MACRA: Will "value over volume" bend the cost curve?

Dale Cooke*

INTRODUCTION

On April 16, 2015, President Barack Obama signed into law the Medicare Access and

CHIP Reauthorization Act (MACRA).1 MACRA's primary components are: (1) a reauthorization

of the Children's Health Insurance Program (CHIP), (2) repeal of the Sustainable Growth Rate

(SGR), and (3) creation of a new payment system for physicians participating in Medicare Part

B.2 The replacement payment system is intended to shift Medicare spending to a value-based

payment model.3 This paper examines the last two features of MACRA and argues that the

replacement system created by MACRA is fatally flawed and perhaps even less sustainable than

the sustainable growth rate model, which was itself a failure.

After explaining SGR, its intended purpose, and why it failed, the paper turns to the system

MACRA is implementing, explaining its core features, why it also is likely to fail, and why its

failure is not a flaw of execution but rather one of design.

BACKGROUND

Healthcare spending has grown faster than the overall economy since Medicare was

* Dale Cooke is the president of PhillyCooke Consulting, which helps companies use 21st century technology to
communicate about FDA-regulated products while remaining compliant with regulations written in the 1960s. Dale
Cooke received his bachelor's degree from Southern Methodist University, his master's degree from the University
of Arizona, and anticipates receiving his juris doctorate degree from the Drexel University's Thomas R. Kline
School of Law in 2019. In addition, he studied health care compliance at Seton Hall University School of Law
School and epidemiology and biostatistics at Drexel University's School of Public Health.
1
Centers for Medicare and Medicaid Services, MACRA: MIPS & APMs, Apr. 9, 2018,
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-
Programs/MACRA-MIPS-and-APMs/MACRA-MIPS-and-APMs.html (last visited Apr. 14, 2018).
2
Network for Regional Health Care Improvement, What is MACRA, http://www.nrhi.org/work/what-is-macra/what-
is-macra/ (last visited Apr. 14, 2018).
3
Centers for Medicare and Medicaid Services, The Medicare Access & CHIP Reauthorization Act of 2015: Path to
Value, 3, https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-
Programs/MACRA-MIPS-and-APMs/MACRA-LAN-PPT.pdf (last visited Apr. 15, 2018)

Page 1 of 20
created in 1966.4 In 1966, total health expenditures represented 5.7% of gross domestic product.5

Figure 1: Total health care spending as a percentage of GDP 1975-2025

In 1997, that number was 13.2%, and it rose to 17.7% in 2015.6 Medicare spending followed this

same trend as shown in Figure 1.7 Seeing this trend as unsustainable, Congress has attempted

various policy shifts to slow the growth in healthcare spending as a whole and Medicare

spending in particular.8 Among these attempts are the passage of the Health Maintenance

Organization Act (HMO Act) in 1973 and the Diagnosis-related Group (DRG) payment model in

1982.9 Then, the Balanced Budget Act of 1997 (BBA) created Medicare Part C and the SGR

4
Aaron C. Catlin & Cathy A. Cowan, "History of Health Spending in the United States, 1960-2013," Centers for
Medicare and Medicaid Services, 1, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-
and-Reports/NationalHealthExpendData/Downloads/HistoricalNHEPaper.pdf (last visited Apr. 14, 2018).
5
Centers for Medicare and Medicaid Services, Historical, NHE16Summary, Jan. 8, 2018,
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html (last visited Apr. 14, 2018).
6
Id.
7
Medicare Payment Advisory Commission, REPORT TO THE CONGRESS: MEDICARE PAYMENT POLICY, 8 (2018).
8
Barry R. Furrow, Health Reform and Ted Kennedy: The Art of Politics...and Persistence, 14 LEGIS. & PUB. POL'Y
445, 449-53 (2011).
9
Id.

Page 2 of 20
payment model.10 All of these attempts share one overarching purpose, slowing the growth of

healthcare spending.11

The approach in the Sustainable Growth Rate payment model is worth considering in some

detail because its repeal is one of the key components of MACRA. The SGR was a formula for

annually adjusting the payments to physicians participating in Medicare Part B. Prior to passage

of BBA, physicians participating in Medicare Part B billed on a straight fee for service (FFS)

basis using current procedural terminology (CPT) codes to identify the service performed, which

was linked to a reimbursement rate as listed on the Physician Fee Schedule (PFS).12 Suppose a

physician, Dr. Smith, saw a patient, Jane Doe, who was covered by Medicare Part B. Dr. Smith

would identify the services performed in the visit with Jane Doe and would submit a form to the

Centers for Medicare and Medicaid Services (CMS) for reimbursement for that service. Assume

Doe had a general check up. That corresponds to CPT #99214. That code has a reimbursement

rate associated with it on the PFS produced each year by CMS. For ease of following this

example and how it changes under the SGR and MACRA, assume the reimbursement fee

associated with CPT #99214 is $100 in 1997. Dr. Smith submits a claim to CMS identifying the

patient and the CPT code. CMS then sends payment to Dr. Smith of $100.

