[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
         THE MEDICARE VALUE-BASED PURCHASING FOR PHYSICIANS ACT

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH


                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 29, 2005

                               __________

                           Serial No. 109-42

                               __________

         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
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    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

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


















                            C O N T E N T S

                               Page______
Advisory of September 22, 2005 announcing the hearing............     2

                               WITNESSES

Centers for Medicare and Medicaid Services, Hon. Mark McClellan, 
  Administrator..................................................     7

                                 ______

American Medical Association, John H. Armstrong, M.D.............    52
America's Health Insurance Plans, Karen Ignagni..................    43
Jevon, Thomas, M.D., Practicing Family Physician.................    39
Urban Institute, Robert Berenson.................................    32

                       SUBMISSIONS FOR THE RECORD

California Medical Association, San Francisco, CA, joint letter..    67
Ebeler, Jack, Alliance of Community Health Plans, statement......    71
EmCare, Inc., Dallas, TX, statement..............................    75
Griskewicz, Mary, Healthcare Information and Management Systems 
  Society, Alexandria, VA, statement.............................    77
Johnson, Michele, Medical Group Managment Association, statement.    78
Mennuti, Michael, American College of Obstetricians and 
  Gynecologists, Washington, DC, letter..........................    80
Moore, Justin, American Physical Therapy Association, Alexandria, 
  VA, statement..................................................    81
Wojcik, Steven, National Business Group on Health, statement.....    84






















         THE MEDICARE VALUE-BASED PURCHASING FOR PHYSICIANS ACT

                              ----------                                



                      THURSDAY, SEPTEMBER 29, 2005

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Health
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 3:00 p.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
September 22, 2005
No. HL-9

 Johnson Announces Hearing on the Medicare Value-Based Purchasing for 
                             Physicians Act

    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 H.R. 3617, the ``Medicare Value-
Based Purchasing for Physicians' Services Act of 2005.'' The hearing 
will take place on Thursday, September 29, 2005, in the main Committee 
hearing room, 1100 Longworth House Office Building, beginning at 3:00 
p.m., or immediately following the full Committee hearing.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 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:

      
    H.R. 3617, introduced by Congresswoman Johnson on July 29, 2005, 
would repeal the Sustainable Growth Rate formula and replace it with a 
stable and predictable annual update based on changes in the costs of 
providing care. Such payments would be linked to health care quality 
and efficiency.
      
    This legislation would provide a differential payment update to 
practitioners meeting pre-established thresholds of quality or pre-
established levels of improvement, equal to the Medicare Economic Index 
(MEI). Practitioners not meeting these thresholds would receive an 
update of MEI, minus 1 percent.
      
    Measures of quality and efficiency would include a mix of outcome, 
process and structural measures. Clinical care measures must be 
evidence-based. Practitioners would be directly involved in determining 
the measures used for assessing their performance.
      
    The Centers for Medicare & Medicaid Services would be required to 
analyze volume and spending growth annually, and make recommendations 
on regulatory or legislative changes to respond to inappropriate 
growth. The Medicare Payment Advisory Commission would review this 
report and recommendations.
      
    In announcing the hearing, Chairman Johnson stated, ``I introduced 
the Medicare Value-Based Purchasing Act in response to testimony at our 
three Subcommittee hearings on physician payments and value-based 
purchasing this year. Many of my colleagues on this Subcommittee and in 
the House support this bill, and I thank them for that support. For 
several years, I have argued that the current Medicare payment system 
for physicians is unsustainable. I believe that this legislation 
represents an important step in our efforts to move Medicare into the 
twenty-first century. We have the ability to vary payment based on the 
quality and efficiency of care delivered to our seniors under Medicare, 
and we should use it. This hearing will offer the Subcommittee an 
opportunity to hear from witnesses about this important legislation.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the provisions in H.R. 3617.
      

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FORMATTING REQUIREMENTS:

      
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with disabilities. If you are in need of special accommodations, please 
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materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman JOHNSON. Good afternoon, everyone. I am going to 
call the hearing to order. Pete is on his way, but I am going 
to start with my opening statement, assuming that he will 
survive not hearing it. We are going to have five votes in an 
hour, so we are going to try to hear all of our witnesses 
before we do have to vote because it is such a long recess, and 
after that, of course, people are flying off to planes. Let me 
just open by saying I am very pleased to be holding this 
hearing on actually a legislative initiative that we introduced 
and a series of amendments that we have circulated. I want to 
thank many of my colleagues on the Subcommittee for 
cosponsoring the legislation and for many others for taking an 
intense interest in it, because I think this initiative 
represents an attempt to move into the 21st century. It is not 
going to be perfect, but it is a serious start. There are 80 
pay-for-performance systems out there already, and I think it 
is very important that the Federal Government set a model of 
how you do this and try to make sure that as the Nation moves 
in this development--in this direction, there is some 
homogeneity in both process and criteria.
    Today's legislative hearing on H.R. 3617 follows a series 
of hearings by this Subcommittee to explore ways to address 
physician reimbursement under the Medicare Program. This 
legislation incorporates the many ideas brought to the 
Subcommittee by government agencies, physician and other 
practitioner organizations, purchasers with experience in 
value-based purchasing in the private market, and 
representatives of Medicare beneficiaries. To promote health 
care quality, as well as efficiency in Medicare, the bill would 
no longer pay providers the same amount regardless of the 
quality of the care they provide. Payment updates would be 
linked to health care quality and efficiency. Under this 
legislation, Medicare would provide a differential update for 
physician services. All practitioners would receive a 1.5-
percent update in 2006 instead of the 4.4-percent decrease 
projected under the current law, and in 2007 and thereafter--
2007, 2008, practitioners who report quality and efficiency 
measures would receive an update equal to the medical economic 
index (MEI). Those who do not report will receive a lower but 
still positive update equal to the MEI minus 1 percentage 
point. This is similar to how we currently pay hospitals under 
Medicare.
    Beginning in 2009, practitioners who meet pre-established 
thresholds of quality or show pre-established levels of 
improvement would receive a payment update equal to the MEI. 
Those who do not meet this threshold would receive a positive 
but lower update equal to MEI minus 1 percentage point. The 
legislation provides a structure for a value-based program. It 
outlines characteristics that quality measures must satisfy. 
For example, measures must include a mix of outcome, process 
and structural measures; be evidence-based if they are related 
to clinical care; be consistent, valid, practical and not 
overly burdensome to collect. So, there are a number of 
criteria in the bill that measures must meet to assure that 
they are objective and quality-oriented. The program must 
address issues of fairness by adjusting measures and ratings to 
account for very sick patients, those who cannot or do not 
comply with directives or who are located in neighborhoods 
where traditions delay entry into the health care system. It is 
critically important that the value-based program not encourage 
patient selection or de-selection. The legislation outlines a 
process for selecting measures that ensures that practitioners 
would be directly involved in the measures used to gauge their 
performance.
    Practitioners would submit clinical care--I am going to cut 
short my opening statement and not go through the whole 
process. It is laid out in the bill. But I do want to note that 
I believe it is terribly important that clinicians have control 
over clinical measures. So, in the bill, they do make the 
proposals, and while the consensus-building body builds 
consensus around which measures are most important to use, the 
government actually cannot invent clinical measures. The 
government can initiate on its own process and structural 
measures and goes through the rulemaking process to assure that 
they receive public input in the process of identifying 
measures in those categories.
    Our witnesses provide their thoughts on this legislation 
and on the amendments that we have circulated. On our first 
panel we have Dr. Mark McClellan, the Centers for Medicare and 
Medicaid Services (CMS) Administrator. Our second panel 
includes Dr. Robert Berenson of the Urban Institute and a 
former CMS official who brings us a wealth of knowledge about 
physician payments. Dr. Thomas Jevon is a family physician in 
solo practice located in Wakefield, Massachusetts, who will 
provide input from that perspective. Dr. Jevon also will share 
his experiences with the Bridges to Excellence quality 
improvement program as a solo practitioner. Karen Ignagni, from 
America's Health Insurance Plans, will provide us with a 
purchaser's point of view and give us examples of value-based 
purchasing programs from her member companies. Our last 
witness, Dr. John Armstrong from the American Medical 
Association (AMA), will present the views of physicians of the 
AMA, many of which have had experience with physician payment 
systems similar to that recommended in the legislation. Mr. 
Stark, welcome, and would you like to make an opening 
statement?
    Mr. STARK. I would love to. Thank you, Madam Chair. This is 
our fourth hearing this year on this physician payment system 
or problem, and we still haven't focused in on the underlying 
issues that got us to where we are today. The administration, 
majority, organized medicine and, I suppose, us by acquiescence 
all know full well what the temporary increases in the Medicare 
Modernization Act (MMA), would exacerbate the cliff or the drop 
that we now face, yet we have done nothing to craft a solution. 
We have had a lot of hearings, but no solutions. Organized 
medicine and many in Congress have proposed to just repeal the 
sustainable growth rate (SGR) with little or no discussion or 
options as to what we could replace it with. I am not going to 
defend the SGR, but--I will let Chairman Thomas do that--but in 
my view, simply repealing it isn't an option. I think you told 
us, Dr. McClellan, sometime in previous testimony that we are 
talking $180 billion to do it, and that is a little scarce 
right now. People are quite enchanted, if not overly focused, 
on the this notion of pay for performance. Done properly, that 
would show me some promise. But I don't believe it can be done 
without a decent information technology plan in place.
    I would be willing to look, but I just don't--I think that 
particular issue--and I don't think until we are able to have 
complete electronic recordkeeping and universal recordkeeping 
that we can track pay for performance. Even then I suspect it 
would take several years, if not 10, to get the whole system 
going. I think the best thing we have now are the 
demonstrations that CMS has for hospitals and physicians, and I 
think we could watch those and evaluate those and have a better 
idea then of how to expand from the demonstrations that are now 
going forth. To rush to embrace this, is a fad as I call it, 
has diverted our attention from underlying problems in 
physician reimbursement, a system that needs to have these 
problems addressed; RBS utilization, Committee process, coding 
issues, perverse incentives, a whole host of things that I 
think we have to straighten out. The critical component of fee-
for-service Medicare has been ignored. The current system 
allows abusive providers to profit while the prudent providers 
pay the price in terms of reduced fees. We have to keep in mind 
that physician increases lead to premium increases unless we 
prevent it. Our beneficiaries are going to have record high 
increases, the next year increase again significant. We need to 
protect these premiums, and I share AARP's stand on this.
    I want to remind everyone--and although I would not be so 
skeptical as to suggest it was intentional--increased physician 
spending will get us very quickly toward this arbitrary 45-
percent cap on Medicare's general revenue support. That to me 
is the sword of Damocles hanging over our head, and if that 
drops, we are in the soup. That, in effect, destroys Medicare 
as we know it. If that is the intention of the administration 
and the majority, fine, let's talk about it; but the idea that 
we hit the 45-percent cap and then we no longer have an 
entitlement to me is something that I think should be repealed 
or else addressed with some replacement for Medicare as an 
entitlement. I would be willing to, as I discussed with the 
Chair and with Dr. McClellan, to support--whether you care 
whether I support it or not--but I would be willing to 
negotiate to support some kind of a 2-year override in the plan 
cuts, provided that we have some concrete steps for a new 
mechanism, whether it is geographic or specialty-specific 
targets, that would keep some control on overall expenditures. 
The best way, of course, to pay for this all would be to bring 
the plan payment down to fee-for-service rates, which is what 
we always intended, and nobody has ever shown me that the plans 
deserve this outrageous bonus that they are getting. In the 
meantime, I would support starting with pay for performance in 
the private plans. Let us start with these plans as MedPAC has 
recommended. They already have the data. They claim they 
deliver high-quality care. Let us hold them accountable, and, 
as they say, let us see if they can walk the walk as well as 
they talk the talk. Thanks.
    Chairman JOHNSON. Thank you very much, Pete. I would like 
to just acknowledge the presence of two of the Republican 
physicians who have been very actively interested in the health 
care legislation that we have been working on, Dr. Burgess of 
Texas and Dr. Gingrey of Georgia. Welcome to sitting with us 
this afternoon. All of the issues that Pete raised will be a 
part of our discussion as we move forward. There are two sides 
to every matter, and I hope that we can come to an 
understanding that allows my colleague from California to work 
with me on this legislation, because I certainly respect his 
concerns. Dr. McClellan.

    STATEMENT OF THE HONORABLE MARK MCCLELLAN, M.D., PH.D., 
ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES, U.S. 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Dr. MCCLELLAN. Madam Chairman, Congressman Stark, 
distinguished Subcommittee Members and other distinguished 
Members, thank you for the opportunities to be with you here 
this afternoon. In recent weeks we have seen once again the 
critical role that physicians play in helping people recover 
and stay well. We saw this in the response to Hurricane Katrina 
where when evacuees needed care all through the gulf coast and 
around the country, local physicians did not ask, how is this 
going to be paid for, what are the rules? They asked, what kind 
of care and assistance do evacuees need? They started providing 
it. We responded by supporting those efforts through 
modifications in our rules in Medicare and Medicaid and setting 
up a new waiver program that is already now available to most 
evacuees in our payment systems. In addition, I want to thank 
the physician community for being one of our most critical 
partners as we work to bring new drug coverage to Medicare 
beneficiaries on schedule and nationwide. Physician 
organizations and physicians all over the country have taken 
steps, like making available brochures and other information on 
where their patients can get the support they need to take 
advantage of the new coverage.
    On average, seniors are going to see their out-of-pocket 
costs fall by many hundreds of dollars next year, and I truly 
appreciate the effort physicians are taking to ensure that 
their patients have access to the medicines they need in this 
new program. As you well know, physician participation and 
leadership are also critical in providing care to beneficiaries 
in Medicare. We need to ensure that physicians are adequately 
compensated for this care in the Medicare Program, but how we 
pay also matters. Medicare's payment system for physicians 
should be set up to encourage and support them in providing 
quality care and preventing avoidable health care costs. After 
all, physicians are in the best position to know what can work 
best to improve their practice. Updates in the current payment 
system for physician services are now projected to be negative 
for the next 7 years. Continued negative updates for many years 
are not sustainable in terms of assuring access to quality care 
for Medicare beneficiaries. At the same time, simply increasing 
spending by adding larger updates into the current payment 
system is also not sustainable from the standpoint of 
Medicare's costs or beneficiary premiums and cost sharing, so 
it is critical now for Medicare to support physicians in 
achieving better care for our beneficiaries at a lower overall 
cost.
    I would like to thank you, Madam Chairman, for your 
leadership on this issue. I would like to thank the Ranking 
Member for his continued efforts to make sure that Medicare and 
our beneficiaries are getting the most value. There is also 
bipartisan interest in the Senate. We intend to continue 
working closely with you to consider changes to increase the 
effectiveness of how Medicare compensates physicians and to 
take new steps to avoid unnecessary costs. That is the best 
path to a sustainable payment system. I also want to thank the 
Nation's physician organizations for their leadership on issues 
of quality and performance. Thanks in part to the leadership 
and hard work of many physician organizations, substantial 
progress has been made to develop quality measures for most 
physician specialties. In fact, they have identified 66 
evidence-based quality measures for 29 specialties, as I detail 
in my written testimony. Those specialties represent 80 percent 
of Medicare physician spending. This is tremendous progress 
working together, and physician leadership has helped make it 
possible. We are also developing the infrastructure needed to 
support the reporting of measures like these on existing 
physician claims as soon as 2006. While we are still analyzing 
the issues, we are working out the details so that voluntary 
reporting can be accomplished under existing statutory 
authorities.
    Our collaborative work on identifying and measuring quality 
care so that we can better support it has been guided by some 
widely accepted principles. Quality measures should be 
evidence-based, valid, reliable and relevant to a significant 
part of a physician's actual practice. It is always important 
that quality measures do not discourage physicians from 
treating high-risk or difficult cases, as you mentioned. In 
addition, quality measures should be implemented in a realistic 
manner that is most relevant for quality improvements in all 
types of practices and patient populations while being least 
burdensome for physicians and other stakeholders. To make sure 
that these principles are met, quality measures should be 
developed in conjunction with open and transparent processes 
that promote consensus from a broad range of health care 
stakeholders.
    To achieve these goals, CMS joined in a process with the 
National Committee of Quality Assurance (NCQA), the AMA's 
Physician Consortium For Performance Improvement, other 
physician organizations and stakeholders to develop measures 
that would be appropriate for the ambulatory setting. We 
supported the National Quality Forum (NQF) endorsement of 
ambulatory care measures developed by the NCQA and the 
Physician Consortium. More recently we have also been working 
with the Ambulatory Care Quality Alliance, the American College 
of Physicians, the American Academy of Family Practitioners, 
the Nation's health plans and many other stakeholders to expand 
these efforts, and we are building on this progress--that I 
have already noted--with additional primary care quality 
measures as well as measures in other specialties. Activity is 
under way to prepare the other measures for NQF endorsement. As 
a result of this activity, we have 66 measures, as I mentioned, 
and 30 have already been endorsed or a part of the NQF process.
    The bottom line is that quality measures or indicators have 
been developed or are well along in the development process for 
most physician specialties. There are strong collaborations 
among health care providers and other stakeholders to build on 
this rapid progress to improve quality and avoid unnecessary 
costs. This is very good news for achieving our shared goal of 
supporting the best efforts of physicians to keep seniors well 
and to keep health care costs down. Madam Chairman, Mr. Stark, 
thanks again for the opportunity to testify. I would be happy 
to answer any of your questions.
    [The prepared statement of Dr. McClellan follows:]
Statement of The Honorable Mark McClellan, M.D., Ph.D., Administrator, 
 Centers for Medicare and Medicaid Services, U.S. Department of Health 
                           and Human Services
    Madam Chairman Johnson, Congressman Stark, distinguished 
Subcommittee members, thank you for inviting me to testify on value-
based purchasing for physicians under Medicare.
    I want to take this opportunity to thank the physician community 
for their heroic efforts on behalf of evacuees of hurricanes Katrina 
and Rita. Physicians rushed to provide care for those in need without 
even considering payments or program requirements. Providers who were 
personally affected by the hurricanes as well as those in areas 
sheltering evacuees have provided extensive medical services under the 
most challenging conditions. We have acted expeditiously to provide 
effective support for these efforts. We've done this through 
administrative adjustments to our Medicare and Medicaid payment rules. 
And we've implemented a new Medicaid waiver that provides for 
immediate, temporary Medicaid coverage as well as financial support for 
needed medical services that fall outside of standard Medicaid 
benefits, all using existing systems in the affected states so that 
they can be implemented quickly and effectively. Within just ten 
business days CMS reviewed and approved waivers for the states housing 
the vast majority of evacuees, including Texas, Arkansas, Mississippi, 
Alabama, Georgia, Florida, Idaho, and the District of Columbia. And we 
are working closely with all other states that need financial support. 
Through these efforts, we are helping all evacuees get the care they 
need as they get back on their feet, we are making sure that the health 
care providers get reimbursed for providing that care, and we are 
making sure that the states hosting the evacuees are covered for any 
substantial expenses that they incur.
    In addition, the physician community is one of our key partners as 
we work to implement the Medicare Modernization Act (MMA). As you well 
know, we are rapidly approaching the implementation date for Medicare's 
new prescription drug coverage. As physicians have known for many 
years, adequate access to medications is more important today than ever 
before. Physician organizations have worked closely with us to help 
inform their membership about the new benefits coming in Medicare to 
help their patients get access to up to date care. Physicians all over 
the country are helping beneficiaries take advantage of the new 
coverage, for example by providing materials in their offices about the 
basics of Medicare's prescription drug coverage, and letting them know 
where to go to get the information and support they need to make a 
confident decision. The new Medicare drug coverage will be available on 
time, nationwide, at a lower cost and with more benefits available than 
many people had expected. As a result, on average seniors will save 
many hundreds of dollars next year in their total out of pocket costs. 
I truly appreciate the time and effort physicians are taking to ensure 
their Medicare patients have access to the medications they need.
    As I testified in July, continued improvement of the Medicare 
program requires the successful participation of physicians and we need 
to ensure they are adequately compensated for the care they provide to 
people with Medicare. But how we pay also matters. In addition to 
providing adequate payments, Medicare's payment system for physicians 
should encourage and support them to provide quality care and prevent 
avoidable health care costs. After all, physicians are in the best 
position to know what can work best to improve their practices, and 
physician expertise coupled with their strong professional commitment 
to quality means that any solution to the problems of health care 
quality and affordability must involve physician leadership.
    Updates to the current payment system for physicians' services are 
projected to be negative for the next seven years. Such continued 
negative updates raise real concerns about this payment system in terms 
of assuring access to quality care for Medicare beneficiaries. At the 
same time, simply increasing spending by adding larger updates into the 
current volume-based payment system that is already experiencing 
increases of 12 to 13 percent or more per year would have an adverse 
effect from the standpoint of Medicare's finances or beneficiary 
premiums and cost-sharing, and does not promote better quality care.
    However, it is clear, under our current system, there is much 
potential for physicians to improve the value of our health care 
spending. Under the current system, there are substantial variations in 
resources and in spending growth for the same medical condition in 
different practices and in different parts of the country, without 
apparent difference in quality and outcomes, and without a clear basis 
in existing medical evidence. A study published in 2003 looked at 
regional variations in the number of services received by Medicare 
patients who were hospitalized for hip fractures, colorectal cancer, 
and acute myocardial infraction. The researchers found that patients in 
higher spending areas received approximately 60 percent more care, but 
that quality of care in those regions was no better on most measures 
and was worse for several preventive care measures. \1\ Further, there 
are many examples of steps that physicians have taken to improve 
quality while helping to keep overall costs down.
---------------------------------------------------------------------------
    \1\ Fisher, Elliott S., MD, MPH; David E. Wennberg, MD, MPH; 
Therese A. Stukel, Ph.D.; Daniel J. Gottlieb, MS; F.L. Lucas, Ph.D.; 
and Etoile L. Pinder, MS, ``The Implications of Regional Variations in 
Medicare Spending. Part 1: The Content, Quality, and Accessibility of 
Care,'' in The Annals of Internal Medicine, February 18, 2003, Vol. 
138, Issue 4.
---------------------------------------------------------------------------
    Because it is critical for CMS payment systems to support better 
outcomes for our beneficiaries at a lower cost, CMS is working closely 
and collaboratively with medical professionals and Congress to consider 
changes to increase the effectiveness of how Medicare compensates 
physicians for providing services to Medicare beneficiaries. I am 
engaging physicians on issues of quality and performance with the goal 
of supporting the most effective clinical and financial approaches to 
achieve better health outcomes for people with Medicare. We are 
committed to developing reporting and payment systems that enable us to 
support and reward quality, to improve care without increasing overall 
Medicare costs. When clear, valid and widely accepted quality measures 
are in place, pay-for-performance is a tool that could enable our 
reimbursement to better support efforts to improve quality and avoid 
unnecessary costs.
    Currently, hospitals and physicians are paid under separate 
systems. Under these systems, physicians do not receive credit for 
avoiding unnecessary hospitalizations by providing better care to their 
patients. However, in our physician group practice demonstration 
project, physicians could receive performance based payments derived 
from savings from preventing chronic disease complications, avoiding 
hospitalizations, and improving quality of care.
    The evidence is increasing that when we provide an incentive for 
reporting and achieving better quality, health care providers respond 
by using payments to take a range of steps from the simple to the high-
tech to make it happen. This should not really be surprising--our 
health professionals are dedicated, and they want to do everything in 
their power to get the best care to their patients. So when we support 
better quality, we enable them to do what they do best.
    We've seen this approach work first-hand with hospital payments 
where we have tied the annual hospital payment update to quality 
measure reporting. It has had a positive impact on the availability of 
quality information, with about 70 percent of hospitals reporting 
quality data.
    Reporting clinically valid quality measures is an important step 
toward making it easier to achieve major improvements in quality--if 
you cannot measure it, it is hard to take steps to improve it. We have 
been working hard in close collaboration with health professionals and 
other stakeholders to promote the development of better measures.
Voluntary Reporting of Quality Measures Can Be Implemented Soon
    Thanks to the leadership and hard work of many physician 
organizations, we have made considerable progress creating consensus 
around a set of primary care quality measures. In addition, we have 
made substantial progress to develop quality measures for the majority 
of physician specialties. We now have 66 quality measures for 29 
specialties. Those 29 specialties represent about 80 percent of 
Medicare physician spending. We are also developing the infrastructure 
so that the reporting of these measures on existing physician claims 
could begin as soon as 2006. While we are still analyzing the issues, 
we are working out the details so that reporting can be accomplished 
under existing statutory authorities.
CMS Works with Partners to Develop, Endorse, and Implement Quality 
        Measures
    The ability to evaluate and measure quality is an important 
component in delivering high quality care. For several years, CMS has 
been collaborating with a variety of stakeholders to develop and 
implement uniform, standardized sets of performance measures for 
various health care settings. In recent months, thanks to the 
leadership of many physician organizations, these efforts have 
accelerated even further.
    Our work on the quality measures has been guided by the following 
widely-accepted principles. Quality measures should be evidence-based. 
They should be valid and reliable. They should be relevant to a 
significant part of medical practice. And to assure these features, 
quality measures should be developed in conjunction with open and 
transparent processes that promote consensus from a broad range of 
health care stakeholders. It also is important that quality measures do 
not discourage physicians from treating high-risk or difficult cases, 
for example, through a risk adjustment mechanism. In addition, quality 
measures should be implemented in a realistic manner that is most 
relevant for quality improvement in all types of practices and patient 
populations, while being least burdensome for physicians and other 
stakeholders.
    More than two years ago, CMS initiated a process with the National 
Committee for Quality Assurance (NCQA), the American Medical 
Association's (AMA) Physician Consortium for Performance Improvement, 
and other stakeholders to develop measures that would be appropriate 
for the ambulatory setting. As part of this endeavor, CMS took the lead 
in supporting the National Quality Forum (NQF) endorsement of 
ambulatory care measures developed by the NCQA and the Physician 
Consortium. The NCQA is a private, not-for-profit organization 
dedicated to improving health care quality by providing information 
about health care quality to help inform consumer and employer choice. 
The NQF is a private, not-for-profit membership organization created to 
develop and implement a national strategy for healthcare quality 
measurement and reporting. The result of this activity has been the 
recent endorsement by the NQF of 36 ambulatory quality measures.
    Examples of three ambulatory quality measures are the results of 
the hemoglobin A1C and LDL and blood pressure tests for diabetic 
patients. The clinical evidence suggests that patients who have a 
hemoglobin A1C test below 9 percent, an LDL less than or equal to 100 
mg/dl, and blood pressures less than or equal to 140/90 mmHg have 
better outcomes. These measures are evidence-based, reliable and valid, 
widely accepted and supported, and were developed in an open and 
transparent manner. Evidence indicates that reaching these goals can 
lead to fewer hospitalizations by avoiding complications from diabetes 
such as amputation, renal failure, and heart disease.
    Two quality measures endorsed by NQF for heart failure patients 
include placing the patient on blood pressure medications and beta 
blocker therapy. Here too, these therapies have been shown to lead to 
better health outcomes and reduce preventable complications. Together, 
diabetes and heart failure account for a large share of potentially 
preventable complications.
    In addition to primary care quality measures, other specialties are 
developing measures. For example, measures of effectiveness and safety 
of some surgical care at the hospital level have been developed through 
collaborative programs like the Surgical Care Improvement Program 
(SCIP), which includes the American College of Surgeons. Preventing or 
decreasing surgical complications can result in a decrease in avoidable 
hospital expenditures and use of resources. For example, use of anti-
biotic prophylaxis has been shown to have a significant effect in 
reducing post-operative complications at the hospital level. This 
measure is well developed and there is considerable evidence that its 
use could not only result in better health but also avoid unnecessary 
costs. These post-operative complication measures, which are in use in 
our Hospital Quality Initiative, are being adapted for use as physician 
quality measures. Application of this type of post-operative 
complication measure at the physician level has the potential to help 
avoid unnecessary costs as well as improve quality.
    We also are collaborating with other specialty societies, such as 
the Society of Thoracic Surgeons (STS), to implement quality measures 
that reflect important aspects of the care of specialists and sub-
specialists. The STS has already developed a set of 21 measures at the 
hospital level that are risk adjusted and track many common 
complications as outcome measures. STS is also conducting a national 
pilot program to measure cost and quality simultaneously, while 
communicating quality and efficiency methods across regional hubs with 
the objective of reducing unnecessary complications and their 
associated cost. The STS measures have been adapted to a set of five 
quality measures for physicians, such as for a patient who receives by-
pass surgery with use of internal mammary artery.
    Many other specialties have also taken steps to develop evidence-
based quality measures. On July 14, 2005, I sent a letter to many 
specialty societies, summarizing some of the work to date and 
requesting an update on their efforts to develop quality and 
performance measures.
    I want to thank the AMA and specialty societies for their very 
positive response to this effort. Six months ago few specialties had 
quality measures. Today the majority of specialties have quality 
measures. Many specialties have created quality task forces and are 
participating in the quality measurement process. As a result, a total 
of 66 quality measures now exist covering 29 specialties. These 
specialties represent about 80 percent of Medicare physician spending. 
NQF has endorsed 36 of the measures. Activity is underway to prepare 
the other measures for NQF endorsement. The latest version of all 66 
quality measures is attached to this statement.
    CMS has had productive exchanges with most medical specialty 
organizations. I would encourage organizations that have not entered 
into discussions with us to initiate a dialogue as soon as possible so 
we can work together to develop clinically valid measures. In certain 
areas, compliance with evidence-based practice guidelines has the 
potential to be a quality measure.
    The process we have used with the medical profession to develop 
quality measures beyond ambulatory care should greatly expedite and 
facilitate the development, acceptance and implementation of quality 
measures for additional specialties and services. By working in 
collaboration with the societies, there has been considerable progress 
in the measure development process. This preparation will facilitate 
the NQF endorsement process. However, measures that have not yet gone 
through the NQF endorsement process are still of great value. Physician 
reporting of these measures will help foster their acceptance in the 
medical community and help prepare physicians for their eventual 
adoption. Moreover, since there is likely to be reporting of the 
quality measures for a period of time before payment based on 
performance, NQF consensus is not required to begin reporting of such 
measures. The rapid progress to develop quality measures for the 
majority of specialties is a clear indication that quality measures are 
gaining acceptance as an important element in achieving better 
performance in our health care system.
    Our experience with hospital quality measures is that after a 
measure is endorsed additional work with stakeholders is necessary to 
assure successful implementation. The Hospital Quality Alliance played 
an important role in implementation of the hospital quality measures by 
facilitating hospital adoption and understanding of technical concerns. 
The Ambulatory Care Quality Alliance (AQA) can serve a similar role to 
help with physician adoption of the ambulatory quality measures. The 
AQA is a consortium led by the American Academy of Family Physicians, 
the American College of Physicians, America's Health Insurance Plans 
and the Agency for Healthcare Research and Quality, CMS and other 
stakeholders, including the AMA and other physician groups, as well as 
representatives of private sector purchasers and consumers.
CMS is Developing a System to Simply Reporting of Quality Measures
    The development, endorsement, and consensus process is not 
sufficient to implement measures successfully. Detailed specifications 
are needed about such items as the associated diagnosis codes and the 
rules for reporting (e.g., the ordering vs. performing physician). 
There is also a key issue about how a payor like Medicare can obtain 
information on the quality measures. For this reason, while the rapid 
development of quality measures is ongoing, CMS also has been working 
on the technical methods for supporting effective, simple, and the 
least burdensome reporting and payment based on these measures.
    In the years ahead, it is expected that electronic record systems 
can be developed that would provide information that is needed to 
measure and report on quality while fully protecting patient 
confidentiality. However, while electronic health records would greatly 
facilitate the accurate and efficient use of information on quality 
measures and quality improvement, progress on supporting quality 
improvement should not be delayed until electronic health records are 
widely used. Indeed, taking steps now to promote quality reporting and 
improvement also could promote the adoption of and investment by 
physicians in electronic records, which would facilitate more efficient 
quality reporting and quality improvement activities. In the short 
term, there is considerable evidence that information on a broad range 
of quality measures can be obtained adequately via information 
transmitted on existing claims. In particular, with adequate guidance 
for appropriate coding practices by physician offices, the so-called G-
codes, HCPCS codes established by Medicare and reportable on existing 
claims forms, can be the vehicle to report the information on claims. 
While HCPCS codes generally represent services furnished, the G-codes 
would report information on the quality measures, and could potentially 
be a basis for payment based on the report of such information.
    We are in the process of converting all the quality measures into a 
series of G-codes that could then be reported by a physician on a claim 
in a way that is simple and does not burden physicians. This reporting 
mechanism has several advantages. It allows collection of information 
on the quality measures via an existing system familiar to the 
physician community. It makes reporting of the information simple for 
physicians. Furthermore, it allows collection of the quality measures 
to begin very soon--possibly as early as 2006.
    Many changes in Medicare involve changes in the systems used by our 
contractors to pay claims. We are currently assessing whether changes 
in our contractor systems might be necessary to implement the reporting 
of information on the quality measures on claims. We are also assessing 
implementation issues under a scenario where reporting and subsequent 
performance could result in a payment differential for physicians.
    Many believe that a trial period of a year or two might be 
appropriate where physicians would report on the quality measures, 
including quality measures that have broad endorsement and support but 
that have not yet fully completed a formal consensus process. The bill 
you introduced, Madam Chairman, H.R. 3617, would begin with reporting 
and move to performance. Some believe that Medicare could establish a 
payment differential where physicians who report on the measures get a 
different payment from physicians who do not report. Many believe that 
after a trial period for reporting Medicare would then move to a system 
where the payment differential would be based on performance for the 
measures.
    In many ways, where we are today with reporting quality measures 
for physicians is analogous to where we were before the MMA enacted 
section 501, the 0.4 percentage point payment differential for 
reporting of 10 quality measures. Prior to MMA, mechanisms had been 
established so that hospitals could voluntarily report information on 
the quality measures. When MMA was enacted, hospitals quickly responded 
and most of those institutions that had not previously reported the 
measures did so. Today there are a total of 20 hospital quality 
measures. Hospitals can voluntarily report information on the 
additional 10 measures and such reporting does not have a payment 
consequence. About 70 percent of hospitals are already reporting on 17 
of the measures. Information on all measures reported by hospitals is 
available on the CMS Hospital Compare website.
    The bottom line is that quality measures or indicators have been 
developed or are well along in the development process for most 
physicians' specialties. We are currently developing G-codes to report 
information on these measures on existing claims. We are sorting 
through systems issues for our contractors. While we still have much 
work to do, at this point, we believe that we can make rapid progress 
in very short order so that broad initial reporting of measures that 
are very relevant to the quality and cost of care for our beneficiaries 
could begin as soon as 2006.
CMS Works to Ensure Resources are Utilized Appropriately
    In many cases, quality measures may help us get more value for our 
health care dollars. We need to build on this by examining appropriate 
resource use. The well documented wide variation in resource use among 
areas for treating the same medical condition raises questions about 
whether Medicare is getting good value in all areas.
    In my June 24 letter to you and Chairman Thomas, I indicated that 
we supported and were preparing to implement MedPAC's March 
recommendation to Congress that: ``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.''
    Measures of physician resource use have been used and are being 
developed by a number of public and private entities. The most widely 
used measure of physician resource use is total expenditures per case. 
Total expenditures include all resources involved in furnishing the 
case, including physicians' services, laboratory services and other 
diagnostic tests, hospital services, other facilities, drugs, durable 
medical equipment, etc.
    The measures of resource use are generally applied to episodes of 
care. The beginning of an episode may be defined by a new diagnosis or 
treatment, such as hospitalization. Such episodes usually end after 
claims related to the episode are not present for a defined period of 
time. Such episodes could include heart attacks or broken hips. For 
surgeons, coronary bypass surgery and hip replacements would be 
considered episodes. Episodes also may occur for a full year in the 
case of chronic diseases, such as diabetes, heart failure, and chronic 
pulmonary disease.
    We are working to implement the MedPAC recommendation using 
information derived from claims data. We are developing resource use 
measures that target particular tests and procedures that may be over--
or under-used, as overuse is inefficient and under-use raises quality 
concerns. We also are developing pilot projects that will use software 
programs created by a number of private sector entities. These programs 
group services into episodes using claims data. The episodes are then 
assigned to physicians so average resource use can be computed. We plan 
to pilot test resource use for a few selected conditions in two states. 
We are assessing measurement issues such as case-mix/severity 
adjustment and identification of appropriate comparison groups. Our 
goal would be to share results with physicians confidentially to 
educate them about how they compare to peers and ultimately to 
incorporate measures related to services, resources, and expenditures 
into the payment system as envisioned in your bill, H.R. 3617.
Conclusion
    Madam Chairman, thank you again for this opportunity to testify on 
improving how Medicare pays for services. We look forward to working 
with Congress and the medical community to develop a system that 
ensures appropriate payments while also promoting the highest quality 
of care, without increasing overall Medicare costs. As a growing number 
of stakeholders now agree, we must increase our emphasis on payment 
based on improving quality and avoiding unnecessary costs to solve the 
problems with the current physician payment system. Thanks to the 
leadership of many private-sector organizations working together, and 
especially thanks to the leadership of physicians, we have made rapid 
progress in developing quality measures and indicators as well as in 
building an infrastructure to allow the reporting of such measures. I 
would be happy to answer any of your questions.

