[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
MEDICARE PAYMENTS TO PHYSICIANS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
FEBRUARY 10, 2005
__________
Serial No. 109-11
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
E. CLAY SHAW, JR., Florida CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
ROB PORTMAN, Ohio WILLIAM J. JEFFERSON, Louisiana
PHIL ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona XAVIER BECERRA, California
JERRY WELLER, Illinois LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri EARL POMEROY, North Dakota
SCOTT MCINNIS, Colorado STEPHANIE TUBBS JONES, Ohio
RON LEWIS, Kentucky MIKE THOMPSON, California
MARK FOLEY, Florida JOHN B. LARSON, Connecticut
KEVIN BRADY, Texas RAHM EMANUEL, Illinois
THOMAS M. REYNOLDS, New York
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
SUBCOMMITTEE ON HEALTH
NANCY L. JOHNSON, Connecticut, Chairman
JIM MCCRERY, Louisiana FORTNEY PETE STARK, California
SAM JOHNSON, Texas JOHN LEWIS, Georgia
DAVE CAMP, Michigan LLOYD DOGGETT, Texas
JIM RAMSTAD, Minnesota MIKE THOMPSON, California
PHIL ENGLISH, Pennsylvania RAHM EMANUEL, Illinois
J.D. HAYWORTH, Arizona
KENNY C. HULSHOF, Missouri
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C O N T E N T S
__________
Page
Advisory of February 3, 2005, announcing the hearing............. 2
WITNESSES
U.S. Government Accountability Office, Bruce Steinwald, Director,
Health Care, Economic and Payment Issues....................... 5
Medicare Payment Advisory Commission, Glenn M. Hackbarth,
Chairman....................................................... 16
______
American Medical Association, Nancy Nielsen...................... 39
American Urological Association, William F. Gee.................. 58
Medicare Rights Center, Robert M. Hayes.......................... 62
Partners Community HealthCare, Inc., Thomas H. Lee............... 48
SUBMISSIONS FOR THE RECORD
American Academy of Family Physicians, Wendy Gaitwood, statement. 71
American Association for Geriatric Psychiatry, Bethesda, MD,
Stephanie Reed, statement...................................... 75
American College of Radiology, Josh Cooper, statement............ 76
American Physical Therapy Association, Alexandria, VA, Justin
Moore, statement............................................... 80
Coalition for Patient-Centered Imaging, statement................ 84
Critical Care Cardiology, Inc., Chula Vista, CA, Vimal Indravadan
Nanavati, letter............................................... 86
Ethical Health Partnerships, Winter Park, FL, Dawn Lipthrott,
statement...................................................... 88
Healthcare Information and Management Systems Society, Chicago,
IL, H. Stephen Lieber, statement............................... 93
Managed Care Advocacy Program, Toledo, OH, Elizabeth A. Flournoy,
letter......................................................... 95
Medical Group Management Association, William F. Jessee,
statement...................................................... 96
Medtronic, Inc., Minneapolis, Minnesota, Arthur D. Collins, Jr.,
letter......................................................... 97
National Coalition for Quality Diagnostic Imaging Services,
Houston, TX, statement......................................... 98
Renal Physicians Association, James Weiss, statement............. 101
MEDICARE PAYMENTS TO PHYSICIANS
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THURSDAY, FEBRUARY 10, 2005
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:00 a.m., in
room 1100, Longworth House Office Building, Hon. Nancy L.
Johnson (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
February 03, 2005
HL-1
Johnson Announces Hearing on
Medicare Payments to Physicians
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on Medicare payments to physicians.
The hearing will take place on Thursday, February 10, 2005, in the main
Committee hearing room, 1100 Longworth House Office Building, beginning
at 10:00 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from the invited witnesses only.
Witnesses will include Glenn Hackbarth, Chairman of the Medicare
Payment Advisory Commission (MedPAC), A. Bruce Steinwald from the U.S.
Government Accountability Office (GAO), and representatives from groups
affected by Medicare's payment policies. However, any individual or
organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee and for inclusion in the
printed record of the hearing.
BACKGROUND:
Annual updates to Medicare's reimbursement for physicians and other
providers paid under the physician fee schedule are determined by a
formula set in law known as the sustainable growth rate (SGR). This
formula sets a target for growth in Medicare expenditures for physician
services based on growth in the gross domestic product. This target is
also adjusted for volume growth and other factors. If Medicare
expenditures exceed the target, Medicare payment rates to physicians
are reduced. If Medicare expenditures are less than the target, payment
rates are increased.
Projections prepared by the Office of the Actuary for the Centers
for Medicare & Medicaid Services, reported in the 2004 Annual Report of
the Medicare Trustees, indicate that Medicare will reduce payment rates
to physicians by approximately 5 percent annually for 7 years,
beginning in January 2006. Physician payment rates would decline more
than 31 percent from 2005 to 2012, while costs of providing services
would increase by 19 percent over the same period.
In announcing the hearing, Chairman Johnson stated, ``The current
Medicare payment system for physicians is unsustainable. We cannot
allow Medicare's payments to doctors to fall through the floor while
the cost of providing care continues to rise. Physicians are essential
to the Medicare program and without their participation our seniors
will lose access to high-quality care. This hearing will offer the
Subcommittee an opportunity to explore alternative payment systems such
as paying for quality and efficiency.''
FOCUS OF THE HEARING:
The hearing will focus on identifying problems with the physician
payment formula and exploring potential solutions. The GAO will present
findings from its recent report on physician payments. The MedPAC will
review its recommendations for physician payment reform, including
tying payment to quality of care and resource use, and implementing
measures to reduce the volume and increase the quality of certain
services. The second panel will provide input from affected parties,
including testimony from witnesses with practical experience in systems
that promote quality and efficiency.
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noted above.
Chairman JOHNSON. Good morning, everyone. It is a pleasure
to welcome you to the first hearing of the Subcommittee on
Health and especially to welcome the new Members on both sides
of the aisle that have joined us for this session's work. We
also have today Congressman Cardin and Congressman Gingrey
sitting in with us, as long as they are able, and I welcome
them as well. Although our surroundings in this room have
changed considerably with paint and carpeting, we do find
ourselves today facing a very old problem, Medicare
reimbursements to physicians. Unfortunately, I do not believe
that the old formula used to update physician reimbursement
rates can be fixed with a coat of paint or a tweak here or a
tweak there. We need to fundamentally rethink how we pay our
doctors. The Office of the Actuary for the Centers of Medicare
& Medicaid Services (CMS) projects that Medicare under current
law will reduce physician payment rates and other Medicare
providers paid under the physician fees schedule by
approximately 5 percent each year for the next 7 years,
beginning in January of 2006, unless we change the law.
If these reductions occur, payment rates would drop by
almost one-third while costs of practicing medicine will rise
by almost one-fifth. That is a swing of 50 percent. If we do
not reform the sustainable growth rate (SGR) payment formula,
physicians will have a disincentive to participate in Medicare,
and the result will be that seniors will have reduced access to
physician services. Let's face it, the so-called formula is
unsustainable. We tried to fix this irrational payment formula
the last two Congresses. We worked with the Administration to
make sure that the formula accounted for 1 million
beneficiaries in fee-for-service Medicare who were going to
their doctors and receiving care who had not been counted
previously. We urged the Administration to change the way they
measured productivity. This change was made.
Finally, in the Medicare Modernization Act (MMA, P.L. 108-
173), we replaced a single year's measure of economic growth
with a 10-year rolling average to smooth out projected
expenditure calculations and to reduce fluctuation and payment
updates. Despite these changes, the payment system is still
broken. It is time to fundamentally reform how Medicare pays
physicians. The current system generates no incentives for high
performance, because the best and the worst providers receive
the same reimbursement. The current system rewards providers
for delivering more services, not for managing care and
delivering better outcomes. It is time to make health care
safer and more accountable and to reward providers who deliver
quality care by using resources efficiently and effectively. In
the MMA, we challenged hospitals to report on 10 quality
indicators to be eligible to receive a full Medicare payment
update. It is now time for physicians to come forward with
quality indicators that can drive reimbursements up in
recognition of physicians' commitment to quality care.
On our first panel today, we will hear from Bruce Steinwald
of the U.S. Government Accountability Office (GAO), which last
fall released a report on the problems with the spending target
system used to set physician reimbursements in Medicare. We
will also hear from Glenn Hackbarth, the Chairman of the
Medicare Payment Advisory Commission (MedPAC), which has
recommended replacing the current payment system and offered
some insights on how we might incorporate paying for quality
and efficiency in Medicare. Witnesses on our second panel will
share perspectives from the provider and beneficiary viewpoints
on how the current payment system works and how it might be
modified to better serve Medicare beneficiaries, providers and
taxpayers. I now invite my colleague, Mr. Stark, to make his
opening statement.
Mr. STARK. Thank you, Madam Chairman, and I appreciate your
calling this hearing today. Yes, our system was made worse over
the past couple of years by Congress, mostly by saying--by
putting it off and saying we will deal with it tomorrow, which
is arriving. We should have tackled this issue 3 years ago when
we had a sensible solution in sight. Instead, we did MMA. It
made the system worse. If we begin linking payments and quality
to extract value from the system, we are going down a road
which I am not sure we are prepared to do. The present payment
system was put into place with the cooperation and agreement of
most physicians in the country. What is not mentioned is that
from the year 2001 until 2005, the actual services payments
exceeded what the physician should have gotten. They have
gotten more than they were entitled to under the law for almost
5 years.
Now, if you are going to follow the formula, it dips down a
little and goes below SGR for a period of time starting at
around 2006 until 2012. In about an equal amount, and nobody
likes that, and nobody likes to remember that they got overpaid
last year, and so to make it even they get underpaid this year.
That is not a popular position. I am not sure it is politically
sustainable. I do want to suggest that the formula was put into
place with the cooperation of the physician community in an
effort to find a way that could be adjusted from time to time
and changed and negotiated. Unfortunately, we did not do that.
We diddled with the system, and I think that we should be very
careful about what we do and just say we have to raise rates. I
would also like to focus our discussion somewhat today. We talk
about rates. To put it in more plebeian terms, we are talking
about a piece-rate business.
So, we are talking about the rate per procedure. We are not
talking about physicians' incomes, which physicians do not like
to talk about very much, because they have been going up rather
substantially, and their gross Medicare payments have been
going up rather substantially, which either means they are
cheating on their time for playing golf and working harder, or
they may be more productive and be able to do more procedures
in the same amount of time, in which case we should be able to
lower the rate per procedure if they become more efficient. I
think we have to look at both sides of that formula, and I look
forward to hearing the witnesses' testimony. Thank you for
having the hearing.
Chairman JOHNSON. Thank you very much. Now, I would like to
begin with Mr. Steinwald of GAO.
STATEMENT OF BRUCE STEINWALD, DIRECTOR, HEALTH CARE, ECONOMIC
AND PAYMENT ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. STEINWALD. Thank you, Madam Chairman, Mr. Stark,
Members of the Subcommittee. I am pleased to be here today to
discuss with you the system that is used to annually update
fees paid to physicians under the Medicare program. As you
noted, the SGR system is calling for several years of
reductions in physician fees beginning in 2006. How and why
this happened, and what options are available for change, will
be the focus of my remarks today. I believe the key to
understanding the growth in Medicare expenditures for physician
services lies in understanding the trends and service volume
and intensity. Volume refers to the average number of services
performed per beneficiary, and intensity refers to the
costliness and complexity of those services. For example, if we
have more magnetic resonance imaging (MRIs) and fewer X-rays
from one year to the next, that is an intensity increase,
because MRIs are more expensive than X-rays. However, if we had
more MRIs and X-rays from one year to the next, we have both an
intensity and a volume increase. That is, in fact, what we have
experienced.
Please direct your attention to the screen, which shows the
trends in volume and intensity in physician services per
Medicare beneficiary that is holding the number of
beneficiaries constant from 1980 through 2003. This appears on
page 4 as Figure 1 in the written statement. The chart presents
national averages, and therefore masks considerable variation
across physician specialties, geographic areas and Medicare
beneficiaries. As the chart shows, volume and intensity growth
during the 1980s and early 1990s was substantial. During these
years, efforts to control spending growth by the Congress
focused on limiting fee increases, and they were largely
unsuccessful in controlling expenditures. In 1992, the chart-
based system of setting fees was replaced by a Medicare fee
schedule and, with it, a target system for controlling spending
for physician services was also installed. As you can see, for
several years afterward, volume and intensity were moderated,
but then began to trend upward again in the year 2000. Largely
because of this upward trend, in 2002, the SGR system called
for a fee decrease for the first time ever, and only through
congressional action were fee cuts averted in 2003, 2004 and
2005. Without additional action, fee cuts will return in 2006.
The reason for projected fee cuts are twofold. First is
that volume intensity spending growth is projected to exceed
the SGR allowance for such growth. This allowance is the
average annual growth rate of the national economy or Gross
Domestic Product, which is projected to be slightly higher than
2 percent a year for the foreseeable future. The second reason
is that the SGR system will need to recoup the overpayments
made in 2004 and 2005, when the system's negative updates were
averted by the MMA in 2003. As Mr. Stark noted, essentially,
the MMA mandated fee update simply put off the requirements of
SGR to balance spending with the targets rather than changing
the targets. We at GAO recognize that multiple years of
negative updates presents a difficult situation for physicians,
for the Congress and potentially for Medicare beneficiaries. As
you know, the MMA asked us to examine options for modifying and
improving, and/or improving, the SGR system.
I would like to call your attention to the screen, which
displays table 1 on page 11 of my written statement. The table
shows a sample of options that seek to address the SGR
problems. I would note that our October 2004 report examines
these options and several additional options in some detail. In
general, however, we found that the choices for change cluster
around two broad approaches. One approach, which has been
recommended by MedPAC, would end the use of spending targets
and replace them with more focused efforts to control spending.
The other approach would retain spending targets, but modify
the current SGR system to address its shortcomings. Eliminating
the targets would make it easier to stabilize fee updates;
whereas retaining targets with modifications would retain the
mechanism that automatically applies fiscal breaks whenever
spending for physician services grows too fast. In the interest
of time, I will not explain the different options in detail. I
will be happy to answer questions about any of them, except to
note that they vary substantially in their effect on physician
fees and spending. I might also add that the options vary in
their effects on beneficiary out-of-pocket co-payment as well.
Either of the two broad approaches could be implemented in
a way that would likely generate positive fee updates, and each
could be accompanied by separate more focused efforts to
moderate volume and intensity growth. However, because multiple
years of projected 5-percent fee cuts are incorporated in
Medicare's budget baseline, almost any change to the SGR system
is likely to increase program spending considerably. Overall,
we are mindful of the serious financial challenges facing the
Medicare program, the need to design policies that help ensure
the long term sustainability and affordability of the program.
We at GAO look forward to working with the Subcommittee and
others in Congress on this complex issue. Madam Chairman, this
concludes my prepared statement. I would be happy to answer any
questions you or any other Subcommittee Members may have.
[The prepared statement of Mr. Steinwald follows:]
Statement of Bruce Steinwald, Director, Health Care, Economic and
Payment Issues, U.S. Government Accountability Office
Madam Chairman and Members of the Subcommittee:
I am pleased to be here today as you discuss the sustainable growth
rate (SGR) system that Medicare uses to update physician fees and
moderate the growth in spending for physician services. A brief look at
the updates resulting from the SGR system since it was enacted by
Congress puts current concerns in context. From 1999--the first year
that the SGR system was used to update Medicare's physician fees--
through 2001, annual fee increases ranged from 2.3 percent to 5.5
percent. However, in 2002 the SGR system reduced physician fees by
nearly 5 percent. Fee declines in subsequent years were averted only by
new legislation that modified or temporarily overrode the SGR system.
For example, the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) specified a minimum update of 1.5
percent for both 2004 and 2005.\1\ Absent additional administrative or
legislative action, however, the SGR system is projected to reduce fees
by about 5 percent per year for several years beginning in 2006. These
projected declines have raised policymakers' concerns about the
appropriateness of the SGR system for updating physician fees and about
physicians' continued participation in the Medicare program. At the
same time, there are concerns about Medicare spending growth and the
long-term fiscal sustainability of the program.
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\1\ Pub. L. No. 108-173, Sec. 601(a)(1), 117 Stat. 2067, 2300.
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My comments today are intended to describe the issues that Medicare
faces in annually updating physician fees and potential approaches for
addressing those issues. Specifically, I will discuss (1) how the SGR
system is designed to moderate the growth in spending for physician
services, (2) why physician fees are projected to decline under the SGR
system, and (3) options for revising or replacing the SGR system and
their implications for physician fee updates and Medicare spending. My
testimony today is based on the findings contained in our October 2004
report on this subject.\2\ This work was performed between January 2004
through September 2004 according to generally accepted government
auditing standards.
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\2\ GAO, Medicare Physician Payments: Concerns about Spending
Target System Prompt Interest in Considering Reforms, GAO-05-85
(Washington, D.C.: Oct. 8, 2004).
---------------------------------------------------------------------------
In summary, the SGR system is designed to apply financial brakes
whenever spending for physician services exceeds predefined spending
targets. It does this by reducing physician fees or limiting their
annual increase. Historically, efforts that limited fees but did not
set spending targets failed to moderate spending growth. Increases in
the number of services delivered to each beneficiary--known as volume--
and the complexity or costliness of those services--known as
intensity--caused continued increases in spending. The SGR system
allows for some volume and intensity spending growth, but if such
growth exceeds the average growth in the national economy, as measured
by the gross domestic product (GDP) per capita, fee updates are
reduced. There are two principal reasons why physician fees are
projected to decline under the SGR system beginning in 2006. One reason
is that projected spending growth attributable to volume and intensity
increases exceeds the SGR allowance for such growth. The MMA is also
partly responsible because it increased the update for 2004 and 2005--
thus increasing spending--but did not raise the spending targets for
those years. The SGR system, which is designed to keep spending in line
with its targets, must reduce fees beginning in 2006 to offset the
excess spending attributable to both volume and intensity increases and
this MMA provision. In general, proposals to reform Medicare's method
for updating physician fees would either (1) eliminate spending targets
and establish new considerations for the annual fee updates or (2)
retain spending targets, but modify certain aspects of the current
system. Either approach could be complemented by focused efforts to
moderate volume and intensity growth directly.
Background
Although the current focus of concern is largely on the potential
for several years of declining physician fees, the historic challenge
for Medicare has been to find ways to moderate the rapid growth in
spending for physician services. Before 1992, the fees that Medicare
paid for those services were largely based on physicians' historical
charges.\3\ Spending for physician services grew rapidly in the 1980s,
at a rate that the Secretary of Health and Human Services (HHS)
characterized as out of control. Although Congress froze fees or
limited fee increases, spending continued to rise because of increases
in the volume and intensity of physician services. From 1980 through
1991, for example, Medicare spending per beneficiary for physician
services grew at an average annual rate of 11.6 percent.
---------------------------------------------------------------------------
\3\ Medicare paid physicians on the basis of ``reasonable charge,''
defined as the lowest of the physician's actual charge, the customary
charge (the amount the physician usually charged for the service), or
the prevailing charge (based on comparable physicians' customary
charges).
---------------------------------------------------------------------------
The ineffectiveness of fee controls alone led Congress to reform
the way that Medicare set physician fees. The Omnibus Budget
Reconciliation Act of 1989 (OBRA 1989) \4\ established both a national
fee schedule and a system of spending targets,\5\ which first affected
physician fees in 1992.\6\ From 1992 through 1997, annual spending
growth for physician services was far lower than the previous decade.
The decline in spending growth was the result in large part of slower
volume and intensity growth. (See fig. 1.) Over time, Medicare's
spending target system has been revised and renamed. The SGR system,
Medicare's current system for updating physician fees, was established
in the Balanced Budget Act of 1997 (BBA) and was first used to adjust
fees in 1999.\7\
---------------------------------------------------------------------------
\4\ See Pub. L. No. 101-239, Sec. 6102, 103 Stat. 2106, 2169-89.
\5\ Medicare sets fees for more than 7,000 physician services based
on the resources required to provide each service, adjusted for
differences in the costs of providing services across geographic areas.
\6\ The first system of spending growth targets, known as the
Medicare Volume Performance Standard (MVPS), was in effect from 1992
through 1997. In 1998, the SGR system of spending targets replaced
MVPS.
\7\ See Pub. L. No. 105-33, Sec. 4503, 111 Stat. 251, 433-34. BBA
set a specific fee update for 1998. See BBA, Sec. 4505, 111 Stat. 435-
39.
---------------------------------------------------------------------------
Figure 1: Growth in Volume and Intensity of Medicare Physician
Services per Beneficiary, 1980-2003
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Notes: Data are for beneficiaries in the traditional fee-for-
service (FFS) program only. Data for end stage renal disease patients
are not included. From 1980 through 1992, volume and intensity of
service changes are based on Medicare outlays for all physician
services. From 1993 through 2003, volume and intensity of service
changes are based on Medicare outlays for physician services covered by
the fee schedule.
Following the implementation of the fee schedule and spending
targets in 1992, through 1999, average annual growth in volume and
intensity of service use per beneficiary fell to 1.1 percent. More
recently volume and intensity growth has trended upward, rising at an
average annual rate of about 5 percent from 2000 through 2003. Although
this average annual rate of growth remains substantially below that
experienced before spending targets were introduced, the recent
increases in volume and intensity growth are a reminder that
inflationary pressures continue to challenge efforts to moderate growth
in physician expenditures.
SGR System Designed to Limit or Reduce Physician Fee Updates in
Response to Excess Growth in Volume and Intensity
The SGR system establishes spending targets to moderate physician
services spending increases caused by excess growth in volume and
intensity. SGR's spending targets do not cap expenditures for physician
services. Instead, spending in excess of the target triggers a reduced
fee update or a fee cut. In this way, the SGR system applies financial
brakes to physician services spending and thus serves as an automatic
budgetary control device. In addition, reduced fee updates signal
physicians collectively and Congress that spending due to volume and
intensity has increased more than allowed.
To apply the SGR system, every year the Centers for Medicare &
Medicaid Services (CMS) follows a statutory formula to estimate the
allowed rate of increase in spending for physician services and uses
that rate to construct the spending target for the following calendar
year.\8\ The sustainable growth rate is the product of the estimated
percentage change in (1) input prices for physician services;
9,10 (2) the average number of Medicare beneficiaries in
the traditional fee-for-service (FFS) program; (3) national economic
output, as measured by real (inflation-adjusted) GDP per capita; and
(4) expected expenditures for physician services resulting from changes
in laws or regulations. SGR spending targets are cumulative. That is,
the sum of all physician services spending since 1996 is compared to
the sum of all annual targets since the same year to determine whether
spending has fallen short of, equaled, or exceeded the SGR targets. The
use of cumulative targets means, for example, that if actual spending
has exceeded the SGR system targets, fee updates in future years must
be lowered sufficiently both to offset the accumulated excess spending
and to slow expected spending for the coming year.
---------------------------------------------------------------------------
\8\ This allowed rate is the sustainable growth rate from which the
SGR system derives its name. We use the abbreviation SGR when referring
to the system and the full term of ``sustainable growth rate'' when
referring to the allowed rate of increase.
\9\ CMS calculates changes in physician input prices based on the
growth in the costs of providing physician services as measured by the
Medicare Economic Index, growth in the costs of providing laboratory
tests as measured by the consumer price index for urban consumers, and
growth in the cost of Medicare Part B prescription drugs included in
SGR spending.
\10\ Under the SGR and MVPS systems, the Secretary of Health and
Human Services defined physician services to include ``services and
supplies incident to physicians' services,'' such as laboratory tests
and most Part B prescription drugs.
---------------------------------------------------------------------------
Under SGR, spending per beneficiary adjusted for the estimated
underlying cost of providing physician services is allowed to grow at
the same rate that the national economy grows over time on a per-capita
basis--currently projected to be slightly more than 2 percent annually.
If volume and intensity grow faster, the annual increase in physician
fees will be less than the estimated increase in the cost of providing
services. Conversely, if volume and intensity grow more slowly than 2
percent annually, the SGR system permits physicians to benefit from fee
increases that exceed the increased cost of providing services. To
reduce the effect of business cycles on physician fees, MMA modified
the SGR system to require that economic growth be measured as the 10-
year moving average change in real per capita GDP. This measure is
projected to range from 2.1 percent to 2.5 percent during the 2005
through 2014 period.
When the SGR system was established, GDP growth was seen as a
benchmark that would allow for affordable increases in volume and
intensity. In its 1995 annual report to Congress, the Physician Payment
Review Commission stated that limiting real expenditure growth to 1 or
2 percentage points above GDP would be a ``realistic and affordable
goal.'' \11\ Ultimately, BBA specified the growth rate of GDP alone.
This limit was an indicator of what the 105th Congress thought the
nation could afford to spend on volume and intensity increases.
---------------------------------------------------------------------------
\11\ Physician Payment Review Commission, 1995 Annual Report to
Congress (Washington, D.C.: 1995).
---------------------------------------------------------------------------
If cumulative spending on physician services is in line with SGR's
target, the physician fee schedule update for the next calendar year is
set equal to the estimated increase in the average cost of providing
physician services as measured by the Medicare Economic Index (MEI). If
cumulative spending exceeds the target, the fee update will be less
than the change in MEI or may even be negative. If cumulative spending
falls short of the target, the update will exceed the change in MEI.
The SGR system places bounds on the extent to which fee updates can
deviate from MEI. In general, with an MEI of about 2 percent, the
largest allowable fee decrease would be about 5 percent and the largest
fee increase would be about 5 percent.
Continued Volume and Intensity Growth
and Legislated Fee Updates Contribute to Projected Decline in Physician
Fees
The 2004 Medicare Trustees Report announced that the projected
physician fee update would be about negative 5 percent for 7
consecutive years beginning in 2006; the result is a cumulative
reduction in physician fees of more than 31 percent from 2005 to 2012,
while physicians' costs of providing services, as measured by MEI, are
projected to rise by 19 percent.\12\ According to projections made by
CMS Office of the Actuary (OACT) in July 2004, maximum fee reductions
will be in effect from 2006 through 2012, while fee updates will be
positive in 2014. (See fig. 2.) There are two principal reasons for the
projected fee declines: increases in volume and intensity that exceed
the SGR's allowance--partly as a result of spending for Part B
prescription drugs--and the minimum fee updates for 2004 and 2005
specified by MMA.
---------------------------------------------------------------------------
\12\ Boards of Trustees, Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds, 2004 Annual Report of the
Boards of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds (Washington, D.C.: Mar. 23,
2004).
---------------------------------------------------------------------------
Figure 2: Projected MEI and Fee Update under Current Law
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Note: Projections are as of July 2004.
Volume and Intensity Growing Rapidly, Partly as a Result of Included
Spending For Outpatient Drugs
Recent growth in spending due to volume and intensity increases has
been larger than SGR targets allow, resulting in excess spending that
must be recouped through reduced fee updates. In general, the SGR
system allows physician fee updates to equal or exceed the MEI as long
as spending growth due to volume and intensity increases is no higher
than the average growth in real GDP per capita--about 2.3 percent
annually. However, in July 2004, CMS OACT projected that the volume and
intensity of physician services paid for under the physician fee
schedule would grow by 3 percent per year. To offset the resulting
excess spending, the SGR system will have to reduce future physician
fee updates.
Additional downward pressure on physician fees arises from the
growth in spending for other Medicare services that are included in the
SGR system, but that are not paid for under the physician fee schedule.
Such services include laboratory tests and many Part B outpatient
prescription drugs that physicians provide to patients.\13\ Because
physicians influence the volume of services they provide directly--that
is, fee schedule services--as well as these other services, defined by
the Secretary of HHS as ``incident to'' physician services,
expenditures for both types of services were included when spending
targets were introduced. In July 2004, CMS OACT projected that SGR-
covered Part B drug expenditures would grow more rapidly than other
physician service expenditures, thus increasing the likelihood that
future spending would exceed SGR system targets. To the extent that
spending for SGR Part B drugs and other ``incident to'' services grows
larger as a share of overall SGR spending, additional pressure is put
on fee adjustments to offset excess spending and bring overall SGR
spending in line with the system's targets. This occurs because the SGR
system attempts to moderate spending only through the fee schedule,
even when the excess spending is caused by expenditures for ``incident
to'' services, such as Part B drugs, which are not paid for under the
fee schedule.
---------------------------------------------------------------------------
\13\ Most of the Part B drugs that Medicare covers fall into three
categories: those typically provided in a physician office setting
(such as chemotherapy drugs), those administered through a durable
medical equipment item (such as a respiratory drug given in conjunction
with a nebulizer), and those that are patient-administered and covered
explicitly by statute (such as certain immunosuppressives).
---------------------------------------------------------------------------
MMA's Minimum Updates For 2004 and 2005 Contribute to Future Physician
Fee Cuts
The MMA averted fee reductions projected for 2004 and 2005 by
specifying an update to physician fees of no less than 1.5 percent for
those 2 years. The MMA increases replaced SGR system fee reductions of
4.5 percent in 2004 and 3.3 percent in 2005 and thus will result in
additional aggregate spending. Because MMA did not make corresponding
revisions to the SGR system's spending targets, the SGR system must
offset the additional spending by reducing fees beginning in 2006.
An examination of the SGR fee update that would have gone into
effect in 2005, absent the MMA minimum updates, illustrates the impact
of the system's cumulative spending targets. To begin with, actual
expenditures under the SGR system in 2004 are estimated to be $84.9
billion, whereas target expenditures for 2004 were $77.1 billion. As a
result, SGR's 2005 fee updates would have needed to offset the $7.8
billion deficit from excess spending in 2004 plus the accumulated
excess spending of $5.9 billion from previous years to realign expected
spending with target spending. Because the SGR system is designed to
offset accumulated excess spending over a period of years, the deficit
for 2004 and preceding years reduces fee updates for multiple years.
Alternatives for Updating Physician Fees Would Eliminate Spending
Targets or Revise Current SGR System
The projected sustained period of declining physician fees and the
potential for beneficiaries' access to physician services to be
disrupted have heightened interest in alternatives for the current SGR
system. In general, potential alternatives cluster around two
approaches. One approach would end the use of spending targets as a
method for updating physician fees and encouraging fiscal discipline.
The other approach would retain spending targets but modify the current
SGR system to address perceived shortcomings. These modifications
include such options as removing the prescription drug expenditures
that are currently counted in the SGR system; resetting the targets and
not requiring the system to recoup previous excess spending; and
raising the allowance for increased spending due to volume and
intensity growth.
Alternatives to the SGR system would increase fees and thus
aggregate spending--both government outlays and beneficiary cost
sharing, including Part B premiums, for physician services relative to
projected spending under current law.14,15 (See table 1.)
While seeking to pay physicians appropriately, it is important to
consider how modifications or alterations to the SGR system would
affect the long-term sustainability and affordability of the Medicare
program.
---------------------------------------------------------------------------
\14\ The Part B premium amount is adjusted each year so that
expected premium revenues equal 25 percent of expected Part B spending.
Beneficiaries must pay coinsurance--usually 20 percent--for most Part B
services.
\15\ See GAO-05-85 for more information about these alternatives.
Table 1: Projected Effect on Fee Updates and Physician Services Spending under Current Law and Selected
Potential Options for the SGR System, 2006 to 2014
----------------------------------------------------------------------------------------------------------------
Cumulative
Years with expenditures
Options Minimum fee negative fee Maximum fee increase
update update update relative to
current law
----------------------------------------------------------------------------------------------------------------
Current law -5.0% 8 +3.9% --
----------------------------------------------------------------------------------------------------------------
Eliminate spending targets +2.1% 0 +2.4% 22%
----------------------------------------------------------------------------------------------------------------
Modify spending targets
----------------------------------------------------------------------------------------------------------------
Set allowable growth to GDP+1 percent -5.0% 6 +5.3% 4%
----------------------------------------------------------------------------------------------------------------
Reset spending base for SGR targets -2.3% 6 +2.2% 13%
----------------------------------------------------------------------------------------------------------------
Remove Part B drugs -5.0% 5 +5.3% 5%
----------------------------------------------------------------------------------------------------------------
Combine all three modifications +2.2% 0 +2.8% 23%
----------------------------------------------------------------------------------------------------------------
Source: CMS OACT.
Eliminate Spending Targets, Base Fee Updates on Physician Cost
Increases
In several reports to Congress, the Medicare Payment Advisory
Commission (MedPAC) has recommended eliminating the SGR system of
spending targets and replacing it with an approach that would base
annual fee updates on changes in the cost of efficiently providing care
as measured by MEI.16,17 Under this approach, efforts to
control aggregate spending would be separate from the mechanism used to
update fees. The advantage of eliminating spending targets would be
greater fee update stability. According to CMS OACT simulations, such
an approach would likely produce fee updates that ranged from 2.1
percent to 2.4 percent over the period from 2006 through 2014. (See
table 1.) However, Medicare spending for physician services would rise,
resulting in cumulative expenditures that are 22 percent greater over a
10-year period than under current law, based on CMS OACT estimates.
Although MedPAC's recommended update approach would limit annual
increases in the price Medicare pays for each service, the approach
does not contain an explicit mechanism for constraining aggregate
spending resulting from increases in the volume and intensity of
services physicians provide. In 2004 testimony, MedPAC stated that fee
updates for physician services should not be automatic, but should be
informed by changes in beneficiaries' access to services, the quality
of services provided, the appropriateness of cost increases, and other
factors, similar to those that MedPAC takes into consideration when
considering updates for other providers.\18\
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\16\ See Medicare Payment Advisory Commission, Report to the
Congress: Medicare Payment Policy (Washington, D.C.: March 2001, 2002,
2003, and 2004).
\17\ MedPAC suggested that other adjustments to the update might be
necessary, for example, to ensure overall payment adequacy, correct for
previous MEI forecast errors, and to address other factors.
\18\ Medicare Payment Advisory Commission, Payment for Physician
Services in the Medicare Program, testimony before the Subcommittee on
Health, House Committee on Energy and Commerce (May 5, 2004).
---------------------------------------------------------------------------
Retain Spending Targets, Modify Current SGR System
Another approach for addressing the perceived shortcoming of the
current SGR system would retain spending targets but modify one or more
elements of the system. The key distinction of this approach, in
contrast to basing updates on MEI, is that fiscal controls designed to
moderate spending would continue to be integral to the system used to
update fees. Although spending for physician services would likely also
rise under this approach, the advantage of retaining spending targets
is that the fee update system would automatically work to moderate
spending if volume and intensity growth began to increase above
allowable rates. The SGR system could be modified in a number of ways:
for example, by raising the allowance for increased spending due to
volume and intensity growth; resetting the base for the spending
targets and not requiring the system to recoup previous excess
spending; or removing the prescription drug expenditures that are
currently counted in the SGR system.
Increase Allowance for Volume and Intensity Growth
The current SGR system's allowance for volume and intensity growth
could be increased, through congressional action, by some factor above
the percentage change in real GDP per capita. As stated earlier, the
current SGR system's allowance for volume and intensity growth is
approximately 2.3 percent per year--the 10-year moving average in real
GDP per capita--while CMS OACT projected that volume and intensity
growth would be more than 3 percent per year. To offset the increased
spending associated with the higher volume and intensity growth, the
SGR system will reduce updates below the increase in MEI. According to
CMS OACT simulations, increasing the allowance for volume and intensity
growth to GDP plus 1 percentage point would likely produce positive fee
updates beginning in 2012--2 years earlier than is projected under
current law.\19\ Because fee updates would be on average greater than
under current law during the 10-year period from 2005 through 2014,
Medicare spending for physician services would rise. CMS OACT estimated
that cumulative expenditures over the 10-year period would increase by
4 percent more than under current law.\20\ (See table 1.)
---------------------------------------------------------------------------
\19\ We use GDP plus 1 percentage point as the allowance for volume
and intensity growth for illustrative purposes only.
\20\ In May 2004 testimony, CBO estimated that this option would
raise net federal mandatory outlays by about $35 billion over the 2008-
2014 period. Congressional Budget Office, Medicare's Physician Fee
Schedule, testimony before the Subcommittee on Health, House Committee
on Energy and Commerce (May 5, 2004).
---------------------------------------------------------------------------
Reset Spending Base for Future SGR System Targets
In 2002, we testified that physician spending targets and fees may
need to be adjusted periodically as health needs change, technology
improves, or healthcare markets evolve.\21\ Such adjustments could
involve specifying a new base year from which to set future targets.
Currently, the SGR system uses spending from 1996, trended forward by
the sustainable growth rate computed for each year, to determine
allowable spending.
---------------------------------------------------------------------------
\21\ GAO, Medicare Physician Payments: Spending Targets Encourage
Fiscal Discipline, Modifications Could Stabilize Fees, GAO-02-441T
(Washington, D.C.: Feb. 14, 2002).
---------------------------------------------------------------------------
MMA avoided fee declines in 2004 and in 2005 by stipulating a
minimum update of 1.5 percent in each of those 2 years, but the law did
not similarly adjust the spending targets to account for the additional
spending that would result from the minimum update. Consequently, under
the SGR system the additional MMA spending and other accumulated excess
spending will have to be recouped through fee reductions beginning in
2006. If the resulting negative fee updates are considered
inappropriately low, one solution would be, through congressional
action, to use actual spending from a recent year as a basis for
setting future SGR system targets and forgiving the accumulated excess
spending attributable to MMA and other factors. The effect of this
action would be to increase future updates and, as with other
alternatives presented here, overall spending.
According to CMS OACT simulations, forgiving the accumulated excess
spending as of 2005--that is, resetting the cumulative spending target
so that it equals cumulative actual spending--would raise fees in 2006.
However, because volume and intensity growth is projected to exceed the
SGR system's allowance for such growth, negative updates would return
beginning in 2008 and continue through 2013. Resulting cumulative
spending over the 10-year period from 2005 through 2014 would be 13
percent higher than is projected under current law. (See table 1.)
Remove Prescription Drugs from the SGR System
The Secretary of HHS could, under current authority, consider
excluding Part B drugs from the definition of services furnished
incident to physician services for purposes of the SGR system.
Expenditures for these drugs have been growing rapidly, which, in turn,
has put downward pressure on the fees paid to Medicare physicians.
However, according to CMS OACT simulations, removing Part B drugs from
the SGR system beginning in 2005 would not prevent several years of fee
declines and would not decrease the volatility in the updates. Fees
would decline by about 5 percent per year from 2006 through 2010. There
would be positive updates beginning in 2011--3 years earlier than is
projected under current law. (See table 1.) CMS OACT estimated that
removing Part B drugs from the SGR system would result in cumulative
spending over the 10-year period from 2005 through 2014 that is 5
percent higher than is projected under current law.\22\
---------------------------------------------------------------------------
\22\ In May 2004 testimony, CBO estimated that this option would
raise net federal mandatory outlays by about $15 billion through 2014.
Congressional Budget Office, Medicare's Physician Fee Schedule,
testimony before the Subcommittee on Health, House Committee on Energy
and Commerce (May 5, 2004).
---------------------------------------------------------------------------
Combine Multiple Spending Target Modifications
Together Congress and CMS could implement several modifications to
the SGR system, for example, by increasing the allowance for volume and
intensity growth to GDP plus 1 percentage point, resetting the spending
base for future SGR targets, and removing prescription drugs. According
to CMS OACT simulations, this combination of options would result in
positive updates ranging from 2.2 percent to 2.8 percent for the 2006-
2014 period. CMS OACT projected that the combined options would
increase aggregate spending by 23 percent over the 10-year period. (See
table 1.)
Concluding Observations
Medicare faces the challenge of moderating the growth in spending
for physician services while ensuring that physicians are paid fairly
so that beneficiaries have appropriate access to their services.
Concerns have been raised that access to physician services could
eventually be compromised if the SGR system is left unchanged and the
projected fee cuts become a reality. These concerns have prompted
policymakers to consider two broad approaches for updating physician
fees. The first approach--eliminating targets--emphasizes fee stability
while the second approach--retaining and modifying targets--includes an
automatic fiscal brake. Either of the two approaches could be
implemented in a way that would likely generate positive fee updates
and each could be accompanied by separate, focused efforts to moderate
volume and intensity growth. Because multiple years of projected 5
percent fee cuts are incorporated in Medicare's budgeting baseline,
almost any change to the SGR system is likely to increase program
spending above the baseline. As policymakers consider options for
updating physician fees, it is important to be mindful of the serious
financial challenges facing Medicare and the need to design policies
that help ensure the long-term sustainability and affordability of the
program. We look forward to working with the Subcommittee and others in
Congress as policymakers seek to moderate program spending growth while
ensuring appropriate physician payments.
Madam Chairman, this concludes my prepared statement. I will be
happy to answer questions you or the other Subcommittee Members may
have.
