What’s next? The future of Medicare physician payment in the post-SGR era

President Barack Obama signed legislation this spring that fulfilled one of the American College of Surgeons’ (ACS) foremost and longest running legislative goals—reform of the Medicare physician payment system, including permanent repeal of the broken sustainable growth rate (SGR) formula.1 The SGR, first enacted as part of the 1997 Balanced Budget Act, set unrealistic, aggregate spending targets in the Medicare physician fee schedule. As a result, each year since 2001, the Centers for Medicare & Medicaid Services (CMS) fee schedule mandated payment cuts for surgeons and other physicians.

These projected cuts were largely averted through annual (or sometimes more frequent) legislative patches commonly referred to as temporary “doc fixes.” In all, Congress enacted 17 temporary fixes, ranging in duration from one month to two years, at a cost of approximately $169.5 billion.2 These last-minute patches stopped the cuts but caused a great deal of uncertainty for physicians because of the fixes’ transitory nature. These short-term patches also made it more difficult to pass permanent, meaningful reforms that would incentivize the provision of high-quality care.

The recently enacted Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act (MACRA), Public Law No. 114-10, is the culmination of a multi-year effort by the physician community, patients, and lawmakers to advocate for meaningful reform and ensure ongoing access to care. The ACS played an especially influential role in garnering lawmakers’ support.

Legislators appreciated the fact that the ACS’ efforts went beyond calling for repeal and included the development of an SGR replacement proposal, known as the Value-Based Update (VBU). As a result, the College was invited to testify before the three key congressional committees with jurisdiction over the Medicare program—the Senate Committee on Finance, the House Committee on Energy and Commerce, and the House Committee on Ways and Means—while Congress developed the proposal in 2012 and 2013.3,4 The ACS remained active in negotiations on the finer points of the law throughout the entire legislative process as Congress sought to make meaningful improvements.

The law also includes a two-year extension of CHIP, entitlement reforms, and other provisions, several of which will affect surgeons.

Physician payment under MACRA

The new law takes a number of important steps to improve the Medicare physician payment system. The result of a bipartisan political compromise, the legislation was written with the goal of maintaining a balance between restoring stability to Medicare physician payments and realigning incentives to better facilitate physician-driven quality improvement efforts.

Perhaps the most significant change in the new law is the immediate and permanent repeal of the SGR, which had been a major goal of the College and the larger physician community. According to an estimate from the Congressional Budget Office (CBO), the cost of simply repealing the SGR and freezing payment levels for 10 years to put Medicare physician payments back on level ground would have cost $137.4 billion.5 This new law does not freeze payments, however. Repeal is followed by modest annual updates through 2019 in an effort to provide physicians with a period of stability as a new fee-for-service payment system is implemented. During this time, new payment models also will be proposed and developed by specialty societies and other interested parties. In addition, physicians will become eligible for lump-sum incentive payments and additional updates in the future. A flow chart graphic featuring an overview of the Medicare  payment/quality programs is available at: https://www.facs.org/advocacy/quality/medicare-programs.

Early versions of the legislation did not include updates and would have been roughly equivalent to a 10-year payment freeze; in 2013, however, the House Committee on Ways and Means modified the bill to include the payment updates, largely in response to concerns raised by the College.6 In addition to the positive updates, the new law calls upon the Medicare Payment Advisory Commission (MedPAC) to study the effects of payment levels on the quality and efficiency of care and on Medicare patients’ access to physician services.7 The study will make recommendations for future payment updates to ensure adequate access to care for Medicare beneficiaries and will be an important tool in advocating for payment increases that keep pace with the growing cost of health care.

Merit-based Incentive Payment System

Beginning in 2019, annual physician payment adjustments for fee-for-service Medicare will be provided through a new Merit-based Incentive Payment System (MIPS). In the MIPS, existing CMS quality programs—including the Physician Quality Reporting System (PQRS), the value-based modifier (VBM), and the electronic health record (EHR) meaningful use program—are combined and streamlined to reduce the administrative burden on providers. Rather than requiring physicians to participate or face the penalties associated with each program, individual providers will now receive a score that takes into account their performance in all three programs, in addition to their individual efforts to improve patient care. Payments will be adjusted up or down based on this combined assessment.

