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



 
          VALUE-BASED PURCHASING FOR PHYSICIANS UNDER MEDICARE

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 21, 2005

                               __________

                           Serial No. 109-50

                               __________

         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 July 21, 2005 and revised advisory of July 21, 2005 
  announcing the hearing.........................................     2

                               WITNESSES

Centers for Medicare and Medicaid Services, Hon. Mark McClellan, 
  Administrator..................................................     8

                                 ______

American College of Physicians, C. Anderson Hedberg, M.D.........    60
American Medical Association, John H. Armstron, M.D..............    50
Tufts University School of Medicine, Jerome P. Kassirer, M.D.....    68

                       SUBMISSIONS FOR THE RECORD

Alliance of Community Health Plans, Jack Ebeler, statement.......    84
American Academy of Family Physicians, Leawood, KS, Michael 
  Fleming, statement.............................................    85
American College of Obstetricians and Gynecologists, Michael 
  Mennuti, letter................................................    88
American College of Surgeons, letter.............................    90
Halderman, Linda, Selma, CA, letter..............................    94
Kern County Medical Society, Bakersfield, CA, Sandi Palumbo, 
  statement......................................................    97
National Coalition for Quality Diagnostic Imaging Services, 
  Cherrill Farnsworth, statement.................................   105



















          VALUE-BASED PURCHASING FOR PHYSICIANS UNDER MEDICARE

                              ----------                              


                        THURSDAY, JULY 21, 2005

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

    The Subcommittee met, pursuant to notice, at 1:08 p.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee) presiding.
    [The advisory and revised advisory announcing the hearing 
follow:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
July 21, 2005
No. HL-7

                      Johnson Announces Hearing on

              Value-Based Purchasing for Physicians Under

                                Medicare

    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 reforming physician payments under 
Medicare by moving to a value-based purchasing program. The hearing 
will take place on Thursday, July 21, 2005, in the main Committee 
hearing room, 1100 Longworth House Office Building, beginning at 10:00 
a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include the Honorable Mark McClellan, Administrator, 
Centers for Medicare & Medicaid Services (CMS) and representatives from 
Medicare provider groups. 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:

      
    Physicians and other providers paid under Medicare's physician fee 
schedule will receive cuts in payment rates of approximately 5 percent 
annually for the next 7 years, beginning in January 2006. At the same 
time, Medicare pays providers the same whether they deliver excellent 
care or care that is ineffective, of poor quality, or out-of-date. 
Since Medicare pays for resource use, the program and beneficiaries pay 
for more and more services even when providers deliver ineffective or 
inefficient care. Congress must continue to examine ways to address 
these issues within the Medicare program, to stem the tide of rising 
medical inflation, to prepare for increased enrollment from aging Baby 
Boomers, and to ensure that the care delivered to Medicare 
beneficiaries is of high quality.
      
    In recent months, CMS and others have taken steps which provide a 
basis for transition from a payment system that rewards the delivery of 
additional services to one that rewards the delivery of quality care. 
For example, in April CMS began its Physician Group Practice 
Demonstration, to assess the ability of large physician groups to 
improve care and create better patient outcomes and efficiencies by 
implementing care management strategies. In May, the Ambulatory Care 
Quality Alliance released a starter set of measures of quality and 
efficiency for use in ambulatory care settings.
      
    In announcing the hearing, Chairman Johnson stated, ``For several 
years, I have argued that the current Medicare payment system for 
physicians is unsustainable. We have reached the point where we can 
begin to reward physicians who deliver high quality and efficient care 
to our seniors under Medicare. This hearing will offer the Subcommittee 
an opportunity to explore further a repeal of the old formula and 
implementation of a value-based purchasing program based on the recent 
work by CMS and others.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on developments since the last Subcommittee 
hearing in March on physician payments and value-based purchasing. 
Witnesses will outline methods to pay for better results in Medicare.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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FORMATTING REQUIREMENTS:

      
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noted above.

                                 

                       * * * CHANGE IN TIME * * *

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
July 21, 2005
No. HL-7 Revised

                   Change in Time for the Hearing on

          Value-Based Purchasing for Physicians Under Medicare

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on reforming physician payments under Medicare by 
moving to a value-based purchasing program, previously scheduled for 
10:00 a.m. on Thursday, July 21, 2005, in the main Committee hearing 
room, 1100 Longworth House Office Building, will now be held at 1:00 
p.m.
      
    All other details for the hearing remain the same. (See Health 
Advisory No. HL-7, dated July 14, 2005).

                                 

    Chairman JOHNSON OF CONNECTICUT. Good afternoon. The 
hearing will come to order. Today, we hold our third hearing 
this Congress on physician reimbursements under Medicare. 
During our first hearing, experts from the government 
Accountability Office (GAO) and the Medicare Payment Advisory 
Commission (MedPAC) and representatives from providers and 
consumer goods identified problems with the formula used to set 
payment updates for physicians and other providers paid under 
Medicare's physician fee schedule. Experts in our second 
hearing testified about steps that we could take to encourage 
delivery of high-quality care and use our resources more 
efficiently and effectively. Today, we will hear about progress 
that has been made since our last hearing on this subject in 
March. I am pleased to report that the Centers for Medicare and 
Medicaid Services (CMS) and physician organizations have made 
remarkable progress, which lays the groundwork for legislation 
on value-based purchasing.
    Last week Chairman Thomas and I wrote to Dr. McClellan, the 
CMS administrator here today with us, to ask consideration of 
administrative changes to the physician payment formula. 
Specifically, we asked CMS to remove prescription drugs to 
account for the cost of new and expanded benefits from 
calculating payment updates. I look forward to Dr. McClellan's 
response to our letter because I firmly believe that, together, 
we can address the problems in the Sustainable Growth Rate 
(SGR) formula. Frankly, if we don't, I believe that we cannot 
move down the direction that we all believe is productive; that 
is, a direction that ends up paying for quality.
    In May, the Ambulatory Care Quality Alliance identified a 
starter set of quality and efficiency measures for ambulatory 
care. This is a critically important first step in developing a 
value-based purchasing system. The starter set includes 26 
measures of care, ranging from prevention measures for cancer 
screening to chronic condition measures for diabetes, to 
efficiency measures for overuse of antibiotics in children with 
upper respiratory infections. While it is a good first step for 
physicians providing primary care in an ambulatory setting, 
more needs to be done.
    I am encouraged by the collaborative effort of the American 
Medical Association (AMA), the American College of Physicians, 
American Academy of Physicians, America's Health Insurance 
Plans, the National Quality Forum, the Alliance for Specialty 
Medicine, the National Committee for Quality Assurance, and the 
many other physician specialty organizations and others who 
have devoted time and effort to identifying quality and 
efficiency measures relevant to the care they provide to 
patients.
    While we are not yet ready to collect information on 
quality and efficiency for all physicians, or to pay based on 
the reportings or values of those measures, we are much closer 
than we were only a few months ago. It is an enormous tribute 
to all the groups I mentioned, all the many involved, and to 
Dr. McClellan's leadership, that we are all thinking so 
seriously and deeply about this challenge that faces us. It is 
time we change the way we pay physicians.
    I repeat my call to scrap the SGR formula because it is not 
only unsustainable, it is irrelevant. Congress should implement 
a stable annual update based on changes in the cost of 
providing care. At the same time, we should encourage the use 
of evidence-based principles to improve health care quality and 
safety and promote the efficient delivery of care. We should no 
longer pay providers the same regardless of the quality of care 
they provide.
    Finally, we should require CMS to prepare an annual 
analysis of the growth in the volume of each of the services 
paid under the physician service system and provide 
recommendations for actions to control appropriate growth. I 
maintain that the SGR system limits our ability and discourages 
us from looking at sources of growth and judging what is 
appropriate and what is inappropriate growth. In the real world 
that faces us, we are going to have to make those judgments 
more accurately, and we are going to have to be able to 
understand where we need volume increases in the physician 
performance areas in order to save costs in the hospital area.
    A new value-based purchasing program should include 
differential payment based on the quality and efficiency of 
care provided. Measures should be evidence-based, consistent, 
valid and not overly burdensome to collect; relevant to 
providers, consumers and purchasers; provide a balanced measure 
of performance; and include measures of resource use. The 
system must guarantee fairness by taking into account a 
patient's health status and willingness to comply with 
physician orders. It should not directly or indirectly 
encourage patient selection or deselection.
    Finally, it is critical that physicians play an integral 
role in the development of the clinical care measures. 
Physician specialty organizations should identify clinical care 
measures for consideration by consensus-building organizations, 
which includes representatives from physicians--and I would say 
practicing physicians--patients, physician organizations, CMS, 
and experts in quality and efficiency. The CMS should be 
required to select clinical care measures from among these 
recommended by the consensus group. The CMS should also retain 
authority to identify nonclinical care measures through 
rulemaking. Our witnesses will expand on these and other 
issues.
    On our first panel we have Dr. Mark McClellan, the CMS 
administrator. Dr. McClellan will provide us with details about 
CMS's efforts to fix the physicians' payment update for 2006 
and his plans for incorporating value-based purchasing for 
physician services into Medicare. Our second panel includes Dr. 
Hedberg from the American College of Physicians and Dr. 
Armstrong from the AMA, who will describe the extensive work 
that these organizations have undertaken in this area. In his 
written testimony, our third witness, Dr. Kassirer, will 
identify perverse financial incentives in medicine and outline 
the negative consequences that result. I have been informed 
that, due to short time available for the preparation of his 
written testimony, he was unable to include his recommendations 
for changes to address his concerns. I hope that during his 
oral presentation and questioning thereafter we will have a 
chance to hear his recommendations. Dr. Stark--I mean Mr. 
Stark, would you like to make--I am free and easy with these 
degrees.
    Mr. STARK. I will take the increase in pay, thank you very 
much. Madam Chair, this is the third hearing we have had in 6 
months on physician payments under Medicare. While we have not 
been able to look at your bill--and nor, as I understand it, 
has the Administration had a chance, except to read it and then 
not have it--it is very difficult for us to ask the right 
questions and make the right statements because we haven't been 
able to study your bill, which I understand is going to be 
introduced next week, and that will give us no opportunity to 
ask reasonable questions today and have decent input. That is 
generally the way the current leadership in the House has been 
working; and we, once again, have been precluded from 
participating in this important topic.
    I think the public's interest would be well served if we 
spent some time, however, on other issues, such as conducting 
oversight on the confusing Medicare prescription drug benefit. 
All the hoopla about wanting Democrats to help promote this new 
law--the word came out this morning that Secretary Leavitt and 
his merry band are in Chicago right now, and the Chicago 
Congresspeople were just notified this morning. So, it begs the 
question whether this is a legitimate effort to inform 
constituents or a political campaign to sell propaganda to 
hand-picked crowds. As for today's hearing, I know that pay-
for-performance or value-base purchasing--or whatever the 
current buzzword is--it is the current hot topic. However, I 
think that we have to consider all aspects of the system to 
fully understand the perverse incentives that exist today and 
how, or even whether, they will be affected by the proposed 
changes in payment policy once we get to look at them.
    As for the topic of physician fees, we can't afford to 
consider the update problem in isolation. For example, even 
though per-service fees will be reduced under the current law, 
data shows that the overall physician spending on a per-
beneficiary level will increase because of the greater volume 
and intensity. I am not saying that successive years of 
negative 5 percent updates are desirable, but the picture is 
not as clear as some would have us believe, that doctors are 
getting more pay per year and that the piecework rate is going 
down. Maybe they are just doing things better and more quickly. 
So, we need to pay physicians appropriately to maintain access. 
I have no problem with physicians making a decent living, even 
from Medicare, but the evidence on physician income suggests 
that, although Medicaid reimbursements may be low in some 
areas, physician incomes continue to rise. The only exception 
is probably among general practitioners and primary care 
providers, and I think we all feel somewhat sympathetic to 
their overwork and underpay.
    The current focus on pay-for-performance masks these 
underlying problems. Value-based purchasing, whatever that is, 
is not a replacement for SGR. Even if there is some potential 
for these mechanisms to affect physician practice and 
ultimately decrease inappropriate volume, this won't occur for 
decades, and we need a way to control the total cost of 
physician services today. Past experience with Medicare 
demonstrates that volume goes up regardless of whether payments 
are increased or decreased. While some of this increase may 
very well be appropriate--for instance, more preventative 
care--data shows time and time again that some is clearly not 
appropriate. Perhaps it is time to delve more deeply into the 
underlying payment issues in Medicare with the help of CMS and 
MedPAC to ensure that we pay appropriately for appropriate 
care. This is a much less sexy issue, but it is much more real 
and complex.
    There are two more critically important items that ought to 
be on the table for discussion. Raising physician fees will 
raise copayments for beneficiaries. Given the record-high 
premium increases this year and the addition of the part D 
premiums next year, it seems we should be able to agree that if 
new money is spent--and I would still argue that this should be 
budget neutral--budget premiums would be protected--I hope you 
can agree with me on that--because the beneficiaries will soon 
use up all their Social Security just to pay their Medicare 
premium. Second, increasing physician fees exacerbates the 
problem we will face as a result of the so-called 45 percent 
trigger. This hidden sword of Damocles is designed to destroy 
Medicare's entitlement status. Soon we will be chasing our 
tails over how to clamp down on Medicare general revenue 
support generated in part by this exercise of the trigger. I 
hope that we can have an honest conversation about repealing 
the nonsensical trigger provision sooner rather than later.
    I understand what we are doing today is an important issue, 
but I want to make sure that we have the right pieces in place 
to ensure volume control before we throw SGR in the trash. I 
want to protect the beneficiaries from premium increases that 
could arise from this proposal. I look forward to eventually 
seeing the bill, if only in the Congressional record, so that 
we could have an open discussion of how it might be perfected.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Stark. I 
would remind you that your staff did read the bill, and I think 
I personally gave it to you last week.
    Mr. STARK. No, we have never had a copy. The staff was not 
allowed to take the bill with them. The same is true of the 
Administration; they could read it.
    Chairman JOHNSON OF CONNECTICUT. Dr. McClellan.

