Wednesday, May 23, 2012

What’s Up Doc? Medicare Carrots and Sticks

The Patient Protection and Affordable Care Act (PPACA) of 2010 mandates that certain administrative simplifications should be made to reduce overhead costs of health care. Since administrative complexity obeys the conservation laws of physics, for every bit of complexity that is removed, a new chunk of bureaucratic complexity must be added to the system. With that in mind, CMS has created and is proposing to grow an array of financial incentives and penalties for health care providers. This collection of carrots and sticks is intended to be used as so many levers to control and fine tune the practice of medicine by encouraging adoption of health information technology, measuring processes and steering physicians to low cost treatment methods.

Since confusion is abundant, and confusion leads to anger, fear and sometimes outright panic, which in turn causes folks to dump perfectly good private practices on the first hospital that knocks on their door, I thought it would be beneficial to clarify a few things and look at the situation from an objective mathematical perspective. Below are concise descriptions of the current CMS incentives and penalties programs, and a dollar amount evaluation of their possible effect on your bottom line.

Electronic Prescribing

A bit outdated in the EHR era, the eRx incentive program began in 2009 and is due to expire in its entirety by 2015, when no bonuses and no penalties will be assessed for this initiative.
The Rules: Currently, 10 electronic prescriptions in the first half of the year will ward off the penalties for next year, and 25 electronic prescriptions during the entire year will get you the incentive next year. The prescriptions must be written for Medicare patients’ unique visits with associated E&M codes and a “qualified” electronic prescribing system must be used. Any eRx module in a certified Complete EHR will do and if you use a standalone system, make sure it states that it is “qualified” for CMS incentives.
The Numbers: The incentives are 1% this year and 0.5% in 2013. There are no incentives available after that. Incentives are calculated as a percentage of the total Medicare Physician Fee Schedule (MPFS) allowable charges for the calendar year. The penalties are -1%, -1.5%, -2% in 2012, 2013 and 2014 respectively. There are no penalties after 2014. Penalties are applied as an adjustment to ongoing MPFS payments during the penalty year. Note that you cannot receive eRx and Meaningful Use Medicare incentives in the same year. You can do so for Medicaid EHR incentives.

Physician Quality Reporting System (PQRS)

This is the successor of PQRI (the “I” was for initiative) and it started in 2010 in its current format with no proposed expiration date. It is important to keep in mind that the contents of your PQRS reports will be made public on the Physician Compare website maintained by CMS.
The Rules: You will have to report on at least three clinical quality measures, or one group of measure, for the reporting year. You may report your measures via claims, registries, EHR or a special group reporting tool. The reporting is limited to Medicare patients and although the registry option offers a 6 months reporting period, most other methods require that you report on 30% to 80% of pertinent patients for the whole year. If you choose claim reporting, make sure you don’t let charges entered close to year-end linger around, because CMS may not get them in time to calculate your incentive. Both Incentives and penalties are calculated and applied as they are for the eRx program.
The Numbers: You could have gotten a 1% incentive in 2011, but starting in 2012 and through 2014, the incentive is a constant 0.5%. There are no incentives authorized after 2014. Penalties begin in 2015 with -1.5% and continue to -2% from 2016 and beyond. There is no end date for the penalties. PQRS incentives are independent of eRx and Meaningful Use and may be combined with either one.

Maintenance of Certification (MOC)

The MOC program is only available for those who successfully report PQRS measures and is available only through the incentives phase of PQRS.
The Rules: You need to participate in a Maintenance of Certification program and complete a practice assessment more frequently than is required to qualify for or maintain board certification. Make sure that your board is indeed qualified by CMS for this program, since not all are.
The Numbers: This is a very simple program that will pay an additional 0.5% of MPFS to what you already receive for PQRS reporting. The program expires after 2014 and there are no penalties associated with it.

The EHR Incentives Program (Meaningful Use)

