How are physician payments funded?

The Center for Medicare and Medicaid Services (CMS) is responsible for the Medicare program. Medicare has four components, parts A–D. Part A pays hospital costs, part B pays for outpatient services and physician costs, part C covers Medicare Advantage plans (allowing private health insurance companies to provide Medicare benefits), and part D covers prescription drug costs. Part A is funded through the Hospital Insurance Trust. The Hospital Insurance Trust Fund is paid for by direct payroll taxes of the US workforce and by interest on government securities and portions of payouts to high-income recipients of Social Security funds. Parts B and D are funded by the Supplementary Medical Insurance Trust Fund. This trust fund is capitalized through general tax revenues and beneficiary premiums. As with part A, interest on government securities contributes.

Overall in 2013, Medicare spent $575.8 billion, with $251.1 billion for part A, $255 billion for part B, and $69.7 billion for part D. Part B constituting the physician payments in 2013 was derived as follows: 73% from general revenue, 25% from beneficiary premiums, and 2% from interest and other sources (figure 1). Of total Medicare beneficiary payments, 12% constitutes physician payments. Solvency of the Medicare part A HI trust fund is projected through 2030. Further, parts B and D do not have financial challenges similar to those of part A, because both are funded by the beneficiary premiums and general revenues that are set annually to match expected outlays. However, the projected spending increases in the future for parts B and D will necessitate increases in general revenue funding and higher premiums paid by beneficiaries.2

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Figure 1

Sources of Medicare revenue: 2013.2 Part A pays hospital costs, part B pays for outpatient services and physician costs and part D covers prescription drug costs.

Selected history

Medicare was established as part of President Lyndon B Johnson's ‘great society’ in 1965. At its outset, Medicare allowed physicians to be paid on the basis of their historic charges. In addition, physicians were able to balance bill Medicare beneficiaries above and beyond what they collected. In order to control early excesses, payments were limited in 1975 so that they could not exceed the increase in a fixed fee schedule based on 1973 prices: the so called Medicare Economic Index (MEI). This was an important concept as the MEI introduced the notion of limiting annual physician fee increases. Unfortunately, the implementation of the MEI limits failed to limit increasing healthcare costs. Such was the failure of this approach that from 1984 to 1991 the Congress felt compelled to determine a yearly change in fees.

Simultaneously, a group of academicians at the Harvard School of Public Health proposed that a Resource-Based Relative Value Scale (RBRVS) to estimate physician work be implemented.3 Hsiao et al wanted to establish relativity in what they perceived to be an uncompetitive healthcare market. In addition, these academicians proposed that resource input cost should be factored into reimbursement rather than usual and customary fees. In addition, Hsiao et al further proposed subdividing physician work into pre-service, intra-service, and post-service work periods; a prescient recommendation as this division continues to be a prominent factor in the valuation of physician services to this day. The authors indicated that using this type of RBRVS approach would differentially affect various specialties.4

Remarkably, the work of this group became a part of US healthcare delivery when President George H W Bush signed the Omnibus Budget Reconciliation Act of 1989 into law. This historic act switched physician payments from Medicare to an RBRVS payment schedule as of January 1, 1992.

Physicians play a critical role in determining part B reimbursement. Two influential committees of the American Medical Association, the Current Procedural Terminology (CPT) Editorial Panel and the Relative Value Scale Update Committee (RUC), function symbiotically to provide medical procedure codes and recommend reimbursement values to CMS.5 ,6 CMS formally responds to input from the RUC twice each year in the Federal Register. The first publication is the Proposed Rule for the Medicare Physician Fee Schedule, which typically comes out in July, allowing time for public comment. This is followed by the Final Rule for the Medicare Physician Fee Schedule, which, is generally published in November. The new fee schedule goes into effect the following January for the next calendar year.

