Sustainable Growth Rate Reform: An Indication of the Broad Strategic Intent of CMS

Ken Perez
Ken Perez

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

Years ago, I worked in a business unit of a large technology company that was involved in mergers, acquisitions and partnerships. In the course of our work, even when some proposed deals would fall through and some partnerships would not come together, the strategic intent of the company remained clear to us. It was like a beacon that we kept pursuing no matter what.

With healthcare-related legislation, all too often we can lose sight of the strategic intent of CMS. We immerse ourselves in the debate over details, but often fail to step back and reflect on the “end game” that one can hang their hat on. What is CMS signaling to healthcare providers?

Currently, there is bipartisan and bicameral support for permanent repeal of the unpopular, annually overridden sustainable growth rate (SGR) provision, a formulaic approach intended to restrain the growth of Medicare spending on physician services. The SGR threatens to impose a 24.4 percent reduction to the Medicare physician fee schedule (PFS) effective April 1, 2014.

Lawmakers from the House Ways and Means, House Energy and Commerce, and Senate Finance committees have worked together to consolidate separate bills that their respective committees passed toward the end of 2013. The result is H.R. 4015, the SGR Repeal and Medicare Provider Payment Modernization Act of 2014, which was introduced by Rep. Michael C. Burgess, a Texas Republican and physician on Jan. 6, 2014.

The 195-page bill repeals the SGR and specifies annual updates to the PFS of 0.5 percent for 2014-2018, zero percent for 2019-2023, and for 2024 and beyond, 0.5 percent for physicians not in APMs [Alternative Payment Models, e.g., accountable care organizations (ACOs) and patient-centered medical homes] and 1.0 percent for physicians in APMs.

In addition, H.R. 4015 grants physicians in APMs annual 5.0 percent bonuses (based on their prior year’s payments) for 2018-2023, if at least 25 percent of the practice’s Medicare revenue comes from APMs in 2018-2019, at least 50 percent in 2020-2021, and at least 75 percent in 2022 and beyond.

The bill also proposes a Merit-based Incentive Program (MIPS) that replaces and consolidates three Medicare quality payment programs: the EHR Meaningful Use Incentive Program, the Physician Quality Reporting System, and the Physician Feedback/Value-Based Modifier Program.

Unfortunately, H.R. 4015 does not identify any specific sources of funding—so-called “pay-fors” that would offset the legislation’s estimated $120-150 billion in increased government spending over the next 10 years and allow it to be deficit-neutral.

Realistically, Congress will either figure out a way to fund the permanent SGR repeal or it will opt for a short-term, nine-month “patch” that would override the SGR and freeze or very lightly increase PFS rates for the remainder of 2014. The latter would amount to yet another kicking of the can down the road, which would necessitate reconsideration of the SGR reform issue toward the end of this year.

Regardless of what transpires in the next few weeks, it is clear—based on H.R. 4015 and the House and Senate bills that formed the basis of the consolidated bill—that CMS’s long-term strategic intent includes continued emphasis on quality measurement and reporting, promotion of Alternative Payment Models such as ACOs, and overall, a shift from the current fee-for-service system that rewards volume to a fee-for-value approach that rewards improved quality and reduced cost.

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