How the Merit-Based Incentive Payment System Works for Healthcare Providers

What the Merit-Based Incentive Payment System Is

The Merit-Based Incentive Payment System (MIPS) is a federal program that adjusts how much Medicare pays doctors, nurse practitioners, physician assistants, and certain other healthcare providers based on their performance. If you work in healthcare and bill Medicare, MIPS measures your quality of care, cost efficiency, improvement activities, and use of technology—then raises or lowers your payment rate accordingly. It is not a separate payment; it changes your existing Medicare reimbursement.

MIPS replaced an older system called the Sustainable Growth Rate (SGR) in 2016. The Centers for Medicare & Medicaid Services (CMS) runs it. Your payment adjustment can range from a penalty (negative adjustment) to a bonus (positive adjustment), depending on your performance score and whether you meet a reporting threshold. Most solo practitioners and small group practices must report to MIPS, though some are exempt based on revenue or patient volume.

Key Takeaways

• MIPS adjusts your Medicare payment rate up or down based on performance data you report or your billing system reports on your behalf.
• You must report on quality measures, cost, improvement activities, and promoting interoperability (use of electronic health records) unless you meet an exemption threshold.
• Small practices, rural providers, and those earning below certain revenue thresholds may be exempt from reporting requirements.
• Reporting can happen through your practice's billing software, a may have access to registry, a group submission, or directly to CMS through the portal.
• Missing the reporting deadline or scoring too low can result in a payment reduction of up to 9 percent, while high performers may receive a bonus.

Who Has to Report and Who Is Exempt

Not every healthcare provider must report to MIPS. CMS sets a low-volume threshold based on three factors: your Medicare billing amount, the number of Medicare patients you see, and the number of services you bill to Medicare. For 2024, the threshold is $10,000 in Medicare billing, 100 Medicare patients, or 100 Medicare services in a calendar year. If you fall below all three, you are exempt from reporting.

Certain providers are also exempt by category. These include those in rural areas with fewer than 10 clinicians, practices participating in Advanced Alternative Payment Models (Advanced APMs), and clinicians earning most of their income outside Medicare. If you work for a hospital or large health system, your employer may handle MIPS reporting as part of a group submission, which can change your individual reporting requirement.

Check your own numbers before assuming you are exempt. Many small practices discover mid-year that they have crossed the threshold and must report. Your billing department or EHR vendor can tell you whether you meet the exemption criteria based on your actual 2024 claims.

The Four Performance Categories You Report On

MIPS scoring rests on four pillars. Quality measures how well you treat patients—things like blood pressure control, cancer screening rates, or medication adherence. You choose from a list of measures relevant to your specialty and report the percentage of your patients who met each one. Cost is calculated automatically by CMS using your claims data; you do not report it yourself, but it counts toward your score.

Improvement ActivitiesPromoting Interoperability

Your final MIPS score is a weighted average of these four categories. The exact weights shift year to year, but quality typically counts for 30 percent, cost for 30 percent, improvement activities for 15 percent, and promoting interoperability for 25 percent. Scoring above a performance threshold earns you a payment bonus; scoring below triggers a penalty.

How to Report Your Data

You have four main routes to report MIPS data. The first is through your EHR or billing software if it is certified to submit MIPS data directly to CMS. Many practices use this method because the software pulls quality data automatically from patient records. The second is through a may have access to registry

The third route is a group submission, where your practice or a larger organization submits data for multiple clinicians at once. This is common in multi-provider practices or health systems. The fourth is direct submission through the CMS MIPS portal, where you log in and enter data manually—the slowest and most error-prone method, but available to anyone.

Whichever route you choose, the deadline is typically March 31 of the year following the performance year. For example, 2024 performance data is due by March 31, 2025. Missing the deadline results in a penalty. Talk to your billing manager or EHR vendor now about which method your practice will use; switching methods mid-year creates confusion and missed data.