With the Omnibus Budget Reconciliation Act of 1989 putting Medicare into the RBRVS system as of January 1, 1992, CMS used the Medicare Volume Performance Standards (MVPS) to control costs. Importantly, annual increases for services were based on the total volume of services delivered. The MVPS appeared to have worked in its early iterations with successful limitation of growth from 1992 to 1997. In a subsequent effort to balance the federal budget, an omnibus legislative package was introduced by Congress and President Clinton as the Balanced Budget Act of 1997.7 In what retrospectively seems like a fundamentally flawed idea, the burden of balancing the federal budget was placed on the healthcare industry. The sustainable growth rate (SGR) formula was introduced.7

The sustainable growth rate formula

Having made the decision to deal with the federal budget deficit through payment reductions to the healthcare industry, Congress needed a system that was more predictable than the MVPS mechanism. However, with the benefit of hindsight it is difficult to understand the decision to link that control to the US gross domestic product (GDP). The resulting conundrum plagued providers and patients until 2015 with passage of the MACRA.

Specifically, the SGR attempted to limit increases in provider fees set by the MEI by applying a ‘growth factor’ to the Medicare part B fee schedule. It is indeed noteworthy that parts A, C, and D were not included in this SGR formula. This growth factor accounted for a variety of semi-predictable variants, including the changing number of enrollees in Medicare, changes to physician costs, changes to legal and regulatory cost that affect healthcare costs and, most critically, changes to inflation and the GDP over time.8 In a prior JNIS publication, we reviewed the SGR formula and the various factors that affected it.9 We further reviewed how it potentially affected physician payments over the years. In short, the SGR created a typically negative update to the conversion factor that is used to determine actual physician payments.8

In the years that immediately followed passage of the law, no negative updates resulted from the SGR. While this was obviously a good thing, one negative consequence was that organized medicine and many physicians did not realize how detrimental it was to link provider fees to the GDP. A more esoteric, but equally important point was that the SGR mechanism bases future plans on part B spending from April 1, 1996 to March 31, 1997. As we will describe below, updates to the conversion factor soon turned negative and physicians relied on Congress to temporarily fix the escalating problem. For technical reasons related to how costs are scored by the Congressional Budget Office (CBO), starting in 2007 Congress did not reset the baseline rate, leading to cumulative drastic cuts that would have been very disruptive.

In 2002, the update became negative and CMS imposed a statutory 4.8% cut to the Physician Fee Schedule that year. The rancor that developed was noteworthy because it was probably a catalyst for became the requisite temporary legislative intervention, or ‘Doc Fix’ that was applied each subsequent year that the SGR formula required a reduction in physician reimbursement. With this negative update, there was hope that the SGR would be repealed. However, these hopes were soon dashed and one temporary patch after another was applied. In 2003, Congress increased payments for physician services by 1.6% instead of allowing the projected 4.4% cut. The Medicare Modernization Act replaced the scheduled rate reduction in 2004–2005 with an increase of 1.5%. The next year, 2006, relied on the Deficit Reduction Act to hold off the SGR correction at the unique expense of technical payments for imaging procedures.10–13 This continued unabated with the cumulative threatened reduction reaching a zenith of 27.4% in 2012.1 ,14 This emphasized that providers were functioning for all those years with the possibility of a huge reduction overnight in the absence of legislative intervention. Figure 2 compares required fee schedule adjustments based upon the SGR formula with actual updates after legislative intervention for the years 1998–2015.

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Figure 2

Required fee schedule adjustments based upon the sustainable growth rate (SGR) formula with actual updates after legislative intervention for years 1998–2015.15

The signature legislation of the first Obama presidency, the Affordable Care Act was passed into law in 2010. Perhaps surprisingly, it did not specifically deal with the SGR conundrum.8 ,16 In the years that followed, up to 2012, the SGR correction rose reaching 27.4% in 2012 as mentioned above. In 2013, an opportunity for action on the SGR appeared to present itself with publication of a CBO report. That report estimated that the cost to correct the SGR was diminished by over half from a high of almost $300 billion to $119 billion (table 1). This resulted in a fresh set of ideas and interest in finding a way to permanently fix the SGR. Despite a number of viable proposals, ultimately Congress was unable to find a way to pay the price for this one-time fix.17

Enter the MACRA

On April 16, 2015, President Obama permanently repealed the association between part B payment and the SGR. On March 26, 2015 the House overwhelmingly passed (with a vote of 392 to 37) House Resolution 2: the MACRA. After a little political intrigue, on April 14, 2015 the Senate voted by 92 to 8, to ratify MACRA.18 After so many years of bitter acrimony between Republicans and Democrats, the overwhelming reaction to this new Medicare package was very positive.

