Center for Healthcare

Regulatory Insight
MACRA: The Law in Brief
The Medicare Access and CHIP Reauthorization Act (MACRA)1 was signed into
law on April 16, 2015. Title I of MACRA will make fundamental changes to how
Medicare Part B will compensate physicians beginning in 2019. This brief explains
the factors influencing the passage of MACRA, how the law will impact physicians,
considerations for physicians as they prepare for MACRA payment changes,
and how the forthcoming regulations will further clarify MACRAs role in driving
alternative payment models for physicians under Medicare and beyond.

Why did Congress Pass MACRA?

The sustainable growth rate (SGR), the formula for
calculating annual Medicare physician payment updates
prior to MACRA, was unworkable and unsustainable.
Yearly physician payment updates were based upon a rigid
statutory budget control system with no link to quality or
performance. This formula resulted in significant physician
payment cuts 17 times since its inception in 1997. The SGR
fix became a perennial, yet still unpredictable, end-of-theyear exercise unpopular with both Members of Congress
and physicians. In addition to perpetuating a flawed payment
model, the annual SGR fixes did not provide incentives for
physicians to deliver high-value, efficient care.2
In 2015, Congress passed MACRA on strongly bipartisan
grounds to create a more stable and predictable physician
payment system going forward, provide more choices when
it came to physicians choosing a path to alternative payment
bonuses and penalties, and encourage the adoption of valuebased payment models. Upon enactment, MACRA repealed
the SGR formula and replaced it with a stable 0.5 percent
payment update through 2019.3
Beginning in 2019, physicians and other applicable providers4
will be subject to one of two payment tracks depending on
their eligibility for incentive payments:

1) Increases or decreases in Medicare physician fees for

meeting or failing to meet certain quality and efficiency
performance measurements through the Merit-based
Incentive Payment System (MIPS); or,
2) A reliably favorable fee schedule update and bonuses
if physicians are receiving a threshold portion of their
revenue through a qualifying Alternative Payment
Model (APM) or certain comparable arrangements.

What is the MIPS Payment Track?

Participation in the Merit-based Incentive Payment System
(MIPS) is required for physicians who provide less than
a statutory threshold (25% in 2019) of their Medicare
services outside of certain qualifying alternative payment
arrangements. MIPS requires physician reporting across
four domains: quality, resource use, meaningful use of
certified EHR technology, and clinical practice improvement.
The first three components of MIPS draw upon existing
reporting and quality programs: Physician Quality Reporting
System (PQRS), Value-Based Payment Modifier (VBPM),
and the Electronic Health Record (EHR) Incentive Program,
all of which will end at the close of 2018. The remaining
domain (clinical practice improvement) will likely build on
existing measures used to assess patient-centered medical
homes and other delivery reforms intended to improve care
coordination.5

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What Payment Adjustments are Possible

under MIPS?
All Medicare providers will receive a 0.5 percent fee
schedule update through the end of 2019, as specified in
MACRA. The fee schedule update will then remain flat at
0 percent until 2026, when all physicians reporting through
MIPS will receive an increase of 0.25 percent. In addition,
physicians reporting through MIPS will see payment
adjustments based on their relative performance across the
four reporting domains. Measure scores across the four
MIPS domains will be weighted differently to calculate a
composite score ranging from 0 to 100.
This composite score, as compared to the scores of other
providers, will be the primary driver of the MIPS eligible
professionals fee schedule adjustment factor (positive or
negative) beginning in 2019. The bonus or penalty amount
increases over time, ranging from -/+ 4 percent in 2019, up
to -/+ 9 percent in 2022 and beyond (Figure 1). Those eligible
professionals who fail to report metrics performance through
MIPS will receive a composite score of 0 and be assessed
the maximum penalty through the system.
Figure 1. Maximum Penalty/Bonus Possible Based on
MIPS Composite Score

How will MIPS Affect Providers?

