Sep 08, 2016 at 09:13 pm by Staff

Contributed by J. B. Bitar, MD

In 1997, Congress passed the SGR (Sustainable Growth Rate) bill as part of the "balanced budget act of 1997", which was then signed into law by President Clinton. The bill effectively capped the growth in Medicare spending. It became the law that any increase in Medicare spending was automatically dealt with by reducing the following year payment per service. SGR was a formula that froze the size of the Medicare pie and when more people utilized resources from the Medicare pie, the portions or the fees per service became smaller. It basically imposed, across the board, a percentage of fee reduction that ensured that the total spending remained unchanged.

As we all know, before 1997 and afterwards, the Medicare spending on healthcare kept skyrocketing due to many factors: growing numbers of Medicare recipients, escalating healthcare cost per recipient, more advanced technology, increased longevity of recipients and improved health services in rural and urban areas. The SGR formula was to impose fee cuts inversely related to the growth in healthcare spending. With a sharp rise in Medicare spending year after year, the formula imposed equally steep cuts in spending for the year to follow. As one can see, the intended fee cut to healthcare providers, was so steep that it could not be sustained by physicians or hospitals alike, and therefore, Congress found itself passing (doctor fix legislations) to prevent the Medicare program from collapsing. Congress, effectively kept postponing the SGR mandated cut, and was providing physicians with a modest annual 1-2 percent fee increase to compensate for the rising overhead cost and inflation. The SGR intended cuts kept rolling over year after year, and the gap between actual Medicare expenditure and the theoretical cut required by law, kept widening. When the SGR was eventually repealed and replaced by MACRA (Medicare Access & CHIP Reauthorization Act of 2015), the SGR cut would have been 30-40 percent.

In reality, SGR was doomed from the start and was never implemented because congress kept freezing or postponing the SGR, year after year, and kept kicking the SGR can forward.

In 2015, congress repealed the SGR but replaced it with a new formula, MACRA. The MACRA bill requires Medicare to pay physicians based on quality of services rather than quantity. The MACRA law is intended to control the healthcare spending by CMS while maintaining quality. The term "Medicare payment reform" is used by policymakers to achieve cost control. The healthcare spending can be reformed by paying less to providers who utilize the system more, and paying more to providers who use the system less. The quality or the value of a medical service is very subjective. The guidelines for quality are set by CMS and the payment is adjusted by 2-4 percent.

On an annual basis, as each healthcare entity is assigned a quality score, the score determines payment adjustment and ensures that the total spending by CMS is not growing.

If one defines value as quality divided by cost, one can have a better value if quality increases with the cost unchanged, or one can keep the quality fixed, and reduce the cost, hence the value is increased. The CMS is aiming to reduce the cost and maintain the quality as is. The goal of the policymakers, is to reduce the overall CMS spending by lowering the cost, yet maintain the quality level and therefore, provide a higher value to the recipients. This concept is flawed.

In reality, when the cost of care drops, the quality of care drops with it. In any business model, when the price goes up, the consumer expects a better quality, and when the price is low, the quality goes down.

With quality as the excuse to cut physicians' fees, CMS becomes the judge and the jury. The SGR bill was threatening to collapse the Medicare program by imposing unrealistic, across the board, cuts that went far below the profit margins for all the healthcare providers.

The MACRA bill will create a variable fee reduction that is commensurate with the degree of resource utilization; the more tests a provider orders, the more procedures one performs, the more referrals one sends, the more the fee reduction. The less a provider spends on a recipient, the less the fee reduction. It basically added a modifier to the fee for service to penalize those who utilize more resources. The degree of utilization is measured by CMS as a quality score.

The MACRA is not going to affect every healthcare provider the same degree. By design, it will weed out the providers that are high cost to the system. It may limit access to certain expensive procedures or expensive treatment. It may reduce the numbers of certain specialty treatment centers, increase the wait time, increase the travel time to the few available specialty centers. The end result is lower cost.

The quality or value of care is, in other words, a tool for CMS to cut spending. It cuts spending by forcing providers to do less for the patients in order to utilize less resources, so the provider can avoid the penalty of having a poor quality score and hence stay in business. MACRA may push high cost providers out of the Medicare program.

The Medicare program will not be at risk to collapse because a portion of the providers, those with good value-based score, will be positively affected by the MACRA.

There is already a strong push by various medical societies to postpone the MACRA implementation date which is currently set for January 1, 2019. The MACRA start date may be postponed again and again. The process of kicking the can by Congress may happen again. If and when MACRA gets implemented, the quality of physician provider pool will be reduced to those who are willing to provide cost effective, lower quality healthcare. The Medicare provider pool will be a limited choice of those who were able to avoid the MACRA quality/value fee reduction because they were identified by MACRA score as cost effective providers.

It seems ironic that the lower cost care is rewarded by CMS, but the providers with true high quality care will be driven out of the Medicare program. The providers with lower quality of care will shine in CMS MACRA score. Ultimately, the Medicare recipients will get the lower cost healthcare, the selected surviving providers will avoid ordering expensive tests, expensive treatments, or using specialty referrals. Certain specialties with inherently high cost providers like neurosurgeons, oncologists, will opt out of the Medicare program and the access will be limited to only a few available centers. The MACRA bill will achieve its goal and control the escalating healthcare spending by CMS.

The MACRA financial ramification may inadvertently create an unexpected shortage of providers in the Medicare program. Congress may find itself postponing MACRA year after year, and eventually repealing MACRA -- just like it did with SGR eighteen years after its inception.

J B Bitar, MD, is a cardiologist with Cardiology Care Center in Lake Mary. He can be reached at

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