MACRA to Cut Physicians' Medicare Revenue, Study Says

April 20, 2017

A law hailed by organized medicine as stabilizing Medicare reimbursement will slow the rate of growth for the program's spending on physician services, saving anywhere from $35 billion to $106 billion over 15 years, according to a new study by RAND in the current issue of Health Affairs.

Prorated over 15 years, the relative drop in revenue under the Medicare Access and CHIP Reauthorization Act (MACRA) isn't nearly as devastating as what could have transpired under Medicare's former reimbursement system. And with plenty of uncertainty surrounding MACRA's implementation, the RAND forecast may be too fuzzy to bet on, medical societies note.

Still, the study comes across as more bad news for physicians feeling beaten down by third-party payors.

Nearly every medical society was applauding MACRA as good news when Congress passed it in 2015. The bipartisan law abolished Medicare's sustainable growth rate (SGR) formula for setting physician compensation, established in 1997 to control spending. In the years just before its demise, that formula was dictating pay cuts between 20% and 30%. They had gotten this big because Congress, at the behest of organized medicine, had postponed a series of small SGR-triggered cuts each year going back to 2003, which caused them to pile up.

Besides killing off the SGR formula, MACRA shifted Medicare reimbursement from fee-for-service (FFS) to a pay-for-value or pay-for-performance basis through a new framework called the Quality Payment Program (QPP). There are two tracks in QPP. The default track, initially encompassing most physicians, is the Merit-Based Incentive Payment System (MIPS). It combines three existing Medicare incentive programs: meaningful use of electronic health records (EHRs), the Value-Based Payment Modifier, and the Physician Quality Reporting System. Physicians will receive a bonus or penalty based on their composite score across the performance categories of quality of care, cost of care, clinical practice improvement, and meaningful use of EHRs, now called advancing care information.

In 2019, MIPS bonuses and penalties will be as high — or low — as 4% of Medicare FFS revenue and will increase to 9% in 2022 and beyond.

The Advanced Alternative Payment Models (Advanced APMs) is the other payment track. These APMs receive an annual lump sum bonus of 5% provided they assume serious financial risk in their particular model, reaping rewards for coming in under budget, so to speak, and owing the government money for coming in over budget. Examples of Advanced APMs include Next-Generation Accountable Care Organizations (ACOs), Comprehensive Primary Care Plus (CPCP) patient-centered medical homes, and track 2 of the Medicare Shared Savings Program (MSSP). By participating in these models, physicians are exempt from MIPS and its penalties.

Forecast Links Higher-Risk Advanced APMs to Less Physician Revenue

To project how much Medicare would spend on physician services under MACRA, the RAND researchers drew up three scenarios of physician participation in Advanced APMs. In each scenario, the percentage of physicians in these models increased from 8.5% in 2015 to 40% in 2030, with the rest in MIPS.

However, the scenarios differed by the relative riskiness — the potential upside and downside — of the advanced APMs chosen. In the lowest-risk scenario, physicians choose advanced APMs with financial risk similar to that for a CPCP medical home. In the highest-risk scenario, all the advanced APMs resembled Next Generation ACOs. The medium-risk scenario resembled a collection of medical home, Next Generation ACO, and MSSP Track 2 models. Generally speaking, the riskier the Advanced APM, the more money physicians stand to lose if they pump up the volume of services, according to the RAND study.

The study authors then compared these three MACRA scenarios to a pre-MACRA baseline scenario, in which Congress continues to postpone massive SGR pay cuts and instead gives physician nominal rate hikes of 0.5% per year from 2015 to 2025, followed by a 2% annual increase when across-the-board sequestration cuts to Medicare payments expire. Pre-MACRA Medicare incentive programs remain in place. In this scenario, the starting point is 2014, when Medicare spent $81 billion on physician services, excluding ancillary services such as diagnostic imaging, chemotherapy, and lab tests. This spending baseline increases to $109 billion in 2030.

All three MACRA scenarios trailed the pre-MACRA scenarios for Medicare spending on physician services from 2015 to 2030. The gap varied, depending on the level of MACRA risk. In the low-risk MACRA scenario, physician revenue is $35 billion lower than the pre-MACRA baseline over 15 years for a 2.3% decrease. The highest-risk MACRA scenario comes in at $106 billion, or 7.1% lower, while the medium-risk scenario is $47 billion or 3.2% lower.

