Insights

The Medicare "Doc Fix"

The "doc fix," as just passed by the House of Representatives, would fix the annual sustainable growth rate (SGR) calculation by eliminating it.  The SRG was enacted nearly 18 years ago as a way to tie physician compensation under Medicare to the growth in the national economy.  It has never worked well, and Congress has had to override it 17 times to prevent sizeable cuts to Medicare's physician payment rates.  The current SGR cut is about 21% and will take effect March 31 of this year.

The House bill eliminates the SGR.  The estimated 10-year cost of eliminating these cuts to physician fees is in the neighborhood of $175 billion.  After adding the cost of extending the Children's Health Insurance Program (CHIP) and funding for community health centers, the total price tag over 10 years is $210 billion.

The doc fix has no direct impact on payments to Medicare Advantage (MA) plans.  For many years, CMS would calculate the Medicare Fee-for-Service (FFS) per capita cost trends it used to set MA benchmarks by assuming that the SGR cuts would happen.  Year after year, the cuts were rescinded, requiring CMS to add a sizeable correction to the next year's trend to compensate.  But that was offset by the following year's SGR impact, leaving the trends chronically depressed.  CMS finally fixed this with the 2014 benchmarks, which were calculated using trends that assumed that Congress would again rescind the SGR cuts.  This policy was repeated in calculating the 2015 benchmarks.  For both years, CMS assumed a 0% trend for physician fees.

However, the "doc fix" may still have a small indirect impact on MA.  If the final bill looks like the House bill, physicians will receive 0.5% annual increases in fees through 2019.  This 0.5% trend will be incorporated into the trend used to set the benchmarks.  Since CMS has been using a 0% trend for physician fees, the doc fix will elevate the trends for 2016 and following years, at least through 2019.  The impact will probably be in the range of positive 0.2%, or 20 basis points, more or less.  The House's doc fix would also tie physician compensation to pay-for-performance scores after 2019.  We will need to wait and see whether CMS interprets this as generating an increase or decrease in physician fees when they calculate the 2020 benchmarks.

The House bill would also reduce the trend applied to payments to post-acute providers, relative to prior year trends, and make a small reduction in hospital payments relative to current law.  This may have a very small negative impact on the benchmark trend since it is based on projected trends in total FFS per capita costs.  But the overall impact for MA benchmarks will still be slightly positive because of the positive physician trend.

A greater impact in future years may be the impact on physician claims payment.  In the near term, physician contracts that are tied to Medicare-allowable fees will experience a 0.5% increase as the fees rise.  Since prior years' annual SGR corrections have included similar nominal increases, it is probable that most MA plans have already incorporated a rise of similar magnitude into their bids and budgets, meaning that the pending doc fix may have no noticeable impact.  Looking at the longer term, the performance-based payment program that CMS devises to calculate payments after 2019 may have a greater impact.  MA plans should be watching this closely, since any physician contracts that are tied to Medicare allowable fees will automatically incorporate this same performance-based calculation.  This may also be an opportunity for plans to develop new and better value-based payment models of their own.

For now, it's time to watch what happens in the Senate, to see if this thing passes.  It won't come up for a vote until the Senate gets back from Spring Break in mid-April.  By then, the SGR cut of 21% will have officially taken effect.  In the past when Congress dawdled on the SGR, CMS has found temporary ways to avoid cutting doctor payments, and we expect they will be able to engage in the same sleight of hand this year.

Update as of 4/1/15. Note that the 21% cut went into effect April 1, since the Senate didn't pass the bill before it went on a two-week recess.  CMS can hold claim payment a couple of weeks to allow the Senate to get its act together and pass the bill.  However, the Senate will need to act quickly when it returns from recess. The current estimate is that the bill will be introduced on April 13.  While leadership of both parties say everyone is on board in the Senate, that clearly was not the case in the hours leading up to the spring recess, since the bill never came up for a vote. This indicates that there may be some unresolved issues. Stay tuned! There may be some interesting maneuvering in the next few weeks.

Resources

Gorman Health Group's Summary and Analysis of the 2016 Draft Call Letter and the Medicare Advantage (MA) Advance Notice is now available. Download it today >>

The Gorman Health Group 2015 Forum is April-7-9! Attendees can expect timely, actionable advice on the trends shaping health care from notable speakers, including Barclay's analyst, Joshua Raskin, and regulatory guidance directly from Jennifer Smith, a Director in the Medicare Parts C and D Enforcement Group at the Centers for Medicare & Medicaid Services (CMS). Register your team for The Gorman Health Group 2015 Forum today!

by GHG Advisors