On April 16 President Obama signed The Medicare and CHIP Reauthorization Act (“MACRA”). The focus of the law is to change how physicians are reimbursed under Medicare, but MACRA contains a number of provisions that may have far-reaching consequences for all of the “stakeholders” in Medicare—especially for consumers and their physicians.

Most importantly, MACRA changes more than how much physicians are paid—it shifts how they are paid. Under MACRA, annual increases (and possible cuts) in physician reimbursements will be based on the physicians’ performance under standards to be established in the coming years. So, MACRA continues Medicare’s movement away from the 1960’s mindset of compensating physicians for volume—and represents an attempt to use economic incentives (rather than government mandates) to modify physicians’ behaviors.

As with any changes to Medicare, the impact of MACRA will be studied and debated for years to come. The prior system—which required an annual scramble to avoid dramatic reductions in physician reimbursements—was not sustainable. We now get to see whether MACRA can live up to the expectations of Congress and the needs of Medicare beneficiaries.

Here is an overview of the key provisions of MACRA:

MACRA repeals the (much reviled) formula for updating payments from Medicare to physicians. The old formula (known as the Sustainable Growth Rate, or “SGR”) linked physician payments to the overall growth of Medicare costs and required annual acts of Congress to prevent unacceptable cuts to physician payments. MACRA replaces the SGR with a formula that links increases in physician reimbursements to a new incentive system. The new system will provide financial incentives to physicians for:

o Quality of care (including clinical care, safety, coordination of care, patient and caregiver experience, and overall health and prevention);
o The resources used to provide care;
o Use of electronic health records; and
o Participation in different payment structures.

Physicians will be graded on a “curve”—those physicians who score better on the new incentive system will receive higher annual increases (and those who score worse will receive lower—or even “negative” increases) and data under this new system will be publicly available.

Specific measures will be developed over the next few years.

To help finance MACRA, the law also changes the formula for determining the amount of premium (for Medicare Parts B and D) paid by higher income individuals. The most significant increase affects the premium paid by Medicare beneficiaries with annual income over $160,000.

MACRA prohibits Medicare Supplement plans from covering the deductible amount (currently $147) under Medicare Part B, which affects Supplement Plans C and F. This prohibition goes into effect in 2020 and affects only policies sold to individuals turning 65 on or after January 1, 2020.

MACRA prohibits government auditors from applying the “two-midnight rule” until after September 30, 2015. Under this rule, hospital admissions that did not span two-midnights were subject to extra scrutiny by government auditors. This rule has raised concerned that patients are (inappropriately) labeled as under “observation.” See our April 8 blog post for a description of the two-midnight rule—and the problems associated with it.

MACRA also extends the Children’s Health Insurance Program (“CHIP”) for two years. CHIP provides funds to states for health insurance for families with low income (but who do not qualify for Medicare). The CHIP extension has nothing to do with Medicare, but was a part of the political horse-trading that was needed to obtain bipartisan support for MACRA.