STATEMENT OF THE HONORABLE MARK MCCLELLAN, M.D., ADMINISTRATOR, 
           CENTERS FOR MEDICARE AND MEDICAID SERVICES

    Dr. MCCLELLAN. Thank you, Madam Chairman, Congressman 
Stark, all of the distinguished Subcommittee Members. It is a 
real pleasure to testify with you on value-based purchasing for 
physicians under Medicare. Paying physicians effectively is one 
of the most important issues that we face in the Medicare 
Program, and I am pleased that we are all working on it 
together. At a time when we are bringing Medicare's benefits up 
to date, when we have more opportunities than ever to provide 
up-to-date care to seniors and people with disabilities to help 
them live longer and better lives, we need to support the 
participation and leadership of physicians through our payments 
that take advantage of all these unique opportunities.
    We need to ensure that physicians are adequately 
compensated in Medicare. Medicare's payment system for 
physicians should support and enable physicians to provide 
quality care and prevent avoidable health care costs. 
Physicians are in the best position to know what can work best 
and 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.
    The current system of paying physicians is simply not 
sustainable, as you all noted in your opening statements. Just 
as 7 years of projected negative updates in physician payments 
are not sustainable, neither is simply adding larger updates to 
the current payment system. The current system has resulted in 
large increases in volume and intensity of services. Some of 
the resulting expenditure growth reflects valuable improvements 
in access to innovative medical care, but, as Congressman Stark 
noted, some of it involves tests and visits and imaging 
procedures that do not reflect clear medical evidence and that 
vary widely across medical practices, with no clear 
relationship to quality of care and outcomes. Despite all the 
spending growth, physicians often are not getting the support 
they need to prevent complications and help beneficiaries stay 
well. CMS is committed to continuing to work with Congress and 
the medical community to remedy this situation as soon as 
possible.
    One option recommended to CMS to deal with the physician 
update issue would be to remove part B drugs from the services 
included in the physician update formula. We are working hard 
on this issue. Removing drugs, though, presents some difficult 
legal issues that we haven't yet been able to fully resolve, 
but, more importantly, it wouldn't solve the entire problem. It 
should be noted that if we were able to work with physicians to 
improve care, avoid duplicative services, and prevent 
complications just enough to reduce the rate of growth in 
Medicare spending over 5 years by about 1 percentage point, we 
would save enough to pay for a physician update of 1.5 percent 
in all of those years.
    Implementing quality measurement and payment systems could 
reduce the rate of growth, but, more importantly, these steps 
would also provide better support to physicians to improve 
quality and avoid unnecessary medical costs for patients and 
taxpayers. So, I know we can do better. For example, a 
physician who calls or e-mails a diabetic patient to help them 
promptly change their insulin doses to keep their blood sugar 
under control gets no financial support from Medicare, which 
will pay a lot more if the physician requires the patient to 
come all the way into the office, even though this approach 
uses more resources and may lead to worse sugar control. We pay 
oncologists much more to give patients with metastatic cancer 
additional chemotherapy drugs, whose use is not guided by 
evidence-based practice guidance, than we pay to help the 
patient and their family understand their prognosis and achieve 
more comfort and a better quality of life, something, again, 
that the oncologist is in the best position to do. As another 
example, 21 percent of our beneficiaries who are hospitalized 
with heart failure are readmitted within 30 days. Studies show 
that about half of these readmissions are preventable, yet 
Medicare pays much less when physicians take steps to prevent 
readmissions.
    There are too many examples like these where we pay more 
when patients have higher costs and worse results. That is 
because Medicare's current physician payment rates for service 
are the same regardless of its quality, its impact on improving 
a patient's health, or its impact on keeping the overall cost 
of health care down. It is time to provide better support to 
physicians. Linking a portion of Medicare's payments to 
clinically valid measures of quality and an effective use of 
health care resources would give physicians more financial 
support to take steps that actually result in improvements in 
the value of care that people with Medicare receive. Madam 
Chairman, I appreciate your leadership on this critical issue.
    In the fiscal year 2006 budget, the President recognized 
the need for payment reforms to improve the value of care 
delivered to people with Medicare by building on current 
Administration efforts to pay for better quality. The MedPAC 
has also made many recommendations to implement measures of 
quality and efficiency and to pay for value, and I think it is 
critically important that physician organizations are helping 
to lead the way. The AMA has supported the development of 
quality measures in many specialties, and I particularly want 
to thank Dr. Armstrong and his colleagues for their time and 
expertise and collaboration with CMS and other Federal agencies 
in these efforts.
    A number of specialty societies, including the American 
Academy of Physicians, the American College of Physicians and 
the Society of Thoracic Surgeons, have helped lead the way in 
developing clinical quality measures when they proposed 
specific ways to use them to support better care. Using these 
quality measures, CMS is now conducting a number of 
demonstrations and pilots of payment reforms to pay more for 
better quality, better patient satisfaction and lower overall 
health care cost in the Medicare fee-for-service program. These 
reforms also reflect the experience of private sector payers 
and health plans that have already implemented the same kind of 
programs. The CMS has implemented a demonstration project to 
test pay-for-performance in our fee-for-service payment system 
for physicians. In our physician group practice demonstration, 
10 large multi-specialty physician group practices will 
continue to be paid on a fee-for-service basis, but they may 
also get performance-based payments for improving the quality 
of care and, at the same time, reducing the growth in overall 
Medicare spending for their patients.
    We are seeing, as a result, investments in effective health 
information technology systems, in patient reminders, in 
medication assistance, in all the steps that help physicians 
deliver better care but until now Medicare didn't support 
financially. The experience in the private sector is even more 
extensive. The Leapfrog Compendium on Pay-For-Performance 
includes more than a hundred projects related to physicians. 
For example, the Bridges to Excellence program, a not-for-
profit organization of employers, providers and plans, has 
three programs to promote and reward improvements in the 
quality of care for patients, physicians' offices, diabetes 
care, and cardiac care.
    The results of these and many more physician-led 
initiatives lay a solid foundation for reforming Medicare 
payments to improve quality and avoid unnecessary costs. In 
fact, Medicare will shortly implement a pilot program for small 
physician practices that is based on the Bridges to Excellence 
program called our Medicare Care Management Performance 
Demonstration to improve quality and reduce costs and to 
provide support for implementing effective information 
technology systems. Madam Chairman, it has taken a lot of 
collaborative work to get to the point where we can now see the 
way to a better payment system, to a better alternative, to 
rapid and costly increases in volume of services on the one 
hand and the continuing threats of lower payment rates even for 
high-quality care on the other. It will take more work together 
to make the transition to a better payment system, that, as you 
said, it is time to do.
    We look forward to working with you and others in Congress 
and the medical community to develop a system that ensures 
appropriate payments for physicians while also promoting the 
highest quality of care without increasing overall Medicare 
costs. The rapid recent increases in spending make these 
collaborative efforts even more urgent. We need to increase our 
emphasis on helping physicians improve quality and avoid 
unnecessary costs by changing the current physician payment 
system. Thank you very much for this opportunity, and I would 
be pleased to answer any of your questions.
    [The prepared statement of Dr. McClellan follows:]
Statement of The Honorable Mark McClellan, M.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. As you know, the 
Centers for Medicare & Medicaid Services (CMS) is actively engaged with 
both the Congress and physician community on this important topic. 
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.
    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 the 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. At the same time, however, we are concerned and are closely 
monitoring the current volume-based payment system for physicians' 
services, which projects seven years of negative updates in physician 
payments. Simply adding larger updates into the current payment system 
would be extremely expensive from a financing standpoint, and would not 
promote better quality care. Under this system, there are significant 
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. CMS is committed 
to working with Congress and the medical community to remedy this 
situation by developing reporting and payment systems that enable us to 
support and reward quality.
    CMS is engaged with a number of stakeholders to address this 
situation. For example, MedPAC has made many recommendations to improve 
the payment system. In addition, a number of specialty societies, 
including the American College of Physicians, American Academy of 
Family Physicians, and the Society of Thoracic Surgeons, are in the 
vanguard of leading change. In addition, like many private-sector 
health care payers and plans, CMS also is conducting a number of 
demonstrations and piloting various payment reforms to reward providers 
for better quality, better patient satisfaction, and lower overall 
health care costs in the Medicare fee-for-service program.
    Madam Chairman, in terms of physician payment, the best ideas of 
physician organizations, health care experts, the private sector, and 
our own demonstration programs are all pointing to the same conclusion. 
Medicare needs to move away from a system that pays simply for more 
services, regardless of their quality or impact on patient health, and 
consequently contributes to reductions in the physician update under 
the current payment formulas, to a system that instead encourages and 
rewards efficiency and high quality care for the Medicare program and 
its beneficiaries. As it stands, the physician payment system does not 
always recognize clinically appropriate care. For example, Medicare 
will pay for a duplicate x-ray or blood test right before surgery if a 
hospital does not coordinate care adequately with the physician's 
office. CMS' physician payment system should support, encourage, and 
provide an incentive for physicians to achieve Medicare savings by 
avoiding unnecessary services such as duplicate tests and to use those 
savings in developing improvements to the physician payment system. In 
addition, the physician payment system also may steer patient care 
decisions. Oncologists, for example, are paid less for transitioning a 
terminal patient to palliative care and focusing on quality of life 
issues than for recommending and providing intensive procedures even if 
the side effects of those procedures are significant and the benefits 
negligible. In addition, currently the payment system does not reward 
physicians who actively prevent readmissions for patients with heart 
failure or diabetes.
Physician Payments Based on Statutory Formula
    Updates to Medicare physician payments are made each year based on 
a statutory formula established in section 1848(d) of the Social 
Security Act. The calculation of the Medicare physician fee schedule 
update utilizes a comparison between target spending for Medicare 
physicians' services and actual spending. The update is based on both 
cumulative comparisons of target and actual spending from 1996 to the 
current year, known as the Sustainable Growth Rate (SGR), as well as 
year-to-year changes in target and actual spending. The use of SGR 
targets is intended to control the growth in aggregate Medicare 
expenditures for physicians' services. Target expenditures for each 
year are equal to target expenditures from the previous year increased 
by the SGR, a formula specified in the statute comprising the following 
four factors: (1) the estimated percentage change in fees for 
physicians' services, (2) the estimated change in the average number of 
Medicare fee-for-service beneficiaries, (3) the estimated 10-year 
average annual growth in real gross domestic product (GDP) per capita, 
and (4) the estimated change in expenditures due to changes in law or 
regulations.
    When actual spending exceeds targeted spending, the following 
year's update is modified to bring actual spending back in line with 
the targets. Unfortunately, actual spending has greatly exceeded 
targeted spending, and the formula results in negative updates to 
physician payments to correct this disparity. Recent rapid growth in 
the volume and intensity of physicians' services per beneficiary is 
driving the growth in Medicare physician spending and resulting in the 
negative updates. Presently, we project a negative 4.3 percent update 
to physician payment rates for 2006 and additional negative updates for 
the following six years. The current system eventually corrects the 
discrepancy and under our latest projections results in positive 
updates after 2012. CMS is fully cognizant of the potential 
implications of seven years of negative physician updates, remains 
concerned, and is closely monitoring physicians' participation in the 
Medicare program and beneficiaries access. What is especially 
concerning is that these reductions in the payment rates for services 
will occur at the same time as Medicare physician spending continues to 
go up. Projected increases in the volume and intensity of services for 
2006 would result in increases in total physician revenue from Medicare 
for 2006. In other words, our current payment system has a risk in 
terms of access problems, yet we still are facing sharply rising 
increases in Medicare spending.
    We need to do better. We will continue to work with Congress and 
physician communities. Although we have not yet seen evidence of a 
problem, we are closely monitoring access for people with Medicare. 
Thus, we need to ensure payment for physicians is adequate and 
appropriate. Both the President's Budget and the Congressional Budget 
Resolution presume this will be done in a cost-neutral manner. We have 
worked with Congress and physicians to understand more about why 
physician volume, and thus spending, is going up, and to develop better 
approaches to supporting physicians in providing high quality, up-to-
date care.
Volume and Utilization Drive Medicare's Increasing Physician 
        Expenditures
    Despite an update to payment rates of 1.5 percent during 2004, 
preliminary data indicate that overall expenditures for physicians' 
services during 2004 grew by some 13 percent. Sharp rises in the volume 
(number) and intensity (type) of services provided to people with 
Medicare are the driving factors in increasing Medicare's expenditures. 
Medicare beneficiary growth between 2003 and 2004 and payment 
modifications required under the Medicare Modernization Act (MMA) 
account for only a small fraction of total spending growth.
    Such a large increase in expenditures has significant ramifications 
for future Medicare spending, and thus, updates to physician payments. 
This growth has increased the cost of addressing negative physician 
updates. These increases strain the Federal budget and contribute to 
annual increases in beneficiary premiums. That is why understanding the 
sharp rise in these expenditures in 2004 is very important.
    CMS' preliminary analysis of the 2004 increases in spending for 
physicians' services indicates that major contributors to growth 
included:

      Increased spending for office visits, with a shift toward 
longer and more intensive visits;
      Higher utilization of minor procedures such as therapy 
services;
      Increased number of patients receiving more complex and 
more frequent imaging services, with notable increases in MRI scans;
      Increased use of laboratory and other tests; and
      Greater utilization of currently covered drugs 
administered in physicians' offices.

