In an effort to link Medicare’s traditional fee-for-service system to measures of value-based care, Congress has created three programs to adjust traditional Medicare fee-for-service payments to physicians: the Meaningful Use (MU) Program, the Physician Quality Reporting System (PQRS), and the Value-Based Payment Modifier (VBM.) By now, most providers are probably familiar with the incentive payments that have been offered these past few years for complying with these programs. However, many providers may still be unfamiliar as to the exact impact and application of the penalties tied to failing to comply with these programs because those penalties are in fact just taking effect for the first time in 2015. Given today’s increasingly challenging reimbursement environment where providers need to maximize every possible reimbursement dollar, it’s crucial to understand the application and impact of these programs, so you can ensure you have the tools and a strategy to comply with the various program requirements. Meaningful Use (MU)
The Meaningful Use (MU) Program uses a combination of incentive payments and payment adjustments/penalties to encourage the use of certified electronic health records (CEHRT). Marking the shift from incentives to penalties, 2015 is the first year that Medicare will penalize providers who have failed to comply with the program. But, as you can see from the below chart, the application of penalties lags two years behind performance in the program; so whether a provider complies with the program in 2015 affects his or her payment in 2017, not 2015. Likewise, payment in 2015 was determined by a provider’s 2013 (or 2014) performance in the program. Penalties are also set to increase 1% each of the next several years, ultimately capping at 5% (3% if more than 75% of EPs achieve MU.)
| Performance Year | Payment Year | MU Penalty |
| 2013 | 2015 | 1-2%* |
| 2014 ** | 2016 | 2% |
| 2015 | 2017 | 3% |
| 2016 | 2018 | 3%-5%*** |
| 2017 + | 2019 + | 3%-5%*** |
| *The 2015 penalty is 2% for EPs who were subject to 2014 e-Rx payment adjustment**EPs who demonstrate MU for the first time in 2014 will avoid the 2015 and 2016 penalties***For 2018 and subsequent years, if more than 75% of EPs achieve MU, the penalty will be 3%; if less than 75%, the penalty will increase by 1% each year up to a maximum of 5% | ||
As this chart demonstrates, the meaningful use program is quickly shifting from a voluntary incentive program to a mandatory penalty program with increasingly significant financial penalties that highlight the importance of compliance.
Physician Quality Reporting System (PQRS)
Similar to the MU program, the Physician Quality Reporting System (PQRS) is a reporting program that uses a combination of incentive payments and payment adjustments to promote the reporting of quality information by eligible professionals (EPs). Providers can satisfy PQRS reporting requirements by choosing one of several methods prescribed by CMS to track and report certain quality measures. Each year CMS releases an updated set of quality measures EPs can choose to report on and although it varies slightly depending on how an EP chooses to report his or her PQRS measures, “satisfactory” reporting generally requires reporting 9 quality measures covering 3 National Quality Strategy (NQS) domains. For 2015, EPs have five different options for reporting PQRS measures as individuals:
- Qualified registry (*supported by NextGen Healthcare)
- Qualified clinical data registry
- Medicare Part B claims
- Certified electronic health record (CEHRT) via Data Submission Vendor (*supported by NextGen Healthcare)
- Direct EHR using a certified electronic health record (CEHRT)
- Qualified registry (*supported by NextGen Healthcare)
- Certified electronic health record (CEHRT) via Data Submission Vendor (*supported by NextGen Healthcare)
Rather than as individuals, EPs may also choose to report as a group practice. In 2015, if an EP chooses to participate in the Group Practice Reporting Option (GPRO), he or she must elect to do so and register with CMS by June 30, 2015 (the cutoff was September 30 in 2014.) Additionally, the reporting options for the GPRO are slightly different than those for individuals and vary depending on the size of a practice. For 2015, group practices have the following options for reporting PQRS measures:
- Direct EHR using a certified electronic health record (CEHRT)
- Web-interface (groups of 25 or more EPs only)
- CMS-certified survey vendor (groups of 25 or more EPs only)
- For those who are successful in reporting their PQRS measures, unfortunately 2014 was the final year to receive an incentive payment, and as with the MU program, 2015 is the first year PQRS penalties apply (based on past performance). As shown in the below chart, the PQRS penalty for 2015 is 1.5% and for all subsequent years will be 2.0%.
