Obama signs SGR repeal as Fitch says bill raises need for physician engagement

New law reinforces the need for hospitals and health systems to establish strategic ties with physicians, ratings agency says.

President Barack Obama on Thursday signed H.R. 2, the permanent “doc fix” that repeals the sustainable growth rate and ends close to 20 years of uncertainty over how doctors are reimbursed by Medicare.

Whether the $200 billion reform will need to be tweaked or even overhauled in years to come, as some warn doctors’ payments in the new bill will not keep pace with costs, most providers are breathing a sigh of relief and lawmakers are applauding the bipartisan effort.

[Also: Senate passes SGR bill]

Had the bill not passed, doctors faced a 21 percent pay cut from Medicare starting this week.

More than a fix, the bill is a further step in moving healthcare toward a value-based reimbursement model that bases physician payment on quality and clinical improvement.

Physician engagement is critical to the success of the new model, according to Fitch Ratings, as they have a large degree of control over every patient care episode.

This reinforces the need for hospitals and health systems to establish strategic ties with physicians, Fitch Ratings said in a statement.

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Fitch expects there to be an increasing use of joint ownership models between hospital and physician.

“These arrangements require less capital investment than a full acquisition and benefit the hospital partner by ensuring the physician has economic skin in the game,” Fitch Ratings said.

Hospitals have been employing various strategies in the management of relationships with physicians.

“These strategies have varying levels of influence, but all of them impact the operating profile and financial structure to some degree,” Fitch stated.

Though shift is occurring slowly, the SGR replacement reinforces the need for hospitals to have a strategy in place, according to Fitch.

While physicians will receive a 5 percent bonus for participation in advanced payment models under the SGR replacement starting in 2019, growth in payments is not directly tied to participation in these models until 2026.

Other implications of the SGR replacement bill for acute care hospitals, post-acute healthcare providers and health insurers include about a $35 billion contribution to $70 billion in cost savings to help pay for the $210 billion cost of the bill. This will mostly come from Medicare rate reductions starting in 2018.

Acute care hospitals will benefit from the bill’s six-month delay in the implementation of the two-midnight rule, although Fitch said it believes the influence of that rule on patient volumes and hospital operations has largely washed through the system.

The former sustainable growth rate formula, imposed to try to control Medicare costs, never worked, as Congress 17 times over-rode its own bill in annual “doc fixes.”

The U.S. Senate and House both overwhelmingly passed the bill replacing the SGR formula, the Senate on Tuesday and the House in March.

Twitter: @SusanMorseHFN