    CMS has taken collaborative steps to better understand these 
concerning trends, including what changes in utilization are likely to 
be associated with important health improvements and which have limited 
or questionable health benefits. We have been reviewing the technical 
aspects of this situation in detail with health policy experts as well 
as the AMA and various specialty societies. For example, the AMA has 
provided us with some potential reasons accounting for growth. While it 
was not possible with available data to precisely analyze the impacts 
of every factor identified, we were able to assess the impacts of most 
of them. Generally, our results indicate that while the factors the AMA 
identified have contributed to higher spending, our preliminary 
analysis suggests that these identifiable factors do not account for a 
substantial part of the $10 billion spending growth between 2003 and 
2004.
    In a number of cases, although the rate of spending growth for a 
particular service may be above average, it is not significantly 
different than the growth in spending for other, similar procedures 
where no special clinical developments have yet been identified. For 
example, the AMA suggested several reasons for a particular increase in 
the use of echocardiography. However, we compared the growth in these 
services from 2003 to 2004 with the growth in all imaging services, and 
found the increases to be the same for both groups (19 percent). 
Therefore, although the increase in 2004 is large, by itself, the 
increase in echocardiography services does not account for a 
disproportionate percentage of the increase in imaging services 
overall.
    For several other services where clinical factors suggested growth 
might be particularly rapid, we did observe large percentage increases 
from 2003 to 2004, but the dollar impact was relatively minor. An 
example is electrical stimulation for bone healing. Spending rose for 
this service by 35 percent in 2004, but total spending was only $50 
million, although a $13 million increase from 2003. This factor would 
have minimal impact in explaining the overall growth in physician 
spending from 2003 to 2004.
    Of the factors the AMA identified, the one that appears to 
contribute the most to overall spending growth is the drug 
Pegfilgrastim (Neulasta). Spending for this drug in 2004 was $518 
million, up from approximately $253 million in 2003. We have not been 
able to confirm the clinical suggestion that by strengthening the 
immune system of cancer patients, this drug is preventing immune-
related complications so that patients are kept out of the hospital, 
shifting costs from Medicare Part A to Part B, rather than simply 
increasing costs. But we remain interested in supporting the 
development of such ``preventive'' evidence.
    We appreciate the efforts of the AMA and the many specialty 
societies that assisted CMS in identifying these medical trends. They 
have helped further our understanding of the reasons for the growth in 
spending. I am sure that all stakeholders involved in these critical 
payment issues will benefit from an ongoing, evidenced-based dialogue 
regarding these issues, particularly focusing on which changes in 
utilization are likely to be associated with important health 
improvements and which ones have health benefits that may be more 
questionable.
Options to Change the Physician Update
    The cost of avoiding the negative physician update simply by 
increasing the update factor is quite substantial. One option suggested 
by the Medicare Payment Advisory Committee (MedPAC) would legislatively 
eliminate the SGR system in favor of an update that is similar to the 
current Medicare Economic Index (MEI), which measures the weighted 
average price change for various inputs involved with producing 
physicians' services. CMS actuaries have reexamined the cost of an MEI-
based physician update using the recently released mid-session review 
of the budget. These new budget estimates incorporate the recent 
experience of substantial volume growth under the current physician 
payment system. We now estimate the ten-year cost of this approach 
would be $183 billion, an increase of $20 billion from our previous 
assessment of $163 billion under the FY 2006 President's Budget 
Baseline. Earlier this year Congressional Budget Office (CBO) estimated 
the cost would be approximately $155 billion. An MEI-based payment 
update would result in positive updates to physician payments of 
between two and three percent for each of those ten years.
    A second option recommended to CMS would remove prescription drugs 
from the services included in the SGR, either prospectively or 
retrospectively. We are currently reviewing the legal arguments 
regarding whether CMS can take this step under existing authorities, 
and our actuaries have estimated the payment and budget implications of 
such changes. A prospective approach would not provide relief to the 
negative updates projected for 2006 and the succeeding several years. 
While it would eventually help close the gap between the cumulative 
target and actual spending, it would not result in positive updates for 
several years. CMS actuaries estimate this change would cost $36 
billion over ten years using the mid-session baseline.
    Some have suggested a retrospective approach that would remove 
drugs retroactively from the services included in the SGR beginning 
with 1997, the year the SGR was implemented. Some health care trade 
associations have asked CMS to make this change administratively, as 
have members of this Subcommittee, most recently Chairman Johnson and 
Chairman Thomas. However, retrospective removal presents somewhat more 
difficult issues of statutory authority than prospective removal. For 
example, the statute requires the estimated SGR be refined twice based 
on actual data. The crux of the issue is that after the SGR has been 
refined twice, the statute does not provide for additional revisions, 
which would be required for at least some prior years should drugs be 
removed from the system retroactively. In terms of budget impact, we 
estimate that this approach would cost $111 billion under the Mid-
Session Baseline. Moreover, even if the authority existed to remove 
drugs from the SGR retroactively, positive updates may not occur for 
physicians in 2006 or the succeeding few years. This is a notable 
change from estimates using the FY 2006 President's Budget Baseline 
where the preliminary estimate of the 2006 update would have been 
positive. The change from a positive to negative update for 2006 is due 
to higher actual physician spending for 2004 and revisions made to the 
2003 data. In addition, prospective or retrospective removal of drugs 
would increase beneficiary premiums. And because Part B drugs use shows 
substantial variation across physician practices, payment reforms that 
provide more support for higher-quality care would probably not ignore 
drug use, but rather consider how drugs (and other important 
treatments) are used to lead to better patient outcomes at a lower 
cost.
    It has also been suggested that the SGR be revised to account for 
National Coverage Determinations (NCDs). The theory is that the 
spending for NCDs shows up on the expenditure side but the SGR target 
is not adjusted for them. While coverage of new medical technologies as 
reflected in NCDs would seem to lead to changes in spending beyond 
physician control, there has been substantial discussion of this theory 
in recent years. Much of spending for NCDs is for services covered 
before the NCD by local carrier discretion. Thus, an NCD does not 
necessarily increase spending to the extent the local carrier covered 
the service without an NCD. In many cases, an NCD might simply replace 
differing local carrier policies with a uniform national policy. In 
some instances an NCD might limit expenditures if the NCD has narrower 
criteria than applied previously by local carriers. The use of the real 
GDP per capita in the SGR formula was intended to be a proxy for a 
number of factors that might increase the volume and intensity of 
physicians' services (other than beneficiary enrollment growth and 
statutory or regulatory changes), including coverage of new services 
and other factors, whether within an NCD or otherwise. In addition, the 
NCD impacts are generally small and unlikely to change the physician 
update significantly. Also, we currently are reviewing the legal 
arguments on whether CMS can take this step under existing authorities. 
Nonetheless, CMS will continue to evaluate the evidence related to NCDs 
and how they are accounted for in physician payments.
    CMS will be issuing the proposed physician payment rule for 2006 
soon and we welcome comments on these issues and other issues that 
might affect the physician payment calculations.
Incorporating Performance Based Payments into Medicare
    Medicare's current physician payment system pays all physicians 
equally for a service regardless of its quality, its impact on 
patient's health, or the efficiency with which services are furnished. 
Consequently, the current system does not reward physicians when they 
improve the quality of care, for example, by preventing acute health 
problems that require expensive hospital admissions or other 
complications that lead to a greater volume and intensity of services. 
Many analysts have argued that this may be an explanation for why there 
are substantial variations across geographic areas and among physicians 
within areas in the use of services that do not appear to be explained 
by quality of care or differences in patients treated. That is, the 
current system often has the effect of directing more resources to care 
that is not of the highest quality, such as duplicative tests and 
services and hospital admissions to treat potentially avoidable 
complications. Conversely, physicians who want to improve quality of 
care find that Medicare's payment systems often do not provide them 
with the resources or flexibility needed to do so. As a result, 
physicians may be discouraged from investing in activities that, 
properly implemented, have the potential to improve quality and avoid 
unnecessary medical costs. Linking a portion of Medicare payments to 
valid measures of quality and effective use of resources would give 
physicians more direct incentives to implement the innovative ideas and 
approaches that actually result in improvements in the value of care 
that people with Medicare receive. We would evaluate the program to 
assess any savings that might result.
    In the FY 2006 budget, the President recognized the potential for 
payment reforms to improve the value of care delivered to people with 
Medicare by exploring programs that promote quality in a budget-neutral 
manner. In its March 2005 Report to Congress, MedPAC offered several 
recommendations including the development of measures related to the 
quality and efficiency of care by individual physicians and physician 
groups. I would like to note that the American College of Physicians is 
supporting linking physician payment and performance.
    CMS is already engaged with the physician community in the 
development and improvement of specific quality measures. CMS has 
worked in collaboration with the American Medical Association's 
Physician Consortium for Performance Improvement and the National 
Committee for Quality Assurance Ambulatory care to develop measures of 
improvement in care. This partnership resulted in a set of proposed 
measures that were submitted late last year for endorsement to the 
National Quality Forum, a voluntary private consensus setting 
organization. As part of the Ambulatory Care Quality Alliance (AQA), 
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 American Medical Association and other physician groups, as well as 
representatives of private sector purchasers and consumers, selected a 
subset of these measures (26) as a starter set for implementation. 
Additional measures that assess dimensions of specialty care and 
efficiency will be added to this starter set. In addition, the AQA is 
now developing approaches for reporting results to individual patients 
and physicians and evaluating strategies to minimize physicians' burden 
of reporting.
    The entire starter set of ambulatory care measures are now in the 
final stages of endorsement. These measures are designed to reflect 
performance in primary care and also apply to certain specialists, 
insofar as those specialists are involved in the furnishing of care to 
patients with common chronic diseases, including diabetes and heart 
disease. In addition, measures of effectiveness and safety of some 
surgical care have been developed through collaborative programs like 
the Surgical Care Improvement Program, which includes the American 
College of Surgeons. The goal of the Surgical Care Improvement Program 
is to prevent or decrease surgical complications, in an effort to 
improve outcomes, and decrease hospital days and unnecessary use of 
resources. We are also collaborating with many specialty societies, 
such as the Society of Thoracic Surgeons, to develop quality measures 
that reflect important aspects of the care of specialists and sub-
specialists. For example, we are working closely with oncologists to 
develop measures of the adequacy of treatment planning and follow-up 
that oncologists furnish as part of their evaluation and management 
services; with cardiologists on measures of cardiac care for heart 
attack or heart failure conditions; and with cardiovascular surgeons on 
measures related to cardiac surgery. As part of this effort, on July 
14, 2005, I sent a letter to a number of specialty societies, 
summarizing some of the work to date and requesting an update on their 
efforts to develop quality and performance measures. Historically, CMS 
has had productive exchanges with most medical specialty organizations, 
and if an organization has not entered discussions with us, I would 
encourage them to initiate a dialogue with us as soon as possible so we 
can work together to develop clinically valid measures and obtain our 
goal of improving the care we provide the Medicare beneficiaries.
    We also are preparing to implement the MedPAC recommendation to use 
Medicare claims data to measure fee-for-service physicians' resource 
use and to share these results with physicians confidentially to 
educate them about how they compare with aggregated peer performance. 
We are using existing claims data to simulate and test the measurement 
and quantification of individual physician patterns of practice, 
incorporating both services they order (including facility services) as 
well as services they furnish. Resource use is often measured for 
episodes of care and periods of time (e.g., 3 months). The most widely 
used measure is total expenditures per episode or period of time. Other 
measures of resource use are possible, such as examining the percent of 
a physician's patients who have a particular service ordered. This can 
indicate potential variations in practice that may affect costs 
significantly without evidence-based benefits for patients. For 
example, MRI scans may be ordered for patients with non-specific lower 
back pain, a condition that often does not warrant the test. By 
comparing relative use of such a service among physicians, a data-
driven foundation for identifying opportunities to avoid some medical 
costs without harming patients may be developed. As a next step, we 
expect to begin pilot projects to share the results with physicians 
confidentially to educate them about how they compare to peers in an 
effort to decrease the use of unnecessary services.
    We also have implemented a number of demonstration projects 
including one to test pay-for-performance in Medicare's fee-for-service 
payment system for physicians. The Physician Group Practice 
demonstration is assessing large physician groups' ability to improve 
care that could result in better patient outcomes and efficiencies. Ten 
large (200+ physicians), multi-specialty physician groups in various 
communities across the nation are participating in the demonstration. 
These physician groups will continue to be paid on a fee-for-service 
basis, but they may earn performance-based payments for implementing 
care management strategies that anticipate patients' needs, prevent 
chronic disease complications, avoid hospitalizations, and improve the 
quality of care. The performance payment will be derived from savings 
achieved by the physician group and paid out in part based on the 
quality results, which CMS will assess. Providing performance-based 
payments to physicians has great potential to improve beneficiary care 
and ensure fair and appropriate payment in the Medicare program.
    In addition, CMS will implement the Medicare Health Care Quality 
Demonstration. This demonstration program, which was mandated by the 
MMA, is a five-year program designed to reduce the variation in 
utilization of heath care services by encouraging the use of evidence-
based care and best practice guidelines. CMS also is implementing the 
Medicare Care Management Performance Demonstration, a 3-year pay-for-
performance pilot with small and medium sized physician practices that 
will promote the adoption and use of effective health information 
technology, i.e., health IT that actually achieves improvements in the 
quality of care and reductions in preventable costs for chronically ill 
Medicare beneficiaries. This demonstration will provide performance 
payments for physicians who meet or exceed performance standards in 
clinical delivery systems and patient outcomes, and will reflect the 
special circumstances of smaller practices. This demonstration project 
will give CMS the opportunity to provide technical assistance to small 
providers in adopting clinical information technology to improve 
quality and avoid costs, as CMS has already been working to do in 
limited pilots. This demonstration, required by the MMA, currently is 
under development and will be implemented in Arkansas, California, 
Massachusetts, and Utah. We are supporting an evaluation of this 
demonstration with AHRQ and insights from health IT implementation that 
produce improvements in quality and efficiency will be shared broadly 
through AHRQ's National Resource Center.
Quality Improvement Organizations Assist Physicians' Offices
    We recognize that taking advantage of performance-based payment 
reforms may be more difficult for small providers, rural providers, and 
providers in underserved areas. Consequently, CMS also has been 
enhancing its activities to give such providers technical assistance 
with proven systems improvements and quality improvement initiatives. 
Beginning August 1 of this year, under our new three-year contract with 
the QIOs, the QIOs will begin offering assistance to physicians' 
offices who are seeking to achieve substantial improvements in care 
through the adoption of health information technology, patient-focused 
care processes, and clinical measures reporting. In each state, QIOs 
will use the tools and methods developed in the Doctors Office 
Quality--Information Technology (DOQ-IT) two-year pilot project to help 
primary care physicians make changes to improve performance. This 
initiative is part of CMS's overall commitment to supporting physicians 
and other providers who are committing to success in our developing 
programs of public reporting and pay-for-performance.
    Over the past year, the CMS California QIO, Lumetra, has been 
piloting CMS DOQ-IT assistance efforts for over 500 physicians and 
their offices in California. Many of these physicians' offices are 
small offices with one or two physicians and are located in rural or 
underserved areas of California. Lumetra staff and consultants provide 
consultation and technical assistance for these offices, supporting the 
clinical process changes resulting from the incorporation of health 
information technology in their offices, which in turn will allow them 
to utilize electronic health records, electronic prescribing, decision 
support and clinical practice guidelines relevant to their patient 
population, and electronic billing and communications. In addition, QIO 
staff will assist these offices in implementing office redesign to 
enhance patient management, and increase office efficiency. All of 
these efforts are designed to result in enhanced patient safety and 
better quality of care. Our goal is to help support such effective 
physician office enhancements becoming standard to all medical 
practices in the coming years and CMS QIO efforts will help make sure 
that all physicians' offices can accomplish these enhancements.
    The QIOs also have implemented quality improvement projects that 
lead to better care in rural and underserved areas. For example, Qualis 
Health, the CMS Alaska QIO, has worked with the almost exclusively 
rural Alaska providers to increase the rates of preventive services 
available to rural Alaska residents. Mountain Pacific QIO, the CMS QIO 
in Hawaii, is working to implement telehealth services to bring care 
not otherwise available to rural Hawaiian beneficiaries.
    Another example of QIO assistance to small physician offices is 
their assistive role in CMS's release of the VISTA-Office Electronic 
Health Record Software planned for August 1, 2005. CMS staff has been 
working with the Department of Veteran's Affairs' (VA) staff to develop 
an inexpensive and interoperable software package that will allow 
implementation of a basic electronic health record (EHR) in physician 
offices. A simplified version of the EHR used in VA Hospitals & Clinics 
will be stand-alone and allow an in-office EHR that contains 
computerized medical records, a medication formulary with refill and 
drug-drug interaction notifications, a reminder system for preventive 
services and diagnostic tests, and the potential to communicate 
electronically with other systems in the future. It uses the VA product 
base which is in the public domain and therefore affordable to small 
practices taking care of rural and underserved populations. It also is 
scalable and allows major software developers to devise add-on 
enhancements. The QIOs will be instrumental in explaining and 
facilitating the use of this product.
Medicare's Hospital Performance Based Payments Have an Impact
    The experience with the MMA provision--paying hospitals an update 
that is 0.4 percentage points higher if they report data on ten 
measures of quality--suggests that relatively small payment incentives 
can have a significant impact on provider behavior. Virtually all 
hospitals are submitting the required data. There is an increasing 
belief that linking a portion of Medicare payments to valid measures of 
quality would support better health care. Any potential approaches to 
dealing with the physician update would provide a perfect opportunity 
for such linkage.
    Evidence exists that some hospital admissions are preventable. 
Heart failure patients have a readmission rate of 21 percent over 30 
days, yet research shows that about half of the readmissions are 
preventable. For example, providing angiotensin-converting enzyme 
inhibitor (ACEI) drugs to heart failure patients is an example of high 
quality care, yet ACEI prescriptions are found in only 66 percent of 
audited patient records. Giving beta-blocker drugs to patients with 
acute myocardial infarction (AMI) can reduce rehospitalizations by 22 
percent, but only 21 percent of eligible AMI patients receive a 
prescription for a beta-blocker. Pneumonia is a very common cause of 
hospital admissions for Medicare beneficiaries, but many of these cases 
could be prevented through pneumococcal and influenza vaccinations. 
Studies have shown that proper adherence to vaccination protocols can 
reduce hospitalizations for pneumonia and for influenza by about half, 
with reduced diseases, mortality, and savings for the Medicare Program.
    If physicians are supported in their efforts to better manage 
patient care, preventable and costly hospitalizations, readmissions and 
admissions for complications may be avoided. CMS' physician payment 
system should support, encourage, and provide an incentive for 
physicians to avoid unnecessary services such as preventable 
admissions.
    The Premier Hospital Quality Incentive Demonstration is a 
demonstration project to test if providing financial incentives to 
hospitals that demonstrate high quality performance in a number of 
areas of acute inpatient care will improve patient outcomes and reduce 
overall costs for Medicare. We believe that creating incentives to 
promote the use of best practices and highest quality of care will 
stimulate quality improvement in clinical practice. Under the Premier 
demonstration, a hospital can receive bonuses in its Medicare payments 
based on how well it meets the quality measures. Poorly performing 
hospitals will face financial penalties in the third year.
    Preliminary analysis of the demonstration has shown that quality of 
care has improved significantly in hospitals participating. The 
demonstration tracks hospital performance on a set of 34 widely-
accepted measures of processes and outcomes of care for five common 
clinical conditions. The 17 measures included in Medicare's national 
hospital quality reporting program are a subset of these measures. The 
preliminary analysis shows improvement in all five clinical areas being 
tracked in the three-year demonstration. The analysis of first-year 
performance found median quality scores for hospitals improved:

