At the Helm

The most important details in the SGR repeal law

by Eric Cragun

Last week the Senate passed legislation to permanently eliminate the Sustainable Growth Rate (SGR) formula, a mechanism created in 1997 designed to restrict growth in Medicare Part B spending. In practice, the SGR would have severely cut payments to providers paid under Medicare’s Physician Fee Schedule (PFS). Congress regularly has passed legislation temporarily averting those cuts. Passage of legislation permanently repealing SGR—in bipartisan fashion no less—gives providers much needed certainty around payments.

The new law—known as the "Medicare Access and CHIP Reauthorization Act of 2015"—includes many policy changes beyond simply repealing SGR. In particular, the law makes significant changes to the way that Medicare pays physicians, accelerating Medicare’s shift toward value-based payments. In addition, Congress included a two-year extension of the Children’s Health Insurance Program (CHIP) as part of the legislation.

To offset the budgetary cost of these provisions, the law cuts Medicare payments to hospitals and post-acute providers; eliminates first-dollar Medigap coverage; and requires high-income beneficiaries to pay a greater portion of Medicare premiums. In all, about $70 billion of the $210 billion legislation is offset.

I’ve summarized the key changes below. For a discussion of the law’s broader implications for providers, read this commentary by the Advisory Board's CMO Lisa Bielamowicz and register for our upcoming webconference on the SGR repeal.

Updates to the Medicare Physician Fee Schedule

In place of governing Medicare PFS payments through the SGR, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) maps out specific annual updates to payments for the next ten years and beyond.

Beginning in the second half of 2015 and through 2019, PFS payment rates will be updated by 0.5% annually. The law then freezes payment rates for five years (2020-2025). Beginning in 2026, payment rates will be updated either by 0.25% annually for providers participating in the Merit-Based Incentive Payment System or by 0.75% annually for providers participating in Alternative Payment Models.

Introduction of two value-based payment tracks for physicians

Merit-Based Incentive Payment System
MACRA consolidates and expands pay-for-performance incentives within the fee-for-service system, creating the new Merit-Based Incentive Payment System (MIPS). Under MIPS, the Physician Quality Reporting System (PQRS), EHR Incentive Program, and Physician Value-Based Modifier become part of a single payment adjustment to physician payments beginning in 2019.

MACRA creates four categories of measures that are weighted to calculate an overall MIPS score:

  • Quality (50% of total adjustment in 2019 shrinking to 30% of total adjustment in 2021)
  • Resource Use (10% of total adjustment in 2019 growing to 30% of total adjustment by 2021)
  • Clinical Improvement (15% of total adjustment)
  • EHR Use (25% of total adjustment)

The range of potential payment adjustments based on performance against MIPS measures grows each year through 2022. In 2019, providers could see adjustments ranging from -4% up to +12%. By 2022, the range reaches -9% up to +27%. The program is designed to be budget neutral, so total negative adjustments across all providers will equal total positive adjustments across all providers. In addition, high performers are eligible to share in an additional pool of bonus funds allocated by the law.

Alternative Payment Models Track
MACRA allows providers participating in “Alternative Payment Models” (APMs) to opt out of MIPS. In addition, from 2019 to 2024, providers qualifying for the APM track will receive a 5% annual lump sum bonus on PFS payments.

To qualify as an APM participant, providers must meet increasing thresholds for the percentage of their revenue they receive through qualifying APMs. Providers who are below but close to the required level of APM revenue can be exempted from MIPS adjustments. The law defines qualifying APMs as those which require participating providers to take on “more than nominal” financial risk; report quality measures; and use certified EHR technology. Here is the timeline for APM requirements:

  • 2019-2020: 25% of Medicare revenue must be received through APMs
  • 2021-2022: 50% of Medicare revenue or 50% of all-payer revenue along with 25% of Medicare revenue must be received through APMs
  • 2023 and beyond: 75% of Medicare revenue or 75% of all-payer revenue along with 25% of Medicare revenue must be received through APMs

Medicare payment cuts for providers

To partially offset the cost of repealing the SGR, MACRA cuts Medicare payments to hospitals and to post-acute providers:

  • Adjusts Disproportionate Share Hospital (DSH) funding for states, delaying cuts scheduled to begin in 2017 by a year and extending them through 2025
  • Requires an increase in payments to hospitals scheduled for 2018 to instead be phased in over six years
  • Limits the 2018 payment update for post-acute providers to 1.0%

Reforms to Medicare benefits

Congress also included changes to Medicare benefits to offset the cost of repealing SGR. MACRA restricts so-called “first-dollar” Medigap coverage for new Medicare enrollees beginning in 2020. Medigap plans for these beneficiaries would only be able to cover costs above the Part B deductible.

In additional, the law increases the percentage of premiums for Parts B and D that high-income beneficiaries must pay beginning in 2018:

  • Single seniors reporting income of more than $133,500 and married couples with income more than $267,000 will see their share of premiums rise from 50% to 65%
  • Single seniors reporting income above $160,000 and married couples with income above $320,000 will see their premium share rise from 65% to 80%

Extension of funding for CHIP and community health centers

In addition to dealing with the expiration of the most recent SGR patch, MACRA also addresses the looming expiration of funding for the Children’s Health Insurance Program (CHIP) and community health centers. While funding for both was scheduled to end this year, the law instead extends funding for both by an additional two years through 2017.

No mention of ICD-10

The law does not address ICD-10 implementation. The transition to ICD-10 is scheduled to take place on October 1 this year and passage of SGR legislation that does not include an ICD-10 delay increases significantly the likelihood that the ICD-10 transition will happen this year.

Other key provisions

Befitting the final legislation dealing with SGR, the permanent repeal included a number of other smaller provisions. These include:

  • Further delay of two midnight rule: the law prohibits CMS from enforcing the two midnight rule until after September 30, 2015, a six-month extension of the moratorium on two-midnight enforcement. CMS may continue “probe and educate” activities during this period.
  • Reinstates global surgical bundles: the law reverses a CMS decision to eliminate 10-day and 90-day global payment bundles for surgical services.
  • Extension of numerous “Medicare Extenders”: the law extends numerous Medicare programs (e.g., payments for ground ambulance services) that were close to expiring. Most are extended through the end of 2017.

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