What the historic SGR replacement bill means for providers

Lisa Bielamowicz, MD, Chief Medical Officer

With just a few hours to spare, the Senate voted Tuesday to permanently end the use of the Sustainable Growth Rate (SGR) formula for Part B physician payment. President Obama has pledged that he will sign the legislation into law, officially ending the SGR era. 

 “Patching” the SGR has been an almost annual rite of passage in Medicare payment policy for the last two decades, as lawmakers have worked to avoid the significant payment cuts required under the formula. Until Tuesday, however, Congress was only able to reach consensus on kicking the SGR can down the road. By permanently repealing SGR, Congress gives providers the long-term payment certainty that they so desperately need.

Beyond the historic nature of the bipartisan deal and the elimination of SGR, the agreement contains several other key policy changes that merit attention. Most significantly, the law shifts Medicare Physician Fee Schedule payment to two value-based payment tracks. The first track consolidates and expands pay-for-performance incentives in the fee-for-service system. The second provides bonus payments for physicians with sufficient participation in “alternative payment models” (APMs) that hold providers financially accountable.

The law also extends funding for the Children’s Health Insurance Program (CHIP) for two years, eliminates first-dollar Medigap coverage, increases Medicare premiums for high-income beneficiaries, and cuts Medicare payments to hospitals and post-acute providers.

There are a number of policy changes in the law, and plenty of questions will need to be addressed during implementation, but here’s my initial take on the top 10 implications of this historic agreement:

1. Represents a significant step in the shift toward value-based payments: CMS recently set goals for transitioning to value-based payments; this law hardwires that transition for physicians. Both of the new Medicare physician payment tracks significantly expand incentives for high-value care. Even physicians not participating in the APM track will see an increased percentage of their revenue tied to quality and efficiency. This adds certainty for providers considering investments and initiatives designed to transform their business model for value-based payments.

2. Demonstrates bipartisan commitment to value-based payments: Bipartisanship is rare in Washington, doubly so with regard to health care policy over the past few years. So the bipartisan drafting and passage of this legislation suggests that the policy changes have a unique staying power. Whatever uncertainty the 2016 presidential election holds for health care, the election is not likely to undo the shift to value-based payments. This should help providers move forward with confidence that politics will not sink their transformation efforts.

3. Locks-in slow trajectory for payment rates: We’ve pointed out before the trend of slow growth in provider payment rates. The SGR replacement deal solidifies this trend for physicians treating Medicare patients. Over the next ten years, annual updates to Medicare Physician Fee Schedule payment rates will range from 0.0% to 0.75%, consistent with the pace of updates over the past ten years. This only heightens the imperative for providers to make care delivery as efficient as possible.

4. Removes SGR’s threat to broader Medicare payments: A big piece of the annual SGR debate always centers on how to offset the budgetary impact of avoiding cuts to physician payment rates. This often results in spending reductions in other areas of Medicare. Permanent repeal of SGR eliminates this annual artificial need to identify spending cuts. Certainly, many pressures on Medicare spending remain, but providers no longer have to worry about their payments becoming an offset for SGR.

5. Broadens the scope and elevates the importance of quality measurement: By increasing the percentage of fee-for-service revenue tied to quality, Congress is placing additional emphasis on quality measurement. It is also broadening the definition of quality, adding resource use and clinical improvement measures to the typical list of quality measures. The new payment system heightens the burden on providers to track, report, and improve quality performance. Providers need to ensure they are on-track to building dynamic capabilities for monitoring and analyzing quality performance.

6. Boosts the attractiveness of two-sided risk models: The 5 percent bonus payment for physicians participating in alternative payment models with financial risk may lead many physicians to reconsider joining two-sided risk models. Currently, few ACOs take on downside financial risk like that offered in Track 2 of the Medicare Shared Savings Program. The new incentives might be a turning point in providers’ participation in these models.

7. Furthers trend toward patient price sensitivity: Eliminating Medicare beneficiaries’ ability to purchase first-dollar Medigap coverage and increasing the share of premiums paid by high-income beneficiaries will expose them to greater out-of-pocket costs. This mirrors the trend in rising costs for patients covered by private insurance and reinforces the shift toward a retail market for health care. Our most recent Health Care Advisory Board national meeting series helps providers understand the implications of this shift.

8. Demonstrates policymakers’ interest in interoperability: The interoperability provisions included in this law likely won’t have a significant impact on their own. But they show Congress’ interest in pushing the industry to move more rapidly toward interoperable health IT.

Last night’s Senate SGR vote puts to rest the likelihood of another ICD-10 delay.

9. Provides two years of certainty for children’s health funding: CHIP is the leading source of funding for children’s health care. Some members of Congress were discussing significant changes to the structure of the CHIP program, but the clean CHIP extension for two years gives providers some certainty around coverage requirements and payments for caring for children for the near future.

10. Leaves ICD-10 implementation date unchanged: Last year’s SGR patch included a surprise delay of ICD-10 implementation. The new law includes no mention of ICD-10, leaving in place the October 1, 2015 go-live date. While nothing is ever certain, a transition to ICD-10 this October seems significantly more likely today. Providers should be planning based on this date to avoid the potential for revenue disruptions.

Interested in learning more?

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