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From MSGR to MACRA: The Long & Wild Ride of Medicare Compensation

By: Nextech | April 16th, 2015

From MSGR to MACRA: The Long & Wild Ride of Medicare Compensation Blog Feature

1997 was a year to remember, many would agree.

There was a lot to like about that year.  Back in those days, the average cost of gas was only $1.22 a gallon.  The Dow Jones Industrial average closed above 7,000 for the first time in history.  Microsoft became the most valuable company in the world, worth $261 billion.  And a 21-year-old Tiger Woods became the youngest golfer to ever win the Masters.

Of course, 1997 also had its fair share of scariness.  By November, global stock markets crashed after a sudden 554+ point drop in the Dow, causing the NYSE to actually halt trading for the day.  There was a fire on the MIR space station.  A hostage crisis occurred at the Japanese embassy in Peru.

It was also the year that the US Congress passed the Balanced Budget Act of 1997, which included the Medicare Sustainable Growth Rate (MSGR or SGR).  The plan was that the SGR would bring spending on Medicare and Medicaid reimbursements under control by creating a fee-for-service system.  Reimbursements were, more or less, based on a conversion factor, where payments to physicians would be adjusted annually to match the SGR—if expenditures exceeded an annual target, then payments for the next year would decrease; on the flipside, if expenditures did not exceed the target then payments to physicians would increase the next year.  The SGR seemed to improve the situation a bit.  It wasn’t perfect, but it worked… until 2002, when the SGR actually went into effect.

Only then did everyone discover an ugly (and rather ironic) truth about the Sustainable Growth Rate.

It was unsustainable.

doc_fixA decade of doc fixes

In 2001, the Medicare Payment Advisory Commission submitted an annual report to Congress that advised lawmakers to toss the SGR in favor of a system like the one being used to determine Medicare payment increases for hospitals.  Congress took the report under advisement and, in true bureaucratic fashion… they completely ignored it.

The result?  In 2002, the SGR led to a 4.8% reduction in Medicare reimbursement payments to physicians.  It was then, and only then, that lawmakers took notice (likely because they had lobbyists calling them night and day about it).  This sudden and unexpected drop (well, unless you count that official report they were given a year prior) led lawmakers and physicians to the conclusion that the SGR formula was flawed.  So Congress quickly cooked up a temporary fix to the SGR, eliminating the 4.8% decrease and replacing it with a 1.6% increase.

Thus began over a decade of constant and regular “doc fixes” to the SGR, a series of temporary stop-get measures that did just enough to keep the whole Medicare and Medicaid system from falling apart:

  • The Tax Relief and Healthcare Act of 2006
  • The Medicare, Medicaid, & SCHIP Act of 2007
  • The Medicare Improvements for Patients & Providers Act of 2008
  • The Temporary Extension Act of 2010
  • The Continuing Extension Act of 2010
  • The Preservation of Access to Care for Medicare Beneficiaries & Pension Relief Act of 2010
  • The Medicare & Medicaid Extenders Act of 2010 (2010 was crazy, mainly due to the ACA)
  • The Middle Class Tax Relief & Job Creation Act of 2012
  • The American Taxpayer Relief Act of 2012 (however, it didn’t actually get passed until 2013)

Funny story… Not one of the above mentioned “doc fixes” actually fixed the flaws in the SGR formula.

And then along came MACRA… or the Medicare Access and CHIP Reauthorization Act of 2015, which is intended to be a permanent “doc fix” to the SGR.

(For those who might need a refresher on how bills become laws, here's an instructional video)

Support for the bill was incredibly bipartisan, especially for the current Congress. The plan was actually jointly crafted by John Boehner (R-Ohio) and Nancy Pelosi (D-California), if you can believe that.  It passed the House back in March with an overwhelmingly favorable vote of 392-37.  Just this week, it was passed by the Senate with a vote of 92-8.  That’s right, folks… Congress actually worked together to pass a bipartisan-supported bill (must’ve been “opposite day”).  On April 15, 2015, President Barack Obama signed that bill into law.  To be honest, he pretty much had to sign it to halt the 21% Medicare compensation reduction that kicked in on April 1 2015 (it had to be April Fools’ Day, didn’t it?).  Many believe that, if this 21% cut had been allowed to actually hit the healthcare industry, it would have led to a mass exodus of doctors abandoning the program.

I would have to agree with them on that one.

Of course, someone has to pay for this new plan.  The cost of MACRA has been a point of contention among its critics.  The plan is estimated to have a total cost of $214 billion.  However, only $73 billion of that can be covered.  This means a $141 billion addition to the national deficit.  This has made some folks, namely Ted Cruz, extremely cranky.

How MACRA changes things

MACRA will lead to a number of crucial changes to the Medicare and Medicaid reimbursement plan.  The law will enact the following items, effective immediately:

  • Total repeal of the SGR
  • Freezes Medicare rates (at pre-April levels, thus eliminating the 21% cut from April 1) through the end of June 2015, followed by a 0.5% rise for the second half of the year
  • An annual 0.5% rise in rates will occur from the start of 2016 until the end of 2019
  • Over time, Medicare compensation will be changed from its current fee-for-service model to a pay-for-performance system
  • The new system will focus more on patient healthcare outcomes as opposed to what procedures are performed, in order to cut down on unnecessary and/or fraudulent tests/procedures
  • From 2019 to 2025, MACRA will release tens of billions of dollars in physician reimbursements, in lump-sum payments and bonuses. Those who do well at pay-for-performance will receive rewards
  • In 2026, physicians in the APM and MIPS programs will begin to receive yearly FFS rate hikes of 0.75% and 0.25%, respectively

Finally!  The SGR is gone for good and MACRA is now a law

Not to be a killjoy.  But MACRA isn’t perfect, either.


According to a report by Paul Spitalnic, Chief Actuary of the CMS, MACRA will not be sustainable in the long term because the annual Medicare raises for physicians still won’t be able to keep pace with the increasing costs of healthcare practices.

From Spitalnic’s report: “While H.R.2 avoids the significant short-range physician payment issues resulting from the current SGR system approach, it nevertheless raises important long-range concerns that would almost certainly need to be addressed by future legislation. In particular, additional updates totaling $500 million per year and a 5 percent annual bonus are scheduled to expire in 2025, resulting in a payment reduction for most physicians. […] The specified rate updates would be inadequate in years when levels of inflation are higher or when the cumulative effect of price updates not keeping up with physician costs becomes too large. We anticipate that physician payment rates under H.R.2 would be lower than scheduled under the current SGR formula by 2048 and would continue to worsen thereafter.”

So he predicts that MACRA will start to create a gap between payments and physician expenses by the year 2048, eventually making things even worse than if they’d just stuck with the SGR as it was.

Maybe he’s right.  After all, the Sustainable Growth Rate turned out to be unsustainable.

So there is definitely a chance that MACRA, touted as a “permanent doc fix” to Medicare, will turn out to be just another temporary quick-fix.  Who knows, though?  It might just prove to be the permanent fix the industry desperately needs.

Only time will tell, ladies and gentlemen… only time will tell.