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Understanding Medicare’s Merit-based Incentive Payment System (MIPS)

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Medicare's current quality reporting programs are being consolidated and streamlined into 1 merit-based incentive payment system, referred to as "MIPS." This consolidation will reduce the aggregate level of financial penalties physicians otherwise could have faced, and it also provides a greater potential for bonus payments.

Modification of the Fee-for-Service System

Establishment of the MIPS program provides an opportunity to revise, rework and improve the existing Medicare programs focused on quality, costs and use of electronic health records to improve their relevance to real-world medical practice and reduce administrative burdens for physicians.

Under this payment system, physicians will no longer face the threat of double-digit cuts each year, as they did under the now-repealed sustainable growth rate. There will be greater certainty in annual payment updates.

MIPS components include:

  • Quality—replaces Physician Quality Reporting System (PQRS) program
  • Cost—replaces value-based modifier (VBM) program
  • Advancing Care Information (ACI)—replaces Meaningful Use (MU) program
  • Improvement activities (new component)—View finalized improvement activities from the final rule issued by the Centers for Medicare & Medicaid Services.

Update to the ACI

Following years of advocacy by the AMA, the Centers for Medicare and Medicaid Services (CMS) has removed the computerized physician order entry (CPOE) and clinical decision support (CDS) measures from the Medicare MU program and the ACI component of the Quality Payment Program (QPP).  However, the Medicaid MU program continues to include CPOE and CDS measures.

While CPOE and CDS functionality will still be included in EHRs, CMS will no longer require a certain number of orders, that a physician enter the orders, and that physicians implement a certain number of CDS tools. This means that as of Jan. 1, 2017, physician practices are free to develop policies around CPOE and CDS in ways that blend with their workflows and improve care.

Fee-for-Service Penalty Risks, Bonuses and Updates Compared

Without the passage of MACRA, physicians could have been subjected to negative payment adjustments of 11% or more in 2019 as a result of the Meaningful Use (MU), Physician Quality Reporting System (PQRS) and value-based modifier (VBM) reporting programs—with even greater penalties in future years. In contrast, under MACRA, the largest penalty a physician can experience in 2019 is 4%.

Prior LawMACRA
YearP4P PenaltiesMax Combined P4P Penalties*Max VBM BonusesAnnual UpdatesMax MIPS Penalties Max MIPS BonusesAnnual Updates
2017MU - 3% PQRS - 2% VBM - 4% or more- 9%Unknown (VBM)UnknownNo changeNo change0.5%
2018MU - 4% PQRS - 2% VBM - 4% or more- 10% or moreUnknown (VBM)UnknownNo changeNo change0.5%
2019MU - 5% PQRS - 2% VBM - 4% or more- 11% or moreUnknown (VBM)Unknown- 4%4% or more0.5%
2020MU - 5% PQRS - 2% VBM - 4% or more- 11% or moreUnknown (VBM)Unknown- 5%5% or more0%
2021MU - 5% PQRS - 2% VBM - 4% or more- 11% or moreUnknown (VBM)Unknown- 7%7% or more0%
2022MU - 5% PQRS - 2% VBM - 4% or more- 11% or moreUnknown (VBM)Unknown- 9%9% or more0%

* The severity of penalties and size of potential bonuses under prior law is "unknown" because annual regulations pertaining to the VBM were no longer issued following MACRA'S passage. However, Medicare law on the VBM included no ceiling or floors; and in the first three years it was applied, CMS doubled the size of the potential cuts each year. Incentives for the MU nad PQRS Medicare programs were no longer available in 2017.

+ Annual payment updates under the previous SGR system are also unknown since congressional intervention was required to stop cuts called for by the flawed formula.

++ Depending on budget neutrality calculations, MIPS bonuses may be as much as three times as high as the statutory percentage (e.g., 27 percent in 2022). Money is also available to provide 10 percent added bonuses for "exceptional performace."

What to Do Next for QPP

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