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SGR reform: Two recent proposals

Hanging above physicians like the mythical sword of Damocles, the sustainable growth rate (SGR) provision, a formulaic approach to restrain the growth of Medicare spending on physician services, threatens to impose a 24.4 percent decrease to the Medicare Physician Fee Schedule on Jan. 1, 2014.

The two most recent proposals for a permanent SGR repeal or “doc fix”—H.R. 2810, the Medicare Patient Access and Quality Improvement Act of 2013, introduced in the House in July, and a draft proposal from the chairs of the Senate Finance and House Ways and Means committees introduced at the end of October—have much in common as well as some differences.

H.R. 2810 would raise Medicare payment rates for physician services by 0.5 percent per year for 2014-2018. Starting in 2019, the bill would set payment rates either based on a physician’s performance in the Quality Update Incentive Program (QUIP) or physicians could be paid for some or all of their Medicare services under an Alternative Payment Model (APM), such as accountable care organizations (ACOs).

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In September, the Congressional Budget Office (CBO) estimated that the cost of H.R. 2810 would be $175.5 billion over 2014-2023, up from the CBO’s estimates of $139.1 billion in May and $138 billion in February for freezing (i.e., holding flat) all Medicare physician rates for 10 years.

The October draft proposal would freeze current Medicare payment rates for 2014-2023. Starting in 2017, it would impose a mandatory, budget-neutral Value-Based Performance (VBP) Payment Program, with payments based on a physician’s performance in a prior period. The VBP program would encompass physician performance with regard to quality, resource use, clinical practice improvement activities, and meaningful use of electronic health records (EHR MU), sunsetting the Physician Quality Reporting System, the Value-Based Modifier, and the penalty for failing to demonstrate EHR MU (a three percent penalty that can increase up to five percent starting in 2019).

Per the October draft proposal, physicians who receive a significant portion of their revenue from an APM—e.g., ACOs and patient-centered medical homes (PCMHs)—would be exempted from the VBP program and receive a five percent bonus each year from 2016-2021. For 2016-2017, the APM revenue threshold would be 25 percent of a physician’s Medicare revenue. For 2018-2021, physicians could choose between two threshold approaches.

The first approach would be on the basis of Medicare revenue only, with a 50 percent threshold for 2018-2019 and a 75 percent threshold for 2020-2021. The second approach would be on the basis of Medicare and non-Medicare revenue, with a 50 percent threshold of total, all-payer revenue through an APM, including at least 25 percent of their Medicare revenue for 2018-2019, and for 2020-2021, a 75 percent threshold of total, all-payer revenue through an APM, including at least 25 percent of their Medicare revenue.

The CBO has not estimated the cost of the October draft proposal, though one could surmise that the price tag would be the sum of the CBO’s latest estimate for freezing Medicare physician rates for 10 years ($139.1 billion, released in May) and the net effect of payments to physicians who meet the APM revenue thresholds—i.e., whether the savings to Medicare from the APMs are more or less than the five percent annual bonus payments from Medicare to APM-qualified physicians for 2016-2021—relative to what would have been paid under frozen rates.

The two SGR reform proposals are directionally consistent and have much in common. They both have bipartisan support, with the October draft proposal benefiting from bicameral sponsorship. They both constitute permanent doc fixes, with either freezes or minimal annual increases during the first three or five years before implementing value-based payment models. Both proposals allow for APMs as alternatives to quality incentive programs, though H.R. 2810 does not describe a specific payment model nor does it identify APM revenue-share threshold requirements, while the October draft proposal spells out the bonus percentage for 2016-2021 as well as detailed APM revenue-share threshold minimums.

It is clear from both proposals that physician participation in APMs such as ACOs and PCMHs would be encouraged by Medicare in the long run.

Unfortunately, the two SGR reform proposals have one other thing in common: They both lack a source of funding—a so-called “pay-for”—to cover the increased government spending that would result, but some people continue to hope that SGR reform could be included as part of a more comprehensive deficit-reduction piece of legislation.

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