Everybody Gets A Medal: Budget Busting "Incentives" in Medicare Reform

by John R. Graham, NCPA, October 21, 2016

In April 2015, huge bipartisan majorities passed a milestone Medicare reform bill called MACRA, which imported all the worst elements of Obamacare into Medicare. At the time, I wrote an alternative proposal, and anticipated physicians would refuse to swallow the medicine MACRA prescribed. Congress passed the flawed MACRA bill, and President Obama gave a speech describing how "this legislation builds on the Affordable Care Act." Remarkably, Republican politicians who assert they want to "repeal and replace Obamacare" have still not recanted their support of MACRA.

The gist of MACRA is that Medicare will no longer pay for "volume" but "value" in a zero-sum game wherein physicians who do not satisfy the government's requirements for "value" transfer income to those who do. Since the bill was signed, the details have percolated from the elite physician executives who run the medical societies which lobbied for the bill down to practicing physicians. There has been pushback.

Nervous that physicians will bail out of Medicare if the government squeezes them too hard, the Administration has backtracked on MACRA's sticks and shifted towards carrots. Last April, the Administration published a proposed rule, 426 pages long. After a lengthy comment period, the final rule, which is 2,205 pages long (!), was published on October 14.

According to the proposed rule, 761,342 physicians were expected to participate in the Merit-based Incentive Payment System (MIPS) in 2017 (Table 64). Almost half (45.5 percent) were expected to be docked pay for underperforming while 54.1 percent would be rewarded for over performing, and a very small number would be neither penalized nor rewarded. $833 million would be transferred from the under performers to the outperformers. To give a little boost to the incentive for the first year, another $500 million would be handed out to the outperformers.

According to the final rule, up to 642,119 physicians are expected to participate in MIPS in 2017 (Table 62). However, only 5.3 percent will be penalized for underperformance. They will be docked $199 million, while the vast majority will get bonuses of $699 million (plus the $500 million extra in the first year).

In conclusion, the taxpayers' liability doubled from $500 million to $1 billion in just six months. That is not a big amount of money, but it should be an affront to those who still cling to the quaint notion that Congress should appropriate money for public spending. And by giving bonuses to almost 95 percent of physicians, the final rule ridicules any concept the legislation had of rewarding top performers for quality.

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