College of Law > Academics > Centers, Institutes & Initiatives > Mary and Michael Jaharis Health Law Institute > e-Pulse Blog > big-changes-horizon-medicare-reimbursement

Big Changes on the Horizon for Medicare Reimbursement Rates

On December 19th the Senate Finance Committee released the text of S. 1871, a bill that would overhaul the current Medicare physician reimbursement rate system. [1]
 Not Congress's first attempt, the bill would permanently repeal Medicare's sustainable growth rate formula (SGR), which determines the annual updates to Medicare’s payment rates for physician services. [2]  The SGR requires mandatory cuts in physician payments that are routinely cancelled by Congress with what is commonly referred to as a "doc fix." [3]  In place of the SGR there would be a new “value-based performance program” that will attempt to align physician payments with medical outcomes. [4]  The ultimate goal of this program is a gradual movement away from the current fee-for-service system, which has been criticized for rewarding volume over quality.  In addition, S. 1871 would freeze guaranteed physician pay increases, also known as "updates," for 10 years as the new program is phased in. [5]  The House Ways and Means and Energy and Commerce committees have also both passed similar SGR replacement measures in recent months with two primary differences: physician pay increases while the new program is phased in and the extension of a series of government health programs that were set to expire on December 31st. [6] 

While it is still early in this process and the final form of the SGR replacement program is yet to be determined, the future of physician reimbursement will likely rely heavily on "alternative payment models" and incentivizing physicians to focus on outcomes rather than performing as many procedures as possible.   S. 1871 calls for an annual increase of 2 percent for physicians using these "alternative payment models" and an annual increase of 1 percent for all other professionals. [7]  An example of an alternative payment models could be capitated care, where the healthcare provider is paid per patient, rather than per procedure, and the provider is responsible for establishing an effective care plan.  

Beginning in 2017, the new "Value-Based Performance Incentive Program" would take effect streamlining and consolidating three existing programs: the Physician Quality Reporting System, which provides incentives to professionals to report on quality of care measures; the Value-Based Modifier, which adjusts payments based on quality and resource use; and meaningful use of electronic health records (EHRs). [8]  The hope of this new system is that it will improve the quality of care while limiting costs and making physicians more accountable for the quality of their care. 

While there is a relative consensus among lawmakers that something needs to be done to fix the problems with the current fee-for-services system, there are still a variety of obstacles in the way, including the high cost of changing systems.  The Congressional Budget Office projects that it will cost $148 billion over the 2014-2023 period to implement S. 1871,  and the House Ways and Means and Energy and Commerce committee plans would cost $121 billion and $175 billion respectively over the same period. [9]  Staff members at the House and Senate committees are currently working on merging the proposals into a single piece of legislation that can be voted on in Congress before March 31, when a short-term extension of current Medicare physician pay rates expire. [10]



[1] Ralph Lindeman, Senate Panel Releases Text of Measure
To Replace Medicare Physician Pay System, Bloomberg BNA Health Care Policy Report (Dec. 20, 2013). 

[2] S. 1871, SGR Repeal and Medicare Beneficiary Improvement Act of 2013, Congressional Budget Office, (January 24, 2014). 

[3] Lindeman, supra.

[4] Id. 

[5] Id. 

[6] Id. 

[7] Id. 

[8] Id. 

[9] Steve Teske, House Doc Fix Bill Would Cost $121 Billion, CBO Says, Bloomberg BNA Health Care Blog (Jan. 24, 2014),

[10] Id.