The Sustainable Growth Rate (SGR) was introduced in 1997, and has been a source of frustration and anxiety for lawmakers and physicians alike nearly ever since. The goal of the SGR was to limit spending on Medicare by setting annual spending targets. The idea was that if Medicare spending came in under the target for a year physicians would see an increase in payment rates the following year whereas, if spending exceeded the target they would see a reduction the following year to compensate. It didn’t work. And by 2003, after a nearly 5% drop in payments the previous year and another 5% scheduled to take effect in April Congress stuck a provision in an omnibus bill that replaced the 5% reductions with a 1.4% increase for the year. Since that time Congress has continued to pass such short term “doc fix” measures whenever the formula demanded cuts to Medicare reimbursements—17 times to be exact.
What is different about MACRA, the bill passed by the House in March and the Senate yesterday, which President Obama had already promised to sign, is that it eliminates the SGR completely. By this time, according to the SGR, Medicare reimbursement rates were set to be cut by a devastating 21% overnight—literally. The new rates went into effect on April 1, but because the Center for Medicare & Medicaid Services (CMS) does not process claims for 14 calendar days the first claims processed at the new rates would have been processed April 15. As it is, everyone should receive the full, pre-cut rates on all reimbursements.
But the bill does more than just eliminate the SGR, something just about everyone agrees needed to happen. It also puts into place a new formula that represents at least the beginnings of a transition from a fee-for-service model to a pay-for-performance model. Under the plan reimbursement rates will go up 0.5% later this year, and continue to do so annually through 2019. They will then remain at the 2019 level through 2025, with the caveat that physicians in either of two payment models that will be offered will have the ability to earn what amount to performance based bonuses.
Some, including Paul Spitalnic, Chief Actuary for the CMS in a report released Friday, have expressed concerns about this replacement plan. While conceding that the SGR needed to go and thus MACRA represents a short-term victory, Spitalnic and others fear that what it is being replaced with is insufficient. Specifically, the report notes that when the pools of money that provide for the bonuses mentioned above run out in 2025 physicians are likely to see a rate reduction. Another concern is that the proposed long-term reimbursement increases are not sufficient to keep pace with future economic uncertainties such as higher inflation or the rising cost of medicine, particularly as physicians are being required to spend money on technology necessary to remain compliant with provisions of the Affordable Care Act like adopting electronic medical records. Spitalnic even suggests that under the new plan by 2048 physician payment rates will be lower than they would have been under SGR.
While these concerns have some merit they seem to overlook the fact that for good or for ill such complex pieces of legislation almost never remain static for decades. It would seem reasonable to assume that between now and 2025 lawmakers will have time to observe and react to the implementation of this new payment model and to make adjustments as necessary. Perhaps that’s an overly optimistic outlook, but it seems that many in the healthcare community are feeling at least a little optimistic in the wake of an overwhelming bipartisan vote that achieved something so important to the stability of the healthcare industry.
In addition to eliminating the SGR and replacing it the Medicare Access and CHIP Reauthorization Act, as the name implies, reauthorizes the Children’s Health Insurance Program (CHIP) that provides low cost health coverage to children (and in some cases parents) whose family earning is too high for them to qualify for Medicaid. The bill authorizes a two-year extension after a failed attempt to pass an amendment extending it four years. In fact all six proposed amendments to the legislation failed. Finally, MACRA extends funding to health clinics that provide health coverage to low and moderate income patients across the country.
But what does it cost? Well, that’s not a particularly easy question to answer. Looking at it one way the cost is approximately $214 billion dollars. But the only way you get that number is by simply imagining that Congress let the SGR run its course and allowed Medicare payments to drop 21%. Politics aside, realistically no Congress is ever going to do that—as we’ve seen since 2003. Over the years the target rates have become a sort of legal fiction.
Nevertheless lawmakers did find a way to make up approximately $73 billon of that $214 billion by making some adjustments to what beneficiaries pay. These changes are relatively minor and include things like removing coverage of some small deductibles and raising Medicare Part B rates for those with relatively high salaries. Note that’s those with relatively high salaries, not those with very high salaries. In a move that is hard to understand without reverting to cynicism the new bill provides that seniors with single incomes between $133,500 and $214,000 or joint incomes between $267,000 and $428,000 will pay the increased Part B premiums. However, those whose incomes exceed the upper limits of these ranges, the wealthiest seniors, will not be subject to the increased premium rates. Not that this really affects many people at all, but it is curious.
Overall today feels like a huge victory for most in the healthcare community. The 21% drop in reimbursements was narrowly averted from taking effect even temporarily and, instead of kicking the can down the road for another year the Sustainable Growth Rate has been permanently repealed. Yes, there will be challenges over the next few years, but yesterday’s vote felt to most like a huge step in the right direction.