How Congress finally killed SGR

What a difference a year makes. Congress passed the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)-also known as the “doc fix” in mid-April by overwhelming, bipartisan votes.

Contrast that outcome with 2014, when House Republicans barely passed essentially the same bill with just 20 Democratic votes and the Senate, then controlled by Democrats, never even voted on it.

What MACRA does

The doc fix legislation eliminates the sustainable growth rate (SGR) formula that has dictated drastic reductions in the Medicare fee update for many of the past 15 years, after being established in 1997.

The underlying provisions in H.R. 2 are the very same ones that were in the legislation that ran aground in the last Congress. The new law eliminates the SGR, substitutes a .5% fee-for-service (FFS) update through 2019, eliminates any update for the five years thereafter,.

Also starting in 2019, the bill offers physicians two options for increasing earnings beyond the zero percent update. One is an FFS-grounded Merit-Based Incentive Payment System (MIPS). The other is Alternative Payment Model (APM) program.

Physician groups pushed hard for the bill. Says American Medical Association President Robert M. Wah, MD, “Not only did MACRA stabilize the Medicare program, it put in place significant reforms that could reshape how we deliver health care in this country.”

But that popping of champagne corks is probably a bit premature. It is true that future SGR-mandated cuts in Medicare reimbursements are averted. In addition, some of the penalties currently assessed in three Medicare programs-Physician Quality Reporting, Meaningful Use and Value-Based Payment Modifier-will be reduced starting in 2019. Physician reporting, now required separately for all three, will be consolidated in one report for MIPS. Those are solid pluses.

However, inflation will almost certainly swallow the .5% update in each of the next five years. Rep. Michael Burgess, MD, (R-TX), the prime sponsor of MACRA, says in an interview with Medical Economics, “Half a percent for five years was not high enough, and I walked out of the room on several occasions. But it wasn’t going to go any higher and it was important for me to leave a fee for service option and eliminate the doc fix drama.”

NEXT: Changes from 2014

What changed from last year?

The AMA’s Wah praised House Speaker Rep. John Boehner (R-OH) and Majority Leader Rep. Nancy Pelosi (D-CA) for getting MACRA through a contentious Congress, especially since its predecessor, H.R. 4015, failed last year. A variety of factors accounted for this year’s success, the most important of which was the financing package.

In 2014, the GOP “paid for” elimination of the SGR, and the associated $141 billion hit to the budget over the next 10 years, by introducing legislation that would have effectively killed the Affordable Care Act. That source of financing was anathema to Democrats. The bill passed the House of Representatives by a vote of 238-181, with near-exclusive Republican support. But Sen. Harry Reid (D-Nev.), then the Senate majority leader, refused to bring the bill up for a vote.

But the November 2014 election changed the political calculus. Republicans won control of the Senate. Reid was no longer at the wheel, replaced by Sen. Mitch McConnell (R-KY). Democrats in the Senate still could filibuster the bill, and perhaps block its passage in 2015. But that became less of an issue as Boehner began negotiating the financial terms with Pelosi. Eliminating the ACA was no longer considered as an option to pay for SGR repeal.

Instead, Boehner and Pelosi came up with a financing package built on compromise and concessions from a number of parties, both inside and outside Congress. According to one source, the scuttlebutt is that Boehner and Pelosi both plan to retire at the end of this Congress, and were motivated by the desire to erect a legislative edifice to their tenure. The House passed the bill by a vote of 392 - 37 on March 26.

The major Republican concession was to finance the bill in part by adding $141 billion to the federal deficit over the next 10 years. But Burgess explains that the deficit-busting nature of H.R. 2 did not incite more of a Republican House revolt because the 10-year cost of repealing the SGR was $1 billion less than keeping the SGR and continuing to pass one-year “patches“ to the fee schedule over the next 10 years.

Burgess points out that the remaining cost of the $214-billion SGR repeal package was paid for by making structural changes to Medicare.

Here is where the Democrats compromised, as did some of their constituencies, primarily seniors. The legislation includes $34 billion of Medicare beneficiary reforms, in the form of higher premiums for wealthier seniors in Parts B and D in 2018, and increasing the number of beneficiaries paying those higher premiums in following years.

In addition, Medicare recipients will have to pay higher out-of-pocket costs for Part B supplemental insurance, which will save the federal government another $1 billion or so.

Hospitals contributed $34 billion to the funding of the bill in the form of reduced payments. Testifying before a House committee in January, Richard Umbdenstock, president and chief executive officer of the American Hospital Association (AHA), said “Offsets should not come from other health care providers, including hospitals, who are themselves working to provide high-quality, innovative and efficient care to beneficiaries in their communities and are being paid less than the cost of providing services to Medicare beneficiaries.” In the end, hospitals swallowed a bitter pill.

After the House passed the legislative package, its fate still hung in the balance during an early April congressional recess. But upon its return, on April 14, the Senate passed the bill by a vote of 92-8. President Obama signed it into law soon thereafter.

NEXT: What MACRA means for doctors

What it means for docs

Despite the accolades from physicians groups, it is unclear just how good a deal MACRA will turn out to be for doctors. Again, inflation is expected to consume the .5% update in each of the next five years.

After that, FFS transitions to the Merit-based Incentive Payment System (MIPS). Whether a physician receives a negative or positive update between 2019 and 2024 will depend on his or her score above or below some pre-established threshold. The score will depend on how well that physician does with reporting under PQRS, meaningful use, and value-based modifier programs, which will be consolidated into a single program that will be-at least theoretically- easier to comply with.

Scores falling below the threshold will result in penalties. Doctors who don’t report at all-and Burgess acknowledges that some physicians won’t-will receive the maximum penalty, which will be 4% in 2019 and up to 9% after 2022. Even physicians who do report will face penalties if their score is below the established threshold, with the exact amount dependent on how far below the threshold they score.

Physicians who score above the threshold will receive incentive payments of up to 4% in 2019 and up to 9% in 2024, depending on how far above the threshold they score. Exceptional performers will also qualify for an additional bonus pool.

Physicians who choose to participate in an APM program will receive a 5% bonus. However, they will be participating in risk-based, value-payment programs such as accountable care organizations (ACOs). Consequently, they face the possibility of the 5% bonus eroding in part or in full if their costs exceed their revenue. Several of the Pioneer ACOs participating in Medicare’s first-generation program have left the program exactly because the penalty was more than the incentive.

The elimination of the SGR allows physicians to breathe somewhat easier until 2019, although current penalty/incentive programs remain in place until then.

Steve Barlas is a Washington, D.C.-based writer who analyzes policy issues for Medical Economics.