                                   ----------

Conversion of Clinial Measures to G-Codes
Physicians Pay-for-Performance
As of: September 26, 2005

Internal Medicine, Family Practice, General Practice

     Diabetic patient with most recent HbA1c level (within the 
last 6 months) documented as less than or equal to 9%
     Diabetic patient with most recent HbA1c level (within the 
last 6 months) documented as greater than 9%
     Clinician documented that diabetic patient was not 
eligible candidate for HbA1c measure
     Clinician has not provided care for the diabetic patient 
for the required time for HbA1c measure (within the last 6 months)

     Diabetic patient with most recent LDL (within the last 12 
months) documented as less than or equal to 100 mg/dl
     Diabetic patient with most recent LDL (within the last 12 
months) documented as greater than 100 mg/dl
     Clinician documented that diabetic patient was not 
eligible candidate for LDL measure
     Clinician has not provided care for the diabetic patient 
for the required time for LDL measure (within the last 12 months)

     Diabetic patient with most recent blood pressure (within 
the last 6 months) documented as less than or equal to 140/90 mmHg
     Diabetic patient with most recent blood pressure (within 
the last 6 months) documented as greater than 140/90 mmHg
     Clinician documented that the diabetic patient was not 
eligible candidate for blood pressure measure
     Clinician has not provided care for the diabetic patient 
for the required time for blood measure (within the last 6 months)

     HF patient with LVSD documented to be on either ACE-I or 
ARB therapy
     HF patient with LVSD not documented to be on either ACE-I 
or ARB therapy
     Clinician documented that HF patient was not eligible 
candidate for either ACE-I or ARB therapy measure

     HF patient with LVSD documented to be on B-blocker therapy
     HF patient with LVSD not documented to be on B-blocker 
therapy
     Clinician documented that HF patient was not eligible 
candidate for B-blocker therapy measure

     AMI-CAD patient documented to be on B-blocker therapy
     AMI-CAD patient not documented to be on B-blocker therapy
     Clinician documented that AMI-CAD patient was not eligible 
candidate for B-blocker therapy measure

     AMI-CAD patient documented to be on antiplatelet therapy
     AMI-CAD patient not documented to be on antiplatelet 
therapy
     Clinician documented that AMI-CAD patient was not eligible 
candidate for antiplatelet therapy measure

     Patient documented to have received influenza vaccination 
during the flu season
     Patient not documented to have received influenza 
vaccination during the flu season
     Clinician documented that patient was not eligible 
candidate for influenza vaccination measure

Internal Medicine--Cardiology

     HF patient with LVSD documented to be on either ACE-I or 
ARB therapy
     HF patient with LVSD not documented to be on either ACE-I 
or ARB therapy
     Clinician documented that HF patient was not eligible 
candidate for either ACE-I or ARB therapy measure

     HF patient with LVSD documented to be on B-blocker therapy
     HF patient with LVSD not documented to be on B-blocker 
therapy
     Clinician documented that HF patient was not eligible 
candidate for B-blocker therapy measure

     AMI-CAD patient documented to be on B-blocker therapy
     AMI-CAD patient not documented to be on B-blocker therapy
     Clinician documented that AMI-CAD patient was not eligible 
candidate for B-blocker therapy measure

     AMI-CAD patient documented to be on antiplatelet therapy
     AMI-CAD patient not documented to be on antiplatelet 
therapy
     Clinician documented that AMI-CAD patient was not eligible 
candidate for antiplatelet therapy measure

     CAD--with LDL documented to be less than or equal to 
100mg/dl
     CAD--with LDL documented to be greater than 100mg/dl
     Clinician documented that CAD patient was not eligible 
candidate for LDL measure

     Counseling on the importance of blood sugar control and 
monitoring of HgA1c documented to have been provided to patient with 
diabetes mellitus
     Counseling on the importance of blood sugar control and 
monitoring of HgA1c not documented to have been provided to patient 
with diabetes mellitus

     Counseling on the use of antioxidants documented to have 
been provided to patient with intermediate age-related macular 
degeneration (AMD), or advanced AMD in one eye, based on data from the 
Age-Related Eye Disease Study
     Counseling on the use of antioxidants not documented to 
have been provided to patient with intermediate age-related macular 
degeneration (AMD), or advanced AMD in one eye, based on data from the 
Age-Related Eye Disease Study
     Clinician documented that patient with intermediate age-
related macular degeneration (AMD), or advanced AMD in one eye (based 
on data from the Age-Related Eye Disease Study) was not eligible 
candidate for antioxidant measure

     Central corneal thickness measurement documented for a 
patient who is primary open angle glaucoma suspect
     Central corneal thickness measurement not documented for a 
patient who is primary open angle glaucoma suspect
     Clinician documented that patient who is primary open 
angle glaucoma suspect was not eligible candidate for central corneal 
thickness measure

     Cataract surgery candidate documented to have been 
questioned about his/her visual function, including a review of the 
patient's self-assessment of visual status and visual needs
     Cataract surgery candidate not documented to have been 
questioned about his/her visual function, including a review of the 
patient's self-assessment of visual status and visual needs

     A 5% solution of povidone-iodine documented to have been 
provided as an infection prophylaxis in the pre-operative period for 
intraocular surgery
     A 5% solution of povidone-iodine not documented to have 
been provided as an infection prophylaxis in the pre-operative period 
for intraocular surgery
     Clinician documented that patient at the pre-operative 
period for intraocular surgery was not an eligible candidate for 5% 
solution of povidone-iodine infection prophylaxis measure

Surgery--Ophthalmology

     Chronic open angle glaucoma patient documented to have 
received optic nerve assessment
     Chronic open angle glaucoma patient not documented to have 
received optic nerve assessment

Surgery--Orthopedic

     Patient documented to have received antibiotic prophylaxis 
one hour prior to incision time (two hours for vancomycin)
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to incision time (two hours for vancomycin)
     Clinician documented that patient was not an eligible 
candidate for the antibiotic prophylaxis one hour prior to incision 
time (two hours for vancomycin) measure

     Patient with documented receipt of thromboemoblism 
prophylaxis
     Patient without documented receipt of thromboemoblism 
prophylaxis
     Clinician documented that patient was not an eligible 
candidate for thromboemoblism prophylaxis measure

Surgery--General

     ESRD Patient requiring hemodialysis vascular access 
documented to have received autogenous AV fistula
     ESRD Patient requiring hemodialysis documented to have 
received vascular access other than autogenous AV fistula
     Clinician documented that ESRD patient requiring 
hemodialysis was not a candidate for autogenous AV fistula (or other 
autogenous AV fistula) evaluation measure

     Patient documented to have received antibiotic prophylaxis 
one hour prior to incision time (two hours for vancomycin)
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to incision time (two hours for vancomycin)
     Clinician documented that patient was not an eligible 
candidate for the antibiotic prophylaxis one hour prior to incision 
time (two hours for vancomycin) measure

     Patient with documented receipt of thromboemoblism 
prophylaxis
     Patient without documented receipt of thromboemoblism 
prophylaxis
     Clinician documented that patient was not an eligible 
candidate for thromboembolism prophylaxis measure

Internal Medicine--Hematology

     Patient with multiple myeloma not in remission documented 
to be treated with a bisphophonate
     Patient with multiple myeloma not in remission not 
documented to be treated with a bisphophonate
     Clinician documented that patient with multiple myeloma 
not in remission was not an eligible candidate for bisphophonate 
treatment measure

     MDS patient presenting with anemia (Hb < 11 g/dl) 
documented to have received bone marrow examination, including iron 
stain, prior to receiving erythropoietin therapy
     MDS patient presenting with anemia (Hb < 11 g/dl) not 
documented to have received bone marrow examination, including iron 
stain, prior to receiving erythropoietin therapy
     Clinician documented that MDS patient presenting with 
anemia (Hb < 11 g/dl) was not an eligible candidate for bone marrow 
examination, including iron stain, measure prior to receiving 
erythropoietin therapy

     CLL patient documented to have received confirmation of 
CLL diagnosis by flow cytometry as part of initial diagnostic 
evaluation
     CLL patient not documented to have received confirmation 
of CLL diagnosis by flow cytometry as part of initial diagnostic 
evaluation
     Clinician documented that CLL patient was not eligible 
candidate for flow cytometry as part of initial CLL diagnostic 
evaluation measure

     MDS and acute leukemia patient documented to have received 
cytogenic testing on bone marrow or peripheral blood (as appropriate) 
as part of initial diagnostic evaluation
     MDS and acute leukemia patient not documented to have 
received cytogenic testing on bone marrow or peripheral blood (as 
appropriate) as part of initial diagnostic evaluation
     Clinician documented that MDS and acute leukemia patient 
was not an eligible candidate for cytogenic testing on bone marrow or 
peripheral blood (as appropriate) as part of initial diagnostic 
evaluation measure

Emergency Medicine

     AMI: Patient documented to have received aspirin at 
arrival
     AMI: Patient not documented to have received aspirin at 
arrival
     Clinician documented that AMI patient was not an eligible 
candidate aspirin at arrival measure

     AMI: Patient documented to have received B-blocker at 
arrival
     AMI: Patient not documented to have received B-blocker at 
arrival
     Clinician documented that AMI patient was not an eligible 
candidate for B-blocker at arrival measure

     PNE: Patient documented to have received antibiotic within 
4 hours of presentation
     PNE: Patient not documented to have received antibiotic 
within 4 hours of presentation
     Clinician documented that PNE patient was not an eligible 
candidate for antibiotic within 4 hours of presentation measure

Internal Medicine--Gastroenterology

     Clinician documented that patient received conscious 
sedation consistent with guidelines, including procedural monitoring 
(ASGE Guidelines)
     Patient received conscious sedation in a manner that was 
not outlined in the guideline specifications, including procedural 
monitoring (ASGE Guidelines)
     Clinician documented that patient was not an eligible 
candidate for conscious sedation measure

     Patient documented to have serum HCV RNA performed prior 
to initiating HCV antiviral therapy
     Patient not documented to have serum HCV RNA performed 
prior to initiating HCV antiviral therapy

Internal Medicine--Pulmonology

     COPD patient with documented spirometry evaluation in last 
12 months
     COPD patient without documented spirometry evaluation in 
last 12 months

     COPD patient documented to have received, at least 
annually, smoking cessation intervention
     COPD patient no documented to have received, at least 
annually, smoking cessation intervention

     COPD patient documented to have received annual influenza 
vaccination
     COPD patient not documented to have received annual 
influenza vaccination

Anesthesiology

     Patient who underwent general anesthesia for greater than 
60 minutes documented to have immediate post-operative normothermia
     Patient who underwent general anesthesia for greater than 
60 minutes not documented to have immediate post-operative normothermia
     Clinician documented that patient who underwent general 
anesthesia for greater than 60 minutes was not an eligible candidate 
for immediate post-operative normothermia measure

     Patient documented to have received antibiotic prophylaxis 
one hour prior to incision time (two hours for vancomycin)
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to incision time (two hours for vancomycin)
     Clinician documented that patient was not an eligible 
candidate for the antibiotic prophylaxis one hour prior to incision 
time (two hours for vancomycin) measure

     Patient treated with chronic pain management with 
documented comprehensive history and physical consistent with 
guidelines (ASA Guidelines)
     Patient treated with chronic pain management without 
documented comprehensive history and physical consistent with 
guidelines (ASA Guidelines)

Internal Medicine--Neurology

     Patient with acute ischemic stroke documented to be on 
anti-thrombotic therapy (aspirin, ticlopidine, clopidogrel, 
dipyridamole, and warfarin)
     Clinician documented that patient with acute ischemic 
stroke was not an eligible candidate for anti-thrombotic therapy 
(aspirin, ticlopidine, clopidogrel, dipyridamole, and warfarin) measure

     Patient with acute ischemic stroke and nonvalvular atrial 
fibrillation documented to be on warfarin therapy
     Clinician documented that patient with acute ischemic 
stroke and nonvalvular atrial fibrillation was not an eligible 
candidate for warfarin therapy measure

     Non-ambulatory patient with acute ischemic stroke 
documented to have received DVT prophylaxis within the first 24 hours 
of admission
     Clinician documented that non-ambulatory patient with 
acute ischemic stroke was not an eligible candidate for DVT prophylaxis 
measure within the first 24 hours of admission

     Patient with mild to moderate Alzheimer's disease 
documented to have received centrally acting cholinesterase inhibitors
     Clinician documented that patient with mild to moderate 
Alzheimer's disease was not an eligible candidate for centrally acting 
cholinesterase inhibitor measure

Psychiaty

For patients with a newly diagnosed episode of major depressive 
disorders:

     Patient documented as being treated with antidepressant 
medication during the entire 12 week Acute Treatment Phase
     Patient not documented as being treated with 
antidepressant medication during the entire 12 week Acute Treatment 
Phase
     Clinician documented that patient was not an eligible 
candidate for antidepressant medication during the entire 12 week Acute 
Treatment Phase measure

     Patient documented as being treated with antidepressant 
medication for at least 6 months Continuous Treatment Phase
     Patient not documented as being treated with 
antidepressant medication for at least 6 months Continuous Treatment 
Phase
     Clinician documented that patient was not an eligible 
candidate for antidepressant medication for Continuous Treatment Phase

Internal Medicine--Nephrology

     ESRD patient with documented dialysis dose of URR greater 
than or equal to 65% (or Kt/V greater than or equal to 1.2)
     ESRD patient with documented dialysis dose of URR less 
than 65% (or Kt/V less than 1.2)
     Clinician documented that ESRD patient was not an eligible 
candidate for URR or Kt/V measure

     ESRD patient with documented hematocrit greater than or 
equal to 35
     ESRD patient with documented hematocrit less than 35
     Clinician documented that ESRD patient was not an eligible 
candidate for hematocrit measure

     ESRD Patient requiring hemodialysis vascular access 
documented to have been evaluated for autogenous AV fistula
     ESRD Patient requiring hemodialysis documented to have 
been evaluated for vascular access other than autogenous AV fistula
     Clinician documented that ESRD patient requiring 
hemodialysis was not a candidate for autogenous AV fistula (or other 
autogenous AV fistula) evaluation measure

Internal Medicine and Rehabilitation

     Patient with acute ischemic stroke documented to be on 
anti-thrombotic therapy (aspirin, ticlopidine, clopidogrel, 
dipyridamole, and warfarin)
     Clinician documented that patient with acute ischemic 
stroke was not an eligible candidate for anti-thrombotic therapy 
(aspirin, ticlopidine, clopidogrel, dipyridamole, and warfarin) measure

     Patient with acute ischemic stroke and nonvalvular atrial 
fibrillation documented to be on warfarin therapy
     Clinician documented that patient with acute ischemic 
stroke and nonvalvular atrial fibrillation was not an eligible 
candidate for warfarin therapy measure

     Non-ambulatory patient with acute ischemic stroke 
documented to have received DVT prophylaxis within the first 24 hours 
of admission
     Clinician documented that non-ambulatory patient with 
acute ischemic stroke was not an eligible candidate for DVT prophylaxis 
within the first 24 hours of admission measure

Internal Medicine--Rheumatology

     Patient with established diagnosis of rheumatoid arthritis 
documented to be treated with a DMARD
     Clinician documented that patient with established 
diagnosis of rheumatoid arthritis was not an eligible candidate for 
DMARD treatment measure or patient refuses

     Osteoporosis patient documented to have been prescribed 
calcium and vitamin D supplements
     Clinician documented that osteoporosis patient was not an 
eligible candidate for calcium and vitamin D supplement measure

     Newly diagnosed osteoporosis patients documented to have 
been treated with antiresorptive therapy and/or PTH within 3 months of 
diagnosis
     Clinician documented that newly diagnosed osteoporosis 
patient was not an eligible candidate for antiresorptive therapy and/or 
PTH treatment measure within 3 months of diagnosis

     Within 6 months of suffering a nontraumatic fracture, 
female patient 65 years of age or older documented to have undergone 
bone mineral density testing or to have been prescribed a drug to treat 
or prevent osteoporosis
     Clinician documented that female patient 65 years of age 
or older who suffered a nontraumatic fracture within the last 6 months 
was not an eligible candidate for measure to test bone mineral density 
or drug to treat or prevent osteoporosis

     Patients diagnosed with symptomatic osteoarthritis with 
documented annual assessment of function and pain
     Clinician documented that symptomatic osteoarthritis 
patient was not an eligible candidate for annual assessment of function 
and pain measure

Surgery--Neurological

     Patient documented to have received antibiotic prophylaxis 
one hour prior to incision time (two hours for vancomycin)
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to incision time (two hours for vancomycin)
     Clinician documented that patient was not an eligible 
candidate for the antibiotic prophylaxis one hour prior to incision 
time (two hours for vancomycin) measure

     Patient with documented receipt of thromboemoblism 
prophylaxis
     Patient without documented receipt of thromboemoblism 
prophylaxis
     Clinician documented that patient was not an eligible 
candidate for thromboembolism prophylaxis measure

Surgery--Vascular

     ESRD Patient requiring hemodialysis vascular access 
documented to have received autogenous AV fistula
     ESRD Patient requiring hemodialysis documented to have 
received vascular access other than autogenous AV fistula
     Clinician documented that ESRD patient requiring 
hemodialysis was not a candidate for autogenous AV fistula (or other 
autogenous AV fistula) evaluation measure

     Patient documented to have received antibiotic prophylaxis 
one hour prior to incision time (two hours for vancomycin)
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to incision time (two hours for vancomycin)
     Clinician documented that patient was not an eligible 
candidate for the antibiotic prophylaxis one hour prior to incision 
time (two hours for vancomycin) measure

     Patient documented to have required surgical re-
exploration
     Patient did not require surgical re-exploration

     Patient undergoing carotid endarterectomy, aortic aneurysm 
repair, or lower extremity bypass surgery documented to have received 
pre-operative beta-blockade
     Patient undergoing carotid endarterectomy, aortic aneurysm 
repair, or lower extremity bypass surgery not documented to have 
received pre-operative beta-blockade
     Clinician determined that patient undergoing carotid 
endarterectomy, aortic aneurysm repair or lower extremity bypass was 
not an eligible candidate to receive pre-operative beta-blockade

     Patient undergoing carotid endarterectomy or lower 
extremity bypass surgery documented to have received aspirin or 
clopidogrel within 24 hours
     Patient undergoing carotid endarterectomy or lower 
extremity bypass surgery not documented to have received aspirin or 
clopidogrel within 24 hours
     Clinician determined that patient undergoing carotid 
endarterectomy or lower extremity bypass surgery not a candidate for 
aspirin or clopidogrel within 24 hours

     Patient undergoing carotid endarterectomy documented to 
have received heparin during surgery
     Patient undergoing carotid endarterectomy documented not 
to have received heparin during surgery
     Clinician determined that patient undergoing carotid 
endarterectomy was not eligible candidate for heparin during surgery

     Patient undergoing carotid stent documented to have 
received clopidogrel within 24 hours
     Patient undergoing carotid stent documented not to have 
received clopidogrel within 24 hours
     Clinician determined that patient undergoing carotid stent 
was not eligible for clopidogrel within 24 hours

Surgey--Thoracic, Cardiac

     Patient documented to have received CABG with use of IMA
     Patient documented to have received CABG without use of 
IMA
     Clinician documented that patient was not an eligible 
candidate for CABG with use of IMA measure

     Patient with isolated CABG documented to have received 
pre-operative beta-blockade
     Patient with isolated CABG not documented to have received 
pre-operative beta-blockade
     Clinician documented that patient with isolated CABG was 
not an eligible candidate for pre-operative beta-blockade measure

     Patient with isolated CABG documented to have prolonged 
intubation
     Patient with isolated CABG not documented to have 
prolonged intubation

     Patient documented to have received antibiotic prophylaxis 
one hour prior to incision time (two hours for vancomycin)
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to incision time (two hours for vancomycin)
     Clinician documented that patient was not an eligible 
candidate for antibiotic prophylaxis one hour prior to incision time 
(two hours for vancomycin) measure

     Patient with isolated CABG documented to have required 
surgical re-exploration
     Patient with isolated CABG did not require surgical re-
exploration

Obsterics/Gynecology

     Patient documented to have received antibiotic prophylaxis 
one hour prior to hysterectomy
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to hysterectomy
     Clinician documented that patient was not an eligible 
candidate for antibiotic prophylaxis one hour prior to hysterectomy 
measure

     Patient documented to have received management of initial 
abnormal cervical cytology consistent with guideline (ACOG Guidelines)
     Patient documented to have received management of initial 
abnormal cervical cytology in a manner that was not outlined in the 
guideline (ACOG Guidelines)
     Clinician documented that patient was not an eligible 
candidate for management of initial abnormal cervical cytology measure

     Patient with documented receipt of thromboemoblism 
prophylaxis
     Patient without documented receipt of thromboemoblism 
prophylaxis
     Clinician documented that patient was not an eligible 
candidate for thromboembolism prophylaxis measure

Surgey--Plastic & Reconstructive

     Patient documented to have received antibiotic prophylaxis 
one hour prior to incision time (two hours for vancomycin)
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to incision time (two hours for vancomycin)
     Clinician documented that patient was not an eligible 
candidate for antibiotic prophylaxis one hour prior to incision time 
(two hours for vancomycin) measure

     Patient with documented receipt of thromboemoblism 
prophylaxis
     Patient without documented receipt of thromboemoblism 
prophylaxis
     Clinician documented that patient was not an eligible 
candidate for thromboembolism prophylaxis measure

Internal Medicine Endocrinology/Diabetes/ Metalbolism

     Diabetic patient with most recent HbA1c level (within the 
last 6 months) documented as less than or equal to 9%
     Diabetic patient with most recent HbA1c level (within the 
last 6 months) documented as greater than 9%
     Clinician documented that diabetic patient was not 
eligible candidate for HbA1c measure
     Clinician has not provided care for the diabetic patient 
for the required time for HbA1c measure (within the last 6 months)

     Diabetic patient with most recent LDL (within the last 12 
months) documented as less than or equal to 100 mg/dl
     Diabetic patient with most recent LDL (within the last 12 
months) documented as greater than 100 mg/dl
     Clinician documented that diabetic patient was not 
eligible candidate for LDL measure
     Clinician has not provided care for the diabetic patient 
for the required time for LDL measure (within the last 12 months)

     Diabetic patient with most recent blood pressure (within 
the last 6 months) documented as less than or equal to 140/90 mmHg
     Diabetic patient with most recent blood pressure (within 
the last 6 months) documented as greater than 140/90 mmHg
     Clinical has not provided care for the diabetic patient 
for the required time for HbA1c measure (within the last 6 months)

Critical Care

Prevention of catheter-related infection

     Patient with documented catheter insertion including the 
use of sterile barrier precautions in a manner consistent with 
guidelines for prevention of IV catheter-related infections (CDC 
Guidelines)
     Catheter insertion performed in a manner that was not 
outlined in the guideline specifications for prevention of IV catheter-
related infections (CDC Guidelines)

Management of catheter-related infection

     Management of patient for catheter-related infection 
(i.e., staphylococcus A and candida A), including removal of catheter, 
blood cultures and empiric antibiotics was performed in a manner 
consistent with guidelines for management of IV catheter-related 
infections and is documented in chart (IDSA/ACCCM/SHEA/SCCM Guidelines)
     Management of patient for catheter-related infection 
(i.e., staphylococcus A and candida A), including removal of catheter, 
blood cultures and empiric antibiotics was performed in a manner that 
was not outlined in the guideline specifications for management of IV 
catheter-related infections and is documented in chart (IDSA/ACCCM/
SHEA/SCCM Guidelines)

Internal Medicine--Geratic Medicine

For patients 75 years of age or older:

     Patient documented to have received influenza vaccination 
during flu season
     Patient not documented to have received influenza 
vaccination during flu season
     Clinician documented that patient was not an eligible 
candidate for influenza vaccination measure

     Patient documented to have received pneumococcal 
vaccination
     Patient not documented to have received pneumococcal 
vaccination
     Clinician documented that patient was not an eligible 
candidate for pneumococcal vaccination measure

     Patient (female) documented to have been screened for 
osteoporosis
     Patient (female) not documented to have been screened for 
osteoporosis
     Clinician documented that patient was not an eligible 
candidate for osteoporosis screening measure

     Patient documented for the assessment for falls within 
last 12 months
     Patient not documented for the assessment for falls within 
last 12 months
     Clinician documented that patient was not an eligible 
candidate for the falls assessment measure within the last 12 months

     Patient documented to have received hearing screening
     Patient not documented to have received hearing screening
     Clinician documented that patient was not an eligible 
candidate for hearing screening measure

     Patient documented for the assessment of urinary 
incontinence
     Patient not documented for the assessment of urinary 
incontinence
     Clinician documented that patient was not an eligible 
candidate for urinary incontinence assessment measure

Surgey--Colorectal

     Patient documented to have received antibiotic prophylaxis 
one hour prior to incision time (two hours for vancomycin)
     Patient not documented to have received antibiotic 
prophylaxis one hour prior to incision time (two hours for vancomycin)
     Clinician documented that patient was not an eligible 
candidate for antibiotic prophylaxis one hour prior to incision time 
(two hours for vancomycin) measure

     Patient with documented receipt of thromboemoblism 
prophylaxis
     Patient without documented receipt of thromboemoblism 
prophylaxis
     Clinician documented that patient was not an eligible 
candidate for thromboembolism prophylaxis measure

Nuclear Medicine

     Patient documented to have received myocardial perfusion 
imaging examination in a manner consistent with the guidelines, 
including determination of proper patient preparation (SNM Guidelines)
     Patient documented to have received myocardial perfusion 
imaging in a manner that was not outlined in the guideline 
specifications, including determination of proper patient preparation 
(SNM Guidelines)
     Clinician documented that patient was not an eligible 
candidate for myocardial perfusion imaging measure

     Patient documented to have received SPECT MPI for an 
indication rated as appropriate/may be appropriate as outlined in the 
ACC/ASNC SPECT MPI appropriateness criteria
     Patient documented to have received SPECT MPI 
appropriateness rating in a manner that was not outlined in the ACC/
ASNC SPECT MPI appropriateness criteria or for an indication not 
specified

Preventive Medicine

     Patient documented to have received influenza vaccination 
during the flu season
     Patient not documented to have received influenza 
vaccination during the flu season
     Clinician documented that patient was not an eligible 
candidate for influenza vaccination measure
     Patient (female) documented to have received a mammogram 
during the measurement year or prior year to the measurement year
     Patient (female) not documented to have received a 
mammogram during the measurement year or prior year to the measurement 
year
     Clinician documented that female patient was not an 
eligible candidate for mammography measure
     Clinician did not provide care to patient for the required 
time of mammography measure (i.e., measurement year or prior year)
     Patient documented to have received pneumococcal 
vaccination
     Patient not documented to have received pneumococcal 
vaccination
     Clinician documented that patient was not an eligible 
candidate for pneumococcal vaccination measure

                                 

