SGR Repeal Signals Accelerated Move to Value-Based Payment

By Jerome Connolly, PT, CAE
June 6, 2015

On April 14, the Senate passed The Medicare Access and CHIP Reauthorization Act of 2015 (H.R. 2) by a vote of 92 to 8 thus repealing and replacing the flawed sustainable growth rate (SGR) formula and averting the 21 percent reduction in provider payments that was scheduled to take effect in April. The legislation, which originated in the House and passed that chamber with an astounding 392 “yea” votes, was signed by the president and is now law. The measure extends the therapy cap exceptions process through December 31, 2017. An amendment in the Senate to fully repeal the cap fell two votes shy of the necessary 60-vote threshold. However, the underlying legislation does contain provisions for more targeted (and palatable) manual medical review vis-à-vis the therapy cap.

Obviously, much work remains for the Private Practice Section (PPS) in the advocacy arena and despite these favorable SGR and therapy cap developments we will continue to aggressively pursue our legislative priorities that include locum tenens and opt-out. But more activity on the therapy cap may still be possible this Congress. One senator (Dean Heller, R-NV) who opposed the therapy cap repeal amendment offered by Senators Ben Cardin (D-MD) and David Vitter (R-LA), indicated he did so only after receiving assurance from his leadership Majority Leader Mitch McConnell (KY) and Finance Committee Chairman Orrin Hatch (UT) that there would be another opportunity this year to advance and work on full repeal of the cap.

Since the spring congressional recess occurred between the House and Senate consideration of the Medicare bill, the PPS advocacy team took advantage of the two-week hiatus and worked diligently with the American Physical Therapy Association (APTA), the Therapy Cap Coalition, and our locum tenens allies to urge the Senate to delay, amend, and then pass H.R. 2. Numerous grassroots alerts—both broad and targeted—were issued and PPS members responded diligently. However, with the senators not being in Washington, decisions could not be made on how the bill would be handled procedurally, and whether or not any given senator would be willing to push for consideration of amendments. In addition, a decision had to be reached as to whether any given amendment, if offered, would require budgetary offsets.

Ultimately, the leadership allowed six amendments, and the Cardin/Vitter amendment to fully repeal the therapy cap was one of them. All six amendments were defeated but therapy cap repeal was the one that came closest to passage. The “postmortem” analysis determined that this was a purely political vote and not necessarily one that accurately reflects any given senator’s position on the policy. Nevertheless, reaching 58 affirmative votes in such a political climate is no insignificant feat. A close look at the yeas and nays reveals no member of the Republican leadership voted for the amendment. Likewise, no Republican chairman of a major committee voted “aye” and only one Republican member of the Senate Finance Committee (Sen. Richard Burr-NC) voted for the amendment. All Democrats with the exception of Sen. Joe Manchin (WV) voted in favor of the amendment. (See Senate Roll Call Vote Tally, p.25.)

The repeal of the SGR formula is also an enormous accomplishment as it was responsible for the frequent (nearly annual) threats of double-digit cuts in our Medicare payment rates. The new law replaces the SGR with an approach focused on rewarding high-performing providers while supporting alternative payment models such as accountable care organizations and patient-centered medical homes.1 As such, it represents a dramatic shift in Medicare reimbursement philosophy and pragmatics as it places an emphasis on value through the establishment of a merit-based incentive payment system (MIPS).

The regular threatened cuts to fees under the SGR will be replaced by modest annual updates allowing fees to increase by 0.5 percent this month (June) and each year from 2016 through 2019, after which they will remain at the 2019 level through 2025. But “high-performing providers and providers participating in alternative payment models” will have the opportunity for additional payments.2

Beginning in 2019, the MIPS will replace three previous incentive programs (physician quality reporting system [PQRS], meaningful use of electronic medical records, and the value-based modifier) with a combined value-based payment program that assesses the performance of each eligible provider based on quality, resource use, clinical practice improvement activities, and meaningful use of certified electronic health record technology.2

This is an open, clear statement of Congress’s intent to accelerate the move of the basis of Medicare reimbursement from volume to value. The legislation calls for a new payment plan that eventually bases physician payments on their participation in value or incentive-based payment models. The SGR replacement reinforces the need for health care organizations to have a strategy in place to address the shift away from the fee-for-service payment model.3

The Secretary of Health and Human Services (HHS) will have substantial flexibility—within guidelines—to specify the quality measures to be used in determining the MIPS payment adjustment and to update the measures list as appropriate. The Secretary also will be responsible for developing the methodology for assessing the performance of each provider and the formula for calculating payment adjustments, as well as setting the threshold for bonus payments for exceptional performance. While physical therapy was not specifically mentioned in the statute, there is direction that all non physician providers will be included through the regulatory process through the provision that empowers the Secretary to decide whether and which other categories of health care professionals would be eligible for the MIPS after the first two years.