      From 90 percent to 93 percent for patients with acute 
myocardial infarction (heart attack).
      From 86 percent to 90 percent for patients with coronary 
artery bypass graft.
      From 64 percent to 76 percent for patients with heart 
failure.
      From 85 percent to 91 percent for patients with hip and 
knee replacement.
      From 70 percent to 80 percent for patients with 
pneumonia.

    Overall, these conditions account for a substantial portion of 
Medicare costs. If we achieve improvements in aspects of care that are 
proven to help patients avoid complications, patients are less likely 
to require more costly follow-up care for such conditions, and they are 
more likely to have a better quality of life. As evidenced by the early 
work of some of our demonstration projects, we are seeing meaningful 
results, which are providing a promising foundation to support the most 
effective clinical and financial approaches to achieve better health 
outcomes for Medicare beneficiaries.
Private Sector Initiatives Pave the Way for Improved Quality and 
        Efficiency
    The private sector also has recognized opportunities to improve 
quality and efficiency of care through better measurement of the 
delivery of care in coordination with better reimbursement models. In 
fact, the Leapfrog Compendium on Pay-For-Performance includes more than 
100 projects related to physicians. For example, the Bridges to 
Excellence (BTE) program, a not-for-profit organization of employers, 
providers, and plans, has three programs to promote and reward 
improvements in the quality of patient care for physicians' offices, 
diabetes care, and cardiac care. To date, participating employers have 
paid over $1.65 million in bonus payments to over 800 physicians in the 
four participating markets for exceeding National Committee for Quality 
Assurance performance criteria. Results to date indicate that 
physicians can and do participate and report their performance 
accurately.
    A large health plan in New Hampshire launched a quality improvement 
incentive program in 1998, rewarding primary care physicians for the 
provision of quality care. The metrics for its quality improvement 
incentive program are the Health Plan Employer Data and Information Set 
(HEDIS) measures. The program uses claims and administrative data from 
its disease management program to assess physician practice 
performance. Incentive payments are awarded to practices scoring 
greater than the network average. In 2001, the average physician bonus 
payment was $1,183 and the highest bonus payment was $15,320. In the 
first year, the plan's average rates for mammography, immunization, and 
pediatric exams showed increases. Adult female patients receiving Pap 
smear tests rose from an overall rate of 80 percent in 1999 to 98.5 
percent in 2000 for the top quartile of physician practices. For all 
performance measures for which 1999 baseline data were available, the 
average incentive program physician practice conformity with 
performance measures rose from 51.2 percent to 65.6 percent in 2000.
    In 2003 a large health plan in Massachusetts launched a group 
practice incentive program for groups of specialists. Group practices 
are measured in three categories: patient satisfaction and access, 
quality of care, and cost. Group practices that perform better than 
average on the quality measures earn a bonus that could total up to 
fifteen percent of the regular fees paid to that physician group.
    An Illinois coalition of employers initiated a program in 2000 that 
provides incentives to physicians for monitoring diabetes patients. 
Compensation is awarded to physicians in the program who meet annual 
goals in diabetic treatment thresholds. To gain physician buy-in into 
the program, a committee of physicians developed the performance goals. 
The coalition and medical group administrators negotiated the amount of 
the financial incentives a medical group could receive if they met the 
goals. Results reveal that diabetic care for patients in the program is 
significantly better than state averages and cost trends for diabetics 
are better than trends for all other conditions.
    A Hawaiian medical association launched a voluntary practitioner 
quality and service recognition program. Practitioners who enroll share 
in a multimillion dollar budget earmarked to recognize practitioners 
for adhering to recognized standards of quality and clinical practices 
proven by research to improve clinical outcomes. Each program 
participant receives an award based on his or her scoring in each of 
the program components--quality indicators, patient satisfaction, and 
business operations. Practitioners are measured on a total of 68 
clinical measures. Analysis of data on key clinical quality indicators 
over the six years of the program demonstrates statistically 
significant improved performance.
    In Minnesota a health partner's program recognizing outcomes offers 
annual bonus awards to primary care clinics that achieve superior 
results in effectively promoting health and preventing disease. 
Eligible primary care groups are annually allocated a pool of bonus 
dollars that is awarded if a group reaches specific comprehensive 
performance targets. Since 1997, bonus awards have totaled over $2.5 
million. The impact on quality of care has been substantial. The 
proportion of diabetes patients meeting optimal care standards nearly 
tripled since 1999, and the rates of optimal coronary artery disease 
patients reaching all treatment targets doubled. The rate of members 
receiving all preventive care doubled. Tobacco use assessment at all 
visits increased from 45 percent to 85 percent over four years and more 
patients are routinely provided assistance to quit. Diabetes eye and 
kidney complications rates dropped by nearly 50 percent, and costs are 
trending significantly below costs for all other patients. Tobacco use 
rates dropped ten percent to an all time low. In Minnesota death from 
heart disease dropped to the lowest rate in the nation and continues to 
decline.
    A health care leadership association of health plans, physician 
groups, and health systems in California recently implemented 
coordinated, state-wide pay-for-performance initiatives. Based on a 
comparison of data from the first year (2003) and test year (2002) 
nearly 150,000 more California women received cervical cancer 
screenings, 35,000 more California women received breast cancer 
screenings, 10,000 additional California children received two needed 
immunizations, and 18,000 more Californians received a diabetes test. 
The program paid an estimated $50 million to 215 California physician 
groups in the pay-for-performance program in 2003 (paid out in 2004), 
and an estimated total of $100 million to the same physician groups 
under all of the association's quality programs.
    The American Society of Clinical Oncology's Quality Oncology 
Practice Initiative (QOPI) is an oncologist-led, practice-based quality 
improvement initiative. QOPI's goal is to promote excellence in cancer 
care by helping practices create a culture of self-examination and 
improvement. The process employed for improving cancer care includes 
measurement, feedback, and improvement tools for medical oncology 
practices. Practicing oncologists and quality experts developed the 
QOPI quality measures, which are derived from clinical guidelines or 
published standards, adapted from the National Initiative on Cancer 
Care Quality (NICCQ), or consensus-based and clinically relevant. 
Although the measures not linked to financial reimbursement yet, QOPI 
is an example of a specialty society-driven quality initiative that can 
be easily linked to a pay-for-performance program.
    Results of these and many more physician-led initiatives lay a 
sound foundation for CMS to move forward collaboratively with you and 
with leading physician and health professional organizations with 
performance based payments for physicians in Medicare to improve 
quality and efficiency. These approaches also are aligned with emerging 
requirements from medical specialty boards for maintenance of 
certification. While recertification has traditionally involved 
demonstrating cognitive knowledge only, all boards are moving to link 
maintenance of specialty certification with demonstrated efforts to 
improve clinical care quality and performance. We recognize that 
physicians need to be actively engaged in establishing this new 
direction and will continue close consultation and collaboration to 
assure improved quality and reduced burden for busy practitioners.
Conclusion
    Madam Chairman, thank you again for this opportunity to testify on 
improving how Medicare pays for physicians' services. We look forward 
to working with Congress and the medical community to develop a system 
that ensures appropriate payments for physicians while also promoting 
the highest quality of care, without increasing overall Medicare costs. 
The rapid increases in physician spending in 2004 make these 
collaborative efforts even more urgent: we must assure both access to 
high-quality care and fiscal sustainability. 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. I would be happy to 
answer any of your questions.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you, Dr. McClellan. 
I was interested in the statement in your testimony, which I 
didn't see in your written testimony, that if you reduce one 
physician services use by 1 percent--now is that across the 
definition of physician services under SGR?
    Dr. MCCLELLAN. Well, that is overall Medicare services. In 
our discussions with a lot of the medical groups, they have 
pointed out a lot of steps they could take to help reduce costs 
in other parts of the Medicare program, for example, by 
avoiding hospitalizations, by avoiding expensive surgical 
procedures, and steps like that. So, if we can find ways to 
work with physicians to support them in those activities, we 
can get the overall cost down; that, in turn, can help give 
physicians a more stable payment system.
    Chairman JOHNSON OF CONNECTICUT. It also means that we have 
to be able to see ``savings'' as money saved in part A by 
actions taken in part B.
    Dr. MCCLELLAN. That is right, and that is why understanding 
the connections between steps that physicians can take and the 
impact on overall costs is so important. Congressman Stark 
mentioned that. We have been doing a lot of work to understand 
that better, with help from the AMA and other societies, and I 
think we are in a much better position to move forward in that 
direction.
    Chairman JOHNSON OF CONNECTICUT. One of the problems is 
that many of the things that you need doctors to do--and you 
give a number of examples in your testimony--increases office 
expenses. It means they are seeing people to provide preventive 
drugs. They are seeing people to provide preventive advice and 
so on and so forth. Once they get someone in with an early 
sign, there might be other tests. So, there is a lot of ways in 
which front-loading the care to keep people out of hospitals 
and emergency rooms actually increases services; and under the 
SGR, that decreases physicians pay, does it not?
    Dr. MCCLELLAN. That is correct.
    Chairman JOHNSON OF CONNECTICUT. How can you possibly 
provide incentive payments when 5 percent cuts are going to 
wipe out any incentive payment, certainly even any positive 
payment?
    Dr. MCCLELLAN. I agree that the current system with its 
forecast of 7 years of close to 5 percent payment cuts is just 
not sustainable. At the same time, while many of these services 
that physicians are providing in their offices more frequently 
are going to help patients live longer and better lives, when 
you look at the actual details, some of the services--again, as 
Congressman Stark mentioned--do not appear to be related to new 
medical evidence or new breakthroughs in medical technology. It 
is things like patients seeing specialists four or five times 
in 3 months, rather than just once.
    Chairman JOHNSON OF CONNECTICUT. I appreciate that, but not 
only is the SGR not sustainable, there isn't any way you can 
make any progress on payment-for-performance as long as the SGR 
formula is in place in the law; isn't that true?
    Dr. MCCLELLAN. We would certainly be in better shape under 
a different approach, and that is what we are seeing in some of 
our----
    Chairman JOHNSON OF CONNECTICUT. Wait a minute now. Not 
only would you be in worse shape, you would also have negative 
updates even if you add benefit-for-performance under the 
current formula; isn't that true?
    Dr. MCCLELLAN. That is right. Under the current formula, 
the big increase that we see in utilization creates this 
vicious cycle of automatic reductions and payment cuts, and you 
get into that problem.
    Chairman JOHNSON OF CONNECTICUT. Big increases in 
utilization, as was made very clear in the letter from your 
office to MedPAC, have a number of components to it since we 
pay lots of other people, besides physicians, under this part 
of the law. So, as long as we are responsible for evaluating 
growth of services in those areas and managing that, we are in 
as strong a position under repeal of SGR as we are currently. 
In fact, we may be stronger because you will get a clear 
identification of growth of costs and services in each one of 
those areas, isn't that so? If you structure the loss so that--
--
    Dr. MCCLELLAN. I do. I also think, though, that the 
decisions, as I said in my opening statement, the decisions 
that physicians make matter; and there are lots of things that 
every doctor that I talk to around the country can do. These 
are things that I know from my own medical practice, that if we 
had a system that supported quality care rather than just more 
volume, regardless of its impact on patients' health, could 
help physicians provide more of those services. Those could 
have an impact on reducing all types of other costs, not just 
the costs in their own offices.
    Chairman JOHNSON OF CONNECTICUT. I absolutely agree with 
you, but I don't see how we shift to that system under the 
current law, because the current law will defeat us before we 