    Chairman JOHNSON. Thank you very much, Dr. McClellan. I 
want to ask you a question that one of the amendments that we 
proposed to the bill goes to, and it is also mentioned in Dr. 
Berenson's testimony, if I can find the quote. Well--oh, yes, 
here he says, but I am suggesting that relative values to 
determine physician payments should be adjusted to try to 
accomplish policy goals such as reorienting the care of those 
with end-stage chronic conditions to palliation and caring 
rather than curative interventions. Pay for performance might 
be able to contribute to achieving this reorientation. Now, 
that is a reorientation that does interest me a lot. The 
amendment in the bill simply allows you to develop a pool of 
money from part A and part B. It doesn't compel you to do it. 
But after all the MEI and MEI minuses is a rather narrow 
straight jacket in--payment system in which to think about 
quality. When you look at what the premier system is 
demonstrating about hospitals' ability to take on a far more 
aggressive quality program and meet a much broader spectrum of 
standards, you certainly want to allow that to develop in the 
physician payment area.
    If it developed in the physician payment area, at least I 
believe that it would give you the tools, this larger pool of 
money to address situations in which a physician's office 
practice as a whole becomes a care management group, and 
eventually to recognize palliative care and the kind of end-of-
life care that involves a team management approach and we know 
would be so fruitful both for the quality of life of our 
seniors in either of those situations and also so much more 
respectful of our resources. So, I just wondered whether you 
think pay for performance as we are thinking about it now, 
identifying criteria for payment, and then structuring 
differential payments can enable us to move to a system that is 
rather more comprehensive in terms of both the number of--the 
breadth of the team involved and the breadth of their quality 
performance defined.
    Dr. MCCLELLAN. I think the comprehensive approach has a lot 
to recommend it, and that is reflected in many of our current 
payment demonstrations and other activities. The fact of the 
matter is that a lot of the opportunities for improvements in 
physician care to lead to better outcomes and lower costs have 
interactions not just in physician offices, but in hospital 
care and in nursing facility care, in readmissions, in 
treatments that are classified under part A, but that is a 
distinction that goes back to the trust fund accounting. It 
doesn't have reality in actual medical practice. All these 
costs matter, and some of the best opportunities to avoid 
unnecessary costs and complications go to part A. In some of 
the demonstrations that we have under way now, like our 
physician group practice demonstration, physicians in groups 
can get additional payments when they take steps to improve 
quality of care for their patients; for example, meeting 
appropriate standards of care for patients with diabetes or 
heart failure and reducing overall cost. We are seeing that 
some of the best opportunity for reduced costs are in those 
demonstrations, are in part A, by avoiding emergency room 
visits, by avoiding readmissions to the hospital and other 
steps. That is also where the bulk of costs are located. If 
physicians can have an impact on 1 percent of overall Medicare 
spending, well, that can translate to a positive update if they 
are able to share in those gains. So, it is better outcomes for 
patients, lower overall costs for the Medicare program, and 
that is exactly----
    Chairman JOHNSON. So, bottom line, avoiding that 45 percent 
trigger is really about all of Medicare's costs, the biggest 
costs being hospital and emergency room. If physicians 
participate in caring for patients in a way that reduces our 
use of hospital emergency rooms, we have a better shot at 
avoiding that trigger. But physicians ought to have some 
compensation or some recognition for developing a far more 
holistic and preventive approach to patient care. I wanted to 
just ask you a second question, and then I am going to move on 
to Pete. The bill also sets up a way--I mean, it says we are 
going to pay this way for docs, but anybody else covered by the 
payment system is also going to be paid by this way, but then 
CMS will have the responsibility they have never had before. 
Their responsibility in the past is to watch this global 
target, and when it got breached, doctors would be cut, nobody 
else would necessarily be cut, and you just struggle with what 
you do. Under this law, you would have the absolute obligation 
to watch each group; for instance, you would have the 
obligation under the law to look at what is happening in 
imaging, to MedPAC, and need to develop some ways of 
identifying how much of the growth in imaging is appropriate 
and how much is inappropriate, and what we can do to control 
it. Now, I know you have done some things to control it. I 
think there is more things that you could do. But the thing is 
it would shine the focus of attention and responsibility on 
those areas under that target that were growing too rapidly. 
So, I think actually this bill gives you better control of the 
spending under the target than the old legislation did. Now, I 
don't know whether you agree or disagree, and I don't know half 
as much as about controlling spending as you do, but at least 
what does that lever do for you?
    Dr. MCCLELLAN. I think it does help. Having an emphasis on 
quality measures is a great way to turn our payment system into 
a program that supports better care, more efficient care, 
better outcomes for patients at a lower cost, rather than 
simply paying more for more services regardless of their 
quality and their impact on patient outcomes. But----
    Chairman JOHNSON. This makes you not only responsible for a 
different payment system, but also a great deal more 
accountable for spending increases in the services that doctors 
prescribe and everything paid for under this section of the 
law. So, it does increase accountability. Won't that give you a 
greater incentive to control costs in those individual areas?
    Dr. MCCLELLAN. It will simply help provide some incentives, 
but I think even more importantly, if some of the payments to 
providers are tied to these areas, they can get the financial 
support they need to invest in systems that can get those costs 
down. Right now if providers don't, if hospital and doctors 
don't coordinate on sending over an X-ray, well, we will just 
pay for an extra X-ray. You get more money when you have less 
coordinated care. It would be far better if we paid for better 
quality at lower costs and then used those financial resources 
to support doctors and investing in things like electronic 
medical records which could transmit the records. We don't pay 
for that now, and this would be a big change in those 
incentives.
    Chairman JOHNSON. Thank you. Mr. Stark.
    Mr. STARK. Thanks, Doctor, for being with us today. I want 
to just ask you to go back--you brought it up, I wouldn't have, 
but I am not so sure that I wouldn't ask you to go back and 
review what you are doing relative to the Katrina/Rita 
survivors. My sense is that with them being spread all over in 
different States from which they may or may not formerly have 
resided, that you have got to do something special in Medicaid, 
like pay the Medicaid bills for a while or--it ain't going to 
work. With all these people dislocated, somehow they won't get 
attention if they--you know, they will be turned away, or get 
to the bottom or the end of the line if somebody isn't sure 
that they will get paid for treating them. I am worried about 
that, and I hope you would consider that.
    Dr. MCCLELLAN. Absolutely.
    Mr. STARK. There are two questions. First of all, we are 
going to hear a lot today about the impoverished physicians in 
the United States, and I just want to--my sense has been on 
these rate cuts that we are really talking about piecework. It 
is a fee per procedure. But somehow, very seldom--certainly 
never mentioned by the AMA, but by others--nobody talks about 
the income these docs are getting from your Department on the 
theory that maybe they don't play as much golf, so they do some 
more procedures. Or maybe they are getting more productive, and 
so they do it more quickly, and they can do more procedures in 
the same amount of time. I have got some statements from you 
over the last 3 years, and it would show us that--well, I do--I 
must say I feel sorry for the GPs and the general surgeons who 
are down around the 4 to 6 percent annual increase in payments 
is what you are paying out, and I presume it mostly goes to 
them. There may be some overhead in here. So, in spite of the 
fact that they are talking about reduced fees, their income in 
the aggregate is going up.
    Then you get dermatologists, 13 percent a year on the 
average; hematologists and oncologists, 24 percent a year 
increase; even emergency medicine, although that may be the 
whole bill for the emergency room. I don't know that that is 
fair, but that is 14 percent. Cardiology is what, 12\1/2\ 
percent--no, a little under 12 percent annual increase, 
neurology right up there. So, even family practice, who I would 
have been inclined to think would have taken more of a hit down 
with the general practice, but at any rate they are not going 
broke. This is a per-procedure payment. In this discussion, I 
just want to--and maybe I am missing some something here. I 
would ask you to correct me if I am, but I don't think I am 
misleading anybody by suggesting that your records show that 
you are paying out more each year in spite of the reduced fee 
for procedure.
    But what do you think we should do--let us assume that we 
are going to give the docs an increase. Let us say it is 2 
years. What do you think we should do about the overall control 
of costs? What is your idea? Would you support going to 
regional or practice specialty caps? How--what do you see that 
is out there for us? Because my thought is we would do a couple 
of years of an increase, but with the idea that the--we are 
there now. I mean, this will be the second go-round. But I 
would hope that we would have something firmly in place that 
would be a permanent system if we go for a couple-of-year 
increase.
    Dr. MCCLELLAN. Well, first of all, the overall spending 
growth in part B is very concerning. It is not just physician 
services, it is essentially all components of part B that have 
been growing at double-digit----
    Mr. STARK. Stop right there. You have about 600,000 docs. 
Can you give us some--by specialty, some idea of what the 
income, Medicare income, to these specialty docs has been 
growing at, which is just to the physician component?
    Dr. MCCLELLAN. For the physician component, in the past 
couple of years it has been growing about 12 percent in total 
spending. Now it is spending--and out of that you have to 
remove expenses and so forth, but spending on the practices has 
been going up at a rapid rate.
    Mr. STARK. So, what do we do? Let us say we give them a 
little more, which I think politically we will be pushed to do. 
Then what do we do to rebuild this reimbursement system?
    Dr. MCCLELLAN. As I said, I don't think the solution is 
simply putting more money into the current payment system. I 
think we need to move much more toward focusing on how you get 
better results at a lower cost. Steps like paying for 
performance I think can help a lot, but we do need to make sure 
that any of these steps are done with an eye toward how we keep 
overall costs on a sustainable path, and with the recent 
increases in utilization----
    Mr. STARK. You are going to propose what?
    Dr. MCCLELLAN. I think some of the pay-for-performance 
steps can make a big difference. We are doing demonstration 
programs now where we are paying physicians more when they 
improve quality and----
    Mr. STARK. Where were the demonstrations--when could you 
anticipate, a year, 2 years could we see some results out of 
the demonstration?
    Dr. MCCLELLAN. Absolutely within the next year, and you 
were talking about a year, 2 years of period with reporting or 
some other changes, definitely during that time period. We are 
seeing some results now from the physician group practice 
demonstration. We are seeing more investment in electronic 
records, in keeping patients out of the hospital; and even out 
of the doctor's office, how that is showing up in fewer 
complications and emergency room visits and admissions. Our 
hospital payment demonstration, we start it a year earlier, it 
is showing improvements across the board in performance which 
lead to fewer readmissions, shorter hospital stays, lower 
costs. So, I think this evidence is coming up right now. There 
is also already a lot of evidence from the private sector. You 
will hear about Bridges of Excellence in a minute, other 
programs for conditions like diabetes and heart failure; when 
you pay to get better results, you see better support for 
physicians to take steps that keep people well and avoid 
complications. It is a pretty fundamental change in the way our 
system works, which, as you said, has been piecework up to now.
    Mr. STARK. Thank you.
    Chairman JOHNSON. I would note that all of those 
demonstrations allow the issue of, quote, savings to be viewed 
across the care of the person, so we are able to count in 
hospital savings and credit them to the work of the physicians. 
One difficulty in this bill is that CBO refuses to allow that 
kind of thinking, which is just real-world thinking. It is 
outside of the box of the ludicrous legislation that we are 
saddled with, but it is real-world thinking. So, the costs 
really aren't what they appear to be. Mr. Hulshof.
    Mr. HULSHOF. Thank you, Madam Chairman. I always enjoy 
getting to follow my colleague from California. I would simply 
say, or make the observation, that even given the statistics 
cited about areas of specialty--and I certainly don't know 
everyone in the room, but I think the only people here that get 
to vote themselves a pay increase every year are those of us up 
here. So, I would make that observation for what purpose it may 
serve. Dr. McClellan, I appreciate that you are here. The other 
observation I would make is a tip of the cap to Chairwoman of 
this Committee, because this bill was put out over the--before 
the August district work period, and the fact is that she did 
that purposely so that everybody could push and pull and yell 
or praise or talk about this in a constructive fashion. And, in 
fact, we took that opportunity back home in Missouri to have 
our physician advisory groups and others weigh in to say 
whether this is good or bad, what are your concerns. Obviously 
when you talk about self-reporting and things of that nature, 
you know, the tendency is to brace yourself. So, I applaud the 
fact that we have had some good discussion about this.
    The easy applause line--and, again, Monday I spoke to a 
physician group--the easy applause line in any physician group 
is to say, we think we should toss the HCR overboard. I would 
recommend, Dr. McClellan, if you want to say that publicly, you 
are guaranteed to get an applause line. We do need to move to a 
system that more accurately reflects the cost to providing 
care. When you have a 4.5-percent increase in one calendar year 
and looking at a 5.4 percent negative reimbursement the next 
year, that is not the type of stability that one needs in the 
practice of medicine. Not only that, to follow up on what Mrs. 
Johnson has said, the inefficient physicians, the ones that--
the efficient physicians that have more in-office visits that 
might keep that patient out of the hospital setting is going to 
get reimbursed less than the other physician that has fewer 
office visits who is willing to just push that patient into 
some other setting. So, I would think that we are on the right 
track. I don't know that we can look at this just in the 
vacuum, however. You mentioned health information technology. 
So, let me sort of bridge the gap, because I see the momentum 
is really building for this. I know your views on that, and I 
applaud those views as far as having some momentum behind being 
more efficient, not only helping the patient safety aspect, but 
obviously helping huge costs to the system.
    As we move to the system of data collection and 
dissemination of health care information, what is your 
perspective on how CMS might be able to coordinate provider 
reporting requirements with potential electronic standards and 
private sector initiatives that are likely to come down the 
pike? Maybe another way to ask the question is do you think 
that CMS needs to look at--consider modernizing data collection 
requirements to keep up with these changing needs? What general 
thoughts do you have about that?
    Dr. MCCLELLAN. I think that will certainly help, and we are 
in the process of doing that. We are moving to some Internet-
based systems toward getting claims processing done now. We 
have got that going now in Wisconsin and a few other States 
around the country, and the physicians really like it. It saves 
a lot of calls to Medicare, and it saves a lot of paperwork. We 
are going to be phasing that in nationally over the next couple 
of years. With respect to the quality measures and giving 
better information on quality so we can support it, I do think 
that it is feasible to start collecting those measures through 
reporting in our claims systems in the near future, as soon as 
next year, but that planning to move from that to a fully 
electronic system that is based on interoperable health care 
records and other electronically-based systems that can make 
the reporting more automatic over several years. If we send a 
very strong signal that this kind of quality-performing and 
performance-based payment is important, that is going to create 
more momentum and support for making the investments necessary 
in getting widespread electronic health records.
    Mr. HULSHOF. So, you see this--from your answer I take it 
we can do this in tandem then. We don't have to initiate or pay 
one piece of legislation.
    Dr. MCCLELLAN. I see this working together as a gradual but 
urgent process over the next few years to get to electronic 
health care and to get to better quality.
    Mr. HULSHOF. Thank you. Thank you, Madam Chair.
    Chairman JOHNSON. Just to clarify, that is why the bill 
allows the administration the power to set structural or 
process criteria and ease the system in that direction. Mr. 
Thompson.
    Mr. THOMPSON. Thank you, Madam Chair. Thank you, Doctor, 
for being here. I have just seen some AMA numbers that I find 
very, very alarming. They are talking about some 40 percent of 
doctors who are going to reduce the number of Medicare patients 
that they see, and they also talk about the reduction in rural 
areas of outreach, and I find this troubling for a couple of 
reasons, not the least of which in rural areas we have another 
set of problems that we are dealing with, and that is the 
extreme difficulty we are having in recruiting and retaining 
physicians in these areas. I see this as the proverbial train 
wreck coming for anybody who not only represents a rural area, 
but lives in a rural area and depends upon medical care in 
those areas. I am wondering, if we cut rates again, this is 
just going to exacerbate this problem, and it is going to be a 
real catastrophe for benefactors throughout all rural America. 
I am just curious as to what CMS has to say about this. I 
wonder if you have run any estimates on what the real impact is 
going to be of what the AMA's findings are along with the 
proposed reductions.
    Dr. MCCLELLAN. Well, if those findings were realized, that 
would be a significant impact. I would even say that we do 
ongoing analysis and ongoing monitoring of the access of our 
beneficiaries to physicians in communities all over the 
country, urban and rural. So, far we have not seen any 
substantial problems of access to needed care. We haven't seen 
any problems yet, and as I said a few minutes ago, if we saw 
significant negative payment updates, significant reductions in 
payments year after year, I don't think that is sustainable 
because I think that would at some point create some real 
problems in access to care.
    Mr. THOMPSON. I would like to invite you to come to my 
district, and I don't know that you have ever been there 
before, but I will take you to some places where it is a very 
real problem. Add to that, as I mentioned before, the 
recruitment and retention issue, and it is a disaster area. I 
think you guys should really be aware of that.
    Dr. MCCLELLAN. I would like very much to take you up on 
that and definitely to hear more about it. I have been.
    Mr. THOMPSON. I am on an 8 o'clock flight in the morning.
    Dr. MCCLELLAN. Thank you for the kind invitation. I was in 
rural North Dakota recently hearing from some of the providers 
there who actually would benefit tremendously from reforms in 
the payment systems that paid more for better outcomes and 
lower costs. Many of these rural providers are used to having a 
lot of distance between them and their patients, and they will 
go from satellite office to satellite office. They have set up 
relationships with hospitals that may not be in the same 
community, but they work smoothly together. We need to be doing 
more to support this kind of high-quality care in rural areas, 
and I think payment reforms could help do that.
    Mr. HULSHOF. Would you yield just a second?
    Mr. THOMPSON. Are you next?
    Mr. HULSHOF. No. On your time. Now might be a good time to 
ask for the Dr. Hulshof-Thompson telehealth bill.
    Mr. THOMPSON. It is a great author, great bill.
    Dr. MCCLELLAN. We will definitely talk with you about it.
    Mr. THOMPSON. I like to see anything you have on rural 
statistics, so----
    Dr. MCCLELLAN. Absolutely, and how these kinds of payment 
reforms can really help rural areas where some of the most 
innovative idea like telemedicine are being developed to help 
get the patients the care they need even when doctors are few 
and far between.
    Mr. THOMPSON. Thank you. The second question I have, as you 
know, I represent an area in this area, locality 99. Sonoma 
County, I think, was one of the 10 counties that was being 
reimbursed at a lesser rate, been working on this for a while. 
Your predecessor came out to Sonoma County and met. You have 
offered a solution for this which does take care of 2 of the 10 
counties--only 2 of the 10 counties--but unfortunately it takes 
away from the other counties in the area. So, I am in that 
difficult position where I want to help Sonoma County docs, but 
at the same time five of my other counties are going to 
experience, albeit small, but given the problems we are talking 
about, it is going to be a significant hit. It seems to me 
that--I will give you the fact this is a good first step, but 
we really need to look at a bigger solution to this that takes 
in all of the areas. I don't think we can continue to do the 
proverbial robbing from Peter to pay Paul; all from Napa and 
Mendocino to pay Sonoma. All of these areas are experiencing 
very difficult problems, and how we can reconstruct the 
reimbursement model is going to make a difference in who and 
what kind of health care people get.
    Dr. MCCLELLAN. That is absolutely right, and that is why we 
put this idea out for comment. The comment period on this 
physician payment, we will close this tomorrow. We are hoping 
to get better ideas. I have a lot of sympathy for this 
particular problem having practiced in Palo Alto right over the 
Santa Cruz Mountains from Santa Cruz, which is another county 
that is in 99 and affected by the payment issue. But, 
unfortunately, I can really sympathize with the problem that 
you are talking about, the zero sum here. We don't have the 
administrative authority to increase payments across the board. 
We can only do redistributions with our administrative 
authority. But we will keep looking as best we can working with 
you on finding a good solution.
    Mr. THOMPSON. CMA had a proposal, as you know, that was a 
little more fair.
    Dr. MCCLELLAN. That would cost money. The problem with that 
proposal is that we can't do it administratively. We are very 
much looking for any good ideas in this challenging problem 
though.
    Mr. THOMPSON. Thank you.
    Chairman JOHNSON. Thank you. I appreciate the problems that 
my colleague from California has brought to you attention. I am 
going to recognize Mr. Emanuel from Illinois, but I do think 
CMS is significantly underestimating this access problem. The 
data on the whole of the studies is old, even the AMA data. 
When you ask doctors are they taking Medicare patients, they 
mean they are taking new Medicare patients are people they took 
care of for 20 years and just turned 65. But as you watch older 
doctors age with their older patient base, there is a limit to 
how long they can stay in practice if too many of their 
patients are in the Medicare category and they are in one of 
these payment areas where they are underpaid. So, Mr. Emanuel.
    Mr. EMANUEL. I would like to thank the Chairlady, having 
come in late, so I apologize to you for not--for missing part 
of your testimony and some of the earlier questions. I have 
just got in three areas, if I can. One is I want to add my 
voice at least on the issues of the IT, information technology. 
The Chairlady knows of my interest in the issue. Senator 
Kennedy recently--he and I worked with--passed a bill in the 
Senate. This is the only place that has low-lying fruit in the 
sense of any other subject--let us just be honest, we are 
talking about who is going to pay and shifting cost to who is 
going to pick up the bill. This is one place where we can 
actually pick up dollars, do what is right to do, and also find 
a tremendous amount of synergy there where dollars can either 
be saved or replowed back into--from savings into the medical 
field, back into either expanding coverage or other type of 
care.
    My concern is--I raised with the Chairwoman in other 
meetings on the IT space is not doing what is happening in the 
mobile telephone areas, setting up too much freedom, and 
therefore we have a system that doesn't work. We have no 
improvement there. I do think it should be centrally managed, 
set up boundaries, and I think Senator Kennedy's legislation is 
very strong, and I hope we can get something done in this 
environment. This may be one place we can get consensus and 
bipartisan agreement on the IT space as it relates to 
information technology and medical records, and I look forward 
to working on that.
    Second, in Illinois we have a delegation meeting, Democrat, 
Republican. There was a big discussion today about the 
confusion that we are all experiencing at our local offices as 
relates to the prescription drug bill. I know you have been 
working hard on trying to clarify that confusion. We have an 
interest in as a delegation--you may be getting a letter soon--
about how Illinois can maybe--to wrap around on the Website 
some information about--so people in the low-income area on the 
wraparound don't miss in their coverage. We have a very good 
State as it relates to helping those who are disadvantaged, and 
how we can maybe get them the information, and what Illinois is 
providing to people who are not automatically cut off before 
they are enrolled. So, heads up, that is coming, a Democrat-
Republican----
    Dr. MCCLELLAN. I look forward to it. On that point briefly 
we have been working very closely with the State, as you know, 
so the State can modify its existing program, its existing 
Pharmacy Plus waiver to instead have a program that wraps 
around, as you said, the Medicare benefit. The result is going 
to be $140 million in savings to the State next year as well as 
additional coverage for more people to get comprehensive access 
to prescription drugs. We absolutely share the goal of making 
sure everyone who is eligible can take advantage of it, because 
it is such an important program and so much new help with drug 
costs in Illinois.
    Mr. EMANUEL. I think we are all trying to make sure that 
people who are supposed to be served are getting served. I 
think there is, A, a step into the unknown. B, there is a sense 
that Illinois has a good program, and we want to make sure it 
is dovetailed and is promoted as much as on your Website and on 
your pages there for people specifically in Illinois. Just a 
heads up there. Last thing on the subject, if I may, I look at 
this and I think obviously we have to make some reforms here. 
My worry here is given the cost, $150 billion over 10 years, 
and throwing out wholesale this program. If you were--
obviously, it needs reform. It was--it solved a problem, but 
now it is part of a problem. What would be the steps, what--if 
your ideal--forget the legislative process. What would you 
keep, and what would you reform? Starting with what you would 
keep that you think exists in SER that is good, and what would 
you reform because of the objective? My worry is on the cost 
control. Where are you going to shift the dollars?
    Dr. MCCLELLAN. Well, we need to make sure that physicians 
are adequately compensated for the care they provide, but right 
now, we will pay more in cases where care is not well 
coordinated, where additional services, maybe duplicative 
services are provided, the kinds of steps that Chairman Johnson 
has been discussing, the kinds of ideas in pay for performance 
approaches generally where we shift our payments to instead pay 
more for better results for patients, better overall care, 
lower overall costs would make a big difference. We have seen 
that already in some of our demonstration programs and then 
some in the private sector. So, that is a very important set of 
steps that we can take right now because we have quality 
measures available we can use, we have measures of resource use 
that we can use, and as you said, we can plow in of these 
savings into supporting IT and other steps to make our 
healthcare system work better. I think we ought to start doing 
this right away.
    Chairman JOHNSON. Thank you very much. Thank you, Dr. 
McClellan. I am going to call the panel up so that we can hear 
everybody on the panel before the bells ring for the next 
series of votes. Thank you for being with us, and we look 
forward to working with you as we perfect this legislation, and 
hopefully move it forward. Dr. Berenson, Dr. Jevon, Karen 
Ignagni and Dr. Armstrong, if you would come forward. I hope it 
is not missed on the Committee that this issue, the current 
volume control mechanism in the physician payment system isn't 
working. If we somehow can help doctors keep patients out of 
hospitals and emergency rooms, we will lower overall costs, and 
that is the most immediate thing we can do to actually begin to 
flattening out the spending curve. So, it is urgent that we get 
started. It is also true that we will have to keep working on 
this. We had to keep working on the other payment system we put 
in place, and so this is a new beginning, not an end. Dr. 
Berenson, a pleasure to have you, sir. I read with great 
interest your testimony. I think that we intend to do more 
through what we are doing in this bill than you give us credit 
for, but I am extremely interested in your comments and 
measurement and on the other STR problems, so I look forward to 
your testimony.

   STATEMENT OF ROBERT BERENSON, M.D., SENIOR FELLOW, URBAN 
                           INSTITUTE

    Dr. BERENSON. Thank you, Madam Chairman and Mr. Stark and 
Members of the Committee. As always, I appreciate the 
opportunity to testify on the Chairman's Medicare Value-based 
Purchasing of Physician Services Act of 2005. For over 2 
decades I have been very interested in physician payment policy 
as a practicing internist, as a medical director of a preferred 
provider organization responsible for physician payment, and as 
a senior official in the centers for Medicare and Medicaid 
services. I have, in fact, written approvingly of Pay For 
Performance, a new departure for Medicare and other purchasers 
and plans to promote improved quality of care. As the payer 
that often influences market directions, Medicare can play a 
very important role in leading this activity in collaboration 
with other purchasers. For different reasons, Pay For 
Performance for Medicare Advantage plans and for renal dialysis 
centers seems to me ripe for implementation right now. I have 
mixed views on the work on hospital measurement in the premier 
demo, but it seems to be proceeding well.
    I generally applaud the goal of measuring physician 
performance, holding physicians accountable for deviations from 
desired performance and through publication of their 
performance, helping Medicare beneficiaries make informed 
choices about where to get their care. However, there are 
particularly formidable barriers to assessing performance at 
the individual physician level, and the current measures that 
are being adopted are not relevant for many Medicare patients, 
especially those with multiple chronic conditions and those who 
are quite old. More work needs to be done in this area. In 
addition, in the crucial areas of overuse and inefficient 
provision of services, and in misuse, that is, errors of 
commission or faulty judgment, measures are in their infancy, 
and there is only so much I believe that you can do with 
administrative data. So, I would conclude--in my introduction, 
I would make the point that the state of the art of Pay For 
Performance does not permit it to be the solution to all 
healthcare problems. It has a role, but I think we are loading 
too much on Pay For Performance.
    The physician payment system used by most private insurers 
and by Medicare is based on the Fee-for-service Payment Model. 
The payments reimburse for transactions, not for population-
based healthcare, and the powerful inherent incentives and fee-
for-service for reimbursements are to drive up volume. Recent 
data from both Medicare and private payers document that that 
is exactly what is happening and volume is being increased to 
unsustainable levels. In this fee-for-transactions environment, 
the validated Pay For Performance measures that mostly address 
primary and secondary prevention services and patient 
experiences with care likely will have little effect on 
utilization spending, even as they improve patient outcomes. 
So, I looked with interest at the G-codes that Administrator 
McClellan provided with his testimony, the kinds of measures 
that physicians will be asked to submit, and they are, indeed, 
related to underservice in some very specific important areas, 
but are tangential to the issue of healthcare costs and what is 
driving healthcare costs.
    The Sustainable Growth Rate Mechanisms needs to be reformed 
or replaced, and while significant changes are needed, current 
Pay For Performance measures that focus on underuse of 
preventive services simply will not serve as a substitute for 
the STR mechanism. It seems to me that this well-intentioned 
attempt is an example of the tail-wagging the dog, by that I 
mean the engine that drives physician behavior is the financial 
incentive to increase volume. Physicians, especially those who 
may knowingly take advantage of that system, will surely ignore 
any marginal payment incentive of one or 2 percent if the 
behavior to gain the marginal income conflicts fundamentally 
with the underlying incentives in the payment system. It would 
be much easier to do an extra test, see an extra patient, or of 
most concern, simply upcode visits to make up for what 
otherwise would be lost under such a scenario. While there is 
no conflict between the underlying payment incentives and a Pay 
For Performance approach that rewards more care, that won't 
contain costs or limit inappropriate utilization.
    So, I am concerned that the attention on Pay For 
Performance to some extent is distracting policy makers and the 
medical profession from addressing what are increasingly 
apparent flaws in the resource base relative value scale 
payment system that controls physician payment in Medicare, and 
in somewhat altered form in many private health plans. Very 
briefly, physicians--Medicare's physician payments system is 
facing fundamental problems that Pay For Performance alone will 
not address in which few policy makers seem to have paid 
attention to in recent years. There is a disconnect between 
what we pay physicians and the underlying cost of production of 
those services. Recently MedPAC did a study on specialty 
hospitals and the DRG payment system documenting the problem on 
hospital payments. I would assert that there are similar 
distortions in the physician payment system that is driving 
physicians to procedural services and away from evaluation 
management services.
    Again, there is little to no volume or cost control 
incentives in the system. When you have a national volume 
performance control, you are basically treating all physicians 
the same when we know there are particular areas of problems in 
certain--like imaging services that are going up 20, 25 percent 
a year. Major surgical procedures are not increasing out of 
control, evaluation management office visits are not, but in 
some areas, we do have problems, and yet we have an STR 
mechanism that is applied nationally and treats all physicians 
the same.
    Then finally, the point that you made in your remarks 
earlier; we have no particular coding mechanism for encouraging 
physicians to actually do care coordination or to hire staff 
who can do care coordination. Again, I am not--I would love Pay 
For Performance to give incentives for physicians to do that, 
but as long as we have a fee-for-service system that is using 
7,000 codes that document what the professional activities are 
that physicians get to be reimbursed for, until we get to the 
robust Pay For Performance system that I think we all hope for, 
we should define some of those services as reimbursable, and 
try to redirect physician services. So, let me conclude by 
simply saying, I like Pay For Performance, I applaud your 
leadership and Dr. McClellan's activities to try to get us on 
that road, but I think we have loaded onto it too much baggage; 
it is not going to solve all of our problems, and in 
particular, it is not going to solve the volume and cost 
problem in part B. Thank you very much.
    [The prepared statement of Dr. Berenson follows:]
   Statement of Robert Berenson, M.D., Senior Fellow, Urban Institute
    I would like to thank Chairman Johnson and members of the 
Subcommittee on Health of the Ways and Means Committee for the 
opportunity to testify on the Chairman's Medicare Value-Based 
Purchasing of Physicians' Services Act of 2005. For over two decades, I 
have followed the evolution of Medicare's policies for compensating 
physicians under part B--as a practicing internist, a medical director 
of a preferred provider organization responsible for the physician fee 
schedule, a senior official in the Centers of Medicare and Medicaid 
Services overseeing payment policy for all providers, and a policy 
analyst and commentator.
    I have had the opportunity of looking at the issues that H.R. 3617 
raises from virtually all sides and conclude that although pay-for-
performance efforts are important and show promise, they should not be 
viewed as a substitute for the flawed sustainable growth rate mechanism 
for controlling physician spending. There are important and largely 
overlooked issues in the underlying payment system that have been all 
but ignored in this debate and which are long overdue for attention.
First Steps on Pay-For-Performance
    I have written approvingly of pay-for-performance (P4P) as a new 
departure for Medicare and other purchasers and plans to promote 
improved quality of care. Given the disappointing state of quality, 
where it can be measured, providing incentives for physicians to do 
better seems an appropriate response. As the payer that often 
influences market directions, Medicare can play a uniquely important 
role in leading this activity in collaboration with other purchasers. 
Indeed, two years ago a group of highly respected health care leaders 
from across the ideological spectrum agreed in an open letter in Health 
Affairs that Medicare should lead on P4P. A particularly desirable 
attribute of P4P is holding providers accountable against validated 
measures of performance, rather than just paying claims for services 
rendered.
    The presence of validated and useful measures, as well as an 
evolving culture that has accepted the desirability of meeting 
objective performance measures, means that certain providers are ready 
to participate in such a system. For health plans, the nearly two 
decades old work on HEDIS and CAHPS measures and the tedious but 
essential implementation work under the leadership of the National 
Committee for Quality Assurance suggests that P4P can be a useful 
approach to rewarding performance and improvement by Medicare Advantage 
plans. In addition, ESRD providers are ripe for P4P because of the 
presence of widely accepted process measures that are good predictors 
of the outcomes of dialysis. In fact, MedPAC recommended that P4P 
commence in Medicare with these two provider categories.
    I have mixed views about the readiness of hospitals for P4P, but 
the Premier demonstration seems to be off to a good start, and, 
importantly, the expectations of what P4P can accomplish in the 
hospital sector are appropriately limited; that is, the marginal 
incentive for hospitals to meet explicit performance on the core CMS 
measures are not integral to hospitals' basic reimbursement. 
Importantly, the basic approach to hospital payment relies on 
prospective payment through case rates--diagnosis related groups 
(DRGs). Although, as we all learned through the MedPAC study of 
specialty hospitals, DRG payments can be skewed and create distorted 
incentives for hospitals to emphasize certain services at the expense 
of others, nevertheless, the hospital prospective payment system 
creates the basic incentives for hospitals to improve efficiency, at 
least in caring for the patients that enter through their doors. P4P is 
not looked to for the purpose of improving hospital efficiency.

