What to know about quality of care payments
What to know about quality of care payments

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Federal laws change payments to providers

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The law that threatened to reduce physicians’ pay for Part B Medicare services has been repealed. In April of this year, President Obama signed the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The passage was a rare act of bipartisanship on a major issue. The act passed the Senate by 92-8 and the House by 392-37.

Had the law not passed or another temporary fix been implemented, physicians’ pay for Medicare services would have been reduced by 21 percent. Under the old law, which had been in effect since 1997, a “Sustainable Growth Rate” formula was applied that would automatically reduce payments if budget targets were not met.

In addition to providing what has been termed the “doc fix,” the new law also extended for two years the Children’s Health Insurance Program (CHIP) and funding for community health centers.

Payments based on quality

At the outdoor signing ceremony, President Obama said, “Not only does this legislation permanently fix payments to doctors, but it also improves it because what it starts doing is encouraging payments based on quality and not the number of tests that are provided or the number of procedures that are applied.”

Under MACRA, physicians will receive a 0.5 percent increase for Medicare services for each of the next five years. During this time the government will develop “Alternative Payment Models” and “Merit-Based Incentive Payment Systems.” Providers’ performance will be assessed in four areas: quality of care, resource use, meaningful use of electronic health records and clinical practice improvement.

By 2020, bonuses and penalties will be utilized to reflect these measures. Bonuses can provide up to a 12 percent increase from the base payment rate, and penalties can deduct up to 4 percent from the base payment rate. In 2022, bonuses can be up to 27 percent and penalties can be up to 9 percent.

Under the merit-based system, clinicians who receive the highest scores relative to benchmarks also could earn additional “exceptional performance” payments. A technical advisory committee within the Centers for Medicare & Medicaid Services (CMS) will develop details of the payment models.

Impact on physician groups

In a program already underway, payments to physician groups are adjusted by a “value-based payment modifier.” The program is being phased in, starting with large physician groups.

In 2015, payments were subject to adjustment for group practices of 100 or more physicians serving Medicare patients. There were 127 such groups: 14 groups received an upward adjustment of 1 percent; 11 groups received a downward adjustment of 0.5 or 1 percent; 81 groups received no adjustments based on their quality and cost data; and 21 groups received no adjustments because Medicare had insufficient data to make calculations about cost and quality. Quality measures are based on the Physician Quality Reporting System.

In 2016, physician groups of 10 or more will be subject to the program, and in 2017 all physicians, including solo practitioners, will be covered. Starting in 2017, potential reductions in payments will be increased to 4 percent, although solo practitioners and groups of 99 or less will not be subject to downward adjustment during their first year in the program.

Hospital-acquired conditions

One of the initiatives under the Affordable Care Act to promote quality and save costs is the Hospital-Acquired Condition Reduction Program. The program is designed to reduce preventable conditions, particularly infections, that the patient did not have upon admission to the hospital but that developed during the hospital stay.

The CMS reports that the program currently saves Medicare approximately $30 million annually. Those savings come from not making payments for treatments of conditions that CMS deems to be preventable.

Under another part of the program, CMS gives hospitals a score based on their record regarding preventable conditions. The higher the score, the less well the hospital did. Starting in 2015 the hospitals that rank in the quartile with the highest scores (i.e., the poorest records) will have a 1 percent reduction in their payments. For 2015, approximately 724 hospitals have reductions in their payment rates.

In some situations, reductions in payments might be due to poor record keeping. When a patient is admitted, it is important for the hospital and physicians to determine and document the patient’s condition. For example, if a patient has pneumonia or bed sores, even if those are not the reason for admission, those conditions should be part of the patient’s record so that the illnesses are not regarded as hospital-acquired conditions.

Another CMS program, the Hospital Value-Based Purchasing Program, will adjust payments to hospitals based in four quality domains: clinical process of care, patient experience of care, outcome and efficiency.

For 2015, the number of hospitals that will experience a positive change in the payments is slightly larger than the number of hospitals that will experience a negative change.

Accountable Care Organizations

Accountable Care Organizations (ACOs) have had a somewhat bumpy path in the quest to deliver high quality, cost-efficient care. ACOs are groups of physicians, hospitals and other health care providers that join together to give coordinated care to Medicare patients (as well as other patients). “Pioneer ACOs” were the first to join the program.

In the first performance year (2012), there were 32 Pioneer ACOs. Since then, 13 of the Pioneer ACOs have dropped out. CMS reports that Pioneer ACOs have saved the Medicare program $118 million for which the ACOs received $76 million in bonuses. Other ACOs have joined the program. In 2015, there are 405 ACOs participating in Medicare’s Shared Savings Program.

Court challenge of Medicaid rates

In March of this year, the U.S. Supreme Court issued a ruling regarding a challenge to reimbursement rates paid by the Medicaid program (Armstrong v. Exceptional Child Center, Inc.). In this case, providers of habilitation services to persons covered by Idaho’s Medicaid plan argued that the rates being paid were insufficient and violated the Medicaid Act.

Section 30 of the Act requires that a state’s Medicaid plan “assure that payments are consistent with efficiency, economy and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan….” The issue before the Court was whether this language gave providers the right to sue in federal court to challenge the reimbursement rates. The Court held the providers did not have such a right.

In an opinion written by Justice Scalia, joined by three justices with Justice Breyer concurring, the Court held that the only remedy Congress intended was for the Secretary of Health and Human Services to withhold Medicaid funds. Private parties could not sue under the act.

Justice Breyer explained that the requirement of Section 30 of the Medicaid Act is “broad and nonspecific” and that when it comes to ratemaking, “administrative agencies are far better suited to this task than judges.”

The process of setting reimbursement rates for physicians and other health care providers will be an ongoing balancing act that will include assessments of quality of care and efficiency. For the federal health care programs, the primary forums for setting rates will be legislatures and administrative agencies, but not the courts.


Jeff Atkinson

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