2015 Sustainable Growth Rate Repeal: The Future is Here

My Folder

On April 14, 2015, almost 20 years of Medicare reimbursement uncertainty came to an end with the repeal of the Medicare Sustainable Growth Rate (SGR) formula. Everyone rejoiced.

I don’t want to spend much time rehashing history. Suffice it to say that the SGR originally came about in the Balanced Budget Act of 1997 as a refinement to physician payment rates. The SGR formula specified each year how CMS would calculate the Medicare payment rate. Although Congress designed the provision to regulate spending on Medicare physician services, it soon became clear that the formula mandated drastic payment cuts that would force some physicians to leave the Medicare system altogether. Instead of changing the law to avert these disastrous cuts, Congress simply blocked them with annual legislation. A long succession of short-term fixes left physicians wondering up to the last minute each year whether their Medicare reimbursement rate would be slashed.

The bill repealing SGR replaces uncertainty with a fairly reliable payment schedule and, unsurprisingly, pushes providers to adopt value-based reimbursement (VBR). In this commentary, I’ll discuss what providers can expect now that SGR is gone and how they can prepare successfully for the new bill’s VBR provisions.

Expect More—But Not Complete—Reimbursement Certainty

Although it isn’t perfect, I like the overall design of the new payment program. It delivers a plan with defined timelines and stability in the rate increase. This is what physicians can expect from the new bill:

  • During the next few years (2015 to 2019), Medicare reimbursement will increase by .5 percent annually.
  • In 2019, VBR will enter the picture. According to the advanced alternative payment model, providers will be able to earn a 5 percent bonus for participation in innovative care-delivery models like patient-centered medical homes (PCMHs) and accountable care organizations (ACOs). To earn the bonus, providers must have at least 25 percent of their Medicare revenue in an alternative payment model. That threshold increases over time: In 2021-22, it increases to 50 percent and then to 75 percent in 2023 for all payers. During the time period 2020 to 2025 there will be no increases to payments if providers do not elect to participate in the new payment model.
  • Beginning in 2018, providers will only need to attest one time for all of the various CMS quality reporting initiatives (like meaningful use and PQRS). This streamlined reporting system will save providers the hassle of submitting the same measures multiple times.

HR Bill 02 TimelineThe reimbursement timeline set forth in the bill goes to 2026 and beyond. However, healthcare is changing so rapidly that I believe that 2026 is too far ahead to plan. I have no doubt that the specific fixes and timelines will change many times before then. Yet the fact remains that physicians can count on some stability. The path forward is clear: For the next four years, they’ll get a .5 percent increase, and then they’ll have to move to VBR.

A Quick Caveat

I would recommend that providers pay close attention to any claims they submitted to CMS between April 1 and 15 of this year. Here’s why. The House of Representatives passed the new legislation by the April 1 deadline. The Senate, however, didn’t actually pass the bill until two weeks later, April 14. This delay introduced the possibility for error in the claims system. Technically, CMS held onto those claims during that two-week period to see whether the reimbursement should reflect a 21 percent cut (the old SGR rate) or a .5 percent increase (the rate according to the new legislation). CMS should have paid those claims at the increased rate, but providers would be wise to verify.

The Future Is Here

In the wake of the SGR repeal, providers need is to begin the transformation from a volume-based to a value-based reimbursement system now. For those who have resisted healthcare reform, this new legislation is the writing on the wall that the transformation isn’t on the horizon-it’s here.

This transformation will take time. To be successful, we need education and partnership.

Here are some specific suggestions of what providers can do to make the transition easier:

Get Educated And Involved

Opportunities for education abound. One educational forum I recommend is the Health Care Payment Learning and Action Network founded by CMS. Participants in this network range from health system leaders to consumers, physicians, and government officials. The group generates ideas about how to better coordinate care, use healthcare technology, implement preventive care measures, and much more. It offers a robust forum for learning and discussion.

Understand The New Law

I recommend learning the implications of the SGR repeal. Remember that regulations stemming from the bill have yet to be released. Specific regulations will come from CMS in the near future.

Most Importantly, Consider Ways To Take Advantage Of The Upcoming 5 Percent Bonus

Providers that are already participating in VBR arrangements should consider how to increase the volume of their VBR business to meet the 25 percent, 50 percent, and 75 percent thresholds outlined in the bill. Providers that have not yet embraced VBR practices need to start immediately. Wherever providers stand on the VBR adoption spectrum, I highly recommend having a plan in place by the end of 2015. Devoting even an hour a week to planning can produce a solid roadmap for a successful transition to a value-based system.

Here are some additional recommendations aimed principally at smaller provider groups that are less likely to have joined an ACO or formed a Patient Centered Medical Home (PCMH):

  • Explore the requirements for qualifying as a patient-centered medical home. Do you have the staff and other resources to support the PCMH http://www.pcmh.ahrq.gov model?
  • Look at partnerships, especially those that enable participation in an ACO. Joining an existing ACO is a more realistic option for most providers, although some groups might want to form an ACO themselves. The key is to market your services to potential partners—and the best way to market yourself is delivering high-quality care at low cost.
  • Work to ensure that incentives align with quality rather than quantity. Success in a PCMH, ACO, or any other kind of value-based initiative requires appropriately aligned incentives. Every practitioner in the group must understand what is required and be committed to the VBR plan.

The most important thing is to start today. Providers need to set milestones. 2019 is not that far away. One thing is certain: It may have taken 17 years to repeal SGR, but there won’t be that much time to prepare for transition to value-based initiatives.

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