Association for Public Policy Analysis & Management

In 2015, Congress repealed the Sustainable Growth Rate formula for Medicare physician payments, eliminating mandatory payment cuts when spending exceeded what was budgeted. In its place, they enacted the Medicare Access and CHIP Reauthorization Act (MACRA), which established a two-track performance-based payment system that encourages physicians to participate in “alternative payment models” (APMs). MACRA could have huge effects on health care delivery, but the nature of those effects is highly uncertain. The objective of this study was to estimate trends in Medicare spending under MACRA and to measure the sensitivity of the trends to the definition of APMs. Using RAND’s Payment and Delivery Simulation Model (PADSIM), we estimated the effects of MACRA on Medicare spending and utilization and examined how effects would differ under various scenarios. We estimated that MACRA will change Medicare spending on physician services by -$35 to -$106 billion and hospital services by +$32 to -$250 billion, with the effect critically dependent on the strength of incentives in the APMs and, in particular, the strength of incentives for physicians to reduce hospital spending.  MACRA’s effects on physician and hospital revenues will be highly dependent on the design of APMs and participation of providers.