----------
Medicare Physician Payments
Considerations for Reforming the Sustainable Growth Rate System
Concerns were raised about the system Medicare uses to determine
annual changes to physician fees--the sustainable growth rate (SGR)
system--when it reduced physician fees by almost 5 percent in 2002.
Subsequent administrative and legislative actions modified or overrode
the SGR system to avert fee declines in 2003, 2004, and 2005. However,
projected fee reductions for 2006 to 2012 have raised new concerns
about the SGR system. Policymakers question the appropriateness of the
SGR system for updating physician fees and its effect on physicians'
continued participation in the Medicare program if fees are permitted
to decline. At the same time, there are concerns about the impact of
increased spending on the long-term fiscal sustainability of Medicare.
GAO was asked to discuss the SGR system. Specifically, this
statement addresses the following: (1) how the SGR system is designed
to moderate the growth in spending for physician services, (2) why
physician fees are projected to decline under the SGR system, and (3)
options for revising or replacing the SGR system and their implications
for physician fee updates and Medicare spending. This statement is
based on GAO's most recent report on the SGR system, Medicare Physician
Payments: Concerns about Spending Target System Prompt Interest in
Considering Reforms (GAO-05-85).
----------
To moderate Medicare spending for physician services, the SGR
system sets spending targets and adjusts physician fees based on the
extent to which actual spending aligns with specified targets. If
growth in the number of services provided to each beneficiary--referred
to as volume--and in the average complexity and costliness of
services--referred to as intensity--is high enough, spending will
exceed the SGR target. While the SGR system allows for some volume and
intensity spending growth, this allowance is limited. If such growth
exceeds the average growth in the national economy, as measured by the
gross domestic product per capita, fee updates are set lower than
inflation in the cost of operating a medical practice. A large gap
between spending and the target may result in fee reductions. There are
two principal reasons why physician fees are projected to decline under
the SGR system beginning in 2006. One problem is that projected volume
and intensity spending growth exceeds the SGR allowance for such
growth. Second, the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) increased the update for 2004 and
2005--thus increasing spending--but did not raise the spending targets
for those years. The SGR system, which is designed to keep spending in
line with its targets, must reduce fees beginning in 2006 to offset
excess spending attributable to both volume and intensity growth and
the MMA provision. In general, proposals to reform Medicare's method
for updating physician fees would either (1) eliminate spending targets
and establish new considerations for the annual fee updates or (2)
retain spending targets, but modify certain aspects of the current
system. The first approach emphasizes stable and positive fee updates,
while the second approach automatically applies financial brakes
whenever spending for physician services exceeds predefined spending
targets. Either approach could be complemented by focused efforts to
moderate volume and intensity growth directly. As policymakers consider
options for updating physician fees, it is important to be mindful of
the serious financial challenges facing Medicare and the need to design
policies that help ensure the long-term sustainability and
affordability of the program.
Chairman JOHNSON. Thank you, Mr. Steinwald. Mr. Hackbarth
from MedPAC. Thank you for being with us this morning.
STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN, MEDICARE PAYMENT
ADVISORY COMMISSION
Mr. HACKBARTH. Thank you, Chairman Johnson and Congressman
Stark.
Mr. STARK. Microphone.
Mr. HACKBARTH. Is that better? Thank you, and I appreciate
the opportunity to report on MedPAC's recommendations. Our
March report, soon to be published, will include
recommendations, not just on the SGR, but on pay-for-
performance for physicians, resource measurement--that is
developing tools that allow us to assess physician
performance--and imaging services. Let me begin by being
explicit about the premise that is beneath my--supports my
testimony, and that is that the U.S. healthcare system is a
very technologically advanced healthcare system which, at its
best, works wonders for Medicare beneficiaries, indeed the
whole population. It does not, however, provide consistently
high-quality service. By high quality, I mean service that is
consistent with evidence-based guidelines for care and avoids
errors in the provision of care. While physicians as a group
are extraordinarily dedicated professionals--and I have had the
privilege as Chief Executive Officer (CEO) of a large group to
experience that firsthand--not all physicians are equal in
terms of their performance. Some physicians perform better than
others on quality of care, patient satisfaction and deficiency.
Of these--these are not just MedPAC's conclusions or my
personal conclusions. They are the conclusions of years of
research and of esteemed bodies like the Institute of Medicine.
The conclusion that MedPAC draws from these findings is
that policies, like the SGR system, that treat all physicians
as though they performed equally are inequitable. Even more
important than that, they fail to create appropriate incentives
to improve performance and invest in systems that would aid in
better provision of health care. As a result, we think a better
approach is a more targeted approach, one that establishes
explicit performance standards and rewards physicians
accordingly while also establishing incentives to invest in
quality-enhancing systems. We believe that a latter approach
develops analytic tools to help individual physicians as well
as the Medicare program, better understand how their practice
compares to their peers on both quality and efficiency. We
believe a better approach focuses on areas of rapid growth and
expenditures, like imaging, to ensure that we are buying care
that is appropriate, of high quality and safe for Medicare
beneficiaries.
We recognize this targeted approach is not an easy approach
by any stretch. Unlike the SGR, it is not automatic. It
requires specific judgments about what we want and what we do
not want in the provision of medical care, about what is good
and what is bad. It requires investment in developing systems,
analytic tools, administrative processes. It also, frankly,
requires taking some calculated risks. Any complicated endeavor
of this sort, mistakes will be made, some misjudgments will be
made that we will have to recognize and address and improve
over time. Despite these challenges, which are very real, we
strongly believe, unanimously believe, on the Commission that
it is the best course for Medicare to begin targeting our
efforts to improve quality and reduce cost. That is the course
that is in the best interest of the program, the best interest
of Medicare beneficiaries, and ultimately for the U.S.
healthcare system. Thank you very much.
[The prepared statement of Mr. Hackbarth follows:]
Statement of Glenn M. Hackbarth, Chairman, Medicare Payment Advisory
Commission
Chairman Johnson, Congressman Stark, distinguished Subcommittee
Members. I am Glenn Hackbarth, chairman of the Medicare Payment
Advisory Commission (MedPAC). I appreciate the opportunity to be here
with you this morning to discuss payments for physician services in the
Medicare program.
Medicare expenditures for physician services are the product of the
number of services provided, the type of service, and the price per
unit of service. The number and type of services provided we refer to
as service volume. The sustainable growth rate (SGR) system was meant
to control the volume of physician services and hence total
expenditures for physician services by setting the update (change in
unit payment for the year) for physician services. The SGR is based on
changes in: the number of beneficiaries in the Medicare fee-for-service
program; input prices; law and regulation; and gross domestic product
(GDP). The GDP, the measure of goods and services produced in the
United States, is used as a benchmark of how much growth in volume
society can afford. The basic SGR mechanism is to compare actual
spending to target spending and adjust the update when there is a
mismatch.
The SGR approach has three basic problems.
It disconnects payment from the cost of producing
services. The formula produces updates that can be unrelated to changes
in the cost of producing physician services and other factors that
should inform the update. If left alone, negative updates would provide
a budget control but in so doing would produce fees that in the long
run could threaten beneficiaries' access.
It is a flawed volume control mechanism. Because it is a
national target, there is no incentive for individual physicians to
control volume. There has been no consistent relationship between
updates and volume growth, and the volume of services and level of
spending are still increasing rapidly.
It is inequitable because it treats all physicians and
regions of the country alike regardless of their individual volume
influencing behavior.
It treats all volume increases the same, whether they are
desirable or not.
The SGR formula has produced updates that in some years have been
too high and in others too low. MedPAC has consistently raised concerns
about the SGR--when it has set updates both above and below the change
in input prices. The current projection, according to the trustees of
the Medicare trust funds, is that annual updates of negative five
percent will occur for seven consecutive years. The trustees
characterize this series of updates as ``unrealistically low'' and in
terms of budget scoring, these projections make legislative
alternatives to the SGR very expensive.
Instead of relying on a formula, MedPAC recommends a different
course--one that involves explicit consideration of Medicare program
objectives and differentiating among physicians. Updates should be
considered each year to ensure that payments for physician services are
adequate to maintain Medicare beneficiaries' access to necessary high
quality care. At the same time, the growth in the volume of physician
services should be addressed directly. Volume and volume growth differs
across geographic areas and by service and ultimately is the result of
individual physician's practice decisions. Is all the care being
provided necessary? Dartmouth researchers and others have shown that
often high quality care is not correlated with more services. We know
the private sector is taking steps to control volume in services such
as imaging with very high growth rates. Volume growth must be addressed
by determining its root causes and specifying policy solutions. A
formula such as the SGR that attempts to control volume through global
payment changes treating all services and physicians alike will produce
inequitable results.
In this testimony we will first review how the SGR came about and
explain the problems with it. Then we will discuss our recommendations.
First, a year-to-year evaluation of payment adequacy to determine the
update. Second, approaches that would allow Medicare to differentiate
among providers when making payments as a way to reduce inappropriate
volume of services and improve the quality of care. Currently, Medicare
pays providers the same regardless of their quality or use of
resources. We recommend Medicare should pay more to physicians with
higher quality performance and less to those with lower quality
performance. With regard to imaging, a rapidly growing sector of
physician services, the Commission recommends that providers who
perform imaging studies and physicians who interpret them meet quality
standards as a condition of Medicare payment. Further, the Commission
recommends measuring physicians' use of Medicare resources when serving
beneficiaries and providing information about practice patterns
confidentially to physicians. This recognizes the unique role of
physicians--who order tests, imaging studies, surgery, drugs--as
gatekeepers of the healthcare system. These are all important steps to
improve quality for beneficiaries and to lay the groundwork for
obtaining better value in the Medicare program.
Historical concerns about physician payment
The Congress established the fee schedule that sets Medicare's
payments for physician services as part of the Omnibus Budget
Reconciliation Act of 1989 (OBRA89). As a replacement for the so-called
customary, prevailing, and reasonable (CPR) payment method that existed
previously, it was designed to achieve several goals. First, the fee
schedule decoupled Medicare's payment rates and physicians' charges for
services. This was intended to end an inflationary bias that was
believed to exist under the CPR method because it gave physicians an
incentive to raise their charges.
Second, the fee schedule corrected distortions in payments that had
developed under the CPR method. Evidence of those distortions came from
William Hsiao and his colleagues at Harvard University who found that
payments were lower, relative to resource costs, for evaluation and
management services but higher for imaging and laboratory services.
Further evidence came from analyses, conducted by one of MedPAC's
predecessor commissions, the Physician Payment Review Commission, that
revealed wide variation in CPR-method payment rates by geographic area,
that could not be explained by differences in practice costs.
A third element of the OBRA89 reforms is central to our testimony
today. The legislation established a formula based on achievement of an
expenditure target--the volume performance standard (VPS). This
approach to payment updates was a response to rapid growth in Medicare
spending for physician services driven by growth in the volume of those
services. From 1980 through 1989, annual growth in spending per
beneficiary, adjusted for inflation, ranged widely, from a low of 1.3
percent to a high of 15.2 percent. The average annual growth rate was
8.0 percent.
Because of physicians' unique role in the healthcare system, the
hope was that the VPS would give them a collective incentive to control
the volume of services. Physicians order tests, imaging studies,
surgery, drugs, and otherwise serve as gatekeepers of the healthcare
system. In addition, the unit of payment in the fee schedule is quite
small--over 7,000 discrete services.
Experience with the VPS formula showed that it had several
methodological flaws that prevented it from operating as intended.
Those problems prompted the Congress to replace it as part of the
Balanced Budget Act of 1997. Under the SGR, the expenditure target is
not a function of historical growth in the volume of services. Instead,
the SGR target is based on growth in real GDP per capita and other
factors--inflation in physicians' practice costs, changes in enrollment
in fee-for-service Medicare, and changes in spending due to law and
regulation. As noted, the real GDP factor was included in the SGR to
link the expenditure target to growth in the national economy. This
linkage was thought appropriate because volume growth for physician
services is theoretically as unlimited as the demand for health care.
Congress decided to link growth to GDP as a benchmark of what the U.S.
economy could afford.
The problem with the current update system
The underlying assumption of an expenditure target approach, such
as the SGR, is that increasing updates if overall volume is controlled,
and decreasing updates if overall volume is not controlled, provides
physicians nationally a collective incentive to control the volume of
services. However, this assumption is incorrect because physicians do
not respond to collective incentives but individual incentives. An
efficient physician who reduces volume does not realize a proportional
increase in payments. In fact, an individual physician has an incentive
to increase volume under a fee for service system: moreover, there is
evidence that physicians have increased volume in response to
reductions in fees. The sum of those individual incentives will result
in an increase in volume overall, if fees are reduced, and trigger an
eventual further reduction in fees under an expenditure target.
Compounding the problem with the conceptual basis of the system,
the SGR system has produced volatile updates. Updates went from
increases in 2000 and 2001 of 5.4 percent and 4.5 percent,
respectively, much larger than the increases in practice costs, to an
unexpected large reduction in 2002 of 5.4 percent. This volatility
illustrates the problem of trying to control spending with an update
formula.
In the MMA, the Congress attempted to reduce the volatility
problem. The GDP factor in the SGR is now a 10-year rolling average,
which dampens the effects of yearly changes in GDP growth. However,
there is another source of volatility which has not been controlled--
estimating changes in enrollment in traditional fee-for-service
Medicare. CMS may need to reestimate enrollment growth as it gains
experience with shifts in enrollment from traditional Medicare to
Medicare Advantage. Under the SGR, this could lead to continued
volatility in spending targets and updates.
A different approach to updating payments
To address these problems, in our March 2002 report we recommended
that the Congress replace the SGR system for calculating an annual
update with one based on factors influencing the unit costs of
efficiently providing physician services. Replacing the SGR system
could allow updates more consistent with efficiency and quality care
and would also uncouple payment updates from spending control. If total
spending for physician services needs to be controlled, it is necessary
to look not only at adjusting payment updates, but at controlling
volume growth directly--as discussed in the next section.
A new system should update payments for physician services based on
an analysis of payment adequacy which would include the estimated
change in input prices for the coming year, less an adjustment for
growth in multifactor productivity. Updates would not be automatic
(required in statute) but be informed by changes in beneficiaries'
access to physician services, the quality of services being provided,
the appropriateness of cost increases, and other factors, similar to
those MedPAC takes into account when considering updates for other
Medicare payment systems. Furthermore, the reality is that in any given
year Medicare might need to exercise budget restraints and MedPAC's
analysis would serve as one input to Congress's decisionmaking process.
For example, we use this approach in our recommendation on the
physician payment update in our March report to the Congress. Our
assessment is that Medicare beneficiaries' access to physician care,
the supply of physicians, and the ratio of private payment rates to
Medicare payment rates for physician services, are all stable. Surveys
on beneficiary access to physicians continue to show that the large
majority of beneficiaries are able to obtain physician care and nearly
all physicians are willing to serve Medicare beneficiaries. In the fall
of 2004, MedPAC found that among beneficiaries looking for a new
doctor, 88 percent reported little or no problems obtaining a new
primary care physician. Access to specialists was even better--94
percent reported little or no problems. Further, Medicare beneficiaries
and privately insured individuals age 55-64 report very similar
experiences accessing physicians. Indeed, Medicare beneficiaries'
reported as good as or better access than their privately insured
counterparts. (These findings are consistent with earlier work done by
the Center for Studying Health Systems Change.) A large national survey
found that among office-based physicians who commonly saw Medicare
patients, 94 percent were accepting new Medicare patients in 2003. This
figure is up 1 percentage point from 2002.
We have also found that the supply of physicians furnishing
services to Medicare beneficiaries has kept pace with the growth in the
beneficiary population, and the volume of physician services used by
Medicare beneficiaries is still increasing. In consideration of
expected growth in physicians' costs and our payment adequacy analysis,
the Commission recommends that payments for physician services be
updated by the projected change in input prices, less an adjustment of
0.8 percent for productivity growth.
This update should be thought of in the context of the entire
package of our physician payment recommendations. The update, coupled
with pay for performance and our imaging recommendations discussed
below, will provide an adequate increase in physician payment overall
while starting to reward better quality and dampen growth in a rapidly
growing service. Over the next few years, as quality performance is
rewarded, as physicians are made aware of their practice patterns and
increase efficiency, and as specific volume problems are targeted,
Medicare can improve the value of the physician services it buys.
A different approach to controlling volume
If payment rates are adequate and updated to account for changes in
efficient physicians' cost, the remaining issue is controlling volume,
which is important for both beneficiaries and taxpayers. For
beneficiaries, increases in volume lead to higher out-of-pocket costs--
co-payments, the Medicare Part B premium, and any premiums they pay for
supplemental coverage. For taxpayers, increases in volume lead to
higher Part B expenditures supported with the general revenues of the
Treasury. The MMA has established a trigger for legislative action if
general revenues exceed 45 percent of total outlays for the Medicare
program.
For beneficiaries, volume growth increases the monthly Part B
premium. Because it is determined by average Part B spending for aged
beneficiaries, an increase in the volume of services affects the
premium directly. From 1999 to 2002 the premium went up by an average
of 5.8 percent per year. By contrast, cost-of-living increases for
Social Security benefits averaged only 2.5 percent per year during that
period. Since 2002 the Part B premium has gone up faster still--by 8.7
percent in 2003, 13.5 percent in 2004, and 17.3 percent in 2005.
Volume growth also has implications for the federal budget. The
Committee is aware of the growth of Medicare relative to the nation's
output of goods and services as discussed in the Medicare trustees
report. Increases in Medicare spending per beneficiary is an important
reason for that growth, cited by the Congressional Budget Office and
the General Accounting Office among others.
However, some of the root causes of volume growth may be amenable
to policy action and some growth may be desirable. For example, growth
arising from technology that produces meaningful gains to patients, or
growth where there is currently underutilization of services may be
beneficial. But one indicator that not all growth is good may be its
variation. Among broad categories of services, growth in volume per
beneficiary ranged from about 15 percent to almost 45 percent, based on
our analysis of data comparing 2003 with 1999 (Figure 1). Within these
broad categories, growth rates were higher for services which
researchers have characterized as discretionary (e.g., imaging and
diagnostic tests). In imaging, for example, growth rates were over 15
percent a year for such services as magnetic resonance imaging,
computed tomography, and nuclear medicine.
In addition, volume varies across geographic areas. As detailed in
our June 2003 report to the Congress, the variation is widest for
certain services, including imaging and tests. Researchers (e.g.
Wennberg and Fisher) have reached several conclusions about such
findings:
Differences in volume among geographic areas is primarily
due to greater use of discretionary services sensitive to the supply of
physicians and hospital resources.
On measures of quality, care is often worse in areas with
high volume than in areas with lower volume. The high-volume areas tend
to have a physician workforce composed of relatively high proportions
of specialists and lower proportions of generalists.
Areas with high levels of volume have slightly worse
access to care on some measures, suggesting patients may be delaying
entry into the healthcare system because of patient discomfort with the
level of specialization.
All this suggests that service volume may be too high in some
geographic areas.
In our March report to the Congress we make several recommendations
that taken together will help control volume and increase quality of
Medicare physician services. Our basic approach is to differentiate
among physicians and pay those who provide high quality services in a
resource efficient way more, and pay those who do not, less--or in some
cases not at all. As a first step, we make recommendations concerning:
pay for performance and information technology (IT), measuring
physician resource use, and managing the use of imaging services.
Pay for performance and information technology
Medicare uses a variety of strategies to improve quality for
beneficiaries including the quality improvement organization (QIO)
program, and a variety of demonstration projects, such as the group
practice demonstration, aimed at tying payment to quality. MedPAC
supports these efforts and believes that CMS, along with its accreditor
and provider partners, has acted as an important catalyst in creating
the ability to measure and improve quality nationally. CMS's prior
quality investments provide a foundation for initiatives tying payment
to quality and encouraging the diffusion of information technology.
However, for the most part, Medicare, the largest single payer in
the system, still pays its healthcare providers without differentiating
on quality. Providers who improve quality are not rewarded for their
efforts. In fact, Medicare often pays more when poor care results in
unnecessary complications. The incentives of this system are neutral or
negative toward improving the quality of care.
To begin to address these issues, the Congress should adopt budget
neutral pay-for-performance programs, starting with a small share of
payment and increasing over time. For physicians, this would initially
include use of a set of measures related to the use and functions of
IT, and over time a broader set of measures.
IT measures should describe evidence-based quality- or safety-
enhancing functions performed with the help of IT. Functions might
include, for example, tracking patients with diabetes and sending them
reminders about preventive services, or providing educational support
for patients with chronic illnesses. This approach focuses the
incentive on quality-improving activities, rather than on the tool
used. It also allows providers to achieve performance in the early
stages without necessarily investing in IT, although it would be easier
if they did so. The potential additional payment may also increase the
return on IT investments.
Because physicians play a central role in directing patient care,
their adoption and use of IT should be a part of physician pay-for-
performance initiatives from the start. Physician use of electronic
health records promises to lead to better care management, reduced
errors, improved efficiency, and can facilitate reporting of meaningful
quality indicators that may not otherwise be available. However, few
providers use IT for clinical (as opposed to administrative) functions
perhaps because it is difficult to demonstrate an adequate return on
investment.
Some suggest that Medicare could reward IT adoption alone. However,
not all IT applications have the same capabilities and owning a product
does not necessarily translate into using it or guarantee the desired
outcome of improving quality.
Process measures for physicians, such as monitoring and maintaining
glucose levels for diabetics, should be added to the pay-for-
performance program as they become more widely available from
administrative data. Using administrative data minimizes the burden on
physicians. We recommend improving the administrative data available
for assessing physician quality, including submission of laboratory
values using common vocabulary standards, and of prescription claims
data from the Part D program. The laboratory values and prescription
data could be combined with physician claims to provide a more complete
picture of patient care. As clinical use of IT becomes more widespread,
even more measures could become available.
Measuring physician resource use
Medicare beneficiaries living in regions of the country where
physicians and hospitals deliver many more healthcare services do not
experience better quality of care or outcomes. Moreover, they do not
report greater satisfaction with care than beneficiaries living in
other regions. This finding, and others by researchers such as Wennberg
and Fisher are provocative. They suggest that the nation could spend
less on health care, without sacrificing quality, if physicians whose
practice styles are more resource intensive moderated the intensity of
their practice; that is if they provided fewer diagnostic services,
used fewer subspecialists, referred patients less frequently to
hospitals and intensive care units (ICUs), and did fewer minor
procedures.
MedPAC recommends that Medicare measure physicians' resource use
over time, and feed back the results to physicians. Physicians would
then be able to assess their practice styles, evaluate whether they
tend to use more resources than either their peers or what evidence-
based research (when available) recommends, and revise their practice
style as appropriate. Moreover, when physicians are able to use this
information in tandem with information on their quality of care, it
will provide a foundation for them to improve the efficiency of the
care they and others provide to beneficiaries. Once greater experience
and confidence in this information is gained, Medicare might use the
results in payment, for example as a component of a pay-for-performance
program.
Although comprehensively measuring resource use and quality may be
difficult, we must ask ourselves what the cost is of doing nothing.
Right now, we know there are wide disparities in practice patterns, all
of which are paid for by Medicare and many of which do not appear to be
improving care. Yet many physicians have few opportunities to learn
about how their practice patterns compare to others or how they can
improve. This recommendation would inform physicians and is crucial to
starting the process of improvement.
Managing the use of imaging services
The last several years have seen rapid growth in the volume of
diagnostic imaging services when compared to other services paid under
Medicare's physician fee schedule (Figure 1). This increase has been
driven by technological innovations that have improved physicians'
ability to diagnose disease and made it more feasible to provide
imaging procedures in physician offices. Other factors include:
possible misalignment of fee schedule payment rates and
costs,
physicians' interest in supplementing their professional
fees with revenues from ancillary services, and
patients' desire to receive diagnostic tests in more
convenient settings.
These factors have contributed to an ongoing migration of imaging
services from hospitals, where institutional standards govern the
performance and interpretation of studies, to physician offices, where
there is less quality oversight. These variations in oversight, coupled
with rapid volume growth, create an urgent need for Medicare to develop
standards for all providers that receive payment for performing and
interpreting imaging studies. These standards should improve the
accuracy of diagnostic tests and reduce the need to repeat studies,
thus enhancing quality of care and helping to control spending.
Requiring physicians to meet quality standards as a condition of
payment for imaging services provided in their offices represents a
major change in Medicare's payment policy. Traditionally, Medicare has
paid for services provided by physicians operating within the scope of
practice defined by the state in which they are licensed. The
Commission concludes that requiring standards is warranted because of
the growth of imaging studies provided in physician offices and the
lack of comprehensive standards for this setting. According to GAO, the
Mammography Quality Standards Act has increased mammography facilities'
compliance with quality standards and led to improvements in image
quality. After the Act took effect, the share of facilities that were
unable to pass image quality tests dropped from 11 percent to 2
percent.
In addition to setting quality standards for facilities and
physicians, CMS should through administrative action:
measure physicians' use of imaging services so that
physicians can compare their practice patterns with those of their
peers,
expand and improve Medicare's coding edits for imaging
studies, and
strengthen the rules that restrict physician investment
in imaging centers to which they refer patients.
CMS should improve their coding edits that detect improper imaging
claims, such as claims for unbundled and mutually exclusive services.
Medicare also should discount payments for multiple imaging studies of
the same modality that are performed on contiguous body parts. Medicare
payments should reflect the efficiencies that are often gained when
studies are performed in tandem.
Creating new incentives in the physician payment system
MedPAC has consistently raised concerns about the SGR as a volume
control mechanism and recommended its elimination. We believe that the
other changes discussed previously--pay for performance, IT, measuring
resource use, and reform of payments for imaging service--can help
Medicare beneficiaries receive high-quality, appropriate services while
also controlling volume growth. Although the Commission's preference is
to address issues of inappropriate volume increases directly as
discussed in the previous section on imaging, we recognize that the
Congress may wish to have some form of limit on aggregate volume as
well; but it needs to be one that will more closely match physician's
incentives to their individual performance. In our March report to the
Congress, we will discuss potential ideas for creating incentives for
more effective volume control methods that encourage more collaborative
and cost effective delivery of physician services in accordance with
clinical standards of care.
Chairman JOHNSON. I thank the witnesses for joining us this
morning and for the work you have done over the last number of
months in preparation for our tackling this issue. There are
two things, two brief questions that I want to ask about, the
functioning of current law. I do thank MedPAC for the
recommendations in regard to imaging, which I will not pursue
in this hearing. The law explicitly requires that we adjust the
target for any impact on physician visits that law or
regulation has imposed. Those words of law and regulation have
been very imperfect instruments, and we are going to hear later
in this hearing testimony about things that have affected the
number of physician visits, and are the direct consequence of
policy changes adopted by either the Congress or the
Administration, and yet were not included and were not
considered in setting the target.
Then there are nongovernmental things. For instance,
advertising drugs. If it is a prescription drug, your doctor
has to prescribe it. So, advertising drugs has resulted in a
lot of physician visits that drive that volume up, that force
that snapback in reimbursements, when actually that physician
visit was not necessary, except that person wanted to evaluate
the drug they heard advertised on television that morning in
regard to their health. So, the adjustment that is implied in
the law that will take place is inadequate, because a lot of
new visits and volume issues are driven by forces outside law
and regulations and our own policy initiatives. So, I would
like you to comment on that factor. Also, not in the SGR
formula, but in the target setting, we take into account the
cost of drugs, at least those drugs, Part B drugs, administered
by the physicians, and that cost--as that cost has gone up,
that has dictated cuts in physician payments in a way that is,
in my estimation, totally irrational. So, I would like you to
comment on those two aspects of the formula that are part of
what is driving the appearance that we are spending a lot more
money on physician services. Either one of you, in whatever
order you want to go.
Mr. STEINWALD. Okay. I will start, Mrs. Johnson. With
regard to the elements that enter into the setting of the SGR
targets, I mentioned one of them, the allowance for growth
above inflation is gross domestic product. Then there is the--
what is called the Medicare economic index that measures
inflation in running a medical practice. There is also the size
of the fee-for-service beneficiary population, which tends to
fluctuate from year to year. In addition, the Secretary has the
authority to adjust the targets for changes in law and
regulation that could affect spending for physician services.
We have said at GAO that we think that CMS could be more
transparent in how it makes those adjustments, makes it more of
a public process. Other than that, we have not commented on
whether we believe they have been deficient in their adjustment
for law and regulation changes. With regard to Part B drugs,
one of the options that we did outline in our report to you and
in our testimony today, was the removal of Part B drugs from
calculating the formula. In the past, Part B drug spending has
inflated faster than the cost of physician services. The effect
of having Part B drugs into the target-setting process has been
to impose additional downward pressure on physician fee updates
over time.
Mr. HACKBARTH. For one of our reports, our mandated
reports--and forgive me for not being able to remember which
one--we were asked to look at the process that the CMS
actuaries used to adjust for changes in law and regulation. We
did not look at specific estimates, but we looked at the
process. Based on that, and based on my own experience at CMS
as deputy administrator, I have a lot of sympathy for the
difficulty of the task the actuaries are asked to do. Often
making an estimate of how these things will affect cost trends
is exceedingly difficult. There simply is not sound evidence on
which to base an estimate. So, in cases where they do not have
sound evidence, they will not make an estimate in the first
instance, but will assume as an initial assumption, no effect.
Then they will go back and look at the actual performance, and
as I understand the framework, they are permitted to go back
and retrospectively make some adjustments. All in all, we think
that that process that they use is a reasonable one, although
we would agree with what GAO says about the need for greater
transparency in the process.
With regard to the point you made, Chairman Johnson, about
a variety of societal factors, affecting the growth rate in
services, whether it is direct advertising to consumers or
technological changes, and the initial structure of the SGR,
the purpose of the GDP element and formula was to provide an
allowance for increased volume and intensity of service due to
those sorts of factors. So, that is the piece of the formula
that is to address changes that go on in the healthcare system
or even in beneficiary preferences. The issue becomes, under
the formula, whether it is a sufficient allowance to take into
account those factors. At the end of the day, as you well know,
it is MedPAC's judgment that trying to tinker with a formula of
this sort, that applies across the board, affects all
physicians without regard to their individual performance and
provides no incentive to alter patterns of practice. It is just
not a good thing to be doing. It is going to create inequity.
It is not going to move the system in the proper direction. We
need a much more targeted approach to do that.
Chairman JOHNSON. Thank you. There are other factors like
national coverage decisions, local coverage decisions that
affect this, and they are beyond the control of the physician,
so I think tinkering, you would have to tinker with an awful
lot of parts of it. So, thank you both for your comments. I
think it is also germane that, with regard to Part B services,
we have now distinguished between drug price and physician cost
and reformed that entire service. I think that gives us some
indication of how we might go forward in translating that into
this formula. Mr. Stark.
Mr. STARK. Thank you, Madam Chair. Mr. Steinwald, Mr.
Hackbarth, thank you both for your work. Do you know, Mr.
Steinwald, off the top of your head, or would it be easy to
find out, in your chart, which is on page 11, you list the
cumulative expenditure increase relative to current laws as
percentages. Would you be able to quantify that, put a number
to those percentages, do you know?
Mr. STEINWALD. I personally would not.
Mr. STARK. Okay.
Mr. STEINWALD. The actuaries in CBO and in----
Mr. STARK. I think that is important in the measure. I just
wanted to make a couple of comments and ask you each question.
It is the case that the spending for physician services by
Medicare has grown at the average rate of about 6 percent a
year since 1997. By the end of 2002, we had exceeded our target
by $17 billion, and I think CBO is not sure today. It says
that, in the next few years, the target would have grown by
another $10 billion. So, that while we cut the rates, the
aggregate amount paid--and I may add that we did not add a
whole lot of Medicare beneficiaries over that period of time,
so that basically, I think, it could be said that the aggregate
payment of these physicians went up comfortably.
Now, I wanted to ask Glenn if you know--there have been two
suggestions coming out of the--what is called the physician
community. One has been to eliminate the SGR. The CBO, I
understand, says that would cost us about $135 billion over 10.
So, there is one juicy bit of money. Or, retroactively, take
the prescription drug formula out of the growth formula, and
that would cost us about, let us see, $119 billion over 10. I
am hearing, and I wondered if those are correct. I wondered if
you could comment on either the affordability or wisdom of
either option, or, Mr. Steinwald--I mean, there are several
suggestions out here, and I want to see if either of you or
both of you could pinpoint the one you like best and how much
you think it would cost.
Mr. HACKBARTH. Yes. Well, the price tag associated with any
of these changes in physician payment is obviously driven by
the SGR baseline. From our perspective, the baseline itself is
unrealistic. It is detached from reality. The Medicare trustees
in their most recent report said that the updates that this
baseline envisions are unrealistically low. I daresay nobody
expects that we are going to repeatedly cut physician fees 5
percent and more year after year after year. So, we are in a
very difficult position where the baseline is not realistic,
and it results in any constructive positive change having a
very, very large price tag. From our perspective, that is one
of the worst aspects of SGR. It has become a barrier to sound,
prudent policy. We have not taken a position on proposals to
remove drugs, for example, retrospectively, going back to the
beginning of the SGR system. We see those as proposals that do
not deal directly with policy, that is how much we should pay
physicians. The real issue is about scoring, how can we alter
this baseline with the minimum score, and we do not think that
it is appropriate for MedPAC to be dealing in what are
essentially scoring issues.
Mr. STARK. Well, you touch on that. Do you have statistics
that it might be interesting if--I know your staff does not
have anything else to do--but the payment rates per procedure
that Medicare pays and what Blue Cross or other indemnity
payers, it has not always been lower, as I understand it.
Mr. HACKBARTH. Well, in fact, it is one of the measures
that we look at in assessing payment adequacy. As you look
across the country, in fact, Medicare pays on average less than
private payers. Actually, the Medicare payment has gone up
recently, compared to private payment, but is still below on
average. There is a lot of variation in that across the
country. In some cities, Medicare is a comparatively good
payer. In other cities, it pays quite a bit less.
Mr. STARK. Yes, that is what I was going to say. There are
some areas where it pays more, I understand.
Mr. HACKBARTH. There are, in fact.
Mr. STARK. Do you adjust that--if I could just finish,
Madam Chair, then I will shut up. Because there are not many
payers for folks over 65 other than Medicare?
Mr. HACKBARTH. Right.
Mr. STARK. You adjust, in other words, when you say private
insurance pays often more, but does private insurance for the
same procedure?
Mr. HACKBARTH. Well, private insurance is not determined on
the age of the patient; it is based on the procedure of the
type of office visit, and so there is not an age difference.
Mr. STARK. Thank you.
Mr. STEINWALD. Mr. Stark.
Mr. STARK. Yes, go ahead.
Mr. STEINWALD. You asked about outpatient prescription
drugs, and Glenn touched on it briefly. As I said, one of our
options for you is to remove outpatient prescription drugs from
the calculation of the target, but that was forward-looking. We
have done a little bit of looking about whether the CMS has the
authority to remove them retroactively, or retrospectively. If
you will recall in 2003, they did adjust the targets in order
to achieve a positive update for 2003. It seems to us that the
same facts and circumstances would permit them if they wished
to do a retroactive adjustment of targets, but that would be up
to CMS.
Mr. STARK. Madam Chair, if I could just yield at this
point, because I would like to make a comment here that I think
is important. There is a little bit here of territorial
dispute. If the Administration, as I understand it, goes--makes
these adjustments, it comes basically out of their budget, if
you will.
Chairman JOHNSON. Yes.
Mr. STARK. If we do it legislatively, it comes out of ours.
Therefore, there has always been a little tension between--they
would say to us, you guys legislate.
Chairman JOHNSON. That certainly is correct.
Mr. STARK. Well, you do it on our side of the budget
requirement, and if we say, CMS, you have the authority to do
it, it comes out of theirs. I just point that out as there is--
that is a little bit of back and forth.
Chairman JOHNSON. We are keenly aware of it. We have
written--exchanged correspondence on this subject quite
extensively.
Mr. STARK. I understand that.
Chairman JOHNSON. However, I think the legislative action
that the Congress took in the last session in the MMA
strengthens our case considerably. Mr. Ramstad--excuse me, Mr.
Johnson of Texas, excuse me, my mistake.
Mr. JOHNSON. Thank you, Madam Chair.
Chairman JOHNSON. I saw Johnson and skipped over him.
Mr. JOHNSON. Mr. Hackbarth, I know you all were possibly
considering pay for performance. I think it is a priority of
CMS based on quality outcomes. As you said, medical imaging
costs in Part B have experienced pretty good growth, and it
makes sense as doctors are more frequently putting imaging
machines in their own offices as opposed to handing their
patients off across town to the hospital. In my mind, that
provides great continuity of care as long as the imaging is up
to par. So, your recommendation to implement standards of
quality for imaging services in Part B makes sense to me.
Kodak's Health Imaging Division is in my district, and they are
innovative, as you know, working on translating technology into
better care for patients. They would probably welcome a chance
to set themselves apart. A few publications have noted the
worth of less invasive therapies that are available because of
medical imaging. In fact, the New England Journal of Medicine
has called imaging one of the most important developments in
the past 1,000 years, right up there with anesthesia, which
anyone who has ever had surgery thinks is pretty good. It seems
to me that Medicare could save money by avoiding longer
hospital stays for patients and the patients benefit from an
easier recovery. I am wondering if you know of any credible
studies that have been done to analyze the cost of performing
medical imaging versus the actual and potential savings that
imaging might offer to private and public health programs. If
not, do you think that Congress ought to direct GAO or the U.S.
Department of Health and Human Services (HHS) to action in this
area before we take up legislation?
Mr. HACKBARTH. MedPAC agrees that medical imaging, advances
in medical imaging are tremendous advances in medical care,
often can both improve quality and reduce cost, to the extent,
for example, that they--the imaging avoids unnecessary surgery,
et cetera. So, not only are we in favor of the advancement in
imaging--personally, I stand and wonder, looking at some of the
equipment and what can be done. Now, having said that----
Mr. JOHNSON. There is a machine right behind you, I can see
right through you.
Mr. HACKBARTH. That is what I was afraid of. Now, having
said that, we do have some concerns, because there are a number
of forces coming together here that changed the environment
substantially. One is the advanced technology--and it is not
only better, but it is also getting smaller and lower cost,
which is making it feasible, for example, for physicians to
purchase it and move it out of hospitals and large imaging
centers.
Mr. JOHNSON. We need to cover their costs.
Mr. HACKBARTH. That is clearly an issue. As it moves out,
that creates some issues. As things move out of institutional
structures, like hospitals, where there are systems of
oversight, into settings where there is less oversight, we need
to be very vigilant about the quality of care provided and the
safety of care provided, and that is the reason that we have
made the recommendations that you referred to that Medicare
needs to step up its efforts to assure both quality and safety
as things migrate out of institutional settings. Right now, we
have got a patchwork system aimed at quality and safety, and we
think it needs to be much more systemic and organized, and that
there are precedents for it. For example, a mammography
screening, some years ago, a system was instituted to assure
quality and safety for patients. We think some of those models
could be applied more broadly in imaging. Now, with regard to
your specific question about how much is saved, I am sure that
there is research on that, that is not research that we have
reviewed specifically. Frankly, we are willing to assume that,
in many cases, it does save money, but it does not follow from
that, that in every case, it saves money. So, what we would
need is a system that, as I said at the outset, can more
accurately discriminate between what is good, improving
quality, reducing costs, from unnecessary, low quality and
perhaps unsafe. You cannot generalize; you have got to go in
and be very discriminating in your tools.
Mr. JOHNSON. Thank you so much. You all keep up the good
work. Thank you, Madam Chairwoman.
Chairman JOHNSON. Thank you. Congressman Lewis.
Mr. LEWIS. Thank you very much, Madam Chair, for holding
this hearing. I want to thank the two of you for being here
this morning. Mr. Steinwald, I would like to know from you, are
there possible fixes you talk about in your statement, what can
CMS do under its current regulatory authority and which require
statutory action on the part of those of us on this Committee
or on the part of Congress?
Mr. STEINWALD. Yes, sir. To the best of my knowledge, of
the options that we outlined, the only one that CMS has
authority to implement on its own, relates to outpatient
prescription drugs. We are fairly certain they have the
authority to do it prospectively, remove the drugs from
spending from setting the SGR targets. We are uncertain about
whether they have the authority to do it retrospectively. We
think that they might, but that would be a determination. I am
sure they would be very careful to come up with. All of the
other ones that we have outlined in our report in October and
our testimony today would require legislative action.