| Performance Year | Payment Year | PQRS Penalty |
| 2013 | 2015 | 1.5% |
| 2014 + | 2016 | 2% |
Value-Based Payment Modifier (VBM)
The newest of the three programs, the Value-Based Payment Modifier (VBM) was created by the Affordable Care Act (ACA) in 2010 to adjust payments downwards or upwards based on cost and quality. The VBM is based on and aligned with PQRS reporting and creates two groups of EPs: those subject to the PQRS penalty and those not. The first group of EPs, those who fail to satisfy PQRS reporting requirements, will receive an additional penalty under the VBM; however, the impact and application of the penalty is being phased-in by year and practice size, as reflected in the following chart:
| Performance Year | Payment Year | Application | VBM Penalty for Non-PQRS Reporters |
| 2013 | 2015 | Practices of 100+ | 1% |
| 2014 | 2016 | Practices of 10+ | 2% |
| 2015 | 2017 | All physicians |
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It is important to note that while the PQRS penalties apply to all eligible professionals (EPs) and are required by law to remain at 2% per year, the VBM penalties to date apply only to physicians and are amenable to an annual increase or decrease in percentage at the discretion of CMS. However, CMS indicated in the 2015 physician fee schedule final rule that the VBM will apply to all EPs in the 2016 reporting period; and CMS has publicly stated that the VBM will be capped somewhere in the 5% range for the foreseeable future. Nonetheless, the VBM is subject to future policy changes by CMS and we do not know exactly how the VBM will apply and what its financial impact will be beyond the 2015 performance/2017 payment year.
The second group of EPs under the VBM, those who do satisfy PQRS reporting requirements, will be subject to additional adjustments under the VBM’s quality-tiering system. As with other CMS programs, the application and impact of the quality-tiering system is being phased-in by year and practice size, as reflected in the following chart:
| Performance Year | Payment Year | Practices of 1-9 | Practices of 10+ | Practices of 100+ |
| 2013 | 2015 | No application | No application | Optional: +, neutral, or – |
| 2014 | 2016 | No application | + or neutral | +, neutral, or – |
| 2015 | 2017 | + or neutral | +, neutral, or – | +, neutral, or – |
As you can see, whether the quality-tiering system applies and whether it subjects providers to only upward or also the possibility of downward adjustments depends on the year and size of a physician’s practice. As for the actual impact the quality-tiering system will have on payments, as shown in the below chart that highlights the system’s impact for the 2015 performance year (affecting payments in 2017), each provider will be ranked on cost and quality and have payments adjusted accordingly.
| Cost/Quality | Low Quality | Average Quality | High Quality |
| Low Cost | +0.0% | +2.0x* | +4.0x* |
| Average Cost | -2.0% | +0.0% | +2.0x* |
| High Cost | -4.0% | -2.0% | +0.0% |
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Total Impact of Payment Adjustments
2015 is set to be a very important year for each of these programs because it marks the first year that penalties from all three will apply to payments, and for the MU and VBM programs, the amount and application of these penalties is continuing to increase. Because penalties are based on a previous year’s performance and are increasing each year, it can be very confusing trying to track the impact and application of these penalties (even with all the prior charts in this article). As such, the below chart might help clarify the financial impact and application of these programs:
| Performance Year | Payment Year | MU Penalty | PQRS Penalty | VBM Penalty | Total Penalties |
| 2013 | 2015 | 1-2%* | 1.5% | 1%** | 3.5-4.5% |
| 2014 | 2016 | 2% | 2% | 2%** | 6% |
| 2015 | 2017 | 3% | 2% | 4%** | 9% |
| 2016 | 2018 | 3-4%*** | 2% | TBD by CMS | TBD by CMS |
| 2017 | 2019 | 3-5%*** | 2% | TBD by CMS | TBD by CMS |
| Notes and exceptions*The 2015 MU penalty will be 2% for EPs who were subject to 2014 e-Rx payment adjustment. Also, EPs who demonstrate MU for the first time in 2014 will avoid both the 2015 and 2016 MU penalties
**The 2015 VBM penalty will only apply to physicians in group practices of 100 or more; the 2016 VBM penalty will only apply to physicians in group practices of 10 or more; the 2017 VBM penalty will apply to ALL physicians but the penalty for physicians in practices with less than 10 physicians will be 2% ***For 2018 and subsequent years, if more than 75% of EPs achieve MU, the MU penalty will be 3%; if less than 75%, the MU penalty will increase by 1% each year up to a maximum of 5% |
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The potential negative financial impact increases over time and is quickly adding up: physicians in large group practices will have 9% of their 2017 Medicare reimbursement at risk in these programs in 2015. In this extremely challenging reimbursement environment, we want to encourage all providers to participate in each of these programs as success in them will be vital to continuing participation in Medicare.