Weathering the ‘Perfect Storm?’

This is the most comprehensive change to the status quo, but it is by no means the first. By 1975, the federal government could see that open fee-for-service was leading to skyrocketing health care costs. It began experimenting with ways to curb physician charges. It pegged reimbursements to the Medicare Economic Index (still used to update hospital reimbursements by 3.2%-3.6% per year) and then tried basing reimbursement on relative value units. Costs continued to rise. Thirty years after the 1965 law, as health care spending continued to spiral out of control, the Sustainable Growth Rate was applied to physician repayment as an attempt to reel it in. The basic premise was that increased costs from increased patient and procedure volume would be curbed by decreasing the reimbursement per procedure.

The sustainable growth model essentially placed a spending target that would grow in step with GDP using the total expenditures beginning in 1996 as a benchmark. If, during a given year, spending outstripped the target, the following year a compensatory decrease in physician reimbursement would be enacted. If spending were less than the target, then physician payments would increase. Expenditures have exceeded the target every year since 2002, and each year our spending gets further and further from the benchmark, compounding the penalty. If the SGR penalties were allowed, it is estimated that physician repayment would drop by 25%-35% in the next few years. Each time the penalty is about to be applied, a fix is passed by Congress, saving our livelihoods at the last minute. Although we should be thankful not to take a 35% pay cut, the SGR and its fixes increased physician repayment by a mere 5.1% between 1992 and 2012. For comparison, Social Security benefits, adjusted annually to compensate increasing cost of living, have risen 52.9% in the same period. Meanwhile, as I mentioned earlier, hospital reimbursement continues to be tied to the Medicare Economic Index, which yields a fairly predictable payment increase of 3.2%-3.6% each year. The Affordable Care Act operates as a law separate from the SGR law, though the two are closely intertwined.

Title III of the Affordable Care Act provides a number of new incentives and penalties that will help make efficiency and quality goals that affect profit at least as much as procedural volume. It will impact hospitals and physicians in a number of new and potentially positive ways. Most immediately concerning to hospitals and medical groups are the incentives for quality. With value-based purchasing, Medicare will withhold 2% of diagnosis-related group (DRG) reimbursements to hospitals at the beginning of a year, giving them the chance to earn it back at the end of the year if they meet quality and efficiency performance goals. The top performers will receive a bonus from the funds collected from those who do not meet goals, making this a budget-neutral operation. Cardiothoracic surgeons will feel this scrutiny early, as the first five DRGs subject to the law are acute myocardial infarction, heart failure, pneumonia, surgeries, and health care–associated infections. As time passes, more diagnoses will be added.

Payments will be based on bundled care, meaning that a hospital will be paid one sum to cover the peri-admission period, starting from 3 days prior to 30 days after admission. Complications, readmissions, and repeat tests will not generate additional funds for the hospital. You can expect that daily chest x-rays and multiple echocardiograms will generate a lot of e-mails to attending physicians. Other preventable hospital-acquired conditions, such as catheter-associated urinary tract infections and pressure ulcers, if present in rates beyond the norm for the country, could cut reimbursements an additional 1%. Patient satisfaction scores will influence hospital reimbursement. Readmission rates beyond the specified cutoff for each admission will result in a 3% hospital pay cut, again, starting with the same set of diagnoses. When meaningful use of electronic health records incentives are factored in, hospitals are looking at a 7% swing on reimbursements for the DRGs listed above by 2017. Hospitals typically operate on a profit margin around 3.5%.

On the individual physician level, there are a number of changes. Already in place was a bonus for participating in physician quality reporting systems (PQRS), such as the STS database. By 2016 the bonus for participating will become a 2% pay cut for not participating. Thankfully, our specialty has been forward thinking in this regard, and the majority of cardiothoracic practices already participate in the STS database. Similar to value-based purchasing, the physician value modifier will apply a 2% bonus or penalty to reimbursements, based on a broad spectrum of quality measures, including patient safety, population and community health, total cost per patient by condition, and patient experience. Again, this will be budget neutral. When all of the items are tallied, the lowest-performing providers could see a 6% decrease in their personal reimbursement.