The Medicare Access and CHIP Reauthorization Act provides a permanent fix for the SGR.18 It provides 0.5% fee updates starting in the period of July through December 2015 and each year up until 2019. After years of facing negative updates that 0.5% annual update has been well received. Fast forward to calendar year 2026 when the MACRA provides for two separate updates depending on whether a provider continues to practice under a fee for service (FFS) model or elects to participate in an alternative payment model (APM), which will be described in detail below.

Ms Sylvia Burwell, Secretary of the Department of Health and Human Services (HSS), published a commentary on the future of healthcare delivery in early 2015.19 Ms Burwell elaborates her perspective on converting the current predominantly FFS approach into one that is focused on APMs.20 While the comment defined several goals very clearly, the road towards getting there was left predominantly undefined. NI specialists are already dealing with questions on how to approach these value-based concepts given the highly specialized, technologically driven specialty.21 ,22

Title 1 of the legislation repeals the SGR and modernizes various elements of the Medicare system. During the early years of this transition, there are the above-mentioned rate updates through 2019 followed by stable rates from 2019 to 2025. A new quality program is implemented, the Merit-based Incentive Payment System (MIPS), which integrates various elements of currently disparate programs. APMs are introduced, providing physicians with an additional incentive to opt out of FFS reimbursement.1 Table 2 highlights the different approaches taken under SGR in comparison with MACRA for many elements of the Medicare program.

Merit-based Incentive Payment System

The vast majority of NI specialists practice using the FFS system. Under MACRA, the existing CMS quality programs, which are required for receiving maximum reimbursement from FFS Medicare, will be unified and aligned under the MIPS. MIPS will score physicians and physician practices based on four categories. These four categories are not new, but instead renamed and realigned from existing programs. The categories include:

1. ‘Quality’, which is the latest incarnation of the Physician Quality Reporting System;

2. ‘Resource Use’, which mirrors the Value Modifier program CMS is phasing in over the next several years;

3. ‘Meaningful Use’, which is a continuation of the current Meaningful Use (MU) program;

4. ‘Physician Quality Improvement’, which has yet to be defined, but appears to mirror the initiatives of most medical boards’ maintenance of certification requirements.23

MACRA also requires the Health and Human Services Secretary to encourage the use of Qualified Clinical Data Registries (QCDR) for purposes of meeting compliance with MIPS. QCDR is a CMS-approved entity that collects medical and/or clinical data in order to track patients and disease and foster improvement in the quality of care provided to patients. Many specialty societies have successfully received QCDR status for their internally run registries, including the American College of Radiology's National Radiology Data Registries. Encouragement of a QCDR gives members of specialty societies the option of using specialty-specific data to comply with MIPS. More importantly, QCDR satisfies components of all four pillars of MIPS. This will have the net effect of further aligning these quality programs towards the goal of a single entity. By using QCDR, physicians report data chosen by peers as reflective of quality of service, and will receive more consistent feedback (usually in the form of benchmark reports issued by the specialty society registry). MACRA favors QCDR reporting, in part for the freedom it provides to specialties, and also for the large amounts of data it will provide CMS. One can imagine that these data might then serve as a source of future quality scoring.

QCDR compliance completely satisfies the ‘Quality’ component of MIPS, and can be used in its current system for complying with Physician Quality Reporting System. By definition, QCDR also satisfies the same ‘Quality’ component intrinsic in ‘Resource Use’. The inherent feedback and benchmarking provided by societies for participating in their registries was the foundation of the ‘Physician Quality Improvement’ component of MIPS, and therefore, participation in QCDR will go a long way towards satisfying this component of MIPS. We believe that we will see further alignment between ‘Physician Quality Improvement’ under MIPS with specialty-specific ‘Physician Quality Improvement’ associated with the maintenance of certification. Finally, QCDR satisfies the ‘participation of national registries’ component of the soon to be finalized stage 3 MU criteria.24 The current proposed weighting, which can be modified in the future by CMS, is 30% for quality measures, 30% for resource use, 25% for MU and 15% for Clinical Practice Improvement Activities. The Society of NeuroInterventional Surgery anticipated these requirements and participates in the NeuroVascular Quality Initiative through its own Patient Safety Organization.