Physician Pay-For-Performance

    Which brings me to the subject of today's hearing--pay-for-
performance for physicians in Medicare. Here, I would make a point 
about terminology. I have chosen to use the term pay-for-performance 
rather than value-based purchasing, the term that the Chairman has 
adopted to title the proposed bill. I believe value-based purchasing is 
a much broader concept than pay-for-performance, which is but one of 
many strategies that a value-based purchaser might adopt.
    I generally applaud the goal of measuring physician performance, 
holding physicians accountable for deviations from desired performance, 
and through publication of performance, helping Medicare beneficiaries 
make informed choices about which physicians they should seek care 
from. However, there are formidable barriers to assessing performance 
at the individual physician level. Further, in the crucial areas of 
overuse and inefficient provision of services and in misuse, that is, 
errors of commission and faulty judgment, measures are in their 
infancy.
    Physician pay-for-performance faces unique barriers in Medicare 
because of certain characteristics of the Medicare beneficiary 
population. In an important article that appeared last month in the 
Journal of the American Medical Association, a group at Johns Hopkins 
cogently argued that most clinical practice guidelines (CPGs) and 
performance measures focus on single conditions, failing to recognize 
that many Medicare beneficiaries have multiple chronic conditions, not 
just a single one for which most guidelines and measures are directed. 
The authors concluded, ``Basing standards for quality of care and pay 
for performance on existing CPGs could lead to inappropriate judgment 
of the care provided to older individuals with complex comorbidities 
and could create perverse incentives that emphasize the wrong aspects 
of care for this population and diminish the quality of their care.'' 
\1\ It will take years to develop validated measures relevant to the 
large number of beneficiaries with complex comorbidities.
---------------------------------------------------------------------------
    \1\ Cynthia M. Boyd, et al., Clinical Practice Guidelines and 
Quality of Care for Older Patients With Multiple Comorbid Diseases. 
JAMA 294(6): 716-723.
---------------------------------------------------------------------------
    A related issue is that most CPG and P4P measures are relevant to 
younger populations. For an 85 year-old, measures that focus on primary 
and secondary prevention are not particularly relevant, whereas 
measures appropriate to geriatric syndromes, e.g. reducing falls, 
addressing incontinence and chronic pain, deserve priority. I recognize 
that H.R. 3617 calls for measures that address issues related to frail 
elderly and those with multiple chronic conditions, but the work to 
develop age-relevant performance measures is just beginning.
    One P4P initiative that seems to be on the right track is the 
California-based activity under the auspices of the Integrated 
Healthcare Association. However, it is important to identify the unique 
aspects of IHA that suggest to me it will not be simple to replicate 
the approach in Medicare. The IHA initiative assigns accountability to 
relatively large multi-specialty medical groups contracting with health 
plans under capitation arrangements that, similar to DRGs for 
hospitals, transfers financial risk to the provider group. The 
fundamental approach to promoting cost conscious physician behavior 
resides in the basic professional capitation payment to the groups. In 
this context, P4P provides an important complement by looking for and 
measuring possibly substantial under-use of services, which is a 
potential byproduct of incentives that could lead to withholding needed 
care. Importantly, there are reasonable process measures of under-use 
for certain important diseases that also supports the goals of the IHA 
initiative.
    In contrast, the Medicare physician payment system and, outside of 
California and a few other places, the physician payment system used by 
most private insurers based on a fee-for-service (FFS) model. The 
payments reimburse for transactions, not for population-based health 
care, and the powerful, inherent incentives in FFS reimbursements are 
to drive up volume. Recent data from both Medicare and private payers 
document that that is exactly what is happening--to unsustainable 
levels. In this fee-for-transactions environment, the validated P4P 
measures that mostly address primary and secondary prevention services 
and patient experiences likely will have little effect on utilization 
and spending even as they improve patient outcomes. Further, where 
patients have free choice of physician at the point of service, as in 
Medicare, PPOs and, now, many HMOs, patients obtain care in an a la 
carte fashion, providing no easy way to assign the responsibility for 
performance. It is far easier to attribute performance against 
specified measures to multi-specialty groups that assume responsibility 
for individuals who designate them as their source of care than to 
independent physicians who take patients one by one and face no 
incentives to conserve resources. Physicians are supposed to meet the 
standards of care of their specialty, not assure that patients actually 
have good outcomes at a reasonable cost. Thus, pay for performance 
offers some promise as a tool to move physician orientation to actually 
meeting patients' needs. We will see.
    In short, physician P4P faces formidable barriers in Medicare, as 
it does for most private plans. For all the P4P talk, the current round 
of Center for Studying Health System Change (HSC) Community Tracking 
Study site visits found that physician P4P was underway robustly only 
in 2 of the 12 metropolitan areas that it tracks--in Orange County, in 
the heart of the delegated capitation model of care and in Boston, 
where there are large physician groups, often attached to the major 
teaching hospitals. \2\ Although Medicare surely could lead on P4P, I 
doubt that P4P is ready for the decisive role envisioned for it under 
the Chairman's proposed legislation, a role that sees it as a 
substitute for the flawed sustainable growth rate (SGR) formula for 
holding down Part B expenditures.
---------------------------------------------------------------------------
    \2\ Cara S. Lesser, Paul B. Ginsburg and Laurie E. Felland, Initial 
Findings from HSC's 2005 Site Visits: Stage Set for Growing Health Care 
Cost and Access Problems. Center for Studying Health System Change, 
Issue Brief 97, August 2005.

---------------------------------------------------------------------------
P4P is Not a Subsitute for the Troubled SGR Mechanism

    The SGR needs to be reformed or replaced. While significant changes 
are needed, current P4P measures that focus on under-use of preventive 
services simply will not serve as a substitute for the SGR mechanism 
for constraining physician spending in Medicare. The well-intentioned 
attempt, unfortunately, strikes me as a classic example of the ``tail 
wagging the dog.'' By that I mean that the engine that drives physician 
behavior is the financial incentive to increase volume. Physicians, 
especially those who may be knowingly taking advantage of the system, 
will surely ignore any marginal payment incentive of 1 or 2 percent if 
the behavior to gain the marginal income conflicts fundamentally with 
the underlying incentives in the payment system. It would be much 
easier to do an extra test, see an extra patient, or--of most concern--
upcode visits to make up for what otherwise might be lost under such a 
scenario. While there is no conflict between the underlying payment 
incentives and a P4P approach that rewards more care, that won't 
contain costs or limit inappropriate utilization. To the contrary, it 
might increase spending, albeit for desired activities.
    But on issues of overuse, I suggest that the conflict does exist. 
For example, in Medicare spending for advanced imaging services 
increased last year by 25 percent. Because much of the costs associated 
with imaging services are fixed and able to be spread over the number 
of imaging services provided, those providing these services have every 
incentive to suggest the need for additional, discretionary imaging 
services. And referring physicians, for various reasons, face no 
constraint on ordering imaging services that, importantly, do no harm, 
except to taxpayers and the relatively few beneficiaries without 
supplemental insurance who actually have to pay a co-payment. Thus, 
even if we could reliably measure overuse, I am skeptical that 
physicians will markedly change their behavior to respond to a modest 
1-2 percent change in payment.
    In short, pay-for-performance is a worthy initiative and I applaud 
the goal of trying to produce relevant and validated measures for each 
specialty. However, I expect that this objective done correctly would 
take many years. The current state of measurement and structural 
impediments to P4P effectiveness does not constitute an acceptable 
substitute for the SGR, which I think we all agree needs to be 
replaced.

The RBRVS System Needs A Comprehensive Review

    I am concerned that the attention on P4P is distracting both policy 
makers and the medical profession from addressing what are increasingly 
apparent flaws in the resource-based relative value scale (RBRVS)-based 
payment system that controls physician payment in Medicare and, in 
somewhat altered forms, in private health plans.
    As suggested earlier, a value-based purchaser asks whether it is 
obtaining the right kind and mix of services, of acceptable quality, 
for the right cost. For example, a value-based purchaser would not 
simply defer to the medical profession to determine the mix and 
relative value of services provided by the profession, the explicit 
concept that underlies the RBRVS-based payment system. Further, a 
value-based purchaser would feel no obligation to provide payment 
bonuses to all specialties if the areas of that need improvement could 
be affected by a subset of physicians. The goal of value-based 
purchasing, with P4P as but one strategy, should be to provide greater 
value for beneficiaries and taxpayers, not to promote equitable access 
to bonus payments for physicians, which seems to be the American 
Medical Association's position. Thus, P4P should be seen a means to the 
end of getting greater value for money spent and not as an end in 
itself, that is, to measure and reward for the sake of measuring and 
rewarding.
    Given the problems in the Medicare physician payment approach that 
preceded RBRVS, basing payment on dollar estimates of work and practice 
overhead, rather than historic charges, was a clear improvement. And in 
the first decade of implementation beginning in 1992, the volume 
control mechanisms that limited spending functioned reasonably well. 
Unfortunately, those days are over.
    Briefly, Medicare's physician payment system is facing fundamental 
problems that pay-for-performance alone will not address and to which 
few policymakers seems to have paid attention in recent years.
    1. Disconnect between costs and payments. For many services, 
payments bear poor relation to underlying cost of production. The 
MedPAC finding that skewed DRG payments were distorting market behavior 
in relation to specialty hospital development is surely also true in 
relation to physician payments. Recently, Paul Ginsburg and Joy 
Grossman of the Center for Studying Health System Change wrote about 
this phenomenon of distorted payments in relation to hospital and 
ambulatory care based upon recent findings from the 12 HSC Community 
Tracking Sites. \3\ I am currently reviewing HSC interviews from the 
fifth round of site visits that demonstrate that physician behavior too 
often reflects a strong bias toward performing procedures, even leading 
them to be unavailable to perform the consultative role that 
specialists traditionally have performed. For example, in some sites, 
gastroenterologists have stopped caring for complex hospitalized 
patients, preferring to perform routine endoscopies in ambulatory 
endoscopy suites in which they are likely to have ownership interests. 
In short, physicians respond to economic incentives, which has 
distorted physician behavior, resulting in the provision of an 
inappropriate mix of services. MedPAC has identified the issue of 
mispricing of physician services and plans to study it in detail in the 
near future. \4\
---------------------------------------------------------------------------
    \3\ Paul B. Ginsburg and Joy M. Grossman When The Price Isn't 
Right: How Inadvertent Payment Incentives Drive Medical Care Health 
Affairs Web Exclusive, August 9, 2005
    \4\ Chapter 9: Review of CMS's Preliminary Estimate of the 
Physician Update for 2006 in ``Report to the Congress: Issues in a 
Modernized Medicare Program'' MedPAC, June 2005.
---------------------------------------------------------------------------
    One of the explicit objectives of the RBRVS system based on work 
performed by William Hsiao and colleagues, was to redistribute from 
procedural and technical services to what were then called 
``cognitive'' services and now ``evaluation and management'' services. 
Although there was initial redistribution in implementing the RBRVS 
system in 1992, a preliminary Urban Institute study I helped produce 
for MedPAC demonstrated that desired redistribution progress has 
stopped for a number of reasons. \5\
---------------------------------------------------------------------------
    \5\ MedPAC Report, June 2005.
---------------------------------------------------------------------------
    Compounding the problem within the physician fee schedule is the 
apparent overpayment in facility fees, which are paid separately from 
the physician fee schedule, As a result, many physicians now invest in 
ambulatory surgery centers, endoscopy suites, and diagnostic imaging 
and testing centers. In short, to make up for what they consider 
inadequate professional fees, in particular for their time associated 
with patient visits and consultations, physicians increasingly are 
becoming entrepreneurs, able to self-refer to increase volume and 
revenues. Thus, in any serious attempt to fix the SGR mechanism, 
consideration should be given to redirecting savings from reducing 
overly generous facility fees to the pool of dollars that physicians 
can receive for their professional services, so that physicians can 
again resume their roles of acting in their patients' best interests 
and performing services they have been trained for, rather than feel a 
need to self-refer to support their investments. Again, MedPAC is doing 
some work in this area, at least with respect to examining site-of-
service differentials.
    2. Volume or cost control. Many have described the problems of the 
SGR as the mechanism for controlling physician expenditures. Preceding 
the SGR was the Volume Performance Standard (VPS), which had problems 
as well, but was reasonably successful in the face of the daunting 
volume incentives that fee-for-service provides. I believe one of the 
problems in both approaches is that the volume control is applied at a 
national level. When prices are cut as a result of national volume 
controls, an individual physician's incentive is to increase services 
that do no harm to patients, of which there are many. Thus, prudent 
physicians are penalized and profligate ones are rewarded. This reality 
does provide a strong rationale for individual level assessments of 
utilization as performance measurement attempts to do. But again, the 
physician who is increasing volume to increase revenues that go to the 
bottom line is unlikely to respond to a P4P incentive of a percentage 
point or two to restrain volume.
    Interestingly, in recommending a national volume control mechanism 
that was subsequently adopted in statute as the VPS, the Physician 
Payment Review Committee (PPRC) understood that a control mechanism 
applied nationally was a crude approach. In 1989, the PPRC expressed 
hope that organized medicine would step up to the challenge of 
developing clinical practice guidelines, enhanced peer review and other 
professionally-grounded approaches to reducing excessive volume. That 
never happened. PPRC also discussed moving to specialty specific and 
geographic volume performance standards to target price cuts to where 
the excessive volume was taking place. That never happened either.
    And now, more than fifteen years later, we understand through the 
work of Jack Wennberg, Elliot Fisher and their colleagues that 
geographic variations in volume of physician services do not produce 
important differences in quality. We are spending too much in 
particular geographic areas, but the volume controls are being applied 
nationally. Further, not all services are rising at unacceptable rates. 
The volume of major surgical procedures is not rising out of control; 
nor are doctor visits. Yet, the SGR spreads the pain of price cuts 
indiscriminately. In short, the SGR mechanism is broken, but as long as 
Medicare reimburses for professionally-determined transactions, there 
needs to be more targeted volume control mechanisms to address 
inflationary spending. We are asking too much of P4P to do the job of 
controlling volume increases and the accompanying unsustainable 
spending increases.
    3. Lack of care coordination for beneficiaries with chonic 
conditions. The current physician payment system does virtually nothing 
to promote care coordination by physicians and their offices for the 
increasing numbers of beneficiaries with multiple chronic conditions. 
These patients typically see numerous unconnected physicians and other 
health professionals and may take ten or more prescription and OTC 
drugs without supervision. The Chairman knows of my interest in this 
area. I have had the privilege of testifying here on how to improve the 
provision of services to beneficiaries with chronic illnesses, and I 
applaud the Chairman for her interest in helping enact important pilots 
and demonstrations in the Medicare Modernization Act that are now 
proceeding. Nevertheless, I continue to believe that physicians have a 
crucial role to play in being part of teams that address the care for 
patients with multiple chronic conditions. To achieve that objective, 
basic payment policy must provide incentives for physicians to spend 
some of their professional time and to allow others working under 
physician supervision to take part in care coordination activities.
    Simply, the Current Procedural Terminology (CPT) coding system that 
Medicare and private payers use does not address care management and 
care coordination. Frankly, care coordination is not an easy thing to 
define and pay for. Nevertheless, a value-based purchaser would ask how 
to promote the set of activities that Ed Wagner and colleagues have 
delineated to constitute good chronic care management. At the same time 
a value purchaser would try to offset that new spending by reducing the 
volume of services that are serving no useful purpose, such as 
intensive care unit stays for many patients in their last weeks and 
months of life.
    I am not recommending arbitrarily limits on what services patients 
are eligible for. But I am suggesting that relative values that 
determine physician payments should be adjusted to try to accomplish 
policy goals, such as reorienting the care of those with end-stage 
chronic conditions to palliation and caring, rather than curative 
interventions. Pay--for-performance might be able to contribute to 
achieving this reorientation. But the real action is in the nitty-
gritty coding and payment policy that has seemed on automatic pilot for 
the past decade.

Conclusion

    In summary, I think measuring physician performance and moving to 
greater accountability for that performance is a desirable goal. But I 
am concerned that inflated expectations about what pay-for-performance 
can achieve has diverted attention from the increasingly evident 
problems with many aspects of the basic physician payment system. In 
particular, P4P currently does not provide a plausible mechanism for 
controlling the volume of or spending on physician services. The RBRVS-
based payment approach has been a very important alternative to what 
came before and worked well initially. But a number of problems with 
the RBRVS conceptual foundation and its implementation have now become 
apparent. MedPAC has identified some of the issues that I have briefly 
discussed above, with tentative plans to explore them in greater 
detail.
    Measurement of physician performance and attempts to pay 
differentially for performance should proceed, but P4P currently will 
not address soaring volume increases of certain physician services in 
particular geographic areas. P4P should not distract the committee from 
a long overdue look at the basic payment system. As part of that 
review, I believe better alternatives to the SGR will be found. And 
until we have a solution, I think it unwise to simply repeal the SGR.

                                 

    Chairman JOHNSON. Thank you very much, Dr, Berenson. Dr. 
Jevon.

 STATEMENT OF THOMAS JEVON, M.D., PRACTICING FAMILY PHYSICIAN, 
                    WAKEFIELD, MASSACHUSETTS

    Dr. JEVON. Madam Chairman, Congressman Stark, Members of 
the Ways and Means Health Subcommittee, I would like to thank 
you very much for the opportunity to testify before you today 
regarding my experience participating in the Bridges to 
Excellence program and other Pay For Performance programs. My 
name is Dr. Tom Jevon, I am a solo family physician practicing 
in a solidly middle class suburb about 15 miles north of 
Boston. I may be among a rare group of physicians in that I 
have used an electronic medical record since 1993. As a 
practicing physician in an area dominated by very large HMOs, 
as a leader of a 300 doctor physician hospital organization, 
and as a member of a large network of providers, including Mass 
General and Brigaman Women's Hospital, I have a lot of 
experience with financial incentives for physicians. I truly 
believe that most physicians support the concept of Pay For 
Performance measures. They support the idea of rewarding their 
colleagues who work harder and demonstrably do a better job 
than their peers. For Pay For Performance plans to work, 
however, they need to meet a number of criteria. Most 
important, Pay For Performance only works for the primary care 
physician like myself when real dollars are at stake. It takes 
a bonus of $2,000 to get a physician interested, probably 
$5,000 to grab his or her attention. The proposed differential 
of 1 percent in the current draft of the bill would probably 
translate into perhaps a thousand dollars, not enough to engage 
a doctor in the effort.
    The Pay For Performance has to capture the imagination, or 
at least the attention of the doctor; we have to believe the 
goal or measure will actually make a difference, that is, both 
improve patient health, and hopefully improve the healthcare 
delivery system. The Bridges to Excellence program pays 
physicians bonuses if they show success in treating diabetics 
better with improved education programs and objective 
laboratory-based measures of diabetic control. The Pay For 
Performance has to be transparent, accurate and fair. Our major 
source of data for physician performance is the claims 
physicians submit to be paid for services. Unfortunately, this 
claims data is often inaccurate, delayed, and in many ways 
flawed. This can cause all kinds of disturbing results, such as 
the doctor universally known by his colleagues to be a weak or 
inferior clinician achieving top scores on a patient 
satisfaction index and being rated as a top physician in an HMO 
network. We must improve our data and measurement techniques by 
being careful about what we choose to measure and ensuring the 
integrity of our data. Bridges to Excellence has been very 
careful in this regard, they do not rely on claims to evaluate 
physician performance. They also choose measures that can be 
accurately measured and verified.
    The physician effort to improve performance, including the 
physician's cost to collect the data, can't outweigh the 
financial benefit to be gained. In my own experience, I decided 
not to apply for the Bridges to Excellence diabetic program 
because the bonus I would achieve was not worth the word. On 
the other hand, the bonus for me for an EMR was significant, 
more than $5,000. It was an easy decision to apply for it. We 
need to create grant programs or provide pools of cash for 
special purposes when there isn't enough funding to make 
significant cash payments to all physicians. In my own PHO, we 
decided to give grants to a few earlier adopters of electronic 
medical records. Medicare should encourage programs like 
Bridges to Excellence that are simply bonuses, programs that 
offer straightforward transparent rewards that are not wrapped 
up in health insurance contracts, or simply the return of 
expected physician fees. Like it or not, bonuses without 
strings attached improve performance and outcomes. Physicians 
must be intimately involved in both the design and 
implementation of measures that report relative physician 
quality. If the measure is unfair or flawed by bad data, there 
is likely to be a huge backlash or disengagement or 
disenchantment from physicians.
    My own perspective is an that EMR is essential to any long-
term success with Pay For Performance. Access to an EMR allows 
collaboration between patients, physicians and other healthcare 
providers and can provide the accurate data we need to truly 
and fairly measure relative physician performance and quality, 
and develop fair Pay For Performance models. It allows us to 
move away from our dependence on claims data for measuring 
physician performance. To most physicians, Pay For Performance 
is just the latest iteration in the struggle to control costs, 
while at the same time improving quality. Physicians appreciate 
that if they are not willing to engage in this on-going battle, 
insurers and government will impose possibly Draconian 
solutions. Yet many physicians are angry because on top of the 
real business of healing, they are often caught in the middle 
of doing society's job of deciding how to deploy health 
resources all day, every day with every patient. For older 
doctors, this is certainly not what they signed up for, nor was 
it what they were trained for. As we design new payment 
programs to incentivize physicians, we should not forget the 
multiple, difficult and conflicting challenges that hardworking 
physicians face each day. Thanks very much for the opportunity 
to present my views.
    [The prepared statement of Dr. Jevon follows:]
     Statement of Thomas Jevon, M.D., Practicing Family Physician, 
                        Wakefield, Massachusetts
    Madame Chairman, Congressman Stark, and Members of the Ways and 
Means Health Subcommittee, I would like to thank you for the 
opportunity to testify before you today regarding my experience 
participating in the Bridges to Excellence Program and other Pay For 
Performance Programs.
    My name is Dr. Tom Jevon, and I am a solo family physician 
practicing in a solidly middle class suburb 15 miles north of Boston. I 
am a typical primary care physician with a very busy practice seeing a 
wide range of patients 5 days a week with both evening and Saturday 
hours. I may be atypical in that I have used my own EMR (Electronic 
Medical Record) since 1993 and have been deeply involved in managed 
care for 15 years, not only as a practicing physician in an area 
dominated by large HMO's but as director of medical management and vice 
president for the 300 physician PHO (Physician Hospital Organization) 
in our area. I am currently heading an effort to create a central, 
shared EMR for the physicians in our PHO, which we plan to implement in 
early 2006. I've also been involved in PCHI, (Partners Community Health 
Care Inc) a large network of community hospitals, physician groups and 
academic centers including Massachusetts General Hospital and Brigham 
and Woman's Hospital, since it's inception more than 10 years ago. I 
have grappled with the issues of different financial incentives for 
physicians for years, both as a practicing physician and in my various 
administrative roles. Our present contracts contain multiple pay for 
performance measures, mostly an opportunity for physicians to win back 
money withheld from their fees. Public reporting and measurement of 
physician quality as well as tiered patient co pays based on these 
results are also coming to our marketplace.
Pay For Performance
    I truly believe that most physicians support the concept of Pay For 
Performance Measures. They support the idea of rewarding their 
colleagues who work harder and demonstrably do a better job than their 
peers. For Pay For Performance plans to work however they need to meet 
a number of criteria, many of which Chairwoman Johnson has elaborated 
in her legislation.
    However, Pay For Performance only works when real dollars are at 
stake. Physicians are relatively insensitive to measures that provide 
less than $2000 in their pocket. The 1% differential in the Johnson 
bill would probably translate into perhaps $1000 into the average 
primary care physician's pocket, probably not enough to engage him in 
the effort. To really grab a physician's attention you need to be in 
the $5000 and up range. Specialists with higher incomes may have a 
higher threshold and generally require programs that are different from 
those for primary care physicians.
    Pay For Performance has to capture the imagination or at least the 
attention of the doctor: We have to believe the goal or measure will 
actually make a difference and either improve patient health or make 
our system work better. The Bridges to Excellence (BTE) program pays 
physicians bonuses if they show they really succeed in treating 
diabetics better, with improved education programs and objective 
laboratory based measures of diabetic control.
    Pay For Performance has to be transparent, accurate and fair: Our 
major source of data for physician performance is the claims physicians 
submit to be paid for services. Unfortunately this claims data is often 
inaccurate, always delayed and often flawed in many different ways. In 
my PHO we have achieved hundreds of thousands of dollars for our 
physicians, not by helping them achieve their performance goals but by 
digging through data that starts out as looking improbable or unusual 
and then turns out to be simply in error. This has nothing to with Pay 
For Performance and every thing to do with flawed data. Once the data 
is ``clean'' there are further hurdles; we need to apply adjustments 
for Health Status, patient compliance and other factors unique to our 
local environment. Even then we can see disturbing results like the 
doctor universally known by his colleagues to be a weak clinician 
achieving top scores on a patient satisfaction index and being rated as 
a top physician in an HMO network.
    We must improve our data and measurement techniques, by being 
careful about what we choose to measure and ensuring the integrity of 
our data. Our PHO uses claims data to measure physician performance 
with diabetics with mixed results. Documenting annual eye visits has 
been challenging, documenting blood and urine tests, less so. Measures 
around physician performance with radiology based on claims data has 
been very problematic. BTE has been very careful in this regard. They 
do not rely on claims to evaluate physician performance. They also 
choose measures that make sense and can be accurately measured and 
verified.
    The physician effort and cost of achieving a goal or simply 
obtaining the appropriate data to measure that goal cannot overwhelm 
the financial benefit to be gained: Physicians are far too busy and 
overworked already to take on something that is clearly not worth the 
effort. I decided not to apply for the BTE Diabetic program because the 
bonus I would achieve was not worth the work. On the other hand the 
bonus for me for an EMR was significant, more than $5000. It was an 
easy decision to apply for it. I paid a $475 fee to register with the 
National Committee for Quality Assurance, (NCQA) and document my 
system's capabilities with their web-based tool. They evaluated my 
submission and certified that I met their criteria for the Physician 
Office Link program.
    When there isn't enough funding to make significant cash payments 
to all physicians create grant programs or provide pools of cash for 
special purposes. We have decided to give grants to early adopters of 
EMR in our PHO.
    Medicare should encourage programs like Bridges to Excellence that 
are true value added programs and offer straightforward, transparent 
rewards that are not wrapped up in health insurance contracts or simply 
the return of withheld physician fees. My own experience with BTE was 
relatively painless. I used a NCQA website and screenshots from my 
system to document exactly how my EMR was used, what data it routinely 
contained on blinded patients. There were discreet criteria that had to 
be met to achieve different levels or reward. For doing this I received 
both recognition and a cash award. It felt good to be paid a bonus 
without strings attached for going above and beyond the average 
physician.
    Physicians must be intimately involved with both the design and 
implementation of measures that report relative physician quality. If 
the measure is unfair or flawed by bad data there is likely to be a 
huge backlash or disengagement or disenchantment from physicians.
    I support many of the recommendations of the February 10th, 2005 
Statement for the Record by Wendy Gaitwood from the American Academy of 
Family Physicians. Specifically I support those recommendations that 
require feedback to physicians about the data, disclosure of the 
sources of the data, and assurances through the use of a 3rd party that 
the data has been validated and verified.

Conclusion

    My own perspective is that an EMR is essential to any long-term 
success with Pay For Performance. Access to an EMR/EHR allows 
collaboration between patients, physicians and other health care 
providers, and can provide the accurate data we need to truly and 
fairly measure relative physician performance and quality and develop 
fair P4P models. It allows us to move away from our dependence on 
claims data for measuring physician performance. EMR has its own 
challenges, not the least of which are: huge changes in physician style 
of practice, high costs both in dollars and physician time to 
implement, ongoing expense to maintain, and a perceived threat to 
physician autonomy. But I believe its benefits far outweigh its costs, 
and it is really the only way forward.
    To most physicians, Pay For Performance is just the latest 
iteration in the struggle to control costs while at the same time 
improving quality. Physicians appreciate that if they are not willing 
to engage in this ongoing battle, insurers and government will impose 
possibly draconian and noxious solutions. Yet physicians are angry 
because, on top of the real business of healing, they are often caught 
in the middle doing society's job of deciding how to deploy health 
resources all day, every day with every patient. For older doctors this 
is certainly not what they signed up for, nor was it what they were 
trained for. We all yearn for something like the lawyer's role in 
society: Serve only the needs of your client and leave all concern 
about the costs to society resulting from your actions to someone else. 
As we design new payment programs to incentivize physicians we should 
not forget the multiple, difficult and conflicting challenges that 
hardworking physicians face every day.
    Thank you, again, for the opportunity to present my views.

                                 

    Chairman JOHNSON. Thank you very much for your excellent 
testimony. Ms. Ignagni.

   STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, AMERICA'S HEALTH INSURANCE PLANS

    Ms. IGNAGNI. Thank you, Madam Chair and Mr. Stark, Members 
of the Committee, it is a pleasure to be here this afternoon. 
As we were listening to the discussion, it occurs to me to 
begin with the obvious, and all of you have mentioned it today. 
We face three core challenges in healthcare, controlling costs, 
improving quality and expanding access. The interrelationship 
of these challenges is encapsulated in data provided by the 
Rand Corporation that indicates only 55 percent of healthcare 
services nationwide are delivered in accordance with best 
practices. The payment system hasn't encouraged a do-it-right-
the-first-time attitude or commitment to best practices. 
Indeed, until recently, efforts in the private sector payments 
for good care, bad care or mediocre care has been the same, and 
wide variations and practice patterns have been ignored.
    Further exacerbating these trends quite seriously are data 
recently reported in JAMA, indicating that physicians feel that 
they are forced to practice defensive medicine with almost half 
reporting that they used imaging technology in clinically 
unnecessary circumstances. A dollar spent on unnecessary or 
duplicative procedures is a dollar that could ameliorate the 
burden of rising costs on employers and consumers, and be 
devoted toward improving access or maintaining benefits in 
public programs. These problems clearly didn't arrive overnight 
and they will not be solved overnight.
    As we move to considering how to move in the direction of 
incenting quality, we think it is very critical to link that 
conversation to the matter of reliable data. We are happy to 
offer comments on these broad issues, as well as specifically 
on H.R. 3617. In our written testimony, we emphasize the 
following points: One, the importance of uniform performance 
measurement to reduce the proliferation of multiple 
uncoordinated and conflicting data requests going to physicians 
from health plans, from employer coalitions, from consultants 
and public sector. Two, the need to aggregate data, to 
facilitate the reporting the data that fairly represents the 
patient population served by a provider. We can't expect that a 
particular provider should be judged by his or her population 
served from a particular health plan, from a particular public 
program, we need to aggregate data.
    Three, we need to report data to consumers to help them 
make more informed decisions back to providers so that they can 
improve quality of care. Four, any legislation in our view 
should require public officials to work with established groups 
working on the data elements I mentioned above rather than 
reinventing the wheel. Five, the measures should be updated 
regularly to reflect new evidence, new understandings and new 
information.
    Our testimony also discusses and provides some examples of 
private sector experience with innovative payment arrangements. 
An important lesson we have learned is that quality and 
efficiency measures go hand in hand. Many of our members are 
offering physician financial rewards, others offer nonfinancial 
rewards in the form of public recognition, preferential 
marketing or streamlined administrative procedures. Still other 
programs provide lower co-pays deductibles or premiums to 
consumers who choose providers found to be of higher quality, 
based on specific performance measurement.
    AHIP and our members are active participants in the 
Ambulatory Care Quality Alliance, AQA, which is working on the 
matters I referred to above. The objective of that alliance is 
to create uniformity in performance-based initiatives. The AQA 
members include numerous physician groups, the American College 
of Physicians, the Academy of Family Physicians, the American 
Medical Association, the Osteopathic Association, the Society 
For Thoracic Surgeons, the College of Surgeons, the AARP, the 
National Partnership For Women and Families, the Pacific 
Business Group on Health, the Agency For Healthcare Research 
and Quality, and CMS.
    Together, these organizations are working to identify what 
should be measured for proficient performance, both quality and 
efficiency, and develop a data aggregation model that will 
comprehensively assess provider performance. We hope these 
efforts will be useful to the Committee by putting in motion 
baseline work that needs to be done to make this transition to 
a quality-based payment system a success. Earlier this year, 
AQA reached consensus on a common set of 26 ambulatory care 
performance measurements to provide clinicians, consumers and 
purchasers with a starter set, but it is only that, and now we 
are working on additional sets of quality measures. But it is a 
beginning.
    More recently, AQA has been focused on developing pilot 
projects that combine public and private payer data, leveraging 
the experience of existing data aggregation efforts and 
evaluating the most effect processes for measuring physician 
level performance. We think that this is an important matter to 
begin this work and to begin the conversation. AQA is currently 
seeking to secure both public and private funding to implement 
these pilot projects in 2006, and we are very optimistic about 
that. AQA has also developed fundamental principles for 
reporting reliable and useful quality information to consumers 
and providers, and we would be delighted to share that with the 
Subcommittee. In closing, Madam Chair, thank you for the 
opportunity to testify. We applaud the beginning of this 
conversation, and we would like to be as helpful as possible in 
working on the issues that all of the members referred to in 
their opening statements this afternoon. Thank you.
    [The prepared statement of Ms. Ignagni follows:]
  Statement of Karen Ignagni, President and Chief Executive Officer, 
                    America's Health Insurance Plans
I. INTRODUCTION
    Good afternoon, Madam Chairwoman and members of the subcommittee. I 
am Karen Ignagni, President and CEO of America's Health Insurance Plans 
(AHIP), which is the national trade association representing nearly 
1,300 private sector companies providing health insurance coverage to 
more than 200 million Americans. Our members offer a broad range of 
health insurance plans to employers, state and federal governments, and 
individuals, and also have demonstrated a strong commitment to 
participation in Medicare, Medicaid and other public programs.
    We appreciate this opportunity to testify, and to share our 
thoughts with you about H.R. 3617 and the importance of establishing 
payment incentives that promote quality, safety, and efficiency goals. 
Indeed, this experience indicates that paying for quality and 
efficiency is a promising strategy for improving overall health care 
outcomes and advancing evidence-based medicine.
    Historically, health care practitioners have not been paid based on 
the quality of care they deliver. Until recently, positive clinical 
outcomes, high patient satisfaction, and efficiencies have not been 
rewarded. Instead, provider reimbursement--particularly in the Medicare 
program--has been based on the volume and technical complexity of 
services rendered. This approach rewards any over-utilization and 
misuse of services, and results in higher payments when health care 
complications arise. In effect, the current financing system creates 
disincentives to improve quality and efficiency. More tests, more 
visits, and repeated hospital stays are rewarded, whereas efficiency, 
effectiveness and getting it right the first time are not.
    The flaws of the current system are recognized by physicians. A 
2004 survey \1\ of 400 primary care and specialty physicians, conducted 
on behalf of AHIP by Ayres, McHenry & Associates, found that 86 percent 
of physicians are concerned that the current payment system does not 
reward practitioners for providing high quality medical care. Other 
findings of this survey indicate that 71 percent of physicians favor 
payments based in part on the quality of care they provide, and 62 
percent believe that information on the quality of care provided by a 
physician should be made available to the public.
---------------------------------------------------------------------------
    \1\ ``National Survey of Physicians Regarding Pay-for-
Performance,'' Ayres, McHenry & Associates, Inc., September/October 
2004
---------------------------------------------------------------------------
    Additionally, this survey included other findings which may be 
relevant to the subcommittee's discussions. Specifically, an 
overwhelming majority of physicians indicate support for pay-for-
performance programs if the performance measures were developed with 
physicians in that particular medical specialty (87 percent), if the 
performance measures were clearly communicated to physicians before 
they were used in payment arrangements (84 percent), and if the 
performance measures were evidence-based and grounded in science (83 
percent).
II. THE CASE FOR CHANGE
    The U.S. health care system faces a number of significant 
challenges. Rising health care costs are threatening to make health 
coverage unaffordable for more Americans, and are holding back efforts 
to meet the needs of the uninsured.
Rising Costs
    The most recent data from the Department of Health and Human 
Services (HHS) project that national health care spending increased by 
an estimated 7.5 percent in 2004. Although this is the lowest rate of 
increase since 2000, health care costs still are growing faster than 
the overall economy and, as a result, large and small employers are 
finding it more difficult to provide or maintain coverage for their 
employees.
    AHIP and our members are encouraged about what we can do in the 
private sector to reduce growth in health care spending. From 1994 
through 1999, national health expenditures were in line with overall 
economic growth, because health insurance plans implemented a variety 
of tools to constrain costs. This had a direct impact on the ability of 
employers to purchase affordable coverage for their employees.
    Indeed, the Lewin Group estimated that up to 5 million people \2\ 
who otherwise would have been uninsured were able to receive coverage 
as a result of these costs being restrained.
---------------------------------------------------------------------------
    \2\ The Lewin Group LLC, Managed Care Savings for Employers and 
Households: 1990 through 2000; 1997
---------------------------------------------------------------------------
    As the policy debate shifted away from containing costs, 
legislative proposals at both the federal and state levels focused on 
rolling back the mechanisms that were keeping health care affordable. 
This led to a new cycle of accelerating health care costs with 
a2deleterious effect on purchasers and consumers.
    Recognizing this challenge, our members have developed a new 
generation of cost containment tools that already are having a positive 
impact and showing promise for the future. For example, the rates of 
increase in pharmaceutical expenditures have significantly declined as 
a result of our members' implementation of programs to encourage 
greater use of generic drugs and other measures that encourage case 
management of chronic conditions. The Center for Studying Health System 
Change has reported \3\ that growth in prescription drug spending fell 
to 7.2 percent in 2004, down from almost 20 percent in 1999.
---------------------------------------------------------------------------
    \3\ Strunk, B., Ginsburg, P., & Cookson, J. (June 2005). Tracking 
Health Care Costs: Spending Growth Stabilizes at High Rate in 2004. 
Center for Studying Health System Change. Data Bulletin No. 29.
---------------------------------------------------------------------------
Quality Concerns
    Through its landmark reports released in 1999, To Err is Human, and 
in 2001, Crossing the Quality Chasm, the Institute of Medicine (IOM) 
focused the nation on the critical need to improve health care quality 
and patient safety, coordinate chronic care, and support evidence-based 
medicine. Variation in medical decision-making has led to disparities 
in the quality and safety of care delivered to Americans. The 1999 IOM 
report \4\ found that medical errors could result in as many as 98,000 
deaths annually, and a 2003 RAND study \5\ found that patients received 
only 55 percent of recommended care for their medical conditions.
---------------------------------------------------------------------------
    \4\ ``To Err is Human,'' Institute of Medicine, 1999
    \5\ ``The Quality of Health Care Delivered to Adults in the United 
States.,'' Elizabeth A. McGlynn, RAND, June 25, 2003
---------------------------------------------------------------------------
    A wide range of additional studies indicate that Americans 
frequently receive inappropriate care in a variety of settings and for 
many different medical procedures, tests, and treatments. Such 
inappropriate care includes the overuse, underuse or misuse of medical 
services. Studies also show that patterns of medical care vary widely 
from one location to another, even among contiguous areas and within a 
single metropolitan area--with no association between higher intensity 
care and better outcomes. For example:

     The Dartmouth Atlas of Health Care \6\  documents wide 
variation in the use of diagnostic and surgical procedures for patients 
with coronary artery disease, prostate cancer, breast cancer, diabetes, 
and back pain. For example, the rates of coronary artery bypass graft 
(CABG) surgery were found to vary from a low of 2.1 per 1,000 persons 
in the Grand Junction, Colorado hospital referral area, to a high of 
8.5 per 1,000 persons in the Joliet, Illinois region. The Atlas' most 
recent findings \7\ reveal wide variation in hospital care and outcomes 
for chronically ill Medicare patients. For example, the length of 
hospital stays varied--depending on a patient's geographic location--by 
a ratio of 2.7 to 1 for cancer patients and by a ratio of 3.6 to 1 for 
congestive heart failure patients.
---------------------------------------------------------------------------
    \6\ Center for the Evaluative Clinical Sciences, Dartmouth Medical 
School, The Dartmouth Atlas of Health Care, ``The Quality of Medical 
Care in the United States: A Report on the Medicare Program,'' 1999
    \7\ Fisher, E., Health Affairs, October 7, 2004
---------------------------------------------------------------------------
     The longstanding nature of quality problems in the U.S. 
health care system is evidenced by a 1999 article \8\ in The New 
England Journal of Medicine, which stated:``A number of studies have 
demonstrated overuse of health care services; for example, from 8 to 86 
percent of operations--depending on the type--have been found to be 
unnecessary and have caused substantial avoidable death and 
disability.'' A more recent study, published in the June 1, 2005 
edition of the Journal of the American Medical Association \9\, 
indicated that 93 percent of practicing physicians in the state of 
Pennsylvania reported practicing defensive medicine--with 43 percent 
reporting that they used imaging technology in clinically unnecessary 
circumstances.
---------------------------------------------------------------------------
    \8\ Dr. Bodenheimer, T., The New England Journal of Medicine, Vol. 
340, No. 6, pp. 488-492, 1999
    \9\ ``Defensive Medicine Among High-Risk Specialist Physicians in a 
Volatile Malpractice Environment,'' Journal of the American Medical 
Association, June 1, 2005.
---------------------------------------------------------------------------
     The National Committee for Quality Assurance (NCQA) \10\ 
documents the state of health care quality annually, reporting in 2004 
that ``enormous quality gaps''' persist as ``the majority of Americans 
still receive less than optimal care'' with between 42,000 and 79,000 
avoidable deaths occurring each year. While health care quality is 
improving in some areas, the health care system remains ``deeply 
polarized, delivering excellent care to some people, and generally poor 
care to many others.''
---------------------------------------------------------------------------
    \10\ NCQA, The State of Health Care Quality: 2004, 2004

    These research findings clearly indicate the need for innovative 
strategies to improve quality and efficiency throughout the U.S. health 
care system. Decisive action is needed to address these wide-ranging 
variations in medical decision-making, as well as the overuse, underuse 
and misuse of health care services. While we understand that the 
subject of this hearing is paying for quality, we have thoughts about 
other strategies that could support these efforts and would be 
delighted to share them with the subcommittee.
III. WHERE WE GO FROM HERE
    We need to move toward a health care system that rewards 
physicians, hospitals and other health care practitioners for high 
quality performance. Although the private sector is implementing 
programs to meet this challenge, it is time for Medicare and other 
federal programs to make similar changes and reward health care 
practitioners for best practices and improved patient outcomes. This 
would be an important step toward advancing an evidenced-based health 
care system that yields better health outcomes and greater value for 
beneficiaries.
    We applaud you for introducing legislation--H.R. 3617, the 
``Medicare Value-Based Purchasing for Physicians Act of 2005''--to 
provide incentives to physicians to provide high quality health care. 
We support the objectives of improving quality, efficiency, patient 
safety and satisfaction, and believe that a strong commitment to these 
goals will result in benefits to a variety of key stakeholder groups. 
Consumers benefit from public disclosure and the opportunity to select 
the best practitioners. Clinicians who perform well will be sought 
after, and all clinicians will benefit from receiving feedback on how 
their performance compares to their peers. For public programs, 
transitioning to a payment-for-quality system will improve care and 
shrink the wide variation in practice patterns around the country.
    AHIP's members are committed to working with stakeholders across 
the health care community, particularly health care professionals who 
work on the frontlines every day, to develop a strategy that accounts 
for the quality of care delivered to patients. In November 2004, AHIP's 
Board of Directors demonstrated this commitment by approving principles 
that are in sync with the goals underlying H.R. 3617 and at the same 
time offer additional thoughts for advancing quality-based payment 
systems. AHIP's principles include eight key elements:

     Programs that reward quality performance should promote 
medical practice that is based on scientific evidence and aligned with 
the six aims of the IOM for advancing quality (safe, beneficial, 
timely, patient-centered, efficient, and equitable).
     Research is urgently needed to inform clinical practice in 
priority areas currently lacking a sufficient evidence-based 
foundation.
     The involvement of physicians, hospitals and other health 
care professionals in the design and implementation of programs that 
reward quality performance is essential to their feasibility and 
sustainability.
     Collaboration with key stakeholders, including consumers, 
public and private purchasers, providers, and nationally recognized 
organizations, to develop a common set of performance measures--
process, outcome and efficiency measures--and a strategy for 
implementing those measures will drive improvement in clinically 
relevant priority areas that yield the greatest impact across the 
health care system.
     Reporting of reliable, aggregated performance information 
will promote accountability for all stakeholders and facilitate 
informed consumer decision-making.
     The establishment of an infrastructure and appropriate 
processes to aggregate--across public and private payers--performance 
information obtained through evidence-based measures will facilitate 
the reporting of meaningful quality information for physicians, 
hospitals, other health care professionals, and consumers.
     Disclosure of the methodologies used in programs that 
reward quality performance will engage physicians, hospitals, and other 
health care professionals so they can continue to improve health care 
delivery.
     Rewards, based upon reliable performance assessment, 
should be sufficient to produce a measurable impact on clinical 
practice and consumer behavior, and result in improved quality and more 
efficient use of health care resources.

IV. IMPORTANCE OF UNIFORM PERFORMANCE MEASUREMENT, DATA AGGREGATION AND 
        REPORTING
Performance Measurement
    A critically important step in moving forward with programs that 
reward quality performance is the development of a uniform, coordinated 
strategy for measuring, aggregating and reporting clinical performance. 
Disseminating information derived from aggregated performance data--
which provides stakeholders with a more comprehensive view of 
performance across marketplaces--would yield benefits on several 
levels. Consumers would be allowed to make more informed decisions 
about their health care treatments. Physicians, hospitals and other 
health care professionals would be better able to improve the quality 
of care they provide. Purchasers would receive greater value for their 
investment in health care benefits. Health insurance plans could 
continue to develop innovative products that meet consumer and 
purchaser needs.
    Unfortunately, the nation lacks a uniform and coordinated strategy 
for measuring and aggregating physician performance data. While many 
different private and public sector groups have attempted to step up to 
the challenge by designing models for assessing performance and 
reporting data, the proliferation of multiple, uncoordinated and 
sometimes conflicting initiatives has significant unintended 
consequences for different stakeholders. For example, duplicative 
efforts:

     unnecessarily burden physicians, other clinicians, and 
health insurance plans with different data requests, shifting focus 
away from quality and efficiency improvement;
     create confusion among consumers due to different 
information that is being publicly reported; and
     detract from collective efforts to efficiently make 
decisions and design programs that meet broad quality goals.

    Perhaps most important, however, are the adverse effects numerous 
initiatives have on patient care and the health care system as a whole. 
Without a uniform approach to select performance measures for public 
reporting, they will continue to divert limited resources and focus 
away from establishing clear priorities and reaching goals.
    To create uniformity across purchasers, coalitions and consulting 
firms, AHIP has been working in a collaborative effort with the 
Ambulatory Care Quality Alliance (AQA), whose membership also includes 
the American College of Physicians (ACP), the American Academy of 
Family Physicians (AAFP), the American Medical Association, the 
American Osteopathic Association, the Society for Thoracic Surgery, the 
American College of Surgeons, AARP, the National Partnership for Women 
and Families, the Pacific Business Group on Health, and the Agency for 
Healthcare Research and Quality (AHRQ), with the support of the Centers 
for Medicare & Medicaid Services (CMS). Together, these organizations 
are working to identify what should be measured for physician 
performance--both quality and efficiency--and develop an effective and 
efficient data aggregation model that would comprehensively assess 
provider performance.
    The AQA recently reached consensus on a common set of 26 ambulatory 
care performance measures. These measures are grouped under eight 
separate categories: (1) prevention; (2) coronary artery disease; (3) 
heart failure; (4) diabetes; (5) asthma; (6) depression; (7) prenatal 
care; and (8) overuse or misuse of medical services. Many of the 
measures under these categories are ``bundled'' measures--i.e., 
multiple measures which if used collectively, have the potential to 
more comprehensively and accurately assess physician performance and 
provide improved outcomes for patients.
    These measures are intended to serve as a ``starter set'' that will 
provide clinicians, consumers, and purchasers with a set of quality 
indicators that can be used for quality improvement, public reporting, 
and pay-for-performance programs. Over the next several months, AQA 
will be seeking to expand this starter set to include efficiency, 
patient experience, non-primary care and other key measures.
Data Aggregation
    In addition to working toward a strategy for performance 
measurement, AQA is developing a uniform data aggregation strategy. The 
aggregation model developed by this alliance would include the 
following key attributes:

     transparency with respect to framework, process and rules;
     a process that allows provider performance to be compared 
against both national and regional benchmarks and makes the data useful 
for physicians to improve the quality and efficiency of care they 
provide to their patients;
     collection of both public and private data so that 
physician performance can be assessed as comprehensively as possible;
     a process that facilitates public reporting to consumers 
of user-friendly and actionable information about physician quality and 
efficiency;
     standardized and uniform rules associated with measurement 
and data collection; and
     potection of privacy and confidentiality of data while 
ensuring necessary access to appropriate stakeholders.
Launching Pilots
    A first step toward achieving this model is to implement pilot 
projects that combine public and private payer data, leverage the 
experience of existing aggregation efforts, and evaluate the most 
effective processes for measuring physician-level performance. AQA--
which at its last meeting reached consensus on the need and value for 
pilots--is currently seeking to secure both public and private funding 
to implement such pilots in 2006.
    Key elements of the proposed pilots would include:

     assessment of clinical quality, efficiency and patient 
experience;
     collection and aggregation of Medicare claims data and 
private sector data from multiple sources;
     exploration of both existing and new methods for 
collecting, submitting and sharing data from physicians' medical 
practices;
     dissemination of measurement information.

    The proposed pilots would address numerous important issues, 
including the most effective methods for linking measures, and data 
from multiple sources; the most effective ways to address 
methodological issues (e.g., sample size for validating physician 
performance, how to attribute performance to particular physicians, and 
which risk-adjustment model is most effective); and what type of 
information should be reported back to physicians and other 
stakeholders. We believe that these pilot efforts could inform the 
subcommittee's discussions, and we hope you will be supportive of this 
broad effort.
Consumer Reporting
    AQA is also exploring strategies for reporting reliable and useful 
quality information to consumers, providers and other stakeholders. The 
Alliance recently developed fundamental principles for reporting with 
the objectives of facilitating more informed decision-making about 
health care treatments and investment, facilitating quality 
improvement, and informing providers of their performance. Two AQA 
committees are working on this issue--one specifically addressing the 
issue raised in H.R. 3617 about how to communicate these data to 
physicians; and the other focusing on how to communicate this 
information to consumers. We hope this effort, which involves a broad 
range of stakeholder groups, also will be helpful to your discussions.
    The AQA will continue to move forward in the areas of measurement, 
aggregation and reporting, and encourage various stakeholders to become 
involved in this important effort to improve health care quality and 
patient safety. The work currently being undertaken by the AQA, 
including the development of a common set of measures and pilot 
projects which aggregate public and private sector data, will help us 
reach our goals of identifying quality gaps, controlling skyrocketing 
cost trends, reducing confusion and burdens in the marketplace, and 
otherwise addressing the challenges of the current health care system.
V. COMMENTS ON H.R. 3617
    We appreciate this opportunity to offer for your consideration 
comments on key elements of H.R. 3617.
A. Characteristics and Fairness of Performance Measures
    Health plans strongly support the criteria set forth in H.R. 3617 
for performance measures. Many of these characteristics--such as the 
requirement that measures should be evidence-based, valid, and not 
overly burdensome to collect--are consistent with the criteria endorsed 
by the Ambulatory Care Quality Alliance (AQA). Similarly, the other 
criteria set out in the bill--such as outcome measures; process 
measures; structural measures (e.g., use of health information 
technology); measures of overuse, misuse and underuse; and measures 
that assess the relative use of resources, services or expenditures--
have been recognized by the AQA as critical areas that need to be 
addressed. We, at the same time, urge the committee to consider 
supporting other important characteristics endorsed by the AQA, 
including that measures be aligned with the IOM's six aims for 
improvement (safe, effective, patient-centered, timely, efficient and 
equitable), that physician-level measures should as much as possible 
complement measures in other health care settings and that measures 
should as much as possible be constructed so as to result in minimal or 
no unintended harmful consequences (e.g., adversely impact access to 
care).
    Health insurance plans agree that performance measures should be 
applied and implemented fairly. This requires that measures be 
appropriately risk-adjusted to take into account differences in 
individual health status and conditions, and that an adequate sample be 
used to ensure a statistically valid assessment of physician 
performance. Fairness also requires the use of outcomes measures, as 
well as measures that reflect processes of care that physicians can 
influence (e.g., measures that assess the appropriate treatment for 
children with upper respiratory infection and the appropriate testing 
for children with pharyngitis).
B. Selection Process for Measures
    A good deal of work is currently being done to create a robust 
measurement set that can be used on a uniform basis for performance-
based payments throughout the health care system. The National 
Committee for Quality Assurance (NCQA) has been working with the health 
plan and purchaser communities to create programs, such as Bridges to 
Excellence, that align incentives around higher quality, efficient 
care. The AMA Physician Consortium for Performance Improvement, which 
includes representation from 70 national medical specialty societies, 
has been working to develop evidence-based clinical performance 
measures to improve patient care and foster accountability. The 
National Quality Forum (NQF) reviews the work of these organizations 
and other entities in an attempt to reach consensus on a preferred set 
of performance measures and quality reporting. The Ambulatory Care 
Quality Alliance, (AQA) which includes the involvement of NCQA, the AMA 
Consortium and NQF--along with CMS and AHRQ--strives to reach consensus 
across purchasers, physicians, consumers and health plans on the most 
appropriate performance measures that have been endorsed by NQF or 
validated through experience for immediate use. The AQA currently is 
working to gain consensus on common rules and logic for efficiency 
measures, as well as targeting those performance measures that address 
underuse, overuse and misuse. Given the depth and breadth of ongoing 
work, we believe it is essential for the Secretary to work with these 
groups in selecting quality and efficiency measures as opposed to 
reinventing the wheel. The selection of measures not currently being 
utilized by the private sector will create unnecessary inconsistency, 
add confusion, and impose an additional burden on physicians. By 
contrast, the collaborative efforts of the AQA are paving the way for 
greater standardization and uniformity in value-based purchasing 
initiatives.
C. Periodic Revision of Measures
    It is important that quality and efficiency measures be evaluated 
periodically for their relevance and ability to improve care. To 
evaluate improvements in care, trending data is important; for example, 
a minimum of two years of data are needed to evaluate provider 
efficiency. Thus, periodic review and revision should occur in a timely 
period. However, as new evidence becomes available, these measures 
should be revised as soon as possible to reflect such evidence, while 
not being disruptive to data collection efforts.
D. Disclosure and Reporting
    Public reporting will encourage quality performance. While our 
members believe that physicians should be involved actively in the 
selection of measures and reviewing information before it is disclosed, 
such processes should ensure the timely provision of meaningful 
information.
VI. THE PRIVATE SECTOR'S EXPERIENCE
    Your proposal for a value-based purchasing program in Medicare is 
similar in many respects to initiatives that many private sector health 
insurance plans have implemented in recent years. Health insurance 
plans have long been at the forefront of developing innovative payment 
arrangements that have promoted population-based health care, improved 
care for the chronically ill, and encouraged prevention.
    Many of our members currently are offering financial awards to 
physicians in the form of increased per-member-per-month payments or 
non-financial rewards in the form of public recognition, preferential 
marketing or streamlined administrative procedures. Additionally, some 
plans are offering consumers reduced co-payments, deductibles, and/or 
premiums in exchange for using providers deemed to be of higher 
quality, based on specific performance measures. The categories of 
performance measures most commonly reported include clinical quality, 
utilization experience/efficiency, patient satisfaction, and 
information technology infrastructure. Specific examples of these 
initiatives are outlined in Appendix A.
    While still in their early stage in some markets, initiatives that 
reward quality and tier clinicians according to how they achieve 
quality goals have an early track record in several states, including 
California, Massachusetts, and Michigan. What we have learned is that 
quality and efficiency measures go hand in hand.
    Based on the experiences of our members, we know that programs for 
rewarding quality performance have a number of common features:

     Reason for Implementation: Across the board, the programs 
seekto enhance and sustain clinical quality, facilitate excellence 
across provider networks, and improve and promote patient safety.
     Role of Clinicians: Nearly all plans indicate that 
clinicians are actively involved in key aspects of rewarding quality 
performance programs, including program development, selection of 
performance measures, and determination of how rewards are linked to 
provider performance.
     Emphasis on Specific Measures: In rewarding quality 
performance programs for physicians and medical groups, achieving 
clinical quality goals plays the most significant role in the formula 
for determining financial rewards. In programs for hospitals, 
utilization experience/efficiency and patient safety objectives tend to 
play equivalent roles.
     Consumer Incentives: Efforts are being launched to 
encourage consumers through reduced co-payments, deductibles, and/or 
premiums to use providers that are achieving quality performance.
VII. CONCLUSION
    Thank you for the opportunity to testify on this important issue. 
Today's health care system is at a critical crossroads. We need to work 
on the three interrelated goals of controlling costs, improving 
quality, and expanding access. Progress on cost containment and quality 
improvement can free up resources to expand access to health care 
coverage for all Americans.
    We applaud the subcommittee for focusing on value-based purchasing 
as an important step toward improving the quality, safety and 
efficiency of the U.S. health care system, and we look forward to 
working closely with you to achieve these goals.
Appendix A
SPECIFIC INITIATIVES FOR REWARDING QUALITY PERFORMANCE
    To provide a better understanding of pay-for-performance 
initiatives in the private sector, we are providing brief examples of 
programs being implemented by our members across the country.
     Aetnahas launched a network of specialist physicians who 
demonstrate effectiveness based on certain clinical measures, such as 
hospital readmission rates over a 30-day period, reduced rates of 
unexpected complications by hospitalized patients, and efficient use of 
health care resources. Consumers who choose these specialists benefit 
through lower co-payments, and providers benefit through increased 
patient volume. The Aexcel network, which is currently available in 
nine markets across the country, includes physicians in twelve medical 
specialties--cardiology, cardiothoracic surgery, gastroenterology, 
general surgery, obstetrics/gynecology, orthopedics, otolaryngology, 
neurology, neurosurgery, plastic surgery, vascular surgery, and 
urology.
     CIGNA HealthCare of California participates in the 
Integrated Healthcare Association's (IHA) quality incentive program. 
CIGNA rewards the top 50 percent of contracted physician groups for 
meeting each of the IHA clinical and member satisfaction metrics. Top-
performing groups in all components of the Rewards Program are eligible 
to receive a minimum of $1.60 per member per month. Payment is based 
upon the total annual member months of the group's population. In the 
first year of the program, the payout in CaliforniaforIHA was $4 
million.
     Health Net of Connecticut has entered into a partnership 
with the Connecticut State Medical Society-Individual Practice 
Association (CSMS-IPA) to establish a ``P4Q'' program that will reward 
eligible physicians for providing high quality, cost-effective care. 
The P4Q program, announced in July 2005, includes both primary care 
providers and specialists, providing them with an opportunity to earn 
bonus compensation beyond their current fee-for-service reimbursement. 
Diabetes treatment, breast cancer screenings and childhood 
immunizations are included among the areas where physicians will be 
rewarded for taking preemptive action. The first bonuses are expected 
to be paid out in the second quarter of 2006, based on performance 
measures for 2005.
     HealthPartners has implemented an Outcomes Recognition 
Program that offers annual bonuses to primary care clinics that achieve 
superior results in effectively promoting health and preventing 
disease. Since 1997, this program has awarded more than $3.95 million 
in bonuses to primary care groups that meet performance goals focusing 
on diabetes, coronary artery disease, tobacco cessation, generic 
prescribing, and consumer satisfaction.
     Highmark Blue Cross Blue Shield has adopted a Quality 
Incentive Payment System that rewards primary care physicians for 
demonstrating improvement in measures for preventive screenings, 
treatment of chronic conditions, and other quality and service issues. 
In the tenth year of the program (2003), more than $12 million in 
bonuses were paid to primary care physicians who exceeded the average 
performance measure on various indicators.
     Independent Health uses a Quality Management Incentive 
Award Program that involves a physician advisory group in developing 
performance targets for key issues such as patient satisfaction, 
emergency room utilization/access, office visits, breast and colorectal 
screening, immunizations, and treatment for diabetes and asthma. In 
addition to paying bonuses to physicians who exceed these targets, this 
program has documented significant improvements in clinical care for 
enrollees.
     PacifiCare Health Systems has developed a Quality 
Index' profile that uses clinical, service, and data 
indicators to rank medical groups. Enrollees pay lower co-payments for 
office visits if they select physicians from a ``value network'' of 
higher quality, lower cost providers. Additionally, PacifiCare's 
Quality Incentive Program incorporates a subset of the Quality 
Index' profile and has demonstrated an average improvement 
of 20 percent in 17 of 20 measures, with rewards to high performing 
physicians exceeding $15 million in the past three years.
     WellPoint's quality programs provide increased 
reimbursement to hospitals and physicians based, in part, on achieving 
improved quality measures. For example, hospitals selected for Anthem 
Blue Cross and Blue Shield's Coronary Services Centers program in 
Indiana, Kentucky, and Ohio must meet stringent clinical quality 
standards for patient care and outcomes for certain cardiac procedures. 
Anthem Blue Cross and Blue Shield of Virginia's Quality-in-Sights 
Hospital Incentive Program (QHIP) rewards hospitals for improvements in 
patient safety, patient health, and patient satisfaction. The 16 
hospitals that participated in the first year of QHIP in 2004 are 
receiving a total of $6 million for actively working to implement 
nationally recognized care and safety practices that can save lives. 
Blue Cross of California has a comprehensive physician pay-for-
performance program that paid $57 million in bonus payments to 134 
medical groups based on quality criteria in 2003. Blue Cross of 
California also has a PPO Physician Quality and Incentive Program 
(PQIP) that allows more than 4,000 physicians insix countiesin the San 
Francisco areato receive financial bonuses for superior performance on 
clinical quality, service quality, and pharmacy measures.

                                 

    Chairman JOHNSON. Thank you. Dr. Armstrong.