As part of BBA, Congress implemented the SGR and created the Medicare Payment

10
James F. Flynn, "History and Overview of Medicare Part C," Fundamentals of Health Law (American Health
Lawyers Association Nov. 2011) excerpt available at
https://www.healthlawyers.org/hlresources/Health%20Law%20Wiki/Medicare%20Part%20C-
Medicare%20Advantage.aspx (last visited Apr. 14, 2018).
11
Furrow, supra note 8.
12
The following discussion is intentionally simplified to eliminate most complications such as geographic diversity
and the non-work related aspects of determining pay rate to isolate the aspect of pay that is changed via MACRA.
For a fuller explanation of how compensation is determined, see Medicare Program; Revisions to Payment Policies
Under the Physician Fee Schedule and Other Revisions to Part B for CY 2018; Medicare Shared Savings Program
Requirements; and Medicare Diabetes Prevention Program, 82 Fed. Reg. 52976, 52978-80 (Nov. 15, 2017).

Page 3 of 20
Advisory Commission (MedPAC) to advise on Medicare payment issues.13 SGR was calculated

based on four factors:

1. The 10-year average growth rate of GDP

2. Increase in physician fees

3. Changes in Medicare enrollment

4. Changes in law.14

As reflected by including GDP as one of the elements in the formula, one purpose of the SGR

was to limit the growth in Medicare spending to the growth of the overall economy, i.e., to more

directly limit spending growth.15 Each year, CMS calculated SGR according to the formula and

published it, so everyone would know what the changes in rates on the PFS would be for the

following year.16 One of MedPAC's duties was to inform Congress of the impact of

implementing SGR on the provision of medical care for Medicare Part B beneficiaries in the

coming year.17

Assume per the earlier example, that the SGR was 1.5% for 1998. Dr. Smith in 1997 would

have been reimbursed $100 for performing the general checkup on Jane Doe, but when Doe

returned for her general checkup in 1998, Dr. Smith would have been reimbursed $101.50 for the

same service (1997 CPT PFS x (1 + SGR) = $100 x 101.5% = $101.50).

This system worked as intended for the first few years after BBA was passed. However,

13
Medicare Payment Advisory Commission, supra note 7, at ii; Centers for Medicare and Medicaid Services,
"Estimated Sustainable Growth Rate and Conversion Factor, for Medicare Payments to Physicians in 2010," 1,
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/SustainableGRatesConFact/downloads/sgr2010f.pdf (last visited Apr. 14, 2018).
14
Id.
15
Louise Norris, What was the Medicare ‘doc fix’ legislation? MEDICARERESOURCES.ORG (Feb. 24, 2018)
https://www.medicareresources.org/faqs/what-is-the-medicare-doc-fix-legislation/.
16
Centers for Medicare and Medicaid Services, supra note 13, at 1.
17
Medicare Payment Advisory Commission, REPORT TO THE CONGRESS: MEDICARE PAYMENT POLICY, 371 (2013).

Page 4 of 20
ongoing growth in Medicare participation resulted in the SGR turning negative in 2001.18 Thus,

implementing SGR as written in law would have resulted in cuts to the fees paid to physicians.

By 2011, MedPAC projected a 25% cut to FFS rates for participating physicians for the coming

year.19 Instead of receiving $100 for that general check up described above, Dr. Smith would

have received $75 if the SGR adjustments were permitted to happen. Such a cut might have led

some physicians to drop out of participating in Medicare Part B, thereby limiting beneficiaries'

access to care.20

Congress was unwilling to permit such cuts to the fees to occur, so rather than permitting

the SGR to go into effect, Congress began in 2003 passing a series of short-term legislative

measures to prevent the SGR adjustments from being implemented.21 These measures were

known as the "doc fixes."22 Between 2003 and 2014, Congress passed 17 doc fixes.23

MACRA

MACRA was an attempt to permanently eliminate the need for a doc fix by repealing SGR,

and also to address the underlying issue that SGR was intended to address: slowing the rate of

growth of Medicare spending.24 MACRA created a new Quality Payment Program (QPP) with

two new payment mechanisms: (1) Merit-based Incentive Payment System (MIPS) and (2)

Advanced Alternative Payment Methods (A-APMs).25 Unlike the SGR, which potentially

affected all physicians receiving FFS payments based on the PFS, not all Part B participants