even get started. Certainly its plan of defeat is so many years 
that, unless we do something about it, we can't proceed down 
this new path, which will both improve quality and control 
costs. We all agree it will control costs. So, I want to make 
sure that it is clear and understood between us and everyone in 
the room that you cannot do this unless you change current law.
    Dr. MCCLELLAN. That is why we are here today. That is why 
we are working so closely with all the Committees of 
jurisdiction. That is why we are working so closely with the 
medical associations on this very important priority.
    Chairman JOHNSON OF CONNECTICUT. Now, a lot of examples 
have been given to me. If we repeal the law--I suppose this 
would be irrelevant--but the law requires that we adjust SGR 
for law and regulation. Now, there are a lot of program 
memorandums and a lot of national coverage decisions that have 
the effect of increasing the cost under Part B.
    In some of the later testimony, a lot of things are laid 
out effective January 1. This is from the AMA's testimony: The 
following new or expanded Medicare benefits, some of which have 
been mandated by AMA, will be required: the physical 
examination, diabetes screening, cardiovascular screening, 
blood tests--it goes on through quite a long list.
    It is also true that we have had national coverage 
decisions that required that we cover PET scans for 
Alzheimer's. That ailment involves a doctor's office visit, 
carotid artery study, smoking cessation and many other things, 
photodynamic therapy for macular degeneration. It is impossible 
to cover these things without there being an increase in office 
visits. So, those are not excluded from the SGR, and so they 
are also part of what is causing the apparent need to cut 
physician payments. In that 13-percent increase, I think 4.4 
percent is office-based.
    So, what I am getting at is, there are a lot of factors 
here that the current payment system sort of obscures in terms 
of our taking responsibility for controlling them. I think pay-
for-performance will not only enable us to save money and 
improve quality, but it will also enable us to get at the 
causes of some of the growth in Medicare spending. We can't do 
it unless we make changes to the SGR formula, either of 
dramatic dimensions or repealing altogether; and we can't 
repeal it altogether without some pretty serious collaborative 
efforts.
    Dr. MCCLELLAN. Again, we are pleased to collaborate on 
this. I can think of no issue more important than getting this 
right. It is so important for quality and so important for 
access of care and so important for avoiding unnecessary costs 
in the Medicare Program.
    Chairman JOHNSON OF CONNECTICUT. Thank you. I am going to 
yield to Mr. Stark, but I do want to conclude by reminding us 
that, if we don't repeal the current law, we can't proceed down 
this road. Mr. Stark.
    Mr. STARK. Thank you, Madam Chair. Dr. McClellan, let's go 
down this road a minute. Let's pretend for a minute that you 
are Dr. Walsh. You are a urologist. Would you operate on a 
patient's prostate before you took an x-ray?
    Dr. MCCLELLAN. Again, the required medical standards for 
care depend on the specific circumstances, but I would sure 
want to follow the best available evidence, and generally that 
means getting it beforehand.
    Mr. STARK. What I am getting at----
    Dr. MCCLELLAN. Should I start referring to you as Dr. 
Stark?
    [Laughter]
    Mr. STARK. You now have a series, as you have mentioned in 
your testimony, of demonstrations; and it always seems to me 
that, where we are not physicians here, and don't know anything 
about the practice of medicine, that we ought to defer to those 
who do--and neither do anybody on our staffs know anything 
about the practice of medicine.
    You have some demonstrations going on where you have 200 
physicians in 10 large practices, some of the primary ones 
around the country, including the Middlesex Health System in 
Connecticut, and a variety of premier group practices. You have 
another practice--another demonstration that is smaller and 
medium-size physician practices, fee-for-service docs; and you 
have another one that deals with the improvement of care. Don't 
you suspect that we may learn something from those 
demonstrations that would help us craft a better program to be 
used universally?
    Dr. MCCLELLAN. I do. That is the reason for undertaking 
these programs that go across the spectrum of different types 
of physician practices and----
    Mr. STARK. Now we know, also, that although it is not a big 
part of Medicare, what, 20 percent of our Medicare 
beneficiaries are in managed care plus or HMOs or some kind of 
managed care program; is that about right?
    Dr. MCCLELLAN. That is about right, yes, close to 20 
percent.
    Mr. STARK. The MedPAC recommended to us--I don't know if 
they recommended to you, but they recommended to us that any 
program of this type really ought to start with managed care 
plans for a variety of reasons. First, they claim, for the most 
part, that this is what they are doing. The managed care guys 
came to us and said we want a bonus because we do all these 
things as part of our program. Second, they have the data, 
whether the group is valid or not statistically. If you use a 
group of managed care plans--we are paying them right now about 
115 percent of what we would pay fee-for-service docs, why not 
start--if we are going to implement something before your 
demonstrations are finished--and we have to. Yours may take a 
couple of years. Why not start with this group where we can get 
kind of instant response, if you will, from those who say that 
is what they are doing and where we could observe easily and 
not get a lot of push-back from solo practitioners in 
Susanville, California, who say, geez, I am up here 50 miles 
away from anyplace and you are impacting my practice. What 
would be wrong with following MedPAC's idea and starting much 
more quickly with our managed care providers under Medicare?
    Dr. MCCLELLAN. Well, I think we should be focusing on 
improving quality and avoiding unnecessary costs across the 
board; and that goes for Medicare advantage plans, too.
    Mr. STARK. Well, that wasn't my question.
    Dr. MCCLELLAN. Well, that is why we have implemented some 
of the changes already. Just to get to the full answer of your 
question, you are absolutely right, these plans are offering 
additional benefits. People can save about a hundred dollars a 
month now. They are more widely available than ever before as a 
result of the payment reforms. What the payment reforms did was 
put in place a system of competitive bidding. So----
    Mr. STARK. Then why not start with these guys in terms of 
the quality requirements and the study of what they yield?
    Dr. MCCLELLAN. Well, the plans report quality measures now, 
and they also get paid based on their bid. There is not a 
regulated price that Medicare pays each Medicare management----
    Mr. STARK. You require the minimum benefits that they have 
got to provide--we do.
    Dr. MCCLELLAN. Right. We also require----
    Mr. STARK. Why can't we, therefore, require the standards 
that we are discussing today? They more or less say what it is 
they are doing.
    Dr. MCCLELLAN. There certainly is a lot of interest in 
that, and we are absolutely willing to look at it. I am just 
saying the reason that that is a little bit different is 
because there is not a Medicare regulated price there. We pay a 
set amount for every physician service set by statutes that----
    Mr. STARK. Let's deal with quality first and price second. 
Let's just presume that the most important thing for us is 
quality, and we could find out more quickly because we have a 
universe that must respond--regardless, really, of what we pay 
them--to the benefits that we prescribe they must provide. Then 
they can bid among themselves for these base benefits.
    If you want to say that, for a diabetic, certain tests have 
to be done periodically, you could require that of every 
managed care plan. It would be an argument of whether you have 
got to pay them more for that or not, but you could immediately 
get 20 percent of your beneficiaries, our beneficiaries, 
covered. As I said, you have already got plans. You say, if 
that is what they do, let's make them put their practice where 
their mouth is and say, okay, if that is what you do, we are 
going to add that requirement, we are going to study the 
outcome.
    We would be able to get going more quickly with people who 
have submitted to us that that is why they are better, and they 
are submitting that to the patients as well--I mean, to the 
beneficiaries. I do suspect we are going to get push-back, 
unless we pay them a lot, from a lot of sole practitioners. You 
say, let's start with the guys who we have the availability to 
change the way they practice already.
    Dr. MCCLELLAN. I think what you are saying is, why don't 
we--if we know what good care is, why don't we only pay if we 
get the good care?
    Mr. STARK. I am for that.
    Dr. MCCLELLAN. Well, the performance-based payments are a 
step in that direction. It doesn't go all the way that far 
because there may be exceptions; some patients may be 
difficult, or the measures may not be perfect. There are other 
things that we don't measure that we also want to support, but 
the performance-based payments are certainly moving in that 
direction. One hundred percent of the payment is not determined 
by quality, but at least a few percentage points are. I think 
there is strong interest in moving in that direction.
    Chairman JOHNSON OF CONNECTICUT. Let me just add to this 
discussion before I recognize Mr. Hayworth, because I think it 
is terribly relevant to my colleague from California's question 
and didn't come out in the answer. We did change the law in 
regard to the plans in the Medicare Modernization Act (P.L. 
108-173). We actually mandated that they must do disease 
management, and a lot of these quality protocols are associated 
with the management of chronic illnesses.
    Mr. STARK. All I am suggesting, Madam Chair, is, even the 
ones you suggest, we could mandate on the plans, because we are 
dealing with, as I said, a group that has a minimum standard 
that they have to provide.
    Chairman JOHNSON OF CONNECTICUT. First of all, the 
likelihood is that they are not only doing that and a lot more. 
When we developed these standards, we looked at the 29 
standards around which consensus had been built; they are 
pretty minimal, and most of the plans in the private sector are 
well ahead of that. It is hard to hold the fee-for-service 
system accountable in the same way because you don't have the 
offsets that you have in the whole plan. The whole plan can pay 
for it. That is just the one other comment that I would make, 
is that in all your pilots you have a source of cross-subsidy, 
because they are either very big special physician groups or 
they involve plans that also have hospital reimbursement 
responsibilities. So, they can pay for the pay-for-performance 
and come out saving money. That is the problem with the 
individual physician.
    Dr. MCCLELLAN. The Medicare Care Management Demonstration, 
one of the new ones that we are starting soon is for special 
small companies. We are doing it in California----
    Chairman JOHNSON OF CONNECTICUT. We will come back to that, 
because you should talk about budget neutrality in that regard. 
Mr. Hayworth.
    Mr. HAYWORTH. Thank you, Madam Chairman. Dr. McClellan, 
welcome; good to see you again. It is my understanding that CMS 
defines physician services to include prescription drugs when 
calculating the payment update, but does not include 
prescription drugs in the definition of physician services 
anywhere else. Why the different treatment?
    Dr. MCCLELLAN. Well, Congressman, this stems in part from 
the statute. There are two different definitions of physician 
services. One is for payment rates under the physician fee 
schedule and the other is for services that are covered under 
the SGR formula, this automatic update formula that we have 
been talking about. In fact, the statutory language is that the 
SGR has to include ``other items and services that are commonly 
performed or furnished by physicians or in a physician's 
office.'' So, that is the reason why I think the historical 
read has been that the SGR should include things like 
laboratory tests and drugs and minor procedures, even ones the 
physician doesn't perform himself or herself; and the thought 
before the SGR, as Congressman Stark mentioned earlier, is that 
physicians have a role in ordering or furnishing these 
services.
    Now, we are in the process of looking again at our 
statutory authority for a possible different definition that 
wouldn't include drugs, but that is the kind of thing that we 
have to overcome to get there. There are a lot of really smart 
lawyers working on this, and I hope they are going to be able 
to get to a good and appropriate conclusion.
    Mr. HAYWORTH. When lawyers meet doctors, we face 
interesting challenges in public policy. It really is, when you 
think--I guess the old expression was ``from soup to nuts''--
but we think about how medical care has advanced since 1965, 
the various permutations we have tried to provide legislatively 
to update Medicare 40 years later, and it is an unenviable task 
upon which we collaborate. In that spirit, one other 
interrogative. Will CMS have measures to assess the quality of 
care delivered by each specialty and subspecialty of physicians 
in Medicare in 2006?
    Dr. MCCLELLAN. That is absolutely our goal. I would 
emphasize that this is not a CMS activity, this is an activity 
that is led in many cases--and certainly participated in all 
effective cases--by the specialty societies. In a recent 
response to a request for information on this topic from 
Chairman Thomas and Chairwoman Johnson, I wrote back and 
provided a list--and I would be happy to provide that to you--
of all the work that has been completed or is in progress among 
the specialties.
    [The information follows:]