    STATEMENT OF JOHN H. ARMSTRONG, M.D., MEMBER, BOARD OF 
             TRUSTEES, AMERICAN MEDICAL ASSOCIATION

    Dr. ARMSTRONG. Thank you, Chairman Johnson. My name is John 
Armstrong, I am a trustee of the American Medical Association 
and a practicing trauma critical care and general surgeon from 
Miami, Florida. The American Medical Association would like to 
commend you, Madam Chairman, on introduction of your bill, H.R. 
3617, the Medicare Value-based Purchasing For Physician 
Services Act of 2005. We are grateful to you and Members of the 
Subcommittee for your leadership in recognizing the need to 
replace the current Medicare physician payment formula, the 
SGR, and provide appropriate incentives for improving quality 
of care for Medicare patients. We also appreciate your repeated 
efforts, Madam Chairman, with Chairman Thomas in pressing CMS 
to make administrative changes to the physician payment formula 
retroactive to 1996 that would help Congress lower the cost of 
enacting a new formula. We agree, and urge CMS to do so 
immediately.
    Today we are here to discuss H.R. 3617, which is critical 
for ensuring continued quality of care and access to healthcare 
services for Medicare patients. The American Medical 
Association and its member physicians are staunchly committed 
to quality improvement. We have convened the Physician 
Consortium For Performance Improvement for the development of 
physician performance measures. As a result of these efforts, 
24 of 36 measures for physician-care endorsed by the National 
Quality Forum were developed by the consortium. The CMS is also 
using measures developed by the consortium in demonstration 
projects on Pay For Performance authorized by the Medicare 
Modernization Act. In June, our house of delegates adopted Pay 
For Performance principles and guidelines. A number of the 
provisions in H.R. 3617 are consistent with these.
    First, H.R. 3617 would repeal the fatally flawed SGR and 
provide positive updates for physicians that reflect increases 
in practice costs. We appreciate your recognition that value-
based purchasing and the SGR are not compatible. Value-based 
purchasing may save dollars for the Medicare Program as a 
whole, but many of the measures ask physicians to deliver more 
care. This concept conflicts with the SGR, which penalizes 
physicians with payment cuts when volume increases exceed a 
target. Additional pay cuts would only exacerbate the projected 
26-percent reduction in physician reimbursement over the next 6 
years, beginning with the first of this coming year. A recent 
AMA survey shows that these cuts will impair patient access.
    Second, H.R. 3617 would require evidence-based valid 
performance measures developed by the medical specialties in a 
transparent process. Third, the bill would mandate a volume 
growth study for physician services. This is important for 
carefully distinguishing between appropriate and inappropriate 
utilization of services. We are happy also to have the 
opportunity to offer suggestions for enhancement of H.R. 3617 
and want to work further with the Subcommittee in this effort. 
We would strongly support a greater amount of time for 
transitioning to a value-based program for physician services. 
A ramp-up period in 2006, with a phase-in from 2007 through 
2010, would allow for proper development of the program. Pilot 
testing prior to full implementation is essential. Medicare 
value-based purchasing for physician services is a completely 
new concept, and demonstration results with this type of system 
are currently not available. The CMS only began a limited 
demonstration in April that applies to large group practices, 
not a wide array of physician practices, and a demonstration 
mandated by the AMA is still under development.
    Further, we urge the decisions about public reporting be 
deferred until there is full resolution of certain elements, 
such as risk adjustment, that could affect how information is 
reported. Inaccurately reported information could adversely 
impact access to care for vulnerable populations. This would 
undermine the goals of value-based purchasing and violate our 
physicians' oath, first do no harm. Patients are served only if 
they are provided accurate, relevant and user friendly 
information. We urge clarification that H.R. 3617 would require 
resource use efficiency measures to meet the same rigorous 
evidence-based standards that apply to other measures. All 
physician measures must be valid, evidence-based measures that 
improve quality of care.
    To conclude, we emphasize that stable medical practice 
economics are essential for value-based purchasing. Physicians 
must have the financial ability to invest in tools and 
initiatives, such as information technology that are necessary 
for moving medicine forward and continually achieving the new 
levels of quality improvement envisioned by value-based 
purchasing programs. The American Medical Association was 
founded on the mission of serving patients and ensuring access 
to quality care. We look forward to working with the 
Subcommittee and Congress to make improvements in the Medicare 
Program that allow physicians to carry out that mission in 
service to our patients. I thank you for the opportunity to be 
here today.
    [The prepared statement of Dr. Armstrong follows:]
   Statement of John H. Armstrong, M.D., Member, Board of Trustees, 
                      American Medical Association
    The American Medical Association (AMA) appreciates the opportunity 
to provide our views today regarding H.R. 3617, Chairman Johnson's 
``Medicare Value-Based Purchasing for Physicians' Services Act of 
2005,'' which now has 31 cosponsors. We would like to commend you, 
Madam Chairman, and Members of the Subcommittee, for all of your hard 
work and leadership in recognizing the fundamental need to replace the 
Medicare physician payment update formula and provide appropriate 
incentives for improving quality of care for Medicare patients.
    A 4.4% Medicare physician pay cut is scheduled to become effective 
January 1, 2006, and is the first in a series of cuts expected over the 
next six years, totaling 26%. H.R. 3617 is crital for ensuring 
continued quality of care and long-term access to health care services 
for Medicare beneficiaries.
AMA COMMITMENT TO THE DEVELOPMENT OF EFFECTIVE QUALITY IMPROVEMENT 
        PROGRAMS
    The AMA has long been committed to quality improvement, and we have 
undertaken a number of initiatives to achieve this goal. The AMA has 
convened the Physician Consortium for Performance Improvement for the 
development of performance measurements and related quality activities. 
Consortium membership includes: (i) clinical experts representing more 
than 65 national medical specialty and state medical societies, and 
additional medical specialty societies continue to join the Consortium; 
(ii) experts in methodology; (iii) the Agency for Healthcare Research 
and Quality (AHRQ); (iv) the Centers for Medicare and Medicaid Services 
(CMS); (v) the Joint Commission on Accreditation of Healthcare 
Organizations--liaison member, and; (vi) the National Committee for 
Quality Assurance (NCQA)--liaison member.
    The Consortium has grown to become the leading physician-sponsored 
initiative in the country in developing physician-level performance 
measures, and senior CMS officials have stated that CMS is looking to 
the Consortium to be the primary measure development body for physician 
level performance measures used by CMS for quality improvement and 
accountability purposes (e.g., pay-for-performance). In fact, CMS is 
now using the measures developed by the Consortium in its large group 
practice demonstration project on pay-for-performance, and plans to use 
them in demonstration projects authorized by the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA). Once measures 
have been developed through the Consortium, they should be reviewed and 
endorsed in a transparent process by a multi-stakeholder organization, 
such as the National Quality Forum (NQF), as is required by H.R. 3617. 
In fact, the NQF recently endorsed 36 measures for outpatient care, 24 
of which were developed by the Consortium.
    In June of this year, the AMA House of Delegates also adopted 
comprehensive pay-for-performance principles and guidelines that 
address five broad aspects of pay-for-performance programs: (i) quality 
of care; (ii) the patient/physician relationship; (iii) voluntary 
participation; (iv) accurate data and fair reporting; and (v) fair and 
equitable program incentives. More specific guidelines are associated 
with each of the AMA pay-for-performance principles, and we provided 
these principles and guidelines to the Subcommittee at its July 21, 
2005 hearing on value-based purchasing.
LEGISLATION TO ESTABLISH VALUE-BASED PURCHASING FOR PHYSICIANS'
SERVICES UNDER MEDICARE
AMA/Medical Specialty Conceptual Framework for a Phased Approach to 
        Pay-For-Performance
    The attached conceptual framework for a phased-in approach to a 
Medicare pay-for-performance program was as jointly developed by the 
AMA and over 70 medical organizations, and we believe it will be 
helpful in providing guidance as we work toward refinements of H.R. 
3617. We are committed to working with the Subcommittee, Congress and 
the Administration to help develop a fair, ethical, patient-centered, 
and evidence-based Medicare pay-for-performance program.
    The attached framework is the result of extensive work by 
organizations representing a wide variety of physician specialties. It 
is our belief that the only way pay-for-performance will be successful 
in Medicare is if it recognizes the great diversity of physician 
practices in this country. Many medical specialty organizations have 
shared with Congress very detailed principles outlining the necessary 
elements for pay-for-performance to work effectively. This framework is 
not intended to supersede these important documents, but rather to 
highlight areas of consensus in medicine to provide you with our best 
sense of how Medicare might begin to implement pay-for-performance.
Provisions in H.R. 3617 that are Consistent with AMA Pay-for-
        Performance Principles and Guidelines
    As discussed further below, the AMA strongly supports theprovision 
in H.R. 3617 that would repeal the current Medicare physician payment 
sustainable growth rate formula (SGR) and replace it with updates that 
reflect increases in medical practice costs. This would treat 
physicians similarly to other Medicare providers, such as hospitals, 
home health agencies and skilled nursing facilities. H.R. 3617 also 
would ensure that physicians receive a base payment update, while 
physicians achieving quality goals would receive a bonus payment, and 
we strongly support this provision as well. We are happy to work with 
the Subcommittee in working through the details of the timing sequence 
of these payments, while keeping in mind that all physician 
organizations should have equal opportunity to qualify for available 
bonus payments
    In addition, the AMA greatly appreciates that a number of 
provisions in H.R. 3617 are consistent with key pay-for-performance 
principles and guidelines recently adopted by our House of Delegates. 
These provisions would: (i) require that evidence-based, valid 
performance measures be developed in a transparent process by the 
medical specialties and validated through a consensus-building 
organization involving multiple stakeholders, such as the Physician 
Consortium for Performance Improvement; (ii) require a phased-in 
approach to allow all physician specialties the opportunity to 
participate in the program; (iii) allow voluntary physician 
participation in the program; (iv) require performance measurement to 
be scored against both absolute values and relative improvements in 
those values; (v) require safeguards against patient de-selection, as 
well as measures that take into account patient non-compliance, and 
(vi) require the Secretary of HHS to educate physicians and 
beneficiaries about the value-based purchasing program.
    We also applaud the fact that H.R. 3617 would require a payment 
update equal to the Medicare Economic Index (MEI) for new physicians 
for the year they are determined by the Secretary to be ``new.'' In 
addition, the bill would require a physician volume growth study 
whereby HHS must annually report on physician volume growth, with 
recommendations for responding to inappropriate volume growth by 
service, specialty and region. (The Secretary of HHS would also review, 
over 5 years, improvement in quality and efficiency, access and 
fairness of implementation of program.) There are many reasons for 
growth in the volume of Medicare services, and without further study it 
is impossible to determine what volume growth is appropriate or 
inappropriate. Earlier this year, for example, Medicare officials 
announced that spending on Part A services is decreasing. This suggests 
that, as technological innovations advance, services are shifting from 
Part A to Part B, leading to appropriate volume growth on the Part B 
side. The volume growth study in H.R. 3617 is important for 
distinguishing between appropriate and inappropriate volume growth. If 
there is a problem with volume growth regarding a particular type of 
medical service, the AMA would look forward to working with Congress 
and the Administration to address it.
Factors to Consider for Improvement of H.R. 3617
Public Reporting
    The AMA is concerned about public reporting. Potential, adverse 
affects of public reporting must be avoided. If not approached 
thoughtfully, public reporting can have unintentional adverse 
consequences for patients, including, for example, patient de-selection 
in the case of those who, for a variety of reasons, are non-compliant. 
Further, health literacy may not be adequate to comprehend basic 
medical information. Thus, several critical issues that must be 
resolved before public reporting provisions can be implemented. There 
needs to be a method for ensuring that any publicly reported 
information is: (i) attributable to those involved in the care; (ii) 
appropriately risk-adjusted; and (iii) accurate, as well as relevant 
and helpful to the patient.
    Moreover, with regard to public reporting, it is critical that 
physicians have the opportunity for prior review and appeal with regard 
to any data that is part of the public review process, and physician 
comments should be included with any publicly reported data. This is 
necessary to give an accurate and complete picture of what is otherwise 
only a snapshot, and possibly skewed, view of the patient care provided 
by a physician.
    We urge clarification of the provisions in H.R. 3617, however, that 
address the opportunity for prior review and appeal with comment. The 
bill contains a provision establishing an appeals process and allowing 
the opportunity for prior review and comment on information concerning 
whether the physician met performance objectives, with comments to be 
made public with the report. Yet, the bill prohibits administrative or 
judicial review of certain matters, including the development and 
computation of physician ratings, as well as the application of 
performance improvement standards and thresholds to physicians. These 
provisions (e.g., those barring administrative and judicial review of 
the application of performance standards to physicians) may be in 
conflict with those allowing physician appeal and comment of whether 
they met performance objectives. Thus, we urge that H.R. 3617 make 
clear that physicians have the opportunity for prior review, appeal and 
comment on publicly reported data.
Pilot Testing
    We urge that H.R. 3617 include a provision for pilot-testing of any 
value-based purchasing program prior to full implementation. Since 
value-based purchasing is a completely new concept with regard to 
Medicare payment for physicians' services, pilot testing is critical 
for determining whether this type of payment system achieves its 
intended purpose. Pilot tests would also help identify program 
``glitches'' and any needed modifications. For example, we are 
concerned about the impact of a pay-for-performance program on patients 
in areas that are under-served or have a high-disease burden. Pilot 
testing could illuminate appropriate methods for ensuring access for 
these patients.
    A limited demonstration project being conducted by CMS, i.e., the 
Physician Group Practice Demonstration, began only in April of this 
year, and thus results from that demonstration will not be forthcoming 
for some time. Moreover, this demonstration only applies to large group 
practices and not to the wide array of physician practices across the 
country. In addition, CMS' Care Management Performance Demonstration, 
authorized by section 649 of the MMA, is still under development and 
has not yet begun. Thus, it is not clear when results from this 
demonstration will be available.
    In addition to pilot testing by CMS, we believe the Agency for 
Healthcare Research and Quality could also play a valuable role in 
identifying best practices related to value-based purchasing. Evidence-
basedresearch, coupled with CMS pilot tests, wouldhelp ensure that no 
unintended consequences arise from the application of this new concept 
in Medicare.
Measures of Efficiency
    Measures of efficiency are another strong area of concern. 
Efficiency measures have the danger that the lowest-cost treatment will 
supersede the most appropriate care for an individual patient. We 
appreciate that H.R. 3617 requires that efficiency measures relating to 
clinical care meet the same high standards that apply to quality 
measures. Efficiency measures must be evidence-based, valid measures 
developed by the medical specialty societies in a transparent process.
    We urge the following considerations, however, with regard to 
efficiency measures. There must be broad-based consensus regarding what 
constitutes appropriate levels of care before measuring for efficiency. 
In addition, all efficiency measures should be evidence-based. (The 
same is true for quality measures.) All measures must have a valid 
basis, with sufficient evidence to show that the measure will improve 
quality of care. Thus, H.R. 3617 should extend the evidence-based 
requirement to all measures, including efficiency measures that the 
bill designates as not relating to clinical care.
Risk Adjustment
    Development of risk-adjustment techniques are of great concern to 
the physician community. A reliable method for risk-adjustment is 
critical. Without it, there will not be an adequate reflection of a 
physicians' performance. As we move toward developing a reliable risk-
adjustment technique, physician organizations must be consulted and be 
integrally involved in the process. We caution, however, that the 
measure development process must remain within the domain of the multi-
stakeholder organization (such as the Physician Consortium for 
Performance Improvement) and medical specialty societies, and the 
separate process for developing risk adjustment techniques should not 
interfere with measure development.
Phase-In of Value-Based Purchasing Program
    In accordance with the pay-for-performance AMA/specialty society 
joint conceptual framework discussed above, the AMA urges a greater 
amount of time in transitioning to a value-based program for 
physicians' services. Under this framework, there would be: (i) a 
``ramp up'' period in 2006; (ii) pay-for-reporting in 2007 through 2009 
with regard to various levels of quality information and measures, and 
(iii) pay-for-performance in 2010.
    This timeframe would allow for the development of evidence-based 
measures, as well as their validation and endorsement through the 
appropriate process. This is necessary so that each medical specialty 
has an opportunity to participate in the value-based program.
Administrative Costs
    The AMA also urges that any value-based purchasing program ensure 
that physicians are not burdened with additional administrative costs, 
especially for information technology systems that are needed to 
participate in the program. As discussed above, physicians cannot 
continue to absorb unfunded government mandates, and value-based 
payments for participation in the program should not be undermined by 
administrative costs.
Other Critical Considerations
    The AMA also wishes to raise overall factors to be considered as we 
move forward in developing value-based purchasing legislation for 
physicians: (i) the number of patients needed to achieve a 
statistically valid sample size, which is particularly important for 
purposes of determining how ``billing units,'' as set forth under H.R. 
3617, are ultimately defined; (ii) the desire to keep the data 
collection burden low, while at the same time maintaining accuracy of 
the data; (iii) level of scientific evidence needed in establishing 
appropriate measures; (iv) the ability to trace a performance measure 
back to one or many physicians involved in a patient's care; (v) the 
complexities of distributing payments when multiple physicians are 
involved in a patient's care, and without violating any fraud and abuse 
laws and regulations; and (vi) protection of patient privacy.
    Finally, as we move forward in the development of value-based 
purchasing programs for physicians' services, care should be taken to 
review savings achieved in certain parts of the Medicare program due to 
these programs. In fact, AMA policy seeks to ``ensure that any Medicare 
Part A savings which are achieved when physicians' efforts result in 
fewer in-patient complications, shorter lengths-of-stays, fewer 
hospital readmissions, etc., are "credited" and flow to the Part B 
physician payment pool.''
    We commend Chairman Johnson for your sensitivity to these important 
factors, and we look forward to working with you to achieve a new 
payment system for physicians that keeps pace with the cost of 
practicing medicine and rewards physicians for the quality of care they 
provide.
H.R. 3617 Recognizes the Need to Repeal the Current Medicare Physician 
        Payment Sustainable Growth Rate Formula
    The AMA applauds the Subcommittee's recognition that value-based 
purchasing is not compatible with the current fatally flawed SGR 
physician payment formula. We also strongly support the provision in 
H.R. 3617 that would repeal the SGR and replace it with updates that 
reflect increases in medical practice costs.
    Specifically, H.R. 3617 would establish a 1.5% update in 2006. 
Thereafter, the update would be based on MEI, which is Medicare's index 
for measuring medical practice cost inflation. In 2007-08, the payment 
update would be based would MEI if certain performance reporting 
requirements are met. If not, the update would be MEI minus 1. In 2009 
and subsequent years, the update would be MEI if reporting requirements 
and quality and efficiency measures are met. If not, the update would 
be MEI minus 1. 
    H.R. 3617 recognizes that the current Medicare physician payment 
system is not compatible with a value-based purchasing program for 
physicians. Value-based purchasing may save dollars for the Medicare 
program as a whole by reducing medical complications and 
hospitalizations. The majority of measures, however, such as those 
focused on prevention and chronic disease management, ask physicians to 
deliver more care. During his May 11, 2004 testimony 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."
    The SGR is a spending target that penalizes volume increases 
exceeding the target. If the SGR is retained, the so-called reward for 
physicians will be additional pay cuts. This is antithetical to the 
desired outcome of value-based purchasing and would only compound an 
ongoing serious problem.
    The flaws in the SGR formula led to a 5.4% payment cut in 2002, and 
additional cuts in 2003 through 2005 were averted only after Congress 
intervened. Without Congressional and Administrative action, Medicare 
payments to physicians will be cut by 4.4%, beginning January 1, 2006. 
As discussed above, this is the first of a series of cuts that are 
projected by the Medicare Trustees over the next six years, totaling 
about 26%. If these cuts begin, on January 1, 2006, average physician 
payment rates will be less in 2006 than they were in 2001, despite 
substantial practice cost inflation. These reductions are not cuts in 
the rate of increase, but are actual cuts in the amount paid for each 
service. Physicians simply cannot absorb these draconian payment cuts 
and, unless Congress acts, physicians may be forced to avoid, 
discontinue or limit the provision of services to Medicare patients.
    A recent AMA survey indicates that if significant Medicare pay cuts 
become effective beginning in 2006:

     More than a third of physicians (38%) plan to decrease the 
number of new Medicare patients they accept;
     More than half of physicians (54%)plan todefer the 
purchase of information technology, which is necessary to make value-
based purchasing work;
     A majority of physicians (53%) will be less likely to 
participate in a Medicare Advantage plan; One-third (34%) of physicians 
whose practice serves a rural patient population will discontinue rural 
outreach services;
     One-third of physicians (34%) plan to discontinue nursing 
home visits if payments are cut in 2006. By the time the cuts end, half 
(50%) of physicians will have discontinued nursing home visits.

    A physician access crisis is looming for Medicare patients. While 
the MMA brought beneficiaries 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. A MedPAC survey found that 22% of patients already have 
some problems finding a primary care physician and 27% report delays 
getting an appointment. Physicians are the foundation of our nation's 
health care system. Continual cuts put Medicare patient access to 
physicians' services at risk. They also threaten to destabilize the 
Medicare program and create a ripple effect across other programs. 
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.
PROBLEMS WITH THE SUSTAINABLE GROWTH RATE
    There are two 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' 
        health care needs or physicians' practice costs; and
        2. Physicians are penalized with pay cuts when Medicare 
        spending on physicians' services exceeds the SGR spending 
        target, yet, the SGR is not adjusted to take into account many 
        factors beyond physicians' control, including government 
        policies, that although good for patients, promote Medicare 
        spending on physicians' services.

    CMS Administrator McClellan recently stated that the current system 
of paying physicians is simply not sustainable. We agree, and urge CMS 
to use its authority to take administrative action to help Congress 
avert physician pay cuts and ensure that a stable, reliable Medicare 
physician payment formula is in place for Medicare patients, as 
discussed below.
ADMINISTRATIVE ACTION NEEDED TO ASSIST CONGRESS IN REPLACING THE SGR
CMS has the Authority to Remove Drug from the SGR, Retroactive to 1996
    The AMA extends its gratitude to Chairman Thomas and Subcommittee 
Chairman Johnson for your repeated efforts in pressing CMS to join 
forces with Congress to replace the flawed physician payment formula. 
As your letter to CMS Administrator McClellan, dated July 12, 2005, 
states: ``A permanent legislative fix to the Sustainable Growth Rate 
(SGR) formula would be prohibitively expensive given current 
interpretation of the formula, but could proceed through our joint 
efforts combining administrative and legislative action.'' The letter 
also affirms CMS' authority to remove the costs of drugs, back to the 
base period, from calculation of the SGR. The AMA adamantly agrees with 
the Chairmen that CMS should retroactively remove drugs from the SGR, 
and we continue to join the Chairmen in urging CMS to do so for the 
2006 physician payment rule.
    Recently Administrator McClellan testifiedthat removing drugs will 
not have any impact on physician payment updates under the SGR for at 
least several years. We believe that this statement is based on a 
scenario where drugs are removed going forward, rather than from the 
base-year forward. Nonetheless, under any scenario, removing drugs will 
significantly reduce the cost of legislation to address the looming 
Medicare pay cuts and CMS should take this step as soon as possible. 
Indeed, CMS told Congress earlier this year that removing drugs 
prospectively is worth about $36 billion, while removing them from the 
base-year forward is worth $111 billion.
    CMS has the authority to remove physician-administered drugs from 
the SGR, retroactive to 1996. When CMS calculates actual Medicare 
spending on ``physicians' services,'' it includes the costs of 
Medicare-covered prescription drugs administered in physicians' 
offices. CMS has excluded drugs from ``physicians' services'' for 
purposes of administering other Medicare physician payment provisions. 
Thus, removing drugs from the definition of ``physicians' services'' 
for purposes of calculating the SGR is a consistent reading of the 
Medicare statute. Drugs are not paid under the Medicare physician fee 
schedule, and it is illogical to include them in calculating the SGR.
    Further, if CMS adopts a revised definition of ``physicians' 
services'' that excludes drugs, it can revise its SGR calculations 
going back to 1996 using its revised definition.
    These revisions would not affect payment updates from previous 
years, but would only affect payment updates in future years. This 
recalculation would be 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
    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. 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.
    In 2004 alone, six oncology drugs received FDA approval or expanded 
approval, and two others received approval in 2003. As Dr. McClellan 
noted in testimony earlier this year, spending for one recently-
developed drug, Pegrilgrastim (Neulastra) totaled $518 million last 
year, more than double the 2003 total. This drug strengthens the immune 
systems of cancer patients receiving chemotherapy, thereby improving 
and extending the lives of many and potentially reducing hospital costs 
in the process.
    While the bulk of all physician-administered drugs are used to 
treat cancer patients, other factors--such as a rise in the number of 
patients with compromised immune systems and the number of drug-
resistant infections in the U.S--also have contributed to the rapid 
growth of drug expenditures. This growth has dwarfed that of the 
physician services the SGR was intended to include. Between the SGR's 
1996 base year and 2004, the number of drugs included in the SGR pool 
rose from 363 to 445. Spending on physician-administered drugs over the 
same time period rose from $1.8 billion to $8.6 billion, an increase of 
358% per beneficiary compared to an increase of only 61% 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 2004.
    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.
    Medicare actuaries predict that drug spending growth will continue 
to significantly outpace spending on physicians' services for years to 
come. 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 streamlining of the drug approval 
process and increased funding for the National Institutes of Health. In 
fact, under the leadership of Dr. McClellan and this Administration, 
the NIH has made substantial progress toward its goal of wiping out 
cancer deaths by 2015 and much of that progress is tied to the 
development and more rapid diffusion of new drugs. The AMA shares and 
applauds these goals. It is not equitable or realistic, however, to 
finance the cost of these drugs through cuts in payments to physicians, 
and thus these costs should be removed from calculations of the SGR.
Government-Induced Increases in Spending on Physicians' Services should 
        be Accurately Reflected in the SGR Target
    The AMA agrees with Chairmen Thomas and Johnson, as stated in the 
July 12, 2005, letter referenced above, that CMS should take steps to 
ensure that the SGR accurately reflects spending increases due to such 
matters as expanded Medicare benefits and national coverage decisions.
    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. Since the SGR is a 
cumulative system, erroneous estimates compound each year and create 
further deficits in Medicare spending on physicians' services.
    Effective January 1, 2005, CMS implemented the following new or 
expanded Medicare benefits, some of which have been mandated by the 
MMA: (i) initial preventive physical 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.
    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.
    CMS has not provided details of how its estimates are calculated, 
and certain questions remain. Further, 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 determines 
estimated costs. Without these details, it is impossible to judge the 
accuracy of CMS' law and regulation allowances. For example, in 
reviewing the 2004 utilization and spending data, we found that 
utilization per beneficiary of code G0101 for pelvic and breast exams 
to screen for breast or cervical cancer had increased 10% since 2003. 
Although this benefit was enacted in BBA 1997 eight years ago, clearly 
it is continuing to effect SGR expenditures as continued promotion of 
the benefit by both the government and beneficiary organizations prompt 
more beneficiaries to take advantage of it. Likewise, per beneficiary 
utilization of code G0105, colorectal cancer screening of a high-risk 
patient, also enacted in the BBA, was up 13%. These impacts should be 
taken into account in determining the 2004, 2005 SGRs and 2006 SGRs.
    In addition, CMS recently announced that physicians will receive an 
increased payment as a result of additional paperwork burden that will 
be shifted to physicians in documenting patient need for power 
wheelchairs and scooters. These increased payments should be reflected 
in the SGR. Further, in its 2006 payment preview, CMS identified 
physical therapy as an area of rapid volume growth contributing to 
accelerated growth in 2004. The physical therapy community has 
identified a number of regulatory changes that likely encouraged that 
growth, and CMS should examine the degree to which legislative and 
regulatory changes on the Part A side have led to a shift of services 
into outpatient settings where they are included in the SGR pool.
Spending due to all of the foregoing governmentinitiatives should be 
        reflected in the SGR.
Medicare Physician Spending Due to National Coverage Decisions should 
        be Reflected in the SGR
    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 Program Memorandums or 
national coverage decisions, constitute a regulatory change as 
contemplated by the SGR law, and must also be taken into account for 
purposes of the spending target.
    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.
    CMS has expanded covered benefits through the adoption of more than 
80 national coverage decisions (NCDs), including implantable 
cardioverter defibrillators, diagnostic tests and chemotherapy for 
cancer patients, carotid artery stents, cochlear implants, PET scans, 
and macular degeneration treatment. While every NCD does not 
significantly increase Medicare spending, taken together, even those 
with marginal impact contribute to rising utilization. CMS has stated 
its view that it would be very difficult to estimate any costs or 
savings associated with specific coverage decisions and that any 
adjustments would likely be small in magnitude and have little effect 
on future updates. We disagree, and strongly believe that CMS should 
make these adjustments in its rulemaking for 2006. CMS already adjusts 
Medicare Advantage payments to account for NCDs, so it clearly is able 
to estimate their costs.
    Accordingly, CMS should ensure that the SGR reflects the impact on 
utilization and spending resulting from all national coverage decisions 
for purposes of the 2006 physician fee schedule rule.
    The AMA appreciates the opportunity to provide our views to the 
Subcommittee on these important matters, and we look forward to working 
with the Subcommittee and CMS to develop a payment system for 
physicians that ensures quality for our patients and reflects the costs 
of practicing medicine.

                                   ----------

ATTACHMENT--AMA TESTIMONY
2006 Ramp-up
Medicare Update: Total additional dollars allocated to fix the SGR at 
        least equal to the amount required to provide a fee schedule 
        update equal to the increase in the MEI.
Development Period
     Measure Development (ongoing)
     PFP Pilot Tests/Demos
2007 Pay for Reporting
Medicare Update: Total additional dollars allocated to fix the SGR and 
        fund a pay for reporting program are at least equal to the 
        amount required to provide a fee schedule update equal to the 
        increase in the MEI. All physicians guaranteed a payment 
        ``floor'' of positive updates.
    Reporting basic quality information such as:

     Practice structure (e.g. functions of IT use--patient 
registries)
     Participation in patient safety programs/use of protocols 
(e.g. mark your site, time out)
Development Period
     Measure Development (ongoing)
     PFP Pilot Tests/Demos
2008-2009 Pay for Reporting/Pay for Participation
Medicare Update: Total additional dollars allocated to fix the SGR and 
        fund a pay for reporting/pay for participation program are at 
        least equal to the amount required to provide a fee schedule 
        update equal to the increase in the MEI. All physicians 
        guaranteed a payment ``floor'' of positive updates.
     Transition to participation in more advanced quality 
improvement programs and reporting of evidence-based quality measures. 
Quality performance data will be transmitted back to physicians for 
internal quality improvement purposes. This phase would also test the 
feasibility of collecting data and accurately measuring physician 
performance in preparation for PFP.
Development Period
     Measure Development (ongoing)
     PFP Pilot Tests/Demos
2010 Pay For Performance
Medicare Update: Pay for performance (PFP) provisions are triggered 
        contingent on repeal of SGR formula. Long term solution must 
        assure that sufficient dollars are allocated to allow for 
        positive annual fee schedule updates linked to inflation and 
        money to be set aside to fund the proposed PFP program. All 
        physicians must be guaranteed a payment ``floor'' of positive 
        updates.
     % of Medicare payment of physicians (all specialties) 
based on quality performance
     Program focus on continuous quality improvement
     Performance measured on evidence-based measures of process 
and/or outcomes with appropriate risk adjustment, valid sample size, 
etc..
     Any ``efficiency measures'' used are transparent, evidence 
based, and focus on clinical quality improvement
     Only after adequate safeguards are put in place to prevent 
unintended consequences such as patient de-selection is public 
reporting permitted
     HHS conducts studies on Medicare program savings resulting 
from Part B quality efforts

                                 

