Reform of Medicare's Sustainable Growth Rate: Be Careful What You Wish For

Be careful what you wish for.  The law of unintended consequences.  I'm from the government and I'm here to help. 

These were the nostrums that the Population Health Blog considered when the Senate passed House Bill 2 and killed the walking budgetary undead known as the Sustainable Growth Rate or SGR. 

As PHB readers know, the Balanced Budget Act of 1997 law attempted to use the SGR to substitute medical inflation with general inflation adjustments to the Medicare physician fee schedule.  Since the costs of CAT scans have risen faster than cat food, Congress periodically had to pass catch-up "fixes."

As the PHB understands it, the just-passed "Medicare Access and CHIP Reauthorization Act of 2015" undoes the SGR by substituting 0.5% increases for the next five years.  Medicare payment cuts that were scheduled to kick in immediately have been averted - just in time.

The PHB will review what the bill does.  Then it will look at some downsides.

What does the bill do?

During the five year period, Medicare will transition to two new payment models.

In 2019 the Physician Quality Reporting System (PQRS), Value-Based Modifier and electronic record Meaningful Use (MU) will be consolidated into single program dubbed the Merit-Based Incentive Payment System (MIPS).

Physicians who choose to participate in MIPS will be assessed on a consolidated measure of quality, cost/utilization and electronic record MU.  They will also have to report on participation in quality improvement activities. CMS will offer technical assistance for QI. Medical organizations will be able to provide input into quality. The quality data will be collected and housed in certified registries. More research will be applied to emerging science of risk adjustment for cost/utilization.

The MIPS composite performance score will range from 0 to 100 (it's on page 40 of the Bill). MIPS incentive payments will be adjusted based on change from baseline using the mean as a performance threshold. Physicians who fail to report or participate will automatically be assigned a score of zero.  Physicians participating in a medical home (as defined by Medicare) will automatically be assigned the highest score.

Physicians falling below the mean will experience percentage-based payment cuts.  Payment incentives for the winners will be budget based. Physician-specific data will be made publicly available.

MedPAC will be charged with monitoring MIPS impact on Medicare beneficiary access to care.

There are also incentives for physicians to leave MIPS behind and participate in alternative payment models (APMs). The incentives will be greater than the MIPS program, giving physicians another reason to join an ACO.  If successful, fee-for-service will eventually go away.

The PHB's take on the legislation? 

Something is better than nothing, but the PHB readers need to be aware of the potential downsides:

0.5% increases may not keep up with physician costs.  While the SGR was repugnant, the patches were tied to medical cost inflation. 

As Congress continues to "reform" health care, uncertainty will continue to abound.  Never mind the continued vulnerability of a fifth of our economy to partisan rancor, this particular bipartisan exercise in legislation still went to the wire.  That's success?

Congress - which admittedly knows little about health care - is still outsourcing considerable administrative judgment to the Secretary of HHS. This is a political appointee who presides over a vast and largely unaccountable bureaucracy.  That is, unless, you have pull like this.

While it's called "APS," it doubles down on ACOs, which still have an uncertain impact on cost and quality. We still do not know how to reconcile the theoretical efficiencies of large provider systems with the real world need for antitrust enforcement.

If - emphasis on the word if - MIPS and APS don't work out, more physicians will flee the Medicare program.  They'll cater to credit-card wielding patients, further reducing access to socioeconomically vulnerable persons who have no other options.  While the legislation charges MedPAC with monitoring access to care, they may not spot problems in time.

As for MIPS:

The economic upside incentives are based on an assumption that the money will be there and that Congress will fund it.

PQRS and MU programs, which are still based on dubious evidence (here and here), are alive and well.

Because there's a mean or median on a 0 to 100 scale, 50% of participating docs are guaranteed to be economic losers.  That information will be in the public domain.  And that's only part of the problem.

Gaming may still be possible. Examples include avoiding high risk patients, questionable links between reporting vs. outcomes and moving the goalposts by changing reporting thresholds. 

Reporting MIPS data may turn out to be odious; similar tone-deaf hassles and their associated costs led to the rebellion against specialty society maintenance of certification.

Medicare will provide technical assistance? Really?

The Concentration of Naiveté

The Population Health Blog's car garage is not the size of a football field. 

So, when the PHB spouse parks our car inside, she tends to err on the side of safety.  She pulls far forward so that the rear bumper doesn't get "dinged" by automatic closure of the garage door.  That obliges the Population Health Blog to inconveniently squeeze past and climb over the front bumper when it wants to use the PHBmobile.