                              Department of Health & Human Services
                           Centers for Medicare & Medicaid Services
                                             Washington, D.C. 20201
Hon. William M. Thomas
Chairman, Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

    Thank you for your letter in which you seek our assistance in 
moving the Medicare Program toward value-based purchasing. We share 
your goal of providing payments that help reshape the way we deliver 
health care in this country to provide better support for greater 
quality and fewer unnecessary costs, and improved health. We are 
committed to working with the Congress, the provider community, and 
other stakeholders to develop reporting and payment systems that enable 
us to support and reward quality.
    At present, the Medicare Program uses eleven different fee 
schedules or prospective payment systems to pay claims for services 
from over one million health care providers. As you mentioned, these 
fee-for-service payment systems pay physicians and other health care 
providers based on the number and complexity of services provided to 
beneficiaries, regardless of their quality, efficiency, or impact on 
health outcomes.
    As a result, our payment systems often have the effect of directing 
more resources to delivering care that is not of the highest quality, 
such as duplicative tests and services, as well as hospital admissions 
or visits to treat potentially avoidable complications. Conversely, 
providers who have good ideas and want to take action to improve 
quality of care find that Medicare's payment systems do not provide 
them with the resources or the flexibility needed to do so. As a 
result, providers are unable to invest in activities that, properly 
implemented, have the potential to improve quality and avoid 
unnecessary medical costs. Such activities could include patient help 
lines, health information technology (HIT) systems that help patients 
with chronic diseases understand how they can prevent complications 
that result in costly hospitalizations and doctor visits, or reminder 
systems for using preventive services. Linking a portion of Medicare 
payments to valid measure of quality and effective use of resources 
would give providers more direct incentives and financial support to 
implement the innovative ideas and approaches that actually result in 
improvements in the value of care that our beneficiaries receive.
    In his FY 2006 Budget, the President recognized the need for 
payment reforms to improve the value of care delivered to Medicare 
beneficiaries. Such reforms would build on the action the 
Administration has already taken to promote quality by using data from 
Medicare providers to construct publicly available measures. The 
Medicare Payment Advisory Commission (MedPAC) also offered several 
recommendations in its March 2005 Report to Congress to promote value-
based purchasing. We generally support MedPAC's goals in this area, and 
we are working actively with many outside organizations, particularly 
in provider-led efforts, to achieve higher quality and better use of 
resources.
    Please find below summary responses to each of the questions you 
raised in your recent letter. Where applicable, we have also attached 
additional, more detailed material.
    Development of Quality Indicators. The foundation of effective pay-
far-performance initiatives is collaboration with providers and other 
stakeholders, to ensure that valid quality measures are used, that 
providers are not being pulled in conflicting directions, and that 
providers have support for achieving actual improvement. Consequently, 
to develop and implement these initiatives, CMS is collaborating with a 
wide range of health care providers, other public agencies, and private 
organizations who share our goal of improving quality and avoiding 
unnecessary health care costs. Enclosure 1 provides more detail about 
our efforts to work with hospitals, skilled nursing facilities, home 
health agencies, end-stage renal disease (ESRD) facilities, and 
physicians to develop measures.
    The healthcare community has already exhibited leadership and 
interest in quality measurement, public reporting, and paying for 
performance. We have heard repeatedly from individual providers and 
provider organizations around the country about their desire to support 
the development and implementation of appropriate measures and payment 
methods and to participate in well-designed initiatives in this area. 
We will continue to work with health care providers and Medicare 
beneficiaries to make further progress on these efforts.
    To date, we have worked with the Hospital Quality Alliance (HQA) in 
the selection of a starter set often consensus-derived hospital 
performance measures for public reporting. Consensus around these 
measures was achieved because these measures are widely viewed as 
meaningful elements of quality, they are clinically valid, and they are 
feasible and not too costly to collect. These are the same measures 
that were established under section 1886(b)(3)(B)(vii)(II) of the 
Social Security Act, as added by section 501 (b) of the Medicare 
Modernization Act (MMA). It is important to note that most hospitals 
are already reporting a larger set of clinical quality measures than 
were required by the MMA, and that we expect to expand these measures 
further in the coming year to include standardized measures of quality 
from the beneficiary's perspective and outcome measures, such as those 
related to post-surgical complications.
    CMS has also been working closely with consumer groups and nursing 
home leaders through the Nursing Home Quality Initiative, a 
collaborative effort to improve quality of care in nursing homes. A key 
element of this effort is the development and improvement of specific 
quality measures. Currently, we publicly report 15 measures of nursing 
home services that are submitted by facilities via the Minimum Data Set 
(MDS). The quality measures were endorsed by the consensus process of 
the National Quality Forum (NQF). The nursing home industry, patient 
advocacy groups, and other stakeholders are working with LIS to improve 
these measures, while we build a more robust set of measures. For 
example, in our recent proposed rule for payment of skilled nursing 
facilities, we sought comment on additional quality measures and the 
design of incentives for superior performance. In fact, we are 
collaborating to assess and develop possible pay-for-performance 
models, and have recently contracted with Abt Associates to develop a 
potential demonstration project in this area.
    CMS has also been collaborating with provider groups and other 
stakeholders involved in home health care and care for patients with 
end-stage renal disease. In the home health care setting, CMS now 
receives quality data regarding the status of a patient's physical and 
mental health, maintenance or improvement in the patient's ability to 
perform basic daily activities, and patient medical emergencies. The 
home health measures are based on information collected on Medicare or 
Medicaid patients who receive care at a Medicare certified home health 
agency. For dialysis facilities, CMS's Clinical Performance Measures 
(CPM) Project currently monitors 16 quality measures that report the 
quality of dialysis services in three areas: the adequacy of 
hemodialysis and peritoneal dialysis; anemia management; and vascular 
access management. In addition, CMS currently collects data on patient 
nutrition, and is developing additional measures related to kidney 
transplant referral and end stage renal disease bone metabolism.
    We have also made substantial progress with physician groups and 
other stakeholders on the development and use of measures for 
physician-related services. Measures of the quality of ambulatory care 
have been identified through collaboration between CMS, the American 
Medical Association's Physician Consortium for Performance Improvement 
and the National Committee for Quality Assurance (NCQA). This 
collaboration resulted in a set of proposed measures that are currently 
being considered for endorsement by the NQF. As part of the Ambulatory 
care Quality Alliance (AQA), CMS and other stakeholders, including the 
American College of Physicians, the American Academy of Family 
Practice, and other physician groups, as well as representatives of 
private health plans, selected a subset of these measures as a starter 
set for implementation. These measures cover diabetes, heart disease, 
asthma, and preventive screening. These measures are already in use in 
an ongoing Medicare demonstration project.
    The entire starter set of ambulatory care measures are now in the 
final stages of endorsement. These measures are designed to reflect 
performance in primary care and may also apply to some specialists as 
well, insofar as specialists are involved in the furnishing of primary 
care to patients with common chronic diseases, including diabetes and 
heart disease. In addition, measures of effectiveness and safety of 
some surgical care have been developed through collaborative programs 
like the Surgical Care Improvement Program, which includes the American 
College of Surgeons. We are also collaborating with many specialty 
societies to develop quality measures that reflect important aspects of 
the care of specialists and sub-specialists. For example, we are 
working closely with oncol9gists to develop measures of the adequacy of 
treatment planning and follow-up that oncologists furnish as part of 
their evaluation and management services; with cardiologists on 
measures of cardiac care for heart attack or heart failure conditions; 
and with cardiovascular surgeons on measures related to cardiac 
surgery.
    While these collaborative processes have already resulted in 
clinically valid quality measures for many physician specialties, some 
specialty societies report that they are still in the development 
stage, and a few are not reporting any activity. The progress of many 
specialties to date clearly indicates broad interest from CMS and other 
key stakeholders and consensus groups like the
    NQF, to support the efforts of specialty societies to develop and 
refine their measures. As we have indicated, we are pleased to work 
with any medical specialty to support their quality measurement and 
improvement efforts. Enclosure 2 provides a list by specialty of the 
types of quality measures that have been developed or are under 
development. A preliminary assessment indicates that the specialties 
for which some measures have been developed account for about half of 
Medicare physician spending. Specialties accounting for another 40 
percent of physician spending have measures under development.
    In addition, virtually all specialties have noted that evidence-
based guidelines for best practices have been developed for many 
important aspects of the care they provide. Such guidelines do not 
apply to all patients receiving care from a particular specialty, but 
they do generally reflect the state of medical evidence about what 
works best in the specialty for many of the common problems they treat. 
Some have suggested that, while they work to develop more specific 
clinical quality measures, a useful interim indicator is physician 
reporting on whether a relevant practice guideline was followed for the 
care of a patient (and possibly, a reason for not following a relevant 
guideline). A number of private-sector efforts are implementing such 
approaches now with the goal of improving quality, with some promising 
results. Such data also help identify circumstances where better 
medical evidence is needed to help improve practices, another key step 
for achieving quality improvement. In addition, there is some evidence 
that compliance with such guidelines may lead not only to better 
quality but also to better use of resources.
    We are exploring methods of reporting physician quality measures 
through claims and other methods. Many measures with clinical aspects 
can be reported through existing data systems. For example, in the 
current oncology demonstration project, physicians are assessing the 
symptoms of Medicare beneficiaries who are receiving chemotherapy using 
validated, widely accepted symptom questionnaires that focus on nausea 
and vomiting, pain, and fatigue. The physicians participating in the 
demonstration project report on the patients' symptoms via the existing 
Medicare claims system. Such a reporting mechanism could potentially be 
used for other specialties, whether for reporting patient symptoms, or 
for reporting on evidence-based practices that enhance the quality of 
care.
    Systems for Reporting and Analyzing Quality Indicators. 
Implementing measures in a pay-for-performance system will require 
infrastructure that can obtain appropriate information from providers, 
store and aggregate it as necessary, and prepare it for use in payment 
systems. Over the past few years, CMS has developed an infrastructure 
that can serve to collect data for quality measurement purposes via 
secure channels for its submission, storage, analysis, validation, and 
reporting. The consistent construction and analysis of hospital quality 
measures based on reported quality data from l1early all hospitals 
illustrates the key aspects of such systems. Similar tools can be 
applied in other settings, such as ambulatory care.
    To submit data on quality measures, hospitals employ either Joint 
Commission on Accreditation of Health care Organizations (JCAHO) 
Performance Measurement System vendors or the CMS Abstraction and 
Reporting Tool (CART). CART is a broadly applicable software tool that 
providers and their designees can use to abstract clinical data needed 
for quality measures from medical records. This tool was designed and 
developed by CMS with input from JCAHO and the Quality Improvement 
Organizations.
    CMS has also developed a system for secure, HIPAA-compliant 
transmission of clinical quality data on hospital care for the 
consistent construction and validation of quality measures. Hospital 
data is submitted via QNet Exchange--the CMS-approved electronic system 
for secure communications and data exchange-to a national data 
repository for private healthcare data. Currently this repository 
contains infoffi1ation on the ten measures collected pursuant to 
section 501 (b) of the MMA plus the growing number of additional 
measures collected under the Hospital Quality Alliance Initiative. Data 
can be submitted at any time throughout the year, but there is a 
deadline for submission of each quarter's hospital discharges.
    After the data are received in a valid format, the measures are 
calculated by editing the data against appropriate logic to assure 
valid measure development. This logic, specified by a diverse group of 
Federal and non-government clinical experts, includes medical procedure 
and condition codes, exclusion criteria, and other empirically based 
measure-specific rules. Data submitted by hospitals are also validated 
through independent abstraction of medical records by a CMS contractor, 
the Clinical Data Abstraction Center. Hospitals have an opportunity to 
review the results for 30 days before they are posted.
    Size of Incentives Needed to Encourage Reporting. The experience 
with section 501(b) of the MMA and other programs suggests that limited 
adjustments in payment rates may he sufficient incentive to encourage 
providers to perform well on measured aspects of performance. section 
1886(b)(3)(B)(vii)(II) of the Social Security Act, which was added by 
section 501(b) of the MMA, requires a 0.4 percentage point higher 
payment update for acute care hospitals that submit information on ten 
measures of quality for each of fiscal years 2005, 2006, and 2007. If a 
hospital provides the information by a specific date in the prior year, 
the full update applies to all inpatient discharges from that hospital 
during a subsequent fiscal year. Nearly every eligible hospital in the 
country was willing and able to submit the required data in order to 
qualify for full update-a clear indication that well-defined incentives 
can bring about appropriate system change.
    Further, CMS has partnered with Premier Inc., a nationwide alliance 
of not-for-profit hospitals, to conduct a demonstration program 
designed to improve the quality of inpatient care for Medicare 
beneficiaries by providing financial incentives. Payment adjustments 
under the demonstration will be provided to hospitals scoring in the 
top 20 percent for a given set of quality measures-an additional 2 
percent on top of the normal DRO payment will be made to hospitals 
scoring in the top 10 percent, and an additional I percent payment will 
be made to hospitals in the next highest 10 percent. In the third year 
of the demonstration, hospitals that do not achieve significant 
absolute improvements above the demonstration baseline will be subject 
to reductions in payments. Preliminary results released in May show 
that these modest payment adjustments are sufficient to drive quality 
improvement. This project further validates the fact that payment 
incentives are bringing about real, meaningful change. We are 
encouraged by these early results and are using this effort to begin 
laying the foundation for a pay for quality program for all hospitals.
    The Physician Group Practice Demonstration project presents another 
example. This project is designed to test pay-for-performance in 
Medicare's fee-for-service payment system for physicians. The project 
is assessing the ability often large. multi-specialty physician groups 
to improve care that could result in better patient outcomes and 
efficiencies. Participating physician groups will continue to be paid 
on a fee-for-service basis, but they are earning performance-based 
payments of up to several percent (up to 5 percent of their performance 
target) for implementing care management strategies that anticipate 
patients' needs, prevent chronic disease complications, avoid 
hospitalizations, and improve the quality of care. The performance 
payment will be derived from savings in total Medicare benefits 
achieved by the physician group for its patient population and paid out 
in part based on the quality results.
    CMS is also designing a pay-for-performance demonstration project 
to improve the quality and efficiency of care for chronically ill 
Medicare beneficiaries treated in small- and medium-sized physician 
practices, by providing assistance in adopting and using effective 
health information technology. The Medicare Care Management Performance 
Demonstration project will provide quality reporting and performance 
payments to physicians who meet or exceed performance standards in 
clinical delivery systems and patient outcomes, and will reflect the 
special circumstances of smaller practices. This demonstration is under 
development and will be implemented in Arkansas, California, 
Massachusetts, and Utah. Participating practices will receive technical 
assistance from the Quality Improvement Organizations in their areas, 
as well as bonus payments for achieving the project's objectives.
    Resource Use. Measures of physician resource use have been used and 
are being developed by a number of public and private entities. In its 
March 2005 Report to Congress, MedPAC recommended 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.'' 
CMS is preparing to implement the MedPAC recommendation in the near 
future on a pilot basis, using information derived from claims data. We 
are using existing claims data to simulate and test the measurement and 
quantification of individual physician patterns of practice, 
incorporating both services they order (including facility services) as 
well as services they furnish. As a next step, soon we expect to begin 
sharing the results with physicians confidentially to educate them 
about how they compare to peers.
    CMS Demonstrations. As I have noted above and also as we have 
described in more detail in Enclosure 3, we are conducting a number of 
demonstrations and piloting various payment reforms to reward providers 
for better quality, better patient satisfaction, and lower overall 
health care costs in the Medicare fee-for-service program. Building on 
these initiatives, we recognize that many of the best opportunities for 
quality improvement cut across settings of care. We have projects in 
operation or in the advanced planning stages in the tee-for-service 
sector that will use standard quality measures to support better care 
coordination and continuity for beneficiaries with chronic illnesses 
across different care settings. In the Medicare Advantage program, we 
are moving toward full risk adjustment. which provides more resources 
to health plans that are able to attract and retain high-cost 
beneficiaries, thus providing stronger incentives to improve continuity 
and quality of care, while avoiding unnecessary services. In 
conjunction with these changes, we are seeing more efforts by Medicare 
Advantage plans to provide greater continuity of care and support for 
beneficiaries with predictably high costs, as well as more use of 
performance-based payments.
    We want to build on all of these steps to give providers the 
support and resources they need to deliver better care and avoid 
unnecessary costs. Linking a portion of Medicare payments to valid 
measures of quality, using the kinds of approaches summarized here, 
would support better health care. These direct incentives would foster 
the development and implementation of innovative ideas and approaches 
that will result in improvements in the health care that our 
beneficiaries receive.
    As evidenced by the early work of some of our demonstration 
projects, and the leadership Congress provided in the MMA creating 
incentives for hospital reporting. we are seeing meaningful 
results. These results are a promising foundation to support the most 
effective clinical and financial approaches to achieve better health 
outcomes for Medicare beneficiaries. We look forward to continuing to 
work closely with you and all of OUT stakeholders to advance these 
important initiatives to improve quality and avoid unnecessary costs 
for Medicare beneficiaries and throughout our health care system. I 
also will provide this response to the cosigner of your letter.
            Sincerely,
                                     Mark B. McClellan, M.D., Ph.D.
Enclosure 1

DEVELOPING AND SELECTING STANDARDIZED QUALITY MEASURES
    CMS has worked collaboratively with health care providers in an 
effort to develop measures of quality in various settings and to reduce 
the burden of their collection.
Development of Hospital Quality Measures
    CMS and the Hospital Quality Alliance (HQA), which has 
representation from consumers, hospitals, practitioners, purchasers, 
and accreditation organizations, collectively selected a starter set 
often consensus-derived performance measures for public reporting. The 
measures were endorsed by the National Quality Forum (NQF) through a 
consensus development process that includes input from consumers, 
purchasers, clinicians, providers, researchers and quality improvement 
experts. The NQF is a non-profit organization that represents a broad 
range of health care stakeholders and provides endorsement of 
consensus-based national performance standards for measurement and 
public reporting.
    This starter set of measures was incorporated into section 501(b) 
of the Medicare Prescription Drug, Improvement and Modernization Act of 
2003 (the MMA), which provided a financial incentive for those 
hospitals that reported these measures. These measures are available at 
the following link on the CMS website: http://www.ems.hhs.gov/quality/
hospital/StarterSet.pdf. On April 1, 2005, we launched the Hospital 
Compare website, which allows comparison of data on these measures from 
over 4,200 hospitals.
    CMS and the HQA have identified an expanded set of measures that 
hospitals may choose to report without payment ramifications. An 
additional seven measures were released on April 1, 2005. These 
measures are available at the following link on the CMS website: http:/
/www.ems.hhs.gov/quality/hospital/HospitalQualityMeasures.pdf. An 
additional five measures have been endorsed by the NQF and are due to 
be released later this year.
Development of Nursing Homes Measures

    CMS currently uses data submitted via the Minimum Data Set (MDS) by 
facilities to produce 15 measures, endorsed by the NQF, for public 
reporting on Nursing Home Compare. These measures are available at the 
following link on the CMS website:

        http://www.ems.hhs.gov/quality/nhqi/Snapshot.pdf.