Physicians Couldn't Live With Threat of SGR Pay Cut

Lead author Peter Hussey, PhD, a senior policy researcher at RAND, and his coauthors write that their results "are subject to a high degree of uncertainty." The study does not reflect the final MACRA regulations issued by the Centers for Medicare & Medicaid Services (CMS) last fall, regulations that allowed physicians to implement MACRA more slowly and introduced additional advanced APMs they could participate in. Furthermore, historical data provide "limited guidance" on how advanced APMs will perform, according to the authors. And the study does not factor in commercial insurance plans and their own APMs, which may "reinforce or otherwise affect Medicare APMs."

"These aren't meant to be pinpoint predictions," Dr Hussey told Medscape Medical News.

Healthcare policy experts at several medical societies seized on the large caveats in commenting on the study's pinched projection for Medicare reimbursement. "I don't know if we can lean on it as an accurate picture," said Shari Erickson, MPH, vice president of governmental affairs and medical practice at the American College of Physicians in an interview with Medscape Medical News. Erickson said another wildcard in the future of MACRA is the evolution of performance measures, which are shifting from care processes to care outcomes.

Jennifer McLaughlin, senior associate director of government affairs at the Medical Group Management Association, also downplayed the firmness of the study's forecast. "We haven't seen much of the potential of MACRA come into fruition yet," McLaughlin told Medscape Medical News. She also called the pre-MACRA baseline scenario, which assumes the survival of the infamous SGR formula, something "we couldn't live with."

"It's one thing to assume that, but it's another thing to move into the modern era of medicine with that albatross around our neck," she said, referring to the threat of a monumental pay cut. "We had to go to Congress every year to fight this limited battle over the formula. It created a great deal of uncertainty for practices."

Dr Hussey acknowledges the distaste for the pre-MACRA era. There was never a guarantee, he said, that Congress would come to the rescue at the last minute and postpone a scheduled cut.

The RAND forecast of diminished Medicare revenue didn't shock Shawn Martin, the senior vice president for advocacy, practice advancement, and policy at the American Academy of Family Physicians. "We anticipated that MACRA would reduce spending in the healthcare system, and even some kinds of spending on physician services," Martin told Medscape Medical News.

The low end of the RAND estimate — $35 billion less in physician revenue over 15 years — isn't so worrisome on an annual basis, but the upper end of $106 billion is, said Martin.

"It all depends on where that savings comes from," he said. "I don't think the majority will come from primary care. The effect on primary care may be even neutral to positive."

Hospital-based physicians, in contrast, may bear the brunt of MACRA cost savings. The RAND study projects that MACRA may reduce Medicare spending on hospital services by as much as $250 billion over 15 years. With improved ambulatory care reducing the number of emergency department visits and hospital admissions, "physicians in these settings may see a revenue reduction," Martin said.

With healthcare costs eating up more and more of the federal spending pie, cost control is everybody's job, according to Dr Hussey and his coauthors. They write that physicians and their medical societies "must accept that one of their roles is to be responsible stewards of society's resources and redesign their business model around value."

Among the challenges facing "responsible stewards" in the MACRA era are payment rates per unit of service that do not keep up with medical practice inflation. The RAND study predicts that physician payment rates in the Advanced APM track will be 8% higher in 2030 than they were in 2015. For physicians in the MIPS track, the rates will be 5% higher. However, the inflation rate for the cost of running a medical practice, as measured by the Medicare Economic Index (MEI), looks to be 41% higher in 2030. The MEI includes physician compensation, staff salaries, rent, equipment, and supplies.

"In real terms, payment rates are decreasing," said Dr Hussey.

Dr Hussey's observation isn't exactly "new news," as they say in journalism. The office of chief actuary in CMS reached the same conclusion in 2015. Its analysis of MACRA predicted that physician revenue from Medicare would not keep pace with their practice costs in the long run, which could drive them out of the program.

Follow Robert Lowes on Twitter @LowesRobert

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