In 2015, Congress repealed the Sustainable Growth Rate formula for Medicare physician payment, eliminating mandatory payment cuts when spending exceeded what was budgeted. In its place, Congress 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. MACRA could have huge effects on health care delivery, but the nature of those effects is highly uncertain. Using the RAND Corporation's Health Care Payment and Delivery Simulation Model, we estimated the effects of MACRA on Medicare spending and utilization and examined how effects would differ under various scenarios. We estimate that MACRA will decrease Medicare spending on physician services by -$35 to -$106 billion (-2.3 percent to -7.1 percent) and change spending on hospital services by $32 to -$250 billion (0.7 percent to -5.1 percent) in 2015-30. The spending effects are critically dependent on the strength of incentives in the alternative payment models, particularly the incentives for physicians to reduce hospital spending and physician responses to MACRA payment rates.
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