MACRA Establishes New Medicare Payment Policies


Last year, after much discussion among medical professionals and health policy experts, there was a change to a more value-based approach led by the Centers for Medicare & Medicaid Services.

A Short History of Fee-for-Service and Managed Care

There was a time, not so long ago, that physicians were paid a flat fee for seeing a patient or performing a procedure. Known as fee-for-service, payment was based on quantity, rather than quality, of care. The concept originated in the 1940s as “traditional indemnity” health insurance. After seeing a physician, the patient submitted a claim and the insurer covered the expense. For many years, Medicare, which was created in 1965, was a fee-for-service payment system. Over time, though, this contributed to increased costs, with little improvement in the quality of care.1

What we now think of as managed care became popular in the 1980s, although the first managed care plan was developed, in Oklahoma, in 1929.2 Managed Care plans are prepaid insurance plans in which beneficiaries pay a set premium in return for care from a defined network of providers. Although these plans, especially health maintenance organizations (HMOs), dealt with increasing cost pressures, providers also saw their margins narrowing, and physicians were left with more work and less autonomy. Less restrictive models of health care payment such as the more open-network preferred provider organizations, have largely replaced the more restrictive closed-network HMO reimbursement models.3

A Change for Now

Last year, after much discussion among medical professionals and health policy experts, there was a change to a more value-based approach led by the Centers for Medicare & Medicaid Services (CMS). On April 14, 2015, with bipartisan support, President Obama signed into law the Medicare and CHIP Reauthorization Act of 2015 (MACRA), repealing the troubled sustainable growth rate (SGR) formula for determining Medicare payments for clinicians’ services. (The SGR formula had annually been threatening to make 25% to 30% cuts in physicians’ payments for services to Medicare beneficiaries.)

MACRA is a 21st-century concept that establishes a new payment policy. A primary goal is to develop and enhance the alignment between value-based health care delivery and payment models. Most physicians who treat Medicare patients will have to choose between 2 payment tracks—the Merit-Based Incentive Payment System (MIPS) and Alternative Payment Models (APMs); both go into effect in 2019.4

Physicians have already been reporting on quality measures for some time under an “alphabet soup” of separate Medicare reporting programs: the Physician Quality Reporting System, Meaningful Use, e-prescribing, and the Value-Based Payment Modifier Program, all of which have resulted in positive or negative annual adjustments to physician payments based on the reporting rules associated with each program. Under the new legislation, these programs will be combined into the single MIPS.5


MIPS is a pay-for-performance system in which the standard amounts that a physician is paid for services provided to Medicare beneficiaries will be increased or decreased by 4% to 9%, each year, based on the physician’s performance compared with other physicians. Four performance categories (ie, quality of care, resource use, clinical improvement, and meaningful use of certified electronic health record [EHR] technology) will be used to make up the composite performance score to determine payment adjustments.

  • Quality performance measures will be published annually in a final measures list from CMS. Existing Medicare quality and value-linked payment programs include the Hospital Value-Based Purchasing program and the Hospital Readmission Reduction Program.
  • Resource Use performance measures will supplement existing measures from the Value-Based Payment Modifier program with input from physicians and other stakeholder communities. Stakeholder input will inform CMS’s methodology to link resources with specific episodes of care and ensure, as best it can, that professionals are not penalized for serving sicker patients.
  • Clinical Practice Improvement Activities performance measures will take into account professionals’ efforts to engage in such activities. Specified activities will be applicable to all specialties and types of practices, with particular consideration for small practices, practices in rural areas, and practices located in health professional shortage areas.
  • Meaningful Use of Certified EHR measures will be equivalent to current Meaningful Use criteria. To prevent duplication, professionals, who report quality measures for MIPS through a certified EHR system, are deemed to meet the Meaningful Use clinical quality measure component.6

Clinicians will be provided with a composite performance score that incorporates their performance on each of these categories. Based on this score, eligible professionals (EPs) may receive an upward, downward, or no payment adjustment. (In time, the EP category will include pharmacists who provide direct care services, such as immunizations; point-of-care, wellness, and prevention screenings; medication therapy management; chronic condition management; patient education; and counseling.) MIPS offers an opportunity for EPs to achieve significant financial incentives for providing health care that advances the goals of a better, smarter, and healthier system.

