The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.
In the midst of partisan rancor and Campaign 2016 positioning ‘strategy’, a moment of bipartisanship broke out last week in the U.S. House of Representatives: the House passed HR 1470 by a vote of 392-37 providing a permanent end to the Sustainable Growth Rate (SGR) formula used to set Medicare payments to physicians since 1998. The Senate is likely to approve the House version when it returns from its two week recess, and the President has indicated he will sign it into law. 1
Permanently replacing the SGR has been a priority for the American Medical Association for years. 2 Since 2003, it has been set aside by Congress 17 times in favor of temporary patches that paid physicians more than what they’d get under the formula. There are two arguments for its replacement. (1) Accuracy: The SGR formula inaccurately calculates the costs associated with delivering services to seniors, and; (2) Access: Cuts to physician pay per the SGR formula prompt physicians to restrict or eliminate access to seniors seeking visits and treatments.
So is HR 1470 the solution? On face value, physicians will see positives…
- It replaces the SGR permanently.
- It provides certainty to physicians about how they’ll be paid by Medicare going forward.
- It streamlines requirements for a variety of quality reporting programs.
But on closer inspection, physicians and their business partners should also see the underlying reality of the proposed permanent fix:
- The SGR fix (HR 1470) accelerates the replacement of Medicare’s fee for service payments to physicians with risk-based alternatives. It does so in two ways: it awards bonuses to physicians whose practice revenue is at least 25% tied to participation in accountable care organizations, bundled payments or alternative payment programs, and it restricts MediGap coverage for some seniors in Medicare’s fee-for-service program which is likely to push many into private health insurer-sponsored Medicare Advantage plans. HR1470 doubles down on Medicare’s recently announced plan to link physician payments to expansion of alternative payment programs. 3 If private insurers and large employers join this effort as requested in last week’s Health Care Payment and Learning Network meeting, physicians can expect fee for service to be a vestige of the past.4
- The SGR fix increases Medicare payments to physicians by .5%/year thru 2019—hardly enough to offset medical inflation, regulatory compliance requirements in the ACA and IT costs for meaningful use and ICD-10 implementation. Operating a medical practice is complicated and costly. It’s a service industry where customer expectations matter, and pricing hasn’t until consumers, plans and employers started pushing for transparency. It’s complicated: clinical documentation is table stakes for getting paid and avoiding penalties, and the new ICD-10 coding requirement is not likely to be delayed much to physician chagrin. Contracting with payers is ongoing, and their terms and condition change constantly. And the fuss over alternative payments a la accountable care and bundled payments linked to better care coordination is a sea change most embrace with healthy skepticism. 5 The complexity of running a medical practice in tandem with the acceleration of alternative payment programs means higher operating costs for practitioners: for most physicians, an annual bump of .5% will not cover them. 6
So, if the Senate passes HR1470 and the President signs it into law next month as most expect, the economic reality for physicians and their business partners will be clearer but the challenges in operating no less daunting. Medicare is rallying support to accelerate the transition from fee for service to alternative payments and not backing down on deadlines for ICD-10 and meaningful use. In this context, managing physician services efficiently and appropriately will be the critical factor in an organization’s success—whether an independent practice, a hospital owned or affiliated professional services group, a network closely aligned to a health plan, or an employer with whom an exclusive relationship is structured.
That’s the reality of the SGR fix.
1 Siobhan Hughes, “Senate to Take Up Medicare ‘Doc Fix’ Bill After Recess,” Wall Street Journal, March 27, 2015
2 Gus Iversen, “Senate adjourns with fate of SGR repeal uncertain, AMA voices displeasure,” DOTmed daily news, March 27, 2015
3 US Department of Health and Human Services, Centers for Medicare & Medicaid Services, “Fact sheets: Better Care. Smarter Spending. Healthier People: Paying Providers for Value, Not Volume,” January 26, 2015
4 US Department of Health and Human Services, Centers for Medicare & Medicaid Services “Fact Sheet: Health Care Payment Learning and Action Network,” March 25, 2015
5 Mark W. Friedberg, Peggy G. Chin, Chapin White, Olivia Jung, Laura Raaen, Samuel Hirshman, Emily Hoch, Clare Stevens, Paul B. Ginsburg, Lawrence P. Casalino, Michael Tutty, Carol Vargo, Lisa Lipinski, “Effects of Health Care Payment Models on Physician Practice in the United States,” RAND Corporation, 2015
6 “Updated Budget Projections: 2015 to 2025,” Congressional Budget Office, March 2015; PricewaterhouseCoopers LLP, “Behind the Numbers,” 2015
The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.
©2015 Navigant Consulting, Inc.