    Chairman JOHNSON. Thank you very much to all of the 
panelists. Dr. Armstrong, we really have appreciated the 
leadership that the AMA has provided to the physician community 
in leading the discussion on Pay For Performance, and not only 
the AMA, but all of the specialty organizations have been very 
helpful both to us and to the administration in beginning to 
identify clinical quality standards. As to this issue of public 
reporting, which I think is terribly important, it doesn't 
happen for 3 years. I think you are absolutely right, by then 
we need to be assured that the risk adjustment to process is 
accurate and that the data is accurate. I thought Dr. Jevon's 
comment about his effort to have to clean up his data was very 
interesting. Ms. Ignagni, you and your organization have been 
excellent at data issues and integrating data, and the sort of 
extraordinary number of things happening in the data management 
world does give me hope that Pay For Performance will push 
ahead. Remember at first it is on reporting things that are 
much simpler; by the time we really get to paying for clinical 
performance, I think we should have incentivized the world to 
be much more--to clean up the data that we use and to have much 
better grasp of what is usable and what isn't. The bill does, 
of course, require that the data be accurate and widely 
respected and so on. So, I do--I wanted to acknowledge those 
issues because they are all very important. Dr. Jevon, I just 
wanted to briefly ask you, it sounds to me like the systems 
that you have been involved in give bonuses because then a 
physician can actually see this is $5,000, whereas no matter 
what the percent is, it is hard to see what is going to be at 
the end of the year?
    Dr. JEVON. Well, I mean, there are different options for 
physicians. I have certainly been in a lot of programs where 10 
percent of what your--10 percent of your fees are withheld and 
you get back parts of that----
    Chairman JOHNSON. Well, we are not going to get into that.
    Dr. JEVON. All right. So, Bridges to Excellence is clearly 
a bonus program, it is above and beyond. You apply, and if you 
meet their qualifications and you can prove that you are doing 
better things in several different areas, then you receive a 
bonus based on each patient that you see that is involved in 
the program.
    Chairman JOHNSON. But that might be an easy way to address 
the issue of reduced hospitalizations. So, at the end of the 
year you get a bonus based on performance.
    Dr. JEVON. Based on performance----
    Chairman JOHNSON. For the effective level of 
hospitalization versus your level of hospitalization.
    Dr. JEVON. Right. I don't know of any programs now that 
exist based on that. I mean, what I would mention is that in 
our world, with the under 65 population we have had tremendous 
success developing management programs that go after our 
sickest patients, treat them intensively at home to prevent 
hospitalization. So, I think this is a huge area for Medicare, 
because you know, the saying among us is that the top 2 or 3 
percent of your patients consume 50 percent of your costs. So, 
if you focus laser--use a laser like focus on those patients, 
you can take care of them better and keep them out of hospital.
    Chairman JOHNSON. It does seem to me, knowing as little as 
we do in so many aspects of this, giving the administration the 
opportunity to use bonuses could be a very good thing because 
you a couple that with MEI and MEI minus for some of the more 
complicated situations at the beginning, and at least begin to 
learn something about it. There are some definable 
circumstances. Anyway, we will think about that, and anyone on 
the panel who wants to help us think about that, I would 
appreciate. Dr. Berenson, I really was excited by your 
testimony because repealing SGR is clearly what we have to do. 
While I think we can use Pay For Performance to do more than 
you think we can use it for, certainly site of service 
differentials we are beginning to identify as a terrible cancer 
in the system. The Specialty Hospital Movement did demonstrate 
that. The administration is doing some work on that, we are 
doing some work on that. Next year we are going to look at all 
the rehab reimbursements in all the sites and try to take on 
those areas. MedPAC is doing this too, where there are clear 
differentials based on site that are driving care. I think we 
can kind of handle that, at least I think we can move in that 
direction because it is definable.
    There are two issues that I want to get your opinion on; 
one is, you know, we don't repeat will SGR and leave nothing 
there, we repeal the SGR, we put in place a Pay For Performance 
system that actually can have very powerful criteria. I mean, 
eventually it can have electronic health records is one of the 
things that we have to move toward and parse that out to make 
steps toward, as well as clinical data and histories and things 
like that; but it does require that there be both focus and 
accountability on other spending increasing in the program. If 
you look at Herb Koone's letter about the 15-percent increase, 
you know, the physician portion of it, and especially the 
office visit portion of it, was not one of the biggies, the 
biggie was imaging. So,me of that imaging we know to be a good 
idea, some we know to be a bad idea; it is very hard from 
Washington to figure out what is good and what is bad and you 
have to be careful. But they are doing some sensible things. If 
you go in and get the patient all set up and take one body part 
and then you take successive body parts, well, you are not 
going to get paid as much for the other two.
    They are doing some other things. There are some 
credentialling things we can do that--we are very positive in 
the mammogram area, although we were unable to pay accurately 
so in the end it was sort of catastrophic. So, any--but I think 
requiring accountability, you know, requiring focus on each of 
the other--therapy, physical therapy helps us to say, well, 
this is going too fast, why is it going too fast? Is it number 
of patients, is it number of--types of changes in treatment 
protocols. One of the reasons why this third proposal that we 
are making to allow CMS to use AMB is that a lot of times the 
intenser treatment pattern is keeping people out of hospitals, 
and if we punish the system for the volume going up in this 
volume-based SGR system, when actually system-wide it is 
cutting costs, then we are just nuts. So, I want to try to get 
over that hump through this, and then through this experience 
we can see exactly what we need to do. In the interim, the cost 
control mechanism in the bill is not only the Pay For 
Performance, which is modest, but also focusing on the other 
areas, and specifically being responsible for controlling cost 
increases. Now why is that not going to have any effect?
    Dr. BERENSON. I guess I don't understand what constrains in 
the bill, what constrains physician spending once the update is 
tied to the MEI, what constrains the overall spending.
    Chairman JOHNSON. There are two things. One is, a lot of 
the quality indicators will reflect a commitment to management 
and will be able to--remember--well, you probably wouldn't 
because I don't know why you would notice in this bill, but we 
do do profiling; so we do send that back to physicians about 
what resources they are using to accomplish their goal. So, 
when we look at quality indicators, you know, over time we will 
have the ability to say, you know, the outcome should be X, 
these are the things we know have to be done to include that 
outcome--to reach that outcome, but how come you are doing all 
these other things? Now you have to go good risk adjusters or 
you won't be able to deal with complex patients and all that 
stuff, but why can't that approach work?
    Dr. BERENSON. Well, I guess on this one I am from Missouri. 
It sounds good. I remember going to a PPRC profiling conference 
in 1991 because we were--in anticipation of the volume 
performance standard there was a desire--and organized medicine 
was at the table and we are going to have clinical practice 
guidelines and we are going to do evidence-based everything. 
There was a whole full-day meeting on how profiling of 
physicians and feedback of information was going to then change 
practice patterns, and we are now 15 years later and that 
hasn't happened.
    I am not a real expert in Pay For Performance technology, 
but from what I have seen, there is a big--well, from what I 
have seen we have pretty good confidence on the measures of 
underuse. I am looking again at the measures that Mark shared 
with us. We want orthopedists do give antibiotics before 
surgery and that is desirable. That has very little to do with 
what is going on out there, which is orthopedists trying to 
form their own hospitals, referring their patients, doing 
surgeries that may or may not be appropriate; and I guess I 
don't see the technology, the Pay For Performance technology 
that is going to affect that behavior.
    Again, to use the example just before, you get a report 
card saying that you are a high user and you are not going to 
get a two percent bonus. That, to me, is insignificant compared 
to the basic incentive to do more surgery. Now you are an owner 
of the facility, so you are not only making money as the 
professional doing the procedure, but as the owner of the 
facility. To me, the Pay For Performance is well-intentioned, 
and good doctors might respond to it, and the ones we are 
having problems with will ignore it.
    Chairman JOHNSON. Yes. You are absolutely right, this 
doesn't solve all the problems. I think the administration is 
taking some actions, I am not sure they are going to be enough. 
I hear what you are saying about specialty hospitals. I think, 
though, part of the problem is they payment of what is a 
hospital and what is a ambulatory surgery center. We will see 
what the administration does to sort that out and what impact 
that has. But that is right, Pay For Performance doesn't 
address that kind of manipulation of the system. But I think in 
combination with other things, site-specific differentials and 
in a sense specialty hospitals or site specific differentials, 
it does give us a critical tool without which we can't either 
reach higher quality or----
    Dr. BERENSON. I am all for doing all of this, I just think 
that if we really focus on the various tools around dealing 
with volume, we get away from--I mean, to me there is two major 
flaws in the SGR, tying it to the GDP just makes no sense at 
all. Number two, it functions at a national level, so good guys 
are penalized and bad guys are rewarded when they generate 
volume.
    The problem in volume right now, we all look at imaging; 
some of what MedPAC has suggested makes some sense to me, but 
fundamentally we are paying too much for advanced imaging, we 
are paying too much for an MRI when every medical group outs 
there wants to buy their own MRI. So, I believe there should be 
some authority for the more administrator to do--this was 
around a few years ago--inherent reasonableness tests to make 
some modification on prices when it is very clear that we are 
getting too much--that is what a value purchaser would do would 
assess are we getting enough MRIs for our patient population 
and would conclude we are getting plenty, let's try reducing 
the price somewhat and see what happens.
    Clearly there need to be constraints on; there needs to 
be--you can't let a rogue administrator just pick and choose. 
But I think there needs to be more ability to pick these 
targets of opportunity and not have it have to come back to 
Congress and go through the political drill of getting 
everybody to agree that this is a reasonable place to make some 
cuts. So, I am all for having the administrator having a target 
and having some flexibility to do some things within 
constraints to make that target, Pay For Performance can 
certainly be one of the tools; but again, it can't clearly be--
I think pricing policy is what Medicare basically does, and 
there needs to be more flexibility to do some things outside of 
formulas, national formulas.
    Chairman JOHNSON. Thank you very much. We may have a chance 
to talk again and see if we can refine some of these aspects of 
the bill. Mr. Stark.
    Mr. STARK. Well, I just want to thank the panel, Dr. 
Berenson and Dr. Jevon, for their comments and what they have 
added to--I guess to clarify some of our confusion. I really 
don't want to add anything to what the witnesses have said. I 
think you all have interests which are clear, and I appreciate 
your interest in the problems that we have to solve to bring 
decent care to our beneficiaries. We have an impending vote, so 
I think this session will soon come to an end, and thank you 
very much all for being here.
    Chairman JOHNSON. I thank the panel very much. If there is 
any concluding comment any one of you wants to make, I would be 
happy to hear it. Dr. Jevon, you were nodding your head 
vigorously as Dr. Berenson talked about some of the excess.
    Dr. JEVON. It is very difficult. For me the issue is--you 
know, healthcare can be very local, and with national policy it 
is very frustrating for doctors. We have our own issues, each 
of us, wherever we practice, and I do think--if Medicare wants 
to be successful in controlling costs, they need to develop 
that flexibility and possibly give--develop programs that say 
to a region or to a group of doctors or a network of doctors, 
here are your goals, this is what we want.
    Chairman JOHNSON. Well, that is very interesting. We will 
conclude the hearing, but you should know that there is a 
demonstration project that works that way with groups of 
physicians, and in the bill physicians have the right to be 
seen as one--a group to be seen as one and be accountable as 
one. So, that opens that avenue. Dr. Berenson.
    Dr. BERENSON. I was just going to say, I love the group 
practice demo, I think it is terrific, and especially the 
opportunity to achieve savings in part A. My only caution is--
and I know Mark talks about it a lot--is for groups of 200 or 
more, and that is not where a lot of the care is being 
provided. In fact, I had a chance yesterday to visit the one in 
Middletown, Connecticut, which I know you know about, and they 
have got an organization that can manage that kind of a 
situation. Most doctors are not in that kind of situation. I am 
all in favor of giving incentives for docs to form larger 
groups, but until we get there, I guess I am just a little 
skeptical about our ability to measure at the individual 
physician level, to make valid inferences about performance at 
the individual doctor level around not only--I mean, quality, 
we will need to develop the risk adjusters to make those 
inferences on quality, but about efficiency at the individual 
doctor level, I am quite skeptical about. I know there is this 
episode group that people are talking about which defines an 
episode of diabetes or congestive heart failure as 365 days, I 
am not quite sure what an episode that is. We are looking, I 
think, at capitation or something.
    These are major issues, this is not just some tinkering 
with Pay For Performance. So, I think we are stuck as long as 
we have that form of practice--and a lot of Americans and a lot 
of doctors seem to prefer that form of practice--I think we are 
stuck with having to deal with some volume control mechanisms. 
In a fee-for-service system, the STR is lousy, so we need to go 
to some more targeted measures and provide some discretion for, 
I think, the administrator to go to those targets and not have 
to come back to Congress to get permission to do this and to do 
that.
    Chairman JOHNSON. Ms. Ignagni.
    Ms. IGNAGNI. Madam Chair, I know the time short so I will 
be very brief. I hope that as you engage in these 
deliberations, in addition to the how, you look at the what as 
well in terms of the data issues. They are significant. We 
think that there is a way to begin to look fairly from a 
physician perspective at a range of data as opposed to a small 
slice of patients, we think that is very, very are important.
    Number two; if you look at the research, I think you come 
away with a strong sense that there is a real disconnect 
between the pace of development at the clinical trials level 
and the diffusion of the lag and diffusion into practice. So, 
we think there are--and clearly there isn't time to talk about 
all of this today, but this is one part of a larger strategy, 
and we would be delighted to offer more information on what the 
private sector is doing to inform the community. But at the 
same time, I think the work that has been done in this 
Committee, the thinking around arc and setting up a center for 
effective practices, we can get more information out there, all 
of those issues we think are very, very relevant. Then finally, 
on the disclosure piece, we think it is very important to begin 
to involve consumers and purchasers in those disclosure 
conversations in addition to physicians so that we can move 
forward in a way that everyone will find acceptable.
    Chairman JOHNSON. Excuse me. I didn't realize we were 
voting, I don't have my beeper, so I hadn't noticed that we 
were voting. But thank you very much. I have 10 minutes left, 
so I do have to call it to an abrupt halt. Thank you very much.
    [Whereupon, at 4:44 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

                                     California Medical Association
                                    San Francisco, California 94105
                                                 September 29, 2005
The Honorable Chuck Grassley The Honorable Bill Thomas
The Honorable Max Baucus The Honorable Nancy Johnson

Dear Senators Grassley and Baucus and Representatives Thomas and 
Johnson:

    This letter represents the work of leaders from California's 
physician, consumer, purchaser, payer and academic communities that are 
coming together to affirm the need to reform how Medicare measures, 
reports on and pays for physician services. The current payment system 
for health care is not working. A Medicare Value Purchasing program 
must be enacted and implemented now! We urge that Medicare lead reforms 
to advance a system which increasingly rewards physicians for providing 
the right care at the right time; supports prevention and ongoing care 
for the chronically ill; rewards both better performance and physicians 
who improve; and in which both physicians and patients have the tools 
and information necessary to ensure high-quality, appropriate care.
    Our consensus on many of the core elements of a Medicare Value 
Purchasing program is unique in that it is anchored in our work in 
California where diverse stakeholders working together have improved 
care for patients and engaged physicians in quality improvement. One 
example of California's pioneering efforts can be found in the 
Integrated Healthcare Association's pay for performance program. 
Through this program multiple health plans and hundreds of physician 
groups representing over 35,000 physicians and serving over 6 million 
consumers have collaborated to develop a uniform measurement set and a 
single public report card. Millions of dollars have been paid in 
performance incentives and motivated significant quality improvements. 
As a result, patients are getting better, more effective care, and 
medical groups and physicians are being rewarded for performance 
improvement.
    This letter addresses Congress' consideration of a variety of 
proposed Medicare payment reforms, such as proposed by Senators 
Grassley and Baucus, and Congresswoman Johnson. At the same time, there 
is appropriately significant attention being given to the need to 
provide support for the adoption of health care technology 
infrastructure that is directly linked to physicians' ability to 
optimize the quality of care delivered, improve patient experience and 
save costs by delivering care more effectively.
    There are specific elements of each of the Medicare Value 
Purchasing proposals that we respectively support, oppose or believe do 
not go far enough. We agree, however, that moving to robust 
measurement, substantial performance-based payments and full public 
reporting should be done as rapidly as possible, while ensuring that 
they are done correctly and incrementally. Whether full implementation 
is completed in three or five years is far less important than that the 
process start immediately and move ahead in a way that effectively 
engages physicians and consumers. What follows is a description of our 
common vision and of the core elements regarding the measures, payments 
and public reporting that we believe should be part of any ultimate 
reform package.
Vision for Medicare Purchasing Reform
    Medicare Value Purchasing is a necessary first step to creating a 
physician measurement, payment and reporting system designed to improve 
the quality, safety, effectiveness and efficiency of health care. In 
summary, as described in more detail below, the launch of this reform 
should include:

     Measurement of Performance that can be quickly 
implemented, by starting with measures currently in use, fairly adjusts 
for physicians' patient populations where appropriate, is centered on 
patients' needs and experiences, and is usable by physicians to improve 
the care they deliver;
     Performance-Based Payments as part of an overhaul of the 
annual physician fee schedule updates to base increases on the Medicare 
Economic Index (MEI). Performance-based payments should grow over time, 
becoming an increasingly substantial portion of physician payments, 
initially rewarding for agreement to participate, and then for both 
performance and improvement; and
     Performance Reporting that provides feedback to physicians 
on their own performance, with a progression to public reporting that 
provides as full and fair a picture as possible of physicians' 
performance and improvement.

    Implementation must start now. These elements, while unto 
themselves major reforms for the current health care system, are but 
first steps. Next steps should include implementing parallel efforts 
for other health care providers and shifting the focus to measure and 
reward care for the whole person. For example, measurement, reporting 
and payment systems should increasingly consider all of patients' 
episodes of care, enhanced measures of care processes, actual health 
outcomes, end-of-life and palliative care, delivery of preventive 
services and coordination of care for the chronically ill.
Measurement of Performance
    Due to the groundwork laid by medical professional societies, 
California's multi-stakeholder initiatives and other efforts over the 
past several years, there exist many quality of care measures that are 
objective, quantifiable and transparent. Medicare can build on these 
existing measures and foster the rapid development of new metrics for 
the full spectrum of patients' care needs and physicians' practices. 
Measurement principles for Medicare Value Purchasing include:

     Measures should build on existing measurement initiatives 
and measures currently widely used. The relatively limited number of 
measures available for immediate adoption need not delay 
implementation; rather, it can be part of the impetus for expanding 
available measures;
     Measures using administrative data and electronic medical 
records are preferred to minimize costs of collection;
     Measures should start with those easier to collect, 
building in a timeline for later adoption of outcome measures where 
possible. Examples of readily collected measures include process 
measures (e.g., the percentage of diabetes patients tested for blood 
sugar levels); structural capacity of physicians to provide high 
quality care (e.g., ability of physicians to identify and follow 
categories of patients or to adopt health information technology); and 
patient experience of care, using standardized and validated 
instruments and survey processes;
     Measures of efficiency that go beyond conventional 
utilization review and provide appropriate attribution to each member 
of the health care team to create a total ownership of health care 
concept which evaluates the relative use of resources, services and 
expenditures;
     New measures and increasingly comprehensive measure sets 
that assess prevalent and important (based on health status 
implications) conditions across all specialties need to be developed 
and submitted to consensus bodies for endorsement. Over time, increased 
attention should be given to measures of care coordination across 
providers and settings. Both physicians and consumers must be actively 
engaged in measure development and review processes; and
     Measures should reflect attributes that assure their 
acceptance by physicians and their reliability for patients. Attributes 
include their being evidence-based, subject to appropriate attestation, 
audit and confirmation, consistent, valid, not overly burdensome to 
collect, relevant to physicians and patients, fairly reflect 
physicians' patient population and are adjusted to assure there are 
little or no inappropriate patient selection or de-selection effects.
Performance-Based Payment
    Payment based on performance is critical to Medicare physician 
payment reform. This would include replacing the current Sustainable 
Growth Rate (SGR) with the Medicare Economic Index (MEI), a portion of 
which would be set aside to reward each physician's participation, 
performance and improvement as appropriate. Specific elements of the 
payment system for Medicare Value Purchasing include:

     The portion of the funds allocated to performance-based 
payment should grow over time, and must eventually reach a substantial 
portion of a participating physician's pay, while keeping the overall 
program cost within the MEI. Performance-based payment to participating 
physicians should vary based upon their performance;
     Initially reward for agreeing to participate and share 
performance information; and then shift to rewarding performance (first 
compared to local peers and then national) and improvement; Payment 
designs that provide incentives for each medical specialty to ensure 
that robust sets of performance measures are rapidly adopted. Payments 
should be linked to the appropriateness and comprehensiveness of 
measure sets within specialties; Payment and/or measures are adjusted 
to ensure appropriate incentives for those who care for the sickest, or 
those with complex, chronic conditions; Payment and/or measures that 
encourage the adoption of care management processes or techniques; 
Payments for care based on new technologies reflect the extent to which 
they improve the quality of care and its cost-effectiveness; and 
Payments specifically integrate rewards for both total cost of health 
care impacted by physicians' actions and health care quality. As the 
payment system evolves, this consideration should specifically take 
into account savings generated--or additional costs incurred--related 
to prescription drugs and hospital services.

    We believe that concerns of potential unintended consequences of 
moving too rapidly to increase the portion of physician payment that is 
performance-based are reasonable. However, we agree on the need to 
quickly increase performance-based payment because we recognize that 
payment today has its own unintended negative consequences. All too 
often payments today reward volume over quality, or care that is 
wasteful and inappropriate instead of patient-centered and efficient.
Performance Reporting
    Providing performance information is critical to the goal of 
improving care delivery, both to the physicians themselves and to 
patients to enable them to be better engaged in their own health care. 
Specific elements of the performance reporting for Medicare Value 
Purchasing include:

     Before any information is made public, the physician (or 
whatever unit of delivery is measured) should receive their specific 
performance. Physicians should be given actionable information from 
which they can improve and the opportunity to comment on concerns they 
have about the performance results;
     Public reporting should include all Medicare contracting 
physicians, with performance information occurring in a phased manner: 
initial reporting should positively identify participating physicians; 
then those who performed well or with marked improvement; and then full 
public reporting of both composite and all valid specific measures of 
all participating physicians; and
     Full background for any measures, their methodologies of 
measurement and adjustments for patient population should be publicly 
available to both physicians and the public.
    Conclusion
    We believe that the sooner a Medicare Value Purchasing program is 
implemented, the sooner we will be rewarding better care delivery and 
promoting the quality and value improvements we must expect. We 
appreciate your consideration of our thoughts.
            Sincerely, \1\
---------------------------------------------------------------------------
    \1\ With the exception of signators from the California Medical 
Association, the California Association of Physician Organizations and 
the Pacific Business Group on Health, which have endorsed this 
consensus statement as organizations, the group affiliations of 
signators are listed for identification purposes.
---------------------------------------------------------------------------
                                                     Jack Lewin, MD
                                   Executive Vice President and CEO
                                     California Medical Association

                                                   Peter V. Lee, JD
                                                  President and CEO
                                   Pacific Business Group on Health

                                                  Ron Bangasser, MD
                                       Director of External Affairs
                                               Beaver Medical Group
                   Former President--California Medical Association

                                                Robert Margolis, MD
                                            Chief Executive Officer
                                  HealthCare Partners Medical Group
     Chairman-Elect, National Committee on Quality Assurance (NCQA)

                                                   Bruce G. Bodaken
                                          Chairman, President & CEO
                                          Blue Shield of California

                                                Arnold Milstein, MD
                                                   Medical Director
                                   Pacific Business Group on Health

                                                       Donald Crane
                                                  President and CEO
                         California Association of Physician Groups

                                              Jo Ellen H. Ross, MNA
                                                  President and CEO
                                                            Lumetra

                                                    Jarvio Grevious
                  Deputy Executive Officer, Benefits Administration
                      California Public Employees Retirement System

                                              Stephen Shortell, PhD
                                      Dean, School of Public Health
                                 University of California, Berkeley

                                                 Jennie Chin Hanson
                                                 Board of Directors
                     American Association of Retired Persons (AARP)

                                                       Tom Williams
                                                 Executive Director
                            Integrated Healthcare Association (IHA)

                                 

      Statement of Jack Ebeler, Alliance of Community Health Plans
    The Alliance of Community Health Plans (ACHP) is pleased to have 
the opportunity to submit written testimony to the Health Subcommittee 
regarding the introduction of value-based purchasing strategies in 
Medicare. ACHP is a leadership organization of 14 non-profit and 
provider-sponsored health plans that are among America's best at 
delivering affordable, high-quality coverage and care to their 
communities. Our members seek to transform care by pursuing the six 
aims for quality health care set forth by the Institute of Medicine--
health care that is safe, effective, patient-centered, timely, 
efficient and equitable. We proudly count among our membership six of 
the National Committee for Quality Assurance's highest quality Medicare 
plans in 2004.
    ACHP member plans serve more than one million Medicare 
beneficiaries--about 20 percent of current Medicare Advantage members--
and will expand their Medicare Advantage plan offerings with the 
introduction of Medicare Advantage-Prescription Drug Plans in 2006. 
ACHP supports the introduction of value-based purchasing strategies 
throughout the Medicare program. For value-based purchasing to promote 
the broadest range of high-quality options for beneficiaries, 
performance measures should be developed for all sectors of Medicare 
and quality-based payment incentives introduced for Medicare Advantage 
and fee for service.
ACHP and Health Care Quality
    ACHP has a long legacy of leadership on quality improvement and was 
formed more than twenty years ago to help health plan leaders share 
best practices, learn and innovate. One of the earliest products of 
this collaboration was the creation of the Health Plan Employer Data 
and Information Set (HEDIS'), which has now become the 
standard for assessing health plan performance in the commercial and 
public sector. Through the National Committee for Quality Assurance 
(NCQA)--which today manages and updates the HEDIS' 
measurement process--employers, Medicare, Medicaid and other payers 
regularly monitor and evaluate health plan quality. The 
HEDIS' clinical quality reporting process, coupled with the 
CAHPS' survey of patient satisfaction, provide a vital and 
meaningful assessment of health plan performance for beneficiaries and 
for public and private payers.
    In 1997, the Health Care Financing Administration (now the Centers 
for Medicare and Medicaid Services) began requiring all health plans 
participating in Medicare to collect and report on HEDIS' 
performance measures. Today, these measures include clinical service 
indicators such as cancer screening and the screening and control of 
heart disease and diabetes risk factors. To help Medicare beneficiaries 
make informed decisions about their health plan choices, CMS makes 
comparative information about plan performance on these measures 
available on-line through www.medicare.gov or in printed form on 
request from 1-800-MEDICARE.
    New health plan measures are regularly developed by NCQA and added 
to the Medicare HEDIS' reporting requirements. In 2004, NCQA 
added colorectal cancer screening and osteoporosis measures. In 2006, 
NCQA will add health plan reporting measures to evaluate the 
appropriate use and monitoring of medication in the elderly--a timely 
addition given the introduction of Medicare's Part D prescription drug 
benefit.
    Having led the way in establishing health plan performance 
measures, ACHP is committed to translating what we learn from these 
measures into quality improvement strategies. This work takes two 
forms. First, ACHP members regularly review their clinical quality and 
patient experience performance to identify areas for improvement and, 
through ACHP-sponsored programs, share strategies and best practices. 
Second, ACHP assesses the ways in which public policy can support high-
quality care and advocates for policies that encourage quality 
improvement. Our learning sessions have included explorations of how 
and when plans can use pay-for-performance incentives to help drive 
quality improvements in specific health care settings and across 
multiple settings. Our policy agenda includes a commitment to helping 
Medicare link quality improvement and payment by promoting the creation 
of quality reporting and value-based purchasing strategies throughout 
Medicare.
Medicare Advantage and Fee-for-Service Performance Measurement
    The earliest stages of performance measurement often begin with 
structural assessments such as whether an organization has a quality 
committee in place or information technology capacity. Performance 
measurement quickly progresses to ``process'' measures that assess 
whether some recommended process or service has occurred. For example, 
a process measure might assess whether patients with coronary artery 
disease are regularly screened for high cholesterol. More advanced 
measures, sometimes called ``intermediate outcome'' measures, evaluate 
the clinical follow-up to process steps, such as whether those 
identified with high cholesterol had it brought under control.
    Medicare Advantage. All local Medicare Advantage HMOs are required 
to report to CMS on various process and intermediate outcome 
performance measures, which assess whether clinical services were 
provided and whether those services helped control chronic disease risk 
factors. Process measures are often reportable from claims data. The 
more advanced intermediate measures, which capture information about 
patients' health status, often require access to patient medical 
records. Access to records is needed because information such as blood 
pressure readings and lab test results (to determine if cholesterol or 
blood sugar is controlled) are not recorded on claims. Health plans 
generally employ nursing staff to audit medical records and report this 
data. There are no incentives or bonuses linked to this reporting.
    Hospitals. With the passage of the Medicare Modernization Act, 
hospitals that participate in Medicare were encouraged to voluntarily 
report to CMS on a discrete set of performance measures with the 
incentive of receiving of an additional 0.4 percent payment update for 
reporting. More than 98 percent of hospitals report and receive the 
payment incentive.
    Physicians. Physicians do not currently report on quality measures 
and are not required nor offered incentives to report. However, several 
efforts, including the Ambulatory care Quality Alliance's (AQA) work, 
are underway to identify measures of physician performance. Many of 
these measures build on the HEDIS '  measure set used to 
assess plan performance. It is unclear what mechanisms will be used to 
collect several of the proposed measures that will likely require 
extraction and validation of data from medical records.
    The chart below identifies the performance measures CMS requires of 
health plans, the voluntary measures reported by hospitals and the 
potential physician measures developed by the AQA.


----------------------------------------------------------------------------------------------------------------
                                                                                  Hospital Core/    Ambulatory
                                                              Health Plan HEDIS      Quality          Quality
                           Measure                            Medicare Measures      Alliance        Alliance
                                                                  (REQUIRED)       Measure Set      Measure Set
                                                                                   (VOLUNTARY)      (PROPOSED)
----------------------------------------------------------------------------------------------------------------
Prevention Measures
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Controlling high blood pressure                                       P
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LDL screening                                                         P
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Colorectal cancer screening                                           P                                 P
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Breast cancer screening                                               P                                 P
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Cervical cancer screening                                             *                                 P
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Inquire about tobacco use                                                                               P
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Medical assistance with smoking cessation /Advising smokers           P             PPP +               P
 to quit
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Flu shot                                                              P                                 *
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Pneumonia vaccine                                                     P                 P               P
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Osteoporosis
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Osteoporosis management                                               P
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Diabetes
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HbA1C tests                                                           P                                 P
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HbA1C management control                                              P                                 P
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Blood pressure management for patients with diabetes                                                    P
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Lipid measurement for patients with diabetes                          P                                 P
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LDL cholesterol level for patients with diabetes                      P                                 P
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Eye exam for patients with diabetes                                   P                                 P
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Monitoring for nephropathy                                            P
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Heart Attack/Coronary Artery Disease (CAD)
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Aspirin at arrival                                                                      P
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Aspirin prescribed at discharge                                                         P
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Beta-blocker after MI/at arrival                                      P                 P               P
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Persistence of beta-blocker after MI/at discharge                     P                 P               P
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Cholesterol management after acute cardiovascular event /             P                                 P
 for patients with CAD
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ACE inhibitor for left ventricular systolic dysfunction                                 P
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Thrombolytic agent within 30 minutes of arrival                                         P
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PTCA (angioplasty) within 90 minutes of arrival                                         P
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Heart Failure
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ACE inhibitor prescribed(for left ventricular systolic                                  P               P
 dysfunction)
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Left ventricular function assessment                                                    P               P
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Comprehensive discharge instructions                                                    P
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Pneumonia
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Oxygenation assessment                                                                  P
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Initial antibiotic w/in 4 hours of arrival                                              P
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Blood culture before first antibiotic received                                          P
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Mental Illness
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Follow-up after hospitalization for mental illness                    P
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Antidepressant medication management (acute phase)                    P                                 P
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Antidepressant medication for at least 6 months                       P                                 P
 (continuation phase)
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Asthma
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Use of appropriate medications                                        *                                 P
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Asthma: long-term control medication prescribed                                                         P
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Customer Satisfaction
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Courteous and helpful office staff                                    P
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How well doctors communicate                                          P
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Getting care quickly                                                  P
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Getting needed care                                                   P
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Rating of all health care                                             P
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Rating of health plan                                                 P
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Rating of personal doctor                                             P
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Rating of specialist seen most often                                  P
----------------------------------------------------------------------------------------------------------------
 + The Hospital Quality Measures include three smoking cessation measures: one for heart attack patients; one
  for heart failure patients and one for pneumonia patients.
 * Note: Data collected or proposed to be collected for non-Medicare eligible age groups.
 The chart does not include four AQA prenatal and child-specific measures.

Value-based Purchasing
    ACHP believes that value-based purchasing strategies are an 
essential means of raising the quality of all sectors of Medicare. We 
applaud the Subcommittee for its ongoing efforts to examine models for 
physician incentives. ACHP strongly supported the provision in the MMA, 
originally sponsored by former representative Jennifer Dunn (R-WA), 
calling for an Institute of Medicine study and report on appropriate 
measurement and payment incentives in Medicare. Given the state of 
measurement development and data collection processes, we share the 
assessment of the Medicare Payment Advisory Commission that health 
plans may be among the most logical places to begin using quality 
payment incentives because established measures are in place and 
already regularly collected. We believe that adopting value-based 
purchasing for Medicare Advantage plans would be an important initial 
step in moving Medicare toward a more performance-driven system, while 
also helping to inform the development of measures and mechanisms for 
using incentives with physicians, hospitals and other health care 
sectors. However, wherever the Subcommittee chooses to begin, it should 
quickly move to introduce value-based purchasing strategies across the 
Medicare program so that beneficiaries are able to participate in a 
program that values and promotes quality regardless of how they choose 
to receive their care.
    The principles ACHP has crafted to help inform the development of 
Medicare value-based purchasing are outlined below:

     Payment-for-performance should eventually apply to all 
Medicare providers, including fee-for-service and Medicare Advantage. 
Given health plans' long record of reporting on standardized measures 
of quality, it is reasonable to begin with Medicare Advantage plans, 
including HMOs and PPOs.
     Payment-for-performance incentives should be based upon 
standards of excellence and improvement and favor excellence. Measures 
to evaluate both fee-for-service Medicare and Medicare Advantage plans 
should be developed. In the interim, incentives should be based on 
existing measures, strongly favor clinical effectiveness and recognize 
patient experience.
     To ensure successful implementation and sustainability, 
pay-for-performance incentives should be financed with new resources.

    Thank you for the opportunity to share our views. We look forward 
to working with the Subcommittee on this important issue.

                                 

                Statement of EmCare, Inc., Dallas, Texas

  The Vital and Unique Role of Emergency Medicine Physicians Must Be 
             Considered in Any Performance Based Standards

Background on EmCare, Inc.:
    EmCare, Inc. (``EmCare'') is one of the nation's leading emergency 
medicine physician practice management organizations. Through its 
emergency medicine physicians, EmCare provides emergency care in over 
300 hospitals throughout the country. These hospitals range from some 
of the larger urban hospitals with the highest volume emergency 
departments to the smaller community hospitals with relatively low 
patient volumes, all of which depend on EmCare's physicians to deliver 
high quality care. We appreciate the opportunity to submit comments to 
the Ways and Means Committee on the Medicare Value-Based Purchasing for 
Physicians Act
    EmCare supports the congressional efforts which support the 
Medicare Value-Based Purchasing for Physicians Act and which will 
protect America's physicians from a reduction in reimbursement for 
services provided to Medicare patients. We strongly believe that the 
current Medicare Physician Fee Schedule methodology, which will result 
in a 4.3% payment cut for physicians in 2006 unless Congress acts to 
halt the reduction, will have a detrimental impact on all beneficiaries 
and their access to care. Because of EmCare's unique role in providing 
care to patients in emergencies, we are deeply and especially concerned 
about the impact of this reduction on those beneficiaries who depend on 
care received through hospital emergency departments.
    The sustainable growth rate's reliance on the gross domestic 
product level under the Fee Schedule methodology bears little relation 
to physicians' actual practice expenses and, therefore, does not 
address the increases in practice expenses being experienced by 
physicians.
    This is particularly true for emergency medicine physicians.
    Increasingly large numbers of Medicare beneficiaries are receiving 
services from participating physicians, while the costs associated with 
professional liability insurance and pharmaceuticals have rapidly 
grown. In addition to these costs, emergency medicine physicians assume 
a disproportionate share of the costs related to furnishing 
uncompensated care. Emergency medicine physicians incur unique costs 
mandated by the Emergency Medical Treatment and Labor Act (``EMTALA''). 
The EMTALA mandate applies to all patients, not just Medicare 
beneficiaries. EmCare strongly supports access to emergency medical 
services regardless of a patient's ability to pay and we are dedicated 
to that principle every single day twenty-four hours a day.
    Because of our unique circumstances and our physicians' delivery of 
medical care within the emergency department setting, we are very 
concerned that the existing Fee Schedule does not recognize the true 
costs associated with furnishing emergency medical services, due in 
part (but not completely) to the large percentage of uncompensated care 
furnished in hospital emergency departments. Due to the fact that the 
current Fee Schedule does not take this significant factor into 
account, it seriously threatens the care furnished by hospital 
emergency departments, which provide the crucial safety net of health 
care for millions of patients.
    The tragic consequences of Hurricanes Katrina and Rita have again 
revealed the critical importance of emergency medicine professionals to 
the nation's public health safety net. The nation's emergency medicine 
physicians responded heroically to the twin impacts of Katrina and 
Rita. Working in difficult conditions in hospitals and clinics as well 
as in makeshift care areas in public buildings and airports, these 
emergency health care providers furnished services to all patients who 
needed and sought care. While the water is being pumped out of New 
Orleans and other areas, local hospital emergency departments have 
continued to work tirelessly to handle the surge of cases from evacuees 
in addition to their regular emergency patient load.
    As the Committee deliberates the Medicare Value-Based Purchasing 
for Physicians Act, we ask that you consider the extraordinary 
challenges and conditions faced by emergency medicine physicians. We 
outline below our suggestions of the factors that should be considered 
in establishing quality and efficiency measures for services furnished 
by emergency physicians
How to Measure and Reward Services Provided by Emergency Physicians
1.      Access
     EMTALA mandates that emergency medicine physicians provide 
care to all patients regardless of ability to pay. This imposes 
significant monetary and administrative requirements that are unique to 
emergency physicians and hospital departments.
     Complete access of all patients to medical care in the 
emergency setting should be recognized by Congress as the primary 
factor for measuring emergency physicians' performance.
II.      Core Measures
     The core measures used for the National Voluntary Hospital 
Reporting Initiative can be used as a proxy to measure emergency 
physicians' performance. Because these core measures currently apply 
only to hospitals, certain controls would need to be put in place to 
measure individual physicians. For example, a unique physician 
identifier can be used track the services provided by each physician.
     Only the core measures that apply to emergency medicine 
and are under the control of emergency medicine physicians should be 
used in developing quality and efficiency measures for emergency 
medicine physicians.
III.      Unique Setting
     Emergency physicians deliver care in a unique setting. 
Typically, the physician does not have an existing relationship with 
the patient and full access to the patient's medical history.
     As a result, emergency physicians must make an immediate 
assessment of the patient's condition often based on limited 
information. The emergency physician has little or no contact with or 
responsibility for a patient's pre--and post-emergency care. This 
factor makes impossible a clear ``outcomes'' based standard for 
emergency physicians.
IV.      Auditing
     Current standards already exist and are used to audit the 
metrics applicable to emergency medicine physicians.
Conclusion
    As dramatically demonstrated by Hurricanes Katrina and Rita, 
emergency medicine physicians play a critical role in rendering care to 
all patients wherever and whenever such medical care is medically 
needed. For patients who lack health insurance, this provides a vital 
safety net. The hard lessons taught by Katrina and Rita show that the 
nation's emergency care system must be taken seriously and protected by 
policymakers and planners.
    Consequently, we urge the Committee to take into account the 
factors discussed above, including, but not limited to, the significant 
level of uncompensated care furnished by emergency physicians as part 
of any pay-for-performance methodology which may be created by the 
Committee and the Congress.
    Thank you for the opportunity to submit these comments.