Mr. LEWIS. Thank you very much. The Chair--and I believe
you, Mr. Hackbarth, made reference to all of the media,
especially television adds, some mornings and the evening, we
see the television saturated with ads from pharmaceuticals. Do
you have any evidence that customers or patients are saying to
their doctor, ``Doctor, I saw such and such a thing on
television, why don't you try that? Why don't you prescribe it
for me?''
Mr. HACKBARTH. I am sure that there is research out there.
I have not reviewed it. MedPAC has not reviewed it.
Anecdotally, working with physicians, I have heard physicians
talk about the impact that the advertising has on the
relationships with patients and their expectations, but that is
just anecdotal.
Mr. LEWIS. You do not have any evidence that patients or
the relatives of patients sort of converge on the doctors and
say, ``I am convinced because of this ad.'' With all this
pressure from these ads, spending hundreds, thousands, millions
of dollars, somebody has got to use some of this medicine.
Mr. HACKBARTH. Well, I would assume that the advertisers
believe that it has an impact. Maybe they are the best words,
they would not be spending all of this money unless they
thought that it caused patients to go to their physicians and
urge the physician to prescribe the medicine. They are doing it
because they expect an impact. There may be academic research
on the issue. I am not aware of it. MedPAC has not looked at
it. Anecdotally, I have heard from physicians that it affects
the dynamics of their interactions with patients, but that is
all I have right now, Mr. Lewis.
Mr. LEWIS. Mr. Steinwald, would you have any reading on
this?
Mr. STEINWALD. No, sir, I have nothing.
Mr. LEWIS. Wouldn't that be an interesting study for
someone to conduct?
Mr. STEINWALD. Well, it might be, although advertising has
been around now for some years. As Glenn pointed out earlier,
there is an allowance in the update system for increased
spending, that is increased volume and intensity of services,
beyond the cost of the increase in the medical practice. That
increase is set at the growth of GDP. It might be your judgment
or anyone else's that that is too low of an allowance, and one
of the options we presented to you was to increase that
allowance to above GDP growth. That would accommodate just the
kind of trend that you are talking about that leads to more
services being prescribed.
Mr. LEWIS. Well, with something that is driving this
increase in growth, delivery of health care; it is not just the
fees for doctors, hospitals. What about drugs?
Mr. HACKBARTH. There are a number of different drivers of
the increase. The one most often discussed is just
technological change. The things that we can do for patients is
ever-expanding, because of scientific advances. Often, although
not always, the advancements, at least initially, cost more. A
typical pattern that we see is a new technology and a new
approach will become available, and it is applied to a small
group of patients initially, and then over time as it is
refined, improved, the pool of patients expands and the
service, for example, is provided to patients that have higher
levels of risk. So, there is the initial cost of the new
technology and expanding diffusion of the technology across the
patient population. That is one of the single most important
drivers of the rate of increase in healthcare costs, not just
for Medicare, but for society at the large. There are other
factors. For example, direct consumer advertising alters
patients perspectives. There are a lot of factors. Technology,
broadly described, is probably the single most important.
Mr. STEINWALD. I would like to add to that a little bit. In
support of something that Glenn said early in his statement,
just because we see these increases, and they may be driven by
technology and other drivers, it does not indicate that all of
it is necessary and of high value to Medicare beneficiaries. We
have some evidence, especially in the variability with which
elective surgery procedures, for example, are performed around
the country, that leads us to believe that at least some of the
utilization and some of the utilization increase we observe is
not really necessary or of benefit to Medicare's beneficiaries.
This leads us to further believe that there are opportunities
to achieve savings in the program and, at the same time,
provide beneficiaries with the services that they really need.
Mr. LEWIS. Thank you, very much. Thank you, Madam Chair.
Mr. HACKBARTH. Chairman Johnson, could I just add one point
on this, because I really think this goes to the heart of the
challenge facing Medicare and the healthcare system. One piece
of evidence of the sort that Bruce was talking about is
research done by Jack Wennberg and Elliott Fisher at Dartmouth,
looking specifically at the care provided by academic medical
centers, the jewels of our healthcare systems, the leaders in
innovation. They looked at the patterns of care in academic
medical centers for Medicare beneficiaries with some common
medical problems. What they found was enormous variation, as
Bruce describes, in the volume and intensity of service
provided to Medicare beneficiaries. These are renowned
institutions that each of you would instantly recognize. So,
they vary greatly in what they do to patients with common
problems. The quality of the result is not related to the cost.
In fact, often, the highest-cost institutions that provide the
most intense service have lower quality results. So, what we
need is a system that--no, technology is not bad; technology is
great. It does wonderful things, but it is not always great. It
is not always appropriate, and we need to start to have systems
that can make judgments about what is good and necessary and
beneficial and what is not. Across the board approaches will
not work.
Chairman JOHNSON. Thank you for that clarification. Mr.
Ramstad.
Mr. RAMSTAD. Thank you, Madam Chairwoman, for convening
this important hearing. Thank you, gentlemen, for your
participation and important testimony here today. Mr.
Hackbarth, I am sure you know that CMS recently announced that
10 large physician groups will participate in the first pay-
for-performance initiative. The demonstration project will
allow physician groups to show that improving care in a
proactive, coordinated way saves money. I was certainly
grateful to see that Park Nicollet in my home district of
Minnesota was selected to be part of this important
demonstration. As both of you gentlemen know, I am sure,
Minnesota has a history of delivering high quality care
efficiently, but we have been penalized for this in various
Medicare systems. The biggest culprit--our biggest nemesis is
the AAPCC formula for managed care that rewards, really, high
cost and inefficiency. A State like Minnesota, that has a
history of lower costs and high quality, we are penalized for
that cost deficiency. The formula is unfair. It is inequitable
and unjust, to put it kindly, and I certainly believe that pay-
for-performance paradigm in Medicare has great potential to
improve outcomes for Medicare patients and reduce overall
costs. My question for you, Mr. Hackbarth, is whether or not
the CMS demonstration project matches the outlines of your
recommendations for updates based on a pay-for-performance?
Mr. HACKBARTH. Yes, in general terms, it certainly does. We
are very excited about that demonstration and think that it has
a lot of promise. In fact, one of our commissioners is the CEO
of one of the groups involved, so we have learned a lot about
it from him. What is unique about the demonstration and
particularly exciting is that it will base the performance
payments on both quality and efficiency in the provision of
services and brings the two things, which, from our perspective
are the ultimate goal to finding value, a combination of high
quality and efficiency. Then the other thing that it does that
we are especially excited about, is that it combines Parts A
and B. We have this--from the perspective of the healthcare
world, this artificial distinction between A and B, and it
comes to be a barrier in improving performance, because it is
an artificial line. Sometimes the things that will save money
and improve quality span that artificial A-B line, and this
demonstration is going to leap over it. So, there is a lot
about the demonstration that we think is really promising.
Having said that, we do not think that Medicare needs to stop,
not do pay-for-performance at all until this demonstration
project is complete. We believe that there are steps that can
be taken for physicians and other providers that will begin
moving the process forward, link payments to quality, and then
down the roadway, we can take the lessons from this
demonstration and take this to a larger step in the future.
Mr. RAMSTAD. Well, your testimony and your response is very
refreshing. For the first time since I have been here, 15
years, I am sensing a paradigm shift. Sometimes changing
Medicare is a little bit like moving a glacier. On both counts,
your responses showed some promise. It is really hard for me to
continue explaining to the seniors in Minnesota when they go to
Florida or they go to California, without dividing the panel
among States here, but the inequities in the AAPCC formula.
There is no way that those inequities can be rationalized or
justified. So, when you talk about a pay for performance
paradigm in Medicare and you talk about, as you did, combining
A and B, those are very positive signs. I applaud you for that
progress. Let's continue to work together in a pragmatic way
and make these necessary changes to improve Medicare for
everyone. Thank you, Madam Chairman.
Chairman JOHNSON. Thank you very much. I would like to
recognize Mr. Doggett.
Mr. DOGGETT. Thank you, Madam Chairman. Thank you,
gentlemen, for your testimony. Let me direct my questions to
Mr. Hackbarth, but I welcome anything you would want to add,
Mr. Steinwald. I represent the poorest county in America,
trails even the Mississippi delta, Starr County down on the
border, and the poorest metropolitan statistical area, the area
around McAllen and Mission, Texas. I have a number of
physicians there who rely on Medicare, Medicaid, children's
health insurance program for their high-paying folks; and the
poor folks are the ones that don't qualify relatively for those
programs. When you talk in your testimony about the inequities
in the current payment system because they treat all physicians
and regions of the country alike, how are the changes that you
are contemplating likely to affect an area like that and
physicians who practice there in that kind of practice setting?
Mr. HACKBARTH. There are a couple of different approaches
to this. One is that, over the course of a number of years, we
have looked at the payment rules, the payment system, how the
formulas work to try to assure that they pay providers in rural
areas, in smaller communities, equitably. Going back a number
of years now, we have made recommendations, for example, in the
hospital payment system, many of which were included in MMA,
that address what we saw to be inequities in the payment
formulas. They have increased payment to rural healthcare
providers of various types, both hospitals and physicians. The
results of those changes are not yet in. Some of them are
relatively new, but we think some very important steps have
been taken toward payment equity. With regard to pay for
performance, our goal there is to have evidence-based standards
of care that wouldn't be different for a rural beneficiary or
an urban beneficiary. This is what good medicine requires. So,
to the extent that rural providers do very well, and we have
reason to believe that many can do very well on those quality
scores, they will get additional payment reflective of the
quality of their practice. On the other hand, if they perform
poorly, then they will lose money. That really ought not be an
urban/rural thing. That ought to be a standard about what
constitutes appropriate quality.
Mr. DOGGETT. How do we measure the quality of their
practice?
Mr. HACKBARTH. For a physician specifically, we recommend
basically a two-step process. The first step is to begin
adjusting payment based on a physician's or a physician group's
ability to produce and use specific types of information that
are important in providing quality of care. For example, the
ability to identify patients with chronic illness and provide
appropriate care, track what they need, follow up on abnormal
results and the like. It is the information capability. Good
medical practice has to be based on good information. So, what
we envision under some projects out there that have already
specified information standards, we would say, to the extent
that a physician collects and uses this sort of information,
they ought to get additional payment and they ought to be
rewarded for that.
Mr. DOGGETT. They won't be penalized because they have a
higher percentage of people who are poor and sick?
Mr. HACKBARTH. No, no. The second step we envision is that
we would begin instituting specific measures based on clinical
standards, how you care for a diabetic patient or a patient
with congestive heart failure. That would be based on evidence-
based guidelines of practice. What we urge the Congress to do
and the Secretary of HHS to do is to say to the physician
community, that is where we are headed and we want to engage
with you, the profession, and the specialty societies in
developing those measures so that at a point in the not too
distant future we have got a broad set of clinical performance
measures to apply to physician practice. We believe that is
eminently doable, given the research that exists, so long as
there is a collaborative process between the department and the
physician community.
Mr. DOGGETT. Just one other thing about the pay for
performance system. I think generally they aren't designed to
control volume. How do you recommend that we control volume if
we move away from the SGR and toward a more market-based-like
update?
Mr. HACKBARTH. We think that pay for performance can make
sure that we get the right volume. One of the problems I have
with the SGR is all volume is the same. It is undifferentiated.
So, we want the right volume. There are some areas of underuse
of service where we want to increase the utilization. That is a
critical point. Some other tools that we think ought to be
developed include what we refer to as resource measurement. The
first step for a physician to improve his or her practice is to
understand how their practice compares to evidence-based
standards of care and their peers. We can through the Medicare
program, begin helping physicians understand how their practice
compares. When I am talking about their practice, I don't mean
just how many office visits but how they care for episodes of
care, for patients with particular clinical problems. What we
propose is that CMS invest in developing that capability and
then feed the information back to physicians on a confidential
basis at first and say, this is how you compare with your peers
in caring for a patient with, say, congestive heart failure.
That is the first step to changing patterns of care in a
constructive way, letting people know how they do, how it
compares to their peers and to evidence-based standards.
Mr. DOGGETT. Thank you. Thank you, Madam Chair.
Chairman JOHNSON. I thank the gentleman. It was an
excellent question. I hope you will be able to stay to the end
of the panel, because we do have people who have direct
experience with that, and we will be looking very deeply into
exactly those issues. Mr. English.
Mr. ENGLISH. Mr. Hackbarth, I am going to follow on my last
colleague's question. Given that MedPAC has consistently urged
us to sever the link between the fee update and volume controls
and has recommended replacing the SGR system with an update
based on changes in the cost of providing services, would you
please describe for us in maybe a little more detail the volume
control approaches favored by MedPAC and what kind of concrete
impact can you suggest this would have on the system?
Mr. HACKBARTH. The general approaches that we are
recommending in this report are pay for performance, what I
just described as resource measurement, and then looking at
high growth areas like imaging and apply the resource
measurement tools there, changing some of the coding edits that
Medicare uses and applies to claims. So, they are very targeted
approaches that we are talking about. Will these things, these
specific recommendations--pay for performance, resource
measurement, imaging--immediately alter the trend, the growth
in volume and intensity? We think yes. They are not going to
solve the problem, and more needs to be done in the future.
Those are very constructive, targeted steps that we believe
will have a much better effect on the system than the across-
the-board SGR approach.
Mr. ENGLISH. Okay. As I look at the proposed changes for
the payment system specifically to reward providers for
delivering quality care, I wonder if you could clarify. The
intent of these changes is not simply to raise quality or
efficiency in isolation but, as I understand it, rather to
incentivize increases in quality tied to gains in efficiency.
These two must be, I would think, achieved together. Are you
confident your proposals will be able to do that?
Mr. HACKBARTH. Ultimately, as you say, what we want to do
is put together in a single set of measures both quality and
efficiency measures. As I said to Mr. Ramstad, that is one of
the exciting things about the new demonstration project, is
that it is an effort to do that. We have to walk there. We
can't begin at that point. We think we have to buildup, build
the capabilities. So, right now, what we are talking about is
having the efficiency and quality measures separate. Right now,
what we are missing most is the quality measurement. We want to
begin rewarding high quality over time and start to build an
integrated set of efficiency and quality measures. One of the
things that we want to change, and we haven't touched on this,
is when we start rewarding quality of care, we start changing,
I think, how physicians think about their practice, in
particular with regard to things like clinical information
systems. Right now, the system rewards volume, the system
rewards technological sophistication, and so people invest in
things that will allow them to increase their volume and do
fancy new procedures that they get paid a lot for. If we start
paying for quality, then they say, well, what I am investing I
want to invest in things that will help me perform well on
quality, like computerized medical records or order entry
systems and the like. Once we start to expand those tools and
have them in widespread use, I think we will see not only
significant gains in quality but also in the efficiency of the
system.
Mr. ENGLISH. That is a marvelous blueprint to operate off
of, Mr. Hackbarth. I, frankly, used to be a city finance
officer. I have a passing familiarity with performance
measurement systems and their potential but also their
limitations. I guess my own feeling is, on something like this
dealing with services that are so sophisticated, I am wondering
in the long run how easy it is going to be to apply a
performance measurement system in the way that you are
suggesting here. I will look forward to examining your proposal
in greater detail, and here I think the devil really is in the
details. I thank you, Madam Chairman.
Chairman JOHNSON. I thank the gentleman. Mr. Thompson,
welcome to the Committee. I also welcome the other new Members.
Mr. THOMPSON. Thank you very much, Madam Chair. Thank you
for holding today's hearing. Thank you both for being here
today. Mr. Hackbarth, if I could ask you, the reimbursement
rates, are they having any effect in regard to physician
shortages within the Medicare populations?
Mr. HACKBARTH. With regard to access to care for Medicare
beneficiaries?
Mr. THOMPSON. Right.
Mr. HACKBARTH. We see no evidence of widespread access
problems. We look at a variety of different measures--what
beneficiaries say about their own access to care, what
physicians say about their willingness to accept new Medicare
patients. As we discussed earlier, we look at the relationship
between Medicare fees and private fees. In looking at all those
different types of measures, we find that Medicare
beneficiaries continue on a national basis to have very good
access to care from the beneficiary's perspective--that is what
they say--and in fact a higher level of satisfaction with
access than the privately insured population. Having said that,
there are specific communities within the United States where
it may be a problem finding a physician. For example, if you
are a Medicare beneficiary that is newly moved into a
community, finding a primary care physician can in some
isolated places be a problem, but, on a national basis, we do
not see access problems.
Mr. THOMPSON. Do you suspect that if this issue is not
dealt with and dealt with quickly that that will become a
problem?
Mr. HACKBARTH. If by that you mean if the----
Mr. THOMPSON. Will there be more people moving into areas
where they won't be able to find a doctor?
Mr. HACKBARTH. If we were to have a succession of 5
percentage point cuts in the Medicare rates, I think it would
be quite likely that we would begin to see widespread access
problems.
Mr. STEINWALD. I would certainly agree with that. I would
point out, though, that we have researched this issue, too, and
we also don't find an access problem. We did some research
looking at trends in utilization and the percentage of Medicare
beneficiaries receiving services over the 2000 to 2002 period
and we found in every State those measures of utilization
increased, and that includes the one year in which there was
about a 5 percent fee cut in Medicare. There was still an
increase in services and an increase in the proportion of
beneficiaries served.
Mr. HACKBARTH. The other thing on access is that, in the
communities where there are some problems, it is not
necessarily solely because of Medicare payment rates. They
often tend to be very rapidly growing communities where the
population is already perhaps outstripping the supply of
physicians and then the Medicare payment issue comes in on top
of that. Access is affected by non-Medicare issues as well.
Mr. THOMPSON. Mr. Steinwald, if I could return to an issue
that Mr. Lewis brought up earlier and that is prospectively
dealing with the out-of-hospital drugs or retroactively dealing
with those. It is my understanding that if we do it
prospectively that we are going to see 5 percent cuts through
2010. As we know, Congress hasn't been real receptive to
allowing this to happen. I think it was your number, $120
billion over 10 years, if we do it retroactively?
Mr. STEINWALD. No, sir, that is not mine. I think that is--
--
Mr. THOMPSON. CBO?
Mr. STEINWALD. Yes, it is a CBO estimate; and that is,
actually, I think the estimate of the 10-year cost of repealing
SGR and replacing it with an inflation-based update.
Mr. THOMPSON. Do you have any knowledge of knowing what it
will cost for Congress to continue to move up from the minus 5
to baseline the physician reimbursement cost?
Mr. STEINWALD. At GAO we don't do budget estimates. As you
work with various options, I am sure you will be asking CBO to
cost them out for you. What I have provided you in the table
that I referred to earlier is an indication of the relative
costliness of the different options in percentage terms. So,
you can at least gauge of the different options, what relative
impact they will have on spending and how they would be scored.
The actual scoring will have to be done by the CBO.
Mr. THOMPSON. I am just trying to get an idea. Does it pay
to fix it now or kick the can down the road?
Mr. STEINWALD. I think it is certainly timely and wise to
start to address this problem. We don't have any experience
with the consequences of multiple-year negative fee updates,
but I think everyone--and I alluded to a single year when there
appeared to be no access problems, but multiyear, as many years
as we are talking about now, I think we would all agree there
would have to be serious consequences for both doctors and
beneficiaries, and so I would urge you to start to think about
that in the short term.
Mr. HACKBARTH. Mr. Thompson, could I just address that
quickly? We are at the threshold of an important change here.
In years past, the Congress has been able to do a 1- or 2-year
override of the SGR rates and have the 10-year cost be
basically zero because the system assumes that the SGR
mechanism will take that money back in future years. So, there
is an initial cost, but in the long run it comes to a zero.
However, that is about to change. There are restrictions in the
SGR on how much it can take back in any given year. We are now
approaching the point where, even over the 10-year horizon, you
can't take back all of the money from a year-to-year increase.
So, even 1-year changes will start to have a positive 10-year
budget score attached to them.
Mr. THOMPSON. Thank you. Thank you, Madam Chair.
Chairman JOHNSON. Mr. Hulshof.
Mr. HULSHOF. Thank you, Madam Chairman. Let me say I am
excited to be on the Subcommittee, and I appreciate this
opportunity. This has been a prominent issue back home in
Missouri, and so I am excited to be on the Subcommittee to help
create a solution to that and look forward to that. Mr.
Hackbarth, I am intrigued by the idea of pay for performance,
because, again, during my tenure on the full Committee, in
visiting with healthcare providers across the board, whether it
is home health, hospice, hospitals, doctors, acute care
providers, it seems that medical care in this country for our
senior citizens population is driven by where the money is,
where reimbursements are, and so this idea of actually focusing
on patient care is an intriguing one. Missouri has also been
recently designated by CMS to have one of these demonstration
projects. It is not in my congressional district, it is in my
colleague Roy Blunt's district in Springfield, Missouri. You
have addressed this a bit insofar as that particular area which
is more heavily populated than my own congressional district.
My colleague from Texas talked about a concern that, in a more
rural setting, if you have a higher senior citizen population
or if you have higher rates of obesity or other factors, making
sure that we don't create another AAPCC type of disparity
between large urban settings and those rural areas. You
addressed that a little bit.
Since we have a vote on and I want to make sure that I
adhere to my time limits, coming up behind you, maybe in front
of the microphone where you sit in the next panel, Dr. Nancy
Nielsen, who represents the American Medical Association, and
so let me give you what I believe she is going to tell us
through her testimony and then give you a chance to respond to
it. Dr. Nielsen says that initiatives that provide financial
incentives for quality care improvements should not be
undertaken by Medicare until the physician payment update
formula has been replaced with a system that ensures a stable
economic environment for treating patients. I think, as she
indicates in the paragraphs that follow that statement, the
concern is that doctors out there, because of the uncertainty,
because of the constant threat of cuts in reimbursements, that
a lot of doctors or a lot of small practices have not made the
investment in technology. A lot of these are a very expensive
type of--converting to different types of systems, and so if we
move in this direction of pay for performance, do we need to
actually have a new payment structure in place and then talk
about pay for performance, or can we do this in tandem? What is
your opinion about that?
Mr. HACKBARTH. We are in favor of changing the payment
formula. We have been for a long time, both, incidentally, when
it was in providing for updates which were much higher than the
increase in input cost as well as more recently when it has
been saying the update should be much lower. That is a change
that we think is urgent and ought to happen as soon as
possible. We don't think that Congress, even if it can't change
the entire formula, ought to allow 5 percent cuts to go into
effect. I think our position on that is very clear. With equal
urgency, however, we think the system needs to begin moving in
a measured, thoughtful way toward pay for performance and begin
rewarding the many, many physicians who are providing very
high-quality care, support investments in future provision of
high-quality care. Those two things are equally important and
urgent from our perspective.
Mr. HULSHOF. In the interest of time, Madam Chair, I yield
back so my colleague from Illinois can inquire before our vote.
Chairman JOHNSON. Thank you very much. For the Members, we
will reconvene at 20 minutes of 12 so that we can hear
hopefully the next panel before noon. Those of you that can
stay for questioning, that will be wonderful, but it is very
important to hear both together, particularly from the point of
view of technology, which we haven't had a chance to discuss
here much. Mr. Emanuel, welcome to the Committee.
Mr. EMANUEL. Thank you very much. I look forward to serving
on the Committee. I thank the other Members, and I thank my
colleague from Missouri. When you are the ninth questioner, you
feel somewhat like Mo Udall's comment, ``Anything that needs to
be asked has been asked, it just hasn't been asked by everybody
that needs to ask it.'' Let me associate myself, though, with
Congressman English's questions earlier about the volume cap.
That was something I wanted to talk about. Maybe--in the
interest of time, I am more than willing to take this answer to
the question in writing because, obviously, some of us have to
get to a vote; and rather than be anxious about the vote and
hearing what you have to say, I am more than willing to take
this in written form. The one area that I would like to talk
about--maybe we can do it later; if not, just in writing. If
you do make a major change to the physician payment, what is
the strategy and the approach to ensuring that the
beneficiaries both on copays and premiums don't also receive a
major change? Can we hold them harmless or limit the damage to
the beneficiary from a payment, either in the copay and the
premium together? That would be an area, if we had more time, I
would like to explore. I want to thank you again. I am more
than willing to take that question in writing and further
associate myself with what Congressman English talked about in
the sense of the volume cap and the ability to control costs.
Thank you very much.
Chairman JOHNSON. Thank you. Would either of you like to
comment on that? We have about 7 minutes left. If you want to
comment a couple of minutes, you can.
Mr. HACKBARTH. Let me begin by noting that it is very
important to keep in mind the impact on beneficiaries of any of
these changes. Because the way the system works, to the extent
that physician fees increase, there is an increase in
beneficiary co-payments and there is an increase in the Part B
premium. Since 7 May, it also means that we move closer to the
45 percent limit on the piece of the program financed through
general revenues. So, we have to be mindful of all of those
effects. We have not looked at specific proposals for giving
beneficiaries the increase, and so I just don't have any MedPAC
recommendation on that. The other side of the coin, though, is
that we need to assure access to care for Medicare
beneficiaries; and if we don't have fees that appropriately
reflect the cost, as we have discussed earlier, there is a real
threat to their access. So, it is a balancing act, as it has
been since the beginning of the program. Nobody has more to
gain, from our perspective, through pay for performance than
the Medicare beneficiaries. So, we need to be mindful, but we
need to move ahead on the fronts that we have described.
Mr. STEINWALD. I agree with what Glenn said. You had asked
would it be possible to hold the beneficiary harmless if these
were increased. I think the simple answer to that is, not
within current law on how co-payments and premiums are
calculated. On the other hand, if we are talking about averting
fee declines, the impact on beneficiary co-payments of fee
declines should be a declining co-payment. If fees were allowed
to increase or remain constant, the impact on beneficiaries
should be slight. The impact on premiums, however, might be
greater because volume and intensity increases spending and
premiums are based on spending, not on fees.
Chairman JOHNSON. We should note, though, that the impact
on the beneficiaries is variable, that the low-income
beneficiaries have their premiums and co-payments paid by the
government.
Mr. EMANUEL. If I may, if we had more time, and again
because I am conscious of the vote, one of the questions as a
follow-up on that is for low-income--obviously, it is true for
everyone but for low-incomes especially--both the premium and
the copay will hit a level that is different for other people,
where you somewhat--if I hear your answer correctly--access--we
are kind of putting it in the front of the queue as opposed to
both on the payment side--either the copay or the premium. I
think actually beneficiaries are somewhat affected on those two
areas differently. You are weighing that and saying for
everybody, blanketly, access is the primary area. I think
actually people get affected based on income and geography
differently. That is just for another time.
Chairman JOHNSON. Thank you. I thank the panel very much
for your good work and your good answers. We will reconvene in
10 minutes.
[Recess.]
Sometimes votes take a little longer than you think they
are going to take, but we are looking forward to the testimony
of our second panel. If I may, let me just start with Dr.
Nielsen from the American Medical Association.
STATEMENT OF NANCY NIELSEN, M.D., AMERICAN MEDICAL ASSOCIATION
Dr. NIELSEN. Thank you, Chairman Johnson. I am a member of
the board of trustees of the American Medical Association and
speaker of the house of the AMA. I am also a practicing
internist in Buffalo, New York. The AMA would like to express
appreciation to you, Chairman Johnson, to Ranking Member Stark
and to each Member of the Subcommittee for your hard work and
leadership in addressing the Medicare payment update problem.
You are going to hear the same themes repeated that you heard
in the first panel. The Medicare payment formula relating to
physicians is flawed and permanently broken. It would have led
to steep cuts in recent years unless there had been repeated
congressional and Administration intervention. Additional cuts
of 31 percent are expected beginning in January of 2006 through
2013. These cuts present a serious threat, as you heard
described in the earlier panel. Congress and the Administration
must act now to replace the current physician payment formula,
as MedPAC has recommended. MedPAC also recommended a 2.7
percent physician payment update for 2006. There are a number
of problems with the current payment formula.
First, under a spending target system called the SGR, which
applies only to physicians, annual payment updates are tied to
GDP. The GDP is only a measure of growth in the overall
economy. The medical needs of Medicare patients do not wane
when the American economy slows. Second, GDP does not take into
account health status, the aging of the Medicare population,
technological innovations or changes in the practice of
medicine; and, third, physicians are penalized across the board
when arbitrary spending targets are exceeded. Here is the
inequity. Failure to meet these targets results in large part
from government policies and medical innovations that expand
Medicare services. The Administration has the authority to take
action to help ease the payment update problem and lead the way
for congressional intervention. We certainly appreciate the
efforts of this Subcommittee to encourage the Administration to
take a critical first step toward solving the payment update
problem, and we urge the Subcommittee to continue to press CMS
to do so by removing physician-administered drugs from the SGR.
CMS has the authority to remove drugs going back to the
beginning of SGR, as described in a legal memo attached to our
written testimony drafted by Terry Coleman, a former chief
counsel and deputy administrator of HCFA. When CMS calculates
the SGR spending target each year, it compares actual Medicare
spending on physician services to target spending. In
calculating the SGR, CMS includes the costs of physician-
administered drugs, clearly not a physician service. The
inclusion of drugs in the SGR makes it extremely likely that
overall spending on physician services will exceed the spending
target, thus triggering the physician pay cuts that jeopardize
access.
CMS defines and can revise the definition of physician
services to exclude drugs. CMS can then recalculate actual or
target spending, excluding the cost of the drugs, back to 1996-
1997, the base period of the SGR. This would not involve
adjusting physician payments for any previous year, however.
The law also requires CMS, when calculating the SGR, to reflect
increases in physician spending due to changes in law and
regulation, but CMS does not include spending changes due to
national coverage decisions. This further compounds the
problem. Finally, we are interested in working with the
Subcommittee and the Administration on quality improvement
policies. I hope in the question and answer period we will have
the opportunity to talk about some of the things that we have
done as well in that regard. We will be hard-pressed to make
investment in information technology if these planned cuts go
into effect; and, therefore, it is critical to replace the
flawed formula to allow quality improvement initiatives to
flourish. Thank you for the opportunity to appear before you
today.
[The prepared statement of Dr. Nielsen follows:]
Statement of Nancy Nielsen, M.D., American Medical Association
Chairman Johnson, Ranking Member Stark and Members of the
Subcommittee, the American Medical Association (AMA) appreciates the
opportunity to provide our views today regarding Medicare payments to
physicians.
The AMA would like to commend you, Madam Chairman, and each Member
of the Subcommittee, for all of your hard work and leadership in
recognizing the fundamental problems inherent in the Medicare physician
payment update formula. We deeply appreciate enactment of provisions in
the Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA), as well as your unrelenting support for the regulatory
relief provisions that were included in the MMA.
Today, the AMA especially applauds your commitment to developing a
long-term solution to the current flawed physician payment formula. As
you know, the flaws in the Medicare physician payment formula led to a
5.4% payment cut in 2002, and additional cuts in 2003 through 2005 were
averted only after Congress intervened. These short-term congressional
interventions will expire next year, however, and the Medicare Trustees
have projected that physicians and other health professionals face pay
cuts totaling 31% over the next eight years. Payments for cataract
surgery, for example, will fall from an average of $684 in 2005 to an
average of $469 in 2013.
These reductions are not cuts in the rate of increase, but are
actual cuts in the amount paid for each service, resulting in a
reduction in physician payment rates of nearly a third. They come at a
time when even by Medicare's own conservative estimate, physician
practice costs are expected to rise by 19% and when many physicians
face far larger increases due to the skyrocketing cost of medical
liability insurance. They also follow more than a decade of Medicare
cost constraints that held payment increases to 18% between 1991
through 2005 despite the government's conclusion that practice costs
had increased by 40% over the same time period. Physicians simply
cannot absorb these draconian payment cuts and, unless Congress acts,
it is difficult to see how they can avoid discontinuing or limiting the
provision of services to Medicare patients.
A physician access crisis is looming for Medicare patients. While
the MMA has made significant strides in improving the overall system
for Medicare beneficiaries, including broad-scale improvements for care
furnished to patients in rural areas as well as important new benefits,
these critical improvements must be supported by an adequate payment
structure for physicians' services. There are already some signs that
access is deteriorating, including a 2.5% reduction in the number of
new patient visits per enrollee in 2003, as reflected in claims data
for that year. Physicians are the foundation of our nation's healthcare
system, and continual cuts (or even the threat of repeated cuts) put
Medicare patient access to physicians' services (as well as drugs and
other services they prescribe) at risk and threaten to destabilize the
Medicare program and create a ripple effect across other programs, as
well. Indeed, Medicare cuts jeopardize access to medical care for
millions of our active duty military family members and military
retirees because their TRICARE insurance ties its payment rates to
Medicare.
Congress and the Administration must take immediate action to
replace the SGR with a system that keeps pace with increases in the
cost of practicing medicine. While we greatly appreciate the short-term
reprieves achieved by Congress and the Administration in recent years,
a long-term solution is needed now. Indeed, the temporary fixes have
led to even deeper and longer sustained cuts because Congress recouped
the cost of temporarily blocking the severe cuts in physician payments
in the out-years. Without action to implement a long-term solution now,
repeated congressional intervention will be required to block payment
cuts that jeopardize continued access to high quality care for the
elderly and disabled.
The AMA is happy to have the opportunity today to address problems
with the physician payment formula, and looks forward to working with
the Subcommittee and Congress to ensure implementation of a new payment
update that keeps pace with increases in the cost of practicing
medicine.
THE SUSTAINABLE GROWTH RATE SYSTEM
Medicare pays for services provided by physicians and numerous
other healthcare professionals on the basis of a payment formula that
is updated annually in accordance with a target rate of growth, called
the sustainable growth rate (SGR). Under the SGR, enacted by the
Balanced Budget Act of 1997 (BBA), the Centers for Medicare and
Medicaid Services (CMS) establishes allowed expenditures for
physicians' services based on certain factors set forth in the law: (i)
inflation, (ii) fee-for-service enrollment, (iii) real per capita gross
domestic product (GDP), and (iv) laws and regulations. CMS then
compares allowed expenditures to actual expenditures. If actual
expenditures exceed allowed expenditures in a particular year, then
physician payments are reduced in the subsequent year. Conversely, if
allowed expenditures are less than actual expenditures, physician
payments increase.
PROBLEMS UNDER THE SUSTAINABLE GROWTH RATE SYSTEM
The flawed SGR system has led to payment volatility and substantial
patient access concerns requiring congressional intervention to avoid
erosion of beneficiary access to care.
The vast majority of physician practices are small businesses, and,
as such, do not have the economic and other necessary resources to
absorb sustained losses or the steep payment fluctuations that have
occurred under the SGR system. Further, the unpredictability of the SGR
system makes it difficult for physician office practices, as small
businesses, to project revenue into the future and make the necessary
business and financial decisions needed to operate a sound business
over time. It is nearly impossible for physician practices to plan
ahead since SGR estimates for future years (which are based on numerous
factors that are impossible to predict) are completely unreliable, in
addition to being quite grim. When these small medical practices
experienced the 5.4 percent Medicare cut in 2002, physicians and non-
physician practitioners were left with very few alternatives for
maintaining a financially sound practice without limiting their
Medicare patients' access in some way.
It took strong efforts by Congress, in particular by this
Subcommittee, in addition to similar efforts by the Senate, the
Administration and CMS to avoid another SGR-triggered pay cut in 2004
and 2005. While we greatly appreciate this effort, we do not believe
Congress and the Administration (nor patients, physicians and other
healthcare professionals) should have to struggle with the ill effects
of such a system, year after year.
The Medicare Payment Advisory Commission (MedPAC) has recommended
in the past that the SGR be replaced with a system where updates are
based on an assessment of increases in practice costs, adequacy of
payment rates, and beneficiaries' access to care, and we agree. In
addition, we expect MedPAC, in its March Report to Congress, to
recommend that Congress should increase 2006 payments for physician
services by the projected change in input prices, less a productivity
adjustment of 0.8 percent, resulting in a projected update of 2.7%. The
AMA agrees with these MedPAC recommendations.
There are several fundamental problems with the SGR formula:
1. Payment updates under the SGR formula are tied to the gross
domestic product, which bears little relationship to patients'
healthcare needs or physicians' practice costs;
2. The SGR formula is highly dependent on projections that in
effect require CMS to predict the unpredictable; and
3. Physicians are penalized with lower payments when utilization
of services exceeds the SGR spending target, yet, the factors driving
these increases are often beyond physicians' control (as further
discussed below under ``Administrative Action Needed.'')
Problems with the Payment Formula Due to GDP
GDP Does Not Accurately Measure Health Care Needs
The SGR permits utilization of physicians' services per beneficiary
to increase by only as much as GDP. The problem with this
``relationship'' is that GDP growth does not track the healthcare needs
of Medicare beneficiaries. For example, when a slowed economy results
in a decreased GDP, the medical needs of Medicare patients remain
constant, or even increase, despite the economic downturn. Yet,
physicians and numerous other health professionals, whose Medicare
payments are tied to the physician fee schedule and who are doing their
best to provide need services, are penalized with lower payments
because of a slowly growing economy, resulting in the decreased GDP.
Further, GDP does not take into account the aging of the Medicare
population, technological innovations or changes in the practice of
medicine.
Historically, healthcare costs have greatly exceeded GDP. Yet, the
SGR is the only payment formula in Medicare tied to that index. In
contrast, payments for hospitals, skilled nursing facilities and home
health, for example, are all tied to their inflationary pressures.
Technological Innovations Are Not Reflected in the Formula
The United States' population is aging and new technologies are
making it possible to perform more complicated procedures on patients
who are older and more frail than in the past. The Congressional Budget
Office has said that recent Medicare volume increases are due to
``increased enrollment, development and diffusion of new medical
technology'' and ``legislative and administrative'' program expansions.
The SGR system's artificial cap on spending growth ignores such medical
advances when it limits target utilization growth to GDP growth.
Both Congress and the Administration have demonstrated their
interest in fostering advances in medical technology and making these
advances available to Medicare beneficiaries through FDA modernization,
increases in the National Institutes of Health budget, and efforts to
improve Medicare's coverage policy decision process.
The only way for technological innovations in medical care to
really take root and improve standards of care is for physicians to
invest in those technologies and incorporate them into their regular
clinical practice. The invention of a new medical device cannot, in and
of itself, improve health care--physicians must take the time to learn
about the equipment, practice using it, train their staff, integrate it
into their diagnosis and treatment plans and invest significant capital
in it. Although the Medicare hospital payment system allows an
adjustment for technological innovations, the physician payment system
does not do so. The physician payment system is the only fee structure
of Medicare that is held to GDP, and no other Medicare payment system
faces as stringent a growth standard.
Government efforts to foster technological innovations could be
seriously undermined as physicians now face disincentives to invest in
new medical technologies or to provide them to Medicare beneficiaries.
Site-of-Service Shifts Are Not Considered in the Formula
Another concern that is not taken into account in the SGR formula
is the effect of the shift in care from hospital inpatient settings to
outpatient sites for certain medical procedures, such as imaging
services. As MedPAC has pointed out in the past, hospitals have reduced
the cost of inpatient care by reducing lengths-of-stay and decreasing
staff. Indeed, it has been a goal by Congress and the Bush
Administration to utilize more physician services through disease
management and prevention initiatives in order to avoid expensive
hospitalizations and nursing home admissions. Technological innovations
have also made it possible to treat many services that once required
hospitalization in physicians offices instead. Much of this shift--such
as the replacement of surgical procedures with drug treatments that
must be monitored by office-based physicians--cannot be accurately
measured. MedPAC, however, has documented a shift for certain imaging
procedures and some private payers have acknowledged that they have
encouraged this trend because it saves money for both the government
and patients. While this trend has led to treatment of increasingly
complex cases in physicians' offices, the increased use and intensity
that results is not recognized in the SGR formula.
Beneficiary Characteristics Are Not Reflected in the Formula
A related factor that also is unrecognized in the SGR formula is
changes over time in the characteristics of patients enrolling in the
fee-for-service program. For example, increases in patients diagnosed
with, or having complications due to such diseases as obesity, diabetes
and end stage renal disease, require greater utilization of physicians'
services. Yet, these types of changes in beneficiary characteristics
are not reflected in the SGR.
Inability to Predict Payment Updates under the SGR
Instead of making payments more predictable for physicians and
budgets more predictable for policymakers, use of the SGR has had the
opposite effect. Future updates are dependent on forecasts of (i) GDP,
(ii) how many beneficiaries will choose Medicare Advantage versus fee-
for-service Medicare, (iii) the rate of medical practice cost inflation
each year, (iv) the rate of utilization growth each year, and (v)
spending changes that will occur as a result of legislative and
regulatory changes, such as expanded coverage for preventive services.
Provisions in the MMA have reduced the volatility of GDP
predictions, and fluctuations in the MEI generally are somewhat
limited. It is still very difficult, however, to predict other factors
in the SGR. As a result, policymakers cannot predict the impact of
Medicare physician services on overall Medicare spending and medical
practices cannot predict their revenue streams for the short- or long-
term. Estimates of payment updates initially are based on incomplete
data and such estimates can fluctuate significantly as more data
becomes available. For example, in March of 2001, CMS projected that
physician payments would fall slightly by about -0.1 percent in 2002.