Providers who participate in alternative payment models can receive extra payments, such as shared savings for accountable care organizations or patient-centered medical homes. In addition, a 5 percent bonus would be available each year from 2019 through 2024 for those physicians who receive a substantial portion (at least 25 percent) of their revenues through those models. Providers who choose to participate in the MIPS would be subject to positive or negative payment adjustments based on their performance, with $500 million in funding each year from 2019 through 2024 to provide an additional adjustment for providers with exceptional performance.1

Beginning in 2026, fees would increase by 0.75 percent each year for providers who participate in an alternative payment model and 0.25 percent per year for those who do not. All providers not participating in alternative payment models will be subject to the MIPS beginning that year.1

All this obviously means that much critical work lies ahead in the regulatory arena that will impact our Medicare reimbursement rates as private practitioners.

Given CMS and congressional history, it is clear that the MIPS will be predicated on quality and outcomes. Physical therapy is well positioned for this new era as functional outcomes measures abound in our profession. Conversely, the care of medical doctors generally is not as conducive to measuring the effects of care, which is why physicians are currently emphasizing process measures; that is, whether or not something was done, rather than the ultimate result (outcome) of their care on the patient.

Consequently, there is a level of angst within the physician community about the new payment method, even though the American Medical Association strongly endorsed H.R. 2. Some specialty societies are clearly concerned and some believe this is a dramatic step into the unknown. “American Society of Plastic Surgeons is greatly concerned about the impact H.R. 2 will have on patient care and maintains its conviction that the Act is not in the best interest of patients, access to care, nor the quality of patient care delivered by all medical specialties.”4

Under the new reimbursement schema, Medicare will pay doctors based on how well they do their jobs, but it is hazy on how the government will accomplish this. “I am very skeptical of this,” Urban Institute Fellow Robert Berenson, M.D., was quoted as saying. “It is really absurd that we do not have any measures for most doctors that can place a value on their performance.”5

Blair Childs, senior vice president of Premier Inc., a large provider alliance, was unequivocal about what the repeal means for their industry. “It’s a new era,” he said. Though his organization has been deeply involved in pursing alternative payment models such as accountable care organizations (ACOs), “I do think a lot of the physician organizations have not been as engaged in this area,” he added. “This is a wake-up call and it is going to have big implications for health care in this country.”6

The plan represents one of the biggest steps yet from the government to actively accelerate the transition from the traditional fee-for-service model to value-based care. Some experts such as Paul Keckley, managing director at the Navigant Center for Healthcare Research and Policy Analysis, believe this will significantly “raise the stakes for clinically integrated networks of physicians, allied health professionals and their business partners to take on payer-sponsored risk.”7

To refine and implement a value-based system, health care leaders and the government must take several steps, including standardizing the definition of value, developing payment models geared toward positive outcomes, and aligning stakeholder interest.8

Meanwhile, and separate from the SGR legislation, HHS has embarked on a fundamental reform of how it pays providers for treating Medicare patients in the coming years. The intent, according to HHS officials, is to cut down on the volume of unnecessary procedures while improving patient outcomes.

“Those models will depend on how well providers care for their patients, instead of how much care they provide,” HHS Secretary Sylvia Mathews Burwell said at a January press conference in Washington.9

For the first time, her agency is “setting clear goals—and establishing a clear timeline—for moving from volume to value in Medicare payments.” In doing so, CMS will tie 30 percent of all fee-for-service (FFS) payments to providers to quality initiatives through alternative payment models—particularly ACOs and bundled payments—by 2016. It will rise to 50 percent by 2018. According to HHS, about 20 percent of Medicare FFS payments are through new payment models.10

PPS members can be relieved that we no longer have to worry about Medicare cuts that caused the frequent legislative SGR “fire drills.” However, we cannot understate the importance of the shift to value-based payments, a method that is sure to gather momentum now that it is recognized by the major federal payer.11


1. H.R. 2: The Medicare Access and CHIP Reauthorization Act of 2015.

2. Guterman S, With SGR Repeal, Now We Can Proceed with Medicare Payment Reform, The Commonwealth Fund Blog, April 15, 2015.

3. Ellison A, SGR replacement reinforces move toward value-based care, Becker’s Hospital CFO, April 16, 2015.

4., accessed April 23, 2015.

5. Budryk Z, Is the proposed SGR fix too vague to work?, Deficit hawks question savings while healthcare experts call for better-defined quality measures, Vox. April 7, 2015.

6. Small L, What the SGR repeal means for value-based payment models, Providers, payers weigh in about “doc fix” replacement’s ‘wake-up call’ to industry, Fierce Healthcare, April 15, 2015.

7. Keckley P, The SGR fix: what does it mean for hospitals and health systems?, April 6, 2015, Hospital and Health Networks Daily, AHA Publications.

8. Szczerba R, The Medicare ‘Doc Fix’ Bill: How Do We Pay For Value-Based Care?, Forbes, April 7, 2015.

9. Millman J, The Obama administration wants to dramatically change how doctors are paid, Washington Post, January 26, 2015.

10. Burwell Statement, Progress Towards Achieving Better Care, Smarter Spending, Healthier People,, January 26, 2015.

11. Japsen B, Anthem Blue Cross’ $38 Billion Move From Fee-For-Service Medicine, Forbes, January 29, 2015.


Jerome Connolly, PT, CAE, is a registered federal lobbyist whose firm, Connolly Strategies & Initiatives, has been retained by PPS. A physical therapist by training, he is a former private practitioner who throughout his career has served in leadership roles of PPS and APTA. Connolly also served as APTA’s Senior Vice President for Health Policy from 1995–2001.

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