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How MACRA is hastening the demise of fee-for-service

February 18th, 2016

by Jonathan H. Burroughs

In April, 2015, President Barack Obama signed into the law the Medicare Access and CHIP Reauthorization Act (MACRA) to replace the deservedly maligned sustainable growth rate (SGR) physician Medicare reimbursement methodology. Over several decades, SGR had fallen more than 21 percent behind predicted healthcare costs, necessitating annual last-minute congressional renegotiations to prevent a significant drop in physician Medicare reimbursement, which would have had a profound impact on the access of Medicare beneficiaries to physician care.

Without much fanfare and with rare congressional bipartisanship support, MACRA became the law of the land and will quietly revolutionize how physicians are paid by Medicare over the next decade.

What MACRA does is separate traditional fee-for-service (FFS) volume-based methodology from all of the other “pay for value” methodologies that include: bundled payments, shared savings, risk-based capitation models (PMPM) to name a few, which are all a part of the new Merit-Based Payment System (MIPS) or Alternative Payment Models (APMs).

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Until 2019, there will be no significant difference between FFS and APM payments; however, beginning in 2019, FFS payments will be frozen through 2024, while APM payments will increase by up to 5 percent annually as a merit bundle payment those participating in MIPS will earn a 4 percent merit bundle payment that will potentially increase to 9 percent by 2022 based upon a pay-for-value incentive methodology. Physicians who rate in the top decile will be eligible for additional “premium” payments and from 2024-2026. Those who participate in APM will receive additional 0.75 percent increases, whereas those who don’t will receive increases of 0.25 percent. What this means is that the difference between Medicare reimbursement of the top performers within MIPS or APM and the lower performers within FFS will be significant based upon the evolving payment methodology.

This is obviously a seismic shift in the healthcare industry and raises the following points:

  • We are moving into a business model that is a meritocracy, and not all healthcare organizations will survive
  • Lower performers will subsidize higher performers in a revenue-neutral way to payers
  • Higher performers will gain disproportionate market share on the backs of lower performers
  • Organizations that want to position themselves to receive optimal reimbursement by 2019 will need to prepare today by transforming both their care and business models

Thus, the Centers for Medicare & Medicaid Services has now drawn a line in the sand, and those who elect to move into MIPS and APM will be significantly incentivized on the backs of those who choose to remain in legacy fee-for-service models.

In order to be able to thrive within the new payment methodologies, organizations must:

  1. Align with all key stakeholders (particularly physicians) to optimize quality/safety/service and minimize costs
  2. Develop new care and business models (e.g. service lines, ACOs, PCMHs, integrated networks etc.) that will support MIPS and APMs
  3. Lower cost structure so that pricing can compete with the growing international healthcare market
  4. Development innovative new ways to provide high volume/low risk services (e.g. ehealth and retail medicine)
  5. Develop market/patient-centered approaches to provide routine services 24/7 through patient portals and customized “value added” services

Organizations must move rapidly toward care/business models that will support MIPS and APMs to both optimize reimbursement and align their strategic plans with a new national healthcare policy.

After years of rhetoric and debate, the change has come and the transformational future is today.

Editor's note: The author would like to thank Dave Krueger, M.D., for his perceptive comments regarding common misconceptions found in the source material for this blog.

Jonathan H. Burroughs, M.D., is president and CEO of The Burroughs Healthcare Consulting Network. He's also a certified physician executive and a fellow of the American College of Physician Executives and the American College of Healthcare Executives.

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