Recalling that there are positive 0.5% updates until 2019 and flat across-the-board adjustments beyond that, one might wonder what happens in that year. Using an aggregate numerical score between 0 and 100 for the four components described above, eligible providers will receive a composite numerical score for their performance relating to the four categories described above and be compared with other physicians. The performance threshold will probably be the mean or median of the performance score of all MIPS eligible professionals from the prior year. The Secretary of the Department of Health and Human Services (HHS) will determine the specific time frame for the comparator. Starting in 2019, one's performance relative to the comparator will determine provider payment adjustments. If a provider or group is even with the base performance measure, no adjustment will be made. If above that threshold, there will be a positive adjustment. If a provider is below the performance threshold, negative adjustments will be imposed. These negative adjustments will escalate from 4% in 2019 to 9% in 2022 and thereafter. Finally, an additional $500 million dollars are being made available from 2019 to 2024 for those who perform exceptionally well.1 ,24

Alternative payment models

A singular focus amongst policy experts leading up to MACRA legislation has been how to move from volume to value as the driver of care.19 ,25 The formal financial transition to APMs begins in 2019. At that point, a provider must demonstrate that fully one-quarter of their part B services is provided in the form of an APM in order to qualify for APM bonus payments. This is progressive and by 2021, one half of the provider's or group’s part B services need to be provided in the form of an approved APM entity. The final tier occurs in 2023 when fully three-quarters of a provider's or group’s part B services will be provided through APMs.24 It is important to remember that value-based approaches did not exist at the Medicare level before 2011. The transition envisioned in the MACRA is epic.

NI-focused diagnoses are already being considered for these APM-type approaches, although conceptualizing and implementing practical pathways for the majority of practitioners will be a considerable challenge.21 The CMS Center for Medicare and Medicaid Innovation has created a group of value-based models including the Medicare Shared Savings Program for accountable care organizations and bundled payment initiatives. By the end of next year, HHS needs to have published criteria for physician-focused payment models, which has implications for NI specialists. Stakeholders can submit proposals for APMs to a MACRA-created ‘Physician-Focused Payment Model Technical Advisory Committee’, which provides specialists with an opportunity to participate directly in the process. Such is the resolve of the legislators that APM status will be obtainable even if there is insufficient participation in Value-based Medicare programs in the provider's geography.

In describing the Merit-based Incentive Program that accompanies FFS, and the APM model that accompanies value-based approaches, what might get lost in the detail is the policy. Financial incentives strongly favor the APM approach. From 2019 to 2024, providers who receive a significant portion of their revenue from qualifying APMs will receive a lump sum payment bonus equal to 5% of the estimated aggregate payment amounts for covered part B professional services for the previous year. Perhaps more importantly, after this 5-year transition period, in 2026 and beyond, two separate conversion factors will be applied to professional fees in the part B schedule. For MIPS-based providers, payment rates will be increased by 0.25% and for those providers that are paid predominantly through an APM, payment rates will be increased by 0.75%.24

Miscellaneous elements of interest in the MACRA, including how is it paid for

There are several additional titles in the MACRA legislation which contain many important features that are beyond the intended scope of this manuscript. We will cover them briefly.

Of importance to the broader cerebrovascular community and, in particular, neurosurgery, the CMS mandated unbundling of 10- and 90-day global surgical packages, such as that which occurs for open treatment of aneurysms, has been halted by legislation for at least several years. By 2017, the Secretary of HHS will need to collect information from a group of surgeons about the number and level of part B type services that are provided during the 10- or 90-day period. As of 2019, every 4 years the values paid for services within the global period will need to be reassessed.

Title II enables the continuation of certain subsidies to low volume and small rural hospitals, providers, and services. It would permanently extend subsidies for Medicare part B premiums to certain low-income Medicare beneficiaries. Additionally, it would require states to provide coverage for those who no longer qualify for Medicaid because their earnings have increased. Title III is embedded in the name of the legislation. It extends the funding of the Children's Health Insurance Program (CHIP) through 2017.24

In 2014, Congress came close to a permanent SGR fix but was unable to agree on how to pay for it.17 The MACRA has several methods to increase funding. Of interest, these include limiting payment increases for a variety of non-provider-specific expenses such as long-term care hospitals, inpatient rehabilitation, and skilled nursing facilities. Additionally, there is a fairly dramatic cut in a previously planned increase for inpatient hospital services. Finally, those in higher income brackets will be subject to an expanded program of means testing for the Medicare benefit.24 Desire for budget neutrality has hampered prior efforts for SGR repeal. The principle is termed Pay as you Go or ‘PAYGO.’26 It is acknowledged that the MACRA does not meet this standard and thus will add to the federal budget deficit.27

Predicting the future with MACRA?

