The US Congress has finally passed legislation to repeal a much-disliked formula used to pay physicians who care for patients covered by Medicare—an action that ended a long-time tradition of approving additional funds for the Medicare program (the so-called doc fix) before a decrease in physician payment kicked in. The House had passed the bill on March 26, 2015, before recessing for 2 weeks, but the Senate didn’t act until late in the evening on April 14, 2015, hours before a 21% cut in Medicare fees was scheduled to begin.
Both houses of Congress passed the bill with overwhelming support (392 to 37 in the House, 92 to 8 in the Senate), reflecting the immense desire of both houses to have the issue off the table. The decisive passage also probably reflected the fact that Congress decided to ignore the bill’s lack of full funding. Failure of a similar bill to pass last year was attributed to disagreement about how to fund its provisions.
How Did We Get Here?
The adoption of the resource-based relative value scale in late 1989 based physician fees under Medicare on a calculated value designed to reflect physicians’ work effort, their practice expenses, and the cost of malpractice liability insurance rather than relying on historically based charges. Because of concerns that the continued use of this method might result in inappropriate increases in the number of services provided to Medicare beneficiaries, Congress created an overall preset spending target, initially based on a “volume performance standard” that determined each year as part of the budgetary process. This formula was replaced in 1997 by the sustainable growth rate (SGR), which ties the growth in physician payments to the rate of growth in the economy.
For the first few years after the SGR was initiated, when most health care facilities and home health agencies faced payment reductions from the 1997 legislation, the rapidly growing economy meant that physician fees under the SGR increased substantially as well. This abruptly changed when the economy slowed down a few years later; by 2003, physicians experienced a 4.8% reduction in fees. But all 17 subsequent scheduled reductions were mitigated by Congress, sometimes only days before they were to be implemented.
What’s in the Doc Fix?
The new law eliminates the SGR and specifies increases of 0.5% for the next 4 years while Medicare physician payments transition to an incentive-based system based on value and accountability. Starting in 2019, there is no longer a guaranteed increase of 0.5%; beginning on January 1, 2019, physician payment for services offered to Medicare beneficiaries will be based on the Merit-Based Incentive Payment System (MIPS). Physicians who score well on various metrics will be rewarded with higher pay rates and those who score poorly will face penalties. Participants in alternative delivery systems such as accountable care organizations that assume financial risk in providing value-based services will receive 5% bonuses between 2019 and 2025. Physicians who are in patient-centered medical homes that have demonstrated positive quality and financial outcomes will also receive bonuses.
Three existing quality-incentive programs are consolidated under MIPS: the Physician Quality Reporting System (PQRS), the Meaningful Use program for electronic health records, and the Value-Based Payment Modifier, which was scheduled to begin adjusting payment based on quality and efficiency for larger physician groups in 2015.
The bill also extends funding for the Children’s Health Insurance Program and provides $7.2 billion to community health centers over the next 2 years, postpones for 1 year Affordable Care Act-related reductions in payments to hospitals that treat large numbers of low-income patients, and generates $34 billion in revenue by increasing Part B premiums for higher-income seniors. It also includes a number of extenders—provisions that Congress has been renewing each year when it debated the SGR, including funding for therapy services and rural hospitals, a program that allows low-income individuals to keep Medicaid coverage as they earn more money as they transition into employment, and a program that helps low-income seniors pay their Medicare premiums.
What’s Not in the Bill?
The 2 areas of concern most often cited are the lack of specific metrics that will be used to determine the bonus payments and penalties that will start in 2019 and the fact that the legislation does not have full funding. It is not unusual that the specific metrics that would be used in determining bonus and penalty payments are not included directly in the legislation because that level of specificity is normally developed by the agency implementing the legislation. This would mean that the Centers for Medicare & Medicaid Services, the agency responsible for paying physicians under Medicare, will be required to write regulations defining the precise metrics that will be used.
And therein lies the rub: the question is whether there is or will be adequate information available that can approximately define quality and efficiency in clinical outcomes, whether it will be done in a way that does not place unreasonable burdens on practicing clinicians, and whether the appropriate groups will be convened to determine the relevant metrics. There are also concerns, as health economist Paul B. Ginsburg, PhD, pointed out in a JAMA Forum earlier this month, about the challenges Medicare generally faces in payment reform and the effects that missteps might have for meaningful change.
The lack of full funding raised much of the concern voiced by some conservatives and “deficit hawks” before the bill’s passage. The Congressional Budget Office has estimated the cost of the bill at $214 billion over the next decade. Approximately $70 billion of that would be paid for by reducing certain scheduled reimbursements and by increasing revenues from higher-income seniors, but remaining $141 billion will be added to the deficit.
Although Washington and the physician community were expressing euphoria over the end of the SGR, these unresolved issues are concerning. But moving away from a billing system that reimburses for microunits of service and that indiscriminately increases or decreases unit reimbursement across all physicians irrespective of their own behavior is worth some downside risk.
Physician groups and others are rightly raising concerns about the process that will be used to determine which alternative delivery systems warrant bonus payments, as well as the metrics that will determine bonuses and penalties for those remaining in a fee-for-service payment system. What is useful to remember is that the payment under the SGR and until MIPS debuts in 2019 implicitly assumes that there are no variations in quality, efficiency, or value in the clinical care provided by physicians—or at least none worth paying for. These assumptions are surely wrong.
About the author: Gail Wilensky, PhD, is an economist and Senior Fellow at Project HOPE, an international health foundation. She directed the Medicare and Medicaid programs, served as a senior adviser on health and welfare issues to President George H. W. Bush, and was the first chair of the Medicare Payment Advisory Commission. She is an elected member of the Institute of Medicine.
About The JAMA Forum: JAMA has assembled a team of leading scholars, including health economists, health policy experts, and legal scholars, to provide expert commentary and insight into news that involves the intersection of health policy and politics, economics, and the law. Each JAMA Forum entry expresses the opinions of the author but does not necessarily reflect the views or opinions of JAMA, the editorial staff, or the American Medical Association. More information is available here and here.