CMS noted that this projection was based on very early information and
could change before a final update was announced in January 2002. In
fact, those estimates did change, and Medicare payments to physicians
and other healthcare professionals were cut by 5.4 percent in 2002.
ADMINISTRATIVE ACTION NEEDED TO CORRECT SGR IMPLEMENTATION PROBLEMS
Apart from the inherent problems in the physician payment formula,
there are other problems with implementation of the SGR that seriously
threaten patient access and inequitably affect payment updates due to
factors that are beyond physicians' control. The Administration has the
authority to take additional action to help ease these implementation
problems and lead the way for congressional intervention. We strongly
urge the Subcommittee to continue to press CMS to use its
administrative authority to address and resolve the following issues in
the proposed Medicare physician payment rule for 2006:
1. Remove Medicare-covered, physician-administered drugs and biologics
from the physician payment formula, retroactive to 1996
CMS Authority to Remove Drugs from the SGR
As discussed above, Medicare payments to physicians are reduced
when actual Medicare spending for physicians' services exceeds a pre-
determined spending target (the SGR). When CMS calculates actual
spending on physicians' services, it includes the costs of Medicare-
covered prescription drugs administered in physicians' offices.
Although the physician's administration of the drug is clearly a
physician service that by statute must be included in the pool, the
drugs themselves are not ``physicians' services'' and drugs are not
paid under the Medicare physician fee schedule. Thus, it is
inconsistent to include drugs in the calculation of expenditures in the
SGR methodology. In fact, in an interim final rule issued in December
2002 (on the application of inherent reasonableness to Medicare Part B
services), CMS chose to exclude drugs from the definition of
``physicians' services.'' To include drugs as a ``physicians' service''
for certain purposes, but not for others, is inconsistent and
inequitable. Indeed, this policy has been questioned by many
legislators, including Subcommittee Chairman Johnson and Committee
Chairman Thomas, who have repeatedly requested that CMS remove drugs
from the SGR baseline. In addition, more than 240 House Members and
more than 70 Senators have signed various letters asking CMS to take
this action.
Nothing in the statute requires Part B drugs to be included in the
SGR formula. It has simply been a CMS decision to include drugs and CMS
could easily make a different decision to exclude drugs, while still
effectively implementing the statute written by Congress. CMS has
stated it has the legal authority to revise the definition of services,
although CMS has not yet stated whether it has the authority to
implement a revised definition of physicians' services that would allow
drugs to be fully removed from computation of actual and allowed
expenditures back to the SGR base period. Any change in the definition
of physicians services to remove drugs would not affect the SGR
itself--only the actual and allowed expenditure amounts.
We believe that CMS has the authority to fully remove drugs from
the definition of physician services back to the SGR base period.
First, if CMS adopts a revised definition of physician services that
excludes drugs, it can recalculate actual expenditures back to the base
period using that revised definition. Nothing in the statute limits how
CMS is to calculate actual expenditures or limits CMS' ability to
revise its previous calculations of actual expenditures. CMS has
previously revised its calculations of actual expenditures based on the
omission of codes and on additional claims data. Thus, CMS has
implicitly taken the position that previously announced actual
expenditure amounts can be recalculated. Accordingly, CMS can
recalculate actual expenditure amounts for each year back to the base
period using the revised definition. Recalculating the base period
actual expenditures will also, by definition, recalculate the base
period allowed expenditures since the statute sets the base period
allowed expenditures equal to the base period actual expenditures. This
approach would fully remove drugs from the SGR methodology for purposes
of determining payments in future years.
A second, supporting approach is based on the statutory language
defining allowed expenditures. If CMS wants to remove drugs from the
calculation of actual expenditures, it would presumably want to remove
drugs from the calculation of allowed expenditures as well so that the
same definition applies on both sides of the equation. To remove drugs
from allowed expenditures for next year, however, requires
recalculating last year's allowed expenditures using the revised
definition, since the statute defines next year's allowed expenditures
as last year's allowed expenditures increased by the SGR. Thus,
revising a previous year's allowed expenditure amount is inherent in
any implementation of a revised definition of physicians' services.
Under the statute, the allowed expenditures should be revised back to
the base period, since each year's amount is calculated by reference to
the previous year's.
In short, there is a firm legal basis for recalculating both the
actual and allowed expenditures using a revised definition of
physicians' services back to the SGR base period. The result is that
drugs would be fully removed from the SGR methodology.
This recalculation would not involve recalculating the allowed or
actual expenditures for purposes of determining payment amounts in a
prior year. The recalculation would affect only payment amounts in
future years. Revising calculations for a past year for the purpose of
setting future years' payment amounts is not impermissible retroactive
rulemaking. It is similar, for example, to the recalculation of
graduate medical education costs in a base year for purposes of setting
future payment amounts. That recalculation was approved by the Supreme
Court.
CMS Should Remove Drugs from the SGR
In the past, some CMS officials have argued that including drugs in
the SGR was necessary to counter-balance incentives for over-
utilization in the drug reimbursement system. The AMA does not accept
this premise. Certainly physicians are not administering chemotherapy
drugs to patients who do not have cancer. Even if such incentives
existed, however, they were surely eliminated by the reductions in
payment for these drugs under the MMA. Thus, we urge the Subcommittee
to reiterate the request that CMS reconsider its current policy in
light of the changes made in the MMA. Pharmaceutical companies, not
physicians, control the cost of drugs. Further, pharmaceutical
companies and United States policy, not physicians, control the
introduction of new drugs into the marketplace.
A new physician payment formula that reflects the cost of
practicing medicine is desperately needed, but current budget deficit
projections will make it extremely difficult for Congress to take the
steps that are needed to implement such a formula. The Administration
must reduce the price tag and help pave the way for an appropriate
long-term solution by removing drugs from the SGR pool, retroactive to
1996. In fact, CMS actuaries recently announced that, in accordance
with current estimates, removing drugs form the SGR would trigger a 3.7
percent update in 2006. Even more fundamentally, removing Part B drugs
from the SGR formula would nearly eliminate all of the impending cuts
to physicians--every 5% cut for 7 consecutive years would be wiped out
by taking this one simple action.
Drug expenditures are continuing to grow at a very rapid pace. Over
the past 5 to 10 years, drug companies have revolutionized the
treatment of cancer and many autoimmune diseases through the
development of a new family of biopharmaceuticals that mimic compounds
found within the body. The lives of millions of disabled and elderly
Americans have been extended and improved as a result. But such
achievements do not come without a price. Drug costs of $1,000 to
$2,000 per patient per month are common and annual per patient costs
were found to average $71,600 a year in one study.
Further, between the SGR's 1996 base year and 2003, the number of
drugs included in the SGR pool rose from 363 to 430. Spending on
physician-administered drugs over the same time period rose from $1.8
billion to $7.7 billion, an increase of 318% per beneficiary compared
to an increase of only 46% per beneficiary for actual physicians'
services. As a result, drugs have consumed an ever-increasing share of
SGR dollars and have gone from 3.7% of the total in 1996 to 9.8% in
2003.
This lopsided growth lowers the SGR target for real physicians'
services, and, according to the Congressional Budget Office, annual
growth in the real target for physicians' services will be almost a
half percentage point lower than it would be if drugs and lab tests
were not counted in the SGR. As 10-year average GDP growth is only
about 2%, even a half percent increase makes a big difference. Thus,
including the costs of drugs in the SGR pool significantly increases
the odds that Medicare spending on ``physicians' services'' will exceed
the SGR target. Ironically, however, Medicare physician pay cuts
(resulting from application of the SGR spending target) apply only to
actual physicians' services, and not to physician-administered drugs,
which are significant drivers of the payment cuts.
Although growth in drug expenditures appears to have slowed
somewhat in 2004, Medicare actuaries predict that drug spending growth
will continue to significantly outpace spending on physicians' services
for years to come. This is a realistic assumption. In 2003, MedPAC
reported that there are 650 new drugs in the pipeline and that a large
number of these drugs are likely to require administration by
physicians. In addition, an October 2003 report in the American Journal
of Managed Care identified 102 unique biopharmaceuticals in late
development and predicted that nearly 60% of these will be administered
in ambulatory settings. While about a third of the total are cancer
drugs, the majority are for other illnesses and some 22 medical
specialties are likely to be involved in their prescribing and
administration.
The development of these life-altering drugs has been encouraged by
various federal policies including expanded funding for the National
Institutes of Health and streamlining of the drug approval process. To
its credit, the Administration has made acceleration of the pace of
drug development one of its goals and has adopted a number of policies
that spur such development. Last June, for example, CMS and the
National Cancer Institute announced a collaborative effort to improve
the process for bringing new anti-cancer drugs to patients. In July,
the Food and Drug Administration announced that it will create a new
oncology office to further facilitate the approval process for these
drugs. In August, CMS launched a new Council on Technology and
Innovation that Administrator McClellan announced is intended to ensure
that Medicare ``beneficiaries have access to valuable new medical
innovations as quickly and efficiently as possible.'' The AMA shares
and applauds these goals. However, it is not equitable or realistic to
finance the cost of these drugs through cuts in payments to physicians.
It is simply bad public policy to penalize physician payments when
certain physicians prescribe needed life-saving drugs. Yet, the current
formula creates disincentives to prescribe these drugs by cutting all
physicians' pay when certain physicians prescribe Part B drugs.
Accordingly, we recommend that the Subcommittee continue to urge
CMS to remove drugs from the SGR pool, retroactive to 1996. With
payment cuts slated to begin in 2006, it is critical for the
Administration to act as soon as possible.
2. Ensure that government-induced increases in spending on physicians'
services are accurately reflected in the SGR target
As discussed above, the government encourages greater use of
physician services through legislative actions, as well as a host of
other regulatory decisions. These initiatives clearly are good for
patients and, in theory, their impact on physician spending is
recognized in the SGR target. In practice, however, many have either
been ignored or undercounted in the target.
Effective January 1, 2005, CMS is implementing the following new or
expanded Medicare benefits, some of which have been mandated by the
MMA: (i) initial preventive physician examinations; (ii) diabetes
screening tests; (iii) cardiovascular screening blood tests, including
coverage of tests for cholesterol and other lipid or triglycerides
levels, and other screening tests for other indications associated with
cardiovascular disease or an elevated risk for that disease; (iv)
coverage of routine costs of Category A clinical trials; and (v)
additional ESRD codes on the list of telehealth services. In addition,
the new outpatient prescription drug benefit enacted under the MMA will
significantly expand expenditures for physician services because
beneficiaries who previously could not afford to purchase drugs will
visit physicians to get prescriptions and will be monitored for the
effect of the drugs.
As a result of implementing a new Medicare benefit or expanding
access to existing Medicare services, the above-mentioned provisions
will increase Medicare spending on physicians' services. Such increased
spending will occur due to the fact that new or increased benefits will
trigger physician office visits, which, in turn, may trigger an array
of other medically necessary services, including laboratory tests, to
monitor or treat chronic conditions that might have otherwise gone
undetected and untreated, including surgery for acute conditions.
Although CMS has stated that the costs of these new services are
included in the calculation of the SGR target for 2005, CMS has not
provided details of how these estimates were calculated, and certain
questions remain. CMS reportedly does consider multiple year impacts
and cost of related services, but the agency has not provided any
itemized descriptions of how the agency determined estimated costs.
Without these details it is impossible to judge the accuracy of CMS'
law and regulation allowances.
In summary, CMS should adequately reflect, in the SGR target,
physician spending increases due to such initiatives as the following:
(i) legislative mandates, e.g., new preventive screening benefits and
the new prescription drug benefit; (ii) CMS coverage expansions for new
procedures and technology; (iii) government ``good health'' policies,
such as efforts to reduce healthcare disparities, streamlining drug
approvals, fighting diabetes, improving women's health; and (iv)
federal ``quality initiatives,'' which tend to increase the use of
physician services to save money elsewhere in the system.
3. Ensure that the SGR fully reflects the impact on physician spending
due to national coverage decisions
When establishing the SGR spending target for physicians' services,
the law requires that impact on spending, due to changes in laws and
regulations, be taken into account. The AMA believes that any changes
in national Medicare coverage policy that are adopted by CMS pursuant
to a formal or informal rulemaking, such as a Program Memorandum or a
national Medicare coverage policy decision, constitute a regulatory
change as contemplated by the SGR law, and must also be taken into
account for purposes of the spending target.
CMS' authority to make any regulatory change is derived from law--
whether it is a law specifically authorizing Medicare coverage of a new
service or a law that provides the Secretary of HHS with general
rulemaking authority. Thus, any new coverage initiative is a direct
implementation, by regulation, of a law. This is exactly what the SGR
requires be taken into account--increases in spending due to ``changes
in law and regulations.''
When the impact of regulatory changes for purposes of the SGR is
not properly taken into account, physicians are forced to finance the
cost of new benefits and other program changes through cuts in their
payments. Not only is this precluded by the law, it is extremely
inequitable and ultimately adversely impacts beneficiary access to
important services.
HHS and CMS actively promote utilization of newly-covered Medicare
services through press releases and other public announcements. For
example, the Secretary of HHS released a 2002 report highlighting the
importance of medical innovations and new technology, especially new
drugs, in helping seniors live longer and healthier lives. Further,
another HHS release regarding Medicare coverage of sacral nerve
treatment for urinary incontinence stated, ``[u]rinary incontinence
affects approximately 13 million adults in the United States, with
nearly half of nursing home residents having some degree of
incontinence. It is twice as prevalent in women as it is in men, and
costs more than $15 billion per year, including both direct treatment
of the disease and nursing home costs.'' The Secretary made a similar
announcement when Medicare expanded its coverage of lymphadema pumps,
stating, ``[i]t's important to make effective technologies available to
Medicare beneficiaries when it helps them the most. This coverage
decision simplifies Medicare policy to allow older Americans who need
these pumps to get them more quickly and easily.''
CMS also recently announced expanded Medicare coverage of
implantable cardioverter defibrillators, as well as expanded coverage
for diagnostic tests and chemotherapy treatment for cancer patients, as
well as for carotid artery stenting, cochlear implants, pet scans for
Alzheimers disease and use of photodynamic therapy to treat macular
degeneration. While not every coverage decision significantly increases
Medicare spending, taken together, even those with marginal impact do
contribute to increased use of physician services. In addition, a
number of coverage expansions since the advent of the SGR are expected
to have a major impact on spending. The recent expansion of coverage
for implantable defibrillators is expected to make this device
available to some 500,000 people, with CMS anticipating that 25,000
will receive the device in the first year alone. A decision last spring
to expand the use of photodynamic therapy for treatment of macular
degeneration is conservatively estimated by the National Opinion
Research Center (NORC) to increase expenditures by more than $300
million a year and could boost spending by more than twice that amount
if used by all the Medicare beneficiaries who might be eligible.
While the AMA strongly supports Medicare beneficiary access to
these important services, physicians and other practitioners should not
have to finance the costs resulting from the attendant increased
utilization. Accordingly, CMS should ensure that the impact on
utilization and spending resulting from all national coverage decisions
is taken into account for purposes of the SGR spending target.
4. Rebasing of the Medicare Economic Index
The Medicare Economic Index (MEI) is a measure of medical
inflation, and is a factor used by CMS to update Medicare payments to
physicians each year. The AMA appreciates and agrees with CMS' recent
initiative to revise weights in the Medicare Economic Index (MEI) to
reflect more current data and changes in the cost of practicing
medicine. This initiative, however, does not address the broader
problem that the MEI only measures changes in the prices for specific
physician practice inputs, but there has been no effort to look at the
inputs themselves and ensure that the market basket for which price
changes are being measured is still the appropriate market basket.
Inputs to the MEI are vastly different now than when the MEI was
first developed in the early 1970s, and thus additional inputs are
needed to ensure that the current MEI adequately measures the costs of
practicing medicine. For example, physicians must comply with an array
of government-imposed regulatory requirements, including those relating
to fraud and abuse, billing errors, quality monitoring and improvement,
patient safety, and interpreter services for patients with limited
English proficiency. To ensure compliance with these initiatives,
physicians have had to hire additional office staff to handle these
additional responsibilities. Indeed, a Project Hope survey conducted
for MedPAC in early 2002 found that ``half of all physicians reported
that their practice had hired additional billing and administrative
staff in the past year, and more than 80% indicated that the practice
had increased the training given to staff regarding billing and
insurance matters.''
CMS should include in the MEI any additional inputs that are needed
to ensure that the MEI adequately measures the costs of practicing
medicine.
FINANCIAL INCENTIVES FOR IMPROVED QUALITY OF CARE
Last week, CMS announced new initiatives to pay healthcare
providers for the quality of care they provide to Medicare patients,
and stated that the Administration is committed to rewarding innovative
approaches to get better patient outcomes at lower costs. The AMA is
also committed to quality improvement and we strongly support
innovative efforts across the nation to provide safe and effective care
to our patients. We do not believe, however, that initiatives that
provide financial incentives for quality care improvements should be
undertaken by Medicare until the physician payment update formula has
been replaced with a system that ensures a stable economic environment
for treating Medicare patients.
With projected Medicare payment cuts of more than 30 percent
between 2006 and 2012, many physician practices are heavily focused on
simply keeping their doors open to patients. In addition, due to recent
cuts and the expectation of more to come in 2006 and subsequent years,
many physicians have already been forced to delay investment in
maintaining and improving office facilities, staff and equipment.
Others have had to cover overhead by seeing more patients and
shortening the time of each patient visit.
Participation in successful quality improvement initiatives
requires significant financial investment in expensive new information
technology or increased human resources. It is difficult to fathom how
physician office practices will be able to make such a financial
investment in light of current struggles to absorb past and projected
steep Medicare pay cuts. Additional funding to implement quality
improvement initiatives in physicians offices would be critical for a
successful outcome.
The AMA also has strong concerns about any quality improvement
initiatives that would seek to maintain budget neutrality by improving
payments to some physicians while reducing payments to others that are
already in financial jeopardy and unable to commit needed financial
and/or human resources to participate in the initiative. To further
complicate matters, effective and appropriate quality measures vary
among specialties and some--such as patient tracking--that are most
easily implemented may not be relevant for all specialties. Thus, the
feasibility of participating in a quality improvement program may vary
significantly among medical specialties, and it is not clear that all
specialties would have a realistic opportunity to compete for quality-
related payments.
Finally, the AMA urges the Subcommittee to consider that while
quality improvement initiatives could eventually improve quality and
accrue overall savings to the healthcare system, these programs in the
early years likely would increase utilization of physician services.
For example, during his May 11, 2004 appearance before the House Ways
and Means Health Subcommittee, CMS Administrator, Dr. Mark McClellan,
suggested that one of the agency's quality improvement projects, the
Chronic Care Improvement Project, ``may actually increase the amount of
(patient-physician) contact through appropriate office visits with
physicians.'' Additional care and patient visits to achieve improved
quality, while applauded, would cause Medicare spending on physician
services to exceed the SGR spending target, thereby triggering still
more Medicare physician pay cuts and compounding the problems physician
practices are experiencing due to already strained office budgets.
The AMA thus urges the Subcommittee to ensure that a reliable,
positive Medicare physician payment formula is in place before
implementing comprehensive quality improvement programs. Expecting
physicians to make investments in new information technology and
participate in quality improvement initiatives before there is a
solution to the payment update problem defies logic. Quality
improvement initiatives can flourish only if payment cuts are
permanently eliminated and replaced with at least modest updates.
We appreciate the opportunity to provide our views, and look
forward to working with the Subcommittee, Congress and the
Administration to ensure an adequate and reliable Medicare physician
payment system that keeps pace with the cost of practicing medicine.
Chairman JOHNSON. Thank you very much. Dr. Lee.
STATEMENT OF THOMAS H. LEE, M.D., CHIEF EXECUTIVE OFFICER,
PARTNERS COMMUNITY HEALTHCARE, INC., AND NETWORK PRESIDENT,
PARTNERS HEALTHCARE SYSTEM, INC., BOSTON, MASSACHUSETTS
Dr. LEE. Thank you very much, Chairman Johnson. I want to
thank you and the Subcommittee for the opportunity to testify
today on pay for performance. I also am a practicing physician,
and I am the network president for a large provider system in
Massachusetts with a strong commitment to quality but also with
practical experience with pay for performance over the last 4
years. I want to make three main points today. The first is
that pay for performance works. It really does drive
improvements in quality and efficiency, or at least it can. The
second point I want to make is that these improvements don't
occur because someone has dangled a few dollars in front of
physicians to try to work harder or be smarter, but it comes
from promoting the adoption of systems that can actually
improve care. Thirdly, I will make some comments on how Bridges
to Excellence might be a model that can be extended for
applying pay for performance to the large majority of U.S.
physicians that are not tightly tied to any integrated delivery
system.
Partners is an integrated delivery system in eastern
Massachusetts that was founded by Mass General Hospital and
Brigham and Women's Hospital. We have about 2,000 some
physicians in the community as well as another 2,000 are at
academic medical centers, and we have pay for performance
contracts now covering about 500,000 primary care lives and
about 500,000 specialty referral patients beyond them. So, we
have 10 percent or more of our payments under these contracts
tied up in reaching incentives in efficiency and quality on
both the hospital side and the doctor side. It is about $90
million in 2005 that is contingent upon reaching these goals.
As I summarized in my written testimony, most of our contracts
have about half of this withhold tied to achieving efficiency
targets, in-patient utilization, pharmacy utilization,
radiology utilization. The other half is pretty much split
between clinical quality reliability measures like diabetes
care and the adoption of infrastructure, systems like
electronic medical records and computerized order entry in the
hospitals.
The written testimony has some details on our performance
but, to summarize quickly, it has driven us to adopt systems
and do much better on both efficiency and quality. For example,
in pharmacy, our rate of rise last year was 5 percent, and
nationally it was 9 percent or more. On the quality side, on
virtually all the measures that are in our contracts, we are
better than the 90th percentile nationally. The key message is
not to boast about our performance here but is to emphasize
that we believe it has worked and we believe it has worked
because we have adopted systems that make our care more
reliable. The example that I would like to give is about
imaging, because that is obviously a topic that is the fastest
rising in health care and one of the most difficult. None of us
want to go in and have doctors ratchet back and not do an MRI
because they are just trying to save money. What we have done,
because we have incentives in our contracts to moderate the
rate of rise in radiology, is put in place a web-based system
so that our doctors have to order all their x-rays through it
and use clinical data to assess the appropriateness of tests.
When tests are inappropriate or possibly inappropriate--and
that is about 15 percent of the tests that go through our
system--the doctor gets feedback right away, and most of the
time our physicians change what they do. When they don't, they
have to interact with a colleague about it, not outside our
system but inside our system. These kinds of systems work best
when they are integrated with electronic medical records. That,
of course, is a theme many of us have on our minds today. I
think you all know that the business case for adopting these
records is challenging, particularly for these small practices.
$25,000 cost per year per doctor, that is a typical and even
conservative first-year cost. The incentives in our contracts
fall far short of this figure, but if Medicare were to use
incentives in this way, it would really strengthen the business
case. Bridges to Excellence might be a model that can be used
for the many physicians who will not be in contracts that
reward pay for performance--that have a pay for performance
model.
I know that many of you are familiar with this, and there
is a CMS demonstration project that may be beginning soon with
that model. General Electric, working with providers, including
us, uses a Six Sigma product design process to identify systems
that they would expect would improve efficiency and quality,
electronic but also humanware systems; and I can go into them
more if we want during the question and answer period. Just to
wrap up, let me just say that the Bridges program is voluntary.
Physicians who want the rewards apply, undergo a survey
administered by NCQA and then get the rewards of up to $50 per
member per year based upon the number of members they have. In
summary, my colleagues and I believe that pay for performance
can drive improvement and it does so by the adoption of
systems. We think that while organized systems are probably
better positioned to deliver on the pay for performance, for
the great majority of physicians who are not in organized
systems, models like Bridges may be a good way to go. Thanks
very much.
[The prepared statement of Dr. Lee follows:]
Statement of Thomas H. Lee, M.D., Chief Executive Officer, Partners
Community HealthCare, Inc., and Network President, Partners HealthCare
System, Inc., Boston, Massachusetts
I would like to thank Chairman Johnson and the Members of the
Subcommittee on Health of the Ways and Means Committee for the
opportunity to testify on the potential impact of pay-for-performance
incentives on efficiency and quality for the Medicare program. I am
invited to testify as a physician leader of a large provider system
with a strong commitment to quality and with practical experience with
pay for performance over the last four years. Based on this experience,
I will discuss three points:
Pay-for-performance works. I will provide data
demonstrating that relatively modest incentives focused on well-
defined, achievable targets can be successful in driving improvement in
efficiency and quality.
Adoption of systems (electronic and otherwise) that
improve efficiency and quality should be an explicit focus of pay-for-
performance programs. I will describe early progress toward the re-
engineering of care through systems such as computerized prescribing
and test ordering, which we believe to be critical to our current and
future success under pay for performance.
Finally, I will turn to thoughts on measures that may be
applicable to both primary care and specialist physicians should
Medicare seek to implement pay-for-performance incentives in the near
future.
Background
These comments are drawn from three types of experience. First, I
am Network President for Partners Healthcare System, an integrated
delivery system in Eastern Massachusetts that includes two major
teaching hospitals (Brigham and Women's Hospital and Massachusetts
General Hospital), four community hospitals, and a large physician
network with about 1,100 primary care physicians and 4,000 specialists.
About half of the physicians in our Network are self-employed
community-based physicians, usually in small 1-2 physician practices
that are affiliated with Partners through our network, Partners
Community Healthcare, Inc. (PCHI). We currently have three major pay-
for-performance contracts that cover the care of more than 500,000
primary care patients and a comparable number of referral patients to
our specialists.
The second role that informs these comments has come from the
participation in the design and implementation of Bridges to
Excellence, a program led by General Electric and other major employers
such as UPS, Raytheon, Ford Motor Company. Bridges to Excellence is a
program through which employers provide incentives to physician
practices that adopt systems likely to reduce errors of all three types
(over-use, mis-use, and under-use). This program has been implemented
in several marketplaces in the U.S., and has influenced the design of a
forthcoming CMS demonstration project. It is relevant to this
discussion because it can be applied to both primary care and
specialist physicians, and because it can be applied to physicians who
are not members of an organized delivery system.
Finally, I am a practicing internist and cardiologist, and have
cared for patients under fee for service, capitation, and pay for
performance contracts.
Impact of Pay for Performance
Our integrated delivery system has worked with the three major
commercial managed care health plans in the Eastern Massachusetts
marketplace since 2000 to develop pay for performance contracting as a
successor to budget-based risk (capitation). As noted above, we
currently have more than 500,000 primary care patients and a comparable
number of referral patients to specialists whose care is covered by
such contracts. Approximately $90 million in withhold is at stake based
upon our ability to achieve efficiency and quality targets. This amount
constitutes 10% or more of the fees for our physicians and payments to
our hospitals for these patients.
Table 1 summarizes the targets for improvement in efficiency,
clinical quality, and error-reducing information infrastructure in our
contracts. While the exact criteria for return of withhold vary from
contract to contract, these targets require improving current
performance, or beating actual or expected regional trends--that is,
withhold return cannot be achieved by maintaining the status quo. We
and the health plans have had little difficulty coming to agreement on
which areas lend themselves to improvement and are meaningful. The
health plans in our marketplace understand that consistency in these
criteria across contracts increases the chances that providers will be
able to invest in systems needed to achieve improvement.
The proportion of the withhold that is tied to achieving the
specific goals varies, but, in general, about half of the incentive is
focused on the efficiency-related targets, with the remainder divided
between clinical quality goals and investment in information
infrastructure expected to reduce all three types of errors. Targets
for return of hospital withhold and physician withhold overlap, but
vary somewhat. For example, both hospital and physician withholds have
the same targets for reducing hospital admissions, but hospital quality
incentives focus on Joint Commission on Accreditation of Healthcare
Organizations (JCAHO) inpatient care measures, while physician withhold
is tied to National Committee on Quality Assurance (NCQA) HEDIS (Health
Plan Employer Data and Information Set) measures (e.g., mammography and
PAP smear rates).
Note that in our most recent contracts (described as ``Version
2.0''), the measures have evolved, so that the pharmacy target excludes
drugs for which utilization should not be decreased (e.g., cholesterol-
reducing agents), and radiology has been added as a major target for
improved efficiency.
Table 1. Withhold Targets in Prior and Current PCHI Pay For Performance Contracts
----------------------------------------------------------------------------------------------------------------
2001-2003 (Version 1.0) 2004-2008 (Version 2.0)
----------------------------------------------------------------------------------------------------------------
Efficiency Facility use: Inpatient
medical-surgical days/
1000 members
Facility use: Weighted \1\ medical
----------------------------------------------------------------------------------------------------------------
Clinical Quality HEDIS measures:
Diabetes, asthma,
Chlamydia screening
Physicians: HEDIS measures for
----------------------------------------------------------------------------------------------------------------
``Error reducing'' Physicians: Adoption of
infrastructure electronic medical records
----------------------------------------------------------------------------------------------------------------
\1\ Admissions to academic medical centers are counted more heavily than admissions to community hospitals.
\2\ Examples of classes of excluded agents: statins, diabetes therapies, chemotherapy, HIV therapies.
\3\ Monitoring frequency of at least one measurement of International Normalized Ratio (INR) per month for
patients on chronic warfarin
Thus far, our delivery system has achieved virtually every target
under these. We do not expect to be able to maintain this record
indefinitely, because the targets are becoming increasingly ambitious.
In general, we budget based upon the assumption that we will attain 75%
of our withhold. Our higher level of success to date reflects
improvements in efficiency and quality that have led our Network to be
among the region's leaders.
Highlights of this performance include:
1. Inpatient utilization--In the two contracts in which the health
plans are providing us with comparative data, our inpatient utilization
(as measured in medical-surgical admissions or days/1000 members) has
decreased and is better than the rest of the market.
2. Pharmacy--Our rate of rise in pharmacy spending in our
contracts averaged about 5% in 2004, compared with the national average
of about 9%.
3. Imaging--Under new targets for moderating the rate of rise of
utilization of high cost imaging tests, we have developed decision
support to help guide physicians to more appropriate ordering, and
deployed this through order entry systems at our AMCs and for our
community physicians. We have only limited data on the impact of this
intervention at this date, but early information indicates that our
rate of rise is less than the national trend of 15-18%.
4. Diabetes and other HEDIS measures--For virtually all NCQA HEDIS
measures and for about 75% of inpatient cardiology measures, we are
performing above the national 90th percentile. Perhaps more important
is the finding that we have steadily improved in targeted areas (e.g.,
diabetes--see Figure 1) under our pay for performance contracts. Pooled
data that were publicly released on February 3, 2005, indicate that
PCHI is among the region's leaders--The Boston Globe ranked PCHI second
out of nine delivery systems, with performance exceeded only by a staff
model HMO in which all physicians are salaried and using the same
electronic medical record.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
System adoption as key success ingredient
This improvement has not been achieved solely by dangling
incentives before physicians, and providing them data on their current
performance. PCHI physicians use a combination of electronic and
``humanware'' systems aimed at improving quality and efficiency (Table
2, next page).
For example, in radiology, we have implemented a web-based ordering
system for high cost tests that uses clinical information to assess the
necessity and appropriateness of the tests. This program was stimulated
by the introduction of a radiology management program by one payer that
requires physician offices to call a 1-800 number to obtain
authorization before scheduling any high cost tests (MRI, CT, nuclear
cardiology, PET scans). We were able to negotiate an agreement with the
payer so that our physicians instead use our software program, which
uses established guidelines to rate tests as to their appropriateness.
When tests are rated as being of marginal appropriateness (about 15% of
all tests ordered to date), the ordering physician is given that
feedback. Over half the time, physicians change their behavior when
they receive this message from our decision support. Physicians can
proceed with tests of such uncertain appropriateness, but with the
additional hurdle of prospective or retrospective peer-review (i.e.,
they must talk to a colleague about why they believe the test will be
useful).
Table 2. PCHI Medical Management Programs
----------------------------------------------------------------------------------------------------------------
Program Description
----------------------------------------------------------------------------------------------------------------
Focus on reducing costs
----------------------------------------------------------------------------------------------------------------
Inpatient utilization man- Practice-based nurse care coordinators working
agement predominantly with primary care physicians through
weekly pod meetings and other forms of contact
----------------------------------------------------------------------------------------------------------------
High risk patient inter- Telephonic case management program
ventions
----------------------------------------------------------------------------------------------------------------
Congestive heart failure Nurse practitioner-based programs at PHS hospitals
----------------------------------------------------------------------------------------------------------------
Pharmacy Programs to increase generic and preferred brand
drug use; educate physicians and patients; assist
physicians in switching individual patient
prescriptions
----------------------------------------------------------------------------------------------------------------
Radiology Computerized decision support program
----------------------------------------------------------------------------------------------------------------
Focus on improving reliability of care
----------------------------------------------------------------------------------------------------------------
Registries for patients Computer software for populations with asthma and
with targeted chronic diabetes, and patients being treated with
conditions anticoagulatant medications
----------------------------------------------------------------------------------------------------------------
Registries for improve- Databases to support improved reliability in use of
ment of preventive care mammography, cervical cancer screening, well-child
care, and Chlamydia screening
----------------------------------------------------------------------------------------------------------------
Patient education pro- Monthly mailings of educational materials for
grams patients with diabetes
----------------------------------------------------------------------------------------------------------------
We and most health plans/employers believe that the improvements
needed to meet the market's needs in efficiency and quality cannot be
attained without comprehensive adoption and use of systems that will
improve care. Accordingly, Partners has launched a major program called
The Signature Initiatives, which include five teams with the following
goals:
1. Information systems--to promote quality and efficiency through
use of electronic medical records.
2. Patient safety--to implement integrated medication ordering/
administration systems to minimize adverse drug events.
3. Uniform high quality--to ensure that Partners patients reliably
receive interventions known to improve outcomes.
4. Disease management--to identify high risk patients and to
connect them to programs likely to improve the coordination of their
care.
5. Trend management--to improve efficiency by having Partners
physicians order drugs and radiology tests using decision support.
A major focus of the contractual incentives and the Signature
Initiatives is dissemination of electronic records. Currently, about
80% of our academic medical center physicians and about 10% of
community physicians are using electronic medical records. Achieving
our withhold targets will require major increases in use of electronic
records among community physicians in the next three years.
However, the ``business case'' for adoption of such systems is
challenging for small physician practices. First year adoption costs
are on the order of $25,000 per physician. Even for five-physician
practices, the costs-per-MD spread over a five year period are about
$10,000 to $15,000 per year for systems sophisticated enough to provide
high quality decision support. These costs include hardware, software
licenses, interfaces with other systems, and training expenses. Smaller
steps, such as adoption of hand-held prescribing devices, provide only
a small part of the value of a full clinical system.
Current fraud and abuse rules make it difficult for Partners and
other delivery systems to assist physicians who are affiliated but not
employed by the organization in overcoming these financial hurdles. We
and other delivery systems are meeting with CMS on this issue, and
would welcome congressional support for an anti-kickback safe harbor or
an expanded Stark exception to permit systems like ours to help
physicians adopt electronic records.
Pay-for-Performance for physicians not integrated into delivery systems
The majority of physicians in the U.S. are not currently
participants in organized delivery systems that can negotiate pay for
performance contracts or increase the likelihood of success under them
by providing the systems described above. What kind of measures might
be useful for encouraging such physicians--both primary care and
specialist--to adopt systems that will improve quality and efficiency
under Medicare?
Ideally, such measures should have the following characteristics:
Measurable at minimal expense
Valid and reliable at an individual physician level
Can be adjusted for differences in patient population
(socioeconomic; health status)
Identify areas in which improvement is feasible and
practical
Improvement will lead to meaningful improvements in
efficiency and/or patient outcome
At this time, measures of efficiency and quality based upon claims
data fall short of these goals--particularly for the second and third
characteristics. Therefore, interest has focused upon incentive
structures under which physicians are rewarded:
If they have adopted certain systems that are believed to
improve quality and/or efficiency, or
If they report clinical data on intermediate outcomes
(e.g., diabetes or cholesterol control), and meet specified standards
of excellence
One model program that can be used to provide incentives for both
primary care physicians and specialists is the physician office link
program of Bridges to Excellence (http://www.bridgestoexcellence.org/
bte/). This program requires that physicians who want to be eligible
for rewards fill out a detailed survey administered by NCQA (and pay a
fee that varies with the number of physicians in the practice). The
survey assesses the presence or absence of office-based systems with
the following goals:
Monitor their patients' medical histories
Work with patients over time not just during office
visits
Follow up with patients and with other providers
Manage populations, not just individuals, using evidence-
based care
Encourage better health habits and self-management of
medical conditions
Avoid medical errors.
There are three distinct areas under which physicians can earn
bonuses (maximum $50 per patient per year):
Evidence-based Clinical Information System. Key processes
in this group include a reliable system for providers to track and
understand the health status of their patients, and to compare the care
they are receiving to widely accepted standards; and the use of
electronic prescribing of drugs and laboratory exams, combined with
smart edits to ensure higher patient safety and reduce overuse.
Patient Education and Support. Key processes in this
group include whether or not a patient's educational and language
assessment was made; and whether or not the patient was provided with
self-management tools and support specific to their condition.
Care Management. Key processes in this group include the
identification of patients with chronic illnesses and the deployment of
appropriate resources to manage their care; and the identification of
high-risk patients and use of systems to prevent emergency hospital
admissions or readmissions.
These areas and the specific components identified within them were
determined using a Six Sigma product design exercise in a process that
included employers, health plans, and healthcare providers from
Partners and elsewhere.
NCQA audits a small percentage of applications to ensure that the
surveys are being completed accurately. NCQA then determines the amount
of reward/member that physicians are eligible to receive. This reward
is based upon the number of points assigned for each of three modules
within each of these categories (See Table 3, next page). The number of
modules in which physicians must have a minimum number of points
increases each year, thereby encouraging physicians to improve office
systems in order to keep receiving the same level of financial
incentives.
Medstat then determines the number of members per physician, and
the size of the reward. The bonuses are based upon the size of the
savings expected from these programs as determined by actuaries working
for GE and other purchasers sponsoring Bridges to Excellence.
Specialists and primary care physicians can both participate; rewards
are given to all qualifying physicians engaged in the care of patients
who are from Bridges organizations, reflecting the logic that greater
savings are likely to occur for higher risk patients who need both
primary and specialty care. Rewards are capped at $20,000 per
physician.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Bridges to Excellence also includes examples of programs in which
physicians voluntarily submit clinical data (as opposed to the presence
or absence of office systems, as in the Physician Office Link) based
upon review of their own charts in order to qualify for ``Provider
Recognition'' and bonuses. In the Diabetes Care Link and Cardiac Care
Link programs, physicians can achieve awards of up to $100 per patient
with the condition if their data indicate that they are achieving high
levels of reliability and excellence in their care. For example, see
Table 4 on next page, which lists the measures, goals, and rewards
criteria for physicians applying for the adult diabetes provider
recognition.
As with the Physician Office Link, physicians interested in
receiving the incentives apply to NCQA and complete the survey tool.
Rewards reflect an expected savings of $300-400 per patient with
diabetes who sees a physician with these clinical performance levels.
Early analyses by Bridges to Excellence indicate that physicians who
achieve this status have lower costs in the care of their diabetic
patients.
Table 4: Measures for Adult Patients in the Diabetes Care Link Program
----------------------------------------------------------------------------------------------------------------
Measures Goal Points Frequency
----------------------------------------------------------------------------------------------------------------
Measures For Both HbAlc * (most recent 93% NA Once per
3-Year Recognition result) year
and Rewards and
Annual Rewards
----------------------------------------------------------------------------------------------------------------
Proportion w/HbAlc <8% 55% 5.0
----------------------------------------------------------------------------------------------------------------
Proportion w/HbAlc >9.5% * 21% 10.0
----------------------------------------------------------------------------------------------------------------
Blood pressure frequency 97% 10.0 Once per
(most recent result) year
----------------------------------------------------------------------------------------------------------------
Proportion <140/90 mm Hg 65% 5.0
----------------------------------------------------------------------------------------------------------------
Lipid85%ofile 5.0 Annual **
----------------------------------------------------------------------------------------------------------------
Proportion with LDL 63% 5.0
<130 mg/dl *
----------------------------------------------------------------------------------------------------------------
Additional Meas- Eye exam * 61% 10.0 Annual **
sures for 3-Year
Recognition
----------------------------------------------------------------------------------------------------------------
Foot exam 80% 10.0 Annual
----------------------------------------------------------------------------------------------------------------
Nephropathy assessment * 73% 10.0 Annual **
----------------------------------------------------------------------------------------------------------------
Total Points 70.0
----------------------------------------------------------------------------------------------------------------
Points to Achieve 52.0
Recognition &
Receive Rewards
----------------------------------------------------------------------------------------------------------------
Points to Receive 30.0
Annual Rewards
----------------------------------------------------------------------------------------------------------------
Conclusion
In summary, my colleagues and I at Partners Healthcare System
believe that pay for performance contracts can drive meaningful
improvement in both quality and efficiency, and are currently speeding
the adoption of systems such as electronic medical records that we
believe critical to the re-engineering of care. Organized provider
systems such as staff model organizations (e.g., Kaiser, the VA) and
more heterogeneous provider groups (e.g., Partners Healthcare System)
are particularly well positioned to respond to such incentives.
