Congress Repeals Sustainable Growth Rate Formula and Advances Medicare Payment for Quality
On April 14, 2015, Congress ended over a decade of repeated “doc fixes” which temporarily suspended scheduled Medicare provider reimbursement cuts, by passing the Medicare Access and CHIP Reauthorization Act (the “Act”). If signed by President Obama, the Act would permanently end the Centers for Medicare & Medicaid Services’ (“CMS”) use of the physician payment formula known as the “Sustainable Growth Rate” (“SGR”). Without the approval of the Act, or the passage of a doc fix, providers would have seen Medicare reimbursement rates drop by 21 percent starting on April 15, 2015.
The SGR formula has long been criticized for inaccurately calculating the costs of providing health services in its attempt to link physician reimbursement to the nation’s economic growth rate via the gross domestic product and inflation. Since the SGR adoption in 1997, the threatened SGR-mandated cuts in physician payment rates have prompted Congress to pass doc fixes at least annually since 2003, and as much as five times in 2010 alone. The chief stumbling block to earlier repeal had been disagreement over how to pay for the repeal, with conservatives pushing for a package that was fully offset in the federal budget. However, this year there was bipartisan support for only partial financing of an SGR repeal. The Act is estimated to cost approximately $210 billion, with extenders for certain programs accounting for about $70 billion of the package.
On its face, the Act should allay both beneficiaries’ concerns about limited access resulting from dropping provider reimbursement rates; and providers’ continuing uncertainty over the threatened drops in rates. The Act establishes an automatic 0.5 percent raise annually in provider reimbursement rates from 2015 through 2019. And from 2019 on, payments to providers will be adjusted based on performance under a Merit-Based Incentive Payment System (“MIPS”). For years 2019-2024, certain physicians participating in an alternative payment model (e.g. accountable care organizations, medical homes, bundled payment models, etc.) will receive a five percent bonus each year.
Through MIPS, the Act advances CMS’ objective to tie the majority of reimbursement to quality and increase beneficiary access to quality care. However, MIPS may also present practice management challenges to providers and their business partners. Starting in 2019, MIPS mandates negative payment adjustments for providers who fall below certain performance thresholds. By 2022, some providers may see payments cut by up to nine percent.
While this should be in the best interest of beneficiaries receiving higher quality care, only time will show whether such quality performance metrics result in better care. In spite of the annual 0.5 percent rate increase, some providers may find that such a bump may not cover increasing operating costs to meet certain quality metrics in the near term.The specific quality metrics against which performance will be measured under MIPS have yet to be determined. The Act allocates funding for quality measure development due from CMS by May 2016. It draws four broad categories of metrics—quality, efficiency of resource use, meaningful use of electronic health records, and clinical practice improvement activities.
In addition to potential challenges that the Act poses to providers, Medicare beneficiaries may still be faced with challenges in accessing healthcare. As Judith Stein, Executive Director of the Center for Medicare Advocacy, commented, “The SGR replacement package is not sufficiently balanced; it asks too much from beneficiaries – and nothing from the pharmaceutical or insurance industries – without providing enough for beneficiaries in return.”
According to the Center for Medicare Advocacy, of the $70 billion portion of the SGR package that will be offset, roughly half would come from Medicare beneficiaries through changes that will increase their out-of-pocket costs for health care. Key changes that will have seniors help pay for the SGR package are:
Starting in 2018, Medicare beneficiaries with incomes above $133,500 (higher thresholds for couples) will pay more for Medicare coverage;
Beginning in 2020, “Medigap” policies will not be able to provide first-dollar coverage of Part B deductibles for new beneficiaries; and
Overall increases in Part B premiums across the board.
However, the senior advocacy group expressed support for the Act’s permanent extension of the Qualifying Individual (“QI”) program that helps low-income seniors pay their Medicare premiums.
Other key aspects of the Act which had threatened its passage involve a variety of extenders – programs whose funding have temporarily been extended largely through 2017, including:
Two years of additional funding for the Children’s Health Insurance Program, or CHIP, that provides insurance for children of low-income families who earn too much to qualify for Medicaid;
An additional $7.2 billion for community health centers subject to prevailing restrictions on the use of federal funds for abortions in certain circumstances;
A delay until 2018 for scheduled reductions in Medicaid Disproportionate Share Hospital payments with an additional year of cuts in 2025; and
A six-month delay until September 30, 2015 of the “two-midnight rule.” 
Regardless of the debate over the Act’s ability to address increasing costs of Medicare while increasing senior access to care, the fate of the SGR appears certain. As House Energy and Commerce Committee Chairman Fred Upton (R-MI) put it, Congress “[stuck] a fork in it, it’s finally done.”
 More information on the calculation of reimbursement based on the SGR formula can be found here.
 In addition to the Act, details on the Act’s provider reimbursement model including MIPS can be found in the House Committees on Energy & Commerce and Ways & Means report here.
 A 2014 Rand Corporation study funded by the U.S. Department of Health & Human Services concluded, “We still know very little about how best to design and implement [value-based payment] programs to achieve stated goals and what constitutes a successful program;” See http://www.rand.org/content/dam/rand/pubs/research_reports/RR300/RR306/RAND_RR306.pdf
 A detailed list of the extenders can be found in House Committees on Energy & Commerce and Ways & Means report here.
 The “two-midnight rule” requires a patient stay of two-midnights in a hospital to qualify for inpatient status in most instances, otherwise the stay is paid as an outpatient visit.