In a 92-8 vote on April 14, 2015, the Senate passed a bipartisan measure to repeal the Medicare payment formula known as the Sustainable Growth Rate (“SGR”). The legislation also included a new payment system that rewards providers for the quality and efficiency of care they provide.

Although the core of the law is the repeal of the SGR, the bill also included a new method of payment under Medicare. While some elements are specified in the law, others will be introduced at a later date. Based on what is currently known, Medicare will increase the amount it pays to physicians by 0.5 percent each year for the next five years through 2019, and 0 percent from 2020 through 2025.

Financial incentives exist for providers to participate in tests of alternate payment models and bonuses to providers who  agree to have their reimbursements based upon outcomes rather than on the volume of services they provide.  Starting in 2018, payments under the new system would be adjusted based on performance in the new incentive system, the merit-based incentive payment system (“MIPS”).  The MIPS will assess performance in four categories: quality, resource use, meaningful use of electronic health records, and clinical practice improvement activities.  MIPS bonuses and penalties will be triggered by performance scores in these four areas and will , range from +12 percent to -4 percent in 2020, and increase to +27 percent to -9 percent for 2022 and later.,

Some skeptics note this payment model will simply force doctors into hospital-run accountable care organizations (“ACOs”) while others criticize the quality measurements, stating that these measurements don’t reflect the core activities of what doctors do. Notwithstanding, as reported in in this blog on Jan. 30, the government is hardly the only payer trying to push the value-based payment model. Indeed, the percentage of value-oriented payments to doctors and hospitals grew from 11 percent to 40 percent between 2013 and 2014, according the coalition Catalyst for Payment Reform. Many believe the acceleration in pace of the change from fee-for-service to value-based payment is likely to reshape healthcare in the next three to five years.

On April 28, 2015, the Institute for Health Technology Transformation, or IHT2, released a report titled “12 Things You Need to Know About Value-Based Reimbursement: Building an Infrastructure for Financial Risk.” The full report can be accessed here. The report draws insights from industry analysts, leading healthcare providers, and healthcare IT leaders to describe the strategies some large healthcare systems and ACOs are using to prepare for the impending acceleration of the shift to value-based reimbursement.  One of the key takeaways from the report is that the conversion of the healthcare industry from pay-for-volume to pay-for-value “isn’t going to be pretty,” and it won’t happen until providers decide they have to assume risk.

In fact, some providers have already embraced the impending change. In January 2015, Trinity Health, one of the nation’s leading health systems, and Heritage Provider Network, a global pioneer in coordinated care management, announced the completion of a definitive agreement to form a joint venture, Trinity Health Partners, to provide population health management in select markets throughout the country. The joint venture calls for the partners to build care networks in different markets that will use new models for primary care, care management, hospitalist, post-acute care and high-risk clinics to improve and coordinate care.

The change to value-based payment is inevitable and now is the time for all providers to start acting.  As stated in our blog post on Jan. 30, 2015, if healthcare providers do not start planning for this change, they could end up in a situation where they are paying physicians based on a fee-for-service model (e.g., rate/WRVU) but being reimbursed based on quality of care and resource utilization. In addition, integration and formation of healthcare providers will become critical in order to secure eligible providers who can deliver the quality of care that is being demanded by payers.  If you have any questions, please contact one of our healthcare attorneys.