President Obama Thursday signed into law the “Medicare Access and CHIP Reauthorization Act,” H.R. 2, legislation to permanently replace the flawed Medicare physician sustainable growth rate (SGR) formula. The Senate April 14 voted 92-8 to pass the bill, which cleared the House on March 27.

The president called the measure “a milestone for physicians, and for the seniors and people with disabilities who rely on Medicare for their health care needs.”

Following Senate passage, AHA President and CEO Rich Umbdenstock said the bill “strikes a careful balance in the way it funds the SGR repeal and embraces a number of structural reforms to the Medicare program.” He said the measure “fixes the physician payment problem and includes policy changes that move their payments to reflect the transformation happening in health care that hospitals have already embraced.”

He noted that the AHA will continue to seek action on issues not included in the final bill, such as broad-based Recovery Audit Contractor reform, sociodemographic adjustment to the readmissions penalty program, and corrections to regulatory issues like the critical access hospital 96-hour rule and direct supervision for outpatient therapeutic services.

The legislation increases payments to physicians by 0.5% annually for the next five years, as well as award a 5% bonus to providers, who accrue at least a quarter of Medicare reimbursements under alternative value-based payment models, such as patient-centered medical homes, between 2018 and 2019.

The legislation costs about $210 billion, with about $70 billion of that amount offset through savings from providers and beneficiaries. The offsets come from cuts to hospitals and post-acute-care providers, income-related premium adjustments in what higher-income beneficiaries pay for their Medicare prescriptions and doctors’ visits, and instituting reforms in Medigap coverage.  

The bill helps offset the costs of the SGR repeal by adjusting inpatient hospital payment rates. It phases in coding adjustments – mandated under the 2013 “No Budget, No Pay Act” – to hospital payments to achieve some $15 billion in savings over 10 years. Cuts to post-acute care providers – through a 1% market basket update in fiscal year (FY) 2018 – are expected to generate $15.4 billion in savings over a decade.

The legislation delays by an additional year – to FY 2018 – the start of scheduled annual Medicaid reductions to hospitals that treat a disproportionate share of low-income patients; and would extend several important provisions under the Medicare program, including the Medicare Dependent Hospital program, the low-volume hospital adjustment program, the therapy cap exceptions process, and ambulance and home health add-ons.

Also, the legislation delays partial enforcement of Medicare’s two-midnight policy through the end of this fiscal year, meaning that CMS would not conduct post-payment patient status reviews for claims with dates of admission from Oct. 1, 2013, through Sept. 30, 2015.

The enforcement ban was to expire on March 31, but CMS on April 1 extended it through April 30.

And the legislation eliminates the statutory barrier to “gainsharing programs,” which encourage hospitals and physicians to collaborate and improve patient quality of care and reduce unnecessary spending in hospital services. The providers share among themselves the savings realized from the efficiency measures implemented by these programs. 

The AHA has noted that the legislation rejects a number of potential cuts to hospital funding, such as outpatient hospital services, Medicare bad debt payments, graduate medical education, critical access hospitals and certain services provided in rehabilitative hospitals. In addition, it would not delay implementation of the ICD-10 coding program.

The legislation also consolidates various reporting programs, such as the Meaningful Use program for electronic health records and several quality reporting programs.