18
Medicare Payment Advisory Commission, REPORT TO THE CONGRESS: MEDICARE PAYMENT POLICY, xiv (2011).
19
Id.
20
Id. at 70.
21
Louise Norris, What was the Medicare ‘doc fix’ legislation? MEDICARERESOURCES.ORG (Feb. 24, 2018)
https://www.medicareresources.org/faqs/what-is-the-medicare-doc-fix-legislation/.
22
Id.
23
Id.
24
Medicare Payment Advisory Commission, supra note 18, at xiv.
25
Centers for Medicare and Medicaid Services, Quality Payment Program, Feb. 6, 2018
https://www.cms.gov/Medicare/Quality-Payment-Program/Quality-Payment-Program.html (last visited Apr. 14,
2018).

Page 5 of 20
will be part of either MIPS or Advanced APMs.26 In addition to the two payment

mechanisms, MACRA put into place permanent changes to the Physician Fee Schedule

(PFS) annual adjustments.27

MIPS

Physicians, physician assistants, nurse practitioners, clinical nurse specialists, and certified

registered nurse anesthetists with at least $90,000 in Medicare Part B billings and who provide

care to at least 200 Part B beneficiaries are part of the MIPS track of the QPP, unless they qualify

for an exemption.28 Physicians are exempted from participating in MIPS if they participate in an

A-APM, are new to Medicare, or are below the threshold in billings or patients.29 Physicians

billing through Rural Health Clinics (RHC), Federally Qualified Health Centers (FQHC)

payment methodology are also exempted.30 Otherwise, physicians in the categories presented

above are part of MIPS.31

MIPS-eligible physicians are permitted, but not required, to provide data about their

practice. The data physicians provide fall into four broad categories: "(1) Quality, (2) Resource

Use, (3) Clinical Practice Improvement Activities, and (4) [Electronic Health Record] EHR

Meaningful Use."32 Physicians do not actually provide Resource Use data because Resource Use

26
CY 2018 Updates to the Quality Payment Program, 82 Fed. Reg. 53568, 53578 (Nov. 16, 2017) (defining which
physicians are eligible to participate in MIPS).
27
Id.
28
Id. at 53571.
29
Technically, participation in an A-APM must be "significant" to qualify for this exemption. "Significant"
participation means that at least 25% of a physician's Medicare payments or 20% of a physician's Medicare patients
are billed through an A-APM in 2017. Centers for Medicare and Medicaid Services, Participation Criteria for the
Quality Payment Program, 22 (May 22, 2017) https://www.cms.gov/Medicare/Quality-Initiatives-Patient-
Assessment-Instruments/Value-Based-Programs/MACRA-MIPS-and-APMs/QPP-Participation-Criteria-Webinar-
Slides.pdf (last visited Apr. 14, 2018).
30
Id. at 30.
31
This discussion focuses on "physicians" as if they are simply individual practitioners in solo private practice.
There are provisions of MIPS to permit and/or require individual physicians to participate in MIPS as a group. CY
2018 Updates to the Quality Payment Program, supra note 26, at 53592-93.
32
Briar Siljander & Jennifer L. Gross, Assessing the Impact of the Medicare Access and Chip Reauthorization Act:
The Repeal of the SGR and Beyond, THE HEALTH LAWYER, Aug. 2015, at 26, 26.

Page 6 of 20
data are the actual claims filed by a physician. Consequently, CMS already has that data and

merely appends it to the data file for each participating physician or group. Physicians can access

the Resource Use information from CMS via a Quality and Resource Use Report.33 Physicians

are able to choose the Quality data that they believe is most appropriate for their practice from a

list of nearly 300 different measures.34 The Clinical Practice Improvement Activities relates to

items such as coordinating care and engagement with beneficiaries.35 EHR data is just that,

information about how a physician practice is using an EHR system.36 CMS combines these four

components into a weighted average to create a single score ranging from 0 to 100 for each

physician or group.37

After all of the data is submitted, CMS will calculate the mean and median of the scores

and establish a threshold score between 0 and 100.38 Physicians whose scores are above the

threshold will qualify for a bonus on their FFS reimbursements.39 Physicians whose scores are at

the threshold will neither receive a bonus nor a penalty.40 Physicians whose scores are below the

threshold will be penalized.41 If a physician is MIPS-eligible, does not qualify for one of the

exemptions, and fails to submit any data, then the physician's score is guaranteed to be zero. A

score of zero will be below the threshold. Hence, MIPS-eligible physicians who do not

qualify for an exemption and do not submit any data are guaranteed to be penalized the