However, we believe that it is possible to provide incentives to small
1-2 physician practices to adopt systems likely to improve care.
Bridges to Excellence provides an example of a program that provides
rewards based upon the presence or absence of such systems, and upon
self-reported clinical performance.
Disclosures: Dr. Lee is a member of the Board of Directors of Bridges
to Excellence, and co-chairman of the Committee on Performance Measures
of NCQA. He receives no compensation for either role.
Chairman JOHNSON. Thank you, Dr. Lee. Dr. Gee.
STATEMENT OF WILLIAM F. GEE, M.D., AMERICAN UROLOGICAL
ASSOCIATION, LINTHICUM, MARYLAND
Dr. GEE. Thank you, Madam Chair, Members of the
Subcommittee. I am Dr. William Gee from Lexington, Kentucky. I
am going to not attempt to read everything in the statement but
rather highlight several things. I am the Chair of the American
Urological Association Health Policy Council. I have been a
member of the AMA Relative-Value Update Committee, the group
which establishes relative value units for physician work and
practice expense, for 10 years. I am here today actually
representing the Alliance of Specialty Medicine, a coalition of
13 physician specialty societies, including the AUA, which
represents over 200,000 specialty physicians in the United
States. I want to talk first about the SGR, and I will truncate
those comments because much of what I will say will agree with
previous speakers. Then I want to talk briefly about P for P,
or pay for performance.
First, on the SGR formula, it has significant flaws which
have all been recognized, causing steep reductions in physician
payment. The four biggest flaws we feel are, first, including
the cost of Medicare-covered outpatient drugs and biologicals
even though these items are not physician services and lead to
decreases in annual payment updates; two, the linking of
physician fees to the GDP, which does not accurately reflect
changes in the cost of caring for Medicare patients; three,
inadequately accounting for changes in volume of services due
to new preventive screening benefits that CMS puts forward,
national coverage decisions that increase demand for services
and a greater reliance on drugs and a greater awareness of
benefits by the Medicare population; and, finally, improperly
accounting for costs and savings associated with new
technology. We know that recent congressional action has fixed
some of these temporarily.
Earlier, when the Committee was making comments, it was
mentioned by Mr. Stark that physicians' incomes were as high as
they had ever been. I would just like to note that, in 1992,
when the Medicare fee schedule was instituted, the conversion
factor was $40. It is now about $37. That is an 8 percent
decrease. However, if you adjust $40 into 2004 dollars from
1992, it would be $53.86. So, actually, the conversion factor
has gone down 33 percent in the last 13 years. So, I think we
have to look at inflation when we talk about those numbers.
There is, as we have heard, drastic reductions coming if the
situation isn't fixed. The situation was temporarily adjusted,
but in 2006 through 2012 we have heard the 5 percent reductions
coming unless something happens. What is the solution? There
are two things the Alliance feels needs to be done.
First, Medicare-covered outpatient drugs and other
incident-to services included in the expenditure target need to
be removed retroactively back to the base period, as Dr.
Nielsen said, 1996, 1997. The second thing that needs to be
done is to replace the SGR formula with a system that
adequately accounts for the true costs of delivering healthcare
services, the Medicare Economic Index. The Alliance believes
the current SGR formula needs to be repealed and replaced with
a system that is more predictable and recognizes the true cost
of providing physician services to Medicare beneficiaries. The
current MEI is a conservative measure of these costs. Other
providers, such as hospitals and skilled nursing facilities,
are reimbursed on inflation and their costs. The physician
reimbursement formula should be based on the true cost of
providing services to the Medicare beneficiaries.
Now, I would like to very briefly touch on pay for
performance, P for P. The Alliance's member specialty
organizations are continually striving to offer high
specialized care. P for P measures for specialists are
different than those for generalists, and this is one of the
problems that we are grappling with in trying to see how to
come up with P for P and what it would mean for specialties. We
feel there are a number of things that are bulleted in our
comments that need to be addressed on P for P. First, any
system that rewards providers by improving patient care and
outcome should not be subject to budget neutrality or be used
as physician volume control. Two, reporting needs to be able to
be administered without being prohibitive and expensive and yet
an unfunded mandate to providers, particularly for smaller
offices. Three, pay for performance programs must not be
punitive. Four, measures need to be specialty specific. Some
measures may be appropriate for some specialties but not for
others, particularly in areas of surgery. Five, performance
measures must be developed by the physician community in
conjunction with CMS, but they should not be developed by CMS
alone. Six, in order to be effective, collecting data has to be
reliable and easy for physicians to record and report. Seven,
given the limitations of the current status of specialty
performance measures, the Alliance believes incentives should
be placed on optimizing quality of care and physician
participation, not on reporting uncontested quality data simply
for the purpose of reporting data. Finally and most
importantly, if a pay for performance requirement is
implemented, it must be phased in and pilot tested on a
voluntary basis first to see what works and what doesn't. Thank
you very much, Madam Chair, for the opportunity to comment.
[The prepared statement of Dr. Gee follows:]
Statement of William F. Gee, M.D., American Urological Association,
Linthicum, Maryland
Madame Chair, Members of the Subcommittee, I am Dr. William Gee
from Lexington, KY. In addition to serving as the managing partner of a
17 member private urological practice, I am the Chair of the American
Urological Association's (AUA) Health Policy Council and a member of
the AMA Relative-Value Update Committee since 1995.
I am here today representing the Alliance of Specialty Medicine--a
coalition of 13 physician specialty societies, including the AVA,
representing over 200,000 specialty physicians. I am pleased to have
this opportunity to testify before the Subcommittee on the issue of
Medicare payment to physicians, and in particular on the issue of the
flawed Sustainable Growth Rate (SGR) formula and possible solutions.
As advocates for patients and physicians, the Alliance of Specialty
Medicine supports modifications to the current Medicare physician
payment formula to ensure continued beneficiary access to timely,
quality health care. The current SGR formula has significant flaws;
however, causing steep reductions in physician reimbursement and
prompting an increasing number of specialty physicians to reconsider
their participation in the Medicare program, limit services to Medicare
beneficiaries, or restrict the number of Medicare patients they will
treat.
The sad reality of the current situation is that the only way that
physicians can avert negative updates is to somehow limit care to the
population that needs quality health care the most, our nation's
elderly and disabled. No doctor wants to turn away patients or leave a
practice and the patients she or he have been serving for years. No
doctor wants to end a career earlier than he or she intended. To take
such actions goes against the very reasons we became doctors.
Why the SGR Formula is Flawed
Flaws in the complex Medicare physician reimbursement update
formula include, but are not limited to: Including the costs of
Medicare-covered outpatient drugs and biologicals in setting the
expenditure target for physicians' services, even though these items
are not physicians' services and therefore, under the formula, lead to
decreases in the annual payment update; linking Medicare physician fees
to the Gross Domestic Product (GDP)--which does not accurately reflect
changes in the cost of caring for Medicare patients; inadequately
accounting for changes in the volume of services provided to Medicare
patients due to new preventative screening benefits, national coverage
decisions that increase the demand for services, a greater reliance
upon drugs to treat illnesses, and a greater awareness of covered
health benefits and practices due to educational outreach efforts; and
improperly accounting for costs and savings associated with new
technologies.
Recent Congressional Action
While the problems with the SGR were in some respects anticipated
when the law was passed in 1997, the first detrimental effects were not
experienced until 2002, when physicians received a 5.4 percent
reduction to the conversion factor. Since then, the flaws with the SGR
formula have been so pronounced that Congress has been forced to pass
two temporary measures to keep the system from falling apart
completely.
In 2003, after the Centers for Medicare and Medicaid Services
delayed a second payment reduction for three months, Congress passed
the first law, which required CMS to fix accounting mistakes that were
made during 1998 and 1999. Fixing these errors restored $54 billion to
the Medicare physician payment system and prevented another year of
reductions in reimbursement, but the legislation did nothing to fix the
overall problems that plague the formula.
With physicians anticipating a 4.4 percent reduction in 2004,
Congress again acted and included a provision in the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)
that mandated an increase of at least 1.5% in both 2004 and 2005. While
we appreciate the leadership of this Committee in preventing the
reductions and the eventual intervention of Congress, the statutory
increase did nothing to change the underlying formula. In fact, while
the statutory update in the MMA prevented the additional reductions for
2004 and 2005, no additional funds were provided to pay for this
temporary fix, therefore exacerbating the problem. As a result, the
money used to fund the increase in these updates must be paid back to
the Medicare program, with interest, over the next ten years.
Reimbursement Rates in 2006 and Beyond Again, if the SGR formula is not
fixed this year, physicians will receive negative updates of
approximately 5 percent each year from 2006 until 2012 and rates will
not return to their 2002 level until well after 2013.
In other words, physicians will receive less reimbursement in 2013
than they did in 2002 for the exact same procedure, regardless of
inflation and increased practice costs. While reimbursement will likely
be cut by over 30 percent under the current formula during that time
period, it is estimated that costs for providing services will rise by
close to 20 percent. Such cuts will further inhibit each physician's
ability to provide services to Medicare beneficiaries, as many
physicians will simply be unable to afford to treat Medicare patients.
The Solution
As I have previously stated--congressional action has delayed the
imminent meltdown of the Medicare program and has allowed some
breathing space to evaluate approaches to fixing the payment update
formula. It is now time, however, to put an end to these stop-gap
measures and fix the formula and the Alliance of Specialty Medicine
looks forward to working with this Committee and Congress to develop a
solution. Physician payments must be stabilized and further cuts must
be prevented, and to this end, the Alliance of Specialty Medicine
believes the following issues need to be addressed: Medicare-covered
outpatient drugs and other incident-to-services that are included in
the expenditure target need to be removed retroactively back to the
base period. CMS must exercise its statutory authority and remove
Medicare covered drugs from the physician payment pool retroactively.
We thank you, Madame Chair, as well as Mr. Thomas and the other Members
of this Committee who have supported the removal of these drugs. As you
know, physicians do not control the costs of these products and
services and each year these costs represent a greater proportion of
actual costs incurred by the Medicare program. And, as the agency has
acknowledged in the past, physician-administered drugs are not a ``true
physician service.'' Yet the costs of these drugs continue to have a
negative impact on reimbursement for real physician services.
The Congressional Budget Office (CBO) has predicted that spending
for outpatient drugs and other incident-to-services will grow faster,
on a per-beneficiary basis, than allowed by the expenditure target.
Each year these services will consume a greater portion of the
expenditure target, rising from $12 billion (20 percent of the $62
billion expenditure target) in 2004 to $28 billion (23 percent of the
$121 billion expenditure target) in 2012. These services must be
removed from the expenditure target retroactively, back to the base
period, so that it accurately reflects what it is supposed to
represent--payment for physician services. Recent estimates show that
this will have an immediate substantial impact on the predicted cuts by
bringing up the baseline and, therefore, filling in much of the
``hole'' that has been created. Only Congress can replace the flawed
SGR formula. However, without assurance from CMS that it will remove
drugs from the physician payment pool, we understand that Congress will
be left with few options for replacing the flawed formula.
Replace the SGR Formula With a System that Adequately Accounts For the
True Costs of Delivering Healthcare Services.--The Medicare
Economic Index (MEI)
The Alliance believes that the current SGR formula needs to be
repealed and replaced with a system that is more predictable and
recognizes the true costs of providing physician services to Medicare
beneficiaries. The current MEI is a fairly accurate measure of these
costs. Other providers, such as hospitals and skilled nursing
facilities, are reimbursed based upon changes in the costs of providing
services and the physician reimbursement formula should be based on
this, as well.
Pay for Performance
The Alliance's member specialty physician organizations are
continually striving to offer the highest specialized quality care to
all Medicare beneficiaries. However, with our physicians facing over
30% reductions in Medicare reimbursement from 2006 through 2013
compounded by exorbitant liability premium increases, many of these
specialty physicians are reconsidering their Medicare participation
status. Therefore, the Alliance believes that if Congress is to begin
to explore alternative payment requirements--such as pay for
performance--then the current unsustainable Medicare physician payment
system needs to be fixed. The Alliance represents 12 physician
specialties, which are all at varying stages of sophistication
regarding pay for performance initiatives; therefore, we believe that
the following points need to be considered: Any type of system that
rewards providers by improving patient care and outcomes should not be
subject to budget neutrality or be used as a physician volume control.
The reporting of quality or efficiency indicators and health
outcomes data could be administratively prohibitive to many physicians,
especially those in small practices that do not have electronic medical
records. It could be difficult to link payment to performance without
an interoperable health information technology infrastructure. Pay for
performance programs must not be punitive. Measures will need to be
specialty specific. Some measures may be appropriate for some
specialties, and not others. In some areas, particularly surgery--it
can be difficult to keep quality measures up-to-date enough to be
perceived as relevant. Any measures would have to be developed by the
physician community.
In order to be effective, collecting data must be reliable and easy
for physicians to record and report based on a clinical data set and in
a manner that is acceptable to the physician community. The collection
of such data must be timely and easily submitted and should not create
a burden on practices. Furthermore, the data collected must allow for
physicians to comply with Medicare HIP AA requirements. Given the
limitations on the current status of specialty performance measures,
the Alliance believes that incentives should be placed on optimizing
quality of care and physician participation, not on performance of
specific quality measurements. If a pay for performance requirement is
implemented, it should be phased-in and pilot tested on a voluntary
basis first.
Conclusion
Congress must find a solution to implement a rational Medicare
physician payment system, and the Alliance of Specialty Medicine looks
forward to working with you to develop a system that is more
predictable, insures fair reimbursement for physicians, and continued
beneficiary access to quality specialty health care.
Chairman JOHNSON. Thank you, Dr. Gee. Mr. Hayes.
STATEMENT OF ROBERT M. HAYES, PRESIDENT, MEDICARE RIGHTS
CENTER, NEW YORK, NEW YORK
Mr. HAYES. Madam Chairman, Mr. Stark, Committee Members,
thanks so much for having us. I run the Medicare Rights Center,
which is a nonprofit consumer service organization. Every day
we help people with Medicare access, needed care. Tens of
thousands of callers use our help-lines annually, and we work
with these folks to help them navigate the healthcare system in
rural programs and to help them pay for the health care that
they need. We are consumer driven and independent. We rely on a
small staff and hundreds of deeply committed volunteers. Madam
Chairman, the issue under consideration in today's hearing is
very critical to the continued vitality of Medicare from a
consumer perspective. We don't envy you, how to determine how
Medicare can best balance the demands of fair payments to
doctors and maintain access to people--to care for people with
Medicare. As we report from the trenches in which we work each
day, I remind myself that these tough issues are really
important for a single reason. The issues are all about how we
best meet our moral obligations to assist our mothers, our
fathers, our grandparents and our neighbors secure the health
care they need. We are all doing a lot of talking and analyzing
today about numbers, dollars, policy but we struggle with these
issues, each of us, because ultimately we care about human
health, human dignity, human survival.
Alice Kavanagh is one of the millions of Americans whose
well-being depends on Medicare. Ms. Kavanagh, from Durham, New
Hampshire, is 82 years old, lives in a family home with her
son, active in her church, spends a lot of time on the phone
connecting with her friends and neighbors. She is a cancer
survivor. Two years ago she was treated for colon cancer, and
she can see her oncologist and other doctors regularly. So far
she is free from cancer, and she is grateful for the Medicare
coverage that enabled her to have surgery and followup care. I
mentioned Ms. Kavanagh because she is why we celebrate
Medicare, warts and all, as a national treasure. It does
provide the financial security, access to health care, choice
of doctors and peace of mind that are a lifeline to many older
and disabled Americans. One of Medicare's traditional
strengths, of course, is that most doctors across the United
States participate in the program. Yesterday's report from the
GAO, along with work by MedPAC and our own hotline experience,
consistently demonstrates that nearly all people with
traditional Medicare are able to see the doctors they need when
they need to. On our hotlines, to be sure, we occasionally do
hear from people with Medicare who have trouble finding a
doctor. It usually turns out that those doctors are not taking
any new patients into their practices regardless of payer.
From the customer point of view, this broad access gives
people with Medicare the ability to choose a doctor based on
provider relationships, transportation needs, and other
critical factors. That is why on behalf of consumers we are
grateful for this Committee's stated interest in preserving
access to doctors by ensuring that payment rates do not drive
high-quality physicians away from Medicare patients. It is not
just rates that allows such wide access to doctors for people
with Medicare. MedPAC has reported--and this is our on-the-
ground experience as well--that the speed and reliability of
Medicare payments, in sharp contrast with many of the
Subcommittee's largest private insurers, makes Medicare the
extraordinarily attractive insurer that it is for patient and
doctor alike. Now, this is not to say that people with Medicare
do not see trouble on the horizon; it is coming from many
directions. It does appear obvious that repeated 5-year 5-
percent annual cuts in physician payments, as modeled by the
CBO, could well undermine physician access for people with
Medicare, if not immediately, then over time. We do credit
MedPAC and GAO for carefully monitoring access to services and
providing this Congress with their unvarnished analyses. In
these thorny and technical analyses, both of these agencies in
our view shoot straight, and we rely heavily on their
intelligence.
We can also say that at times there has appeared to be a
contradiction between what physician lobbyists say about access
to physicians and what is really happening. We believe that
payments should be about reality, not political pressure or
influence, and we say that because the soundness of the
Medicare system is of single importance to people with
Medicare. On that particular issue, Madam Chairwoman, let me
wrap up by commenting on an issue raised by Mr. Emanuel this
morning and which, Mrs. Johnson, you followed up on; that there
is indeed a great deal of struggle among people with Medicare
to pay the out-of-pocket expenses involved with that, with
their coverage. The numbers are well-known, that 40 percent of
the people with Medicare live on under $18,000 a year income.
It is true that Medicare savings programs can help very low-
income people meet their premium needs and their coinsurance
requirements in some cases. We look forward in the year ahead
to work with this Committee and with anyone else to try to find
a way that, moving ahead, those programs can be made more
available to the 50 percent of folks who are eligible for that
help who don't get it; and as we go into low-income support
program under Part D, that we have enrollment programs that
work to actually get people the support that they do need.
Thank you so much.
[The prepared statement of Mr. Hayes follows:]
Statement of Robert M. Hayes, President, Medicare Rights Center, New
York, New York
Good morning, Madam Chairman, Mr. Stark and Members of the
Committee.
I am Robert M. Hayes, President of the Medicare Rights Center. We
very much appreciate the opportunity to address you today on consumer
issues related to changes in Medicare payment policies and bring before
the Committee our day-to-day experiences assisting people with Medicare
obtain good health care.
The Medicare Rights Center (MRC) is the largest independent source
of Medicare information and assistance in the United States. Founded in
1989, MRC helps older adults and people with disabilities obtain good
affordable health care. Every day we help people with Medicare access
necessary services. Tens of thousands of callers use our help-lines
annually. We help people with Medicare navigate the healthcare system,
enroll in programs that may help them pay for health care, and overcome
barriers to care.
The Medicare Rights Center is a not-for-profit consumer service
organization, with offices in New York, Washington and Baltimore. It is
supported by foundation grants, individual donations and contracts with
both the public and private sectors. We are consumer driven and
independent, relying on a small staff and hundreds of deeply committed
volunteers to carry out our mission. We are not supported by the
pharmaceutical industry, insurance companies or any other special
interest group. Our mission is to serve the 41 million men and women
with Medicare.
Through national and state telephone hotlines, casework and
professional and public education programs, MRC provides direct
assistance to people with Medicare from coast to coast. We are also
bringing to counselors and consumers across the country Medicare
Interactive, a web-based counseling tool--developed with major support
from the United States Department of Commerce--that assists people with
Medicare access the health care they need.
MRC gathers data on the healthcare needs of the men and women that
we serve, and devises policy recommendations from those data. We share
the data with researchers, policymakers and the media. Just one of
MRC's services, its New York State Health Insurance Assistance Program
(SHIP), offers counseling support to one out of every 14 Medicare
recipients in the nation. Each year, the Medicare Rights Center
receives over 75,000 calls for assistance from people with Medicare.
Our counselors are trained to assist consumers with complex problems
and we complement the basic services offered by the 1-800-MEDICARE
hotline operated by the Centers for Medicare and Medicaid Services
(CMS). 1-800-MEDICARE is the largest source of referrals to our
hotline, and CMS, through the SHIP program, provides about 25 percent
of the financial support for the MRC hotline; the rest we raise
privately.
The issues under consideration at today's hearing are critical to
the continued vitality of Medicare--how can Medicare balance the
demands of fair payment to doctors, appropriate growth in a major
federal budget item, and access to care for people with Medicare
coverage.
As we report from the trenches in which we work, I remind myself
that these tough issues are important for a single reason: these issues
are all about how do we best meet our moral obligations to assist our
mothers, our fathers, our grandparents and our neighbors secure the
health care they need. We all are doing a lot of talking about numbers,
dollars and public policy. We do struggle with these issues because,
ultimately, we care about human health, human dignity, human survival.
Alice Kavanagh and John Rowe are two New Hampshire citizens whose
very well-being depends on Medicare. They reflect the realities of many
of the 41 million men and women with Medicare.
Mrs. Kavanagh, from Durham, New Hampshire, is 82 years old, and
lives in her family home with her son. She is active in her local
church and spends a lot of time on the telephone staying connected with
her friends. She is a cancer survivor--in 2003, she was treated for
colon cancer. She sees her oncologist and other doctors regularly, and
so far is free from cancer--and she is thankful for the Medicare
coverage that enabled her to have surgery and followup care. She has
other needs that aren't covered by Medicare--she recently paid $300 for
a tooth extraction and needs further expensive dental work. She also
needs eye care, but has put off seeking care because of the cost.
Mr. Rowe, aged 67, hails from Raymond, New Hampshire. He is
extremely grateful for his Medicare coverage--he was uninsured twice in
the last decade, first when he was working as an independent
contractor, and then for the two years he was unemployed before turning
65. He still looks for work, but now he knows that with Medicare he has
health coverage he can depend on, particularly since he must monitor
his cholesterol, triglycerides and blood pressure following triple-
bypass surgery. He says that Medicare's wide choice of doctors was very
important when he needed to change doctors.
I mention these folks because they are why we celebrate Medicare,
warts and all, as a national treasure. It provides the financial
security, access to health care, choice of doctors and peace of mind
that are a lifeline to many older Americans.
One of Medicare's traditional strengths is that most doctors across
the United States participate in the program. Yesterday's report from
the Government Accountability Office, along with work by MedPAC and our
own hotline experience, consistently demonstrates that nearly all
people with traditional Medicare are able to see doctors when they need
to. For example, the CMS-sponsored Consumer Assessment of Health
Plans--Fee For Service (CAPHS-FFS) survey found that 90 percent of
beneficiaries report ``always'' or ``usually'' obtaining a timely
appointment for routine care.
On our hotlines, we occasionally hear from people with Medicare who
have trouble finding a doctor, but it usually turns out that those
doctors are not taking any new patients into their practices,
regardless of payor. From the consumer point of view, this broad access
gives people with Medicare the ability to choose their doctor--based on
personal preference, long-standing patient-provider relationships,
convenience, transportation needs and other factors--and get the care
they need.
So we are grateful for the Committee's stated interest in
preserving access to doctors by ensuring that payment rates do not
drive high quality physicians away from Medicare patients. Rates are
obviously one of the main mechanisms to make sure that the Medicare
program delivers on its promises to older Americans and people with
disabilities. It is not just rates, however, that allows such wide
access to doctors for people with Medicare. MedPAC reports, and our on-
the-ground experience, demonstrate that the speed and reliability of
Medicare payments--in sharp contract with many of the nation's largest
private insurers--make Medicare the extraordinarily attractive insurer
that it is for patient and doctor alike.
That is not to say that people with Medicare do not see trouble on
the horizon. It is coming from many directions. For example, it is
obvious that repeated five percent per year cuts in physician payment,
as modeled by the Congressional Budget Office, would undermine
physician access for people with Medicare--if not immediately, then
over time. I'm not competent to tell the Committee what the magic
number is that will create appropriate payment levels and maintain
vibrant access to doctors within Medicare.
We do credit MedPAC and GAO for carefully monitoring access to
services and providing the Administration and the Congress with their
unvarnished analysis. In these thorny and technical analyses, both of
these agencies shoot straight, and we rely heavily on their
intelligence.
We also can say that there has appeared to be a contradiction
between what physician lobbyists say about access to physicians, and
what apolitical clinicians actually do. Too often lobbying hyperbole is
the rule, and this causes needless anxiety among many people with
Medicare--especially the older and frailer men and women for whom
Medicare, and their access to good medical care, is indeed a lifeline.
So, consumers look to this Committee to strike the proper balance
in paying providers enough, but just enough. Payment should be about
reality, not political pressure. We say that because the soundness of
the Medicare system is of single importance of people with Medicare.
Further, many of our clients struggle to pay the out-of-pocket
healthcare costs that accompany Medicare: their co-insurance and
deductibles, their Part B premiums and uncovered needs. Month after
month, calls about the affordability of the Part B premium--you all
know of this year's record increase--top the list of our clients'
concerns. Changes in patient out-of-pocket costs create real hardship,
and provider payments contribute to these costs. According to the
Department of Health and Human Services (HHS), increases in physician
payments and other payment increases in fee-for-service Medicare were
the ``principal contributing factor'' to the $11.60--17.3 percent--
increase in Part B premiums from 2004 to 2005.
On average, Medicare-covered individuals living in the community
spent 22 percent of their income in 2003 on out-of-pocket costs,
including Medicare premiums, cost-sharing, and services not covered by
Medicare, while individuals with long-term care needs spent
considerably more. And these data are based on average incomes and
average healthcare expenses. The poorer, the frailer and the sicker men
and women with Medicare inevitably face greater hardship. Forty percent
of people with Medicare live on incomes below 200 percent of poverty
($18,620 for an individual and $24,980 for a couple in 2004) and
struggle to manage their out of pocket healthcare costs--going without
necessary care, or forgoing other necessities of life.
People with Medicare would also be dramatically affected by any
cuts in the Medicare program in response to a ``Medicare Funding
Warning'' provoked by the cap on the percent of general revenues
dedicated to Medicare spending. Any increases in general revenue
spending on Medicare--including any unnecessary increases in provider
payments--will accelerate the timetable for considering program cuts
that may have a devastating impact on the Medicare program as a whole.
A prudent and balanced approach to increasing payment levels is clearly
imperative.
We believe that one of the best ways to approach these
countervailing pressures is through innovative strategies for improving
access and quality of care for people with Medicare. Nearly 80 percent
of people with Medicare have a chronic condition such as stroke,
diabetes, congestive heart failure, emphysema, heart disease,
hypertension, or Parkinson's disease. It is imperative that fee-for-
service Medicare adopt improvements in chronic care management and
other quality improvement strategies. Madam Chairman, you personally,
and this Committee as a whole, have provided important leadership in
this area, most recently exemplified by the Chronic Care Improvement
Program. While it is true that current systems for measuring quality
are imperfect, the impact of financial incentives on quality of care
will be forever limited unless large purchasers such as Medicare use
their market clout to experiment, evaluate and reform. Some long-
standing models, like the team management approach at the heart of the
PACE program, have already proven their worth over time.
In particular, MRC is interested in new approaches that focus on
improving health outcomes, individual function and quality of life, in
addition to creating more effective and efficient modes of care. Recent
private-sector efforts to improve chronic care management have
experimented with financial incentives, performance profiling and other
strategies to improve care for diabetes, coronary artery disease,
depression and other chronic conditions. For example, Rochester Rewards
Results uses quality bonuses, provider reports on clinical, service and
efficiency measures, and patient engagement to focus on chronic care
management and improve appropriateness of acute care services.
Similarly, the Integrated Health Association in California uses bonus
payments tied to a scorecard that measures clinical quality, patient
satisfaction and investment in information technology; chronic
conditions included in this scorecard include asthma, diabetes and
coronary artery diseases. Other approaches to chronic care management
can be found on the Leapfrog Compendium at http://
www.leapfroggroup.org/. These experiments are interesting, but since
they are relatively new efforts, we do not yet know how significant an
impact they will have on quality, effectiveness or efficiency.
Up to now, Medicare demonstrations have focused more heavily on
efficiency and cost-effectiveness, rather than improved function,
quality of life, or other measures that reflect consumer needs and
experiences. These needs should be balanced--Medicare can use its power
as a purchaser to ensure that consumers get improved value, not just
lower cost. MRC is eager to work with CMS, this Committee and other
experts to identify the next wave of quality improvement and care
coordination strategies.
It's a tough balance to be sure: but remember Alice Kavanagh who
needs dental and vision care that Medicare does not cover. And remember
John Rowe, who was uninsured for the two years before he became
eligible for Medicare when he turned 65. Those are gaps that a generous
and efficient healthcare system should fill. That may not be where
today's political winds are blowing, but we submit that without system
efficiencies, the necessary debate over how Medicare can best serve the
American people, how it can best allow us to meet our moral obligations
and meet the health needs of our neighbors, will be compromised.
So we offer our on-the-ground assistance as you work, Madam
Chairman, with doctors, consumer groups, economists--whoever it takes--
to balance delicately the question of how much is enough, but not too
much, to pay physicians.
Chairman JOHNSON. Thank you. I thank the panel. I will just
make a comment, and then I am going to let other people
question, and if I can I will come in at the end, but some of
them have been here quite a long time. In my work in disease
management and getting out there and looking at hospitals that
have good integrated electronic systems and in large practices,
I firmly believe that there is a relationship between
integrated care, quality, prevention, holistic medicine and
technology. In other parts of the Medicare law, we explicitly
reimburse for at least some of the costs of technology.
Technology requires investment, it requires knowledge and
learning, it requires training and staff development, and it is
an ongoing cost, but it has ongoing power to increase quality.
As you answer other people's questions--or at the end--I hope
you will come back to this issue of the costs of technology. I
am starting from the assumption of--Mr. Hayes, if you disagree
with me--I don't disagree with anything you said in your
testimony--but if you disagree that systems are essential to
the next round of quality improvements, we do need that on the
record today, because I think that is sort of indisputable. So,
I will--let me just lay my comments aside, you can leave them,
or you can think about them later, but some of the Members have
been here a long time and I would like to move on to them
rapidly. Mr. Stark, out of courtesy.
Mr. STARK. I thank the Madam Chair, I thank the panel. I
guess I too would make some comments. I have been here 20
years--longer than that, actually--but 20 years that I have
been fussing with Medicare. At least physician-lobbyists are
consistent. In 20 years, I have never heard the American
Medical Association come, either to my office or to this
Committee, and ask for anything on behalf of patients or the
uninsured, or anything but more money for their members or
lower malpractice rates from their insurance companies. So, at
least they are right on target. Many of the specialists, Dr.
Gee, have done the same thing. In Dr. Nielsen's surgery,
mentioned here that cataract surgery will drop from $684 in
2005 to $469 in 2013. I can remember back in the early 1980s
when cataract surgery was paid around 1,800 bucks, and then
Fitzburg recommended--I think these are the right numbers,
maybe it was 1,200. There was a learning curve and the
ophthalmologists became more efficient and they recommended we
should drop it to 1,500, because it took a lot less time to
train to use the laser equipment. Of course, they screamed and
did not want to share with us what technology provided, and
that was greater productivity.
I guess in the LASIK area today, it started out maybe at 5
or 6 grand for a couple of eyes, and now you maybe have--
although these guys may be the charlatans of the practice, you
can get them for 495 an eye. We don't pay for that, but I am
just suggesting that as physicians, like auto mechanics or
anybody else, become more efficient, they become more
productive, and should in fact share some of that savings with
the taxpayers who fund this. Now, it may be that the index has
dropped, but urologists, for example, between 2003 and 2004,
their compensation ranges, according to modern health care
here, ran from 250- to 440,000 bucks a year. That is an
increase of around 18 percent. Now, if I were wondering how I
would make more money as a urologist, I don't think I would
be--and I were at the 250 level--I wouldn't be back here
getting me to raise those fees a few bucks. I would go to see
those guys who are making 450 and find out what he is doing.
That is a good jump. I don't think that Medicare should have to
take care of that. Also, in the pay-for-performance issue, a
bit of mugwumpery on the part of the American Medical
Association. I think what you were suggesting in your
testimony, Dr. Nielsen, is you think it is all right, but you
don't want any penalties, you want it all up. In other words,
if it is a lousy performer, you don't want us to cut--is that
right--you just want it to go up.
I am saying, well, that may be good, but we do have a zero-
sum game here, and it may surprise you to know I am rather
reluctant for Congress to get into the quality issue. I don't
think we are capable of doing that. With all the wonderful
staff help we have, I think actually MedPAC is barely able. I
think it is up to the docs to regulate themselves. We had
suggested one time, sometimes doctor-specialists have to go in
every 7 years and take a test to be recertified. Fought like
hell to stop that. They wouldn't have anything to do with that.
The AMA led the charge. So, if the physicians won't govern
themselves--and they generally won't--I don't think you will
find a physician in there in a fee-for-service area who would
criticize another physician and rank his colleagues or her
colleagues from a score of 1 to 10. They just won't do it. It
is just not built into their psyche. So, my theory is we ought
to demand a minimum high quality from everyone who is licensed
to practice medicine, because I think that is basically where
we are. In technology, sure, if we got outcomes research, and
could get everybody to use the same kinds of electronic medical
records, physicians would have a better information base on
which to base their decisions.
We should decide that if a urologist is board certified,
that is good enough for me. Should I rank you with Dr. Walsh? I
don't think so. I mean, he will rank himself with anybody.
Doc--everybody is going. At any rate, what I am suggesting is
how could we get into that fight? I mean he has got to write
books and promote his stuff, and down there in Virginia you
probably just go ahead and do what you are supposed to do and
treat your patients well, and I don't--I shouldn't make that
decision. You see what I am saying? You are saying you are
certified and you are good. You are an internist, and I have
got to depend on somebody else, hopefully, that you are good.
Because if we start trying to sort out about are you this much
better than somebody two floors down, I think we run into
trouble. I hope we will get some help.
Chairman JOHNSON. Mr. Hulshof.
Mr. HULSHOF. Thanks, Madam Chair. I certainly don't have
the institutional memory or the longevity of the gentleman from
California, the number of years that he has been here and
having these discussions. I will say to the gentleman, I know
when I mention his name to certain providers back in my
district, it evokes a response. I will leave it, leave it at
that.
Mr. STARK. Do that after you get off of the examining
table.
Mr. HULSHOF. I do. Dr. Nielsen, I teed this up for you with
Mr. Hackbarth earlier, and to paraphrase what he mentioned in
response to my question was, let us--okay, we do this, the SGR,
and I hope everyone understands the fact that Mrs. Johnson has
made this an issue, we are going to make strong strides to
solving the issue. I think back to last year's discussion. The
reason that there is a generous practice expense, for instance,
for oncologists is because of Mrs. Johnson and others. So, the
fact that we are here discussing this reimbursement and she has
made this a priority means that we are going to accomplish
something, and hopefully something significant. Dr. Nielsen,
what Mr. Hackbarth, as I recall, the last hour said, that we
could do this in tandem. In other words, we could address the
flawed formula and at the same time begin to institute a pay
for performance. I seem to read from your testimony--and you
invited a question along this line--that we should first fix
the formula and then look at a transition to pay for
performance. Have I adequately set out--or let me just let you
elaborate on your opinion on that.
Dr. NIELSEN. That is partly right. First of all, let me
talk about pay for performance. Theater troops perform, belly
dancers perform. Doctors care for patients. We can do a better
job. So, the idea is to increase the quality of the care that
is rendered to Medicare beneficiaries. That is what everybody
is here about. It is not about asking for an increase in fees
at all, with all due respect to Congressman Stark. It is not.
Let me now go to the issue of can you do it in tandem, the pay
for performance. Pay for performance absolutely works. I would
agree with my colleague from Massachusetts that it does work. I
have seen it. I have been part of that. On the other hand, you
really have to be careful that you pilot these projects to make
sure you are measuring the right things. It needs to be
identified by the profession, and so I would absolutely agree
with Congressman Stark about that. Let me tell you that the
American Medical Association over the past 5 years have spent
$5 million in convening the Consortium for Performance
Improvement, where we in fact do exactly what he asked for; we
came up with measures of performance, the critical measures
that are going to make a difference in outcomes. So, yes, I
think they--I think we have clear--we clearly can't let this
formula go on. It just can't go on. So, the simple answer is
please, please, fix it. Absolutely, we want to be part of the
solution in terms of improving the quality for our seniors and
for all our patients.
Mr. HULSHOF. Dr. Nielsen, Dr. Gee suggested in his
testimony that if we were to scrap the present formula and move
to something like the MEI, the Medicare Economic Index, does
your group have an official position on that or not?
Dr. NIELSEN. Well, sure. We are the only group that is not
treated in that way. So, absolutely. The inequity should be
fixed.
Mr. HULSHOF. Last, Dr. Lee, Dr. Gee mentioned in his
testimony that there may be certain specialties that would not
fit well with a pay for performance. Any response to that
point?
Dr. LEE. Well, I think that there are--like the Bridges to
Excellence model, specialists can participate in them, adopt
electronic records, do computerized prescribing and so on.
There are some specialists for whom it is not--it wouldn't make
a big difference, and there isn't a lot of data on measures. I
would say where there aren't good measures and where
computerized prescribing isn't going to produce a lot of value,
it probably isn't that important for the healthcare system to
get them on pay for performance, because the stakes aren't that
high and we don't know what to do. There are enough specialties
where we do know what to do; my own specialty, cardiology,
being an example.
Mr. HULSHOF. Thank you. Thank you, Mr. Chairman. I yield
back.
Mr. ENGLISH. [Presiding.] Thank you, Mr. Hulshof. Dr. Lee,
you have testified that Partners HealthCare and several pay-
for-performance contracts work, and intuitively we know that
well-defined, achievable targets can improve quality and
efficiency in a range of settings. I listened to Dr.
Hackbarth's--I am sorry, Mr. Hackbarth's testimony in the first
panel, and came away with the fact that he apparently is
offering us a very generalized model without a lot of details
in approaching performance measurement in this area. Can you
give us some more detailed examples? Here I particularly want
you to describe your experience with Bridges to Excellence,
what you have learned about the application of private-sector
systems to reducing errors in healthcare delivery. Is this a
model that can be broadly applied and, in your opinion, for
what other provider services would a pay-for-performance model
likely increase quality and improve efficiency?
Dr. LEE. Thanks very much for the opportunity to address
some of those issues which are on my mind, too. If I seem like
I am singing a slightly different tune from my physician
colleagues, it is because the role that I am representing here
is a delivery system trying to work with the insurance
companies in our area to make the healthcare system work for
our region. So, we are--we are very focused on quality, but we
actually have to sit at the table and think about the
affordability of care, so that is why we really feel as
Partners HealthCare System we have to work toward aggressively
improving efficiency as well as quality. So, our measures, we
want to improve diabetes care to be nice to diabetics, but we
also need to work on the affordability of care if we are going
to take good care of everyone. So, the things we are trying to
focus on--reduce admissions; we focused on trying to shorten
hospitalizations where the contracts were paid by the day, and
we have been able to do that, reduce 5 to 10 percent of
admissions by having practice-based case managers follow their
high-risk patients, stay in touch with them, make sure that
they know how to take their medications. By the time they come
to the emergency department, it is too late to prevent the
admission. You can't get into our hospitals these days unless
you are close to dying.