Of note, the current potential penalties associated with PQRS, the VBM, and EHR meaningful use will grow to 8 percent of payments by 2018, before they are phased out. Under the new system, the maximum payment reduction will be 4 percent in 2019, increasing until it reaches 9 percent in 2022.8 In addition, the new system will provide opportunities for significant positive updates, which could, in certain cases, be more than three times the maximum negative update.

Physicians will receive a MIPS composite score of 0–100 that is based on performance in four categories: quality, resource use, meaningful use of EHRs, and clinical practice improvement activities (CPIA). The first three categories are derived from and measured through the existing programs, with enhancements made to improve their value (such as soliciting new quality measures, improving risk adjustment, and implementing a new system of attribution that will allow surgeons to designate their specific role in caring for a patient). The fourth category, CPIA, is designed to give credit to health care professionals who are working to improve their clinical practice or preparing to participate in the alternative payment models (APMs) described later in this article.

A physician’s score will be compared with a performance threshold set annually by the Secretary of the U.S. Department of Health and Human Services and based on either the median or mean score from a previous period. Physicians with scores below the threshold will receive a negative adjustment, and those with scores higher than the benchmark will receive a positive adjustment. Negative adjustments are capped at –4 percent in 2019. Physicians with scores in the bottom quartile below the threshold will receive the maximum penalty. Those with higher scores but still below the benchmark will face progressively smaller negative updates or no payment adjustment if their scores are equal to the threshold. The maximum penalty grows to –5 percent in 2020, –7 percent in 2021, and –9 percent in 2022 and future years. Physicians who attain scores above the threshold will receive positive updates calculated on the same percentages used for downside risk. However, if fewer physicians receive scores above the threshold than below, the positive updates can be increased to as much as three times the negative updates to maintain budget neutrality. For example, if three times as many physicians score below the threshold than score above it in the first year of implementation, the maximum update for the highest composite scores would be +12 percent. Conversely, if more physicians have high scores than low scores, updates will be reduced to ensure budget neutrality.

One significant victory that resulted from the College’s ongoing participation in the development of MACRA was inclusion of an additional incentive payment. This provision calls for setting aside additional funding so that even if 100 percent of physicians score above the threshold and, therefore, nobody receives a negative update, the top achievers will still receive recognition through a positive update. A total of $500 million per year is being allocated to this fund and will be distributed to either the top 75 percent of physicians who score above the threshold, or those with scores that fall in the top three quartiles above the threshold. The maximum additional update under this section is 10 percent, but that amount could be lower if large numbers of physicians score above the threshold.

MACRA also provides $100 million over five years to be distributed to quality improvement organizations, regional extension centers, and other entities that provide technical assistance to small and rural practices. Preference for the technical assistance program goes to those practices in health professional shortage areas or to practices with low composite scores. The goal is to help these practices improve performance in MIPS or transition into APMs.


Although the new law preserves traditional fee-for-service Medicare physician reimbursement, it takes a number of steps, including the provision of payment incentives, to encourage development of and participation in alternative payment models.

The law states that to qualify for incentives and other benefits, physicians must participate in APMs that base payment on quality measures, such as those included in MIPS; use certified EHR technology (although those who meet certain criteria are exempt from meaningful use requirements); and include an element of financial risk with the potential for monetary loss.

Recognizing that APM options are nonexistent in many areas of the country or are unavailable for physicians in certain specialties, the law prioritizes development of new specialty-focused models, models for small practices of 15 or fewer physicians, models developed in conjunction with private payors, statewide payment models, or Medicaid-based options. The goal is to encourage specialty societies and other stakeholders to develop new and innovative payment models. The law’s language is broad enough that it may leave the door open for creation of a model based on the College’s Clinical Affinity Group (CAG) concept from the VBU, in which providers are grouped together based on the patients or conditions they treat, not their specialty designation.9

Physicians who receive a high enough proportion of payments (either from Medicare alone or through a combination of Medicare and other payors) through qualified APMs will be exempted from the MIPS program, including EHR meaningful use mandates and many of its reporting requirements. Furthermore, they will receive a 5 percent lump-sum incentive payment to offset the risk and initial cost associated with transitioning to such a system. This incentive will be in effect from 2019 through 2024. Those physicians who strive to meet this participation threshold but fall short may be exempted from the MIPS program; however, they will be ineligible for the 5 percent incentive.