33
American Academy of Family Physicians, Quality and Resource Use Reports (QRURs),
https://www.aafp.org/practice-management/regulatory/qrur.html (last visited Apr. 15, 2018).
34
Centers for Medicare and Medicaid Services, 2017 MIPS Quality Performance Category, 7,
https://www.cms.gov/Medicare/Quality-Payment-Program/Resource-Library/2017-MIPS-Quality-Performance-
Category-Fact-Sheet.pdf (last visited Apr. 15, 2018).
35
Kenya Woodruff & Neil Issar, A Balancing Act: Alternative Payment Models and Physician Compensation, THE
HEALTH LAWYER, Oct. 2017, at 10, 10.
36
Id.
37
Id.
38
Siljander, supra note 32, at 27.
39
Id.
40
Id.
41
Id.

Page 7 of 20
maximum amount.42

The bonuses and/or penalties apply to the reimbursements received two years after the

reporting period for the data. The first year's data that was submitted is 2017, so services

performed in 2019 are the first that will be subjected to the MIPS bonuses and penalties. In 2019,

the bonuses and/or penalties will range from +4% to -4%. The farther above or below the

threshold score an individual physician is, the greater the bonus or penalty paid. As shown in the

table below the range for the bonuses and penalties increases each year until reaching the

maximum of 9% in 2022.43

MIPS
Year Performance
Adjustment
2019 +/-4%
2020 +/-5%
2021 +/-7%
2022
and +/-9%
beyond
Looking again at the example of Dr. Smith, assume that Dr. Smith is a MIPS-eligible

physician in 2017. Assume that Dr. Smith's composite MIPS score was 95 and that the CMS

threshold score in 2017 was 75. Further assume that CMS identified that scores between 93 and

97 would receive a bonus payment of 3.75%. If the FFS associated with the general check up in

2019 is $100, then Dr. Smith would receive an additional $3.75 for that check up based on the

2017 MIPS scores.

The MIPS adjustments are intended to improve the quality of care by rewarding physicians

who perform well and penalizing physicians who perform less well.44 The mechanism of bonuses

42
Centers for Medicare and Medicaid Services, supra note 29, at 21.
43
Centers for Medicare and Medicaid Services, supra note 3, at 9.
44
CY 2018 Updates to the Quality Payment Program, supra note 26, at 53569.

Page 8 of 20
and penalties, however, is revenue neutral.45 In other words, if Dr. Smith in the example above

received a bonus of $3.75, then some other physician or combination of physicians must have

been assessed a penalty of $3.75. The MIPS payment mechanism provides incentives for each

individual physician or group to perform better. Nothing in the MIPS mechanism itself

guarantees lower government costs in Medicare Part B spending. The bonuses and penalties

simply redistribute payments among participating providers without affecting the total spent.

How MIPS Could Bend the Cost Curve

The connection of MIPS to bending the cost curve is indirect, at best. By providing bonus

payments to physicians who perform well on MIPS measures and penalizing physicians who

perform poorly on MIPS measures, there is an incentive to physicians to improve their MIPS

score. In theory, improving scores could translate to improved quality of care for all

beneficiaries. Improved quality of care provided to beneficiaries could reduce the amount of care

that is needed per patient. Measuring cost on a per person basis, if everything above holds true,

costs per person could eventually be reduced via a mechanism, such as MIPS that improved the

care provided to all beneficiaries. However, that would only guarantee lower total Medicare

spending if there is either a static or declining population of Part B beneficiaries or if the fees

paid were independently reduced. Of course, it was precisely an unwillingness to reduce fees

directly that led to the collapse and eventual repeal of the SGR.

A-APMs

The A-APM payment mechanism builds on alternative payment mechanisms that were

permitted as part of the Patient Protection and Affordable Care Act (PPACA).46 "PPACA gave

45
Id. at 53577.
46
Woodruff, supra note 35.

Page 9 of 20
policymakers ... [a] framework to test payment models based on pay-for-performance."47

Policymakers and healthcare providers responded by creating various alternative payment

mechanisms, including Medicare Shared Savings Program Accountable Care Organizations

(ACOs) and patient-centered medical homes.48 What all of these alternative payment

mechanisms share is that providers move beyond merely receiving straight FFS reimbursement.49

In the parlance of the industry and the policymakers, these models represent paying for value

over volume.50

MACRA builds on these developments from the PPACA.51 What distinguishes an A-APM

from the previous alternative payment mechanisms are that A-APMs are required to use a

certified EHR system, "base payments on quality measures comparable to MIPS, and adopt a

Medicaid Medical Home Model or require providers to bear more than nominal risk."52 This

discussion uses the ACOs as a template alternative payment mechanism to demonstrate how

MACRA changes the APM model.