The win-win fix to our travails arrived last Christmas when the perspicacious PHB gave the spouse a positionally adjustable ceiling-mounted laser. It blinks a ruby red light through the windshield onto the dashboard when the car is in optimum position.  Pull too far forward, and the beam will be directed on the floor or a front seat. 

Since it's been installed, the PHB spouse has ignored it.  The laser beam is effectively pointing at the back seat.

The good news is that the PHB's naiveté was limited to parking habits, one house's garage and a spend of $19. 

Not so for Ezekiel Emanuel's work in health reform in the White House and a spend of far more money. 

According to this article in this weekend's Wall Street Journal, the well-meaning Dr. Emmanuel couldn't change the habits of Medicare's vast bureaucracy or of Mr. Obama's formidable political advisors.  As a result, bundled payments remained the stuff of demonstration projects, while the closure of tax exclusions for employer sponsored health insurance was limited to "Cadillac" plans.

What's more, professional liability reform died in the crib thanks to the White House chief of staff Rahm Emanuel's unwillingness to stir the political pot:

He immediately cut me off: "Shut the f— up! We are not doing malpractice. Period. Every time the AMA comes in here, they don't talk about malpractice." Their first, second and third priority, he said, was the formula used by Medicare to determine doctors' pay. "We don't need to do malpractice for the doctors, and I am not alienating the president's base for nothing," he barked. "Stop it."

Rahm's reaction told me everything that I needed to know about the politics of the issue. Democrats would accept malpractice reform under two circumstances: if they needed it to keep the AMA's support for the bill, or if they needed it to attract Republican support. Neither was true. In backroom negotiations, the AMA was solely focused on securing higher physician payments—not on malpractice. And not a single Republican in Congress would even negotiate.

The president had already aggravated liberals by forgoing a "public option." He'd offended unions by limiting the tax exclusion. He wasn't going to antagonize trial lawyers, another core Democratic constituency, for no gain.(from the WSJ, March 7 "Inside the Making of Obamacare.")

In its own small way, the PHB called attention to the AMA's narrow-minded focus on the SGR five years ago.  But the AMA's blunder and PHB's prescience are not the point.  Or, rather, points:

1. The health reform that eventually passed was a curious mix of White House naiveté and Washington inside-the-beltway politics. The result was the Affordable Care Act which continues to spawn quick-fix delays and throw sand in the gears of government.  We deserved better.

2. By concentrating risky decision making in Washington DC, the upside gains in big government may be undercut by the downside of unintended consequences and half-baked decision-making in all 50 states.  It's scary to think that the likes of Dr. Emanuel had such power.

Lessons learned.

The Coming Demise of the Medicare Sustainable Growth Rate and the Undoing of Fee For Service: How and Why Congress Really Means It This Time

Here they come....

Like manna from heaven, the Congressional Budget Office (CBO) has given the nation's physicians and their medical organizations an opening against Medicare's reviled sustainable growth rate (SGR).

Regular Disease Management Care Blog readers already know that the SGR is part of a 1997 law that was designed to battle rising health care costs. It relies on the blunt force of a "conversion factor" that unilaterally adjusts physicians' Medicare fee schedules to match the growth in the U.S. gross domestic product. Despite the good intentions, physicians costs have blown past the GDP faster than high income earners fleeing California. Not wanting to disappoint a grumpy constituency, Congress has repeatedly approved temporary patches to undo the conversion factor.

Unfortunately, the original 1997 law was never repealed and the Feds' bookkeepers have kept track of the growing gap between the GDP and the physician fees.  Without another patch, Medicare will deploy the conversion factor and reduce payments by approximately 25% beginning in 2014. 

As the DMCB understands it, the problem with the SGR is the projected costs of cancelling it. According to a recent article in AMA News, the price tag of repealing the SGR would increase the projected 10 year cost to $244 billion.  That calculated deficit has complicated Washington DC's efforts to balance the federal budget, find common ground on the sequester and fix the debt ceiling.

Enter the CBO's updated and just-released Budget and Economic Outlook for 2013 to 2023 . This telling sentence is buried on page 31:

"... holding payment rates through 2023 at the levels they are now would raise outlays for Medicare (net of premiums paid by beneficiaries) by $14 billion in 2014 and about $138 billion (or about 2 percent) between 2014 and 2023."

Whether you believe the projected slowdown in physician costs from $244 to $138 billion is the result of a moribund economy (the Republicans) or the enlightened interventions of Obamacare (the Democrats), the implications for the U.S. budget deficit are enormous.  Knowing a fiscal opening when they see it, politicians have responded faster than the DMCB's misanthropy to a crowded Amtrak train. 

