SGR replacement would drive quality-based pay


Providers often respond to pay cuts by raising rates for private insurers and increasing services.


Legislation to reform Medicare reimbursement to physicians gained strong bipartisan support in a key House committee in July, raising hopes for a permanent “fix” by year-end. Just before leaving Washington for the summer recess, the House Energy and Commerce Committee unanimously approved a bill to repeal the Sustainable Growth Rate (SGR) formula and replace it with alternative payment models.

If Congress fails to enact SGR reform this year, physicians will face a 25% cut in Medicare payments on Jan. 1, 2014. Deadlines have led to temporary patches in the past, but there is more consensus and determination this time to adopt permanent reform.

Medicare provider reimbursement is important to private plans and payers, as federal policies shape broader health system operations. Physicians usually respond to Medicare payment cuts by raising rates to private payers or doing more tests and procedures. Those strategies may not work this time, says Paul Keckley of Deloitte Health Solutions, because of more transparency around physician adherence to evidence-based practices.

The E&C bill (HR 2810), instead, encourages physicians to join accountable care organizations (ACOs) and medical homes and to adopt quality-based payment methods by requiring quality reporting, boosting reimbursement for care coordination and for treating complex chronic conditions.

The bill first offers physicians a five-year transition period to alternative payment options, with 0.5% annual payment updates. During this period, doctors could opt out of Medicare fee-for-service (FFS) by participating in alternative payment models, such as ACOs or patient-centered medical homes. Starting in 2019, physicians remaining in FFS would become part of a quality-incentive program offering bonuses for high-quality performance and penalties for poor ratings.

Some analysts fear these changes won’t do enough to reform Medicare FFS. Payers are hopeful that added payments for care coordination will support new models of care, and that greater access to Medicare claims data will facilitate quality improvement.

Covering costs

Despite progress, SGR reform is far from a done deal. The Senate Finance Committee is devising its own reform measure, and the E&C bill still requires an “offset” to cover its $140 billion cost over 10 years, which the House Ways & Means Committee plans to tackle this month.

Easier offsets include reducing fraud and abuse and doing more to cut hospital readmissions and adverse events. Some Democrats want to foot the cost by requiring pharmaceutical companies to pay rebates on drugs provided to Medicare dual eligibles.

SGR reform also can be covered, in part, by broader Medicare payment reforms, such as boosting beneficiary cost sharing and revising long-held methods for setting relative values for physician services. Creating bundled payments for post-acute care would mean changes in reimbursement for home health agencies and long-term care facilities.

Although physicians want to do away with SGR and annual threats of slashed rates, they object to some E&C bill provisions. A 0.5% payment increase is not enough, and some are leery of giving nurse practitioners and other professionals a larger role in care coordination. Discussion over how quality measures will be revised will be critical for all health system entities.

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