A Successful Landing for Permanent SGR Reform

Ken Perez
Ken Perez

Guest post by Ken Perez, vice president of healthcare policy, Omnicell.

Bipartisanship is not dead in the United States, and that is good news for physicians as well as Medicare beneficiaries. Building on bipartisan and bicameral support of sustainable growth rate (SGR) reform proposals that emerged at the end of 2013 and again in 2014, on Mar. 26, 2015, the House of Representatives voted overwhelmingly—392-37, with support from 212 Republicans and 180 Democrats—to pass H.R. 2, The Medicare Access and CHIP Reauthorization Act of 2015, also known as “MACRA.” Then on April 14, two days after returning from its spring recess, the Senate passed the legislation in a similarly overwhelming manner, 92-8, and a couple of days later, President Barack Obama signed MACRA into law. Thus came to an end an unpopular legislative provision that had been worked around repeatedly since 2003.

For long-time SGR critics, the passage of MACRA elicited the same kind of feeling of relief one experiences at the end of a long plane flight, when the plane’s wheels finally touch down on the tarmac.

Enacted as part of the Balanced Budget Act of 1997, the SGR formula incorporated medical inflation, the projected growth of per capita gross domestic product, forecasted growth in the number of Medicare beneficiaries, and changes in law or regulation.

The SGR required Medicare each year to set a total budget for spending on physician services for the following year. It also sought to enforce long-term fiscal accountability. If actual spending was higher than the annual budget, the Medicare conversion factor that is applied to more than 7,400 covered physician and therapy services in subsequent years was to be reduced so that over time, cumulative actual spending would not exceed cumulative budgeted (targeted) spending, with Apr. 1, 1996, as the starting point for both.

Partially because of the effective lobbying efforts of physicians, Congress temporarily suspended application of the SGR by passing legislative overrides or “doc fixes” 17 times from 2003 to 2014. As a result, actual spending exceeded budget every year during those years. Because the annual fee update had to be adjusted not only for the prior year’s variance between budgeted and actual spending but also for the cumulative variance since 1996, the next proposed update, effective Apr. 1, 2015, (but in practical terms implemented in the latter half of the month), would have been a dramatic reduction in Medicare physician fees of 21.2 percent.

Like other pieces of health reform legislation, MACRA is complex and laden with many “extenders” (program extensions) and budgetary offsets. At its core, it replaced the SGR and avoided the 21.2 percent reduction to the Physician Fee Schedule, mandating five years of stable annual updates of 0.5 percent before a transition to a new payment approach that will help shift Medicare away from the current largely volume-based system to one that rewards value.

Under the new system, each year during 2019 to 2024 Medicare will provide physicians a 5 percent bonus on the preceding year’s Medicare payments if certain percentages of the physician’s revenues are in Medicare alternative payment models (e.g., accountable care organizations), and then later, if higher percentages of the physician’s revenues are in Medicare or commercial ACOs.

Thus, MACRA serves two purposes, replacing the much-maligned SGR while also providing concrete, sizable financial incentives for physicians to participate in ACOs, the most aggressive healthcare delivery reform of the Patient Protection and Affordable Care Act.

As with any product of legislative compromise, MACRA has its detractors, and neither political party got everything that it wanted in the law. However, there was enough common ground—forged over a two-year period—between Democrats and Republicans on Capitol Hill to get the legislation passed. As President Obama rightly commented, “It encourages us to continue to make the system better without denying service.” Thus, in spite of an often turbulent and lengthy flight, the plane of permanent SGR reform did make a successful landing, and Medicare will be better for it.

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