Taking financial risk is no longer an option. It is a requirement.” – CAPG

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) will ultimately make taking financial responsibility for managing a population’s consumption of healthcare resources mandatory for physician groups that want to stay in the game. The writing is on the wall. Some even say the end of fee for service is nigh. Hyperbole aside, the California Association of Provider Groups (CAPG) has enthusiastically, and rightly in our view, supported this initiative through regular communication to its membership and national advocacy regarding the movement of value based healthcare.

What is MACRA?

Simply put, The Department of Health and Human Services (HHS) has issued new rules to align revenue allocation and operational excellence for Medicare, Medicaid and the Children’s Health Insurance Program (CHIP) benefit programs. According to CMS’s April 2016 press release, these rules (paraphrased) advance delivery system reform efforts, strengthen quality & consumer protections, promote accountability and transparency, and since we’re on the subject, align Medicaid managed care rules with other health insurance coverage programs.  It’s a big deal.

There are many facets to the legislation, as is characteristic of any healthcare law.  The most potent elements to transparency and medical economics are associated with aligning financial incentives.  Standardizing the definition of components of medical loss ratios, for example, across Medicare Advantage and managed Medicaid programs is particularly useful.  Streamlining associated with Provider Incentive Plan regulations across programs is also noteworthy, albeit chiefly editorial.  Finally, welcome additions are formalized quality-oriented incentives, provider network frameworks, and the Medicaid Quality Rating system, all of which should help improve comparability of delivery system quality analysis from state to state.

The most dramatic component of the legislation, however, is the creation of new payment models which will directly influence Medicare provider compensation by freezing fee schedules in 2019 and creating a value based healthcare mechanism for rate increases instead of an inflation-oriented approach.

MACRA’s Market Impact

MACRA and its reforms will have a significant impact across the system. Although Medicare and Medicaid – government entitlement programs (depicted below in green as “public”) – do not constitute the majority of healthcare spending, together they represent as much 40% of national healthcare expenditure and the fastest growing segment. They will amount to $2.3 Trillion by 2025 as the population ages and the volume of total healthcare spend expands from $3.4 Trillion to an estimated $5.6 Trillion.  A 40% change in any market will ripple out.

Public and Private Sector Spending Projections

2016

$3.4 Trillion

2025

$5.6 Trillion