On October 30th, 2013 The House Ways and Means and Senate Finance Committees released a draft legislative proposal to eliminate the Medicare Sustainable Growth Rate (SGR) formula.
Proposal Overview
Permanently repeal the SGR update mechanism.
Reform the fee-for-service (FFS) payment system through greater targeted focus on value over volume (FFS).
Revised FFS system would freeze current payment levels through a ten-year budget window.
Encourage participation in alternative payment models (APMs).
Allow individual physicians and other health care professionals to earn performance-based incentive payments through a compulsory budget-neutral program.
Beyond 2023, professionals participating in advanced APMs would receive annual updates of two percent, while all other professionals would receive annual updates of one percent.
As with the current Sequester budget and projected SGR reduction set for January 2014 the cuts are not painless and will affect practice operations and cash flow and services. The current projection is that this fix will not pass prior to the end of the year. If it passes it will likely be retroactive but not passed until later in the first quarter.
Remember that while a freeze at current rates for 10 years is better than a 24% cut, it is not a proposal to address inflation and therefore a cut in margins as costs rise within your practice. Successfully navigating the effects of resulting declining margins on practice services and goals mandates essential business planning and data based decisions.
Permanently addressing the flawed/broken Medicare sustainable growth rate payment formula requires a workable payment solution that provides a stable payment model that adequately addresses the actual expense of providing care and services for Medicare patient. For over a decade the SGR has created uncertainty and ongoing instability in Medicare reimbursements removing this outdates formula will remove the some of the uncertainty. However, the country’s growing national debt will increasingly force changes in the way healthcare is paid. The SGR will not be the last change that we face in Medicare.
Again the proposal is not a guarantee. The prudent business model as always: plan for the worst and have contingency plans to effectively address the negative impact of reimbursement cuts and progressive negative impact of delayed payments. Hope is not an effective business plan.
Prudent planning Assumption: Medicare stays on schedule and implements the SGR cuts beginning January 2014. For many practices the draconian effect of negative cash flow while incurring the costs of providing patient care and services (overhead) is simply not sustainable. The really bad news – this has a precedent and the results a not too distant memory.
Practice Quick Summary Review
•2013 Total gross charges: $14M
•Percent of practice Medicare revenues (includes Advantage, Tri Care, etc.) 50%
•2013 Total gross collections: $7M
•Percent of practice Medicare revenues: 50% ($3.5M)
•Projected 24.4% SGR cut from Medicare revenues: $854,000
•Projected increase in patient bad debt: 5%
•Additional revenue declines are anticipated for imaging, path lab, and radiation therapy through RVU/other fee schedule adjustments.
Proposed rule if implemented as proposed would also affect RVUs negatively for many office based services.
•Add the effects and cost of preparing for and implementing ICD-10 and CY 2014 will charitably be described as challenging.
If the fix is retroactive as expected, you will need to decide whether or not you will you collect patient deductibles and co-insurance up front and rebill your patients under the changed rates or let the changed rates go, or will you wait to bill your patients.
We will keep you posted as more data becomes available.