An ACO is a group of healthcare providers (specialists, primary care physicians, hospitals

and others) that have contractually agreed to provide total healthcare coverage to a covered

population of patients.53 The ACO works with CMS to define the patient population and

establish a budget for the care during the coming year.54 The ACO then contracts within its

constituent providers about how to divide the funds received from CMS.55 If the ACO meets

47
Id.
48
Id.
49
Melinda Abrams et al., The Affordable Care Act’s Payment and Delivery System Reforms: A Progress Report at
Five Years, COMMONWEALTH FUND, May 2015, at 1, 1.
50
Id.
51
Woodruff, supra note 35.
52
Id.
53
Abrams et al., supra note 49, at 2.
54
Id.
55
FURROW ET AL., supra note 12, at 803-04.

Page 10 of 20
certain quality standards and is able to provide care for the population at a cost below the

budgeted amount, then the ACO receives a portion of the savings.56 ACO providers are not

prohibited from seeing patients outside of the ACO covered population.57

At this point, there are different types of ACOs. All ACOs receive a portion of the savings

if they are able to provide care below the budgeted amount.58 The amount of the savings that are

given to the ACO depends on whether the ACO is willing to accept risk for going over budget,

and if so, how much risk.59 One-sided ACOs were only willing to commit to the reporting

requirements but were unwilling to share any risks associated with failing to provide care below

budget.60 These one-sided ACOs could get a bonus of up to 50% of the total amount saved below

the budget.61 By contrast, a two-sided ACO committed to providing care below budget but also

was willing to commit to sharing losses if the care went above the budget.62 In return for taking

on the risk of having to repay some of the money spent above the budgeted amount, a two-sided

ACO was able to get up to 75% of the savings below the budgeted amount.63 Only two-sided

ACOs can meet the MACRA requirement that A-APMs "bear more than nominal risk."64

Assume Dr. Smith participates in an A-APM ACO and that Doe is a patient in the covered

population for that ACO. After Doe receives her check up, Dr. Smith's office submits an FFS

request for reimbursement for $100 to CMS. CMS sends $100 to Dr. Smith. Dr. Smith's ACO

56
Abrams et al., supra note 49, at 2.
57
FURROW ET AL., supra note 12, at 805.
58
Abrams et al., supra note 49, at 2.
59
Id.
60
Id.
61
Id.
62
Id.
63
Centers for Medicare and Medicaid Services, New Accountable Care Organization Model Opportunity: Medicare
ACO Track 1+ Model, 9, https://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/sharedsavingsprogram/Downloads/New-Accountable-Care-Organization-Model-Opportunity-Fact-
Sheet.pdf (last visited Apr. 16, 2018).
64
Woodruff, supra note 35.

Page 11 of 20
notes this transaction. At the end of the calendar year, the Smith ACO includes all of the care

received by Doe from Dr. Smith and all of the other healthcare providers participating in the

ACO who provided services to Doe. Assume Doe received services from two other healthcare

professionals over the course of the year, such that the total cost of care provided to Doe was

$500. Further assume that at the beginning of the year, the Smith ACO established with CMS that they

would cover 5,000 beneficiaries at an average cost of $1,000 per person for a total of $5,000,000.

It is unclear from these facts alone whether Dr. Smith or the Smith ACO will receive a

bonus payment or how much of a bonus payment. The presence or absence of a bonus is not

determined for each individual patient but only for the covered population as a whole. It is

possible that the Smith ACO will not receive any bonus based on the total cost for care for the

covered population. Additionally, even assuming that the Smith ACO was able to provide care

for the covered population for less than $5,000,000, there is no guarantee that Dr. Smith would

see any of that bonus. The division of bonuses among ACO participants is purely a matter of the

contractual relationship within the ACO. If the ACO receives a bonus, it is possible that Dr.

Smith would not see any of it, or that Dr. Smith would receive a significant portion of it.

MACRA's Changes to APMs

As described above, the essential features of an ACO-style APM are establishing a network

of providers who commit to provide total health coverage for a pre-specified population for a

pre-specified budget and integrating the delivery of service. In addition, an ACO must adopt a

robust EHR that can capture and report quality metrics throughout the entire ACO. MACRA

retains the core notion of an ACO as an integrated delivery network, but the quality metrics have

changed from the previous ACO metrics to the MIPS-style metrics described above and the EHR

system must now meet a heightened standard.

