How physicians can adapt to compensation changes

A Law Review Q&A

Physician reimbursement and compensation seems to be ever-changing, and legislative cuts in Medicare reimbursement formulae throughout the past 13 years have triggered a primarily negative sentiment throughout the medical profession. Since 1997 and the implementation of the Medicare sustainable growth rate (SGR), physicians have been subjected to unstable compensation trends. Further, the past five years have seen a significant increase in the creation of alternative payment models, such as accountable care organizations, patient centered medical homes, bundled payments, gainsharing, and various other pay-for-performance formulae. These trends have contributed to an overall sense of uncertainty and instability surrounding physician compensation.

Throughout this time period many observers recognized that fundamental change in the approach to physician reimbursement was inevitable. However, the essential details relating to such changes had been vague. Now, however, it appears that uncertainty is about to change. We spoke with Stephen Siegel and Frederick Segal of Broad and Cassel to discuss how government and private payers are moving physician reimbursement away from a fee-for-service model toward a value-based model, and what changes physicians must make to adapt.

How will CMS alter the fee-for-service reimbursement payment system in the near future?

During the past five years, we have seen significant action taken by the government and private payers to move physician reimbursement in a different direction – one that is tied to the quality and value of the services rendered, rather than the volume.

In January of this year, in a New England Journal of Medicine article, the Department of Health and Human Services (HHS) Secretary Silvia Burwell made clear the Centers for Medicare & Medicaid Services' (CMS) intention to fundamentally alter the fee-for-service reimbursement payment system for physicians' services. According to Secretary Burwell, in 2014, Medicare made approximately 20% of its benefit payments through alternative payment models. Secretary Burwell also announced Medicare's intention to rely increasingly on measures that emphasize quality over volume in determining physician reimbursement. Indeed, CMS anticipates that by the end of 2016, 85% of traditional Medicare payments will be tied to these measures. The volume will continue to increase so that by 2018, 90% of the payments made by the traditional Medicare program to physicians and other healthcare providers will be tied to the quality and value of the services rendered. In the world of private payers, the move toward these alternative payment models is progressing at least as quickly.

The goals set out in Secretary Burwell’s New England Journal article in January received a big boost in April, when President Obama signed the Medicare Access and CHIP Restoration Act of 2015 (MACRA) into law. MACRA eliminates the SGR, which has proven to cause more problems than it was intended to solve. The SGR was designed to calculate reimbursement rates in a manner that directly correlated to the growth of the country’s economy. However, within five years after SGR's enactment the pace of Medicare spending increased at a rate that far exceeded the overall economy. Consequently, for the past twelve years Congress has had to adjust physicians' Medicare reimbursement rates through annual “doc fix” legislation, in order to avoid the significant reductions that were prescribed by the SGR.  

How else does MACRA impact the future of physician compensation?

MACRA provides that, beginning on July 1, 2015, physicians will receive a 0.5% increase annually in Medicare payments for the next four and a half years. During that time, Medicare will transition to alternative payment models centered on quality and value of care. These models will primarily be developed by an ad hoc committee appointed by CMS, known as the Physician Focused Payment Model Technical Advisory Committee. Upon the expiration of  the “transition period,” lasting from 2015 to 2019, physicians will either have to devise their own alternative payment model that is sufficient under guidelines that have yet to be determined, or receive compensation under a Merit-based Incentive Payment (MIP) system under which eligible professionals (including most non-physician practitioners) will receive annual payment increases (or decreases), based on their performance as measured by standards established in the future. 

MACRA will set in motion what everyone already knew was coming. That is, while productivity will remain a factor in determining physicians' compensation, payment models are going to heavily weigh other factors for determining reimbursement amounts. The Medicare program's "triple aim" for its Medicare Shared Services Program (MSSP), represents the guide for criteria on which the emerging public and private reimbursement models will focus:

1. Increasing the health and welfare of individual patients;

2. Improving the health and welfare of patient populations (ex. diabetics or oncology patients); and

3. "Bending" the cost curve to reduce the rate of growth in healthcare expenditures.

What will the future role of “big data” be in determining physician reimbursements?

The use of increasingly sophisticated "big data" is enabling Medicare and other payers to measure and compare the performance of individual physicians within a specialty and within a geographic market. Measuring a practices' ability to help its patients reduce the incidence of obesity, stay out of the emergency room, and avoid hospital re-admissions within 30 days of discharge are examples of the big data payers now can access. It is this information that is being used to evaluate the quality of a physician's care, which is becoming increasingly important for determining his/her reimbursement. Physicians who are able to achieve the goals identified by public and private payers will be the "winners." Physicians, who do not, will be either reimbursed at lower rates or excluded from the panels of ACOs and private payers.

To achieve the goals identified by “big data,” what changes will physicians have to make?

To achieve the goals identified by big data, physicians are going to have to adopt and follow evidence based policies and procedures, not prior practice. Many opponents of the increasing reliance on data claim that it results in "cookbook" medicine. Supporters of evidence based practice, who appear to be carrying the day, view it as the way to identify practices which are demonstrably safe, effective, efficient, and patient focused.

Patient satisfaction surveys, a device long adopted by hospitals and other customer service businesses, also are going to become an increasingly important factor in determining physicians' reimbursement rates. Physicians will have to see patients when scheduled and ensure that their staffs provide a professional experience that treats patients with respect, or face the prospect that payers and ACOs will respond by reducing their reimbursement or removing the practice from its panel, so its insureds/enrollees/patients no longer are subject to poor customer service.

The message is clear, physicians and their practices have to understand and adapt to the evolution (some might say, revolution) taking place in the manner payers are determining reimbursement, and they need to get on board quickly. There is not a great deal of time to revise established clinical and business policies, procedures, and habits in ways that fundamentally overturn the manner in which many practices have operated since their inception. The practices that are able to adapt will have an opportunity to succeed, it seems very unlikely those practices that do not adapt will have that opportunity.


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