When the Medicare Access and CHIP Reauthorization Act (MACRA) replaced the failed Sustainable Growth Rate (SGR) formula for determining physician Medicare payment rates, the ongoing threat of increasingly steep mandatory pay cuts disappeared.

To estimate MACRA’s effect on Medicare spending, researchers with the RAND Corp. compared a theoretical scenario in which MACRA had not been enacted and the SGR update overrides had continued (a quasi control arm) versus three potential MACRA scenarios based on whether the majority of physicians participating in an advanced alternative payment model (APM) chose a model with low, medium or high financial risk. In each of the three MACRA scenarios, it was assumed that 60 percent of physicians would choose the Merit-Based Incentive Payment System (MIPS) and the remainder would choose an advanced APM. An example of a low-risk APM would be a patient-centered medical home, a medium-risk example would be a Medicare Shared Savings Program Track 2 accountable care organization (ACO), and a Next Generation ACO would be an example of a high-risk APM.

In the baseline or control scenario, Medicare spending for physician reimbursement would increase from $81 million in 2014 to $109 billion in 2030, and hospital Medicare revenue would increase from $223 billion to $413 billion.

In the scenario in which providers would take on the least amount of financial risk, physician revenue would decrease by $35 billion from 2015 to 2030, compared with the control scenario, but hospital revenue would increase by $32 billion.

In the middle scenario, physician revenue would decrease by $47 billion, and hospital revenue would decrease by $22 billion.

In the third MACRA scenario, in which the majority of physicians in advanced APMs chose a high-risk model, physician revenue would decrease by $106 billion, and hospital revenue would decrease by $250 billion—because physicians would respond to payment models in ways that would reduce the use of hospital services.

The study authors pointed out that their estimates are “subject to a high degree of uncertainty,” as the final MACRA regulations could change and there is scant historical experience to provide guidance on parameter values, such as those for APM participation rates and provider performance.

The RAND study was published in the April issue of Health Affairs.

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