MACRA: the other healthcare law you need to know about

April 07, 2017  Competitive IntelligenceLife Sciences And Healthcare

There is a law, quietly passed by Congress on April 16, 2015, that will profoundly affect our health care system. The Medicare Access and CHIP Reauthorization Act (MACRA) changes the way Medicare pays for physician services, replacing the Sustainable Growth Rate (SGR) formula with a completely new framework designed to reward quality of care. The sweeping law is now in effect, and, unlike its controversial cousins, the Affordable Care Act (ACA) or the proposed American Health Care Act (AHCA), it’s unlikely to be rolled back or significantly altered. MACRA is bi-partisan, which means it’s likely here to stay – and it needs to be understood.

A recent survey by Deloitte found that:

  • 50% of US physicians haven’t even heard of MACRA
  • Of those who have, 32% acknowledge they don’t fully understand the law or its implications

This is not surprising, given the law is almost 2,400 pages long, passed with almost no political fireworks, and gained little attention in the press.

Ignorance will be costly, however, particularly for clinicians, but also for other key players in healthcare. As is the case with any major shift in Medicare policy, the entire healthcare system, including payers, pharmaceutical and biotech companies, medical device manufacturers, and hospitals will be affected.  Some possible impacts to key stakeholders are outlined below:

Payers:  

MACRA is designed to accelerate consolidation amongst providers:

  • As groups grow, they will likely put pressure on payment rates, and may flex their new muscles to shift more of the burden to payers.

MACRA is also likely to align more providers with Medicare Advantage provider-sponsored plans:

  • There are opportunities for payers to support providers as they move to adapt, and it will be interesting to see where innovation will benefit payers, providers, and patients under MACRA. 

MACRA allows for risk-sharing arrangements between hospitals and provider organizations and commercial, Medicare Advantage and Medicaid plans:

  • These arrangements may be easier to achieve than qualifying as an Advanced Alternative Payment Model (APM) without them, making them attractive to providers – many of whom will aim to qualify for APM status to achieve greater profits and operational efficiencies.

Pharmaceutical & Biotech companies:  In addition to tying pricing to quality, consolidation will likely put pressure on pharma to show value. As provider behavior shifts to a value-based payment system, pharma will need to adjust how it accesses markets, how it develops new products, and how it negotiates with increasingly powerful administrators. Two recent Cigna contracts tie pricing to outcomes.

Medical device manufacturers:  MACRA’s effect on the medical device industry is less obvious or immediate than on providers and payers. In fact, industry surveys on top trends and concerns rarely mention MACRA at all. This will likely change, as quality of care metrics impact the device market. Medical device manufacturers will need to similarly show proof of value for their products, tying their performance to MACRA metrics and patient outcomes.

Hospitals:  Hospitals already employ a majority of physicians who will be affected by MACRA and the costs of compliance will likely be born by hospitals. Last year, Health Affairs reported that US physician practices spend $14.5Billion each year on reporting quality measures. Under MACRA, these investments may help hospitals in important ways beyond winning bonuses for performance:

  • As consolidations within the industry continue, or accelerate, hospitals will find they have increased leverage as they negotiate with the industry sectors they buy from.
  • As MACRA begins to penalize under-performing providers, a hospital’s investments in quality reporting, as well as it’s improvements in processes, communications, buying habits, etc. will be attractive to clinicians. This could help the hospital in negotiations with their clinician groups.

While it is obvious that clinicians with Medicare businesses need to react to MACRA immediately, every sector of our healthcare industry will be impacted. All of this is by design, as CMS intends to use the power of Medicare to achieve both cost reductions and improved outcomes via performance-based incentives, without their costs piling up.

As the focus shifts from the ACA to MACRA, stay tuned to the Cipher blog for news and insights from our team on best practices for pharma, biotech, and medical device companies.  For more than 20 years, Cipher has helped organizations stay ahead of changing market dynamics to stay competitive, reduce uncertainty, and push the boundaries of innovation.


Insights from Dawn Faint, Director of Life Sciences at Cipher - Dawn helps companies in the Life Sciences space map their competitive environment, develop intelligence strategies which identify risks, and position them for future growth. Prior to joining Cipher, Dawn worked for many years in the Healthcare space in leadership roles at Cigna, Schering-Plough, Pharmacia (now Pfizer) and Johnson & Johnson companies Ortho Biotech and Ortho-McNeil, and in the Management Consulting space for Right Management.

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