We have to be doing things in the week or two before they
might have gone to the emergency department to prevent that, so
you can lower admissions. As I say, you can improve your
pharmacy prescribing. You can improve your radiology
utilization. It is not just--just yelling at doctors to be more
efficient doesn't do it. It is giving them the tools so it is
easy for them to go to the most cost-effective choice. That is
really what they need to perform. Now, we have done good things
in the quality sector too. I wanted to play up the efficiency
side, because as you think about SGR and you try to make
Medicare work, doctors' fees is not where the action is. It is
what the doctors do during the visit. So, trying to make
Medicare work by cutting doctors' fees, that is not where the
action is. It is when they prescribe radiology tests, when they
prescribe drugs, that is where you should be trying to look,
because that is going up 10, 15, 20 percent. Doctors' fees
certainly are not. Now, in terms of Bridges, Bridges is a
program that you think the jury is still out, because it is
new. I was part of the design team, and I am one of the board
of directors on it; unpaid, but I am a believer in it. It takes
the approach that we can't measure the quality and efficiency
of all the onesies and twosies doctors out there. It is going
to be a long time before the systems are in place to allow us
to do that. What we can do is determine whether or not they
have systems which we think should improve efficiency and
quality. That is a leap of faith that will actually lead to
efficiency quality. At least we can go that step and say do
they have the electronic records, are they prescribing them by
computers, do they have systems to identify high-risk patients
and to take good care of them?
Mr. ENGLISH. Your focus is not on actual performance at the
individual level, it is on tools and incentives.
Dr. LEE. Right, because these systems are not there to
measure, to measure the performance at this point. I think it
will be several years before they are there.
Mr. ENGLISH. I presume you listened to Mr. Hackbarth's
testimony.
Dr. LEE. Yes.
Mr. ENGLISH. Do you think the sort of broad vision of
performance measurement that he laid out without I think some
of the important specifics spelled out, is that a viable model
for us to be pursuing at this stage?
Dr. LEE. I believe it is, and I believe it is not ready
yet. I think it--but I think that--and he and I talked
beforehand. The measures will never be perfect, so I think--I
say to my physician colleagues, we have to recognize they are
not going to be perfect, and I think that the provisions should
work with policymakers, with the understanding we have to get
something out there in like a 3- to 5-year timeframe, where we
are measuring performance that we can live with. We are going
to have to have systems that protect against gross unfairness
in their application, but we have to recognize that they are
not going to be perfect, but we can't let imperfection be the
enemy of the good.
Mr. ENGLISH. I would like to thank the panelists for
providing us each individually with an exceptional presentation
today. This has been very helpful to us. With that, I believe
all Members having had an opportunity to inquire, I will
adjourn this hearing. Thank you.
[Whereupon, at 12:47 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of Wendy Gaitwood, American Academy of Family Physicians
Introduction
This statement is submitted on behalf of the 94,000 members of the
American Academy of Family Physicians to the House Ways and Means
Health Subcommittee as part of its hearing on Medicare reimbursement to
physicians. The AAFP appreciates the work of this Subcommittee to
examine the issue of how Medicare reimburses physicians services and we
share the Subcommittee's concerns that the current system is
unproductive. This fee-for-service system as presently constructed
rewards increased volume of services whether or not these services
enhance quality outcomes for Medicare beneficiaries. Such a system of
physician reimbursement by itself and without improvement is unworkable
and unsustainable over the long-term. This is why the AAFP supports the
restructuring of Medicare reimbursement to reward quality and care
coordination. This restructuring must be built on a fundamental reform
of the underlying fee-for-service reimbursement system.
Family physicians have a unique perspective on the effectiveness of
the Medicare system. After all, the majority of Medicare beneficiaries
who identify a physician as their usual source of care report that they
have chosen a family physician. Family physicians take very seriously
the obligation to provide the best health care possible to our Medicare
patients. But Medicare reimbursement policies are challenging the
ability of family physicians to fulfill that obligation.
Sustainable Growth Rate (SGR)
The American Academy of Family Physicians supports congressional
action to replace the formula known as the sustainable growth rate
(SGR) used to determine the annual updates in the Medicare Physician
Fee Schedule (MPFS) conversion factor. Above all, the reimbursement
system should be designed to ensure that Medicare patients can continue
to receive the care they depend on and deserve.
Because of the leadership of the Ways and Means Committee, the
Medicare Prescription Drug and Modernization Act (MMA), signed into law
in December 2003, included a provision that waived the SGR formula and
set the increase in the conversion factor for the Medicare Physician
Fee Schedule for 2004 and 2005 at no less than 1.5 percent each year.
However, unless Congress acts again, the SGR formula used to calculate
annual updates will be reinstituted in 2006 and Medicare actuaries are
predicting a 5.2 percent decrease that year. Moreover, because of the
cumulative nature of the arcane formula, similar sized decreases are
projected annually for many years into the future. Such unrelenting
decreases will make it impossible for many more family physicians to
accept new Medicare patients. To avoid this, the AAFP supports the
recommendation of the Medicare Payment Advisory Commission (MedPAC)
that calls for repealing the SGR formula and basing the conversion
factor on the Medicare Economic Index (MEI) minus a productivity
adjustment.
AAFP agrees with concerns expressed by commissioners of the MedPAC
that necessary changes made to the SGR going forward will not eliminate
the SGR deficit that has accumulated due to the cumulative nature of
the flawed formula. Nevertheless, Congress must act to protect the
stability of the ambulatory care portion of the Medicare program which
is essential to meeting the medical needs of our nation's seniors.
Without action to fix the SGR, these insufficient updates will continue
to disproportionately affect primary care offices relative to other
subspecialties because of higher overhead costs.
Until a complete revision of the reimbursement formula is
accomplished, there is an administrative adjustment that CMS can make
immediately. Congress should join AAFP and the community of organized
medicine in urging CMS to immediately remove, retroactive to the
inception of the SGR, the physician-administered drugs from the SGR.
These in-office medications are not reimbursed under the MPFS and
should never have been part of the formula used to calculate the
conversion factor for physician services. Moreover, the MMA
restructured how these medications are paid for. CMS's continued
inaction, in the face of a growing Medicare ambulatory care
reimbursement crisis, is irresponsible.
The SGR has failed to result in a Medicare payment rate that has
kept pace with the cost of delivering care. While the SGR update
contributes to the crisis of Medicare reimbursement, the negative
impact of Medicare's reimbursement system on ambulatory-based primary
care is a much larger issue.
Care Management Reimbursement
Medicare's current visit-based reimbursement system has compromised
both the ability of primary care physicians to serve in the role for
which they are best trained and the beneficial services they are
prepared to deliver. Rather than rewarding cost-effective care
coordination and care integration, the system rewards physicians for
ordering tests and performing procedures. There is no direct
compensation to physicians for the considerable time and effort of
assuring that the patient's care is organized correctly and is
integrated in a way that makes sense to patients, while remaining cost-
effective to the Medicare program.
Congress and CMS must be willing to adequately reimburse primary
care functions. Without the necessary resources to allow physicians to
redesign their clinical workflow to deliver quality outcomes, Medicare
beneficiaries will continue to experience fragmented and ineffective
care.
The urgency to transform the design, delivery, and financing of
primary care converges well with interest in more broadly implementing
a model of chronic care that demonstrates improved quality and cost-
effectiveness. CMS is currently engaged in congressionally-created
demonstration projects such as the chronic care improvement program and
in projects of its own design such as the high-cost Medicare
beneficiary demonstration program. There is strong evidence that the
Chronic Care Model, as developed by Ed Wagner, M.D., does produce both
quality and efficacy. The six components of this model (self
management, decision support, delivery system design, clinical
information systems, healthcare organizations, and community resources)
have been tested in more than 39 studies and have repeatedly
demonstrated their value.\1\ The implementation of the Chronic Care
Model can reduce unneeded specialty referrals, as well as lead to
increased patient satisfaction and improved clinical outcomes. These
components are not specific to the care of the chronically ill, rather
they are generally applicable to the needed redesign of primary care
for all Medicare beneficiaries.
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\1\ Casalino L, Gillies RR, Shortell SM, Schmittdiel JA,
Bodenheimer T, Robinson JC et al. External incentives, information
technology, and organized processes to improve healthcare quality for
patients with chronic disease. JAMA 2003; 289(4):434-441.
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A blended model of payment combining fee-for-service reimbursement
system plus a per-beneficiary, per-month stipend for care management,
paid directly to the patients' designated personal physician, is a
promising option that would enable family physicians to redesign their
offices to deliver high quality preventive and chronic care with
improved outcomes for Medicare beneficiaries. Bodenheimer et al.
suggest that through blended payments Medicare, specifically, could
best make the business case to primary care for taking on chronic care
management by paying for chronic care costs (including information
technology) and paying for performance through reimbursement
enhancements.\2\
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\2\ Bodenheimer T, Wagner EH, Grumbach K. Improving primary care
for patients with chronic illness: The chronic care model, part 2. JAMA
2002; 288(15):1909-1914.
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Others have made similar recommendations to Medicare for blended
payments that support additional coordination responsibilities,
electronic communication and documentation, and community-based care as
well.\3\
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\3\ Berenson RA, Horvath J. Confronting the barriers to chronic
care management in medicare. Health Aff 2003; W3:37-53.
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Medicare Pay-for-Performance
Pay-for-performance programs are rapidly growing among private
health plans. Payers see pay-for-performance as a means of tailoring
reimbursement to physician performance. Its increasing use in the
private sector has prompted federal health policymakers to examine
whether pay-for-performance could be applied to Medicare physician
reimbursement.
For example, MedPAC recommended during the January meeting that
Congress create Medicare pay-for-performance programs for physician
services. According to the MedPAC commissioners, such a program should
begin with structural measures such as whether a physician office is
utilizing a patient registry to notify patients of followup
appointments or whether a physician is utilizing an electronic health
record (EHR). MedPAC commissioners recommend the subsequent gradual
inclusion of performance measures such as whether patients with
diabetes have had their cholesterol checked or whether they have
received an annual foot exam.
Such a recommendation for structural measures as an initial step
makes sense particularly in regard to office based technologies such as
EHRs which can provide more complete and integrated health data along
with clinical reminders during the office visit. An EHR would allow a
physician to track his or her performance along with CMS, as well as
appropriately risk-adjust the reported data. However, even in the
absence of an EHR, there is still a minimum data set that could be
collected. The AAFP is working in a collaborative effort with the
America's Health Insurance Plans, the American College of Physicians,
the Agency for Healthcare Research and Quality and many other groups to
develop a starter set of performance measures from a larger set of
ambulatory measures undergoing expedited review by the National Quality
Forum. The collaborative effort plans to have agreed on an initial set
of performance measures by this summer. Data on these measures will
come from both administrative claims as well as clinical data sources.
As MedPAC has recommended, several legislators have expressed an
interest in designing a pay-for-performance system that holds
physicians accountable for the care they deliver. The Academy would
support a Medicare pay-for-performance program for physicians that
occurred within the context of a positive annual update in Medicare;
rewarded physicians who were reporting performance measures as chosen
by the collaborative efforts of the AAFP, ACP, AHRQ, and AHIP and
medical specialty societies; and did not force physicians to compete
for limited withholds.
For example, any competitive system that creates bonuses for those
physician practices that can report clinical performance measures
through the use of health information technology by taking withholds
from physicians who have not been able to purchase technology will only
delay the rapid dissemination of technology. In addition, it could in
some areas create real access problems as physicians opt not to take on
additional Medicare patients. Likewise, inequities may be created among
different types of physicians. Currently, the NQF, for example, is
examining a subset of clinical performance measures for ambulatory
physician offices. However, this set of measures does not cover every
medical subspecialty. If some physicians, such as primary care
physicians, have withholds on some portion of their reimbursement while
other physicians do not, it would create a profoundly unfair system for
Medicare physician reimbursement.
Conclusion
The Academy remains deeply concerned about the inadequate and
flawed Medicare physician reimbursement system. The Academy suggests
that an MEI-based formula should replace the SGR. As for alternative
payment schemes, they should focus on adequately reimbursing the
functions of primary care with a per-member per-month fee for care
management separate from and in addition to fee-for-service. Pay-for-
performance programs in Medicare should focus on improving quality
through the use of the starter set of performance measures currently
under development. Pay-for-performance programs should give bonuses to
reporting physicians while maintaining annual positive updates in
Medicare reimbursement to keep pace with increased expenses.
The Academy looks forward to working with the Ways and Means Health
Subcommittee in its work to improve Medicare physician reimbursement.
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AAFP Policy On Pay-for-Performance Programs
The Academy recognizes the need to explore alternative methods of
reimbursing physicians and supports voluntary pay for performance (PFP)
programs that incorporate the following guidelines:
Improving clinical outcomes and quality of care should be
the central purpose.
Practicing physicians should be involved in the design of
these programs and the selection of performance measures through a
practicing physician advisory committee.
PFP programs should provide incentives to physician
practices:
for adoption and utilization of health information
technology,
for implementation of systems to improve care and
patient safety,
for measuring patient satisfaction with care delivered.
Incentive payments should reward progress towards
improving clinical performance up to, and including, achieving overall
clinical performance targets.
Financial awards to physician practices must sufficiently
cover the administrative costs (e.g., data collection and measurement)
of participating in the program in addition to bonuses that may be
awarded.
PFP programs must rely on new sources of revenue.
Preferably these revenues can be accessed by redistributing a portion
of projected savings. There should be no reduction in existing
reimbursement to physicians as a result of a PFP program.
PFP should state the source of the data for measuring
performance, e.g., claims data, medical record audit, pharmacy claims,
or patient surveys.
Performance data feedback should be provided to
physicians as soon as possible and should show comparisons to peers and
performance targets.
Physician practices decide when to share performance data
with an independent third party who collects and analyzes such data.
The third party maintains data confidentially and shares with physician
offices any analysis done to improve efficiency, quality or safety.
Processes should be in place to assure the accuracy of reported data
and physicians must be allowed to validate their reported data.
Reported performance measures must be based on medical
evidence. They must address areas where treatment for common medical
conditions can be substantially improved and where such improvement
would be cost-effective for both patients and payers. In addition,
performance measures must be measurable in a risk-adjusted, accurate
manner; and they should represent achievable, feasible areas for
improvement without creating any undue financial burdens on physician
practices.
Physician profiles should be provided only to the
physician profiled and disclosed to individuals or organizations only
with the approval of that physician. Physician profiles should include
only clinical performance measures that are clearly linked to improved
clinical outcomes; measures of timely and appropriate care; patient
satisfaction; and financial or resource allocation measures related to
clinical outcomes.
For a complete statement of AAFP policy on pay-for-
performance, see www.aafp.org/x30307.xml, and for policy on data
stewardship see www.aafp.org/x30300.xml.
Statement of Stephanie Reed, American Association for Geriatric
Psychiatry, Bethesda, Maryland
The American Association for Geriatric Psychiatry (AAGP)
appreciates the opportunity to share our concerns with the Members of
the Subcommittee on Health on the problems associated with the Medicare
physician fee schedule. AAGP is a professional membership organization
dedicated to promoting the mental health and well-being of older people
and improving the care of those with late-life mental disorders. Our
membership consists of 2,000 geriatric psychiatrists as well as other
healthcare professionals who focus on the mental health problems faced
by senior citizens.
Physicians who treat Medicare beneficiaries, as Medicare providers,
accept a fee schedule that is, at baseline, often significantly lower
than their ``usual and customary'' fee schedule for providing services
to their self-paying patients. As you are aware, these physicians
continue to face the prospect of additional across-the-board reductions
in the fees paid by the program. Unlike many other payment ``cuts'' in
Washington, these reductions are not simply reductions in a rate of
increase, but are absolute reductions in fee levels. In 2002, fees were
cut by 5.4 percent below 2001 levels. Although Congress has taken
action since that time to hold off additional reductions on a temporary
basis and in fact provided for a positive update of 1.5% for 2004 and
2005, it is clear that a permanent resolution to the flawed formula
governing physician payments must be enacted. This issue is most
important because of the effect it will have on access to care for
Medicare beneficiaries, especially for the vulnerable among them--those
elderly and disabled persons who have multiple, complex medical
conditions and limited financial resources.
As a result of the recent and projected reductions, many physicians
are having to reevaluate their willingness to treat Medicare patients,
as well as their willingness to be ``participating physicians'' who
accept Medicare payment as payment-in-full for their services.
Consequently, many Medicare patients are already having trouble finding
physicians to treat them. A survey by the American Medical Association
following the 5.4 percent cut in 2002 found that 24 percent of
physicians had either placed limits on the number of Medicare patients
they treated or planned to institute limits. In the case of geriatric
psychiatrists--most of whose patients are enrolled in Medicare--the
impact of these reductions is particularly severe and is causing at
least some in our profession to consider leaving clinical practice
altogether to enter other fields where their experience and expertise
are valued more appropriately.
The impact on geriatric psychiatrists--and their patients--is
compounded by the discriminatory reimbursement policies Medicare
already imposes on consumers of mental health services. Under current
law, Medicare requires beneficiaries to pay a 20 percent co-payment for
Part B services with the single exception of a requirement of a 50
percent co-payment for outpatient mental health services. The lack of
parity for mental health treatment is unconscionable--and of great
consequence to older adults who feel more stigmatized by psychiatric
illness than any other group. Despite widespread need, many seniors
decline, delay, or drop out of treatment because of the high co-
payment. In addition, current law discriminates against the non-elderly
disabled Medicare population, many of whom have severe mental
disorders.
The result of these factors--declining reimbursement rates,
existing discriminatory reimbursement for mental health care, and
stigma--will undoubtedly compound the existing serious access problems
for Medicare beneficiaries in need of mental health treatment--either
in finding a physician to treat them or in ``balance billing'' charges
by physicians who previously accepted assignment.\1\ Shifting costs to
beneficiaries--many of whom are low income--can make essential mental
health care unaffordable.
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\1\ Although ``balance billing'' may provide a short-term safety
valve that allows some physicians to continue treating Medicare
patients, the additional amount that Medicare permits physicians to
collect from beneficiaries under its balance billing limits will not
fully offset the cumulative reductions in program payments in the
future. Moreover, some States prohibit balance billing Medicare
beneficiaries as a condition of licensure in the State, which leaves
those physicians without this option.
---------------------------------------------------------------------------
The fee reductions that are forcing these choices stem from the
mechanism for automatic annual fee ``updates'' that is currently part
of the Medicare statute. For most types of providers, Medicare law
incorporates a mechanism by which payment rates are automatically
updated annually for inflation, in much the same way that Social
Security and other Federal cash benefits are automatically increased by
the cost of living adjustment (COLA) each year.
However, since the inception of Medicare physician payment reform
in the early 1990s, updating physician fees has been handled somewhat
differently from those of other providers. The payment reform law
established a mechanism under which the annual inflation update for
physicians' services is automatically adjusted--above or below the rate
of inflation--based on how actual Medicare spending for physicians'
services compares to an annual spending target computed by the Centers
for Medicare and Medicaid Services (CMS) based on a formula set out in
the law.
Until recently, this mechanism resulted in some relatively modest
reductions below full inflation--as well as some ``bonuses'' above
inflation. However, changes made in the ``Balanced Budget Act of 1997''
(BBA) tightened the annual spending targets, making it substantially
more difficult for physicians to meet them.
Before the BBA, the annual spending target was based on a formula
that included a reasonable allowance for spending increases due to
changes in technology and other related factors affecting the ``volume
and intensity'' of services provided by physicians. The BBA replaced
this allowance with a much less generous proxy--the estimated increase
in the gross domestic product (GDP)--which bears no relationship to the
factors affecting volume and intensity of services provided. The impact
of this change can be demonstrated quite simply. Where the volume and
intensity allowances for 1992 and 1993 were 6.8 percent and 6.0
percent, respectively, the corresponding GDP allowances for 1999 and
2000 were 1.3 percent and 2.7 percent.
Furthermore, because the BBA made the new targets cumulative--so
that a breach in one year's target would have to be fully offset by
corresponding expenditure reductions in later years--inaccurate CMS
estimates of several components of the formula used to compute the
spending targets for 1998 and 1999 have been carried forward, producing
inappropriately low targets in each subsequent year.
For example, actual growth in the GDP for 1998 and 1999 was greater
than the estimates on which CMS based its targets. Growth in the
beneficiary population is another component of the target. CMS
overestimated beneficiary migration from traditional Medicare into
managed care plans during 1998, which had the effect of understating
beneficiary enrollment growth in the traditional program. All of these
forecasting errors resulted in lower targets than would have occurred
if better data had been available.
Unfortunately, CMS interprets the law as precluding it from
correcting these errors. Although AAGP takes no position on this arcane
legal issue, we do think that it is fundamentally unfair to make
physicians--and Medicare beneficiaries--pay for estimates that everyone
agrees in hindsight were wrong.
Physicians want to serve all Americans. However, they simply cannot
afford to accept an unlimited number of Medicare patients into their
practices when they are facing continued payment reductions. These
drastic cuts must be stopped before they devastate Medicare
beneficiaries' access to health care.
We commend the Congress for its action to avert the impending
reductions in Medicare physician fees for 2004 and 2005. We note,
however, that the legislation does not address the fundamental defects
in the formula for setting annual Medicare spending targets for
physicians' services and that projections for 2006 under current law
will result in a cut of 5.2 percent.
Especially in light of the recent recommendation by the Medicare
Payment Advisory Commission (MedPAC) for an increase of 2.7 percent for
2006, we urge Congress to revisit this issue this year and--at a
minimum--to replace the GDP component of the formula with a more
realistic proxy for changes technology and other factors affecting the
volume and intensity of the services furnished to Medicare
beneficiaries.
Thank you again for the opportunity to share our views on this
important issue. We look forward to working with you as you craft a
correction to the Medicare physician payment formula.
Statement of Josh Cooper, American College of Radiology
The American College of Radiology (ACR), which represents over
32,000 diagnostic radiologists, interventional radiologists, radiation
oncologists, nuclear medicine physicians and medical physicists,
appreciates the opportunity to submit written testimony on the subject
of Medicare payments to physicians.
Image Over Utilization
The ACR encourages and supports the technological innovations and
advances in diagnostic medical imaging, which have unequivocally
improved the quality of health care while producing cost savings
through less invasive diagnostic techniques. The College appreciates
and supports the tremendous developments imaging has brought to patient
care, however we have concerns regarding the quality, safety and costs
associated with the dramatic rise in the volume of procedures utilizing
high-cost diagnostic imaging modalities and would like to address these
concerns in our testimony.
The Medicare Payment Advisory Commission's (MedPAC) June 2004
report to Congress shares the College's concerns, stating that
diagnostic medical imaging is the fastest growing type of medical
expenditure within the category of physician services in the United
States, boasting an annual growth rate that is more than three times
that of general medical procedures. The ACR, as well as lawmakers and
federal regulators, recognize that this trend line, which is growing
exponentially every year is unsustainable and that the growth of
imaging utilization, some of which may be inappropriate, must be
controlled. As troubling as the rising costs associated with the
increased over utilization of imaging services is, MedPAC also has
expressed a growing concern that both the quality and safety necessary
for effective diagnosis may be decreasing.
The ACR shares MedPAC's concerns regarding the quality, safety and
costs associated with the dramatic rise in the volume of procedures
utilizing high-cost diagnostic imaging modalities. To address this
alarming imaging utilization trend, the College and several private
insurance companies have worked closely with MedPAC to establish a
Medicare physician payment policy focused on quality of care, patient
safety and expertise of the physician interpreter as a means for
obtaining needed cost savings in the area of diagnostic medical imaging
services.
MedPAC believes this policy is appropriate as evidenced by their
unanimous approval of recommendations to establish quality standards
for the provision and interpretation of imaging services. (See attached
summary of MedPAC Recommendations). The MedPAC recommendations, many of
which the College fully supports, will be published in its March 2005
report to Congress. In short, these recommendations call for all
diagnostic imaging providers to meet quality standards for imaging
equipment, non-physician staff, images produced, patient safety
protocols, and increased training for physicians who bill Medicare for
interpreting diagnostic imaging procedures.
According to data compiled for the ACR, congressional
implementation of these MedPAC recommendations designed in part to stem
the financial incentive associated with some of the growth in imaging
utilization, could save the Medicare program a minimum of $6 billion
over ten years (the analysis behind this cost savings has been provided
to Committee staff). Moreover, the quality of care Medicare
beneficiaries receive should significantly improve with the
implementation of quality and safety requirements for medical imaging.
Concerns
Many medical specialty organizations do not share the ACR's and
MedPAC's concerns regarding the growth in diagnostic imaging
utilization. Some suggest that the shift in the site of service from
inpatient hospital to physician offices has inflated the increase in
imaging utilization. However, while the growth in in-office imaging was
much more rapid than the overall growth, there is no evidence that this
is simply a shift in site of service. Imaging procedures in Part B
Medicare (measured in terms of number of procedures as well as
professional component RVUs per 1,000 beneficiaries), increased in both
inpatient and office settings. As per the Physician Supplier Procedures
Summary (PSPS) Masterfile, the three-year growth in imaging per 1,000
beneficiaries for the period 2000-2003, in all sites of service
combined, was 17% (5.3% per year) in number of procedures and 26% (7.9%
per year) in professional component RVUs.
Other medical specialty organizations cite patient convenience and
``one stop shopping'' as a reason not to pursue quality and safety
standards for imaging procedures. Frankly, the ACR questions whether
patients receiving imaging services in the office of a non-radiologist
physician truly receive a more convenient encounter. A preliminary
analysis of the 2001 Medicare 5% physician Standard Analytical File
(SAF) reveals that of all the imaging billed by non-radiologists, at
most 3.1% of CTs and 2.58% of MRIs were billed with an Evaluation and
Management (E&M) code on the same day. Therefore, based on available
data, approximately 97% of the cases of imaging performed by non-
radiologist physicians are not done on the same day and patients must
return for a second visit in order to receive an imaging procedure. In
other words, there is little or no evidence indicating a ``same day''
convenience for the patient having a CT, MRI or PET performed in the
office of a referring physician. Additionally, throughout the private
payer health system, the use of prior-authorization and other screening
procedures almost always, with the exception of emergency services,
results in one to multi-day delays in obtaining these diagnostic tests.
Perhaps a more precise analysis on this matter could be conducted by
Medicare officials, who would have access to fully identified Medicare
files that are now restricted to the public as a result of privacy
regulations.
Established Quality and Safety Programs in Diagnostic Imaging
The use of Accreditation standards is one mechanism to help attain
the goal of increasing quality and safety, while at the same time
reducing utilization costs to Medicare. MedPAC's imaging standards
recommendations are based on the concept of accreditation and are
similar to the standards facilities and physicians who perform
mammograms must meet under the federally established Mammography
Quality Standards Act of 1992. Accreditation programs evaluate the
equipment specifications and calibration, dose (where appropriate),
clinical image quality, physician and non-physician personnel
qualifications, and quality control protocols among other items.
The ACR's history of developing and administering accreditation
programs that assess the quality of imaging facilities dates back to
1963 and is a testimony to the College's dedication to quality patient
care in imaging and radiation therapy. While there may be some who
believe that the important requirements associated with accreditation
may be covered by state radiation protection programs, it must be
understood that these programs vary by state and typically only
evaluate the amount of radiation exposure and other equipment related
measures. State radiation protection programs do not evaluate the
entire imaging system the way accreditation does.
Currently, the ACR has established and maintains nine different
accreditation programs, all with pathways for radiology and non-
radiology practices to receive accredited status. For example,
approximately 15% of the facilities accredited by the ACR in nuclear
medicine are cardiology practices. The College is also ready and
willing to collaborate with other specialty organizations in the
development of our quality and safety resources. For example, the ACR
Stereotactic Breast Biopsy Accreditation Program was developed in
collaboration with the American College of Surgeons.
Radiologists are physicians who are the imaging experts. Unlike
other specialties, radiologists have received years of unique,
specific, post-medical school training in the performance of
radiological procedures and interpretation of diagnostic images. The
ACR is the premier organization with unmatched breadth, depth and
expertise in radiological sciences, medical imaging, radiation safety,
radiation protection, dose delivery and image interpretation programs.
The College has demonstrated its commitment to evidence based
decisionmaking in health care and dedication to high quality, safe and
effective patient care through all of its available resources. The ACR,
we assure you, shares your goal of quality imaging provided by
individuals and facilities that can demonstrate they are qualified to
perform and interpret these life-saving examinations.
Conclusion
The American College of Radiology recognizes that the unbridled
growth of high cost diagnostic imaging services within the Medicare
program is unsustainable and that the costs associated with
inappropriate volume must be contained. The policy recommendations
developed by MedPAC that the Congress will soon review can
significantly help accomplish this goal.
Please avail yourself of the ACR's expertise and experience. The
American College of Radiology is available to work with MedPAC,
Congress and CMS to establish quality standards in diagnostic imaging
services that will benefit our patients and the healthcare system in
general.
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MedPAC Recommendations Regarding Imaging Utilization
At the January 12, 2005 meeting of the Medicare Payment Advisory
Commission (MedPAC), the Commission voted to recommend to Congress six
manners in which to improve Medicare physician payment policy,
especially in the area of diagnostic medical imaging services. The
Commission weighed the likely administrative costs against expected
benefits before reaching the following recommendations:
1. The Secretary should use Medicare claims data to measure fee-for-
service physicians' resource use and share results with physicians
confidentially to educate them about how they compare with aggregated
peer performance. The Congress should direct the Secretary to perform
this function.
In terms of spending, the Commission anticipates that
measuring resource use activity could reduce the volume of physician
services over time, but from a budget scoring standpoint, it is
unlikely this recommendation will affect program spending relative to
current law.
The Commission foresees no adverse impact on access or
quality for beneficiaries by implementing this tactic. To the extent
that physicians adopt more conservative practice patterns,
beneficiaries may pay less in terms of coinsurance and Part B premiums.
From the perspective of physicians and providers of
services, this recommendation has the potential to affect the volume of
services that providers furnish over time.
2. The Secretary should improve Medicare's coding edits that detect
unbundled diagnostic imaging services and reduce the technical
component payment for multiple diagnostic imaging services performed on
contiguous body parts.
The Commission expects better coding edits to reduce
physician fee schedule spending, but has not estimated the magnitude of
savings.
Assuming it would reduce Medicare spending, the
Commission believes this recommendation would also decrease beneficiary
premiums and cost-sharing. Because past coding edit changes do not
appear to have reduced beneficiary access to quality health care, the
Commission does not anticipate any effect on access and quality in this
instance.
According to the Commission, providers who bill for
unbundled or multiple imaging procedures would experience a decrease in
Medicare payments. However, the Commission does not predict this
recommendation will affect providers' willingness or ability to provide
quality care to beneficiaries.
3. The Congress should direct the Secretary to set standards for all
providers who bill Medicare for performing diagnostic imaging services.
The Secretary should select private organizations to administer the
standards.
The Commission acknowledges such standards could include
imaging equipment, non-physician staff, image quality, a supervising
physician, and patient safety. For example, Medicare's rules for
independent diagnostic testing facilities require that each facility
have a supervising physician who is proficient in interpreting clinical
images produced in diagnostic imaging studies. Several private
accreditation programs also require that the imaging provider have on-
site a supervising physician who is qualified to interpret these
images.
In making this recommendation, the Commission relied
upon evidence suggesting that providers vary in their ability to
perform quality diagnostic imaging studies. Moreover, poor quality
studies can lead to repeat tests, misdiagnoses, and improper treatment.
In order to remedy this problem, the Commission advocates establishing
national standards that would apply in all settings. These standards
should improve the quality of imaging services, thereby increasing
diagnostic accuracy and reducing the need for repeat tests.
In order to be reimbursed by Medicare for this technical
component of diagnostic medical imaging services, providers must meet
or exceed these quality standards.
4. The Congress should direct the Secretary to develop standards for
physicians who bill Medicare for interpreting diagnostic imaging
studies. The Secretary should select private organizations to
administer the standards.
The Commission acknowledges such standards could be
based on training, education, and experience required to properly
interpret clinical images produced in diagnostic imaging studies.
The Commission further acknowledges such standards
should apply to all physicians who interpret clinical images in the
United States, regardless of location of interpretation. Therefore, a
physician interpreting an image in a different location from where its
corresponding diagnostic test was performed falls within the scope of
this recommendation.
Similar to the rationale used in recommendation three,
the Commission cites evidence of variations in the quality of physician
clinical image interpretation and formal reports. More specifically,
the Commission recognizes that inaccurate interpretations and
incomplete reports could lead to improper treatment. By ensuring that
only qualified physicians are paid for interpreting imaging studies,
diagnostic accuracy and treatment should improve for patients.
In order to be reimbursed by Medicare for this
professional component of diagnostic medical imaging services, the
physician interpreting the clinical image that is produced in a
certified facility must meet or exceed these standards.
Impact of Recommendations Three and Four:
Based on the experience of private plans that have
implemented selective privileging and other similar programs for
diagnostic medical imaging services, the Commission foresees a
reduction in Medicare program spending if recommendations three and
four are implemented. Some providers would be unable to meet these
standards and consequently be driven from the marketplace, which would
reduce the overall number of studies. In addition, the Commission
expects these standards to result in a reduction in the number of
initial poor quality imaging tests, thus significantly limiting the
number of repeat exams.
Both recommendations should improve care for
beneficiaries because better quality studies should increase diagnostic
accuracy and reduce unnecessary exposure to radiation, which could
result from the need for repeat CT scans if the initial exams are of
poor quality. To the extent that spending is decreased, beneficiary
cost sharing should also decline.
If a diagnostic medical imaging service provider
chooses to satisfy these new Medicare standards and remain in the
marketplace, that provider would likely incur additional costs to do
so. For example, physicians offering diagnostic medical imaging
services may need to invest in newer equipment and higher credentialed
technicians, as well as obtain additional education.
Many diagnostic imaging providers already receive
accreditation by private organizations and are familiar with these
types of standards.
5. The Secretary should include nuclear medicine and PET procedures as
designated health services under the Ethics in Patients Referrals Act
(``Stark II'').
The Commission asserts that physician investment in
facilities that provide nuclear medicine services are associated with
higher use. Such investments create financial incentives to order
additional services and to refer patients to facilities in which the
physician is an investor, thus undermining fair competition.
While this recommendation prohibits physicians from
owning nuclear medicine facilities to which they refer patients, it
does not close the loophole for in-office ancillary services found in
the Stark law.
6. The Secretary should expand the definition of physician ownership
in the Ethics in Patients Referrals Act (``Stark II'') to include
interests in an entity that derives a substantial proportion of its
revenue from a provider of designated health services.
This recommendation prevents physicians from owning
companies whose primary purpose is to provide services to facilities
that are covered by the Stark prohibitions on self-referral.
Impact of Recommendations Five and Six:
The Commission anticipates that these recommendations
should decrease physician fee schedule spending because they would
reduce the financial incentive for physicians who order additional
imaging studies.
To the extent that fewer studies are ordered,
beneficiary cost sharing would decline. The Commission does not expect
that beneficiary access to quality diagnostic medical imaging services
would be affected.
If these recommendations are implemented, physicians
would no longer be able to refer Medicare or Medicaid patients to
nuclear medicine facilities in which they are investors. Moreover,
physicians would no longer be able to refer patients to a provider that
contracts with an entity that they own if that entity derives a large
share of its revenue from that provider. However, these changes should
provide a competitive balance for healthcare providers.
Statement of Justin Moore, American Physical Therapy Association,
Alexandria, Virginia
Executive Summary
The American Physical Therapy Association (APTA) is vitally
interested in the efforts to reform the physician payment formula. On
behalf of APTA's 67,000 member physical therapists, physical therapist
assistants and students of physical therapy, we would like to dispel
the notion that the physician fee schedule is solely a physician
concern. The physician fee schedule impacts numerous health
professions, including physical therapists. Our members work closely
with Medicare beneficiaries in private practice, inpatient and
outpatient rehabilitation facilities, hospitals, skilled nursing
facilities and other settings. For these patients, physical therapists
utilize the physician fee schedule to bill independently for services.
APTA is concerned that the negative payment updates to the
physician fee schedule will hinder the ability of physical therapists
to care for Medicare beneficiaries needing rehabilitation services. It
is important that these individuals continue to receive the
rehabilitation and other services that they need in order to achieve
their maximum level of functional independence. Because rehabilitation
enables beneficiaries to function more independently, rehabilitation
will save the Medicare program dollars in the long term.
APTA commends Congress for its action in 2003 to implement the 1.5%
increase to the physician fee schedule in 2004-2005 as a provision of
the Medicare Modernization Act (MMA). However, this was merely a
temporary solution to the problem, as CMS project that the formula will
produce a negative payment update of approximately 5% per year
beginning in 2006. We urge Congress to:
Move forward with a MedPac recommended 2.7% increase for
CY 2006 to avoid the proposed 5% cut.
Adopt MedPAC's framework for updating the Part B provider
fee schedule, which includes eliminating the sustainable growth rate
(SGR) and replacing it with a factor which will more appropriately
account for changes in the cost of providing services.
Remove Medicare-covered drugs from the SGR in order to
prevent physician services from exceeding the SGR target.
Update and improve the MEI so that it measures inflation
in practice costs and separates productivity.
Should Congress fail to act, physical therapists and other
healthcare professionals will experience draconian cuts in
reimbursement over the next several years. APTA feels strongly that
remedying this issue must not be a budget neutral exercise as
additional resources are necessary to address this fundamental problem.
We recommend the Committee seek appropriate resources through the
Budget Committee to meet this challenge.
Chairwoman Johnson and Members of the Subcommittee on Health, the
American Physical Therapy Association (APTA) is submitting testimony
concerning the need to reform the update formula of the sustainable
growth rate (SGR) in the physician fee schedule. The APTA represents
67,000 physical therapists, physical therapist assistants and students
of physical therapy. This issue is of great significance to our
members, many of whom who bill their services to the Medicare program
under Part B.
The APTA applauds the Committee for holding this hearing
today and for the commitment of Committee Members to address
the outstanding problems that exist in the update formula for
the Part B fee schedule. Many health professionals, including
physical therapists, utilize the fee schedule to bill for
services. We wish to dispel the conception that this is solely
a physician concern, as physical therapists are affected by the
potential cuts in reimbursement.
Physical therapists provide services to patients who have
impairments, functional limitations, disabilities, or changes in health
status resulting from injury, disease or other causes. As clinicians,
physical therapists are involved in the evaluation, diagnosis,
prognosis, intervention, and prevention of musculoskeletal and
neuromuscular disorders. On a daily basis, physical therapists provide
care for Medicare patients with acute, chronic, and rehabilitative
conditions such as stroke, Parkinson's disease, arthritis and
musculoskeletal disorders. Physical therapy is a dynamic profession
whose goal is to preserve, develop, and restore optimal physical
function.
Patient Access Problems Will Result from Flawed Update Formula
APTA is concerned that the negative payment updates to the
physician fee schedule will hinder the ability of physical therapists
to care for Medicare beneficiaries needing rehabilitation services. It
is important that these individuals continue to receive the
rehabilitation and other services that they need in order to achieve
their maximum level of functional independence. Because rehabilitation
enables beneficiaries to function more independently, rehabilitation
will save the Medicare program dollars in the long run.
The impact of the Medicare cuts needs to be viewed in the context
of significant legislative and regulatory changes affecting physical
therapists that have occurred over the past few years. Since 1992,
physical therapists in private practice have been reimbursed under the
physician fee schedule. Prior to 1999, all other outpatient therapy
settings were reimbursed under a cost-based system. The 1997 Balanced
Budget Act (BBA) required that outpatient therapy services in all
settings be reimbursed under the physician fee schedule, beginning in
January 1999. Thus, in addition to impacting physical therapists who
own and operate private physical therapy practices, the anticipated 5%
cut in payment and the flawed update methodology also impacts the
provision of outpatient therapy services in outpatient hospitals
departments, skilled nursing facilities (Part B), home health agencies
(Part B), rehabilitation agencies, and comprehensive outpatient
rehabilitation facilities (CORF).
The BBA also imposed a $1,500 cap on outpatient therapy services in
all settings except for hospitals. The present moratorium will expire
at the end of 2005 unless Congress acts. If the cap goes back into
effect, it will compound the Medicare payment cuts.
In addition to the cap, physical therapists continue to deal with
increased documentation requirements, conflicting Medicare rules, non-
uniform application of Medicare requirements among Medicare
contractors, and impending privacy requirements under HIPAA. When
combined with the current and impending cuts, it will be difficult for
physical therapists and other health professionals to continue
providing services within the Medicare program.
The majority of physical therapists in private practice are small
businesses. As small business, their ability to operate is in jeopardy
when they lose necessary revenue or cannot forecast revenue accurately
from year to year. As a result, maintaining access to providers like
these cannot be sustained without immediate reform of the payment
update formula.
Flawed Medicare Payment Update Formula
Medicare payments are updated annually based on the SGR system.
Because the SGR system is flawed, updates under the system do not
reflect the cost of providing services. In 2005, the payment update to
the physician fee schedule is 1.5%, which is not keeping pace with
increasing healthcare costs. However, CMS is predicting payment
reductions for 2006 and later years as a result of the formula for
determining the updates.