Page 12 of 20
Incentives for Joining A-APMs

MACRA incentivizes individual physicians and groups to participate in an A-APM both

directly and indirectly. There are two direct incentives. The first is that A-APM participants are

excluded from MIPS adjustments.65 The second direct incentive is a 5% bonus for all PFS

reimbursed fees from the previous year for the years 2019 thru 2024.66 The 5% bonus is particularly

generous because it applies to all Medicare Part B service fees for the physician, not just the fees

that are attributed to the A-APM, and as noted earlier, a physician might qualify as exempt from

MIPS while having as little as 25% of patients coming through an A-APM in 2017.67

In addition, beginning in 2026, the PFS rates used to reimburse physicians will be adjusted

differently for A-APM and non-A-APM participants.68 A-APM participants will see their fees

adjusted upwards at 0.75% per year, while non-A-APM participants will only have their fees

adjusted upward 0.25% per year.69 Though that difference might seem slight, it is important to

remember that it compounds annually. The difference on a $100 reimbursement in 2026 will be

just $0.50 in 2027. A decade later, the non-A-APM physician is receiving $102.53, while the A-

APM physician is receiving $107.76 for the same procedure.

A-APMs also enjoy certain advantages indirectly over a standalone physician or group

practice that is not participating in an A-APM. In calculating quality scores for determining

overall performance, it is the A-APM score that is used rather than the individual provider score.

That is advantageous for an individual provider because, as one consultant has noted, the A-

APM is able to monitor its scores more closely than individual providers and ensure all of the

65
Centers for Medicare and Medicaid Services, MIPS APMs in the Quality Payment Program, 1,
https://www.cms.gov/Medicare/Quality-Payment-Program/Resource-Library/MIPS-APMs-in-the-Quality-Payment-
Program.pdf (last visited Apr. 16, 2018).
66
CY 2018 Updates to the Quality Payment Program, supra note 24, at 53832.
67
Centers for Medicare and Medicaid Services, supra note 29.
68
42 USC § 139w-4(d)(1)(A).
69
42 USC § 139w-4(d)(20).

Page 13 of 20
data is complete.70

MACRA PFS Changes

In addition to the changes described above with the MIPS and A-APM payment tracks,

MACRA put in place a permanent adjustment to the Physician Fee Schedule.71 This change is

important for several reasons. First, the MIPS payment model relies on FFS, as set forth in the

PFS. MIPS is a way of rewarding physicians who do well on the MIPS composite score index

and penalizing physicians whose scores are lower. But the base payments upon which these

MIPS-eligible physicians are paid is still the PFS. Second, PFS rates are used to calculate the

benchmarks and final bonuses or losses of the A-APMs. Third, physicians participating in A-

APMs frequently see patients who are Medicare Part B beneficiaries, but who are not part of an

A-APM in which that physician is participating. Care provided to these patients, which might

comprise up to 80% of the patients and 75% of the total Medicare Part B billings of a physician

in 2017 will continue to be paid directly based on the PFS without any intervening adjustments

from the A-APM based on performance.72 Consequently, even while MACRA is providing

significant incentives to move away from straight FFS reimbursement, the PFS will remain a

vital component of determining spending.

As shown in Figure 2, MACRA increases the PFS rates every year from 2016-2019 by

0.5%.73 Then, from 2020-2025, there are no increases to the PFS rates.74 Finally, beginning in

2026, two distinct rate adjustments are permanently implemented (0.75% for qualifying APMs

70
Lynn Barr, How Hospital Leaders and Boards of Trustees Can Succeed Through Value-Based Care, 11,
http://www.healthforum-edu.com/rural/PDF/2018/RL18EngagingGoverningBoardsandLeadership.pdf (last visited
Apr. 16, 2018).
71
Centers for Medicare and Medicaid Services, supra note 3, at 18.
72
Centers for Medicare and Medicaid Services, supra note 29.
73
Centers for Medicare and Medicaid Services, supra note 3, at 18.
74
Id.

Page 14 of 20
and 0.25% for non-qualifying APMs).75

Figure 2: Adjustments to Physician Fee Schedule (PFS) by year

Year 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026+
Adjustment 0.5% 0.5% 0.5% 0.5% 0% 0% 0% 0% 0% 0% 0.75%*
0.25%**
* Qualifying APM conversion factor
** Non-qualifying APM conversion factor

MACRA did not change a separate mechanism for adjusting the PFS called the "misvalued

code target recapture amount."76 In 2017, the effect of the misvalued code target was to reduce

the overall PFS adjustment from 0.5% to 0.41%.77 Because of this adjustment and other

requirements of law, it is possible that the six-year period from 2020 to 2025 might not see a flat

PFS. Instead, these years might see a decrease in the PFS rates for physicians participating in

Medicare Part B, and this potential change is before any MIPS penalty is applied for an

individual participating physician. Consequently, the change by MACRA to the PFS, if left in

place, could result in six consecutive years of decreasing reimbursement rates for participating

physicians, before any MIPS bonuses or penalties are applied.

