According to a RAND study in Health Affairs, MACRA will slow the rate of growth for the program’s spending on physician services, saving anywhere from $35 billion to $106 billion over 15 years. Over this time, the relative drop in revenue under MACRA is still better than what could have transpired under Medicare’s former reimbursement system. With plenty of uncertainty surrounding MACRA’s implementation, the RAND forecast is useful, but due to potential changes in MACRA, the study’s results may need to be revisited in the future.
Study Findings
Two important findings from the study: First, Medicare spending on physician services will be lower under MACRA. The RAND team estimates a drop somewhere between $35 billion and $106 billion. However, second, there is a wide range of possibilities when it comes to hospital payment changes. They could see an increase of $32 billion or a decrease of $250 billion.
Peter Hussey, a senior policy researcher with the RAND Corporation and a coauthor of the study, said the losses will result from physicians responding to payment models in ways that reduce the use of hospital care, such as avoiding admissions and readmissions.
“What we found was that physicians will be in a scenario where their Medicare payments are increasing very slowly over the next 10 years,” Hussey said in an interview. “And the only way to increase those reimbursements is through participating in APMs which, if they are successful, keep patients out of hospitals. The biggest effect from MACRA could be a decrease in hospital revenues.”
More from RAND
As described in the Health Affairs abstract, Congress repealed the Sustainable Growth Rate formula for Medicare physician payment in 2015, eliminating mandatory payment cuts when spending exceeded what was budgeted. In its place, Congress enacted the Medicare Access and CHIP Reauthorization Act (MACRA), which established a two-track performance-based payment system that encourages physicians to participate in alternative payment models. MACRA could have huge effects on health care delivery, but the nature of those effects is highly uncertain.
RAND’s model estimates MACRA’s effects under different scenarios. RAND estimates that MACRA will decrease Medicare spending on physician services by −$35 to −$106 billion (−2.3 percent to −7.1 percent) and change spending on hospital services by $32 to −$250 billion (0.7 percent to −5.1 percent) in 2015–30. The spending effects are critically dependent on the strength of incentives in the alternative payment models, particularly the incentives for physicians to reduce hospital spending and physician responses to MACRA payment rates.
Look At Risk
RAND’s assessment of alternative payment models (APMs) looked at different levels of risk. Generally speaking, the riskier the Advanced APM, the more money physicians stand to lose if they pump up the volume of services. The study then compared the riskiness levels (low, medium, and high) to a “pre-MACRA baseline” scenario where Congress continued its tradition of postponing SGR pay cuts, and instead gives physicians nominal rate hikes of 0.5% from 2015 to 2025 with a 2% annual increase when sequestration cuts to Medicare expire. In this scenario starting in 2014, Medicare spent $81 billion on physician services and the spending baseline increases to $109 billion in 2030.
Ultimately, all three MACRA scenarios trailed the pre-MACRA scenarios for Medicare spending on physician services from 2015 to 2030. The gap varied, depending on the level of MACRA risk. In the low-risk MACRA scenario, physician revenue is $35 billion lower than the pre-MACRA baseline over 15 years for a 2.3% decrease. The highest-risk MACRA scenario comes in at $106 billion, or 7.1% lower, while the medium-risk scenario is $47 billion or 3.2% lower.
Grain of Salt
The Advisory Board recommends having some caution while reviewing the study’s results. They note the study results are projections, and the authors themselves stressed that they “are subject to a high degree of uncertainty.” The researchers projected Medicare spending between 2015 and 2030 under three MACRA scenarios with different assumptions about financial incentives under alternative payment models (APMs). They also made assumptions about physician participation in APMs based on those financial incentives. In addition, they acknowledged that MACRA regulations could change and that “elements of MACRA such as the definition of APMs will also change over time.
Furthermore, it may be too soon to predict the ultimate financial impact of MACRA’s APM models, since physicians and hospitals are just beginning to understand the role of value-based care. Nevertheless, regardless of the uncertain financial impact, CMS must be careful how it designs and implements new APM models, and providers and hospitals must understand the impact of their participation in such APMs.