Saving the best for last, this is the big one and most advertised one. The Meaningful Use program started in 2011 and is projected to continue indefinitely. It has been likened to an escalator, where the requirements become more comprehensive and more complex every two or three years.
The Rules: You must buy an ONC Certified Complete EHR (or a collection of certified modules) and meet a set of required measures every calendar year. The measures are adjusted every two (or three) years, from the current Stage 1 to future Stages 2, 3 and presumably others. There are two tracks for this program, one for Medicare and one for Medicaid participants. Meaningful Use is a very comprehensive set of measures reaching into every aspect of medical practice and is inclusive of both electronic prescribing and the reporting of clinical quality measures. The EHR incentives program and the electronic prescribing program are mutually exclusive under Medicare incentives.
The Numbers: The program offers 5 years of decreasing incentives followed by incrementally increasing penalties for non-participation. The maximum incentives under the Medicare track is $44,000, plus 10% of that if you practice in a designated health professional shortage area, and $63,750 for the Medicaid track. You can join the Medicare track as late as 2014 (you will lose about half the incentive) and the Medicaid track can be started as late as 2016 with no loss of incentives. However, in 2015 penalties, in the form of adjustment to your Medicare allowed charges, will begin to apply for those not participating in either track. CMS is proposing to backdate the penalties, so they apply in 2015 to those who have not become Meaningful Users by October 1st of 2014, effectively moving up the compliance date mandated by legislation. The penalties start at -1% of MPFS in 2014 and increase by 1% every year until they reach -5% in 2019 and continue at the -5% level indefinitely.

Bottom Line

For illustration purposes, let’s say you see 10 Medicare patients every day, you work 5 days every week and 50 weeks every year in a health professional shortage area. Accounting for different E&M charges, you are looking at approximately $200,000 per year paid to you by Medicare, and clearly this is a best case scenario. Let’s further assume that the proposed reimbursement cuts and the proposed increases to primary care reimbursement balance each other out and your Medicare revenue stays flat in today’s dollars. How will the carrots and sticks affect your income?
Scenario 1: You do all that is required and are rewarded with nothing but carrots between 2011 and 2020. In addition to your claims reimbursement, you will receive from CMS $57,400 over the current decade, which is $5,740 per year or $478 per month, totaling less than 3% increase in your average Medicare reimbursement.
Scenario 2: You ignore all CMS programs and do your own thing, and stick with your decision through 2020. You will of course not get any incentives and you will lose a total of $72,000 over this decade, or an average of $7,200 per year, which is $600 per month, or the equivalent of 3.6% of your Medicare revenue over 10 years.

It is important to note that, while the incentives are temporary, the penalties are applied indefinitely, converging to 7% MPFS, or $14,000 per year in our imaginary scenario. The sticks are larger than the carrots. These numbers do not bring into account costs of opportunities lost, such as performance bonuses and additional payments per-member-per-month that are becoming available from private and public payers for special endeavors such as medical homes and other quality improvements, and require the same infrastructure be exercised in the same fashion as the Medicare incentives programs described above.

But wait, there is more: The Value Based Payment Modifier (VBPM)

If you are fortunate enough to practice in Iowa, Kansas, Missouri, or Nebraska, you are part of a preamble to a new Medicare program which proposes to add a modifier to your charges based on the ratio of cost to quality for services rendered to Medicare members. So far physicians of all specialties in the selected pilot States have received Quality and Resource Use Reports (QRURs) outlining their performance and costs based on 2010 claim submissions. The program is in its definition stage and there are no clear numbers associated with the proposed modifier, and no explanation on how such modifier would be calculated, but it seems that by far, this is going to be a much more significant stick or carrot than anything outlined above. The legislation mandates that this program goes into effect in 2015 and by 2017, most physicians paid under the MPFS will see the VBPM applied to claims they submit to Medicare. [More on the VBPM in a future post…]

CMS incentives and penalties proposed programs 2011-2020 (click to enlarge)

 These are the visible carrots and sticks. Now it’s your turn to do the math and make your decision. Note that Scenarios 1 and 2 above are the extremes. You can always jump on the wagon at a later point, with less incentive and/or less penalties. The wagon, though, is accelerating pretty quickly.


  1. Very good summary in language that even most lay people can grasp. Thanks for that, but dang, Margalit, I kept waiting for an editorial shoe to drop either praising or damning something.
    So you did good making your summary editorially neutral.

    I'm struck by the cautious long-term approach to encourage changes in the right direction. It's too bad so many critics of ACA insist on shrill, overwrought pronouncements that overlook the simple fact that not only is participation in Medicare and/or Medicaid on the part of providers not only flexible but entirely optional.

    Nobody is "taking over" anything. This is simply responsible stewardship of tax money.

    1. Hi John,
      I was going to add an editorial, but I thought the facts speak for themselves, and I wrote this because I get questions about this stuff every day and folks are truly frightened.
      You are right though, CMS is just a payer and these are their rules. Nobody is forcing you to do business with them. And when you itemize the financial impact, it doesn't seem too terribly out of line....

  2. You are a great writer, and I think you have put some thoughts into writing this article