ANALYSIS

Although MACRA makes significant changes to Medicare Part B's payment models, few

of its changes are likely to achieve the goal of slowing the growth of healthcare spending. The

scoring mechanism that underlies both the MIPS and A-APM payment mechanisms is inherently

75
Id.
76
Centers for Medicare and Medicaid Services, Summary of Policies in the Calendar Year (CY) 2018 Medicare
Physician Fee Schedule, 2 (Dec. 22, 2017) https://www.cms.gov/Outreach-and-Education/Medicare-Learning-
Network-MLN/MLNMattersArticles/downloads/MM10393.pdf (last visited Apr. 15, 2018).
77
Id.

Page 15 of 20
flawed. Further, the changes to the PFS adjustments in the future are unlikely to be implemented,

and only the changes to the PFS adjustments would directly achieve the goal of slowing the

growth of healthcare spending.

MIPS Scoring Flaws

The MIPS payment mechanism incentivizes physicians to improve their scores on quality

measures to avoid penalties and receive bonuses. Individual physicians and groups are able to

select the measures on which they are scored.78 As MedPAC stated, this aspect of the MIPS

program, "will encourage clinicians to focus on selecting measures on which they expect to do

well (rather than focusing on improving patient outcomes)."79

In addition, of the four categories of data, only the quality category is directly connected to

patient outcomes. EHR usage does not contribute directly to improved patient outcomes.

Resource use does not directly reflect patient outcomes. Clinical practice improvement activities

include a hodgepodge of different behaviors.80 Some of these activities directly relate to patient

interventions, such as putting at least 60% of patients receiving anti-coagulation therapy into a

systematic treatment plan.81 Others encourage greater use of the EHR system such as

documenting in the EHR system a plan of care for patients and family.82 These activities might

or might not improve patient outcomes, but there's no guarantee that performing them will do so.

Consequently, there's no guarantee that rewarding physicians for doing them, which is what

MIPS does, will improve quality of care.

78
Centers for Medicare and Medicaid Services, MIPS Overview, https://qpp.cms.gov/mips/overview (last visited
Apr. 16, 2018) (describing the MIPS enrollment process to physicians, "You pick the 6 measures of performance
that best fit your practice.").
79
Medicare Payment Advisory Commission, supra note 7, at 447.
80
There are currently 90 activities listed on the CMS website under this category. Centers for Medicare and
Medicaid Services, Improvement Activities, https://qpp.cms.gov/mips/improvement-activities (last visited Apr. 16,
2018).
81
Id.
82
Id.

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 In addition, there is an additional, distinct problem with permitting physicians to choose

many of the components of their score. There is no way to compare physician performance.83

They are literally being evaluated on different metrics. Physician A's higher score than physician

B does not provide any basis for inferring that physician A is actually performing better or, more

importantly, that physician A's patients are receiving better care or will have better outcomes.

This is an inherent design flaw in any system that provides so much latitude for physicians to

select their own metrics. Because physician bonuses will be tied to their performance on these

measures, this flaw goes to the heart of what MIPS is trying to achieve. It is not actually clear

that physicians who report better scores are performing better, but physicians who report better

scores will be paid more. It is possible that physicians who are paid higher MIPS bonuses are

actually performing worse.

Finally, MedPAC has reported one additional fundamental design flaw with the MIPS

scoring process. Physicians being evaluated via the MIPS process are either independent

practices or small groups. By definition, they are not integrated delivery systems because an

integrated delivery system qualifies as an APM or A-APM, which are exempted from MIPS. The

problem is that, "quality outcomes for patients...are determined primarily through the combined

efforts of many providers rather than by the actions of any one clinician."84 In other words, even

attempting to evaluate the performance of a single physician in isolation based on patient

outcomes is a fundamentally misguided endeavor.

Summarizing these criticisms of the MIPS project: The primary concern of any system for

providing healthcare is improving patient outcomes while holding down costs. MIPS measures

data that is, at best, not clearly connected to patient outcomes. Then, MIPS rewards or punishes

83
Medicare Payment Advisory Commission, supra note 7, at 446.
84
Id.

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individual clinicians based on this unconnected data despite it being known that the performance

of a single clinician is not the primary determinant of the patient outcome. It is a fundamentally

misguided project that has also been poorly designed to even evaluate its fundamentally

misguided objective.