Under MIPS, physicians will be subject to payment
adjustments based upon their composite score for
performance compared to others in their peer group.
However, in contrast to the current system, MIPS will
provide opportunities for payments for above-average
performance, as well as the risk of lower payments for
below-average performance.
MIPS will also aim to streamline existing reporting programs
into a consolidated system that should allow for easier
reporting management, as well as improved data collection
and analysis capabilities that can be used to monitor practice
performance. The new MIPS composite score aims to
compare physicians to their peers more fairly, i.e., through
a sliding scale, rather than an all or nothing, assessment;
allow for more timely feedback on performance; and more
effectively reward physicians for practice improvement over
time.
Insight: Both the political reception and the ultimate
success of this approach in driving value (reduced costs
and improved outcomes) for the Medicare program will
be closely tied to how CMS defines the set of required
measures. Provider groups will be particularly concerned
with their ability to collect and report solely on metrics
that are meaningful to tracking improved outcomes
applicable to their practice, and how these measures
sets can be aligned across payers.
Despite these advantages of MIPS relative to the current
physician payment system, providers will need to know
how they are performing today to understand how they
will be affected in years to come. Consistent with existing
reporting systems, payment updates beginning in 2019 will
rely on metrics collected in previous years, i.e., most likely a
two-year look-back to 2017 for 2019 payment adjustments.
In other words, physician performance as soon as next year
will likely have an impact on their reimbursement in 2019.

In addition, for 2019 through 2024, the Secretary will

designate a threshold for exceptional performance on the
MIPS, and CMS may spend up to $500 million each year
on bonus payments (up to 10%) to the highest performing
providers.6

In order for physicians to prepare for MIPS they will need

to review their existing infrastructure and capabilities for
reporting on performance. This may require costly new
health IT systems to collect clinical data, and administrative
staff for data entry and verification. Practices will also need
to develop processes to better understand their current
performance, strategies for care improvement, and MIPSrelated educational resources to help physicians understand
changes, evaluate how they are individually performing, and
assess what they can do to improve care.

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MACRA: The law in brief

The threshold for receiving a bonus or penalty will be set

at the mean or median threshold score of all MIPS eligible
professionals, and we can expect that this will likely increase
over time as care quality and performance improves.
Successful reporting and achievement of favorable incentive
payments will require both new and sustained investment
in IT systems and practice improvement. Furthermore,
performance below the mean or median threshold of all
other providers will result in negative payment adjustments,
reducing resources needed to generate improvements, and
putting the practice at risk of incurring greater losses.
Insight: Given that MIPS bonus payments must be
budget neutral and that scoring will be set at the
median or mean performance, there will be winners
and losers. A substantial number of physicians and
practices will see negative payment adjustments under
MIPS as they are assessed and benchmarked relative to
their peers.
MACRA helps support practice preparation for MIPS through
an allocation of up to $20 million per year from fiscal years
2016 through 2020 for practices of up to 15 professionals.

What is the APM Payment Track?

MACRA defines an APM broadly as any of the following:
a) a model under section 1115A (other than a health care
innovation award); b) the shared savings program under
section 1899, c) a demonstration under section 1866C
(Health Care Quality Demonstration); or d) a demonstration
required by Federal law. In other words, in the law, an
APM is limited to payment arrangements authorized under
certain Medicare programs or demonstrations. However, the
definition of the specific payment arrangements that will be
encompassed in the APM Payment Track will be proposed
in imminent CMS regulationsand these will be subject to

extensive public comment prior to becoming final. In order

to receive the more favorable payment update, the provider
must meet criteria to be a qualifying APM participant and
receive payment through an eligible alternative payment
entity. This further requires the following: a) use of certified
EHR technology; b) payment based on quality measures
comparable to measures under MIPS; and c) bearing of
financial risk for monetary losses in excess of a nominal
amount; or d) designation as a qualified medical home.7
Insight: We expect this development to be hotly debated.
Provider groups and CMS will both have incentives to
support broader definitions of this track. Some providers
will want more arrangements to count so that they can
qualify for fee schedule updates that are more reliably
favorable. CMS has an interest in meeting aggressive
targets for moving Medicare payment incentives away
from volume and toward value. Towards this end, CMS
will have more flexibility to adjust the definitions of
qualifying APM participant and alternate payment
entity than they will for the definition of alternative
payment model.

What Payment Adjustments are Possible for

Qualifying APM Providers?
MACRA provides more favorable and predictable payment
terms for physicians receiving revenues (or patients) under
Medicare programs with payment arrangements that are
more risk-based than fee-for-service. In addition to the
opportunity to earn upside revenues for accepting more than
nominal risk in alternative payment arrangements, Qualifying
APM providers are not subject to MIPS, receive 5% lump
sum bonus payments for years 2019-2024, and receive a
higher fee schedule update for 2026 and onward0.75%
to their base payments, compared to 0.25% for non-APM
providers (Figure 2).

Figure 2. MACRA payment

update timeline (2015-2026)8
Source: Centers for Medicare and Medicaid Services.