EPs who received negative adjustments will be capped at 4% in 2019, 5% in 2020, 7% in 2021, and 9% in 2022. EPs who fall below 25% of the threshold will receive the maximum penalty.

Smaller practices that have not fully adopted data management may prefer to choose MIPS because it allows for a go-slower approach, and more leeway regarding the ability to remain independent instead of joining a wider medical data network.7


MACRA creates strong incentives for physicians to participate in APMs. Participants will receive a lump-sum incentive payment equal to 5% of the prior year’s estimated aggregate expenditures under the fee schedule. The 5% incentive payment is available from 2019 to 2024. Beginning in 2026, the fee schedule growth rate will be higher for qualifying APM participants than for other practitioners.

Many providers will participate in a qualifying APM in order to avoid the risk of cuts under MIPS. (The cuts are based on the MIPS composite performance core, the EP performance threshold.) A properly designed APM will address the barriers under the current payment system that prevent delivery of higher quality, more affordable care. For example, an APM could pay the physician practice directly for the costs of a high-value service that is not paid under the current Medicare fee schedule, if the physician accepted accountability for using that service to achieve improvements in quality, or reductions in overall resource use. An APM could pay the physician practice based on its ability to comprehensively address the patient’s health problem, rather than on how many or what types of services the physician delivers. This could protect the physician practice against financial losses when it treats a patient’s health problem in ways that reduce overall spending for Medicare and other payers.4

MACRA also encourages the development of physician-focused payment models (either a method of paying physicians that meets the requirements for an APM or a method of compensating a physician for services as a necessary component of an APM being managed by an alternative payment entity as defined in MACRA).4

Many physician practices and pharmacists are already a part of an accountable care organization (ACO) or patient-centered medical home, potentially making them ideal candidates for the APM system. To be exempt from MIPS and benefit from the incentives for APM, physicians will need to have at least 25% of their Medicare payments or patients coming from an alternative payment model by 2019.

In the early phase of the payment reform initiative’s implementation, APMs will be limited to 3 pathways:

  • Medicare’s existing ACO efforts
  • The Pioneer ACO program—this is designed for health care organizations and providers who already have experience in coordinating care for patients across settings. It allows these provider groups to move more rapidly from a shared savings payment model on a track consistent with, but separate from, the Medicare Shared Program. It is designed to work in coordination with private payers by aligning provider initiatives, which will improve quality and health outcomes for patients across the ACO.
  • Medicare Shared Savings Program

End Note

It is too early to tell if MACRA is the right fix. It is not yet a year old, and there remains much to be done to determine whether it will be successful. EPs should start thinking about which payment model works best for their practice. Final decisions must be made in 2019.

This article is published in collaboration with the Directions in Pharmacy CE Conference program.

A corporate and magazine scribe, Nan Myers writes frequently about health care.


  • Conway PH, Gronniger T, Pham H, et al. MACRA: New opportunities for Medicare providers through innovative payment systems (updated). Health Affairs Blog. Published September 28, 2015. Accessed March 3, 2016.
  • A brief history of managed care. Appendix B: Medicaid managed care for people with disabilities. National Council on Disability Publications website. Published March 15, 2003. Accessed March 3, 2016.
  • Barnes J. Moving away from fee-for-service. The Atlantic website. Published May 7, 2012. Accessed March 3, 2016.
  • Miller H. How the federal government can accelerate successful health care payment reform. Center for Healthcare Quality & Payment Reform website. Accessed March 3, 2016.
  • Doherty R. How Medicare fee-for-service is like a 1965 Ford Mustang. Published May 2015. American College of Physicians website. Accessed March 3, 2016.
  • Medicare Access and CHIP Reauthorization Act (MACRA). California Academy of Family Physicians website. Published February 2, 2016. Accessed March 3, 2016.
  • What you should know about MIPS. American College of Physicians website. Accessed March. 3, 2016.

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