    CMS has been working closely with consumer groups and nursing home 
leaders through the Nursing Home Quality Initiative, a collaborative 
effort to improve quality of care in nursing homes. A key element of 
this effort is the development and improvement of specific quality 
measures. In addition to the 15 measures reported via the MDS, we are 
considering expanding this starter set to include measures that assess 
safety, patient functional status, patient experience, and personnel 
management. Safety measures would assess adverse events, such as 
inappropriate medication use or falls and other injuries. In addition, 
recent research has identified additional measures to assess functional 
status in short-stay Medicare patients, although many of the measures 
also reflect care provided to long-term patients as well. We are also 
interested in measuring the experience of care from the perspective of 
both patients and their families. Other possible measures might include 
assessing such items as: nursing home staff turnover rates; nursing 
director tenure; and staff immunization rates. Further, in its March 
2005 report, MedPAC recommended the collection of data on a few 
admissions and discharge measures in order to provide insight into 
whether treatment goals (particularly for functional status) were met.
Development of Home Health Measures
    Similar to the nursing home quality activities, CMS has also been 
working with leaders and advocates for the home health industry through 
our Home Health Quality Initiative. Under this initiative, measures are 
reported to CMS that provide information on how well the home health 
agencies provide care. Examples include: the status of a patient's 
physical and mental health; maintenance or improvement in the patient's 
ability to perform basic daily activities; and patient medical 
emergencies. These measures are based on information collected on 
Medicare or Medicaid patients who receive care at a Medicare certified 
home health agency.
    In its March 2005 report, MedPAC recommended using the outcomes-
based quality indicators (OBQIs) with appropriate risk adjustment as 
pay-for-performance metrics. The measures recommended by MedPAC include 
an assessment in improvement in the lives of home health patients and 
markers for adverse events that prompt home health agencies and 
surveyors to investigate further. OBQI measures are now in common use 
and have been studied for some time. A number of such measures have 
been endorsed by the NQF and are evidence based, well accepted, and not 
unduly burdensome. MedPAC has also recommended that an initial set of 
measures focus on improving patient's health and functioning as well as 
measures of stabilization, recognizing that often the goal of the home 
health agency is to simply stabilize the patient's condition.
Development of Dialysis Facility Measures
    Initiated in 1998, CMS's Clinical Performance Measures (CPM) 
Project currently monitors 16 quality measures that are based on the 
National Kidney Foundation's Kidney Disease Outcomes Quality Initiative 
(K-DOQI) Clinical Practice Guidelines. These measures report the 
quality of dialysis services provided under Medicare in the areas of 
adequacy of hemodialysis and peritoneal dialysis, anemia management, 
and vascular access management. In addition to the CPMs, CMS also 
collects data on patient nutrition and is developing additional 
measures related to kidney transplant referral and ESRD bone 
metabolism.
    CPM data are collected on a national random sample of adult in-
center hemodialysis patients, all in-center hemodialysis patients less 
than 18 years of age, and a national random sample of adult peritoneal 
dialysis patients. Thirteen of the CPMs are calculated, and an annual 
report of these findings is published and made available to the public 
at the following link: www.cms.hhs.gov/esrd/1.asp. CPM data are not 
collected in numbers sufficient for calculating dialysis facility-
specific rates. However, CMS is currently collaborating with the 
dialysis organizations to collect and transmit CPM data electronically 
on all their dialysis patients. We are also interested in measuring 
care from the patients' perspective.
Development of Physician Measures
    Ambulatory care measures have also been developed by the American 
Medical Association's Physician Consortium for Performance Improvement, 
the National Committee for Quality Assurance (NCQA) and CMS. A set of 
about 99 ambulatory care measures was submitted to NQF for endorsement. 
These measures are available at the following link on the CMS website: 
http://www.cms.hhs.gov/quality/AmbulatoryMeasures.pdf. Although the 
endorsement process is still underway, to date 49 draft ambulatory 
measures have been endorsed. We expect that the final set will be 
released in July 2005. In addition, nine final diabetes measures, also 
known as the Diabetes Alliance measures have been endorsed by NQF.
    A starter set of the ambulatory care measures, which is a subset of 
the measures submitted to NQF, has been developed by the Ambulatory 
care Quality Alliance (AQA), which is comprised of the Agency for 
Healthcare Research and Quality (AHRQ), America's Health Insurance 
Plans (AHIP), American College of Physicians (ACP) and American Family 
Physicians (AFP). We have been working closely with the AQA to develop 
this starter set of consensus-derived ambulatory quality measures for 
physician offices. We are also collaborating with many specialty 
societies to develop quality measures that reflect important aspects of 
the care of specialists and sub-specialists. For example, we are 
working closely with oncologists to develop measures of the adequacy of 
treatment planning and follow-up that oncologists furnish as part of 
their evaluation and management services; with cardiologists on 
measures of cardiac care for heart attack or heart failure conditions; 
and with cardiovascular surgeons on measures related to cardiac 
surgery.
Enclosure 2

    SPECIALTY SOCIETIES--with Applicable Measures Developed or under
                               Development
------------------------------------------------------------------------

------------------------------------------------------------------------
Internal Medicine             Applicable measures have been submitted to
                               the National Quality Forum (NQF). The
                               measures are currently in the public
                               comment phase of the NQF process (e.g.,
                               Heart Disease: Coronary Artery Disease--
                               percentage of patients who were
                               prescribed a lipid-lowering therapy
                               (based on current ATP III guidelines)).

                              The Ambulatory care Quality Alliance (AQA)
                               starter set of measures are applicable
                               and ready (e.g., Hypertension: percentage
                               of patient visits during which either
                               systolic blood pressure >140 mm Hg or
                               diastolic blood pressure >90 mmHg with
                               documented plan of care for
                               hypertension).
------------------------------------------------------------------------
Internal Medicine--           The Coronary Artery Disease (CAD) and
 Cardiology                    Heart Failure (HF) measures are
                               applicable and ready (e.g., Heart Failure
                               (HF): percentage of patients who also
                               have LSVD who were prescribed ACE
                               Inhibitor or ARB therapy; percentage of
                               patients who also have LSVD who were
                               prescribed beta-blocker therapy).

                              The specialty society is also developing
                               additional measures.
------------------------------------------------------------------------
Radiology                     The American College of Radiology has
                               appropriateness criteria for various
                               diagnosis procedures (e.g., chest x-ray,
                               computed tomography (CT) for detection of
                               pulmonary embolism in adults). Measures
                               on appropriateness of tests and
                               appropriate communication of results are
                               under development.
------------------------------------------------------------------------
Surgery--Ophthalmology        The specialty society has readily
                               available practice guidelines and summary
                               benchmarks, which outline the process of
                               care elements that are important for
                               quality of eye care (e.g., appropriate
                               management of primary angle open
                               glaucoma; appropriate post-op care for
                               filtering surgery patients; complete post-
                               op examination post cataract surgery).

                              Further, the Academy helped initiate a
                               NCQA performance measure for glaucoma
                               screening consistent with Medicare's new
                               benefit, which was incorporated into
                               HEDIS 2006, and also has contributed to
                               the development of the diabetes eye exam
                               HEDIS measure, which is also part of the
                               AQA's starter set of ambulatory care
                               measures.
------------------------------------------------------------------------
Family Practice               Applicable measures have been submitted to
                               the NQF. The measures are currently in
                               the public comment phase of the NQF
                               process (e.g., percentage of patients who
                               received an influenza immunization;
                               percentage of patients who received a
                               pneumococcal immunization; percentage of
                               patients with diabetes with one or more A
                               1 C test(s) conducted during the
                               measurement year).

                              The AQA starter set of measures are
                               applicable and ready (e.g., Hypertension:
                               percentage of patient visits during which
                               either systolic blood pressure > 140 mm
                               Hg or diastolic blood pressure > 90 mm
                               Hg, with documented plan of care).
------------------------------------------------------------------------
Surgery--Orthopedic           Some Surgical Infection Prevention (SIP)
                               and Surgical Care Improvement Project
                               (SCIP) measures are directed for this
                               specialty (e.g., prophylactic antibiotic
                               received within 1 hour prior to surgical
                               incision; surgical patients with
                               recommended thromboembolism prophylaxis).

                              Additional measures include the
                               appropriate diagnosis and treatment of
                               back pain.

                              The specialty society is identifying and
                               developing quality measures, e.g., the
                               society has recently submitted 10
                               measures to NQF.
------------------------------------------------------------------------
Surgery--General              The A V Fistula measure (Fistula First)
                               could be refined for this specialty
                               (e.g., the percentage of patients who
                               have an autogenous arteriovenous fistula
                               for dialysis vascular access).

                              Most SIP/SCIP measures are directed for
                               this specialty (e.g., prophylactic
                               antibiotic received within 1 hour prior
                               to surgical incision; surgical patients
                               with recommended thromboembolism
                               prophylaxis).
------------------------------------------------------------------------
Internal Medicine--Hema-      Patient experience of care measures are
 Oncology                      applicable, ready, and are currently
                               being used in the cancer demonstration
                               program (e.g., percentage of patients
                               reporting pain; percentage of patients
                               reporting nausea/vomiting; percentage of
                               patients reporting fatigue).

                              The specialty society is in the initial
                               stages of developing measures that are
                               related to their practice guidelines.
------------------------------------------------------------------------
Emergency Medicine            The majority of the current hospital
                               measures are applicable to emergency room
                               physicians (e.g., aspirin and beta
                               blocker treatment at arrival for acute
                               myocardial infarction).
------------------------------------------------------------------------
Internal Medicine--           Applicable measures include appropriate
 Gastroenterology              attention to patient monitoring before,
                               during and after the procedure when using
                               conscious sedation measures; the
                               percentage of patients who had
                               appropriate screening for colorectal
                               screening.
------------------------------------------------------------------------
Internal Medicine--           Chronic Obstructive Pulmonary Disease
 Pulmonology                   (COPD) measures are applicable (e.g.,
                               percentage of patients with COPD who had
                               a spirometry evaluation documented;
                               percentage of patients with systemic
                               corticosteroids for acute exacerbation).
------------------------------------------------------------------------
Anesthesiology                Some SCIP measures are applicable (e.g.,
                               prophylactic antibiotic received within
                               one hour prior to surgical incision;
                               surgical patients with recommended
                               thromboembolism prophylaxis).

                              Additional measures include the
                               appropriate evaluation of the patient--
                               pre, during, and post procedure.
------------------------------------------------------------------------
Internal Medicine--Neurology  Applicable measures include the
                               appropriate treatment of ischemic stroke;
                               stroke rehabilitation; diagnosis of
                               dementia.
------------------------------------------------------------------------
Psychiatry                    Applicable depressive measures have been
                               submitted to the NQF. The measures are
                               currently in the public comment phase of
                               the NQF process (e.g., Effective Acute
                               Phase Treatment: percentage of patients
                               who were diagnosed with a new episode of
                               depression and treated with
                               antidepressant medication and remained on
                               an antidepressant for at least 180 days).
------------------------------------------------------------------------
General Practice              Applicable measures have been submitted to
                               the NOF. The measures are currently in
                               the public comment phase of the NOF
                               process (e.g., percentage of patients who
                               received an influenza immunization;
                               percentage of patients who received a
                               pneumococcal immunization; percentage of
                               patients with diabetes with one or more A
                               1 C test(s) conducted during the
                               measurement year).

                              The AQA starter set of measures are
                               applicable and ready (e.g., Hypertension:
                               percentage of patient visits during which
                               either systolic blood pressure >140 mm Hg
                               or diastolic blood pressure > 90 mm Hg,
                               with documented plan of care).
------------------------------------------------------------------------
Pathology                     Practice guidelines are available but
                               appear to be limited to interpretation.
                               Measures on appropriateness of tests and
                               appropriate communication of results are
                               under development.Internal
------------------------------------------------------------------------
Medicine--Nephrology          ESRD and DOOI measures currently measure
                               at the facility level but could be
                               readily refined to measure at the
                               physician level (e.g., Regular
                               Measurement of the Delivered Dose of
                               Hemodialysis: the delivered dose of
                               hemodialysis should be measured at least
                               once a month in all adult and pediatric
                               hemodialysis patients).
------------------------------------------------------------------------
Physical Medicine and         Applicable measures include stroke
 Rehabilitation                rehabilitation and the prevention of
                               complications.
------------------------------------------------------------------------
Internal Medicine--           Applicable measures have been submitted to
 Rheumatology                  the NOF. The measures are currently in
                               the public comment phase of the NOF
                               process (e.g., Osteoarthritis: Functional
                               Assessment--percentage of patients
                               diagnosed with symptomatic osteoarthritis
                               that were assessed for function and pain
                               annually).
------------------------------------------------------------------------
Surgery--Neurological         Some of the SIP/SCIP measures could be
                               refined for this specialty (e.g.,
                               prophylactic antibiotic received within 1
                               hour prior to surgical incision; surgical
                               patients with recommended thromboembolism
                               prophylaxis).
------------------------------------------------------------------------
Surgery--Colorectal           Some SIP/SCIP measures are applicable
                               (e.g., prophylactic antibiotic received
                               within 1 hour prior to surgical incision;
                               surgical patients with recommended
                               thromboembolism prophylaxis).
------------------------------------------------------------------------
Nuclear Medicine              Applicable measures regarding the
                               appropriate use of cardiac radionuclide
                               imaging; appropriate protocols;
                               appropriate patient preparation.
------------------------------------------------------------------------
Preventive Medicine           Applicable measures have been submitted to
                               NQF (e.g., percentage of patients who
                               received an influenza immunization;
                               percentage of patients who received a
                               pneumococcal immunization; rate of
                               mammography screening; rate of cervical
                               cancer screening).
------------------------------------------------------------------------