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MACRA: The law in brief

In addition, the percentage of revenue through any APM

will need to increase over time for providers to continue
receiving the favorable payment update. Beginning in 2019,
25% of Medicare Part B payments must be attributable to
the APM entity. This increases to 50% of Medicare Part
B revenue in 2021 or 50% of all-payer revenue, including
25% of Medicare Part B revenue. In 2023 and beyond, the
threshold increases to 75% of Medicare Part B revenue or
75% of all-payer revenue, including 25% Medicare Part B
revenue. The option of using all-payer revenue in eligible
APMs will encourage and reward physicians for developing
alternative payment arrangements with commercial payers
outside of Medicare.

How Will APMs Affect Providers?

Interpretation of which existing Medicare payment models
meet this second set of criteria, particularly bearing more
than nominal risk, will impact the number of providers who
can expect to receive the 5% bonus payment. We expect
that participation in a number of the existing risk-bearing
payment models, such as the Next Generation ACO Model,
MSSP Tracks 2 and 3, Comprehensive Primary Care Plus
(CPC+), Comprehensive ESRD, and two-sided risk oncology
care model will meet the definition. Beyond those, the
other arrangements that may qualify a provider are less
certain.
For example, the Medicare Shared Savings Program
(MSSP) is the largest alternative payment model program in
Medicare today. However, only approximately 5 percent of
participating organizations are currently in a program track
that includes upside and downside financial risk, which may
be used as the risk threshold. If bearing upside-only financial
risk in MSSP is considered a sufficient criteria to be deemed
an eligible APM, thousands more providers will reap the
benefits of bonus payments.
In addition to existing APMs in Medicare, MACRA
encourages the development of new payment models,
including those designed to address current gaps in
specialist payment. The law established the PhysicianFocused Payment Model Technical Advisory Committee
to review, comment on, and provide recommendations
to the Secretary on these new proposed models. The
Secretary will review the Committees comments and
recommendations on proposed PFPMs and post a detailed
response to such comments and recommendations on the
CMS website.

Insight: We can expect specialty societies and other

industry stakeholders to propose payment models that
enable new opportunities for providers to transform
their payment models and qualify for APM bonus
payments, while seeking to minimize the degree of
financial risk involved.

How Should Providers Decide Between

MIPS and APMs?
As providers, practices, and health systems prepare for
new MACRA changes in 2019, they will need to carefully
consider and plan for whether they would like to participate
in MIPS or commit to a significant portion of payment
through APMs. Although the APM track will provide a
more stable and certain payment update of 5 percent,
many providers may find greater success reporting through
MIPS. Those organizations that have performed quite well
in PQRS, VBM, and MU may decide to continue reporting
through these systems. If they perform in the top percentile,
these providers could see upward payment adjustments
that exceed those available to providers participating in
APMs. Additionally, as physicians contemplate whether to
commit to APM arrangements, they must also consider the
possibility that they may see a loss in revenue or payments
as a result of the APM itself (e.g., shared losses in a shared
saving arrangement), which could potentially neutralize or
even outweigh the upward adjustment available in the fee
schedule.
The decision about adopting an APM will depend in large
part on factors specific to a provider practice or organization,
including experience and willingness to bear increasing
financial risk, current level of care coordination, existing
health IT and data infrastructures, patient population
demographics and health status, and local market influences
and factors. Despite the more stable base payment rate
update under APMs, moving to an APM arrangement will
not be the right path for all physician practicesand the
timing of such a move will varygiven the level of financial
investment and fundamental practice transformation
necessary to succeed in risk-bearing payment models.
While there are likely more significant startup costs and
infrastructure changes needed to implement an APM, those
organizations will not be subject to additional reporting
requirements under MIPS. On the other hand, physicians
participating in MIPS will have the burden of performance
reporting, but will likely not need to undertake the same
level of financial and organizational transformation required
by those in an APM.

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MACRA: The law in brief

Regardless of whether a provider moves to a qualifying APM

or is required to participate in MIPS, all providers will need
to better understand their performance in relation to their
peers so that they can implement practice transformation
strategies that improve quality and reduce costs. All
Medicare physicians, to varying extents, will be more
accountable for the quality and value of the care that they
deliver to patients beginning in 2019.

Potential Questions Addressed in the

Proposed Rule
The proposed rule for MACRA will encompass a number of
definitions, requirements, and other guidelines that will drive
how the law is implemented. There will likely be a great deal
of attention paid to the proposed rule, including hundreds of
comments from providers, payers, professional societies,
and other industry stakeholders that will help to shape the
final rule, set to be released in the Fall. There are a number
of critical issues and questions that the proposed rule could
address, including some of the following:
MIPS Composite Score: The process for establishing
the composite performance score for each physician,
including median or mean benchmarking, comparison
group definitions, and methodology for scoring relative
performance on a 0 to 100 scale.
MIPS Quality Domain: Whether the same or similar
reporting criteria will be maintained under MIPS as under
PQRS, the appropriate number of Quality measures for
assessment, whether a minimum number should be
outcomes-based, and what specialty-specific measures
should be created.
MIPS Resource Use Domain: What measures will be
used to assess Resource Use, the role of episode-based
costs in calculating a score in this category, and what peer
groups or benchmarks should be used.

