The most important details in the SGR repeal law

Last week the Senate passed legislation to permanently eliminate the Sustainable Growth Rate (SGR) formula, a mechanism created in 1997 designed to restrict growth in Medicare Part B spending. In practice, the SGR would have severely cut payments to providers paid under Medicare’s Physician Fee Schedule (PFS). Congress regularly has passed legislation temporarily averting those cuts. Passage of legislation permanently repealing SGR—in bipartisan fashion no less—gives providers much needed certainty around payments.

The new law—known as the "Medicare Access and CHIP Reauthorization Act of 2015"—includes many policy changes beyond simply repealing SGR. In particular, the law makes significant changes to the way that Medicare pays physicians, accelerating Medicare’s shift toward value-based payments. In addition, Congress included a two-year extension of the Children’s Health Insurance Program (CHIP) as part of the legislation.

To offset the budgetary cost of these provisions, the law cuts Medicare payments to hospitals and post-acute providers; eliminates first-dollar Medigap coverage; and requires high-income beneficiaries to pay a greater portion of Medicare premiums. In all, about $70 billion of the $210 billion legislation is offset.

I’ve summarized the key changes below. For a discussion of the law’s broader implications for providers, read this commentary by the Advisory Board's CMO Lisa Bielamowicz and register for our upcoming webconference on the SGR repeal.

Updates to the Medicare Physician Fee Schedule

In place of governing Medicare PFS payments through the SGR, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) maps out specific annual updates to payments for the next ten years and beyond.

Beginning in the second half of 2015 and through 2019, PFS payment rates will be updated by 0.5% annually. The law then freezes payment rates for five years (2020-2025). Beginning in 2026, payment rates will be updated either by 0.25% annually for providers participating in the Merit-Based Incentive Payment System or by 0.75% annually for providers participating in Alternative Payment Models.