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CMS Releases Proposed Rule for MACRA Implementation – Overview and Merit-Based Incentive Payment Systems (MIPS)

On April 27, 2016, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule that would put in place key parts of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). MACRA impacts a number of laws and government initiatives that have been implemented over the past two decades affecting physician reimbursement, and in doing so, will fundamentally change the way that Medicare reimburses physicians.

The MACRA Proposed Rule contains two key initiatives: Merit-Based Incentive Payment Systems (MIPS), which partially repeals the meaningful use program for electronic health records, and alternative payment models (APMs). In this first of three blogs we discuss the MACRA Proposed Rule generally and provide an overview of MIPS.


Elimination of the Sustainable Growth Rate

One of MACRA's most notable features is its elimination of the Sustainable Growth Rate (SGR) formula which was introduced in 1997 in an attempt to rein in the skyrocketing costs of physician services. Under the SGR, Medicare payments for physician services were supposed to be adjusted annually based in part on changes in the United States gross domestic product. Over the past several years, application of the SGR formula would have resulted in annual decreases to physician payments were it not for recurring legislative “patches” that implemented temporary delays in the application of the SGR formula.  MACRA permanently repeals the SGR formula and replaces it with modest increases in Medicare physician fees. The additional cost to Medicare resulting from the repeal of the SGR is to be offset in part by the increased reliance on APMs and on the implementation of other cost-saving measures.

The Current Physician Reimbursement System

Physician services furnished to Medicare beneficiaries are generally reimbursed on the basis of the lesser of actual charges or the amount determined under the Medicare Physician Fee Schedule. Currently and through 2018, physician reimbursement under this system depends on the physician's participation in, and performance under, three separate programs: (1)  the Physician Quality Reporting System (PQRS), under which eligible physicians who do not satisfactorily report required quality measure data are subject to a reduction in their Medicare fees; (2) the Medicare Electronic Health Record (EHR) Incentive Program (also known as the “meaningful use” program), under which physicians who fail to achieve meaningful use of EHR systems will incur a reduction in their Medicare fees and (3) the Value-based Modifier Program, which provides incentive payments to physicians based on the quality of care they furnish compared to their cost of care during a performance period.


Under MACRA, starting in 2019, CMS will replace the three programs mentioned above with a two track system under which physicians will be reimbursed either: (1) on a fee-for-service basis with enhanced incentives under the Merit-Based Incentive Payment Systems (MIPS); or (2) through participation in APMs, which will be discussed in a subsequent blog post.

Under MIPS, eligible physicians will be rewarded or penalized based on the quality of the care they provide during a performance year. The amount of the reward or penalty will be based on a composite score using the physician’s performance in the following four categories:

  1. Clinical quality (50% of total score in year 1)
  2. Resource utilization (10% of total score in year 1)
  3. Clinical practice improvement activity (15% of total score in year 1)
  4. Advanced care information (formally known as "meaningful use") (25% of total score in year 1). (Because of the importance of the changes to the meaningful use program, we will discuss these changes in a subsequent blog post.)

The MIPS program will involve positive or negative payment adjustments to the Medicare Physician Fee Schedule (“PFS”) payments. MIPS payments under this program are a zero sum game because of MACRA's required budget neutrality. This means that the money CMS saves from the negative adjustments will be used to fund the positive adjustments. Additionally, from 2019 through 2024, the best performing physicians will be eligible for an additional bonus payment of up to 10% allocated from a $500 million pool.

Physicians scoring below a certain threshold will incur a negative adjustment in their payments starting with a maximum penalty of 4% in 2019 and increasing to a maximum penalty of 9% in 2022 and beyond. Physicians scoring above the threshold in a given year will incur a positive adjustment on a sliding scale, with the maximum bonus payment equal to three times the aggregate penalty cap for that year.  Those physicians who meet the threshold will receive no payment adjustment.

The proposal provides for a MIPS performance period of 1 calendar year for all measures and activities applicable to the four performance categories discussed above. CMS proposes to use 2017, i.e., next year, as the performance period for the 2019 payment adjustments, meaning that payments in 2019 would be based on the clinician's performance in 2017. The quality measures would be selected annually through a call for quality measures process, with a final list of quality measures published in the Federal Register by November 1st of each year.

As an alternative, physicians who have a significant Medicare population can opt-out of MIPS and instead participate in what the proposed rule refers to as “Advanced APMs,” such as accountable care organizations (ACOs) and patient-centered medical homes (PCMHs). The APM portion of the MACRA proposed rule will be discussed in an upcoming blog post.


MACRA is one of the most significant stand-alone Medicare payment reform pieces of legislation in decades. Its goal is no less than to radically change the fee-for-service incentive structure away from volume of services provided toward the provision of higher quality and value service with greater patient-centered focus. The regulation is huge, close to 1,000 pages, involving many complex interwoven pieces, all ostensibly to be accomplished within an aggressive timetable.  While the goals are laudable, experience has shown that change often takes more time than first anticipated.  Nevertheless, it behooves physician stakeholders to start now to prepare for these changes.

Comments on the MACRA Proposed Rule are due June 27, 2016

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