Medicare Access and CHIP Reauthorization Act: Repeal of Sustainable Growth Rate

On April 16, 2015, President Obama signed into law H.R. 2, the “Medicare Access and CHIP Reauthorization Act of 2015” (the “Act”), which, among other things, permanently repealed the sustainable growth rate (SGR) formula for physician reimbursement under Medicare. The full-text of the Act is available here.

Title I of the Act, SGR Repeal and Medicare Provider Payment Modernization, replaces the SGR with a two-tier system that incentivizes physicians to develop cost-effective models focused on quality of care, rather than on quantity of services. The Act also creates a new program called the Merit-Based Incentive Payment System that consolidates the various physician reporting programs and encourages physicians to develop the framework required for participation in the Act’s higher reimbursement alternative payment model tier. Given the Act’s significant changes to physician Medicare reimbursement rates, the law will likely have a significant impact on physician, hospital and health system strategy with respect to developing and enhancing alternative payment models.

Overview of Title I of the Act

As with other recent health care legislation that has encouraged institutional providers to deliver value-based care, Title I of the Act incentivizes physicians to provide a higher quality of care instead of a greater quantity of procedures and services. Section 101 of the Act accomplishes this by instituting a two-tier payment model. One of these tiers provides higher annual Medicare reimbursement rate increases to those physicians who institute alternative payment models and offer high quality, cost-effective, value-based care. The other tier under the new model is the traditional fee-for-service payment model, which will provide lower annual reimbursement rate increases than the alternative payment model tier. A bulleted timeline of the Act’s changes to physician Medicare reimbursement is as follows:

  • Beginning July 1, 2015 and continuing through December 31, 2019, all physicians will receive a 0.5% annual Medicare reimbursement rate increase.
  • From January 1, 2020 through December 31, 2025, all physicians will receive a 0% annual Medicare reimbursement rate increase.
  • From January 1, 2019 through December 31, 2024, physicians who either participate in the alternative payment method tier or who provide services through a patient-centered medical home, and who satisfy certain benchmarks pertaining to the amount of Medicare payments and other payments derived from alternative payment models, will receive an annual bonus of 5% of the estimated Medicare payments such physicians received during the preceding year.
  • Beginning January 1, 2026, physicians who choose to continue with the traditional fee-for-service payment model or who do not meet the alternative payment model requirements will receive a 0.25% annual Medicare reimbursement rate increase; physicians who satisfy the alternative payment model requirements will receive a 0.75% annual reimbursement rate increase.

The Merit-Based Incentive Payment System

To incentivize physicians to participate in the alternative payment model tier discussed above, Section 101(c) of the Act creates a new program called the Merit-Based Incentive Payment System (MIPS). MIPS will consolidate the Physician Quality Reporting System, the Value-Based Modifier, the Resource Use, and the Meaningful Use incentive programs (the “Reporting Programs”) to encourage physicians to participate in alternative payment models. Under MIPS, physicians may be penalized or rewarded for failing to follow the Reporting Programs’ requirements. Penalties and incentives under MIPS range from -4% to 4% of Medicare payments for 2019 and gradually increase to a maximum of -9% to 9% of Medicare payments for 2022 and subsequent years. MIPS will apply to physicians, physician assistants, nurse practitioners, clinical nurse specialists and certified registered nurse anesthetists.

Strategic Impact of the Reimbursement Changes of the Act

With the repeal of the SGR and adoption of new payment models under Title 101 of the Act, physicians seeking to receive maximum Medicare reimbursement rate increases and avoid MIPS penalties must shift from traditional fee-for-service payment models to alternative payment models. In doing so, physicians must redefine and realign their business models and the manner in which they provide care. Possible alternative care delivery models for physicians include:

  • Forming an accountable care organization with other physicians;
  • Joining a hospital-run accountable care organization;
  • Participating in an advanced primary care medical home model;
  • Developing models of bundling payments for episodes of care; and/or
  • Enhancing care integration.

Given the strategic shifts physicians must make to maximize Medicare payments and remain competitive, the Act creates unique opportunities for hospitals planning to incorporate additional physicians into their new or existing alternative payment models, and for physicians to innovate to maximize reimbursement while improving quality of care.

For More Information

Please contact Charles M. Honart at 610.205.6017 or Harriet Franklin at 610.205.6014 if you have any questions about the Act and its effects on alternative payment models for physician services.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.

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