New Medicare Penalty Hits Small Groups, Solo Physicians Hardest

April 28, 2016

Medicare's new compensation formula will bestow performance bonuses as high as 4% on an estimated 412,000 physicians and other clinicians in 2019 and impose corresponding penalties on another 346,000, mostly in practices of from one to 24 members, according to proposed regulations released yesterday by the Centers for Medicare & Medicaid Services (CMS).

One physician organization is expressing dismay about a payment system that seems to work against smaller practices.

"It's extremely concerning," said Anders Gilberg, senior vice president of government affairs for the Medical Group Management Association (MGMA), in an interview with Medscape Medical News. "Any program like this should give physicians the opportunity to succeed regardless of practice size.

"Why wouldn't you structure it so it will lift all boats?"

Yesterday's proposal, running more than 900 pages, fleshes out the 2015 law called the Medicare Access and CHIP Reauthorization Act (MACRA), which abolished the detested sustainable growth rate (SGR) formula for physician compensation. MACRA gradually shifts reimbursement from fee-for-service to pay-for-performance, also known as pay-for-value.

Physicians choose between two payment models under MACRA. The default model, the Merit-Based Incentive Payment System (MIPS), initially will encompass the vast majority of physicians, according to CMS. MIPS incorporates and aligns three existing Medicare incentive programs: meaningful use of electronic health records, the Physician Quality Reporting System, and the Value-Based Payment Modifier. Medicare will increase or decrease a physician's fee-for-service reimbursement in MIPS according to his or her quality of care, cost (or resource use), clinical practice improvement, and meaningful use of electronic health records, which now goes by the name "advancing care information." The quality-of-care component constitutes 50% of the MIPS score, the proposed regulations state, with cost, clinical practice improvement, and advancing care information accounting for 10%, 15%, and 25%, respectively, in the first year.

MIPS bonuses and penalties up to 4% each debut in 2019 and increase to 5% in 2020, 7% in 2021, and 9% in 2022 and beyond. The bonuses are based on performance 2 years earlier, meaning pay hikes and pay cuts in 2019 will reflect what a clinician did in 2017.

Clinicians are exempt from MIPS if they elect to participate in a select number of alternative payment models (APMs), which is the other reimbursement model created by MACRA. Beginning in 2019, such APM participants will receive lump sum incentive payments equal to 5% of their Medicare Part B revenue the year before.

Medicare has been experimenting with various APMs such as accountable care organizations, shared savings programs, and bundled payments, all of which shift reimbursement from volume to value. However, much to the surprise of observers such as the MGMA's Anders Gilberg, CMS said only APMs deemed "advanced" will qualify for incentive payments. Among other things, physicians in advanced APMs accept serious downside risk in their quest for bonus money, according to the agency. One type of accountable care organization that makes the cut is the Next Generation accountable care organization.

More types of APMs and their physicians ought to be eligible for a MACRA bonus, according to Gilberg. The government's narrow criteria, he said, forces more physicians into the MIPS model.

As it is, CMS estimates in its proposed regulations that between 31,000 and 90,000 clinicians in 2019 will qualify for bonuses of $146 million and $429 million, respectively, as part of advanced APMs. The agency expects the number of clinicians in this MACRA category to increase over time.

"Inconsistent With the Congressional Intent"

There are other ways to get exempted from MIPS than participating in an advanced APM. CMS also proposes to exclude clinicians newly enrolled in Medicare, clinicians with a very low volume of Medicare patients and revenue, and clinicians in so-called ineligible specialties such as audiology and physical therapy. All told, CMS estimates that between 524,000 and 583,000 clinicians will be exempted from MIPS in performance year 2017, and in payment year 2019.

That leaves roughly 761,000 clinicians who will be in the MIPS pool. CMS expects that roughly 54%, or 412,000, will earn basic MIPS bonuses totaling $833 million. Some clinicians in this group also will receive exceptional performance bonuses totaling $500 million. In contrast, another 346,000 clinicians, or roughly 46% of the MIPS pool, will get docked up to 4% of their Medicare fee-for-service revenue. CMS based these estimates in part on how physicians performed in Medicare incentive programs in 2014.

The likelihood of snagging a MIPS bonus varies by specialty in the CMS projection. CMS estimates that almost 68% of rheumatologists will experience the pay raise compared with 31% of psychiatrists, for example.

However, the most dramatic variations in MIPS bonuses and penalties are related to practice size.

Table 1. Estimated Effect of Proposed MIPS Regulations in 2019 on Total Allowed Medicare Charges by Practice Size

Practice Size Eligible Clinicians Under MIPS1 Percentage Eligible Clinicians Receiving MIPS Penalty Percentage Eligible Clinicians Receiving MIPS Bonus Total Medicare Fee Schedule–Allowed Charges (in Millions) Total Penalties (in Millions) Total Bonuses (Basic Bonus Plus Exceptional Performance Payment)
Solo 102,788 87% 12.9% $12,458 $300 $105
2 to 9 123,695 69.9% 29.8% $18,697 $279 $295
10 to 24 81,207 59.4% 40.3% $9934 $101 $164
25 to 99 147,976 44.9% 54.5% $12,868 $95 $230
100 or more 305,676 18.3% 81.3% $18,648 $57 $539
Total 761,343 45.5% 54.1% $72,606 $833 $1333

1CMS estimates that 2527 eligible clinicians will not have their Medicare pay adjusted up or down under MIPS.

Source: CMS.

Gilberg told Medscape Medical News that the MGMA will attempt to determine how the proposed CMS policies created this seemingly uneven playing field in which 87% of soloists get penalized and 81% of clinicians in giant groups earn bonuses.

"It's inconsistent with the congressional intent, and inconsistent with what CMS has been saying, that they would make [MIPS] so much more difficult for physicians in anything but a megapractice," said Gilberg.

In the coming weeks, CMS will be getting an earful from the MGMA, and organized medicine in general, on the fine print in the proposed MACRA regulations. The deadline for the public to submit comments is June 27. The proposed regulations spell out various ways to submit comments.

Gilberg estimates that a final version of the regulations will not come out until this fall. This timetable, he noted, will give physicians only a few months to master MIPS rules for the performance year of 2017, which will determine whether they get a monetary carrot or stick in 2019 — one more complaint the MGMA will take up with CMS.

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