CMS actuary questions long-term impact of SGR repeal bill

When a bill to permanently repeal and replace the Medicare sustainable growth rate (SGR) easily passed the U.S. House late last month, it seemed like legislators were closer than ever to fixing the yearly threat to physician pay. As another deadline looms for the Senate, however, a report from the Centers for Medicare & Medicaid Services’ (CMS’) Office of the Actuary is pointing out the limits of the bill.

While the Medicare Access and CHIP Reauthorization Act of 2015 (HR 2) would help avoid the frequent patches required to override the current SGR formula and stave off cuts to physician reimbursement, long-term issues will likely still require future legislation, according to the memo from Paul Spitalnic, CMS’ chief actuary.

Spitalnic explained that HR 2 would freeze payment rates at current levels for three months before instituting a series of annual 0.5 percent pay increases through 2019. Payment rates for services on the physician fee schedule would stay at 2019 levels through 2025, but individual physicians would then have the opportunity to increase payment through one of two mechanisms: participation in an Alternative Payment Model (APM) program or the Merit-Based Incentive Payment System (MIPS).

Providers with a substantial portion of revenue from APMs—which include accountable care organizations—would be able to receive a 5 percent bonus, while those participating in MIPS would be eligible to receive a portion of $500 million that HR 2 provides each year to those demonstrating exceptional performance. For 2026 and subsequent years, providers would see payment rate increases of 0.75 percent if they are paid through an APM and 0.25 percent if not.

The issue, according to Spitalnic, is that the long-term increases in payment will likely start diverging from the Medicare Economic Index (MEI), which reflects price pressures associated with physician care. Spitalnic points out that over the last 25 years, the MEI has increased at a rate similar to the Gross Domestic Product (GDP) deflator and slightly less than the Consumer Price Index. He predicts that long-term divergence of the new payment rates from the MEI would result in Medicare prices under HR 2 falling below the current SGR system by 2048.

“In particular, the physician payment rates would be problematic under HR 2 in years with high inflation, in 2025 when the 5-percent APM bonus and the $500 million additional pool for MIPS are scheduled to expire, or at the point when the cumulative effects of payment updates not keeping up with physician costs become too large,” wrote Spitalnic. “If not addressed by subsequent legislation, we expect that access to, and quality of, physicians’ services would deteriorate over time for beneficiaries.”

The projections faced criticism from supporters of HR 2, including Robert M. Wah, MD, president of the American Medical Association, who said in a statement that the CMS Office of the Actuary report was “illogical, flawed and dangerous for patient access to high quality health care.”

"The [Office of the Actuary] report assumes that under current law, which requires an immediate 21 percent Medicare payment cut, physicians will receive upwards adjustments annually for decades to come, which is simply unbelievable given our long history with the flawed SGR formula,” said Wah. “Fluctuations in just two of the factors that affect SGR calculations—GDP growth and Medicare spending growth—are far too unpredictable to make this a reasonable assumption.”