Our New Payment Systems

After more than 17 years of threatened implementation, the Medicare Sustainable Growth Rate (SGR) has been replaced with a new payment system with relatively little fanfare. SGR was a method used by the Centers for Medicare and Medicaid Services (CMS) to control spending on Medicare Part B physician services. The SGR was supposed to work by having CMS send a report to the Medicare Payment Advisory Commission (MedPAC), which advised the US Congress on the previous year’s total expenditures and the target expenditures. The report included a conversion factor that would change the payments for physician services for the next year in order to match the target SGR. When the previous year exceeded the target expenditures, then the conversion factor would decrease payments for the next year. This was meant to provide incentives for physicians to control their costs or suffer a forced decrease in their reimbursement in the following year. However, this was a classic collective action problem; the impact of individual physicians’ actions was limited, given that there are over 1 million providers. The result was that individual physicians did not curb their utilization.

The implementation of the physician fee schedule update to meet the target SGR was suspended or adjusted by the US Congress regularly, as the adjustment was considered to be so drastic that it would have resulted in physician departure from Medicare and caused access issues for patients. Had the SGR not been eliminated, the reduction in physician fees would have been 21% in 2015 and nearly 30% in some years.¹ Because it was felt that it would never be possible to implement SGR as proposed, the Medicare Access and CHIP Reauthorization Act of 2015² ended use of the SGR effective July 2015, replacing it with a new payment system.

Merit-Based Incentive Payment System (MIPS)

Now that the SGR has been repealed, many are asking what’s next. The formulaic SGR approach to setting base Medicare Part B physician payment rates has been replaced with automatic annual increases of 0.5% for all doctors from July 2015 through December 2015 and for calendar year 2016 through calendar year 2019. The physician fee schedule conversion factor is then frozen for the next 6 years (2020 through 2025), and no automatic increases will be provided.²

Physicians and others are eligible for incentive payments, with their respective rates adjusted based on their performance, under a new Merit-Based Incentive Payment System (MIPS). The MIPS is a consolidation of three pay-for-performance programs already underway and the addition of another. MIPS annually assesses Medicare Part B providers in performance categories, which are used to derive a “MIPS score” (on a scale of 0–100 points). The value-based modifier (VBM) is a composite of quality and cost measures that adjust physician payments based on their performance. The performance categories are: VBM-measured quality (up to 30 points), VBM-measured resource use (30 points), MU (25 points), and a new category named “clinical practice improvement” (15 points). The MIPS score’s maximum impact on reimbursement increases from +/- 4% for the 2019 payment year to +/- 9% for the 2022 and subsequent payment years. Therefore, the score can significantly change a provider’s Medicare reimbursement in each payment year. The poorest performing doctors, determined by their composite score drawn from relevant aspects of all four categories, will see their payments cut by up to 9%.

All of this information is to be available to patients via the physician compare website (www.medicare.gov/physiciancompare/), so that, not only will reimbursement be directly impacted by better performance, but the volume of patients seeking a physician’s services will be as well.

Alternative Payment Models (APMs)

Health professionals participating in certain alternative payment models (APMs) are not subject to MIPS and could qualify for bonus payments. After 2025, there are two conversion factors, and the updates are 0.75% for qualifying APM participants and 0.25% for others.

In order to encourage professionals eligible (EPs) to make greater portions of their Medicare reimbursements subject to at-risk, performance-based contracts, the bill rewards those who participate in an alternative payment model (APM) with an additional financial incentive of 5% of their Medicare reimbursements received in the year preceding the MIPS payment year and payable as “a lump sum, on an annual basis, as soon as practicable.”² For the 2019 and 2020 payment years, at least 25% of the EP’s Medicare reimbursement “during the most recent period for which data are available” (aka, to be determined in the CMS final rule) must have been provided through an “eligible APM entity,” such as a Medicare Shared Savings Program Accountable Care Organization (ACO). In particular, the eligible APM entity must require that participants use certified EHR technology, pay based on quality measures comparable to those used in the MIPS quality category, and place material financial risk for monetary losses on providers.  Examples of programs for which eligible APM entities may be created are:²

• Programs created by the CMS Center for Medicare and Medicaid Innovation (CMMI), such as the Advance Payment (ACO) Model, but excluding healthcare innovation awards;
• The Medicare Shared Savings Program (MSSP) for ACOs;
• The Health Care Quality Demonstration Program; and
• “a demonstration required by Federal law.”

In addition, several other models have been described to meet the APM requirements.²

Payment for a High-Value Service. A physician practice would be paid for delivering one or more desirable services that are not currently billable, and the physician would take accountability for controlling the use of other, avoidable services for their patients.

Condition-Based Payment for Physician Services. A physician practice would have the flexibility to use the diagnostic or treatment options that address a patient’s condition most efficiently and effectively without concern that using lower-cost options would harm the operating margins of the physician’s practice.

Multi-Physician Bundled Payment. Two or more physician practices that are providing complementary diagnostic or treatment services to a patient would have the flexibility to redesign those services in ways that would enable high-quality care to be delivered as efficiently as possible.

Physician-Facility Procedure Bundle. A physician who delivers a procedure at a hospital or other facility would have the flexibility to choose the most appropriate facility for the treatment and to work with the facility to deliver the procedure in the most efficient and high-quality way.

Warrantied Payment for Physician Services. A physician would have the flexibility and accountability to deliver care with as few complications as possible.

Episode Payment for a Procedure. A physician who is delivering a particular procedure could work collaboratively with the other providers delivering services related to the procedure (e.g., the facility where the procedure is performed, other physicians who are involved in the procedure, physicians and facilities who are involved in the patient’s recovery or in treating complications of the procedure, etc.) to improve outcomes and control the total spending associated with the procedure.

Condition-Based Payment. A physician practice would have the flexibility to use the diagnosis or treatment options that address a particular health condition (or combination of conditions) most efficiently and effectively and to work collaboratively with other providers that deliver services for the patient’s condition in order to improve outcomes and control the total spending associated with care for the condition.

Further, CMS will use a request for information to solicit recommendations from stakeholders to identify activities in at least the following categories: expanded practice access (eg, same-day appointments); population management (eg, monitoring population health); care coordination (eg, telehealth); beneficiary engagement (eg, self-management training); patient safety and practice assessment (eg, use of clinical checklists); and participation in APMs. Although this is a broad swath of potential improvement activities, the bill states that a physician in a practice certified as a patient-centered medical home (PCMH) or “comparable specialty practice” shall be given the maximum score of 15 for the practice improvement category.²

In response to these new pay for performance (P4P) payment systems, providers will be best served by delivering exactly what is being asked. Rather than volume, which was the basis of the SGR payment system, P4P requires the achievement of certain outcomes, such as reduced hospitalization and improved patient care. LTC providers able to deliver these new, payer-focused priorities will succeed more than those locked in the past fee-for-service system, who will be subject to an increasingly hostile environment. In the end, patients and payers will benefit from a system supporting efficient and effective patient-centered care. 

1.    Aaron HJ. Three cheers for logrolling‚Äîthe demise of the SGR. N Engl J Med. 2015;372:1977-1979.

2.    Medicare Access and CHIP Reauthorization Act of 2015, HR 114-10, 114th Congress, 2nd Session (2015).