                                 

  Statement of Mary Griskewicz, Healthcare Information and Management 
 Systems Society (HIMSS) Advocacy & Public Policy Steering Committee, 
                          Alexandria, Virginia
BACKGROUND:
    Madame Chair, Congressman Stark, and distinguished members of the 
Subcommittee, I am honored to submit this statement for the record. My 
name is Mary Griskewicz and I have the pleasure of serving as the 2005-
2006 Chair of the Healthcare Information and Management Systems Society 
(HIMSS) Advocacy & Public Policy Steering Committee. I live in 
Connecticut and work professionally for IDX Systems Corporation as a 
Program Manager, Corporate Strategy and Business Development.
    HIMSS vision is to advance the best use of information and 
management systems for the betterment of healthcare.
    On behalf of HIMSS and the thousands of professionals in the 
healthcare information technology community, we want to commend you and 
your Subcommittee for your leadership role in promoting initiatives 
that increase the use of information technology throughout the 
healthcare sector. In particular, Madame Chair, we know personally of 
your commitment to this cause as was reflected during your remarks at 
our congressional reception where you were presented with the 2003 
HIMSS Advocacy Award.
    HIMSS and our Healthcare IT community colleagues are thankful for 
your efforts to highlight our shared goal of utilizing a National 
Health Information Infrastructure (NHII) to seamlessly transmit 
electronic healthcare records (EHRs) to improve patient safety and 
healthcare quality.
    As you are well aware, healthcare IT continues to take steps and 
move forward to address President Bush's call to establish electronic 
health records for most Americans within ten years. The federal 
government's support of the of the Office of the National Health 
Information Coordinator, Agency for Health care Quality and the 
governments efforts to coordinate public and private health IT efforts 
by developing strategies, contracting for studies, and funding 
prototypes and demonstrations to enable health IT and most recently the 
appointment of the members to the American Health Information Community 
board created by Secretary Leavitt. The recent findings of the 
September 14, 2005, RAND study indicate ``Widespread adoption and 
effective use of electronic medical record systems (EMRs) and other 
health information technology (HIT) improvements could save the U.S. 
health system as much as $162 billion annually by greatly improving the 
way medical care is managed, greatly reducing preventable medical 
errors, lowering death rates from chronic disease, and reducing 
employee sick days''. http://www.rand.org/health/
    Federal law requires Medicare payments to physicians to be modified 
annually using a formula known as the sustainable growth rate (SGR). 
Because of flaws in the formula methodology, it has mandated physician 
fee schedule cuts in recent years; these cuts have been averted only by 
congressional short-term fixes. Absent additional, long-term 
congressional action by December 31, 2005, the SGR will continue to 
mandate physician fee schedule cuts of approximately 5% per year for 
the next five years. Congress must modify the sustainable growth rate 
formula to allow adequate payment to cover physician cost. In addition, 
Medicare is the largest single purchaser of healthcare and it needs to 
be restructured to incentivize providers to provide excellent care to 
beneficiaries.
    We are pleased Madam Chair that you have recently introduced H.R. 
3617, the Medicare Value-Based Purchasing for Physicians' Act of 2005, 
into the U.S. House of Representatives for consideration. The 
legislation has fifteen co-sponsors and was referred by the House 
Speaker to both the House Energy & Commerce and Ways & Means Committees 
for action.
    Senators Charles Grassley (R-IA) and Max Baucus (D-MT), Chair and 
Ranking Minority Member respectively of the U.S. Senate Finance 
Committee, have introduced S. 1356, the Medicare Value Purchasing Act 
of 2005, into the United States Senate for consideration. This 
legislation is co-sponsored by four U.S. Senators and has been referred 
to the U.S. Senate Finance Committee for consideration.
    The primary purpose of both pieces of legislation is to provide 
promote value-based purchasing for the Medicare program. While Senate 
bill S.1356 the Medicare Value Purchasing Act of 2005 attempts to 
improve the Medicare reimbursement payment system to physicians without 
attempting to stem the declining reimbursement rates. The President of 
the American Academy of Family Physicians has said that ``these new 
requirements on physicians will mean they face lower payments and 
additional costs. This is not a formula for improving health care 
quality.''
    The House bill, on the other hand, proposes to resolve the 
sustainable growth rate (SGR) dilemma and promote value-based 
performance by encouraging physicians to electronically report medical 
quality indicators. The House bill focuses only on physician 
reimbursement. It is estimated that the cost of H.R. 3617 is $100 
billion over 10 years just to solve physician reimbursement.
HIMSS Position:
     HIMSS believes that Medicare should play a leadership role 
in improvements in health care quality. Medicare is the largest single 
purchaser of health care, providing health care coverage to over 40 
million Americans. Yet when the program was created back in the 1960's, 
it was structured so that providers received the same payment 
regardless of whether they provided excellent or sub-standard care to 
beneficiaries. It is time to make a dramatic, but necessary change to 
the payment system by aligning payment policies to encourage and 
support quality care.
     HIMSS supports H.R. 3617, the Medicare Value-Based 
Purchasing for Physicians' Act of 2005, because it supports both 
implementing value-based purchasing programs under Medicare that links 
a small portion of Medicare payment to the delivery of high quality 
healthcare and the need to develop a more sustainable reimbursement 
model.
     HIMSS strongly believes that the SGR dilemma and the 
value-based purchasing requirements need to be addressed in tandem 
because clinicians cannot continue to face declining reimbursements for 
Medicare patients.
     HIMSS strongly supports reimbursing physicians based on 
the quality of care they provide their patients.
     HIMSS believes that the Senate bill will probably increase 
doctors' costs in order to meet and report specific care standards, but 
it does not help them obtain the technology to meet these requirements. 
If doctors don't have the technology to participate in the reporting 
system, their reimbursement will be cut even further, which will hinder 
their ability to ever be able to afford the technology
     The Senate bill is limited to provisions that directly 
relate to quality improvement, value-based purchasing, data 
coordination, and health information technology, but does not address 
the SGR dilemma. However, the bill does acknowledge, through ``Sense of 
the Senate'' language, that the negative physician payment update needs 
to be addressed. This language points out the unsustainable nature of 
the SGR formula and the need to develop a more sustainable model that 
is more appropriate in controlling the volume of physician services 
provided. HIMSS is pleased that the Senate recognizes that this needs 
to be addressed.
CONCLUSION:
    We believe that the passage of HR 3617 will help us reach our goal 
to incentivize providers of care accordingly supporting the Presidents 
goal of achieving a national electronic health record for most 
Americans. We have noted that, the interest and attention on health 
information has been heightened. More specifically the events 
surrounding the Katrina relief efforts have highlighted the need for an 
Electronic Health Record, and the need to provide continued incentives 
to the providers of care that would allow them to use the technologies 
that will support the adoption of the electronic health record.
    HIMSS supports H.R. 3617 because it resolves the SGR issue for 
physicians and attempts to promote value-based purchasing. This 
legislation is solidly aligned with HIMSS Legislative Principles and 
recognizes the key role that information systems can have in improving 
the health of all.
    HIMSS will promote passage of this legislation as part of its 
overall advocacy agenda.
    As you proceed forward in the months and years ahead, the 17,000+ 
individual HIMSS members and over 275 corporate HIMSS members 
representing over 2,000,000 employees are committed to working with you 
and others to make our shared vision of the widespread adoption of 
information technology and management systems in the healthcare sector 
a reality.

                                 

   Statement of Michele Johnson, Medical Group Management Association
    Introduction
    This statement is submitted on behalf of the Medical Group 
Management Association (MGMA) to the Ways and Means Health Subcommittee 
hearing entitled, ``Value-Based Purchasing for Physicians under 
Medicare, H.R. 3617.'' MGMA represents 19,500 members who manage and 
lead more than 11,500 ambulatory medical offices in which more than 
240,000 physicians provide medical care.
Problems with Current Method of Medicare Updates to Medicare Pratices
    Currently, Medicare provides annual updates to physician 
reimbursement through the Sustainable Growth Rate (SGR). In January 
2006, unless Congress acts to prevent the formula from taking effect, 
Medicare's ``update'' to physician services under the SGR will be a--
4.4 percent cut. Chairman Johnson understands that the SGR is a 
fundamentally flawed and unreasonable method of calculating physician 
updates. Physician practices face the prospect of significant cuts in 
Medicare reimbursement year after year, while their overhead costs rise 
significantly. This is true only for physician practices; other 
segments of the health care system receive regular annual updates 
because they do not utilize the SGR formula. In 2006, Medicare 
Advantage plans, hospitals, nursing homes and home health providers 
will all receive positive updates to their reimbursement rates.
    Medical group practices confront this looming 2006 cut within the 
context of their recent experience with Medicare reimbursement. Because 
Congress was unable to act in time, physicians received a 5.4 percent 
reduction in 2002. Congress recognized the threat to Medicare 
beneficiary access and stopped the SGR from further reducing physician 
reimbursement in 2003, 2004 and 2005. While this was a relief to 
physician practices, these increases did not come close to keeping pace 
with the increase in medical costs. Because the SGR is not an accurate 
methodology for updating physician reimbursement annually, the Medicare 
Payment Advisory Committee has repeatedly recommended to Congress that 
the SGR be statutorily replaced with the Medicare Economic Index (MEI). 
The MEI is a price index, calculated by CMS, which more accurately 
reflects the costs of delivering medical care in physicians' offices.
    MGMA has preformed cost surveys of medical practices for over 50 
years. MGMA data indicates 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 more than 10.9 percent. However, in this same timeframe, 
Medicare physician payment rates increased between 1.5 to 1.6 percent. 
This means that increases in Medicare reimbursement have already failed 
to keep pace with the rate of inflation in practice costs as calculated 
by the MEI or by the MGMA's cost survey data. The Medicare Board of 
Trustees estimates that the cost of providing medical care will 
increase by an estimated 15 percent over the next six years, while 
current reimbursement levels are scheduled to drop by an estimated 26 
percent.
    The chart below compares the recent annual increases under the SGR 
formula with the increase in medical operating expenses as calculated 
under the MEI and MGMA's own cost survey data.

  Comparisons of SGR Updates with Calculations of Actual Increases in 
                  Medical Practice Operating Expenses

----------------------------------------------------------------------------------------------------------------
                                     Increase in Medicare
                Year                  reimbursement under   Medicare Economic         MGMA cost survey data
                                              SGR              Index (MEI)
----------------------------------------------------------------------------------------------------------------
 2002                                -5.4 %                2.9%                 7.5%
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----------------------------------------------------------------------------------------------------------------


H.R. 3617 Repeal of SGR
    MGMA supports Chairman Johnson's H.R. 3617, the Value-Based 
Purchasing for Physicians bill because it envisions significant reform 
to Medicare's physician reimbursement methodology. MGMA believes the 
bill demonstrates an awareness that physicians must be adequately 
reimbursed for the services that they deliver. MGMA concurs with the 
intent of the legislation to create a link between quality improvement 
based on evidence-based performance measures and full annual updates.

                                 
                American College of Obstetricians and Gynecologists
                                               Washington, DC 20024
                                                 September 29, 2005
The Honorable Nancy Johnson
Chair, Health Subcommittee
Ways and Means Committee
1136 Longworth House Office Building
Washington, DC 20515

Dear Mrs. Johnson:

    On behalf of the American College of Obstetricians and 
Gynecologists (ACOG), representing 49,000 physicians and partners in 
women's health, thank you for the extraordinary leadership and 
commitment you've shown in your effort to correct a serious problem in 
the Medicare program by repealing the flawed Sustainable Growth Rate 
(SGR) formula and putting in place a system that works for physicians, 
and helps ensure access to high-quality care for our patients. Your 
legislation, H.R. 3617, the Medicare Value-Based Purchasing for 
Physicians' Services Act of 2005, has our full support.
    ACOG has long been dedicated to maintaining the quality of care 
provided by obstetricians and gynecologists and has a robust ongoing 
process where we provide women's health physicians and providers with 
current quality information on the practice of obstetrics and 
gynecology. For nearly two decades, ACOG's Committee on Quality 
Improvement and Patient Safety has regularly reviewed practice and 
patient safety issues and encouraged our members to incorporate ACOG's 
recommendations into their practices. ACOG's Practice Committees 
regularly publish practice guidelines developed by committees of 
experts and reviewed by leaders in our specialty and the College. Each 
of these guidelines is reviewed periodically and reaffirmed, updated, 
or withdrawn based on new clinical evidence to ensure continued 
appropriateness to practice.
    In 2004, in cooperation with the American Board of Obstetrics and 
Gynecology (ABOG), an independent, non-profit organization that 
certifies obstetricians and gynecologists in the United States, ACOG 
created Road to Maintaining Excellence, an initiative to allow ob-gyns 
to evaluate their own practice activities, reinforce best practices and 
assist in improving others. Currently in pilot stages, Road to 
Maintaining Excellence will require ACOG Fellows to complete 
questionnaire-based modules that focus on a single aspect of clinical 
practice, like prevention of early-onset group B Streptococcal disease 
in newborns and prevention of deep vein thrombosis and pulmonary 
embolism. As Fellows complete each module, data will be summarized and 
compiled by ACOG, and periodically reported to our members. Road to 
Maintaining Excellence will provide Fellows with valuable information 
about how their practice patterns compare to those of their colleagues 
but is not intended to be used as a performance measurement set or as a 
basis for payment.
    ACOG has been working collaboratively with our primary care 
colleagues, as well as our colleagues in specialty and surgical care, 
to be supportive of moving toward value-based physician payments, 
linked with fixing the SGR. As Congress moves forward in establishing 
quality incentives in Medicare, ACOG believes that certain principles 
should be kept in mind, many of which are reflected in your discussions 
of pay-for-performance and your draft legislation.

     All physicians should receive a positive Medicare payment 
update as a floor for additional reporting or performance incentives. 
Under the current SGR formula, physicians will receive unsustainable 
payment cuts of nearly 30 percent over the next six years. Some 
performance measures may involve additional office visits, lab tests, 
imaging exams or other physician interventions that would only 
exacerbate the current volume formula. Physicians must not be penalized 
for any volume increase resulting from compliance with performance 
measures. To ensure an equitable accounting of the costs and savings 
generated from pay-for-performance, Medicare should account for savings 
to Part A generated by Part B performance improvements.
     The new payment system should be phased in, beginning with 
an administratively simple ``pay-for-reporting'' period that provides 
information about the quality and safety processes physicians are 
engaged in and assesses the availability of health information 
technology. Quality and safety process measures used in the Medicare 
system should have widespread acceptance in the medical community. One 
such process measure in obstetrics could involve use of a prenatal 
flowsheet, a performance tool developed by ACOG that was recommended

for use by an ACOG-led prenatal workgroup of the American Medical 
Association's Physician Consortium for Performance Improvement. In ob-
gyn surgery, ACOG supports the procedural measures laid out in the 
first phase of the American College of Surgeons Framework for Surgical 
Care, including confirmation of operative site and side marking, pre-
operative ``time out,'' immediate post-operative documentation, post-
operative pain management and appropriate post-operative care.
     Clinical performance measures should be developed by each 
specialty in a transparent process that considers scientific evidence, 
expert opinion and administrative feasibility of each measure. Measures 
should be appropriately risk-adjusted to account for a variety of 
factors, including patient compliance and complexity. Increased quality 
should be the goal of efficiency measures, and these measures, too, 
should be driven by data-based clinical evidence and expert opinion 
when data are lacking.
     Health information technology is prohibitively expensive 
for some small practices, particularly for the 23 percent of ob-gyns in 
solo practice, but is a necessary efficiency and a vital component of 
pay-for-performance. Acquisition of this technology should be 
encouraged with federal financial assistance for the purchase of 
hardware and software and for system training. National standards for 
health information technology would facilitate physician adoption of 
these systems, by reassuring physicians that the technology they invest 
in would not become obsolete. Because use of health information 
technology may be among the elements of the early ``pay-for-reporting'' 
system, it is vital that these steps be taken promptly.
     Congress needs to address the universe of legal issues 
surrounding data reporting. Information collected by CMS must be 
protected from use in medical liability litigation against physicians 
or as a basis for negligent hiring or retention claims. This may 
necessitate specifically exempting physician data from Freedom of 
Information Act requests. Care should be taken to avoid other 
unintended and unfortunate consequences of public data reporting, such 
as physician selection of patients with the fewest medical risk factors 
or the best history of compliance with instructions. This is essential 
to ensure continued access to care for low-income and minority 
populations who tend to enter the health care system at an acute stage 
of disease and illness and suffer worse outcomes regardless of the 
quality of care they receive.

    We recognize the challenges in creating a quality improvement 
program for Medicare that leads us to meaningful clinical measures and 
improved quality for beneficiaries. We applaud your leadership and your 
commitment to this effort and we sincerely thank you for your 
willingness to work cooperatively with ACOG and the medical community 
in these important discussions. ACOG stands ready to work with you as 
we embark on this historic change in Medicare.
            Sincerely,
                                             Michael T. Mennuti, MD
                                                          President

                                 

  Statement of the American Physical Therapy Association, Alexandria, 
                                Virginia
    The American Physical Therapy Association (APTA) appreciates the 
efforts of the House Committee on Ways and Means and its Subcommittee 
on Health to improve the delivery of health care, especially your focus 
on quality care for seniors and persons with disabilities. The 
transition to a payment system for high quality, efficient health care 
services is vitally important to the beneficiaries that physical 
therapists serve under the Medicare program. APTA endorses and supports 
HR 3617, the Medicare Value-Based Purchasing for Physicians' Services 
Act of 2005. While we support HR 3617, we encourage the Committee to 
address all of the inadequacies in the current payment system in 
conjunction with its action on this legislation.
Elimination of the Flawed Sustainable Growth Rate (SGR) Methodology 
        Prior to Moving Forward with Value-Based Purchasing for Health 
        Professionals' Services:
    HR 3617 eliminates the flaws of the existing system that determines 
Medicare payments to physical therapists and other providers under the 
Part B physician fee schedule, as well as improving the program's long-
term solvency by creating incentives to improve the quality of care 
provided to the nation's seniors and persons with disabilities. We are 
concerned that any effort to proceed with the transition to value-based 
purchasing or ``pay for performance'' without also addressing 
underlying flaws in the outpatient payment of physical therapy services 
would be inefficient and would ultimately erode the purpose of this 
legislation. By repealing the Sustainable Growth Rate (SGR) and 
replacing it with the Medicare Economic Index (MEI), the MedicareValue-
Based Purchasing for Physicians' Services Act of 2005 (HR 3617) 
resolves one of the current payment inadequacies under Medicare Part B, 
and APTA commends Chairwoman Johnson and the Committee for addressing 
this critical payment issue.
Therapy Caps' Inconsistency with Value-Based Purchasing for Physical 
        Therapists' Services under Medicare:
    The pending restoration of financial caps on outpatient physical 
therapy services under Medicare threatens to limit this legislation's 
ability to fully achieve its objective. Congress must address the 
arbitrary caps placed on outpatient physical therapy services by the 
Balanced Budget Act of 1997 prior to transitioning to a valued-based 
system. If the therapy caps are not repealed, the effect of HR 3617 
would be the application of two different payment systems to 
rehabilitation services at the same time: one system that pays for 
quality, efficiency, and improved outcomes in clinical practice 
implemented on top of another that arbitrarily caps beneficiary 
coverage that is based upon the former paradigm of volume and 
utilization. The implementation of an arbitrary financial limit is 
inconsistent with the goals represented by a value-based purchasing 
system. The objective of HR 3617 is the transition to a payment system 
that rewards quality, outcomes, and efficiency in clinical practice; 
arbitrary caps on services undermine and erode this objective. APTA 
stands ready to work with you and your Committee to address the therapy 
caps and incorporate value-based purchasing into the solution for this 
issue.
Inclusion of Non-Physician Providers in the Medicare Value-Based 
        Purchasing for Physicians' Services Act of 2005 (HR 3617):
    It is our understanding that your legislation is intended to 
include physical therapists practicing in outpatient settings, but we 
would encourage you to specifically reference physical therapists as 
participants in the development and attainment of clinically 
appropriate processes and measures to enhance the quality of 
rehabilitation care. We strongly encourage the inclusion of non-
physician providers in the value-based purchasing discussions conducted 
by this committee and CMS. In the 2006 Medicare Physician Fee Schedule 
proposed rule, CMS discusses its current involvement with the physician 
community in developing useful quality measures and understanding 
overall trends. Although we are pleased to see that CMS is willing to 
work collaboratively with physicians to develop quality measures, we 
strongly urge CMS and this committee to also include physical 
therapists and other non-physician groups in these discussions. There 
are more than 120,000 physical therapists in the United States, many of 
whom provide services to Medicare beneficiaries and would be able to 
provide useful information regarding appropriate quality measures for 
physical therapy services. CMS has indicated that 3,747,395 Medicare 
beneficiaries (9.3%) accessed outpatient therapy services in CY 2002, 
resulting in expenditures of $3,392,226,958 for the Medicare program, 
which accounts for 2.3% of all Medicare Part B expenditures during that 
year. Although the annual per-patient expenditure for PT services is 
only $760, 88% of the recipients of Medicare-covered rehabilitation 
receive physical therapy specifically, totaling $2.54 billion and 
accounting for 75% of the total costs of all outpatient rehabilitation 
services combined. These numbers clearly indicate that physical therapy 
is an essential outpatient benefit that should be incorporated into any 
transition to value-based purchasing for physicians and other health 
care professionals.
Standardizationof a Consistent and Uniform Benefit for Physical 
        Therapist Services in All PartB Settings:
    APTA believes that the fragmentation of rules and regulations 
across the multiple settings in which physical therapists provide 
services to Medicare beneficiaries creates serious problems for a 
uniform and consistent value-based purchasing payment system. 
Currently, physical therapists provide outpatient services in eight (8) 
Part B settings, each governed by different requirements regarding 
supervision, certification of plans of care, and billing authority. 
APTA believes that value-based purchasing would be enhanced and 
provider accountability increased by moving physical therapy to a 
uniform part B benefit similar to the physical therapist in private 
practice (PTPP) benefit, which improves accountability with individual 
provider numbers for each licensed physical therapist, similar to 
physician providers. We would welcome the opportunity to simplify the 
Part B physical therapy benefit by eliminating the fragmentation of 
physical therapy services across all Part B settings.
APTA's Efforts to Support Value-Based Purchasing for Physical 
        Therapists Services: A Foundation for Pay For Performance in 
        Therapy Services:
    APTA believes that physical therapist practice is congruent with 
this initiative due to its focus on measurable outcomes of function, 
movement, and activities of daily living. We support reforming the 
Medicare payment system to reward providers for meeting clinically 
appropriate benchmarksto promote quality and improve the health 
outcomes of the Medicare population. APTA has been actively engaged in 
several initiatives to expand the utilization of health information 
technology and outcome measures that would lead to quality improvements 
in the provision of physical therapy services as well as to an 
effective value-based purchasing system for this essential service to 
Medicare beneficiaries.
    To achieve these objectives, APTA has developed a specialized 
point-of-care electronic patient record system (CONNECT) designed for 
use by physical therapists, and a patient self-report instrument, the 
Outpatient Physical Therapy Improvement in Movement and Assessment Log 
(OPTIMAL) which documents the outcomes of physical therapist treatment. 
Specifically, OPTIMAL provides an outcome measure of the patient's 
functional status related to changes in movement. The patient uses 
OPTIMAL at the initiation of treatment and at discharge to indicate the 
level of difficulty experienced in performing 21 actions (e.g. rolling 
over, sitting, standing, bending, reaching, etc.) and the level of 
self-confidence in the ability to perform them. We firmly believe that 
OPTIMAL will be a valuable instrument in a pay-for-performance system. 
CONNECT enables practices to document the performance of a physical 
therapist in a particular practice and benchmark that performance with 
other clinicians. APTA would be happy to share the data derived from 
CONNECT with CMS so that it may be used to develop quality measures for 
a pay-for-performance system. APTA's ultimate objective is to develop a 
national outcomes database that will enable the profession to determine 
the effectiveness of physical therapist practice and to provide quality 
measures to assist payers such as Medicare shift to payment systems 
that reward quality. We believe our efforts are consistent with the 
objectives that your legislation outlines and should assist the Centers 
for Medicare and Medicaid Services (CMS) in developing and implementing 
quality measures for physical therapists of the kind envisioned by your 
legislation.
    Recognizing the need for evidence-based practice, APTA also 
initiated a project several years ago referred to as ``Hooked on 
Evidence,'' which involved the creation of a website dedicated to 
literature review on physical therapy efficacy. Specifically, APTA's 
Hooked on Evidence Website consists of a database of current evidence 
on the effectiveness of physical therapy interventions drawn from 
scientific research literature. The website allows physical therapists 
to search a database of extractions from peer-reviewed literature 
relevant to physical therapy, which has been aggregated to produce 
research-based guidelines for clinical practice.
    APTA has also developed the Guide to Physical Therapist Practice 
(``the Guide''), which helps physical therapists analyze their patient/
client management and describe the scope of their practice. The Guide 
delineates tests and measures and the interventions that are used in 
physical therapist practice. It also identifies preferred practice 
patterns that will help physical therapists (a) improve quality of 
care, (b) enhance positive outcomes of physical therapist services, c) 
enhance patient/client satisfaction, (d) promote appropriate 
utilization of health care services, e) increase efficiency and reduce 
unwarranted variation in the provision of services, and f) diminish the 
economic burden of disablement through prevention and the promotion of 
health, wellness, and fitness. Through the development of a health 
information technology infrastructure that supports quality improvement 
by providing physical therapists with tools to support evidence-based 
clinical decision making and incorporate performance measurement in 
their practices, APTA is helping to lay the groundwork for Medicare 
pay--for-performance.
Conclusion:
    In summary, we recommend the following principles to enhance the 
H.R. 3617, the Medicare Value-Based Purchasing for Physicians' Services 
Act of 2005:

     Maintain the repeal of the Substantial Growth Rate (SGR) 
and its replacement with the Medicare Economic Index (MEI) in HR 3617.
     Eliminate the arbitrary therapy caps for physical 
therapists, occupational therapists, and speech language pathologists. 
If value-based purchasing rewards high quality, efficient, and 
clinically appropriate care, implementation of the therapy caps would 
unnecessarily limit essential benefits for our seniors and persons with 
disabilities, and would ultimately lead to increased costs in other 
areas.
     Include non-physician providers explicitly as part of 
value-based purchasing under Medicare. Physical therapists are paid 
according to the same fee schedule as physician providers and should be 
included in this new payment framework.
     Standardize the Part B benefit regarding physical therapy 
services.
     Utilize the foundation established by APTA to assist CMS 
in the transition of outpatient physical therapy to value-based 
purchasing.

    We appreciate your sensitivity to concerns about the capability of 
all providers to become eligible for incentives and the need to 
eliminate current payment problems before attempting to create this new 
system. We also have questions about how CMS will select and implement 
reporting requirements and assessment measures. We look forward to 
working with you in addressing these and other issues as the House 
considers this legislation and other Medicare issues this fall. APTA is 
eager to work with you and your staff to ensure that legislation 
creating new structures in the Medicare program to provide incentives 
for reporting and transitioning to value-based purchasing is enacted in 
a fashion that ensures appropriate beneficiary access to care, reduces 
the administrative burden on both patients and providers, and improves 
the quality of care for all Medicare beneficiaries.

                                 

     Statement of Steven Wojcik, National Business Group on Health

Congress Should Implement Medicare Pay-For-Performance Now
    Issue: Congress is considering legislation that would implement 
value-based purchasing, or pay-for-performance, on a program-wide basis 
in Medicare. Pay-for-performance programs reward health care providers 
for quality care and efficiency through higher reimbursement and 
payments.
    Too often, payment for health care is made without regard to 
whether services are needed or how well they are performed. While cost 
is tied to quality or performance in most other industries, in health 
care, including in Medicare, the opposite tends to happen--we end up 
paying more for poor service and the additional health care needed to 
``correct'' poor quality.
    The pay-for-performance movement continues to rapidly expand in the 
marketplace. In recent years, employers and other health care 
purchasers have developed and adopted payment programs to reward 
quality and efficiency in the health care system. For example, several 
of the Business Group's employer members participate in Bridges to 
Excellence and the pay-for-performance program of the Integrated 
Healthcare Association, two of the leading movements. Today, most large 
insurers and health plans have a provider incentive program. The 
Medicare program has several pay-for-performance demonstrations 
underway.
    Pay-for-performance promises to advance evidence-based medicine, 
improve the quality of health care and the health of Medicare 
beneficiaries, which translates into better value for the Medicare 
program.
    Position: The National Business Group on Health, a member 
organization of over 240 primarily large employers who provide coverage 
for 50 million Americans, strongly urges Congress to pass legislation 
that would implement pay-for-performance on a widespread basis in the 
Medicare program for hospitals, physicians, and other health care 
facilities and professionals. Pay-for-performance in Medicare would 
harness the government's leverage as the largest purchaser of health 
care in the U.S. to improve the quality and efficiency of Medicare and 
the overall health care system.
The Business Group believes that a Medicare pay-for-performance program 
        should include the following:
     The performance measures adopted by Medicare should be 
measures developed by nationally recognized quality measurement 
organizations, such as the National Committee for Quality Assurance 
(NCQA), researchers, and practitioner groups that have been vetted and 
recommended by consensus-building organizations that represent diverse 
stakeholders, such as the National Quality Forum (NQF).
     Rewarding quality is paramount but rewarding quality care 
that is provided efficiently is also important and should be an 
essential part of any pay-for-performance initiative in Medicare.
     When measuring quality, focusing on misuse and overuse is 
equally important as underuse.
     To the extent possible, performance measures should 
incorporate outcomes of care in addition to structure and process 
measures
     CMS should make meaningful disclosure of performance 
results to the public, which will reinforce the value of pay-for-
performance.
     The health care system will need sufficient health 
information technology infrastructure to report performance measures. 
Some providers, particularly solo and small group physician practices 
and those serving low-income urban and rural areas, may need financial 
assistance to purchase needed systems, software, training and related 
services.
     The Medicare program should consider expanding the 
proportion of Medicare payment and reimbursement based on performance 
over time as it implements pay-for-performance.

    Pay-for-Performance in Medicare is Needed Now to Improve Quality 
and Safety:
    A landmark 1999 Institute of Medicine (IOM) report estimated that 
preventable medical errors in hospitals might cause as many as 98,000 
deaths annually. Many more people are injured in hospitals and 
countless more preventable deaths and injuries occur in outpatient 
settings.
    A 2003 RAND study found that patients received only 55 percent of 
recommended care for fairly common medical conditions for which a broad 
consensus exists on care standards.
    The Dartmouth Atlas of Health Care's most recent findings reveal 
wide variation in hospital care and outcomes for chronically ill 
Medicare patients.
    Fisher and colleagues (Annals of Internal Medicine, 2003) estimate 
that up to 30% of Medicare spending may be for excessive and 
unnecessary care.

                                 
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