The historical review provides an interesting insight, which is that although a variety of ‘permanent’ solutions to solve challenges inherent in the current US model of healthcare delivery have been proposed, the fixes have had only a short half-life. Abandoning principles of budget neutrality allowed MACRA to pass, but within the next 10 years it will be contributing to federal budget deficits. The CBO estimated that the MACRA will cost $210 million over the next decade with approximately $70 million in offsets leaving the bulk of how it will be paid unaccounted for. Additionally, the Office of the Chief Actuary for CMS expressed concerns about the failure of MACRA to keep pace with the average rate of increases in part B physician expenses. These failures would be compounded with time.

In order to motivate constituent engagement, the program includes updates to the MIPS program and the aggregate annual 5% APM bonus. These expire within one decade of the writing of this manuscript. When these changes occur, the actuarial arm of CMS has warned that the federal programs will once again have a shortfall with significant payment reductions to providers.30 In addition, since these physician payment updates are set by statute, they do not take into account the underlying economic conditions or medical inflation such as physician cost increases. The Chief Actuary also expected that physician payment rates under MACRA would be lower than scheduled under the current SGR formula by 2048 and would continue to worsen thereafter.

What should a neurointerventionalist do?

After digesting the legislation, NI specialists and the groups with which they work need to decide whether they want to participate in MIPS, APMs, or a combination of the above. If MIPS is the focus, one needs to take great care to report the required metrics for consideration of bonus payments (or conversely, negative updates). If one fails to report the MIPS measures and makes no effort to participate in an APM, it is very likely that such providers would face a negative correction to their part B payments.

If you or your group is interested in participating in APMs, the MACRA has sketched out more complete options that have historically existed for small groups or specialty practice. Participation in these value-based models will be key to unlocking higher reimbursement opportunities.

What can SNIS do?

CMS and HHS have much to concern them. As mentioned above, value-based approaches did not specifically exist in the fee schedule before this decade. The MACRA expects conversion of a high percentage of payments by the end of the next decade. CMS is under significant time pressure to develop and approve metrics for MIPS and APMs. They are looking for input as early as 2015, with a draft plan by 2016.

With respect to MIPS, the Society of NeuroInterventional Surgery (SNIS) can and should providè input to CMS about a strategy for NI quality measures for NI care. We believe this would be well received by CMS, which updates the list of quality measures each year and is legislatively required to do so. Quality measures should be evidence based31 and before being finalized be published in an appropriate peer-reviewed journal. As SNIS leadership deliberates these quality measures, it can consider opportunities for developing future versions. Our highly evolved process for developing technical standards and clinical practice guidelines will be helpful in this effort. The SNIS decision to partner a national vendor and develop the NeuroVascular Quality Initiative Registry will also serve members well as requirements for Qualified Clinical Data Registries take further shape. Further, we believe that MACRA provides an opportunity to work closely with aligned medical societies for our collective future.

Continuing with MIPS, resource use is an important parameter for determining one’s performance against a threshold. Time is short as MACRA requires CMS to make publically available a list of the episode groups that have been developed within 180 days of being signed into law. The two categories that MACRA defines for resource use in episodes of care are (1) care episode groups and (2) patient condition groups. Specialty societies have 120 days to provide input to the above.24

For NIs, MACRA provides different methods of achieving APM status. This is an important step in the right direction for specialty participation in the value-based group of programs. It is worth remembering that providers and/or groups who join APMs are largely exempt from the penalties associated with MIPS, and will receive higher Medicare reimbursement rates. MACRA provides guidelines for APMs, which focus on care coordination, improving quality, and reducing costs. To that end, HHS will benefit greatly and even require physician and societal input to establish criteria for physician-focused payment models. SNIS can help to lead the development of APMs that focus on cerebrovascular pathology.