The U.S. House Republicans have released their outline of an SGR reform proposal, while Pennsylvania Rep Allyson Schwartz (D-PA) (see below) has introduced a House bill dubbed the "Medicare Physician Payment Innovation Act of 2013."

Both are remarkable for their two similarities than differences:

1) Strangling the SGR by repealing the looming 25 percent across-the-board rate cut in 2014 along with any future rate cuts. Congress will establish a temporary five-year period of "predictable payment rates."

2) Finishing off fee-for-service (FFS) by soliciting organized medical society and "other relevant stakeholder" input to create multiple scientifically based payment models that use a variety of quality and efficiency metrics that will be periodically updated by Medicare.

These models will include registries, risk adjustment approaches, physician rankings, performance feedback, shared decision-making tools and pay-for-performance. Should a doc disagree that the registry-based risk adjusted ranking of how the shared decision making improved performance, he or she will be given opportunity to make an "appeal."

Ms. Schwartz's bill has more detail. She would lock-in the current payment rates until the end of 2014 and transition in the reforms described above over 5 years. During this time, she would also annually increase primary care physician payment rates by 2.5%. An interim report on the pace and success of the reforms would need to be submitted by the General Accounting Office to Congress in 2017. For docs that are struggling with the demise of fee-for-service, there'd be a payment track that retains FFS "for providers who are incapable of transitioning."

The DMCB's take:

1. Given the degree of Democratic and Republican agreement and the relatively low cost of "only" $138 billion, the likelihood of repeal of the SGR is better than it has been for years. Maybe it will really happen this year.

2. There is a remarkable bipartisan consensus that Medicare's FFS system needs to go away, despite an astonishing lack of evidence that we can really achieve an payment approach that is truly a better payment mousetrap.  The DMCB remembers the perils of exquisitely engineered global payment systems that were designed to reimburse for value and not volume.  It was called "capitation" and it failed miserably.

Maybe a 2019 target date is warranted. It'll take that long to not repeat history.

3. Also buried in the CBO report is this caveat:

.....spending per enrollee for Medicare and Medicaid—which generally has grown faster than GDP—is very difficult to predict. If per capita costs in those programs rose 1 percentage point faster or slower per year than CBO has projected for the next decade, total outlays for Medicare (net of receipts from premiums) and Medicaid would be about $650 billion higher or lower for that period."

While the DMCB understands the fiscal and political logic behind the timing of the SGR appeal, let's be honest: this is a budget decision built on assumptions based on guesses that are ultimately propped up by wishful political decision-making.

4. As a member of several professional medical organizations, the DMCB appreciates the proposed role of these entities in this next phase of health reform.  If you are a doctor and you are not paying dues to one organization or not participating in meetings and emailing its leadership, you stand to lose. 

Docs: Join. A. Professional. Society. Or. Association. Now. 

That's especially true if, as an employed physician, you think your Health System CEO has your interests at heart.  This might be a good start.

Health Reform: Is It a Noun.... Or a Verb?

Google blogger went down May 11 and 12, erasing the original "Noun or Verb" post.  The DMCB apologizes for the inconvenience.

In its continuing war over the Sustainable Growth Rate (SGR), the American Medical Association has sent a letter to Congress recommending that new payment structures be tested over 5 years, using a series of demonstrations that test risk-adjustment and attribution.  Why not, since there has been a plethora of other demonstrations and pilots, including the "Acute Care Episode Demonstration," the "National Pilot Program on Payment Bundling," a "Gainsharing Demonstration," and the "Independence at Home Demonstration."

In the meantime, the Medicare and Medicaid Center for Innovation continues to forge ahead with its commitment to testing and dissemination of new approaches to care and reimbursement with its refurbished web site, lauding continuous change for the better.

All well and good, says the DMCB, but it has its doubts about this burgeoning emphasis on "change."

1.  It kicks the can down the road: a fundamental alteration in the Medicare benefit literally takes an act of Congress.  Since that's so hard, it's easier to park new ideas in "demonstrations" and let them languish there in a twilight zone.

2.  Too much "change management" strains resources, resulting in a distraction away from the real work of running an agency.  For example, the DMCB's physician colleagues would like to hear less about "ACOs" and more about CMS paying bills accurately the first time every time.

3.  It gives the appearance of action when in fact, very little is happening.  Demonstrations and pilots taste great but are just not filling.

4.  Finally, the DMCB is all for innovation but CMS' track record of nimbleness - being able to collect, filter, analyze data and act on it - still remains very much of an open question.  There are just too many people, stakeholders, lawyers and politicians, no matter how well-meaning everyone is.