The SGR system sets spending targets for services reimbursed under
the physician fee schedule and adjusts payment rates to ensure that
spending remains in line with those targets. If spending equals the
targeted amount, payment rates are updated in accordance with the
percentage change in input prices, which is determined by the MEI. If
the spending for that year exceeds the target, the increase in payment
rates is smaller than the increase in input prices (MEI). If spending
for that year is less than the target rate, payment rates are allowed
to be increased by a greater amount than the rise in input prices.
The annual target is a function of projected changes in four
factors: input costs, enrollment in traditional Medicare, real gross
domestic product (GDP) per capita, and spending attributable to changes
in law and regulations. Revisions to any of these four factors or to
estimates of prior spending can change the spending estimate
significantly.
One of the problems with this methodology is that payments under
the SGR are tied to the GDP which bears no relationship to patients'
healthcare needs or physical therapists' practice costs. By linking
annual changes in the targets to annual changes in GDP, Medicare ties
the target to the business cycle. Health care needs of Medicare
beneficiaries do not follow the same cycle. The cost of providing care
to these beneficiaries does not lessen when the economy is in a
downturn. The current methodology also increases the volatility of the
SGR, as economic forecasts frequently change. The unpredictable rate
fluctuations make it very difficult for providers to continue to
participate in the Medicare program.
Another problem relates to estimating beneficiary enrollment.
Increased utilization rates are often beyond the control of the
physical therapist. While physical therapists strive to meet the
clinical needs of increased patient volume and maintain a high standard
of care, they are penalized with lower payments when utilization
exceeds the SGR spending target. As the number of Medicare
beneficiaries dramatically increases in coming years, this problem will
only worsen if Congress does not intervene.
Additionally, prescription drug expenditures under Medicare are
growing at a rate that far outpaces those of physician and physical
therapy services. Inclusion of drugs in the SGR increases the odds that
Medicare spending on physician services will exceed the SGR target,
resulting in lower payments for physicians. Moreover, drugs are not
paid under the physician fee schedule and should not be included in the
definition of physicians' services. Inclusion of the drug expenditures
in the SGR remains a substantial barrier to creation of a workable
payment system for healthcare professionals.
While prescription drug should be removed from the SGR, the
potential costs from government legislation and regulations should be
included in the calculation of the SGR target. The Medicare
Modernization Act (MMA) includes several provisions that lower
patients' out-of-pocket costs on health care, which also is shown to
increase utilization on physician, physical therapy and other
healthcare services. The MMA's new prescription drug benefit is
designed to enable Medicare beneficiaries who could not afford to
purchase drugs to do so. Increased patient utilization of healthcare
services and increased access to prescription drugs will also increase
expenditures for physician services, and should be given consideration
in the SGR. In addition, local coverage determinations have a
significant impact on physical therapist practices in some areas of the
country and should be taken into account as spending due to changes in
law and regulations.
Changes Needed in the Medicare Economic Index (MEI)
In addition to eliminating the SGR, the MEI, which is calculated by
CMS and used to measure practice cost inflation, also needs to be
improved. The MEI is a weighted average of price changes for inputs,
which include provider time and effort (work, non-physician employees,
and office expenses) used to provide care. The outdated MEI was
developed in 1972 and only accounts for growth in labor productivity
which overstates productivity gains in services.
In its framework, the Medicare Payment Advisory Commission (MedPAC)
recommends that the MEI measure inflation in practice costs and that
productivity be separate from the MEI. In addition, MedPAC recommends
that the productivity adjustment be based on multi-factor productivity
(which would include both labor and capital inputs), instead of labor
productivity. Making this change would ensure that it would account for
changes in productivity for all relevant inputs used to provide
services. According to MedPAC, this would significantly reduce the
productivity adjustment that CMS uses currently in updating the
Medicare fee schedule. APTA urges Congress to adopt MedPAC's
recommendation regarding MEI.
Action Needed by the Subcommittee on Health
APTA commends Congress for the 1.5% increase in 2004-2005 and urges
the Committee to consider the following immediate actions to address
the problem:
Move forward with a MedPac recommended 2.7% increase for
CY 2006 to avoid the proposed 5% cut.
Adopt MedPAC's framework for updating the Part B provider
fee schedule, which includes eliminating the sustainable growth rate
(SGR) and replacing it with a factor which will more appropriately
account for changes in the cost of providing services.
Remove Medicare-covered drugs from the SGR in order to
prevent physician services from exceeding the SGR target.
Update and improve the MEI so that it measures inflation
in practice costs and separates productivity.
It is important that Congress act this year as CMS has projected
that the formula will produce significant negative payment updates
beginning in 2006. Should Congress fail to act, physical therapists and
other healthcare professionals will experience draconian cuts in
reimbursement over the next several years.
APTA feels strongly that remedying this issue must not be a budget
neutral exercise. Clearly, additional resources are necessary to
address this fundamental problem. We recommend the Committee seek
appropriate resources through the Budget Committee to meet this
challenge and other necessary Medicare reforms.
Conclusion
As the older adult segment of our population continues to rapidly
grow, it will be paramount that they have access to qualified
healthcare professionals who are able to serve their healthcare needs.
Prompt and coordinated services provided by health professionals can
help to avoid hospitalization, decrease the length of institutional
stay, reduce the amount of care required after discharge, prevent
complications, and improve the individual's level of function.
Continued cuts to payments may force healthcare professionals to limit
the number of Medicare patients they serve. Therefore the health of
older Americans will be at risk if access to and payment of healthcare
providers does not keep pace with the growing number of Medicare
beneficiaries.
Thank you for the opportunity to submit this testimony before the
Subcommittee.
Statement of Coalition for Patient-Centered Imaging
The Coalition for Patient-Centered Imaging (CPCI) represents the
undersigned healthcare organizations committed to ensuring that
patients have full access to high quality, convenient, and up-to-date
imaging technology. The Coalition organized in response to efforts to
limit the availability of imaging services provided in physicians'
offices.
As the use of imaging services has increased, some medical
organizations and health plans have sought to place the ``blame'' for
this change on physicians, such as obstetricians/gynecologists,
neurologists, orthopaedic surgeons, cardiologists and urologists, to
name a few, who use these technologies in their office practices.
Because these physician services are included under the volume
considerations of the sustainable growth rate, they are clearly
relevant to today's hearing on physician payments.
Office-based imaging services offer three important advantages to
patients. First, office-based imaging speeds correct diagnosis and
treatment of the patient's medical condition. For example, a patient
who visits an orthopaedic surgeon with knee pain will almost certainly
need an image of the knee for proper diagnosis. If the orthopaedist
provides these services in the office, examination, diagnosis and
initiation of therapy can be done in one encounter with the patient. If
the physician were not able to provide the service, diagnosis and
treatment would be delayed until the patient was seen by the
radiologist and that physician sent the report back to the
orthopaedist. Another patient visit to the orthopaedist would be needed
to review the findings and determine the appropriate therapy. This
results in unnecessary delays in treatment and added costs as noted
below.
Second, as can be seen from the preceding scenario, in-office
imaging is very convenient for the patient. This is especially
important for elderly Medicare beneficiaries who may have limited
transportation options or mobility problems. The fact that their
physician is skilled in both the imaging aspect and physiology of their
ailment increases patient confidence as well.
Third, in-office imaging can limit Medicare spending by reducing
the number of office visits and other physician encounters that are
billed to the system. By providing ``one stop shopping'' the
orthopaedic surgeon has reduced the number of office visits required to
complete the diagnosis and treatment decisions for the patient. The
alternative requires one visit to the physician to determine that an
image is needed. This is followed by the encounter with the radiology
practice. Finally, the patient must return at least once to the
physician's office for review of the image and treatment decision. All
of these encounters engender a separate billing to Medicare. In-office
imaging reduces the number of billed encounters, thereby reducing
spending for evaluation and management services.
The Medicare Payment Advisory Commission (MedPAC) is in the process
of finalizing its March report to Congress that will include
recommendations relating to imaging services. They fall into two main
categories: (1) safety and quality and (2) billing and payment. CPCI
has cautioned MedPAC to frame any recommendations carefully to ensure
that they are not interpreted in a manner likely to impede patient
access to high quality physician imaging services.
Furthermore, we have urged the Commission to assure that any
statistics cited in the final report regarding utilization of imaging
services do not overstate actual growth due to shifts in site of
service. According to MedPAC, about 20 percent of the overall 8.6
percent growth in imaging services are attributable to shifts in site
of service, rather than new volume. If these shifts in site of service
were appropriately accounted for, the actual overall growth rate for
imaging would be about 6.9 percent by our estimates. Because some
interests will urge Congress to respond to the increase in imaging
services, we believe it is important not to overstate that number.
Congress needs greater certainty in the data on increased use of
imaging services than now exists. It is also important to understand
that the greatest increases are in the higher technologies, such as CT
and MRI, areas already dominated by radiology.
The public needs to understand the extraordinary contributions of
diagnostic imaging to physicians' ability to diagnose and treat illness
quickly and accurately. We do not believe that the issue of whether or
to what extent the increase in diagnostic imaging utilization is
medically unnecessary has been fully explored, and, therefore, we
believe any action, such as mandatory accreditation and privileging,
that could result in arbitrarily limiting diagnostic imaging
utilization would not be appropriate.
Opponents of office-based imaging have challenged the competence of
the physicians who provide such services, as if only they possess the
knowledge required to safely perform and interpret diagnostic imaging.
The ability of a physician to interpret a diagnostic image cannot be
determined based exclusively on the physician's specialty. In fact all
specialties include as a part of their training the education and
experience needed to use the imaging technologies that have become an
essential component of their practice. If Congress looks to the use of
accreditation programs as a means of assuring safe and appropriate use
of imaging, it is critical that those organizations that explicitly or
implicitly authorize only radiologists to perform or interpret imaging
studies not be the sole source of accreditation. To the extent that
specific accreditation organizations are named, we urge that a number
of such organizations be included, to avoid any implication that
Congress endorses any particular set of standards.
Congress should not assume that there is consensus in the physician
community regarding the training, experience, and other requirements
for interpreting physicians in each modality. In fact, standards of
practice are always evolving and it is not uncommon for there to be
disagreement regarding the appropriate training and experience
standards among different specialties or even within a particular
specialty. We seriously doubt whether sufficient credible data exists
to determine which standards are appropriate. In addition, we do not
believe it is practical or prudent to place CMS in the position of
arbiter in this arena, nor do we believe that it is appropriately
within the purview of the Federal Government to review each
interpreting physician's particular credentials.
CPCI also cautions Congress from accepting the notion that
significant cost savings to the Medicare program can be achieved by
mandating accreditation and physician qualifications without a thorough
analysis into why growth in imaging services is occurring and who is
responsible for that growth.
Those who purport significant cost savings claim that the growth in
imaging services is due to inappropriate utilization. However, the few
studies that MedPAC has cited during its public discussions to justify
its recommendations for accreditation and privileging are insignificant
and overtly biased. For example, MedPAC has referenced a 1998 study by
Verrilli for Blue Cross Blue Shield of Massachusetts that suggests 2
percent savings in imaging services were realized when physician
privileging and facility accreditation standards for diagnostic imaging
services were combined. However, MedPAC has failed, in public
discussions, to acknowledge that the study found a higher failure rate
among chiropractors and podiatrists than among medical and surgical
specialists during site inspections. We suggest that MedPAC's claim of
cost savings should not be based on a study that found a higher failure
rate among non-physician providers that have limited ability to bill
Medicare for imaging services. In another study frequently cited by
MedPAC (Moskowitz), the findings were based solely on an examination of
radiography, or X-rays, and did not outline any clear cost savings.
While quality improvement is a goal shared by all physicians, to assume
savings from such studies is inherently risky.
Congress should be cautious about statements that raise issues of
imaging safety in the absence of credible and impartial studies
documenting that medical imaging raises serious public safety concerns.
Data cited on this issue in prior MedPAC reports is based on an
unpublished survey conducted in Utah by a company that sells radiology
benefits management services to insurers and authored by a radiologist
who is one of the most vocal opponents of in-office diagnostic imaging.
Various aspects of medical imaging equipment safety are already
regulated by the Nuclear Regulatory Commission, the Food and Drug
Administration, the Occupational Safety and Health Administration and
by state authorities. In the absence of credible, published, peer-
reviewed literature documenting safety concerns arising from the use or
misuse of diagnostic imaging, we urge Congress to shy away from the
conclusion that these agencies are not performing their designated
functions adequately.
MedPAC has proposed changes to coding edits and billing practices
that could reduce the number of individual imaging services that can be
billed by physicians. As imaging technology has evolved, it is
appropriate that Congress review current billing rules to determine if
they are still relevant for current use. It is not yet clear to what
extent savings might be found. We believe that further analysis is
needed before Congress directs CMS to incorporate new billing rules.
CPCI appreciates the opportunity to provide these comments to the
Subcommittee on the subject of the current use of imaging technology in
medical practice. We urge caution in the examination of MedPAC's
recommendations and encourage Congress to assure that any actions it
takes in this area reflect the consensus of a broad and balanced group
of affected organizations and are done in the best interests of
Medicare beneficiaries.
American Academy of Family Physicians
American Academy of Neurology
American Academy of Ophthalmology
American Association of Clinical Endocrinologists
American Association of Orthopedic Surgeons
American Association of Neurological Surgeons
American College of Cardiology
American College of Obstetricians and Gynecologists
American College of Surgeons
American Gastroenterological Association
American Medical Group Association
American Society for Gastrointestinal Endoscopy
American Society of Breast Surgeons
American Society of Echocardiography
American Society of Neuroimaging
American Society of Nuclear Cardiology
American Urological Association
Congress of Neurological Surgeons
Heart Rhythm Society
Medical Group Management Association
Society for Cardiovascular Angiography and Interventions
Society for Cardiovascular Magnetic Resonance
Critical Care Cardiology, Inc.
Chula Vista, California 91910
February 11, 2005
Honorable Members of House Ways and Means Committee
United States House of Representatives
Washington, DC
Dear Respected Members:
This letter is to inform you of an increasingly difficult situation
being imposed upon myself and all physicians in the United States. As
you may know, physicians since 1985 have had to endure annual cuts in
Medicare re-imbursement rates. While the U.S. economy during this time
has experienced unprecedented prosperity, we physicians have sustained
continued reduction in our income. In fact, in 2005, if present rates
are allowed to continue, physicians will get paid less than they did in
1991 (CBS News Report, November 22, 2002). Indeed, I get paid less for
a heart catheterization than a plumber gets for working on your pipes!
Cardiologists get paid by MediCare $345.00 for performing a cardiac
catheterization, a procedure requiring plastic tubes to enter the heart
arteries to diagnose coronary artery blockages. Cardiologists have to
train for at least 10 additional years out of college to perform these
procedures. Yet, plumbers get at least $350.00 for fishing your wedding
ring out of the pipe under the kitchen sink. They get paid 1\1/2\ times
that amount if they have to work on evenings or weekends. Physicians
get neither right. My own employess are permitted ``time and a half''
if they work overtime, but I, as a physician, get no such right.
Physicians have to go through seven to 10 years of extra schooling
beyond college having to work >100 hrs/week and working 36 hours in a
row every 3rd or 4th night to complete training as an MD or DO. Why
this double standard?
At the same time our overhead has climbed to 41% of the total
operating budget as of 1999. To make matters worse, the Medicare system
has increasingly complex rules and regulations making it necessary for
professional billers and office managers to be able to conduct a
physician's office. At this point many bright physicians will be forced
to retire prematurely or change careers. Perhaps Dr. Frist, the Senate
Majority Leader, saw this coming in 1990 when he chose to run for
Senator to attempt to change this disturbing trend.
I wish to invite you to spend 24 hours on call with me to
demonstrate the value of cardiologists on call for potential heart
attack victims. Even living the life of a doctor on call for one day
will give you a glimpse of the investment in time, money and delayed
gratification to achieve the skills and experience needed to properly
take care of sick people. I am asking you as a champion of the rights
of patients to make certain there will be bright enthusiastic doctors
available when the baby boom generation reaches Medicare age. These
people have paid into the system and deserve excellent care. We have
the best medical care system in the world. Do not let this great system
deteriorate into a labyrinth of bureaucrats and accountants. Let
doctors be free to be doctors and allow the best physicians to care for
patients without having to worry about how they can make ends meet.
I am a cardiologist--I practice interventional cardiology. As you
know 22 million people worldwide suffer from heart failure. Heart
failure cost the Medicare system 44 billion dollars in 1999. This is
the single largest expenditure for the Medicare system. As you well
know, a timely cardiac catheterization and, if required, an
intervention performed during an acute MI can reduce if not abolish
altogether the prospect of heart failure. Yet the Medicare system has
been systematically reducing reimbursements for cardiac catheterization
and angioplasty for the last twenty years. Now a doctor gets $300 for a
heart catheterization. He could not even get the fan belts in his car
changed for $300. And for that $300, the doctor has to wait months to
get paid. In fact, Medicare has long abandoned additional payments for
middle of the night emergencies or weekend emergencies. Elective
procedures get paid at the same rate as emergent procedures. Yet when
my staff works even one extra hour in excess of their 40 hour week,
time and a half kicks in. We are obligated by labor laws. Yet there are
no such laws for doctors even though they routinely work in excess of
100 hours per week. There is, therefore, no incentive (other than to
save the patients life), to handle emergency heart ailments. As you can
clearly see, the Medicare system presently provides disincentives for
emergent procedures thereby increasing the incidence of heart failure.
These very procedures that, if performed emergently by an experienced
cardiologist, can save the life of a heart attack victim and more
important save him/her from heart failure. These very procedures that
can save the Medicare system 44 million dollars in expenditure for CHF
therapy are being discouraged by Medicare!
So far physicians have no alternatives to Medicare reimbursements.
Moreover, whatever Medicare chooses to do, HMOs and insurance companies
soon follow suit. We are at your mercy and yet I am certain if you
understand the continuous cuts and slashes to physician's reimbursement
that has taken place, you will understand our plight. If this trend is
to continue, I and many of my collegues will have no choice but to give
up clinical care of patients and find an alternative source of income.
Already physicians are showing up on TV screens as `` Doctors to the
Media.'' Many doctors are serving as consultants of medical devices and
pharmaceutical companies as well as investment banking guides. These
are talented physicians that have left clinical medicine because of the
continued and relentless annual cuts in Medicare reimbursements. Why
cut pay to doctors when doctors are your front line to patient care?
Why not cut in places where there is excessive waste already? Let us
examine objectively where there is waste and cut them out first.
Doctors who help save patients money from unnecessarily expensive
medications when cheaper drugs will do, should be rewarded. Physicans
can be given incentives to help the government save money while
preserving excellent health care. Government must also do more to curb
cost with the larger portion of the Medicare budget: Medicare Part A.
This and other ancillary services are where the bulk of the waste
occurs. We physicians have too long taken the brunt of the cuts while
hospitals and other ancillary agencies have only gotten pay hikes every
year. Finally, insurance companies and HMOs must also be made to
account for proper spending of Medicare funds. Medicare funds must not
be available to pay for the multimillion dollars of HMO CEOs. In fact
the HMO United Healthcare pays its CEO 75 million dollars. For that
amount of money you can pay the annual salary of 7,500 physicians each
at $100,000.00. That does not include the large administrative burden
added from HMOs and insurance companies. According to a February 10
article in the San Francisco Chronicle, 50% of Medicare funds are not
used for direct patient care spending and are wasted.
You as our Representatives and Congressional leaders now have the
unique opportunity to initiate a true reversal of these disturbing
trends in Medicine we have seen in the past twenty years. A few good
people in the right position at the right time can accomplish a great
deal. There has been no better time than now to objectively re-examine
the flawed formula Medicare uses to pay physicians and replace it with
the Physicians Payment Fairness Act S. 1707. It is my hope you now
understand this true paradox in the Medicare system and are willing to
fix it. We ask you to do your utmost to rectify the flawed formula for
physician payments and put an end to annual reimbursement cuts for
physicians. We doctors can do a lot to save the Medicare system of
needless expenditures. Allow doctors to earn what from their expensive
and long education. I am certain that you will make doctors and their
patients your utmost priority in 2005!
Respectfully Yours:
Vimal Indravadan Nanavati
Statement of Dawn Lipthrott, Ethical Health Partnerships, Winter Park,
Florida
I am grateful for this opportunity to speak to you about the
proposed reductions in Medicare reimbursement for physicians and the
SGR formula.
I understand and appreciate your great concerns about the ability
to finance Medicare for the future while trying to be fair to
physicians. This becomes even more of an issue for you in light of the
recent budget estimate for the prescription drug benefit, which assumed
the 5% per year reductions in reimbursement for physicians and is
nearly double the original estimate. You are faced with urgent fiscal
challenges, as are many physicians. However, even in the face of these
challenges, I urge you to avoid the temptation to take the easy way of
adjusting expenditures by cutting physician reimbursement. Physician
payment is no doubt the easiest to control, but it puts undue burden on
the very people who provide the care--and it avoids the more difficult
and high cost problems like reducing obesity, non-compliance with
treatment, and defensive medicine--each of which costs more than the
entire amount Medicare spends on physician services. Each one of these
problems also increase both the volume and intensity of Medicare
services. In contrast, physician care has historically been the slowest
growing category of healthcare spending and has increased very little
in recent years. (Source: Tracking Health Care Costs, Strunk, BC and
Ginsburg, PB, Center for Studying Health System Change, December 2004.)
Ethical Health Partnership as a Framework for Your Decision
I am a patient, a relationship specialist, and I represent
EthicalHealthPartnerships.org, a beginning community of people
committed to building more ethical health partnerships not only between
physicians and patients, but also between all groups that impact health
care, whether that be your Committee, Congress, insurance companies,
hospitals, pharmaceutical companies, the legal profession and others.
While the purpose of health care is the well-being of the patient,
the core of health care is the physicians who provide care for the
patient. Ethical health partnership implies that the good of one is not
gained at the undue expense or damage of the other. To place unfair
burden on physicians, and even to damage some through reducing payment,
is in our view, unethical and unacceptable. You would create a
situation of further injustice by essentially penalizing physicians for
expansion of Medicare benefits and increased utilization, when both are
outside their control.
The attempt to save Medicare or balance the budget by decreasing
reimbursement and placing undue financial burden on physicians will
erode the quality and accessibility of health care at it's core. This
is not only a physician issue, it is a patient issue.
Past `Increase in Medicare Spending on Physician Services' is
Misleading
In the hearing of your Committee on February 10, 2005, Rep. Pete
Stark (D-Calif) stated that ``aggregate payments have increased
comfortably'' with spending on physician services increasing 6%
annually since 1997.
While the increase may be true overall, it does not take into
consideration the uneven distribution of that spending or the
increasing cost of living, practice expense, and malpractice premium
increases that have far exceeded any benefit from that 6%. The general
figure of 6% does not acknowledge that many physicians in high risk
specialties, in high malpractice rate states, and/or those in solo or
small group practices are not experiencing `comfortably' increasing
payments. The increase in physician services payment can have more to
do with increased volume of services. That must be balanced by the fact
that average practice expenses for physicians in general has increased
approximately 22% from 1995 to 2004. (Source: American Medical
Association.)
Specialties Like General Surgery Have Had Decreasing Reimbursement for
10 Years with Significantly Increasing Expense
Some medical specialties like general surgery have had more
difficulty than others, partially due to outdated RBVRS formulas in
considering physician work, practice expense and liability risk. As a
result, Medicare rates for common surgical procedures like gallbladder
surgery, partial mastectomy, hernia repair and others have already been
reduced 15-29% over the past 10 years.
At the same time, in Florida, the average malpractice premiums for
general surgeons in Florida, excluding the Miami area, was $174,000 in
2003 and $227,000 in the Miami area in 2003, an increase of 30% from
the previous year. In 2004, the rate in Miami went up to $277,000 and
while I don't have the exact amount for the rest of the state, the
percentage of increase is usually close to the same. Florida has seen
double digit increases, sometimes 60-70%, in premiums for over 4 years
for surgeons and other higher risk specialties. Surgeons in Miami paid
220.2 percent more than those in Los Angeles in 2003. (Source: Medical
Liability Monitor.) Similar percentage increases have occurred in other
states as well.
The trend of increasing practice expense and increasing malpractice
premiums will continue with practice expenses expected to increase 19%
from 2006-2012. (Source: American Medical Association.)
Reduced Access and Quality to ALL Adult Patients, Not Just Medicare
According to a report on your February 10th hearing, physicians
told you that the proposed cuts could result in reduced access to care
for Medicare patients and that fundamental change in the reimbursement
system is needed.
However, the actions you take to address these issues will have
far-reaching negative consequences beyond physicians and patients
directly involved in Medicare. The cuts will reduce accessibility and
possibly quality of care for nearly every adult patient in the United
States and every physician who provides care to adults.
Medicare Cuts Will be Mirrored by Private Health Insurance Plans
Most insurance companies, network management companies and health
plans base their rates of reimbursement on the Medicare rates, even
though Medicare was never intended to be the model for reimbursement.
Some base their fees just above Medicare rates and others set their
rates at 80% of the Medicare rate. Therefore if the cuts are allowed,
the same percentage cuts will be mirrored to a great extent in the
private insurance sector, putting an enormous burden on physicians.
Solo and small group practitioners, especially those in certain
specialties, like surgery and Ob-Gyns, will find it increasingly
untenable to remain in practice.
The Medicare Cuts Would Put My Healthcare, as a Non-Medicare Patient,
at Risk
I, a middle class patient with private insurance, living in
Orlando, Florida, have had my gynecologist close her practice, my
family's orthopedic surgeon stop doing surgery, and our family's
cardiologist stop doing any invasive procedures--all because of their
stated reasons of decreasing reimbursement and increasing malpractice
risk and costs. These are physicians in their 50's, in the prime of
their career in knowledge and experience, who love medicine and
patients, who are respected in their community, but who find it
increasingly difficult to sustain a practice.
My own surgeon, who is known for giving exceptional care and who
has over 25 years experience in our community, was paid less for
gallbladder surgery in 2004 by private insurance than she would have
been paid by Medicare in 1995. This is a direct result of the
progressive reductions in Medicare payment and the fact that private
insurance companies and plans base their rates on the Medicare
schedule. That is unjust. Expecting her and other surgeons and
specialties to absorb a further 30% reduction puts the physicians, and
their patients, at risk.
Physician Dissatisfaction, Stress and Quality of Care
In addition to potential restrictions in access for all adults,
there is indication that quality of care may suffer as well if the
proposed cuts are left in place.
A recent article in Health Affairs talked about the connection
between physician dissatisfaction and the quality of patient care,
including dissatisfied physicians' own perceptions of their reduced
ability to provide the quality care they want to give their patients.
(Source: Caring for Patients in a Malpractice Crisis: Physician
Satisfaction and Quality of Care, Michelle M. Mello; David M. Studdert;
Catherine M. DesRoches; Jordon Peugh; Kinga Zapert; Troyen A. Brennan;
William M. Sage, Health Aff 23(4):42-53, 2004.)
DIRECTIONS FOR THE FUTURE
A Note on the Pay for Performance Suggestion
Rep. Nancy Johnson (R-Conn.) has suggested a pay for performance
approach. Some health plans have begun similar reimbursement strategies
with mixed benefits and problems. Adding bonuses, rather than
withholding fees for services already provided is essential in terms of
fairness. One of the problems with the approach is that if performance
is based on successful outcomes, factors like non-compliance of
patients with treatment, or patients with multiple conditions that
impact outcome could unfairly penalize physicians doing everything in
their power to provide quality care. And the bigger problem is that
those patients may find it increasingly difficult to find physicians to
take them as patients.
Another potential problem in pay-for-performance programs is that
some specialties, like surgery, are difficult to separate from the
system in which the services are performed. In the statement to the
Federal Trade Commission and Department of Justice by LaMar McGinnis,
MD, FACS of the American College of Surgeons Quality and Consumer
Information testimony on May 30, 2003, while supporting quality
performance, he states:
``In addition, surgeons and the systems of which they are
part are hard to separate. This makes it difficult to develop
meaningful, surgeon-specific quality data. Primary care lends
itself more to adherence to public health driven protocols that
prevent or ameliorate chronic disease. There are guidelines
that work to manage ischemic heart disease, high blood
pressure, diabetes, and other conditions. On the other hand,
surgical quality does not lend itself as easily to process
measures. We feel strongly that the only appropriate way to
measure the quality of surgical care is truly risk-adjusted,
outcomes assessments reported before, during, and after the
procedure. Risk-adjustment allows both the patient and the
healthcare system to know that the service received was
appropriate, considering the state of the patient and his
disease.
Unlike surgical care, there are some aspects of primary care
that lend themselves to process measures as indicators of
quality. For example, repeated visits to monitor the state of
chronic care make sense and can be an indicator of quality in
primary care. Physicians can diagnose increased sugar in
diabetics, detect glaucoma, and discern extremity circulation
problems as a result of scheduling repeat patient visits, thus
the use of administrative ``process'' measures can yield
considerable information about quality of care. In contrast,
repeat visits to a surgeon or to the operating room are not
generally viewed as quality indicators. In addition, surgeons
are more likely to be confronting an emergent problem that must
be identified in the first encounter, and the nature of the
interventions they take are very different.''
The American College of Physicians issued a position paper in
April, 2004 on pay for performance that listed recommendations for the
approach to be fair and effective. Some of their recommendations are:
To create voluntary demonstration programs of performance
measurement before implementing system-wide change.
To use widely accepted, evidence-based measures that
``provide valid and reliable comparative assessment across
populations.''
To avoid rating physicians on factors that they cannot
control (like compliance).
To use incentives that are positive, not punitive.
To use pay for performance to foster quality improvement,
not just competition.
To ensure that any data collection needed to demonstrate
performance will protect patient privacy and avoid adding to the
paperwork burden or additional costs of data collection.
One of our major concerns of pay-for-performance is that `quality'
may be based on how much money the physician or facility saves, rather
than the quality of care provided. When physicians cut back or delay
referrals or specialists, tests, patient care can suffer. That again
creates potential risks for patients and for physicians.
Because of these concerns and needs, I urge you to look at the
possibility of pay-for-performance not as an instant solution, but as
one possible direction that requires time to plan, study and implement.
Demonstration projects should be initiated not only in large group
practices, as currently planned, but in practices of varying sizes and
specialties (included solo practices) to study the fairness and
feasibility before system-wide implementation.
It should also be noted that in some instances when private health
plans have implemented this approach, they did not accurately forecast
the budget expenses associated with paying for performance and paid
physicians less than they had originally agreed.
Remove Part B Drugs and Supplies From Spending Targets
One option that others have recommended is that you remove Part B
drugs and supplies from any determination of Medicare spending with
target limits. We view this as one more band-aid approach and we
strongly recommend a new system of determining reimbursement levels and
increases.
Recommendations
We strongly urge you to consider not only the financial
limitations, but also the ethical issues in this Committee's and the
government's relationship with both patients and physicians. We believe
that ethical decisionmaking includes the elements of fairness, justice,
responsibility, valuing the well-being of all involved, respect, not
placing undue burden, and preventing the well-being of one to be gained
at the expense or detriment of another.
In light of those factors, the most ethical decision in your health
partnership with physicians and patients is to prevent the proposed
cuts in reimbursement for 2006-2012, even if viable, clear solutions
for budget concerns are not yet evident. Reducing physician
reimbursement while their expenses are increasing at double-digits,
weakens the entire system of health care and puts physicians and
patients at risk. The ongoing problem of fair reimbursement for
physicians should be addressed for the long term and not based in one
or two year reprieves as in the past. To me, it is unconscionable that
this problem has been known for so long and has not been adequately
addressed. I hope you will be the ones to finally accomplish that.
Ethical health partnership also require that you consider that the
impact of actions taken to address Medicare problems will create direct
impact on the reimbursement schedules of private health plans. Nearly
all doctors and patients will be affected, even if they do not
participate in the Medicare program. Those taking Medicare patients
will receive double impact.
Moreover, we believe that ethical health partnership requires that
a more just and equitable method of determining reimbursement be
developed and implemented for the long term. There is substantial
agreement in Congress and in health care that the formula is seriously
flawed and that past attempts to modify it have failed. The SGR formula
is also unfairly applied to physicians as a group, while other
healthcare entities are not governed by the formula.
Therefore we suggest:
Base rates on current medical indices and update the
RBVRS to better reflect current practice expense and liability.
MedPac's annual reports to the Congress recommend a physician fee
update based on MEI. While it will increase the expenditures of the
Medicare program, it makes health care a priority, creates positive and
relatively fee updates, more accurate predictions of future needs, and
protects patients and physicians and the quality health care we all
want.
Implement more current geographic profiles for
consideration of malpractice premium areas, like Florida and other at
risk states, in determining payment.
Provide either regular cost-of-living increases or
regular increases to adjust for inflation and ongoing average increases
in practice expenses.
Remove volume and intensity of service factors from the
determination of physician payment. Most often this is outside the
physician's control. In addition, the idea of rewarding physicians for
cutting back on service or limiting referrals or tests, sets up a
danger for patients in terms of quality health care and for physicians
in terms of liability.
Sustaining the Medicare budget short term and over the long
term, should not be bolstered by penalizing physicians each time
Medicare usage increases, or when there is a budget deficit or downturn
in the economy. Decreasing physician fees weakens the system by putting
patients and physicians at risk. Using physician payment as a way of
managing the budget is easy because it is a factor over which Medicare
has direct control, but it does not begin to address the root causes
fueling increasing costs.
While the focus of your hearings is on the problems in
physician reimbursement and we fully support an ethical and fair
resolution of that, we recommend that you consider that in the context
of other drivers of high cost. When you look at ways to finance fair
reimbursement, it is essential to look at the bigger picture of what is
increasing and will continue to increase Medicare costs.
Therefore, we also recommend that your Committee make
recommendations leading to appropriate departments to address those
high cost factors that directly impact the Medicare budget. When you
look at these factors and remember that the amount spent for Medicare
reimbursement of physician services was $36.9 billion in 2000 and an
estimated $54.2 billion for 2005, it is clear that addressing the
biggest drivers of increasing costs makes more sense than penny-
pinching with the providers of health care. (Source: MEDICARE PHYSICIAN
PAYMENTS Information on Spending Trends and Targets--May 5, 2004
Testimony Statement of A. Bruce Steinwald Director, Health Care--
Economic and Payment Issues, Testimony Before the Subcommittee on
Health, Committee on Energy and Commerce, House of Representatives
www.gao.gov/cgi-bin/getrpt?GAO-04-751T.)
Some of these high cost factors include:
Increasing prevalence of obesity in adults and children:
The rapidly rising prevalence of obesity puts people at greater risk
for numerous serious illnesses such as certain forms of cancer
(including breast and colorectal, kidney among others), diabetes, high
blood pressure, arthritis, cardiovascular disease and more. The
combined prevalence of both overweight and obesity averages 53.6%
across all categories and is largest for those enrolled in Medicare
(56.1%). Obesity-attributable expenditures by state totalled
$75,051,000,000 from 1998-2000. We urge Medicare to work in partnership
with private insurance to develop national and local campaigns to
prevent and reduce obesity. (Sources: Estimated Adult Obesity-
attributable Percentages and Expenditures by State (BRFSS 1998 to
2000). http://www.naaso.org/statistics/obesity_exp_state.asp. Also:
National Medical Spending Attributable to Overweight and Obesity.
Finkelstein, EA et al, Health Affairs, May 14, 2003).
Patient non-compliance with treatment for chronic
conditions such as diabetes, high blood pressure and others. In 1992,
the cost of medication noncompliance alone was $100 billion ($45
billion in direct medical costs). $31.3 billion was spent on nursing
home admission due to noncompliance, $15 billion was spent on hospital
admissions due to noncompliance, $1,000 was spent per year per non-
compliant patient versus $250 spent on per compliant patient. (Source:
Compliance in Elderly Patients, University of Arkansas College of
Pharmacy http://www.uams.edu/compliance/. Also, Schering Report IX: The
Forgetful Patient: The High Cost of Improper Patient Compliance. Also
Standberg, LR, Drugs as a Reason for Nursing Home Admissions, American
Healthcare Association Journal 10, 20, 1984).
Defensive medicine: Explore meaningful alternatives to
the current tort system for handling complaints and patient injury to
reduce cost, improve patient safety, and avoid unnecessary tests and
procedures. If reasonable limits were placed on non-economic damages to
reduce defensive medicine, it would reduce the amount of taxpayers'
money the Federal Government spends by $23.6-42.5 billion per year.
(Source: Confronting the New Health Care Crisis, U.S. Department of
Health and Human Services, July, 2002).
Rising drug costs, especially for Medicare beneficiaries:
Marketing and research companies such as Delta Marketing Dynamics of
New York and Price Alert show that 31 of the top 50 drug companies
raised prices from November 2004-January 2005. The year before, 22 of
those companies increased prices. Analysts believe that this is part of
the preparation to take advantage of the prescription drug benefits
through Medicare. We recommend that Congress change the law recently
passed that prohibits Medicare from negotiating prices with
pharmaceutical companies. Veteran Affairs already negotiates their
prices. Even under the best of reimbursement systems, you negotiate
physician services. Negotiating with pharmaceutical companies is the
sensible choice of action.
Utilization will increase by the nature of the aging population and
the fact that people live longer. But every attempt needs to be made by
Medicare, private insurance, patients, and all others to take joint
responsibility for addressing those other contributing factors.
Medicare could think beyond the short-term and focus on those areas
which would both improve health and reduce costs.
I realize that truly ethical and fair reimbursement of physicians
without changes elsewhere in the federal budget could affect the long
term sustainability of the Medicare program. However, failure to
progressively and consistently address the real causes of rising costs
and to take steps to create a more just reimbursement system will lead
to a deeper erosion of physicians' ability to sustain their practices
and provide the care that Medicare is designed to support. That will
affect every person, not just Medicare beneficiaries.
We urge you to make decisions for true ethical health partnership
with patients and their physicians by preventing further cuts in
reimbursement and creating a more just payment system.
Statement of H. Stephen Lieber, Healthcare Information and Management
Systems Society, Chicago, Illinois
Congresswoman Johnson and Members of the Subcommittee on Health of
the House Committee on Ways and Means, thank you for this opportunity
for the Healthcare Information and Management Systems Society (HIMSS)
to submit testimony on potential solutions for problems with the
current physician payment formula.
My name is Steve Lieber and I am president and chief executive
officer of HIMSS. HIMSS is the healthcare industry's membership
organization exclusively focused on providing leadership for the
optimal use of healthcare information technology and management systems
for the betterment of health care. Founded in 1961 with offices in
Chicago, Washington, D.C., and other locations across the country,
HIMSS represents more than 15,000 individual members and 240 corporate
member employing more than 1 million people. HIMSS frames and leads
healthcare public policy and industry practices through its advocacy,
educational and professional development initiatives to promote
information and management systems' contributions to ensuring quality
patient care.
HIMSS agrees with your statement, Madame Chair, that ``physicians
are essential to the Medicare program and without their participation
our seniors will lose access to high-quality care.'' And, we applaud
your recognition of the relationship between payment systems and
quality and efficiency.
Specifically, HIMSS would like to recommend the following three
suggestions to your Subcommittee for consideration:
Continuation and expansion of pay-for-performance
initiatives through the physician reimbursement system that require:
Adoption of certified electronic health record (EHR)
products;
Achievement of defined quality outcomes; and
Reporting of performance measures.
A cost/benefit analysis of including in the Medicare
physician fee schedule virtual provider-patient visits in response to a
patient's inquiry that support (a) disease management, and (b)
physician oversight of a diagnosed condition or similar criteria.
Encourage physician adoption of certified EHRs by
exploring cost differential options for Medicare enrollees.
In its 1997 report, the Institute of Medicine (IOM) estimated that
between 44,000 and 98,000 preventable deaths occur each year as a
result of medical errors in hospitals. These events are occurring at
the same time that healthcare costs are escalating at double-digit
rates. The Office of the National Coordinator of Health Information
Technology of the Department of Health and Human services noted that
2004 will be the fifth consecutive year of double-digit increases in
healthcare costs; a trend exerting increased pressure on payers,
including Medicare, to find new solutions. But, with the dual realities
of ever-advancing medical science and an aging U.S. population, the
demand for care will only increase and further drive costs upwards.
The present situation grows increasingly dangerous and expensive.
However, as the IOM has declared,\1\ widespread adoption of HIT--such
as EHRs--can reduce the risk of medical errors. Studies also show that
such systems not only improve quality and safety, but also advance
efficiency of care through lower utilization, better management of
chronic disease, increased longevity, and increased health status.\2\
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\1\ Institute of Medicine (IOM), Committee on Quality in Healthcare
in America. ``To err is human: building a safer health system.''