MIPS Clinical Practice Improvement Domain: How

the newly created Clinical Practice Improvement Domain
should be created, what measures will be used for
assessment, and the information necessary to ensure
completion.
MIPS EHR Domain: Whether the Meaningful
Use performance score will be based solely on full
achievement of objectives and measures (all or
nothing), or on a tiered/variable model, as well as
changes to ease MU attestation.
Assessment of Financial Risk in APMs: Which existing
Medicare APMs will be deemed to include financial risk in
excess of nominal amount, how in excess of nominal
amount will be defined for non-Medicare payers.
APM Quality Measures: The criteria used to determine
comparability to MIPS for quality measures in eligible
APMs.
APM EHR Certification: The core health IT functions
defined as necessary for providers to manage patient
populations, coordinate care, engage patients, and
monitor/report quality.
Creation of New APMs: The process for review and
approval of additional physician-focused alternative
payment models that may be better suited for specific
specialties or other physicians without access to existing
APMs.
Transitions between MIPS and APMs: How CMS will
allow providers to transition from MIPS to APMs, and
what will happen if a provider qualifies for APM payments
in one year and not the next.
Although CMS may propose answers to most, if not all,
of these questions we can anticipate that it will also be
looking for thoughtful feedback to craft the final rule.
Industry stakeholders must express their opinions through
comments to ensure that the rollouts of MIPS and APM
qualification are clearly defined, logical, and fair.

Looking Ahead
As the industry waits for the release of the proposed rule, physicians will need to begin
thinking proactively about how they can position themselves for success in an increasingly
value-driven health care payment environment. Regardless of whether a physician is a
solo practitioner, in a medium-sized practice, or part of a larger integrated health system,
they will likely see a change in their reimbursement in 2019. As noted earlier, performance
in 2017 will likely drive reimbursement in that first year, so physicians must be prepared
to quickly understand how they are performing today and implement practice changes to
address gaps, deficiencies, and areas for improvement. Although there will likely be some
changes between the proposed rule and final rule, physicians would be prudent to take
steps now to understand the impact of the soon-to-be-released proposals.

2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

MACRA: The law in brief

References
1 Pub. L. 114-10
2 A
 merican Medical Association. Medicare Physician Payment Reform http://www.ama-assn.org/ama/pub/advocacy/
topics/medicare-physician-payment-reform.page
3
 Medicares New Physician Payment System Health Affairs Policy Brief. April 21, 2016. Available at http://healthaffairs.
org/healthpolicybriefs/brief_pdfs/healthpolicybrief_156.pdf
4 In this brief we refer to physicians; however a MIPS eligible professional is also defined as a physician assistant, nurse
practitioner, clinical nurse specialist, certified registered nurse anesthetist, and a group that includes such professionals.
5 C
 enters for Medicare and Medicaid Services. THE MEDICARE ACCESS & CHIP REAUTHORIZATION ACT OF 2015:
Path to Value. Available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/ValueBased-Programs/MACRA-MIPS-and-APMs/MACRA-LAN-PPT.pdf
6 A
 merican Medical Association MACRA Comparison vs Prior Law. Available at http://www.ama-assn.org/resources/doc/
washington/sgr-bill-comparison-chart-hr2-vs-current-law.pdf
7 C
 enters for Medicare and Medicaid Services. THE MEDICARE ACCESS & CHIP REAUTHORIZATION ACT OF 2015:
Path to Value. Available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/ValueBased-Programs/MACRA-MIPS-and-APMs/MACRA-LAN-PPT.pdf
8 A
 vailable at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/
MACRA-MIPS-and-APMs/Timeline.PDF

Contact us
Larry Kocot
Principal and National Leader
Center for Healthcare Regulatory
Insight
202-533-3674
lkocot@kpmg.com

Tracey McCutcheon
Director
Center for Healthcare Regulatory
Insight
202-533-5380
traceymccutcheon@KPMG.com

Ross White
Senior Associate
Center for Healthcare Regulatory
Insight
202-533-3691
rosswhite@kpmg.com

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MACRA: The law in brief