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Medicare SGR and GPCI Bill Clears Committee

Medicare Locality Reform ("The California GPCI Fix") Clears House Congressional Committee As Part of the Medicare SGR Overhaul Legislation

On July 31, the House Energy and Commerce Committee voted unanimously to approve a BIPARTISAN Medicare Sustainable Growth Rate (SGR) overhaul legislation, HR 2810. Included in the bill is the CMA-sponsored California Medicare locality reform known as the “California GPCI Fix.” The California locality provision is a compromise between Committee Chairman Fred Upton (R-MI) and Ranking Democrat Henry Waxman (D-CA) who insisted the California update be part of the committee bill. It is based on legislation by Congressman Sam Farr (D-Santa Cruz / Monterey) and Darrell Issa (R-San Diego) who are leading the effort to see it enacted. House Majority Whip, California Congressman Kevin McCarthy (R-Bakersfield), was also key to the agreement. The Obama administration also stepped in to assist with the legislation.

CMA is pleased with this herculean effort to include a bipartisan California locality provision in the Energy and Commerce Committee Medicare SGR legislation. CMA physicians have cleared the first hurdle in a long legislative process to achieve locality reform. The bill now moves to the House Ways and Means Committee, and the Senate Finance Committee is expected to start to move their Medicare legislation in the fall. While this is a positive first step, CMA cautions physicians that we have a long way to go.

The Medicare SGR provisions generally follow the subcommittee bill, which repeals the SGR, allows a period of stability, provides updates for physicians participating in fee-for-service quality measure and clinical improvement projects, and gives physicians incentives to participate in alternative payment models. A short summary is outlined below. While CMA has concerns with the legislation, particularly the penalties, inadequate updates, and the loss of funding for the RUC process and new codes, CMA is pleased that Congress is moving forward with a bill to eliminate the SGR, establish stability, and provide a path to a better payment system. CMA will continue to advocate our goals as this bill moves through Congress. Given the bipartisan nature of this SGR bill and the early timeline, CMA is cautiously optimistic that Congress will address the SGR issues this year.

Below are summaries of the Locality Update and the SGR reform.

Summary of the Medicare Locality Provisions (“The California GPCI Fix”)

Background: While Medicare updates the hospital geographic regions and payments annually, it has not updated the physician regions in over 16 years. Therefore, counties such as San Diego and Sacramento are still designated as rural and not accurately compensated based on their higher local costs to provide care. Fourteen California counties (San Benito, Santa Cruz, Marin, Santa Barbara, San Diego, Monterey, Sonoma, Placer, El Dorado, Yolo, Sacramento, San Luis Obispo, Riverside, and San Bernardino) are underpaid by up to 10% each year according to Medicare’s own data.

Medicare could update the localities, but it would cause an immediate and corresponding reduction to physicians practicing in rural counties. Therefore, CMA sought legislation to update the newly urbanized counties and minimize the reductions to the rural counties. The Institute of Medicine (IOM), GAO, MedPAC, and others have studied the problem and agree the localities need to be updated. California physicians and their Medicare patients in these regions forego $54 million in Medicare funding each year. And this does not include the private sector contracts tied to Medicare rates.

The Locality Reform Proposal

The GPCI locality provision would start to transition all California Medicare physician payment localities to Metropolitan Statistical Areas (MSAs) in 2017 just as Medicare pays and organizes hospitals according to MSAs.

The higher rates would be phased in 1/6 per year over six years until full implementation in 2021–2022.

The rural counties in Locality 99 and Locality 3 would be held harmless from payment cuts permanently.

The Committee agreed that the ~$200 million cost would be funded from the Medicare SGR funding sources once those are worked out in the Ways and Means Committee.

Payment Impact By County

All counties currently in Locality 99 will receive a 0.30% increase in 2014–2015 pursuant to the CMS proposed fee schedule and GPCI update for 2014. Counties in Locality 3 will also receive the 1.4% update in the CMS proposed fee schedule and GPCI update for 2014. These CMS proposed updates are in a proposed regulation and separate from the legislation.

While it is difficult to predict the 2017 MSA factors, the payment increases are likely to fall in into the following ranges based on the 2013 and 2016 MSA data:

  • San Benito 9.7 – 13%
  • Marin 5.1 – 6 %
  • Santa Cruz 4.8 – 5.2%
  • Monterey 3.3 – 4.2%
  • Santa Barbara 3.7 – 4.9%
  • San Diego 4.2 – 4.5%
  • Sonoma 3.2 – 4.1%
  • Placer 2.0 – 2.2%
  • Yolo 1.5 – 2%
  • El Dorado 1.6 – 2%
  • Sacramento 1.1 – 2%
  • SLObispo 0.5 – 1%
  • Riverside 0.8 – 1.2%
  • San Bern 0.3 – 1.2%

All counties currently assigned to Locality 99 or Locality 3 not listed above will be held harmless from cuts permanently. The bill establishes a payment floor at the 2016 rate.

Physicians practicing in Alameda, Los Angeles, Orange, Santa Clara, San Francisco, San Mateo, and Ventura will not be impacted by this legislation.

