November 3, 2016

MACRA Overview: On the Path to Quality Care (article)

In April 2016, the Medicare Access and CHIP Reauthorization Act (MACRA) was signed into law. MACRA mandates a number of changes to Medicare payments over the next several years, including the following:

  • Repeal of the Sustainable Growth Rate (SGR) Formula, which is the formula for determining changes to the Medicare Physician Fee Schedule each year. Under MACRA, the SGR will be replaced by a 0.5 percent annual increase from 2016 through 2019, with no increases thereafter;
  • Implementation of a payment system intended to reward quality and encourage efficient utilization of resources, including Electronic Health Records (EHR); and Streamlining and consolidation of various payment programs into one flexible system.

An understanding of how the current payment system evolved over time provides insight into where the changes are heading. Below is a brief timeline of the Medicare reimbursement program.

At the inception of Medicare, physicians were paid based on what was referred to as the usual, customary and reasonable charge (UCR).

1984: UCR was replaced by the Medicare Economic Index.

1992: The Resource Based Relative Value Scale (RBRVS) was introduced, which tied the value of a service to a relative number.

1997: The Balanced Budget Act introduced the SGR formula, which tied increases in Medicare spending to increases in the Gross Domestic Product (GDP).

All of the above payment mechanisms based reimbursement on the volume of procedures or services performed; commonly referred to as fee-for-service reimbursement.

More recently, in an effort to focus on high quality care versus volume of care, the government has introduced several individual programs focused on rewarding providers for quality and value. These payment programs include Physician Quality Reporting System, Value Based Payment Modifier, and EHR Incentives (commonly referred to as “Meaningful Use”).

Under MACRA, the Quality Payment Program (QPP) will replace these programs with a system that allows providers to choose one of two paths linking quality to reimbursement:

  • Merit-Based Incentive Payment System (MIPS); or
  • Advanced Alternative Payment Model (AAPM).

With a few exceptions, providers that are not in an AAPM will, by default, be subject to MIPS.

Under MIPS, providers will be subject to an increase or decrease in their Medicare Physician Fee Schedule payments. Adjustments will be determined based on six performance scores and will range from plus or minus 4 to 9 percent, increasing between 2019 and 2022. Centers for Medicare and Medicaid Services (CMS) has stated that the adjustments are intended to be budget neutral, with approximately half of providers realizing a reduction in reimbursement and the other half realizing an increase. Although it is clear that some components of the new payment models transfer risk and reward to quality and other performance-based measures, the basis of the model is still volume based, or fee-for-service.

In addition to the MACRA payment models designed specifically to impact physician reimbursement and compensation, a number of bundled payment models are also being introduced to transfer overall performance responsibility of specific diagnosis to the hospitals (look for future articles that will dive deeper into this topic). Although this does not directly affect the way physicians are rewarded for their professional services, it does create an opportunity to collaborate with hospitals in meeting targets and to be rewarded for their participation.

In past articles, we have discussed the use of quality incentives in physician compensation formulas to motivate certain behaviors. These initiatives are relevant and responsive to market changes in physician reimbursement, but the overwhelming payment structure remains fee-for-service. Some organizations attempting to be “cutting edge” created physician compensation models heavily weighted toward quality outcomes. These organizations found that physicians were responding to the behaviors rewarded by their compensation plan and volumes quickly declined. As volumes declined, so did reimbursement. Many institutions found they were losing significantly more money under the new compensation models than they had in the past.

The future of physician reimbursement may be unclear, but it is apparent reimbursement models are changing and emphasis is being placed on the total patient experience. Health and Human Services (HHS) believes that by structuring payments around a patient’s total experiences, both in and out of the hospital, there will be better coordination of care and ultimately better outcomes. HHS has stated that its goal is to have 50 percent of Medicare payments flow through an alternative payment model rewarding value or quality by 2018 and believes that these models and payment programs will transform the way healthcare is delivered.

In future articles we will address the implications of MIPS and AAPMs to physicians and how practices can position themselves for success. For more information, contact us.

Learn more about the implications of MIPS and AAPMs. 

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