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SGR and ICD-10's aftershock: Gauging the impact to your income and practice


Even though Congress failed to repeal Medicare's Sustainable Growth Rate formula last month, the odds are good that it will happen in the not-too-distant future. Here's what repeal may mean for your practice.

A tremor shook the nation’s healthcare system last month, in the form of an innocuous-sounding piece of Congressional legislation called the “Protecting Access to Medicare Act of 2014.” For doctors, the bill brings relief from two problems. First, it heads off an impending 24% reduction in Medicare reimbursements and replaces it with a .5% bump for the next year.

Second, and perhaps more importantly, the legislation contains a reprieve from the October deadline for implementing the International Classification of Diseases-10th Revision (ICD-10) code set-something for which many doctors and medical societies had been clamoring. 

But while the legislation may benefit doctors, it is not without costs to the healthcare system as a whole. The increase in Medicare reimbursements will add $5.2 billion to the nation’s healthcare bill in the coming year. The estimated price tag for a previous one-year delay in implementing ICD-10 was between $1 billion and $6.6 billion, so it’s safe to assume the costs of the new delay will be at least as great. And these costs are in addition to the billions already spent by providers, payers, electronic health records (EHR) vendors and others to prepare for the conversion. 

Of course, the effects of the new law are not just financial. In the following two articles, we look in more detail at what it all means for the healthcare system-and for your practice.

Repealing SGR: How it might change medical practice

After months of painstaking negotiations, and years of pleading from doctors and medical societies, Congress appeared poised in late March to finally repeal the much-reviled Sustainable Growth Rate (SGR) formula used to calculate Medicare reimbursements. At the last minute, however, the repeal effort foundered over the question of how to pay for it.

Instead, Congress passed yet another “patch”-the 17th-in the form of a one-year, .5% increase in Medicare reimbursements at a cost of about $5.2 billion. The patch legislation also included a one-year delay of the deadline for healthcare providers and payers to convert to the ICD-10 coding system.

Had Congress not enacted the patch legislation by April 1, physicians would have seen a 23.7% reduction in Medicare reimbursements, as mandated under the SGR formula.

Next: Repeal legislation had broad bipartisan support


Despite the failure of the latest repeal effort, there remain grounds for optimism that the SGR will be eliminated in the foreseeable future. First, the repeal legislation enjoyed broad support among lawmakers in both parties and both houses of Congress. Second, the issue that derailed it was unrelated to the nuts and bolts of the repeal legislation itself. Finally, the cost of repealing SGR has come down substantially in recent years, and now stands at about $140 billion, according to estimates from the Congressional Budget Office.

Reid Blackwelder, MD, FAAFP“There is bipartisan, bicameral support to make SGR repeal happen,” says Reid Blackwelder, MD, FAAFP, president of the American Academy of Family Physicians. “The hard part is getting those in charge to find ways to discuss pay-fors that minimize the partisan button-pushing.” So it is still worth considering what the impact of repeal would be for doctors and the healthcare system generally.


The SGR repeal legislation hammered out by two committees in the U.S. House of Representatives and one in the U.S. Senate included numerous provisions, but its overarching goal would be to nudge the nation’s healthcare system away from the current fee-for-service model towards one that rewards value and outcomes. It seeks to accomplish this primarily by:

  • repealing the SGR and replacing it with annual 0.5% increases (known as “updates”) in Medicare reimbursements through 2018, and maintaining the 2018 levels through 2023;

  • rewarding physicians and other healthcare providers bonuses for exceeding quality targets established under MIPS and penalizing them if they fall short of the targets  


What would these changes mean for physicians? To start with, they would replace the current uncertainty regarding Medicare payments with greater predictability, say healthcare policy experts. “Repeal takes away the annual sword of Damocles that hangs over physician’s heads in the form of huge across the board cuts in payment rates,” says Stuart Guterman, vice president for Medicare and cost control at The Commonwealth Fund, a healthcare policy think tank. “Doctors will have that pressure removed and a more stable system in which to operate.

“At the same time, Medicare’s going to be sending more consistent signals about what it wants doctors to do,” Guterman says. “Since the healthcare reform debate began providers have been saying ‘just tell us what you’re going to do and do it, because we can work with that.’ So it

Ardis D. Hoven, MD, president, American Medical Associationwould be a relief for them not to have to deal with all the adverse incentives at play in the current system.”

The annual payment updates, while modest, “would help physicians modernize their practices and begin exploring new payment models, which is something we’ve been talking a lot about in the last few years,” says Ardis D. Hoven, MD, president of the American Medical Association.


 As welcome as the promise of payment stability would be, the more profound impact of the legislation may lie in what it would mean for performance measurements. The repeal legislation can be thought of as a kind of “grand bargain,” in which physicians are assured of small, guaranteed increases in their base reimbursement from Medicare, in return for which a greater share of their income is tied to performance measurements, says Cheryl Damberg, PhD, principal senior researcher with the RAND Corporation think tank.

Next: In the future, physicians will be held more accountable for patient outcomes


Cheryl Damberg, PhD“This is part of a wholesale transformation going on in healthcare that’s related to using performance measurement for quality improvement, as well as accountability,” Damberg adds. “The idea here is to create incentives that in the not-too-distant future ratchet up to putting a significant amount at risk for meeting predefined metrics.” She notes that many of the alternative payment models [APMs] being tried out around the country, such as accountable care organizations, include similar financial risks and rewards for providers.


Damberg says PCPs may not yet fully grasp the wider implications of what it means to be held accountable for patient outcomes, as the repeal legislation would do. Until now, she says, most quality metrics have focused on what she terms “process measures”-providing recommended evidence-based care based on the patient’s condition. But accountability for outcome metrics will present greater challenges.

