Examining the Path Ahead: Joint SGR Reform Proposal Raises Optimism, Yet Challenges Remain Ahead

Republican and Democratic leaders of the House Ways & Means and Senate Finance Committees have assembled a joint proposal to permanently repeal the much-maligned Sustainable Growth Rate (SGR) formula used to pay providers caring for Medicare patients. The bipartisan and bicameral proposal has many stakeholders feeling more optimistic about SGR reform's chances this year, though much more — including legislative language and the identification of the all-important offsets to pay for the bill — is needed.

Similar to bipartisan legislation approved without objection by the House Energy & Commerce Committee in late July, the Ways & Means and Finance proposal seeks to incentivize providers to participate in non-fee-for-service payment programs that reward the quality and value of care delivered and include both bonuses and penalties.

But some significant differences exist between the two proposals, notably (1) the timeline for moving to new delivery and payment models and (2) payment rates during the transition period. And while stakeholders have generally responded favorably to the eight-page discussion draft, it is silent on offsets that, once named, will likely draw strong opposition from impacted entities, including some of those very same provider stakeholders.

Key Payment Reform Provisions

The committees propose repealing the SGR formula and replacing it with 10 years of flat payments or 0 percent increases until 2023. (This contrasts with the House E&C proposal to provide 0.5 percent updates for five years.) After 2023, providers participating in alternate payment models would receive 2 percent annual plus-ups, while those remaining in the fee-for-service model would receive a 1 percent bump. (The variation in dates and updates explains why the House bill is scored at $176 billion over 10 years, while the Senate package scores at $138 billion over 10 years.)

Beginning in 2016, the proposal would consolidate three existing incentive programs — Physician Quality Reporting System (PQRS), the value modifier and EHR Meaningful Use – into one budget neutral Value-Based Purchasing (VBP) program. (The House bill retains these existing programs as they are.) That new program would assess provider participation in four categories — quality, resource utilization, clinical practice improvements and meaningful use. The VBP will use existing measures and establish a process for developing new ones.

During the first two years, quality and resource will be weighted at 60 percent with practice improvement at 15 percent and MU at 25 percent. In the third year, quality and resource use will each be weighted at 30 percent, with the other two rates remaining the same. Providers would receive scores for each category and a composite score, and would have the option of being assessed as individuals or as part of a group practice.

Similar to Energy & Commerce, the joint proposal would create incentives for providers willing to participate in non-fee-for-service models and accept greater levels of risk and reward. Providers with sizeable components of Medicare or all-payer revenue linked to alternate payment models would be eligible to receive 5 percent annual bonus payments from 2016 to 2021. Providers who meet the criteria and participate in an alternate system would be excluded from the VBP model.

Other Components

Similar to Energy & Commerce, the joint proposal would create new codes to reimburse providers for managing and coordinating care for chronically ill beneficiaries. The joint proposal also responds to recent concerns about accuracy of payments by establishing an annual target to revalue "misvalued" services. If the target is met, the proceeds go into the payment pool. If it is not met, the payment pool for the following year would be reduced by the difference.

The joint proposal seeks to address inappropriate use of advanced imaging and electrocardiogram services by requiring providers to consult with appropriate use criteria or clinical decision support tools in order to be paid for such orders. It would also apply prior authorization to those providers found to be outliers in the ordering of such services.

The proposal would also build upon recent transparency initiatives by expanding access to Medicare utilization and payment data, including by publishing provider-specific data on the physician compare site used by beneficiaries to compare providers.

The Path Forward

While leaders in Congress are expressing confidence that a permanent repeal of the SGR program can be achieved by year's end, the lack of stated offsets and an already tight Congressional calendar are two potential challenges standing in the way. If that is the case, at least three plausible options exist:

Option 1 is the "two-week" scenario and involves Congress slipping through the December 31, 2013, expiration of the current patch and adding its reform package to a CR or omnibus package that is handled before funding for the government expires on January 15, 2014. In this case, physicians will be directed to hold claims for care delivered in the first two weeks, and then submit them after January 15, 2014, for payment at the new rate once the reform is enacted.

Option 2 is the "three-month" scenario where Congress would implement a three-month patch to prevent the payment cuts while reforming the program at the time that it addresses the debt ceiling debate that is likely to surface in February, March or April 2014. We would expect that provider cuts or "savers" would be used to pay for some or all of the extension.

Option 3 is the "one-year" kick the can again scenario. In this case, Congress would simply kick the can and extend the patch for another year, without reform. In this scenario, provider cuts would also be used to pay for the extension. 

While option 3 currently has the favor of many in Washington, our contrarian view sees reason for one of the first two options to hold sway for a number of reasons, including the lower price tag associated with full repeal, the bipartisan consensus developing around a solution, the lack of provider opposition (indeed, the support in some quarters) for the solution, and the legacy value to retiring Chairmen Baucus and Camp. 

The committees will accept feedback on the proposal through November 12, 2013.