It must also be noted that implementing this fundamentally flawed system is

extremely burdensome and expensive. CMS estimates the cost burden for physicians at

$1.3 billion for 2017.85

A-APM Changes

A-APMs as modified by MACRA are also flawed. First, because A-APMs adopt the same

quality metric system as MIPS, many of the flaws in that system when applied to individual

physicians or groups carry over to the A-APMs. A-APMs are able to choose many components

of their data reporting, and this is just as problematic in the context of A-APMs as it is for

individual physicians and groups.

Second, APMs and A-APMs have the potential to become a shelter for underperforming

physicians. Participating in an A-APM enables a physician to avoid MIPS reporting. Simply

being listed as a provider by an A-APM does not suffice to qualify for the MIPS reporting

exemption. Instead, a physician must bill at least 25% of total billings or 20% of patients through

Medicare Part B to qualify as "significant" participation and thereby qualify for the exception.86

This minimum volume gradually increases to 75% of payments or 50% of patients to qualify for

the exemption in 2021.87 Because of the lowered reporting requirements and inherent

85
Id. at 451.
86
This is the requirement for 2017. Centers for Medicare and Medicaid Services, Quality Payment Program, 68,
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-
Programs/MACRA-MIPS-and-APMs/Quality-Payment-Program-Long-Version-Executive-Deck.pdf (last visited
Apr. 16, 2018).
87
Id.

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advantages of reporting through an APM discussed earlier, physicians can qualify for the 5%

A-APM bonus while avoiding the independent reporting requirements for MIPS. APMs can

become a safe haven for physicians and groups that otherwise would be subjected to negative

MIPS adjustments.

MACRA's PFS Changes

The one aspect of MACRA that could make a significant impact on bending the cost curve

downward and slowing the growth of Medicare Part B spending is the permanent change to the

PFS. By limiting PFS growth to 0.5% for the first four years and then providing 0% growth for

six years followed by very modest growth in subsequent years, MACRA could take a significant

bite out of the growth in spending. Any optimism about MACRA's success in this regard must be

tempered by the knowledge of what led to MACRA's passage. Congress was unwilling to permit

cuts to the PFS to take effect. Congress spent 12 years passing a series of short-term measures to

avoid doing exactly that. Having six consecutive years of 0% adjustments on the PFS will

amount to a de facto cut after taking into account inflation.

In addition, as noted earlier, there are other adjustments to the PFS, such as the misvalued

code recapture targets that have not been changed by MACRA. These separate adjustments can

adjust the PFS down. Consequently, there is good reason to believe that the de jure 0% growth

rate will result in an actual decline in the rates paid to Medicare Part B physicians. There is

every reason to believe that just as the SGR became unpopular when it resulted in negative

adjustments to the PFS rates, history will repeat itself, and that by 2020, Congress will take

action to prevent the 0% intended growth rate from materializing.

CONCLUSION

The more things change the more they stay the same. The fundamental reasons for

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healthcare spending outpacing inflation are well understood. People consume more healthcare

services as they age, and the population as a whole is aging.88 This also means that GDP growth

should slow as the working age population shrinks.89 Basic arithmetic dictates that if the cost of

services is kept constant, then the share of GDP of healthcare spending must increase if the total

number of services increases and the growth of GDP declines.90 In fact though, the cost of

services has not remained constant, it also is increasing.91

There are only a few ways to reverse this trend. First, increase the denominator. If GDP

grows much faster than healthcare spending, healthcare spending's share of GDP would decline.

Second, reduce the rise in the cost of the services provided. MACRA's freeze on increases to the

PFS accomplishes this, though there is good reason for skepticism about whether that is feasible

in the long-term. Third, reduce the number of services provided. In theory, improving the quality

of care can reduce the total number of services provided. That is the mechanism by which

MACRA's MIPS incentives and the underlying quality metrics attempt to operate. The mantra is

"better healthcare leads to less healthcare." That might be true, but as discussed above, there are

reasons to be skeptical of whether MACRA's changes will actually result in better healthcare.

88
Press Release, U.S. Census Bureau, The Nation's Older Population Is Still Growing, Census Bureau Reports (June
22, 2017), https://www.census.gov/newsroom/press-releases/2017/cb17-100.html (last visited Apr. 16, 2018). See
also Medicare Payment Advisory Commission, supra note 7, at 4.
89
Nicole Maestas, The Effect of Population Aging on Economic Growth, the Labor Force and Productivity 1 (NAT'L
BUREAU OF ECON. RESEARCH, Working Paper No. 22452, 2016).
90
Share of GDP is represented as a simple fraction ((Total Services Rendered x Cost of Each Service) / GDP). If
Total Services Rendered increases faster than GDP, the fraction must get larger.
91
Medicare Payment Advisory Commission, supra note 7, at 7.

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