Washington, DC: National Academy Press, 1999.
\2\ Balas, E.A., and S.A. Boren. ``Managing clinical knowledge for
health care improvement.'' Yearbook of Medical Informatics (2000): 65-
70.
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Unfortunately, the growing body of evidence showing advancements in
quality and efficiency resulting from the use of HIT has not translated
into rapid adoption by physicians. It is estimated that only 6% to 13%
of physician practices have an EHR in place and adoption is lowest
among small- and medium-sized practices where a majority of physicians
practice.\3\ There are a number of barriers to widespread adoption; one
such barrier is financial, including limited access to capital and a
lack of incentives.
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\3\ Miller, R.H., J.M. Hillman, and R.S. Given, ``Physician Use of
IT: Results from the Deloitte Research Survey.'' Journal of Healthcare
Information Management, Vol. 18, No. 1 (2004):72-80.
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The cost of acquiring an EHR for a small physician group practice
of 1-5 doctors is estimated at $16,000-$36,000 per physician.\4\ Plus,
there are annual operating costs to be borne by the practice. Solo and
small physician group practices are small businesses. And like other
small businesses, limited cash and earnings restrict technology
expansion. However, linking payments with quality and efficiency
measures in the physician reimbursement system can address such
financial barriers.
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\4\ Miller, R.H., Sim, I., Physicians' Use of Electronic Records:
Barriers and Solutions, Health Affairs, March 2004.
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Significant discussions are underway to make a pay-for-performance
system effective and affordable. Within the past several weeks,
President Bush proposed to double the budget to $125 million for
demonstration projects related to HIT. Last year, Senator Judd Gregg
introduced S. 2710 that contained provisions with loan guarantees and
grants for the purchase of interoperable HIT systems. The Department of
Health and Human Services' Framework for Strategic Action describes a
goal centered largely around efforts to bring EHRs directly into
clinical practice; thereby reducing medical errors and duplicative
work, and enabling clinicians to focus their efforts more directly on
improved patient care.
A key action called for in the Strategic Framework is the
establishment of private sector certification for EHR products. HIMSS,
together with the American Health Information Management Association
and the National Alliance for Health Information Technology, launched
such an organization last fall. We are well on our way to having the
certification mechanism ready for the industry to utilize.\5\
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\5\ http://www.cchit.org.
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With such guidance in place to ensure that the technology available
in the marketplace is robust, interoperable, and capable of supporting
strategic goals, the Strategic Framework calls for payers to provide
incentives for EHR adoption. A report by the Health Strategies
Consultancy for the Foundation of the eHealth Initiative identified
four types of financial incentive models used to promote the adoption
of HIT: payment differentials, cost differentials, direct
reimbursement, and shared withholds.\6\
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\6\ http://www.healthstrategies.net/research/docs/
HIT_Incentives_Report_Foundation_for_eHI.pdf.
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Payment differentials, also known as pay for performance, provide
bonuses for results (e.g., IT implementation or quality outcome
measures). Cost differentials target consumer behavior by employing
lower co-payments or deductibles at providers who have adopted IT or
achieved certain quality standards. Direct reimbursement is pay for
specific procedures involving technology, such as virtual provider-
patient visits. The shared withhold model withholds or delays provider
payments rate increases with release subject to IT adoption or quality
improvements.
Already, some payers have implemented one or more of these
approaches. Blue Cross Blue Shield of Rochester, NY, Empire BCBS and a
number of other BCBS plans have programs that pay incentive bonuses for
adoption of IT and standards that improve the safety of care. Bridges
to Excellence, a coalition of physicians, health plans and employers
have several programs that pay physicians who implement specific HIT
processes to reduce errors and increase quality. And states, such as
Wisconsin, are exploring changes to tax structures to encourage
physicians and hospitals to purchase and implement HIT.
The Medicare program, as you know, is also exploring incentive
options. A three-year demonstration project launches April 1 in 10
large medical groups across the country with CMS paying participating
clinicians more if they improve the efficiency and quality of care
while lowering costs.
The Connecting for Health project coordinated by the Markle
Foundation estimates that incentives in the range of $12,000 to $24,000
per full-time physician per year should achieve broad adoption of EHRs
on an accelerated timetable. This amount translates into about $3 to $6
per patient visit or $.50 to $1.00 per member per month for enrolled
plans.\7\
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\7\ http://www.connectingforhealth.org.
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In aggregate, incentives at this level require an investment of
approximately $21.6 to $43.2 billion across all payers, according to
the Connecting for Health work. The Federal Government, as the largest
payer of health care, will need to contribute its share in an incentive
system if it is to work. Without the Federal Government's incentives,
there will not be an adequate level of funding for physicians to
acquire and implement HIT.
However, the current physician reimbursement formula is not
designed to assist physicians with IT adoption and--in fact--may
achieve counterproductive results. The Office of the Actuary for the
Centers for Medicare & Medicaid Services, as reported in the 2004
Annual Report of the Medicare Trustees, projects that under the current
formula Medicare will reduce payment rates to physicians by
approximately 5% annually for seven years, beginning in January 2006.
Physician payment rates would decline more than 31 percent from 2005 to
2012, while costs of providing services would increase by 19 percent
over the same period.
If this methodology continues, declining Medicare payments to
physicians will create further barriers to IT adoption and therefore
perpetuate barriers to improvements in the efficiency and quality of
care. Savings may occur in the short term, but declining rates of
participation in the Medicare program and failure to improve patient
safety and quality will only result in higher, long term costs to
Medicare and the U.S. healthcare system.
We are at an exciting juncture. Technology now has the components
necessary to truly impact the quality, safety, and cost-effectiveness
of patient care. Consumers, clinicians, payers, and other stakeholders
are all exploring ways to get appropriate solutions into the hands of
small- and mid-sized practices across the United States. The
Subcommittee has a unique opportunity to positively influence these
efforts. Again, on behalf of the HIMSS individual and corporate
members, I thank the Subcommittee for this opportunity to share with
you our views and we look forward to working with you on these
recommendations to improve health care for all.
Managed Care Advocacy Program
Toledo, Ohio 43620
February 9, 2005
The Honorable Congresswoman Nancy Johnson, Chairman
Subcommittee on Health
2409 Rayburn Building
Washington, D.C. 20515
Dear Chairman Johnson:
The Managed Care Advocacy Program (MCAP), is a benefits counseling
program for seniors. We do one on one as well as group counseling in
helping them through the maze of Medicare, Medicaid, Medicare Advantage
Plans and the healthcare delivery system. We are a program of our local
Area Office on Aging.
On a daily basis, we connect with the senior population and hear
their concerns and complaints.
We encourage your Committee to consider modifying the current SGR
system. We understand the financial challenges of the Medicare system
and the need for fiscal discipline of this program. We believe this can
be done without shortchanging the physicians who care for our elderly.
We hear from our elderly seniors that physicians often express their
discontentment with the Medicare payment system.
Also addressed in this report was the fact that physician's
compensation be based on quality and efficiency of care. If this is a
concern, when physicians accept the Medicare Assignment, any concerns
regarding these doctors should be addressed at that time. CMS would
need a specific monitoring system to monitor quality and efficiency.
MCAP does not support any reduction in payments to physicians who
care for the elderly. However, we do support CMS in ridding the
Medicare system of fraud and any person or healthcare provider
participating in such. We believe this savings could aid in paying
physicians fairly.
We believe fiscal management must be found elsewhere--not in direct
medical care to our elderly.
Sincerely,
Elizabeth A. Flournoy
Director
Statement of William F. Jessee, Medical Group Management Association
Madam Chairman, Congressman Stark, and distinguished Members of the
Subcommittee, thank you for your leadership on an issue that
dramatically impacts the ability of physician practices to continue
providing high quality care to patients, and especially for steps taken
by this Subcommittee to guarantee a minimum 1.5 percent increase in
physician reimbursement rates for 2004 and 2005. That stopgap measure
has provided the time we now have to help ensure access for Medicare
and non-Medicare patients.
Medical Group Management Association (MGMA) data show that the cost
of caring for patients has risen 48 percent over the last 10 years.
However, according to the Medicare Trustees 2004 report, under current
law Medicare physician reimbursements will be cut by more than 30
percent between 2006 and 2012, as costs continue to escalate. These two
diverging trajectories represent an unsustainable future for patients
and the providers who care for them, and a looming crisis for the
American healthcare system.
Escalating costs, declining reimbursements
MGMA, founded in 1926, is the nation's principal voice for medical
group practice. MGMA's 19,500 members manage and lead some 11,500
healthcare organizations in which more than 240,000 physicians
practice. MGMA leads the industry with its research into practice
costs. In fact, MGMA has conducted extensive surveys of medical
practice costs for more than 50 years, and our data are widely
respected as accurate benchmarks of the expenses associated with caring
for patients. MGMA-collected data indicate that the cost of operating a
group practice rose by an average 4.8 percent per year over the last 10
years. In fact, between 2001 and 2003, MGMA data show that operating
costs increased nearly 11 percent.
Such escalating costs should come as no surprise. We are all
familiar with skyrocketing professional liability premiums.
Additionally, advancements in medical technologies have transformed the
way we practice medicine, and hold great promise for future
improvements. MGMA has long supported enhancing quality of care while
reducing administrative burdens on physician practices. Information
technology (IT), in particular, holds great promise in this area.
However, the initial investment required to establish, for example, a
fully interoperable electronic health record system, is prohibitive for
many group practices. Moreover, while it seems intuitive that IT should
help to restrain escalating costs by generating administrative savings,
the vast majority of such savings will accrue to payers and others
within the system, not to the physician group practices that provide
the initial investment. Despite their desire to improve quality,
physician group practices are largely unable to commit significant
financial resources to IT because the investment seems unlikely to pay
for itself in the foreseeable future. The projected Medicare
reimbursement cuts also create an unstable economic environment, making
it virtually impossible for many group practices to pursue the types of
expensive technologies that hold great promise for improving patient
care and generate administrative savings.
Unfortunately, even before the projected cuts may begin taking
effect, Medicare reimbursement rates for physician services have fallen
far short of the increased cost of delivering quality services to
Medicare patients. And as you know, Medicare generally serves as the
standard on which private payers base their reimbursement rates. With
escalating costs as shown by MGMA data, projected Medicare cuts of more
than 30 percent and private payers sure to follow, there is no question
that some group practices will be unable to afford continued care for
patients under current law. It is absolutely crucial that policymakers
address this concern now. The timing of this hearing, so early in the
109th Congress, strongly emphasizes your recognition of the critical
need to address this problem. Thank you again for your leadership.
While MGMA recognizes that any solution will involve an investment by
the taxpayers, it is necessary to protect some of the nation's most
vulnerable citizens, the elderly and disabled, beginning as soon as
next year.
Removing drugs from the Sustainable Growth Rate
There is a relatively easy way to begin improving the Medicare
physician reimbursement system. The Centers for Medicare & Medicaid
Services (CMS) should remove Part B covered drugs from the calculation
used to determine Medicare physician updates beginning with the base
year. This administrative action would help to mitigate the impact of
the projected cuts and facilitate your efforts to establish long-term
improvements to this broken reimbursement system. Such administrative
change also represents the right thing to do from a policy perspective.
The definition used by CMS for ``physician services'' in the
sustainable growth rate (SGR) formula inappropriately includes the cost
of physician administered outpatient prescription drugs. Medicare's
coverage of costly prescription drugs administered in the physician's
office has been a significant factor in the growth of Medicare
expenditures. Since 1996 (the SGR base year), SGR spending for
physician-administered drugs has more than doubled. These expenses
reflect patient acquisition of products rather than services rendered
by a medical professional and therefore are different than ``physician
services.'' These drugs are not even reimbursed under the physician fee
schedule, but under a completely different system. Their inclusion in
the definition of physician services runs counter to CMS' stated goal
of paying appropriately for drugs and physician services.
A separate definition of physician services clearly distinguishes
physician administered outpatient prescription drugs from services
rendered by physicians. CMS adopted this definition in the December 12,
2002, ``Inherent Reasonableness'' rule (67 FR 76684). The definition of
physician services must be applied consistently for fair and equitable
administration of the Medicare program. Furthermore, the recent rule
reforming the payment system for physician-administered prescription
drugs refines a separate venue to address the utilization and cost of
drugs. MGMA has strongly urged CMS to remove prescription drug
expenditures from the definition of ``physician services'' used to
calculate the physician reimbursement update, beginning with the 1996
base year. Although this would not retroactively impact reimbursements
between the base year and 2005, it would appropriately correct the
figures on which future updates are based and represent better Medicare
policy.
Conclusion
MGMA is extremely concerned about the negative impact on Medicare
beneficiaries, non-Medicare patients, and physician group practices
that would result from the current physician reimbursement system. I
strongly urge you to encourage CMS to remove Part B drugs from the SGR
calculation beginning with the base year. Please let me know how we can
help you to develop a long-term legislative solution to the flawed
Medicare physician reimbursement system. Thank you again for your
efforts to address the projected cuts of more than 30 percent in
Medicare physician reimbursement rates, and for the opportunity to
comment on this important issue.
Medtronic, Inc.
Minneapolis, MN 55432
February 22, 2005
The Honorable William ``Bill'' Thomas
Chairman, Committee on Ways and Means
The Honorable Nancy L. Johnson
Chairman, Ways and Means Subcommittee on Health
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Sir and Madam:
Medtronic would like to express its appreciation to you and your
colleagues on the Ways and Means Committee for your commitment to
improving the physician payment system under the Medicare program.
As you may know, Medtronic is the world's leading medical
technology company, providing lifelong solutions for individuals with
chronic disease. Our therapies span the fields of cardiology,
neurology, spinal, vascular, endocrinology, urology, and
gastroenterology, among others, and we value the essential services
provided to Medicare beneficiaries by physicians who specialize in
these critical areas of care.
Medtronic understands that a revised physician payment system will
need to balance a number of priorities, including fiscal
responsibility, continued beneficiary access to physician services, and
adequate reimbursement for office visits and preventive services. While
there may not yet be consensus on the best way to achieve these goals,
Medtronic is concerned that future negative payment updates could place
significant undue constraints on physicians.
Effective medical technologies play an important role in prolonging
and improving the quality of beneficiary lives. But they can only be of
benefit to patients if physicians receive adequate, predictable
payments that enable them to sustain their practices and provide the
highest level of care to their patients. We urge you to act to ensure
that physicians do not face abrupt reductions in Medicare payment that
could jeopardize patient care or limit access to the latest advances in
medical technology.
As demonstrated by the diverse views represented at the Ways and
Means Subcommittee on Health hearing February 10, 2005, Medtronic is
pleased that you are committed to working with all stakeholders in the
design and implementation of changes to physician payments. We look
forward to being a part of the discussion to improve and stabilize the
Medicare physician payment system as you move forward.
Best regards,
Arthur D. Collins, Jr.
Chairman and Chief Executive Officer
Statement of National Coalition for Quality Diagnostic Imaging
Services, Houston, Texas
Chairman Johnson, we are pleased to have this opportunity to
provide testimony for the record to the House Ways and Means
Subcommittee on Health at a hearing on ``Medicare Payments to
Physicians.'' NCQDIS is comprised of more than 2,400 outpatient imaging
centers and departments in the United States. The coalition promotes
``best industry practices,'' strategies for healthcare cost savings and
advocates for public and private sector standards for quality and
safety in diagnostic imaging services.
Advances in diagnostic imaging have led to great strides in patient
care: from reducing the need for invasive surgical procedures to early
detection of life-threatening diseases. NCQDIS and its members are at
the forefront of medical technology, providing physicians and patients
with the most state-of-the-art innovations, techniques and procedures
available in diagnostic imaging.
We are pleased to have this opportunity to comment to the House
Ways and Means Subcommittee on Health on the opportunities that we
believe exist to increase quality of care to Medicare patients, while
addressing the Committee's cost concerns about the physician payment
system. We share the concerns expressed by the Medicare Payment
Advisory Commission (MedPAC) regarding utilization of diagnostic
imaging services in Medicare. There are significant costs associated
with this increased utilization, as well as quality concerns regarding
the use of this constantly evolving technology.
Fortunately, Congress can address these cost concerns while
increasing the quality and safety of services provided to Medicare
patients. Today, many of the policies and standards supported by NCQDIS
have been implemented by private payers to successfully reduce costs
and improve patient safety and quality. The coalition believes that the
same policies and programs that are working in the private sector
should be available to protect Medicare beneficiaries and safeguard the
Medicare Trust Fund.
Medicare Should Incorporate the Innovations of the Private Sector
Empirical evidence demonstrates that private sector privileging
strategies promote high quality care. For example, Tufts Health Plan
uses an Imaging Privileging Program to address quality and utilization
issues for non-emergency, outpatient diagnostic imaging provided by
non-radiologists. Privileging to perform specialty-appropriate imaging
procedures is granted based on a provider's specialty designation, and
otherwise must be provided by a radiologist or imaging facility. Miriam
Sullivan, representing Tufts Health Plan, has testified to MedPAC that
by expanding the use of freestanding imaging facilities and increasing
competition, physician groups have less desire to purchase equipment
and more incentives to use Tufts' quality and evidence-based
guidelines.\1\
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\1\ Medicare Payment Advisory Commission, Meeting Transcript, March
18-19, 2004, page 53.
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We firmly believe that private sector quality standards should also
be available to Medicare beneficiaries. Highmark uses privileging
guidelines where imaging facilities must have a documented Quality
Control Program, Radiation Safety Program, and As Low As Reasonably
Achievable (ALARA) Program. Highmark providers must be appropriately
licensed and meet the physician specialty criteria in the plan's
privileging guidelines.\2\
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\2\ http://icael.org/icael/reimbursement/highmark_press.htm.
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States have also become concerned payers of diagnostic imaging
services and are increasingly taking action at the state level to limit
physician self-referral of services. The State of Maryland passed
legislation in 2000 that is similar to the federal Stark ban on
physician self-referral, except that Sec. 1-301(k)(2) of the law
specifically excludes magnetic resonance imaging services, radiation
therapy services, and computer tomography scan services from the in-
office ancillary services exception. The Maryland Attorney General
released a legal opinion on January 5, 2004, stating that this law bars
a non-radiologist physician from referring patients for tests on an MRI
machine or CT scanner owned by that practice. Medicare should have the
same opportunities to increase quality and contain unnecessary
utilization that are being implemented at the state level.
Protecting Beneficiaries and the Trust Fund Requires Medicare Take a
Closer Look at Use of Imaging
As you know, data from MedPAC and the GAO have raised concerns
about the growth of diagnostic imaging performed by non-radiologists.
Nevertheless, research shows that services performed by radiologists
account for a small portion of the growth of diagnostic imaging. MedPAC
found that imaging services increased by 9% between 1999 and 2002.\3\
Other research has defined the growth in imaging services between 1993-
2002 as a 7% increase by radiologists, 49% by non-radiologists, and
141% by cardiologists alone. In addition, the growth in Medicare
payments for radiology services grew by 72% for radiologists and by
119% for non-radiologists.\4\
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\3\ Report to the Congress: Medicare Payment Policy, MedPAC, March
2003, page 77.
\4\ Levin DC, Intenzo CM, Rao VM, Frangos AJ, Parker L, Sunshine
JH. Comparison of recent utilization trends in radionuclide myocardial
perfusion imaging among radiologists and cardiologists. J Am Coll
Radiol, in press.
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Non-radiologist physicians owning their own equipment use
diagnostic imaging tests more frequently than physicians who refer
their patients to radiologists. One study found physicians owning
equipment used imaging 2-8 times more often than physicians who refer
their patients to radiologists.\5\ A similar 1994 GAO study revealed
physicians owning their equipment use imaging 2-5 times more often than
referring physicians.\6\
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\5\ Hillman BJ, Olson GT, Griffith PE, et al. Physicians'
utilization and charges for outpatient diagnostic imaging in a Medicare
population. JAMA 1992; 268:2050-2054.
\6\ Medicare: Referrals to Physician-Owned Imaging Facilities
Warrant HCFA's Scrutiny; GAO, HEHS-95-2, October 20, 1994.
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Based on this evidence, we believe that radiologists and
independent diagnostic testing facilities (IDTFs) can provide the most
cost-effective care. In addition, there is no differential in Medicare
payment if services shift from non-radiologist physicians to
radiologists and independent diagnostic testing facilities, where
identical payments are made under the physician fee schedule. Updated
statistics show that there are sufficient radiologists in the U.S. to
meet patients' needs.
Medicare Beneficiaries Should Be Assured of Access to the Highest
Quality Imaging Services
Like private payors, Medicare should only pay for imaging services
that meet quality standards. Medical literature shows that imaging
equipment and facilities operated by non-radiologists is often sub-
optimal. One private sector imaging site inspection program revealed
that over \1/3\ of imaging facilities operated by non-radiologist
physicians had one or more significant quality deficiencies, while only
1% of facilities operated by radiologists had such deficiencies.\7\
Quality standards for equipment and facilities would reduce the need
for duplicate scans or expensive therapy from incomplete images or
misdiagnosis.
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\7\ Orrison & Levin, Radiology 2002; 225(P):550.
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We are especially concerned that non-radiologists' offices are less
likely to become accredited. Though the ACR has full accreditation
programs for many diagnostic procedures, non-radiologist physician
offices are not required to become accredited to provide these
services. ACR began an MRI accreditation program in 1997, including
standards for equipment and for qualifications of technologist's
performing the test. Though non-radiologists may voluntarily become
accredited, most do not. Almost all accredited entities are
freestanding MRI centers owned by radiologists or hospitals, or are
contracted with radiologists. NCQDIS believes that all physician
offices providing imaging services should be accredited.
In addition, the recycling of obsolete diagnostic imaging equipment
should be curtailed by implementing strong equipment standards. Dr.
Thomas Ruane, BC/BS of Michigan, testified to MedPAC that, ``The
diagnostic equipment that becomes somewhat obsolete in our tertiary
medical centers often does not go to the Third World. It often goes
down the street to another doctor's office where it lives another
life.'' \8\ NCQDIS believes that Medicare patients deserve better.
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\8\ Medicare Payment Advisory Commission, Meeting Transcript, March
18-19, 2004, page 34.
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NCQDIS Promotes the Appropriate Use of Diagnostic Imaging By Trained
Specialists
Radiologists spend 4-6 years in residency training to learn imaging
techniques and interpretation. Most non-radiologist physicians have
limited or no formal training in image interpretation. Although some
physicians in other specialties get limited amounts of training in
certain areas of imaging, the training is often informal and does not
meet defined standards. To protect patient safety and reduce medical
errors, physicians billing Medicare for imaging services should meet
certain training and education standards.
Radiologists working with other clinicians provide an important
second opinion in clinical diagnosis, helping to minimize medical
errors. As is being discussed in the hearing today, the best clinical
outcomes are achieved when a team approach is used to manage patient
care. The radiologists serve as an important second opinion in clinical
diagnosis, treatment, and management of patients needing diagnostic
imaging services.
It is important to note that imaging centers owned by radiologists
and IDTFs do not create a demand for imaging services. Business is
independently referred to imaging centers from third party physicians
who determine that a patient needs a diagnostic imaging test.
Therefore, radiologists and IDTFs are limited in their ability to
generate business outside of that which is referred.
Evidence also demonstrates that quality of care is improved if
radiologists read diagnostic images. In 2000, one research group used a
standardized set of chest radiographs to compare the accuracy of
interpretation of radiologists and non-radiologists. The composite
group of board-certified radiologists demonstrated performance far
superior to that of non-radiologist physicians. Even radiology
residents in training out-performed non-radiologist physicians.\9\
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\9\ Potchen, RADIOLOGY 2000; 217:456.
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NCQDIS Recommends That Medicare Take Steps Now to Protect Medicare
Beneficiaries
NCQDIS is pleased to submit its recommendations to the House Ways
and Means Subcommittee on Health on the best way to promote quality of
care in diagnostic imaging. Congress has the opportunity to act now to
address this important issue.
1. Congress should enact a privileging policy for high cost high
tech imaging. A privileging policy for MRI, CT, and PET would require
that physicians meet certain professional standards in order to
directly bill Medicare for the technical and professional components of
these procedures. This policy would allow current billing practices to
continue for cardiac ultrasound procedures and plain X-rays. Medicare
should promote quality of care and patient safety by reimbursing only
those doctors who are certified and have the appropriate training in
diagnostic imaging services. This approach would avoid the provision of
low-quality images, interpreted by inadequately trained non-
radiologists using sub-standard technology. NCQDIS supports privileging
policies that address the professional and technical components of
diagnostic imaging services. CMS conditions of coverage could require
that a physician become certified by CMS as a qualified ``designated
physician imager'' in order to bill Medicare for diagnostic imaging
tests.
2. NCQDIS also suggests that CMS address the technical component of
diagnostic imaging services by implementing standards for equipment
quality. An image produced by a poor quality piece of equipment will
inevitably lead to errors, misdiagnoses, and the need for repeat
testing.
3. NCQDIS supports coding edits to allow financial intermediaries
to detect improper billing.
NCQDIS understands that more expansive privileging policies
targeting other procedures and specialties take time to develop and
test. Therefore, NCQDIS recommends that Medicare be authorized to
implement a broader privileging policy based on private sector
privileging policies, to be implemented within one year from the date
of enactment using a panel of experts. This policy should detail by
medical specialty those imaging tests permitted by the specialty.
Statement of James Weiss, Renal Physicians Association
Approved by RPA Board, 7/17/2004
RPA Position Paper on Legislative Issues Related to Linking
Reimbursement to Performance Measures in ESRD Care (Part One of Two)
Introduction
A rapidly evolving movement in modern healthcare delivery is the
effort to create a linkage between reimbursement to providers and
measurements of the quality of the care delivered to patients. This
change in direction has been fueled in large part by the growing
necessity to focus on more cost-efficient use of increasingly scarce
fiscal resources in health care, and the recent publication of high-
profile reports on patient safety and provider accountability by major
advisory organizations in medicine, such as the Institute of Medicine
(IOM) report ``Crossing the Quality Chasm: A New Health System for the
21st Century.'' \1\
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\1\ Institute of Medicine. Crossing the Quality Chasm: A New Health
System for the 21st Century. 2001. National Academic Press.
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There are a variety of structural and environmental factors that
make the care delivered to end-stage renal disease (ESRD) patients a
compelling subject for efforts to link reimbursement to quality. These
include the federal data-gathering infrastructure long in place for
this patient population, the capitated nature of the payment systems
for these patients (the composite rate payment for dialysis facilities
and the monthly capitated payment for physician services), and the
reported sub-optimal clinical outcomes for many ESRD patients.
Accelerating the impetus to utilize a reimbursement-quality link in the
ESRD program is the overt commitment by the Centers for Medicare and
Medicaid Services (CMS) to pursue implementation of such a methodology
for this target group.
In recognition of this changing environment, the RPA convened a
panel of experts in quality, accountability, and safety from the renal
community to address the link between quality measures and
reimbursement for ESRD patients in a sensitive and responsible manner.
The meeting included panelists involved in clinical and academic
nephrology, representing physicians providing care to both the adult
and pediatric patient populations, in addition to a representative from
a large managed care organization with extensive experience in linking
reimbursement to quality measures and a representative from a large
kidney patient group.
This document is the first of a two-part discussion paper resulting
from the RPA-convened meeting. Part one will provide background and
counsel to congressional leaders as they consider the legislative
initiatives affecting the Medicare program that will be necessary to
appropriately assess and implement measures linking reimbursement to
quality measures. Part two is intended to provide focused
recommendations to CMS staff as they develop the specific methodologies
for designing a system linking reimbursement to quality measures and
making it operational. The segregation of the policy positions reflects
RPA's belief that to effectively and appropriately implement change of
this nature, a fundamental restructuring of elements of the Medicare
program will likely be necessary.
This document will review the history of nephrology's role in
quality measurement and improvement for ESRD patients, RPA's place in
that history, and how quality efforts in renal care compare to similar
efforts in other medical disciplines. In addition, included is a review
of the current status of the scientific evidence in this area, and a
discussion of how the underlying principles of the current Medicare
physician fee schedule will contribute to the complexity of
establishing a reimbursement-quality link. The document will conclude
with recommendations for the next steps that the RPA believes are
necessary to appropriately pursue such a course.
Quality Efforts in Nephrology_Historical Perspective
One of the unique aspects of nephrology's involvement in the issues
of quality improvement relates to the prescient nature of the
specialties' activities in this area over the past two decades.
Nephrology's commitment to quality measurement and quality improvement
has foreshadowed not only those efforts on the part of other
disciplines within organized medicine, but has also guided CMS (and
previously HCFA) toward the development of appropriate quality measures
and information systems necessary to support quality improvement. A
partial list of nephrology-specific activities in this area includes:
The 1988 creation of the United States Renal Data System
(USRDS) by the National Institute of Diabetes and Digestive and Kidney
Diseases (NIDDK)
The 1994-1996 NKF Dialysis Outcome Quality Initiative
(DOQI) on adequacy of hemodialysis, adequacy of peritoneal dialysis,
anemia, and vascular access \2\
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\2\ National Kidney Foundation. Dialysis Outcomes Quality
Initiative Clinical Practice Guidelines on Hemodialysis Adequacy,
Peritoneal Dialysis Adequacy, Vascular Access, and Anemia Management.
1997. NKF.
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The renal community project to convert high priority
evidence-based clinical practice guidelines into well-defined clinical
performance measures
The 1995 publication of the RPA Position on
Implementation of Health Care Quality Improvement (HCQIP) in Medicare's
End Stage Renal Disease Program \3\
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\3\ Renal Physicians Association. RPA Position Paper on
Implementation of Health Care Quality Improvement in Medicare's End
Stage Renal Disease Program. 1995. RPA.
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The release of the 2000 RPA/ASN clinical practice
guideline on Shared Decision Making in the Appropriate Initiation of
and Withdrawal from Dialysis \4\
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\4\ Renal Physicians Association/American Society of Nephrology.
Clinical Practice Guideline on Shared Decision Making in the
Appropriate Initiation of and Withdrawal from Dialysis. 2000. RPA/ASN.
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The release of the 2002 RPA clinical practice guideline
on Appropriate Patient Preparation for Renal Replacement Therapy \5\
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\5\ Renal Physicians Association. Clinical Practice Guideline on
Appropriate Patient Preparation for Renal Replacement Therapy. 2002.
RPA.
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The 2003 publication of the RPA White Paper on the Use of
Performance-Based Incentives in Renal Care \6\
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\6\ Renal Physicians Association. RPA White Paper on the Use of
Performance-Based Incentives in Renal Care. 2003. RPA.
These initiatives, lead by organized nephrology, have resulted in
sustained improvement in all targeted clinical measures to a degree
unprecedented in medicine. These improvements occurred without any
financial incentive, but rather capitalized on the innate desire of the
majority of nephrologists to provide the highest level of care possible
to their patients. It is important to note that these changes were
greatly supported by and ultimately only made possible by development
of data collection and reporting systems, heretofore unseen in
medicine.
Thus, the work of clinical nephrology in general and the RPA
specifically over the last two decades has to some extent influenced
many healthcare quality improvement initiatives in the U.S. It also
puts the clinical arm of nephrology in a position of unique sensitivity
to the risks and benefits associated with implementation of incentive-
based quality improvement initiatives for ESRD patients. Further, the
degree to which nephrology has pursued quality measurement and
improvement, and modifications in provider behavior in ESRD care,
predates and transcends many of the circumstances leading to the
concerns outlined in the IOM's Crossing the Quality Chasm report. As a
result, the substantial experience that nephrology has gained in the
area of quality improvement has fostered a judicious perspective toward
the use of performance-based reimbursement systems.
Accordingly, the RPA endorses the concept of linking reimbursement
to performance--providers should be rewarded for good performance. But
in designing truly effective reimbursement systems to reward
performance, there are a number of hazards that must be avoided. In
particular, since few such systems have been tested extensively, and
since little empirical research exists to provide evidence of benefit,
the design and implementation of such systems should be undertaken with
extreme caution. Further, and likely most significant from the patient
perspective, it is particularly important that the issue of adverse
risk selection or ``cherrypicking'' be addressed and prevented to the
extent possible in the development of such systems. The implementation
of a performance-based reimbursement system can be subject to
cherrypicking, so the principle of ``do no harm'' should clearly apply
in the development of these systems as much as it does in routine
reimbursement situations.
Policy Implications of Current Scientific Evidence
Beyond the public policy considerations of whether performance-
based reimbursement systems represent an appropriate and effective
means of improving the quality of care provided to ESRD patients,
questions regarding the science behind such efforts remain unanswered.
It has been postulated that the three primary predictors of patient
outcomes of hemodialysis--dialysis adequacy, hemoglobin, and albumin--
explain only 15% of the variance in ESRD patient outcomes.\7,8,9\ Other
measures provide little additional explanatory power. This level of
uncertainty in the science underlying efforts to promote performance-
based incentive systems is clearly problematic.
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\7\ Lowrie E, Teng M, Lacson E, Nancy L, Owen W, Lazarus JM: ``The
Association Between Prevalent Care Process Measures and Facility
Specific Mortality Rates.'' Kidney International 60:1917-1929, 2001.
\8\ Lacson E, Teng M, Lazarus JM, Lew N, Lowrie E, Owen W:
``Limitations of the Facility-Specific Standardized Mortality Ratio for
Profiling Healthcare Quality in Dialysis.'' American Journal of Kidney
Disease 37:267-275, 2001.
\9\ Lowrie E, Teng M, Lew N, Lacson E, Owen W, Lazarus JM:
``Towards a Continuous Quality Improvement Paradigm for Hemodialysis
Providers with Preliminary Suggestions for Clinical Practice Monitoring
and Measurement.'' Hemodialysis International 7:28-51, 2001.
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Accordingly, the predictive limits of current measures of outcome
suggest the need for a more robust scientific foundation on which to
base these initiatives. Elements from both the basic science and health
services research realms that would complement these efforts should
include: (1) research on the full range of appropriate outcomes
measures, including relevant patient behaviors and patient-reported
quality-of-life, by the Agency for Healthcare Research and Quality
(AHRQ), seeking to differentiate actionable factors under the control
of physicians (process), facilities (structure), patients, as well as
others; and (2) additional research by AHRQ on the impact of existing
institutional structures, such as the ESRD Network quality program, and
other economic and financial levers.
Recent literature underscores the dearth of scientific evidence in
this area. The March/April 2004 edition of Health Affairs includes an
article entitled ``Paying for Quality: Providers' Incentives for
Quality Improvement,'' \10\ that endeavors to systematically assess the
relationship between provider' incentives and quality improvement.
Among the authors' findings are: (1) confirmation that there in fact
are no controlled studies on the efficacy of incentive programs in
improving quality; (2) that existing incentive programs highlight the
dichotomy between treatment of `good' performance and `improved'
performance, tending to reward the former and not the latter, an
orientation of particular importance for those individuals or entities
at the lower end of the performance spectrum; (3) that the result of
this orientation is that low performers are less likely to strive for
incentive payments, and thus less likely to change their programs to
improve performance; and (4) that most measures of quality currently
used are a mix of process and structure measures, with a much smaller
role for patient experience and outcomes measures.
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\10\ Rosenthal MB, Fernandopulle R, Song HR, Landon B: ``Paying for
Quality: Providers' Incentives for Quality Improvement.'' Health
Affairs 23:127-141, 2004.
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Such a structurally triggered payment methodology could have
several negative unintended consequences. First, for those low
performers who likely need the fiscal resources the most in order to
improve their systems of care delivery, programs of this nature would
make it more difficult to obtain them. Further, over time this deficit
could have the downstream effect of putting low performers who
consistently do not achieve bonus payments out of business, negatively
impacting ESRD patient access to care. These groups, unfortunately,
tend to care for ``at risk'' populations already in dire financial
straits. This model may further disenfranchise them by creating
financial disincentives for physicians and dialysis chains dissuading
them from investment. While this is certainly only a theoretical
outcome, RPA strongly recommends that Congress direct CMS and other
federal policymakers to consider this issue and others like it
specifically during the development stage of an incentive-based quality
improvement program, rather than placing patients at potential undue
risk. RPA also urges Congress to direct CMS to recognize that the
unique characteristics of the pediatric dialysis patient population
requires special consideration, and that the likelihood that a
performance-based incentive system is inappropriate for these patients
is significant. Policymakers should consult with the American Society
of Pediatric Nephrology (ASPN) before proceeding with policy
development affecting that patient sub-population.
Linking Reimbursement to Quality in the Medicare Physician Fee Schedule
Implementation of a reimbursement system based on performance or
quality measures would represent a drastic change within the current
Medicare physician fee schedule context. Under its present,
congressionally-mandated resource-based relative value scale (RBRVS)
methodology, Medicare, through the Medicare fee schedule (MFS)
reimburses physicians for the services they provide based on the
resources necessary to furnish those services to the typical patient.
Therefore, by current law the relative value units (RVUs) that
ultimately determine the rank order payment for a specific physician
service within the MFS must be resource-based and by definition exclude
the use of a quality measure (or a surrogate measure) as a factor in
determining payment. Thus, legislation would be necessary to allow for
the implementation of quality or performance-based payment methodology
within the RBRVS structure.
Another confounding factor that must be addressed is that the MFS
by law is mandated to be budget neutral. One option that has been
advanced to address the mandate for resource-basing in the MFS outlined
above is to provide an additional payment to high performers beyond
what is provided within the RBRVS system. However, budget neutrality
limitations will force CMS to take funds necessary to provide the
additional reimbursement from another sector of the Medicare payment
arena, thereby creating a ``withhold'' situation, an approach that has
been clearly shown to be ineffective in improving quality. Among the
currently available policy lever options, desegregation of the Medicare
Part A and Part B funding pools would offer one seemingly reasonable
avenue for provision of the funds needed for a quality incentive
program without resorting to a withhold. The separation of these
funding pools may have been useful in the 20th century but currently
appears to be more of an artifact of a previous policy structure that
does not promote the more global responsibilities of healthcare
providers participating in each pool. Because improved quality for
dialysis patients will result in fewer hospitalizations, decreasing
Part A expenditures, the desegregation of Part A and Part B for this
purpose is quite appropriate. If this or a similar option were to be
pursued, alignment of financial incentives across this chasm would be a
necessary step in the linkage of quality measures to reimbursement,
however contentious such a shift would be.
Conclusions
In spite of legislative, regulatory, and fiscal obstacles, the RPA
is committed to designing effective systems linking payment to
performance. The issue is not one of commitment but the complexity of
the task. The necessity of implementing such a system without doing
unintended harm to the most vulnerable Medicare beneficiary sub-
population, the difficulties in developing a system within the current
Medicare payment structures, and the paucity of research related to
these issues all provide ample reason for proceeding cautiously. The
combined impact of these considerations underscores the need for firm
commitment, both philosophically and fiscally, from Congress, CMS and
other federal policymakers to address the following recommendations
prior to implementing a methodology linking reimbursement to quality.
Recommendations
1. RPA believes that before CMS develops a payment methodology
linking reimbursement to quality, Congress must direct the Agency to
actively involve and draw on the intellectual resources and experience
of the nephrology community throughout the process. This will help to
ensure that the development and final products emphasize the expected
benefits of a modified payment methodology and minimize negative
unintended consequences.
2. RPA believes that Congress must support substantial research in
both the pertinent basic science and health services arenas, especially
related to nephrology outcomes research in order to strengthen the
essential and necessary scientific evidence supporting a transition to
a performance-based payment system.
3. RPA believes that Congress should direct CMS to develop a
performance-based payment system that considers and separately rewards
both high performance and measurable improvement.
4. RPA believes that for such a revised payment methodology to be
effective longitudinally, the system must not disrupt the resource-
based relative value scale (RBRVS) system, and must for the purposes of
the incentive payments have budget neutrality waived. Incentive
payments should not be derived by decreasing usual payments or
establishing a withhold from the usual payments.
5. RPA believes that to effectively implement a payment
methodology linking reimbursement to quality, Congress must consider
fundamental change to the policy structure underlying the Medicare
program, specifically assessing the desegregation of the Medicare Part
A and Part B funding pools. Physician activities that improve quality
and produce savings by decreased hospitalizations ought to be accounted
for in the adjudication of the funds available for physician incentive
reimbursement.
6. RPA urges Congress to direct CMS to recognize that the unique
characteristics of the pediatric dialysis patient population require
special consideration. It is likely that a performance based incentive
system is inappropriate for these patients. Policymakers should consult
with the American Society of Pediatric Nephrology (ASPN) before
proceeding with policy development affecting pediatric dialysis
patients.