Medicare Reform Becomes Law: What You Need to Know

Lawmakers on Capitol Hill passed Medicare reform this week. Image: Flickr/ phototravel1.

Tens of millions of Americans rely on Medicare to help cover the bulk of their healthcare costs. For years, though, lawmakers have had to go through an annual rite in order to prevent doctors from suffering massive cuts in their reimbursement levels for providing medical services to Medicare participants. Finally, though, with almost unprecedented bipartisan cooperation, a Medicare reform package has survived its trip through Congress to receive a presidential signature, and the new law promises to make dramatic changes to how medical professionals receive Medicare payments. Here's what you need to know about what the old system involved and how the new system will work.

No more going through the motions The primary element of the new Medicare reform law is its repeal of what was called the sustainable growth rate formula. First put into place almost 20 years ago, the formula tried to impose limits on the rise of annual spending on Medicare. When the total amount of money paid to physicians exceeded a target rate, the law required the Medicare program to do an across-the-board cut in doctor reimbursements.

Year after year, though, Congress made temporary accommodations to avoid having those reductions take effect. As a result, what Medicare actually ended up paying to doctors diverged from the formula by an ever-widening amount, with the result that doctors faced a whopping 21% cut in payments if lawmakers hadn't reached consensus on reform or passed another stopgap measure.

Source: WhiteHouse on Flickr.

The immediate effect of the new Medicare reform law is that future measures to fix reimbursement rates will no longer be necessary. Instead, the reform law marks a new starting point from which Medicare can measure future changes in what it pays for care.

What the new law means for doctors and patientsYet the reform law goes much further by changing how doctors will be paid for providing Medicare-covered services. In the near term, pay increases of 0.5% annually will remain under a system similar to what Medicare currently uses; but in the future, payments will include incentives based on measures of doctor efficiency, quality of care, and coordination with other medical professionals. Incentives to participate in alternative payment models could also affect pay for healthcare providers, which is in line with the current belief within the Medicare system that finding ways to promote lower-cost care without sacrificing quality is essential for the program's long-term financial viability.

As a result, there could be a wide disparity among different healthcare providers on how much Medicare pays. Some adjustments under the new law could cut reimbursement for doctor services by as much as 9%, according to the chairman of the American Society of Clinical Oncology's Government Relations Committee. Yet in general, pay for physicians is expected to rise under the new program, and a combination of pay increases and incentive bonuses could give some doctors additional compensation of 25% or more.


Not all physicians are comfortable with the reforms. Some argue the new system will encourage competition against each other in a manner that could prove detrimental to the quality of care. In addition, it's uncertain how Medicare will structure merit-based pay in a manner that is fair to providers throughout the system. Nevertheless, as Medicare phases in a rising amount of payments tied to alternative payment methods, doctors will likely have little choice but to participate in the program.

Meanwhile, to help pay for the measure, premiums will rise for some Medicare participants. Embedded in the law are provisions that will raise premiums for those with incomes of $85,000 or more beginning in 2018, with monthly Medicare Part B premium costs running from $147 to $336 compared to the standard $105 premium. Beginning in 2020, new rules will also kick in to increase the number of Medicare recipients considered to have high-enough incomes to warrant paying higher monthly premiums.

Perhaps the most important aspect of Medicare reform is the fact that lawmakers agreed on a solution at all. Even with flaws, getting rid of the annual ritual of suspending the sustainable growth rate cuts will be welcomed by Medicare providers and participants alike.

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