If the AMA isn't careful, it could end up trading the loathsome SGR for something much worse: being whipsawed by a series of delayed, tentative, frothy and inaccurate payment innovations that introduce an even higher level of uncertainty into its members' Medicare reimbursements.  In other words, payment "reform" will become an unending verb, instead of what the AMA's members want, which is a final noun.

The Slow Decay Economics of a Failure to Fix the Looming December 1 Sustainable Growth Rate (SGR) Cut

Well it's started.

The AMA President predicts "catastrophe" if the cuts mandated by Medicare's complicated Sustained Growth Rate (SGR) formula go through on Dec 1. The Disease Management Care Blog's state medical society has alerted it to a "national white-coat call-in day" campaign aimed at members of the U.S. Senate. While Congress has repeatedly intervened with temporary legislation to block those cuts, it's unclear to the DMCB how the partisan survivors in a lame duck Congress will respond to this latest crisis of its own making. Will the legislators vote in another temporary increase? Will they view this as their chance to demonstrate fiscal fortitude? Will there be gridlock?

In prior posts, the DMCB has pointed out that implications of a Medicare fee schedule cut would be enormous. That being said, however, it isn't convinced that complete Medicare boycott would necessarily commence at midnight December 1.

That's because of how many physicians "develop" their practices.

"Develop" you ask? Read on.

Most young physicians accrue their clinical panels over a number of years, one patient at a time. These patients arrive myriad ways: via referrals from other physicians, community word of mouth and hospital discharges. Most new patients are kept, while some (because of interpersonal conflicts, unwillingness to establish an enduring doctor-patient relationship and/or lack of insurance or economic means) are not given follow-up appointments. Once a large enough patient population is established to maintain practice income (in primary care, that can be between 2000-3000 patients), the practice is generally closed and the physicians "graze" off their assigned population. As relatively small numbers of patients turn over (thanks to moving away or dying), small numbers of new patients are brought on. That's why retiring physicians can "sell" their practice after retirement for hefty sums of money: it's a business that comes with a established cash flow that has taken years to nurture.

Over the years, established patients may change or lose jobs, or they may change or lose their health insurance. For physicians, that's simply part of the cost of doing business - they know that most of their patients' economic set-backs are temporary. During recessions, that can increase considerably and physician incomes can decline. But even during the good times, there is always a churn of money-losing patients in the average panel.

Last but not least, the majority of physicians generally carry a percent of patients with inadequate health insurance and limited economic means (such as Medicaid). While the willingness to put up with this varies from practice to practice, the vast majority of physicians understand that "indigent" patients are part of their social mission and cross subsidize their care. Many don't even bother billing Medicaid and just see those patients gratis.

So, the DMCB predicts that if an SGR fix fails to pass, most physicians with established practice panels will, in the short term, do what they always do: a) keep their patients (it took too long to establish them), b) manage this as more "churn," (figure maybe Congress will right things in the future) and c) remember their social mission.

Unfortunately, that will be a temporary lull. Without a meaningful correction, as the months go on and new Medicare beneficiaries start looking for a physician, clinic practices will not welcome them. For established patients, the churn may be too burdensome and become unmanageable. Physicians will equate Medicare with Medicaid/non-paying patients and be forced to reduce that percent in their panels.

In other words, it may not show up as an immediate crisis. Instead it could be a slow decay. Not a bang.... but a whimper.

Two other points: A drop in Medicare income could force physicians to reconsider the economics of buying an electronic health record in the next year. In addition, physicians are becoming extremely wary of a fickle Federal government, which is quickly depleting any remaining political good will.

The Risk of a Physician Boycott of Medicare, Congress' Duty, Enterprise Risk Management & What MedPAC Should Do

The Disease Management Care Blog thinks of Medicare as a large health insurance company overseen by a Board of Directors that just also happens to be called "Congress." As a Board, Congress' job is to provide oversight, including approving the benefit, premium levels and the provider fee schedules. Like other Boards, it's also supposed to be ultimately responsible for the appointment of executive leadership. Last but not least, it should engage in "enterprise risk management" (ERM). More on this later.

Medicare's "Board" has struggled with the cumulative costs of repeatedly delaying the Sustainable Growth Rate (SGR) reductions for the Part B fee schedule. A perfect storm of election year politics, deficit spending concerns and partisan brinkmanship has led to another "temporary fix" of the scheduled 21% cut. The day of reckoning has been pushed back to November 30, 2010. While grumpy organized physician organizations are publicly concerned about the SGR's impact on patient "access" and "choice," the real threat is that many physicians who currently accept Medicare will "go Texan" and boycott the Medicare if the SGR goes through.