Payment Adjustments and Penalty Thresholds

Your MIPS performance score determines your payment adjustment. CMS sets a performance threshold each year—the score you need to avoid a penalty. Clinicians who score below the threshold receive a negative adjustment (payment cut), while those above it may receive a positive adjustment (payment increase). The size of the adjustment depends on how far above or below the threshold you score.

For 2024, the performance threshold was set at a specific score; CMS publishes the exact threshold by November of the prior year. Penalties can reach up to 9 percent of your Medicare payments if you score significantly below threshold. Bonuses for high performers are capped at 3 percent. The adjustment applies to all your Medicare billing, not just the services you reported on.

If you are in a small practice or rural area, you may may have access to for a small practice bonus

Common Mistakes That Lower Your Score

The most common error is choosing quality measures that do not match your patient population. If you select a diabetes control measure but see mostly orthopedic patients, you will have few patients to report on, which tanks your score. Work with your clinical team to pick measures that reflect the care you actually deliver.

The second mistake is missing the reporting deadline. If you do not submit by March 31, you automatically receive a penalty for that year. Set a calendar reminder in January and confirm with your billing team that submission is on track.

A third error is not documenting improvement activities. You must attest that you performed them, but CMS can audit your records. If you claim to have implemented a care coordination program but have no documentation, you lose those points. Keep records of staff training, policy changes, and patient communications that prove you did the work.

Finally, ignoring the cost category because you do not report it directly is a mistake. CMS calculates it from your claims, and if your costs are high relative to peers, it drags down your score. Review your billing practices and work with your team to reduce unnecessary tests or procedures.

Alternatives if MIPS Does Not Fit Your Practice

If MIPS reporting feels burdensome, explore whether an Advanced Alternative Payment Model (Advanced APM) is available in your specialty. Advanced APMs tie payment to quality and cost outcomes but use different measures and timelines than MIPS. If you earn 50 percent or more of your Medicare revenue through an Advanced APM, you are exempt from MIPS entirely. Examples include accountable care organizations (ACOs), patient-centered medical homes, and bundled payment arrangements.

Another option is to join a larger group practice or health system that handles MIPS reporting centrally. This shifts the administrative burden to the organization and often improves your score because larger groups have more resources to track quality data and implement improvement activities.

If you are close to the low-volume exemption threshold, you might also consider whether your billing practices can be adjusted to stay below it—though this is not a long-term strategy and may not be advisable depending on your practice goals.

Frequently Asked Questions

What happens if I do not report MIPS data?

If you are required to report and do not submit by the March 31 deadline, CMS applies a negative payment adjustment to your Medicare claims. The penalty is automatic; you do not have to do anything to trigger it. You can appeal or request a hardship exemption, but both require documentation and are rarely granted.

Can I change my quality measures mid-year?

No. You must select your quality measures by the end of the performance year (December 31) or by the reporting deadline (March 31 of the following year), depending on your submission method. Changing measures mid-year creates gaps in your data and can lower your score. Choose carefully at the start of the year.

How do I know if my EHR is certified to submit MIPS data?

Check the CMS list of certified EHR vendors on the CMS website, or ask your EHR vendor directly whether they are MIPS-certified. Not all EHRs submit MIPS data automatically; some require you to export data and upload it to a registry or the CMS portal. Confirm this before you sign a contract or renew your subscription.

What if my practice is part of a hospital system—do I still report MIPS?

It depends on your employment status and how the hospital reports. If you are an employee and the hospital submits a group MIPS report that includes you, you are covered by that submission and do not report individually. If you are an independent contractor or the hospital does not include you in their group submission, you must report on your own or meet an exemption threshold.

Can I get a bonus if I score above the performance threshold?

Yes, but the bonus is smaller than the penalty. High performers receive a positive payment adjustment, capped at 3 percent of Medicare payments. The exact bonus depends on how far above the threshold you score and how many other clinicians also score above it—the bonus pool is shared among all high performers.