Is Medicare’s New Physician Payment System Doomed?

This summer, a little-noticed but far-reaching change to how physicians are paid under Medicare went into effect with the goal of remaking the program’s payment mechanism to reward quality and control costs. Until July, the amount physicians were paid for everything from a routine checkup to open-heart surgery was determined through an unpopular law known as the Sustainable Growth Rate. For years, physicians and experts alike scorned the SGR, whether because of proposed fee cuts (which mostly never materialized), or because the formula was seen as unfair and ineffective. No one was surprised when it was repealed. But according to two health policy experts, SGR’s replacement may be no better. 

Writing a Perspective article in the New England Journal of Medicine, Miriam Laugesen, Mailman School assistant professor of Health Policy and Management, and co-author Jonathan Oberlander from the University of North Carolina at Chapel Hill, argue that SGR’s replacement—the Medicare Access and CHIP Reauthorization Act or MACRA—much like the SGR, is susceptible to manipulation. Medicare’s embrace of unproven innovations represents, they write, “a remarkable leap of faith.” Among the their arguments are the following:

1. ACOs and similar alternatives are unproven, and fueled on hype and hope.

Beginning in 2019 after a phase-in period, MACRA will incentivize physicians to join an ACO (accountable care organization) or similar alternate payment method. The purpose of this incentive is to constrain costs by moving away from fee-for-service model that rewards high volume (read: excessive treatment) to a system intended to reward quality and value—a transition dubbed “volume to value.” But even under the new system, the authors argue, volume will continue to be rewarded. “At this junction, ‘volume to value’ is as much (or more) a marketing slogan as it is actual policy,” they write. Evidence that ACOs and the like control costs and improve quality “is thin, mixed, and preliminary.”

2. It’s unclear whether it’s even possible to measure physician quality.

Under MACRA, doctors who remain in traditional fee-for-service plans will be paid based on how they score on measures with an emphasis on physician quality. “Improving the quality of care is an important goal,” Laugesen and Oberlander write, but whether quality can be measured remains to be seen. According to the authors, “it’s unclear that we have the appropriate measures to accurately, meaningfully, and comprehensively evaluate the quality of physicians’ care, let alone to render such a judgment in a single score.”   

3. MACRA is just as vulnerable to political tinkering as its predecessor

When the SGR increased payments to physicians before 2002, it drew little scrutiny. But as soon as it generated fee cuts, physicians successfully lobbied Congress to overturn those cuts. Likewise, MACRA frontloads rewards and may be less popular when bonuses expire in 2024. “If Medicare’s new payment system works too well to constrain spending, it could fail politically,” the authors write. Another major vulnerability: MARCRA allows medical professionals to pick the quality measures on which they will be evaluated. “No technical formula is immune from the politics of health care,” the authors conclude. “The SGR is gone, but there is no permanent fix for physician payment.”

On the face of it, the switch from SGR to MARCA seems esoteric, but the potential repercussions will be felt throughout the $3 trillion healthcare system. According to Laugesen, Medicare prices largely shape prices for the private insurance market, although private insurance prices are higher.

“Americans pay far more for healthcare than anyone else in the world while our health outcomes lag behind other rich nations,” says Laugesen. “Reform is badly needed, but the system is changing not nearly as much as it appears. The forces of policy entropy have a strong bias toward the status quo.”