The sustainable growth rate (SGR) formula was enacted into law in 1997 to tie Medicare payment for services to physicians to the overall status of the economy. Basically, if the U.S. gross domestic product (GDP) does well, doctors get more money, and if it does poorly, doctors get less money for the same service. A decade of tinkering with legislation for circumventing the application of the SGR formula, preferably a few days before or after it was due to take effect, resulted in failure to save $150 billion dollars over the last decade. For the next decades, the Congressional Budget Office estimates that avoidance of the SGR formula will fail to save us a mere $139 billion, so this should be a perfect time to let bygones be bygones and come up with a more gentle strategy to cut physicians’ Medicare reimbursement. More gentle, because if we do decide to cash in on our SGR savings on January 1st, doctors are looking at an approximately 24.4% cut in the Medicare fee schedule for 2014.

Building on H.R. 2810, the “Medicare Patient Access and Quality Improvement Act of 2013” approved by the House Committee on Energy and Commerce, the new proposal to fix the SGR comes from the House Ways & Means and Senate Finance Committees with support from both Democrat and Republican members, hence the bipartisan and bicameral labels. It is currently in draft form and it is open for public comment until November 12, 2013. This is a short document, and you should read it before it’s transformed into a 1000 page cleverly titled Act. The idea behind the proposal is very simple, and it is widely used in other service industries, where patrons pay a base price for the service, and discretionary bonuses, gratuity, or tips, are available to service providers based on quality of service. There is a small difference though, since the proposal is supposed to be budget neutral (i.e. a zero sum game). Thus, a sufficient number of physicians will need to be penalized to balance the bonuses awarded to better performers.

Below is a simplified summary of the eight point proposal to repeal the SGR, and replace the straight fee for service payment system with quality adjusted risk-based contracting:

• The Medicare physician fee schedule will be (sort of) frozen for the next 10 years. After 2023, the fee schedule will be adjusted upwards by 2% annually if you take risk for your patients through an advanced alternative payment model (APM), or just 1% annually if you don’t.
• The heart of the proposal consists of bundling the multitude of incentives and penalties currently enacted by CMS, into one Value-Based Performance (VBP) Payment Program, beginning in 2017. It’s not that you won’t have to report quality measures or be a meaningful user, you will have to do those things and more, but there will be a single aggregate score to trigger incentives/penalties, calculated as follows:
  • quality measures reporting — exactly what you think this is — weight 30%
  • resource use — similar to the CMS Value Based Modifier initiative, with an added requirement for claims self-reporting (subject to payment reduction) — weight 30%
  • clinical practice improvement activities — basically patient centered medical home (PCMH) or patient centered specialty practice (PCSP) certification — weight 15%
  • EHR meaningful use — it seems that all that is needed here is the use of a certified EHR — weight 25%
• Practices that have very few Medicare patients are exempt and practices that have significant revenues in at-risk contracts (see below) are excluded from the VBP program. This is a budget-neutral item, meaning that high performer bonuses are directly proportional to the number of penalized poor performers. The pool available for bonuses starts at 8% of the total physician payments in 2017 and increases in subsequent years.
• Since the stated goal of this permanent SGR fix is to eliminate fee for service, an additional 5% bonus will be made available to those who have significant revenues tied to at-risk contracts. The thresholds begin at 50% and go up to 75% revenue. Both Medicare and commercial payer revenues can be counted for this purpose. It is interesting that the thresholds are for revenue, not patients, and it is also interesting that private payers can be counted, although it is not clear if the bonus is 5 percent of Medicare payments, or 5 percent of all payments. A seemingly simpler alternative to obtaining the 5% bonus is to have a “significant share” of revenue in a patient-centered medical home (PCMH) model that has been “certified as maintaining or improving quality without increasing costs.” This will require some explanation in the final bill because PCMH is usually not tied to revenue shares, and because I am not aware of anybody with the ability to certify that a certain PCMH model will increase quality, but not costs.
• For those practicing in a PCMH, or a comparable specialty model (e.g. PCSP), special care coordination codes will be created. The description here sounds very similar to the new Transitional Care Management CPT Codes following hospital discharge. Note that payment for these codes is also budget neutral within the physician fee schedule, so for each care coordination code paid out, someone or something else will be paid less.
• Along with ending fee for service, the proposal will also improve the fee for service schedule, by thoroughly evaluating and “identifying and revaluing misvalued services” to facilitate “smooth downward payment adjustments” The yearly downward target is 1% per year, and if not enough misvalued services are identified, the entire fee schedule will be revised downward by the missing amount. If more than 1% reduction is found, the funds will remain in the budget neutral pool to offset bonuses and other changes.
• The proposal will also ensure that physicians practice medicine correctly. Mechanisms will be put in place to make sure doctors consult appropriate clinical decision tools before ordering “advanced imaging and electrocardiogram services” (no idea why electrocardiogram of all things is specified here). The “tools” will report back to the Secretary of Health and Human Services that such consultation occurred prior to ordering. “Payment would not be made for the advanced imaging or electrocardiogram service if consultation with appropriate use criteria did not occur.” Physicians found to order too many of these services will be required to obtain prior authorization in the future. If things go well, other services will also become subject to appropriate use surveillance.
• To support all these activities, qualified entities that are receiving Medicare and Medicaid data for public reporting, will be authorized to sell analyses and reports to physicians, as well as commercial insurance companies and employers too.
• Transparency will be facilitated by publishing physician payment and various performance metrics measured through the program, so the public can search for physicians by name and get all the data they need to select providers.

Bottom line

Although right now this is just a proposal, it is very likely that sometime around January 15, 2014, this, or something very similar to it, will become the law of the land. For small independent private practice, the increase in bureaucratic burden will be significant and the reach of insurers into your everyday work will become palpable. Noncompliance with the new regulations means that your topline will remain flat for the next 10 years, minus any penalties, rejected claims and downward adjustments, which may or may not be significant depending on your specialty. Initially, this may only affect the Medicare portion of your practice, but it will not remain that way for long.

If you want to continue practicing medicine and remain independent, you have three basic choices:

1. Join a larger entity, such as an accountable care organization, and accept risk for most of your patients in a managed care environment.
2. Adapt to the new paradigm by getting yourself a certified EHR, obtaining PCMH recognition, and learning how to practice under increased supervision.
3. Stop accepting insurance and switch to a direct pay model.

Since the program is slated to begin in 2017, you have 3 years to make an informed decision.

Margalit Gur-Arie is founder, BizMed. She blogs at On Healthcare Technology.