SGR Repeal and the End of Fee for Service Payments: A New Era for Forward Thinking Physician Groups

By: Bob Kershner, CIVHC Director of Stakeholder Relations

Previously featured in April’s Voices on Value.

The perennial “Doc Fix” debate is nearing an end. On April 14th, the Senate voted overwhelmingly (92-8) to repeal the sustainable growth rate (SGR) and implement a new payment model for physicians participating in Medicare. The House approved the bill last month with an unusually high degree of bipartisanship. President Obama has said he would sign the legislation.

The repeal of SGR accomplishes two critical things. First, it allows for virtually no increase in Medicare Fee-for-Service (FFS) rates over the next 10 years. Second, it puts into place opportunities and incentives for physicians to enter into value based payment models such as Bundled Payments, PCMH and Accountable Care Organizations (ACOs) if they are willing to abide by quality measures and accept risk. This is a huge step forward for our health care system and will undoubtedly jumpstart new delivery and payment models across the commercial health payer market as well.

There will be downward pressure on FFS payments over the next decade and physicians who remain in the FFS world will be negatively affected financially. The legislation allows for a 0.5% increase in FFS rates through 2019 and then rates will be flat 2020 through 2025. These rates will not keep up with the cost of doing business for practices. There will be incentives for physicians who participate in value based payment programs, thus, it is not only a priority but a necessity for physicians to begin the process of engaging in value based reimbursement. For specialists, developing value-based care systems will largely be in the space of bundled payments. For primary care providers (PCP) it will likely look like risk-based contracting for managing a population of patients. This can take shape as an ACO or a shared savings model for the PCP. For both specialists and PCPs there are a multitude of payment models that are possible.

This is an evolving process and there is no one size fits all solution. It is critical for physicians to not only participate but lead the development of these new models. The good news is there are programs underway nationally and here in Colorado that are successfully navigating these new payment models. These programs are improving patient care and reducing costs while increasing physician’s total income. An example of a successful bundled payment program is Health Care Incentive Improvement Institute’s (HCI3) orthopedic bundled payment program in New Jersey. This orthopedic group has nearly doubled their FFS rate by engaging in a bundled payment program with a major New Jersey health plan. Additionally, they have improved quality and lowered overall spending for total joints.

Here in Colorado, New West Physicians and Physician Health Partners have demonstrated long-term success at accepting risk for Medicare Advantage programs. Their willingness to enter into these arrangements has prepared them for the new payment models coming from not only Medicare, but from the commercial plans as well. Commercial plans are beginning to develop shared savings programs for PCP’s and specialists, but it is Medicare, with the repeal of SGR, that will drive this change across the country.

Bottom line is that physicians cannot afford to sit by and wait to see what happens. Physicians should be actively engaged in developing these new payment models; leading the culture of change and creating the future health care delivery system.

CIVHC has worked diligently over the past few years to develop analytic reports to help physicians prepare for these new payment models. Currently, CIVHC is working with four other states to develop a “Total Cost of Care” report focused on primary care practices. The initial reports will be completed this summer and the knowledge learned will allow CIVHC to provide PCP’s with a benchmark for how they are performing on a cost and utilization basis compared to their peers.

Additionally, CIVHC has been working with our episode analytics partner Aver Informatics, to develop bundled payment reports for acute medical and inpatient/outpatient procedures. These analytics can be the starting point for a specialty practice to understand how they are performing from a cost perspective in the market and where opportunities lie to develop value based payment offerings in their region. The initial analysis has been eye opening to say the least and exposes huge price variation for elective procedures across the state and even within selected markets along the Front Range of Colorado. There are a multitude of opportunities for entrepreneurial physician groups to improve care and lower overall costs while increasing their income.

This isn’t a time of doom and gloom for physicians. Health care is changing and with change comes opportunity. Payers, particularly self-funded employers, are begging for someone to help them to control their costs while maintaining or improving the quality of care for their employees. Medicare’s push toward value based payments can be the catalyst for this change and CIVHC is here to help providers understand how to navigate the new payment systems with assistance from insights in the APCD. As Peter Drucker so elegantly stated, “The best way to predict the future is to create it.” Please feel free to contact me for more information on the new payment models and how CIVHC can help your group to prepare for them.

About the Author: Bob Kershner is CIVHC’s Director of Stakeholder Relations. Contact him at