In addition, physicians who participate in an APM at any level and are in the MIPS program will automatically receive at least 50 percent of the total possible score on the CPIA portion of the composite score, allowing them to earn higher updates.

Under the new system, increasing incentives will be available to physicians to encourage movement to APMs over time. Along with the 5 percent incentive and exemption from the MIPS program requirements, starting in 2026, the current conversion factor will be split in two. The fee-for-service conversion factor will grow at a modest rate of 0.25 percent annually, whereas qualified APM participants will be paid for items and services using a separate qualifying APM conversion factor that will increase by 0.75 percent annually. Although both of these growth factors are small (and likely to be reconsidered before 2026), the difference will inevitably lead to an increasing pressure to participate in APMs.

Moving forward

Repealing the SGR was an important victory for the College and for all Medicare physicians; however, passage of MACRA was only the first step. For the new quality-focused payment system to work, the College and other physician organizations will need to be active partners in the development of new quality measures, APMs, CPIAs, and so on. The College will continue to work with CMS and, if necessary, Congress to make the current quality programs more practical for surgeons. It is important to remember that these programs and the associated penalties remain in effect through the end of 2018 and will form the core of MIPS.

The College will seek out all opportunities to share its expertise and century of experience in quality improvement with policymakers as MIPS is developed and will actively explore APMs to ensure that relevant models for surgical practice are in place. ACS staff will provide additional guidance to Fellows to ensure that they are ready to perform under the new system.

College scores a victory on global codes

In November 2014, CMS finalized a policy that would have transitioned all 10- and 90-day global codes to 0-day global codes. Independent analysis showed that this would have resulted in a cut in reimbursement to surgeons for most procedures. A coalition of surgical groups led by the ACS advocated strongly for Congress to prevent CMS from moving forward with its plan. The College’s efforts were successful, and instead of eliminating 10- and 90-day codes, CMS will instead collect data on the number and level of visits furnished during the global period and use these data to improve the accuracy of the valuation of surgical services. The September issue of the Bulletin will include an in-depth story on this issue.


  1. Library of Congress. Public Law H.R. 2. Medicare Access and CHIP Reauthorization Act. Available at: www.congress.gov/bill/114th-congress/house-bill/2/actions?q=%7B%22search%22%3A%5B%22HR2%22%5D%7D. Accessed May 14, 2015.
  2. Fix Medicare now. Available at: http://fixmedicarenow.org/wp-content/uploads/2015/02/2015-medicare-sgr-action-kit.pdf. Accessed May 18, 2015.
  3. Replacing the SGR: The latest developments in the ACS Value-Based Update proposal. Bull Am Coll Surg. 2013;6(98):72. Available at: bulletin.facs.org/2013/06/replacing-the-sgr/. Accessed May 14, 2015.
  4. Hoyt DB. Looking forward. Bull Am Coll Surg. 2012;8(97):4-5. Available at: bulletin.facs.org/2012/08/looking-forward-august-2012/. Accessed May 14, 2015.
  5. Congressional Budget Office. Medicare’s Payment to Physicians: The Budgetary Effects of Alternative Policies Relative to CBO’s January 2015 Baseline. Corrected February 3, 2015. Available at: https://www.cbo.gov/sites/default/files/cbofiles/attachments/49923-SGR_Options.pdf. Accessed May 18, 2015.
  6. W&M SGR manager’s amendment to hike pay 0.5% in response to surgeons. Inside Health Policy, December 11, 2013.
  7. H.R. 2—Medicare Access and CHIP Reauthorization Act of 2015, §101—Repealing the sustainable growth rate (SGR) and improving Medicare payment for physicians’ services, subsection (a) Stabilizing fee updates, sub-subsection (3) MedPac reports. Available at: www.congress.gov/bill/114th-congress/house-bill/2/text?q=%7B%22search%22%3A%5B%22hr2%22%5D%7D. Accessed May 18, 2015.
  8. Kliff S. The problem with the new Medicare law, in one chart. Available at: www.vox.com/2015/4/23/8482129/medicare-sgr-value. Accessed May 14, 2015.
  9. Hoyt DB. Looking forward. Bull Am Coll Surg. 2013;7(98):7-8. Available at: bulletin.facs.org/2013/07/looking-forward-july-2013/. Accessed May 14, 2015.


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