Should Medicare's "Board" be concerned?

As the American College of Physician's* (ACP) Advocate Blog's Bob Doherty points out, physicians have been repeatedly warning for years that Medicare's payment rates are unsatisfactory. In the meantime, the Medicare Payment Advisory Commission (MedPAC), which uses surveys of Medicare beneficiaries to gauge whether physicians really really mean it, remains unmoved. According to MedPAC's data, the vast majority of Medicare beneficiaries still have adequate access and most docs still accept Medicare. Liberal pundits, such as Maggie Mahar, think that threat of a physician boycott is an "overblown" paper tiger unsupported by facts on the ground involving real docs, like hospitalists, cardiologists and geriatricians.

Yet, the ACP's Bob Doherty wonders if things could be different this time. His anecdotal conversations with docs makes him think that substantial - if unquantifiable - numbers of physicians are really thinking about dropping out of Medicare.

Which brings the DMCB back to the topic of "ERM." This is defined as the systematic and objective quantification of all significant risks to a business. ERM typically includes identifying what risks exist, their individual likelihood, their potential magnitude, strategies for their mitigation and assessing progress in keeping them at bay.

Congress' Medicare ERM issues are multiple and include the growing number of baby boomer beneficiaries, their considerable appetite for pricey technology, looming government debt and the involvement of sophisticated organized crime networks in Medicare fraud. But one important risk that continues to languish is the SGR and the potential for a physician backlash.

The DMCB thinks Medicare's Board, i.e., Congress should perform its fiduciary duty and use ERM to carefully examine the issues raised by Mr. Doherty.

What is the risk of a physician boycott?

While the prospect of a wholesale nationwide exodus of physicians from Medicare participation is still small, it is not zero and, given Mr. Doherty's credible suspicions, the risk is growing. The risk is probably greater among the smaller physician owned practices with access to alternate sources of patient care income. It's likely to first show up in refusals to accept new Medicare patients. It'll occur regionally (Texas may be a good example) and vary by practice specialty. The risk is highest among the "cognitive" physicians who a) can't make up for lost revenue with additional patient volume, and b) are dealing with payment rates that have been widely regarded as inadequate.

What is the potential magnitude?

There are two dimensions: operational and political.

It's operationally moderate because of two factors:

1) the relationship between the threat of an SGR reduction and a physician boycott is not linear. While current physician Medicare non-participation rates are low, reaction to inadequate payment rates could quickly cascade under a classic self-reinforcing phenomenon. This is discussed by the DMCB in greater detail here,

and

2) the interplay between spotty regional access issues and other parts of the health care system - even if access is maintained - could lead to further stressors. While low numbers of Medicare beneficiaries per primary site may not be able to receive primary care, the phenomenon at a regional level across multiple sites could easily lead to delays in care, emergency room crowding and spikes in avoidable hospitalizations.

It's politically high because even spotty regional access problems could be spotlighted by the news media and used by opponents of health care reform to further gum up the President's agenda.

How can it be mitigated?

It's going to take either a) finding new money or b) moving money from other sources. That's the topic for another DMCB post but two additional points should be made:

1) thinking that "savings" from efficiencies, prevention, wellness or the electronic medical record, medical home and accountable care organizations demos and pilots will solve the SGR is fanciful thinking. Don't even bring it up, because the doctor-audience won't believe you. They're too smart.

2) Just the threat - real or not - of an SGR reduction is undoubtedly causing physicians to plan for the possibility of a boycott. Accordingly, "the SGR" needs to be removed from the public spotlight and replaced by a credible signal that Congress and the Administration are taking Medicare payment rates seriously.

How should progress be measured?

In addition to regularly reading the ACP and DMCB blogs (and being skeptical about the can-do-no-wrong loyalty of liberal media sycophants), MedPAC should reinvigorate its reports (like this one that said no problem) and reexamine access from the perspective of ERM with special attention to specialty, region, practice size, non-linearity and worse case scenarios.

The Federal government failed to adequately assess the environmental risks of deep water oil drilling and the systemic financial risks from the easy money and housing bubble. It's not unreasonable to ask if MedPAC is on the verge of committing the same mistake in a key part of healthcare policy.

(Addendum: Interested in this debate? There's more here)

*an organized physician group that represents internists, who focus on prevention, diagnosis, and treatment of adult diseases. The DMCB not only a proud member of the AMA, it is an internist and an ACP Fellow.