What You Need to Know About MACRA and FMV

Although physicians around the country cheered the permanent repeal of the sustainable growth rate (SGR), the resulting reimbursement and payment model changes could significantly impact the fair market value of physician practices. The passage of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) changed the valuation environment significantly. The HORNE Healthcare team has been researching the changes, and here is what you need to know:

SGR Cuts Were Eliminated

The 21.2 percent Medicare physician payment cut that would have taken effect on April 1, 2015 was eliminated, as were the cuts scheduled in the future. The SGR repeal is intended to support the transition from fee-for-service to value-based payments.

MACRA Creates Two Options for Medicare Provider Payments

The SGR repeal creates two options for providers: enhanced fee for service or accountable care.

The enhanced fee for service option, or the Merit-Based Incentive Payment System (MIPS), is projected to begin in 2019 as the only Medicare quality-reporting program. The accountable care option, the Alternative Payment Models (APM), provides incentives and opportunities for physicians to develop and participate in new models of healthcare delivery and payment by participating in contracts with two-sided risk.

Provider Reimbursement Expected to Increase

Physician payments for Medicare Physician Fee Schedule services are expected to increase at an annual rate of 0.5 percent from July 2015 through 2019. From 2019 through 2026, the rate for both MIPS and APM will freeze at the accrued rate then increase annually again in 2026 and beyond.

Quality Reporting Systems Will Be Streamlined

With the creation of MIPS, Medicare’s multiple quality reporting programs have been replaced with the new single MIPS program that is slated to begin in 2019. MIPS will combine reporting for the Physician Quality Reporting System (PQRS), Electronic Health Records/Meaningful Use (MU), and Value-Based Payment Modifier (VBM) into one budget-neutral program with single payment based on an aggregate MIPS score.

“Budget Neutral” Means Penalties Will Equal Bonuses

Because MIPS is a budget-neutral program, penalties on low-performing physicians equal bonuses to high-performing physicians. Physicians with MIPS composite scores below the performance threshold will incur penalties. Physicians with MIPS composite scores that exceed the performance threshold will earn bonuses. Both penalties and bonuses will be awarded on a sliding scale.

How Will These Changes Impact the FMV of Physician Practices?

With the permanent repeal of the SGR and creation of two Medicare payment provider models, physicians have will have options as reimbursement shifts toward value-based payments. Also, Medicare reimbursement is projected to increase slowly into the future at set rates while quality reporting becomes less complex and more important. Bonuses and penalties will be equal because the MIPS program is budget-neutral.

When considering the fair market value of physician practices, hospitals and their legal counsel must understand the components of MACRA and their impact on physician practices, especially as they relate to reimbursement and payment model changes. With base reimbursement increases, valuations of physician practices and physician clinical compensation arrangements will need to take into account the reimbursement impacts.

Specific changes in the FMV of any practice depend on the practice itself, but valuators must take the new provisions of MACRA into account. If you’d like more information about the impact MACRA will have on your practice, read my article “The Effect of MACRA on Physician Practice FMV.”

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