Last week, President Obama signed long-awaited legislation that will put an end to periodic panic at the prospect of massive, sudden cuts to Medicare physician payments. The bipartisan “doc fix” bill repeals the Sustainable Growth Rate formula that aimed, but failed, to control growth in Medicare physician payments (Medicare Part B).

When it was first adopted in 1997, the SGR probably seemed like a good idea for controlling spending growth. When total Medicare Part B payments exceeded the targeted amounts, the SGR mechanism was supposed to automatically reduce physician payment rates. But each time the spending exceeded its target, Congress instead stepped in to prevent the automatic reduction – spending a total of nearly $170 billion in the process. With each of these patches, the gulf widened between the amount physicians were supposed to be getting paid and the amount Congress temporarily agreed to pay them. This year, Congressional inaction would have resulted in a 24% cut in physicians’ Medicare payments.

Congress’s habit of temporarily averting scheduled payment cuts also meant a flurry of lobbying activity as each patch neared expiration. Vox’s Sarah Kliff reports that Congress has enacted 17 different patches since 2002. I’m sure physician practices spent hundreds of hours worrying and making contingency plans each time a deadline approached, as well as time re-doing financial plans each time payment specifics were announced. This was an inefficient use of time for doctors’ offices and Congressional committees alike.

Under the new law, Medicare physician payments will increase 0.5% a year for five years. In the meantime, explains a summary from the staff of the House Energy and Commerce and Ways and Means Committees, we’ll see a transition to a new system that “moves Medicare away from a volume-based system towards one that rewards value, improving the quality of care for seniors.” Mary Agnes Carey of Kaiser Health News writes:

The measure, which builds upon last year’s legislation from the House Energy and Commerce and Ways and Means committees and the Senate Finance Committee, would encourage better care coordination and chronic care management, ideas that experts have said are needed in the Medicare program. It would reward providers who receive a “significant portion” of their revenue from an “alternative payment model” or patient-centered medical home with a 5 percent payment bonus. It would also allow broader use of Medicare data for “transparency and quality improvement” purposes.

… A “technical advisory committee” will review and recommend how to develop alternative payment models. Measures will be developed to judge the quality of care provided and how physicians will be rewarded or penalized based on their performance.  While the law lays out a structure on how to move to these new payment models, much of their development will be left to future administrations and federal regulators.  Expect heavy lobbying from the physician community on every element of implementation.

At Vox, Sarah Kliff describes some of the challenges in developing a new payment system:

The law doesn’t say which quality metrics the government ought to use in measuring quality. And for some specialties, this is very tough: how do you measure if a radiologist, for example, is doing a great job? Mostly by if they read image scans right — but Medicare doesn’t get that information in patient claims.

“We’re inherently limited by what we’re able to measure,” Bob Berenson, a health economist at the Urban Institute, says.

There’s already worry about the metric-setting process: it requires the federal government to use quality indicators that doctor groups suggest to the health and human services secretary. The secretary can add her own metrics to the list — but doctors are then free to pick and choose which metrics they want to be judged on.

The new law also extends some other programs that many providers and advocates were worried about losing. These include permanently extending the transitional medical assistance program, which lets low-income families maintain Medicaid coverage for up to a year as they transition to work, and two-year extensions of the following:

• The Children’s Health Insurance Program, which covers eight million low-income children and pregnant women whose income is above their states’ Medicaid cutoffs (Kim Krisberg covered CHIP’s looming expiration for The Nation’s Health);
• The Maternal, Infant, and Early Childhood Home Visiting Program (I wrote about that program here); and
• Funding for community health centers, the National Health Service Corps (NHSC) and the Teaching Health Centers Graduate Medical Education Program (which the New York Times covered here).

The total package will cost about $210 billion, and the law includes measures to offset about $70 billion of that. These include requiring higher-income beneficiaries to pay higher premiums for Medicare Part B and Part D (Part D is Medicare’s prescription-drug program), and requiring beneficiaries with Medigap insurance to pay the Part B deductible (currently $147 per year). In FY 2018, Medicare will also limit to 1% reimbursement increases for post-acute care providers like long-term care and inpatient rehab hospitals.

When the bill was under consideration, it faced some pushback because the increased expenditures weren’t fully covered by revenue increases or spending reductions. Given that the SGR has led to so much wasted time and money as Congress kicked the can down the road year after year, this was a worthwhile item to exempt from to pay-as-you-go requirements. I’m glad Congress has finally addressed this long-standing problem, and I hope the process for developing a new system that pays for quality rather than just quantity will result in better health as well as controlled Medicare spending.