Why It’s Still A Problem, And What To Do Now

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When the Medicare Access and CHIP Reauthorization Act (MACRA) passed Congress in 2015, most people felt it was better than the old “Sustainable Growth Rate” (SGR) approach to setting physician Medicare fees that had been in place for more than a decade. After all, MACRA avoided what was to be a double digit reduction in Medicare physician payment rates in 2015. Instead, the new legislation provides five years of a 0.5 percent payment rate update, followed by five years of no increase (but also no decrease) in the payment rate. In addition, beginning in 2019, physicians will be able to pick from two novel payment approaches meant to reward providers delivering high-value care.

MACRA is indeed better than what came before, but it still leaves in place perverse incentives that threaten to undermine quality and access for Medicare beneficiaries. Below we describe what we have accomplished regarding Medicare physician payment and what still needs to be done under the new administration and Congress.

The Unhappy Pre-MACRA Trends

While there are many articles commenting on MACRA’s pros and cons, there is little mention of the impact of past Medicare payment policy on physicians. Exhibit 1 begins in 2001 (the year before the SGR formulas led to a 5.4 percent reduction in the Medicare physician payment rate) and shows, for the years 2001 – 2014, the annual cumulative percent change in:

  1. The Medicare Conversion Factor (i.e., change in the payment rate);
  2. The Consumer Price Index, as a measure of general inflation with which physicians must deal; and,
  3. Actual physician primary care group practice cost per physician.

Here is the key point from Chart 1: Cumulatively from 2001 – 2014, while general inflation increased 33.4 percent and physician practice expense increased 60.6 percent, Medicare payment rates only went up 2.9 percent!

Is it any surprise then, that patients are no longer getting much time with a physician? When a personal service payment rate basically stays flat over more than a decade, while general inflation and overall expenses are increasing, how does the personal service provider react to remain in business? By “increasing productivity,” which in the case of the physician means to see more patients per day. This, in turn, leads to less time per patient and it has also led to physicians increasing the number of ancillary tests/images to be sure they have not missed something during the shorter time with the patient. The US health care system has responded to Medicare’s price controlled payment system roll out exactly as one would expect.

Why MACRA Is Not Enough

So what will happen under MACRA? Unfortunately, it doesn’t get much better, and will likely get worse over the long term. The legislation provides five years of small annual increases in payment rates followed by no change for five years. While it is true that beginning in 2019 physicians will be able to choose new payment approaches from Medicare, there is an underlying maximum increase in the regular Medicare payment rate that sets limits on the possible gains for the high-value providers. In addition, the new payment approaches will be tied to an even higher level of complexity in trying to comply with the new Medicare regulations. This is likely to further facilitate the consolidation of physicians into larger practices, as small groups and solo practitioners “often lack the infrastructure needed to collect, manage, and report data….”

But even these larger practices will be subject to the same pressures that stem from consistently below-cost Medicare reimbursement. Exhibit 2 takes the three data elements out to 2030. Note that even the high-value physician provider in that year would be receiving only 9.5 percent more than they did in 2001. Meanwhile, general inflation will likely have increased by about 79 percent.

We are not the only ones to take this pessimistic view of Medicare payment rates over the long term. The CMS Actuary report on this legislation says the following:

Both the lump sum and the performance bonuses would end in 2024…. Thereafter, all physicians are assumed to be APM’s (Alternative Payment Models), and therefore are updated at 0.75 percent per year… By 2048, Medicare prices under H.R. 2 would be less than under the present SGR system, and by 2087 they would be just one third of prices based on MEI (the index Medicare uses to estimate the cost to run a physician office).

See Exhibit 3, taken directly from the Actuary’s report.

Clearly, present Medicare policy will not allow Medicare payments to keep pace with either general inflation or the cost of running physician practices. This is not good news for physicians, and it is definitely bad news for Medicare beneficiaries. The CMS Actuary concluded: “If Medicare payments were to fall to a fraction of payments based on cost drivers, there would be reason to expect that access to physician services for Medicare beneficiaries would be severely compromised… Similarly, the quality of care provided to Medicare beneficiaries would likely not keep pace with care furnished to other types of patients.”

Medicare physician payments are being squeezed to the point where physicians will be forced to respond in ways that will reduce Medicare beneficiary access, negatively affect quality of care, and potentially impact health outcomes. The following are some of the tactics that physicians might consider absent new policy changes:

  1. Limit the number of Medicare beneficiaries that their practice can handle and still be financially viable. Many physicians already restrict the number of Medicare beneficiaries they see and have limitations on accepting new Medicare patients. This is more widely practiced than press coverage implies.
  2. Operate a concierge medical practice as part of the overall group practice, if the practice finds itself in a market with a significant population willing to pay out of pocket.
  3. Renegotiate higher payment rates from private payers—basically increase the cost shift that is already happening from low-paying Medicare to the private sector—if the practice has a strong reputation and finds itself in a market with many private payers.
  4. See even more patients per day than happens now.
  5. Notify CMS of the practice’s intention to opt out of the Medicare program, and stop seeing Medicare patients all together, if the practice is in a market characterized primarily by private payers or if it has an affluent patient base willing to pay the practice directly.
  6. Form their own Medicare Advantage Plan (MAP) or become an active partner in an existing MAP. The premium-based nature of these plans provides a potential revenue source while allowing the plan to keep any ‘savings’ generated from higher-value health care (better quality at lower total per patient cost over time). Examples of such partnership arrangements include professional service capitation, total cost-sharing arrangements, and utilization targets where the provider and the payer work together to define and implement the most effective payment scheme to deliver value to their patient population. Physicians might also choose to restrict Medicare patients seen by their practice to those enrolled in their designated MAP — a practice that is already in place in some physician groups.

If policymakers and regulators are serious about ensuring that Medicare beneficiaries have access to and receive high-value health care, Medicare payments must be linked to quality (outcomes, safety, service) and spending over time. Payments must be structured to both address patient needs and allow high-value care providers to stay in business. We have described the key features of such models previously, but here are the highlights:

  1. Focus on global-based payments (extended-DRGs, bundled payments, capitation models, etc.) wrapped around patients with specific high-cost medical conditions or procedures.
  2. Institute reality-based pricing targeted at the 80th percentile of the actual cost of health care delivery in organizations that get the best quality while using fewer than average resources (e.g., not pricing based on what Medicare currently pays each individual provider).
  3. Adjust prices for patient population risk and geographic variation in the cost of doing business.
  4. Withhold portions of payments contingent on achieving quality measures, to ensure that patients are not denied appropriate and necessary care.
  5. Include a 2-4 percent margin for high-value providers, because even nonprofits need financial reserves to account for plant, property and equipment replacement, personnel training, etc.

While MACRA was a step in the right direction and encourages positive practice changes and provider integration, policymakers have a long way to go in aligning payment models with high-value results. As shown above and predicted by the CMS Actuary report, MACRA can only be considered an interim fix; new legislation is needed to avoid the unintended consequences of current law. Inaction will negatively affect the entire Medicare Part B program with a corresponding impact on health care access and quality for America’s seniors.

This is not the time for Congress to rest on the belief that its work is done, but to act now to stabilize the long-term viability of the Medicare Program.

Exhibit 1

Exhibit 2

Exhibit 3


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