Are They Finally Fixing Medicare Reimbursement?

Even with federal sequestration cuts taking effect in March, including a 2 percent reduction in Medicare reimbursement to health care providers, hope may be on the horizon in the form of a much-anticipated, perpetually suggested overhaul of Medicare's Sustainable Growth Rate formula, which serves as the basis for determining physician reimbursement. The House Ways & Means and Energy & Commerce Committees, in a detailed overview prepared by majority staff, has called for "fiscally responsible fundamental reform of the Medicare fee-for-service (FFS) payment system" and says they are "committed to developing such a reform proposal." According to the committees, this involves, among other reforms, completely repealing the SGR formula. If reforms are not instituted by the end of this year, health care providers who bill Medicare will incur a 24.4 percent fee cut, among the largest such cuts ever faced under the current reimbursement system.

Major Elements of the Proposal: Three-Phase Reform

In addition to repealing the SGR and eliminating the 2014 reduction in reimbursement, the proposed reform plan would improve Medicare's "outdated system" by:

• "Establishing a period of predictable, statutorily-defined payment rates, enabling physicians to prepare for and participate in payment reform;
• Empowering physicians to determine the quality and efficiency measures that are clinically meaningful for Medicare beneficiaries;
• Rewarding physicians who deliver high-quality and efficient care, rather than continuing the current system that encourages volume and unnecessary spending;
• Requiring the Centers for Medicare & Medicaid Services (CMS) to provide timely feedback and data to physicians, enabling physicians to make adjustments to improve patient care and their assessed performance;
• Providing reimbursement options – instead of the current one-size fits all approach – that enable physicians to select the Medicare payment system that best fits their practice; and
• Engaging the physician community in efforts to improve, reform, and update Medicare's outdated physician reimbursement system."

According to the proposal, reform would occur in three distinct phases: Phase 1: Repeal the SGR and provide a period of predictable, statutorily-defined payment rates (10-year freeze). Phase 2: Reform the FFS payment system to better reflect the quality of care provided. Phase 3: Reform the payment system to account for efficiency of care provided. In an April 4, 2013 release, the American Chiropractic Association summarized the plan phases as follows:

"The framework would set up a three-phase, multiyear system for physician reimbursements. Providers would be allowed to remain in the current fee-for-service (FFS) system or switch to an alternate payment model at any time. The framework also calls for the SGR to be repealed during the first multiyear phase and physicians would get a series of stable payment updates.

"In the second phase, payment levels would come from a base rate, plus a variable rate tied to the physicians' performance on several quality measures relative to their peers, improvement over last year's quality score and doing clinical improvement activities [such as reporting clinical data to a registry or employing shared-decision-making tools]. In the third phase, payment rates would be based in part on quality measures, adjusted for the risk and severity of illness treated.

"In addition, providers who meet a minimum quality score would be able to earn additional incentive payments based on their efficient use of resources."

The ACA noted that legislators appear to be eager to pursue adoption of the proposal, in part due to the fact that a recent Congressional Budget Office report estimates that SGR reform of this nature (repealing the SGR and freezing payment rates for 10 years) would cost approximately $138 billion, a much lower estimate than last year, when spending estimates placed the anticipated cost of reform at $245 billion.

Why Reform Is So Desperately Needed: Background Drama

If you're wondering why the sustainable growth rate formula has been described as "flawed" for more than a decade, and thus why repealing the SGR would be an important step in reforming the system, consider that the SGR is based on the Gross Domestic Product, not actual health care practice costs. It is merely a target for physician service expenditures, meaning that if actual costs exceed the SGR, physician payments are cut.

That explains, at least in part, why health care providers participating in Medicare have faced reimbursement reductions for more than a decade and required congressional action – often at the 11th hour or later – to stave off cuts. The problem is that with each passing year, providers face increasingly larger cuts for the services they provide Medicare patients. Perhaps 2013 will be the year Congress enacts a permanent fix and puts an end to the annual "Will our payments be cut this time?" conversations in practices across the country.