What Are Your Margins? Owing to MACRA/MIPS, They Soon May Change

Historically, privately held medical practices have “dropped” excess cash through to the bottom line to pay the physician owners/shareholders (Figure 1).

Figure 1

Generally, hospitals compensate employed physicians exclusive of the system’s cost structure to run the practice (Figure 2).

Figure 2

Of late the mantra rippling across the country is “value vs. volume” or, put more linearly, “less heads in the beds.” This crawl toward, and seriousness in, value based care is evidenced in the Medicare Access and CHIP Reauthorization Act (MACRA) and its component pieces - Merit Incentive Payment System (MIPS) and Alternative Payment Models (APMs). Broadly speaking, MIPS and APMs can financially help or hurt providers and health systems.During the 2000s and today physicians have been, and are, generally compensated based on how many patients they can efficiently see in their practices. Seeing 30 patients a day is certainly (broadly speaking) more profitable than seeing 10 patents per day. Yet, in a MIPS world, that dynamic, and its associated compensation math, will need to change.The evolution of MIPS will mean physicians are held accountable for quality outcomes. Those measures are (Figure 3):

Figure 3

Unpacking the “Quality” basket, you see the component pieces that will embed in that measurement. (Figure 4)

Figure 4

As we move forward in the brave new world of healthcare delivery, reimbursement paradigms are shifting. Physicians will no longer be rewarded purely on volume driven care. They will need to efficiently manage the volumes of patients they have under a population health/volume based scenario.As seen in Figure 5 below, as MACRA unfolds, the complexity of operations and reimbursement will shift. The (hypothetical) figures below display the possible positive and negative impact on the revenues of a practice with, say, $1,000,000 in Medicare revenue and a practice with $10,000,000 in Medicare revenue.

Figure 5

Medicare reimbursements will, under the MIPS umbrella, reward (and penalize) physicians in the following manner based on their successes, and failures, under the aforementioned value based criteria. Medicare payments will be:

• +/-4% in 2019,
• +/- 5% in 2020,
• +/- 7% in 2021, and
• +/-9% in 2022.

Physicians, and health systems alike, will be reimbursed for the economic and conservative management of resources vis-a-vis the delivery of care while possibly managing more patients. Population health management will require that physicians manage outside of the “standard” P&L and begin to manage more in line with activity-based value for the work that they perform. That is, efficiency in the cost and delivery of care coupled with quantifiable quality outcomes. We are boldly entering into the “less is more” era of care; and that’s not necessarily bad, provided the care is good. (E.g. removing redundant testing and services from the care mix.) Government and private payors are shifting their reimbursement focus to paying for less care in hospitals and reduced readmissions. Whether you’re in an employed model or your physicians press on in private practice, how you manage both the top and bottom lines of the practice’s finances is becoming more acute. And physicians will need to manage the process of care delivery to ensure that all costs are squeezed from the delivery of care to increase margins, whether in fee-for-service, value based delivery, or a hybrid thereof.

Are you now, and will you be, profitable? Whether you’re a private practice or in an employed model, are you ready for the next phase in healthcare delivery reimbursement? While the MACRA/MIPS Final Rule won’t be released until November, and it is likely, given the volume of public comment, that the initial rollout may be delayed, it is time to answer two salient questions:

• Are you ready for value-based reimbursement?
• What are your margins?

If you would like more information on how Coker can help you answer these questions and prepare for the future contact us to speak with Jeff Gorke, Senior Vice President.