Next Steps

The House Ways and Means Committee is expected to move a yet-to-be-released Medicare SGR bill in September. Then the Energy and Commerce and Ways and Means Committees will reconcile their different Medicare SGR bills into one package that moves to the House floor. The Senate Finance Committee is also expected to move forward with their Medicare SGR legislation in the fall. All Committees are waiting until there is final agreement on the policy before assigning funding sources to pay for the SGR repeal. Some of the identified funding sources include hospital outpatient services that are reimbursed at higher rates than when provided in a physician’s office, higher cost-sharing by Medicare beneficiaries, benefit changes, pharmaceutical rebates and controversial sources from the Affordable Care Act.

Summary of the Medicare SGR Provisions

These provisions were adopted by the Committee on a bipartisan basis.


  1. Repeals the SGR.
  2. Provides a period of stability for five years with 0.5% annual payment updates.
  3. Allows physicians to choose to participate in a fee-for-service (ffs) program or an alternative payment model.
  4. In 2019, for those physicians participating in ffs, it provides up to 1.5% updates for reporting on physician-developed quality measures and for participating in physician-developed clinical projects. Physicians who score poorly will be subject to a net 0.5% cut.
  5. Alternatively, physicians may choose to participate in physician-developed alternative payment models. The incentives favor physicians who are willing to take the necessary steps to participate in new payment and delivery models.

The bill was formally introduced by Congressman Mike Burgess (R-TX), a physician leader on the committee, and cosponsored by all of the committee's Republican and Democratic leaders: Chairman Upton (R-MI), Subcommittee Chairman Pitts (R-PA), and ranking minority leaders Waxman (D-CA) and Pallone (D-NJ). The bipartisan nature of this bill is notable. California members on the committee include Lois Capps (D-Santa Barbara), Anna Eshoo (D-Santa Clara), and Doris Matsui (D-Sacramento), who also supported the bill.

CMA Advocacy

While there are several aspects of the bill that concern CMA, including the downside penalties and lack of adequate updates, the bill meets many of the goals that CMA advocated to Congress to eliminate the annual threat of nearly 30% SGR payment cuts, five years of stable updates, a continuation of the fee-for-service (FFS) program with opportunities for updates, and incentives to help physicians transition to new payment and delivery models. There is still much work to be done on the entire bill and Congress recognizes that.

Detailed SGR Summary

The bill will repeal Medicare’s flawed Sustainable Growth Rate (SGR) formula immediately in 2014.

For 2014–2018, it provides modest, positive updates of 0.5%.

The current reporting programs, PQRS and the EHR incentive program, will continue through this period.

Fee-for-Service Program: In 2019, the 0.5% updates will continue.

The bill also maintains a fee-for-service (ffs) program that involves a new quality reporting program. Physicians in the ffs program will receive additional updates based on meeting quality measures and participation in clinical practice improvement activities. Physicians will develop the measures and select the measures and clinical projects that work best for their practice.

Physicians would self-select a “clinical cohort” applicable to their specialty and type of practice, and would be measured based on how well they performed on clinical performance measures. Emphasis would be on measures that improve care coordination, patient safety, prevention, and patient experience with the care provided.

Physicians would be scored on a scale of 1–100, and those scoring in the top third would get an annual ffs update of 1.5%, those scoring in the next third would get a 1% update, and those in the lowest third would get a net minus 0.5% update. Those who decline to participate in the FFS quality reporting program OR an alternative payment model will receive a 5.0% payment cut per year starting in 2019.

Alternative Payment Models: The bill provides strong incentives and opportunities for physicians who are willing to participate in alternative payment and delivery models, such as risk-adjusted capitated patient-centered medical homes, patient-centered medical neighborhoods (for specialists), accountable care organizations, shared savings programs, case management fee chronic disease programs, or other models that combine FFS with shared savings. These models are an alternative for physicians who do not want to participate in the ffs quality reporting program.

These models will be developed by physicians. Physicians may choose which model works best for their practice situation. Physicians in these models would be paid under the rules applicable to their model.

In 2015, Medicare would be directed to begin paying physicians for care coordination of patients with complex chronic diseases. To qualify for such payments, physicians would have to be in a patient-centered medical home for primary care or specialty care recognized by NCQA or other approved entities.

California Medical Liability Protection Adopted

Another CMA-sponsored medical liability provision was included and will ensure that any new payment policies or practice guidelines adopted by the Affordable Care Act (ACA) do not establish a new standard of care in medical liability proceedings. This is an important liability protection that CMA has been seeking since the passage of the ACA.

Final Message

Congress is sending a clear bipartisan message to incent physicians to participate in alternative models. The committee is establishing opportunities for physicians to be reimbursed in different ways for care coordination, managing patients with chronic conditions, participating in clinical improvement projects, setting up primary care or specialty specific medical homes, or achieving overall Medicare savings by reducing ER visits and hospital admissions.

The bill does not yet include funding sources. Congress is waiting to get further agreement on the policy details before discussing the funding. Of course, the funding could be the most controversial aspect of this legislation. For instance, the committee is proposing to remove the budget neutrality provision in the RUC process for misvalued codes and redirect it as an overall legislative funding source. Under current law, any savings from changing misvalued codes are reinvested in other physician services. These savings will be particularly important for the new care coordination and patient management services the bill is promoting. CMA, AMA, and other state and specialty societies weighed in heavily with the committee to remove this provision.

Meetings with Members of Congress During the August Recess

CMA is asking county medical societies and physician leaders to meet with their members of Congress during the month-long August recess about the Medicare SGR legislation and the other CMA priorities. It is crucial that members of Congress hear from physicians about this significant reform of the Medicare payment system.

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