into question how CMS will be able to implement far more sophisticated payment models in the future."

Primary care physicians will feel the 0.3% Medicare rate cut more keenly than their specialist peers, said AAFP president Dr Filer.

"I think primary care physicians are working a minimum margin and working frequently at a deficit," she said. "Practice costs haven't declined, and primary care has been undervalued for a very long time.

"Any cut is a financial hit."

The comments from Dr Filer and Dr Fischer-Wright stand in contrast to what the White House says about MACRA on its website: "At last, the doctors who care for seniors and many Americans with disabilities will no longer have to worry that about the possibility of an arbitrary cut in their pay."

CMS did not respond to a request for a comment on next year's Medicare pay cut.

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