“Providers will have to think more broadly about ways to get the patient more engaged, about self-management, and being a true partner in setting goals and working to achieve them,” she says. “Physicians may have to work with community partners to get what they need (for patients). With poor populations, that could even extend to things like coordinating with social service agencies.”

Damberg cites the example of Live Well San Diego, a county-wide, public-private collaboration among physicians, health and human service organizations, safety forces, and others aimed at improving the health and well-being of all residents of San Diego County.

The requirements of meeting quality metrics will heighten the pressure on independent practices to join health systems or become part of an independent physician association. “Managing all these (quality) requirements in solo practice is almost untenable now, at least from what I’ve seen anecdotally,” she says.

Her views are echoed by Reed Tinsley, CPA, CFP, a healthcare management consultant based in Houston, Texas.

Reed Tinsley, CPA, CFP

Large-scale issues such as reimbursement and payment models are forcing many PCPs independent practice to examine long-term survival strategies. “That’s why I’m saying practice mergers and sales are coming back with a vengeance,” he says. “It’s one strategy doctors have finally realized makes a lot of sense.”

Not everyone thinks the legislation spells inevitable doom for small practices, however. “My view is the country will continue needing docs in small and solo practices,” says Molly Cooke, MD, FACP, immediate past president of the American College of Physicians. “There are many parts of the country with low population densities that can’t support huge numbers of physicians across many specialties.”


Despite the repeal legislation’s emphasis on quality-based reimbursements, Tinsley sees little prospect that it-or anything else-will eliminate traditional fee-for-service medicine in the foreseeable future. For one thing, he says, no one has developed a universally-agreed-on definition of “value” in a healthcare setting. “To reduce healthcare costs you’ve got to come up with an agreement on clinical protocols, how you’re going to great certain diseases, and everyone has their own idea how to do that,” he says.

Moreover, while the federal government and commercial payers have been funding experiments with APMs, they have by and large focused on large practices, and the results are not filtering down to smaller independent practices, Tinsley says. “No one’s going to turn a key and suddenly we’re out of the fee-for-service environment,” he says. “One piece of your practice may not be fee-for-service, but in most markets and in most practices, it’s still going to dominate the revenue stream, and I’m not seeing evidence of that changing anytime soon.”

Next: ICD-10 delay: Relief for practices, but challenges for healthcare system


ICD-10 delay: Relief for practices, but challenges for healthcare system


Tucked into the “Protecting Access to Medicare Act of 2014”-the law patching the Sustainable Growth Rate formula-is language postponing implementation of the deadline for adopting the ICD-10 code set until at least October 1, 2015. The deadline extension represents the latest development in a long-running battle over when healthcare payers and providers must convert to ICD-10-or whether they should have to at all.

The Centers for Medicare and Medicaid Services (CMS) first mandated use of the code set to replace the current ICD-9 codes at the start of 2009, with an implementation deadline of October 1, 2013. In 2012, under intense pressure from the American Medical Association (AMA) and other medical societies, CMS agreed to postpone the deadline until October 1, 2014.

Extension proponents argued that medical practices needed more time to absorb the administrative and financial burden of conversion, which has been estimated to range between $56,000 and $226,000, for a small practice, and as much as $8 million for a large practice.


Despite the postponement, many practices continued to lag in ICD-10 preparations, and the AMA soon began advocating for another extension. On the other hand, institutions such as hospital systems and commercial payers were making large investments in new hardware and software and training to prepare for the conversion. Consequently, many of the technical societies assisting with the conversion lobbied heavily against another postponement.

In a statement issued before passage of the patch legislation the ICD-10 coalition, an organization representing hospitals, health plans, and coding experts, among others, said that “any further delay or deviation from the October 2014 compliance date would be disruptive and costly for healthcare delivery innovation, payment reform, public health, and healthcare spending.”

CMS itself had taken the same view. As recently as late February, CMS Administrator Marilyn Tavenner stated publicly, “Let’s face it, we have delayed this more than once, and it is time to move on ... There will be no change in the deadline for ICD-10.”


The delay in converting to ICD-10 raises a myriad of challenges for the technical infrastructure supporting medical coding and billing, says Meryl Bloomrosen, MBA, RHIA, vice president for thought leadership, practice excellence, and public policy for the American Health Information Management Association. For example, she says, CMS has not issued any recent coding advice on ICD-9 because of the expected conversion to ICD-10.  “So does this mean we revert back to ICD-9? Or is everything just at a standstill?” she says.

The delay also poses challenges for medical coders and the schools that train them. “There’s a lot of concern among our coding educators, because they’ve been training students in ICD-10. Will those students have the skills that will get them jobs now?” Bloomrosen asks.

She also notes that the actual language in the bill says only that ICD-10 cannot be implemented before October 1, 2015-leaving open the possibility of yet further delays.  “Is there now a date certain for conversion or not? How can you plan for a transition when you don’t know for certain when it’s going to happen?”

Despite its earlier support for delaying ICD-10, its inclusion in the “Protecting Access to Medicare” bill was not enough to persuade the AMA to drop its opposition to the legislation. In a written statement following the bill’s passage by the U.S. Senate, AMA President Ardis D. Hoven, MD, said the association was “deeply disappointed” by the Senate’s action and that the AMA would “continue our efforts to secure a permanent SGR repeal this year.”

As to who inserted the postponement wording into the bill, that remains a mystery. A spokesperson for the U.S. House Committee on Energy and Commerce, where the bill originated, would say only that it was bipartisan and was based on concerns that groups are not yet ready to implement ICD-10.

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