Last week, Farzad laid out the big picture implications of the SGR Fix Legislation recently signed into law.

But now that one of the most absurd yearly rituals in politics permanently behind us, it’s time to look more closely at what has actually replaced Medicare’s Sustainable Growth Rate. After all, the goal hasn’t changed – the need for long-term Medicare sustainability. The SGR replacement strongly moves Medicare towards models that pay for value, instead ofservice activity.

See the two charts below — as you can see, fee for service payment is going to vary a lot from physician to physician in the future. The blue line represents an average quality/average cost provider who does not participate in an Advanced Payment Model. Projecting out to 2036, that provider will only be making fiver percent more than today. For some perspective – the same 2015 dollar, growing at two percent inflation, dwarfs the increase provided by the Medicare fee-for-service model.

 

SGR Effects Inflation

*Error bars are the value-based modifier through 2018 and in 2019 switch to the Merit-based Incentive Payment System, which participants in an Advanced Payment Model are excluded from. CMS has the ability to make payments even more variable. The chart shows only the minimal variation required by the law.

**The jump in 2019 for Advanced Payment Model is paid as a lump sum not as an add-on to each FFS payment and does not count against any benchmark in the Advanced Payment Model.

Taken together, these charts lead to an inevitable conclusion – there is no longer a viable, long-term path for doctors receiving fee-for-service reimbursements from Medicare.

By 2019, even the best providers participating in the fee-for-service Medicare reimbursement track will be left behind by modest inflation. While changes could always come, today, the sustainability of the Medicare system is now tied to the success of advanced payment models that focus on value.

Those models (MSSP, Next Generation ACO) are the future of Medicare. As baby boomers continue to retire, costs will be contained – one way or another. Now, we need to commit to ensuring that those costs will be contained through value generation, not less care. It’s the only possible path moving forward.