Enclosure 3

DEMONSTRATIONS AND PILOT PROGRAMS
    Premier Hospital Quality Incentive Demonstration. CMS has partnered 
with Premier Inc., a nationwide alliance of not-for-profit hospitals, 
to conduct a demonstration program that is designed to improve the 
quality of inpatient care for Medicare beneficiaries by providing 
financial incentives. Under the Premier Hospital Quality Incentive 
Demonstration, about 270 hospitals are voluntarily providing data on 34 
quality measures related to five clinical conditions: heart attack, 
heart failure, pneumonia, coronary artery bypass graft, and hip and 
knee replacements. Using the quality measures, we will identify 
hospitals in the demonstration with the highest clinical quality 
performance for each of the five clinical areas. Hospitals scoring in 
the top 10 percent for a given set of quality measures will receive a 2 
percent bonus payment in addition to the normal payment for the service 
provided for Medicare discharges in the corresponding diagnosis-related 
groups (DRGs). Hospitals in the next highest 10 percent will receive a 
I percent bonus payment. In the third year of the demonstration 
project, hospitals that do not achieve absolute improvements above the 
demonstration baseline will be subject to reductions in payments. 
Preliminary results show that the modest financial incentives under the 
demonstration are sufficient to drive quality improvement.
    Physician Group Practice Demonstration. CMS recently announced a 
demonstration project to test pay-for-performance in Medicare's fee-
for-service payment system for physicians. The Physician Group Practice 
Demonstration will assess the ability of large physician groups to 
improve care that could result in better patient outcomes and 
efficiencies. Ten large (200+ physicians), multi-specialty physician 
groups in various communities across the nation will participate in the 
demonstration, which began operations in April 2005. Participating 
physician groups will continue to be paid on a fee-for-service basis, 
but they will be able to earn performance-based payments for 
implementing care management strategies that anticipate patients' 
needs, prevent chronic disease complications, avoid hospitalizations, 
and improve the quality of care. The performance payment will be 
derived from savings in total Medicare benefits achieved by the 
physician group for its patient population and paid out in part based 
on the quality results, which we will assess.
    Medicare Care Management Performance Demonstration. CMS also plans 
to test a pay-for-performance system to promote the adoption and use of 
health information technology to improve the quality and efficiency of 
care for chronically ill Medicare beneficiaries treated in small- and 
medium-sized physician practices. The Medicare Care Management 
Performance Demonstration will provide performance payments for 
physicians who meet or exceed performance standards in clinical 
delivery systems and patient outcomes, and will reflect the special 
circumstances of smaller practices. This demonstration is under 
development and will be implemented in Arkansas, California, 
Massachusetts, and Utah. Participating practices will receive technical 
assistance from the Quality Improvement Organizations in their areas, 
as well as bonus payments for achieving the project's objectives.
    Medicare Health Care Quality Demonstration. CMS is also 
investigating how to enhance quality and safety in the Medicare Health 
Care Quality Demonstration. This demonstration program, which was 
mandated by the MMA, is a 5-year program designed to reduce the 
variation in utilization of heath care services, and to increase 
quality and efficiency of care by encouraging area-level collaboration 
and coordination to improve the use of evidence-based care and overall 
area quality. We have sought public comment on the design of this 
demonstration and will consider these comments in a request for 
proposals. The project will be open to physician groups and other 
providers that are involved in integrated health care delivery, for 
example using effective interoperable electronic health information 
systems that improve quality and avoid unnecessary costs.
    Chronic Care Improvement Program. This pilot program will test a 
population-based model of disease management. Under the program, 
participating organizations will be paid a monthly per beneficiary fee 
for managing a population of beneficiaries with advanced congestive 
heart failure and/or complex diabetes. These organizations must 
guarantee CMS a savings of at least 5 percent plus the cost of the 
monthly fees compared to a similar population of beneficiaries. Payment 
also is contingent upon performance on quality measures and 
beneficiaries and provider satisfaction. The program will generate data 
on performance measures that will be useful in improving the Medicare 
Program as a whole.
    Disease Management Demonstration for Severely Chronically Ill 
Medicare Beneficiaries. This demonstration, which began enrollment in 
February 2004, is designed to test whether applying disease management 
and prescription drug coverage in a fee-for-service environment for 
beneficiaries with illnesses such as congestive heart failure, 
diabetes, or coronary artery disease can improve health outcomes and 
reduce costs. Participating disease management organizations receive a 
monthly payment for every beneficiary they enroll to provide disease 
management services and a comprehensive drug benefit, and must 
guarantee that there will be a net reduction in Medicare expenditures 
as a result of their services. To measure quality, the organizations 
must submit data on a number of relevant clinical measures.
    Disease Management Demonstration for Chronically Ill Dual-Eligible 
Beneficiaries. Under this demonstration, disease management services 
are being provided to full-benefit dual eligible beneficiaries in 
Florida who suffer from advanced-stage congestive heart failure, 
diabetes, or coronary heart disease. The demonstration provides the 
opportunity to combine the resources of the state's Medicaid pharmacy 
benefit with a disease management activity funded by Medicare to 
coordinate the services of both programs and achieve improved quality 
with lower total program costs. The demonstration organization is being 
paid a fixed monthly amount per beneficiary and is at risk for 100 
percent of its fees if performance targets are not met. Savings above 
the targeted amount will be shared equally between CMS and the 
demonstration organization. Submission of data on a variety of relevant 
clinical measures is required to permit evaluation of the 
demonstration's impact on quality.
    End Stage Renal Disease (ESRD) Disease Management Demonstration. 
This demonstration is scheduled to begin later this year and extend for 
4 years. Under this demonstration, organizations serving ESRD patients 
will receive a capitated payment to test the effectiveness of disease 
management models in increasing quality of care and containing costs. 
Eligible organizations will receive capitated payments and accept risk 
to provide a coordinated care benefit plan to ESRD enrollees. Incentive 
payments of up to 5 percent will also be made to plans for achieving 
quality improvements over the course of the demonstration. Quality 
measurement will be based on a quarterly submission of patient-level 
data on five key clinical indicators profiled in the CMS ESRD Clinical 
Performance Measures (CPM) Project. Initiated in 1998, the CPM Project 
currently monitors 16 quality measures that are based on the National 
Kidney Foundation's Kidney Disease Outcomes Quality Initiative (K-DOQI) 
Clinical Practice Guidelines. These measures report the quality of 
dialysis services provided under Medicare in the areas of adequacy of 
hemodialysis and peritoneal dialysis, anemia management, and vascular 
access management. In addition to the CPMs, CMS will collect data on 
patient nutrition and develop additional measures related to kidney 
transplant referral and ESRD bone metabolism.
                                 ______
                                 
    Care Management Demonstration for High Cost Beneficiaries. This 
demonstration, which is approaching implementation, will test models of 
care management in a Medicare fee-for-service population. The project 
will target beneficiaries who are both high cost and high risk. The 
announcement for this demonstration was published in the Federal 
Register on October 6, 2004, and we accepted applications through 
January 2005. The payment methodology will be similar to that 
implemented in the Chronic Care Improvement Program, with participating 
organizations required to meet relevant clinical quality standards for 
the specific populations they target as well as guarantee savings to 
the Medicare program.

                                 

    Dr. MCCLELLAN. My read of the current situation is, 
specialties account for about half of Medicare billing and have 
quality measures that are already established. These include 
specialties like internal medicine--you are going to hear from 
them soon--who have been providing tremendous leadership on 
many aspects of surgery and so forth, and about 40 percent or 
more have measures that are in development right now.
    In addition, I have been talking with some Members of 
Congress who are physicians--there are getting to be more of 
them; I think that is probably a good thing--as well as outside 
experts about using proxies for quality measures where they are 
not developed yet. Just about all specialty societies have what 
are called evidence-based practice guidelines that they have 
developed, where the medical experts come together, review what 
all the evidence out there is and make some basic guideline 
recommendations for effective ways of treating patients. 
Whether or not those guidelines have been developed and are 
being used is another way that you can help focus on supporting 
physicians in using the best available medical evidence for 
their treatment.
    So, through all of those kinds of approaches we have made a 
tremendous amount of progress, as Chairwoman Johnson said; and 
I do think that if there is continued momentum--which the 
Committee can help build--continued momentum from the medical 
specialty societies, which are really putting a lot of effort 
into this, I am very optimistic about having an even more 
comprehensive set of measures in the future.
    Mr. HAYWORTH. Dr. McClellan, thank you very much. Madam 
Chairman, I appreciate the time.
    Chairman JOHNSON OF CONNECTICUT. Mr. Lewis.
    Mr. LEWIS. Thank you very much, Madam Chair. Thank you, Dr. 
McClellan, for being here today and for your testimony. 
Financial incentives are one way to influence behavior. What 
other mechanisms can be used to change practice patterns for 
maximized value? Are there other ways that payers can get 
involved beyond pay-for-performance initiatives?
    Dr. MCCLELLAN. Absolutely. There are many ways, and the 
reason that there are many ways is because doctors care so much 
about providing the best possible care under the circumstances. 
Another area where we have been doing a lot of work lately with 
physician organizations and other medical experts involves 
helping to develop better evidence on what actually works. We 
have a tremendous amount of data in the Medicare Program on how 
patients are being treated that can help us understand and have 
been used in many studies, for example, on issues ranging from 
effectiveness of care to sources of health disparities to 
understanding better why different kinds of outcomes occur and 
what can be done about it. So, supporting development of better 
evidence is one important way.
    Another important way involves helping with the adoption of 
systems that can improve care in our Quality Improvement 
Organizations (QIO). We are now supporting local efforts for 
quality improvement activities, such as helping small physician 
groups evaluate and adopt electronic health record systems or 
providing some support for local quality improvement efforts, 
sharing ideas about things that physicians could do better 
together, learning from their mistakes, and things like that. 
So, there are a tremendous range of other activities beyond the 
payment systems themselves that can improve quality of care, 
and ideally all of these would be working together this time.
    Mr. LEWIS. Thank you very much, Doctor. Doctor, I would 
like to take an opportunity, since we have you here, to ask you 
about some of my concerns and some of the physician concerns 
about the implementation of Medicare part D. At our last 
Subcommittee hearing almost every representative from an acute 
care center was very concerned that our seniors are very 
confused about this new benefit. We heard about the independent 
envelopes going to the poor seniors. What has been done to 
ensure that seniors have that question answered? We have known 
about this confusion for a long time. What is CMS doing? It is 
clearly not enough, because people are still confused.
    Dr. MCCLELLAN. Well, this is our very broadest priority not 
just in CMS but throughout the U.S. Department of Health and 
Human Services (HHS), throughout the Administration and in work 
with you and many other Members of Congress, is to help make 
sure each beneficiary gets the information they need to make an 
informed choice about the drug coverage that is coming. Under 
the Medicare law, there is help for everybody with his or her 
prescription drug costs, but different people get help in 
different ways, and so we want to provide some very 
personalized assistance. Earlier you mentioned the mailing. 
That wasn't a mailing to everybody. It was a mailing to people 
who are getting their drug coverage through Medicaid now. We 
sent out close to 6 million letters. There were fewer than 100 
that may have had this problem with the printing.
    What we know, as I am sure you know from your contacts with 
constituents, is that you don't depend on any one mechanism for 
helping people find out about important new programs that 
affect their lives. You try to do it through many different 
ways. So, another approach that we are taking is through our 
Medicare and You handbook, which Congressman Stark and many of 
you commented on, in its earlier draft form, and we are 
revising it now. Another approach that we are taking is to work 
with outside organizations at the local level to help inform 
seniors in every State. In Georgia, we have doubled the funding 
for the State health insurance----
    Mr. LEWIS. Could you repeat what you said about in the 
State of Georgia?
    Dr. MCCLELLAN. In the State of Georgia, for example, there 
is a State Health Assistance Program that works, I think, 
through the Department of Aging, that is providing local face-
to-face counseling to beneficiaries about the changes that are 
coming. It is going to be providing help in the fall with 
making a decision about the coverage. They hold local meetings 
to inform seniors. They are doing trainer sessions. It is an 
excellent program. I have spent some time talking with some of 
their leadership myself. We are collaborating with many other 
organizations. You mentioned people who are living in assisted 
living or getting help with long-term care. Well, we are 
working directly with the organizations and health 
professionals that provide that care to help get information 
out.
    Mr. LEWIS. Do we have copies of that handbook?
    Dr. MCCLELLAN. The ``Medicare and You'' handbook has been 
in draft form. It is being finalized now. You will get copies 
of the final version before it goes out to seniors in the fall. 
In the meantime, Medicare has worked with many outside 
organizations to develop brochures, pamphlets, and other types 
of information customized to each type of beneficiary. That 
information is available on our Web site, and we can work with 
you and your office to make sure it gets to each of the 
specific types of seniors in your district that you want to 
reach. We are doing a tremendous amount of this local outreach 
right now because one of the most effective ways to reach 
people is face to face, involving people who are helping 
seniors make decisions--have been helping them make decisions 
for a long time about important decisions with regard to their 
health care and their finances.
    Mr. LEWIS. When do you expect to have the handbook 
available?
    Dr. MCCLELLAN. It will be mailed out by early October, and 
we will have the final version before then. I don't have an 
exact date. The key dates for seniors to know are that by 
October they will be able to get specific information about the 
plan options that are available to them, and then they can sign 
up from November 15th through May 15th of 2006. There is going 
to be some time to look at all this. You are right though, the 
more that we can reach seniors now and let them know what is 
coming the less confusion there will be and the more people 
will be able to make confident decisions sooner and easily 
about this important benefit. It is especially important if 
many of the beneficiaries in your district qualify for the 
extra help that will pay for 95 percent plus of their drug 
cost. So, we really do need to reach them, and I would be 
delighted to work with you more closely on that.
    Mr. LEWIS. Thank you very much, Dr. McClellan.
    Chairman JOHNSON OF CONNECTICUT. Thank you. Mr. McCrery.
    Mr. MCCRERY. Thank you, Madam Chair. Dr. McClellan, before 
I throw you a bit of a curve ball I want to say how much I 
appreciate someone of your education and training and abilities 
agreeing to work in the Federal Government. Our country is 
fortunate to have someone of your capabilities serving our 
country, so thank you.
    Dr. MCCLELLAN. Well, thank you. It is a lot of fun, and I 
am getting a lot of help, so that makes it easier.
    Mr. MCCRERY. I am sure you have fun every day. Now for the 
curve ball. I want to depart for just a moment from the subject 
of today's hearing because I read an article in the New York 
Times this morning, and I want you to confirm that it is true 
or say that it is not true, and then maybe expound a little 
bit. The article said that CMS announced that it was going to 
make available to medical providers across the country the 
current informational technology software being used by the 
Veterans Administration (VA). Is that correct?
    Dr. MCCLELLAN. Yes, Congressman. This is a software system 
called VistA that the VA developed for electronic records in 
their hospitals. It is open software. It is not something that 
they pay to use. It is not proprietary. It is already available 
for free. The challenge for some physicians has been that it 
has not been very easy for them to adopt this in their offices. 
So, what we are doing is making the installation process a 
little bit easier, but it is essentially a system that has 
already been developed by the VA and that many doctors inside 
and outside the VA are already using to help get the benefits 
of electronic healthcare.
    Mr. MCCRERY. How do you see--how do you envision CMS's 
effort--apparent effort to encourage the use of this particular 
technology, this software, dovetailing with the market's 
efforts to develop different bells and whistles, different 
approaches that might be superior to that?
    Dr. MCCLELLAN. Absolutely. In fact, as I mentioned earlier, 
one of our QIO programs is to help small physician offices with 
adopting and installing electronic health records. The cost of 
these systems in many cases is significant. It is $10-, $20-, 
maybe $50,000 or so for the practice of a few doctors. A lot of 
the burden is just getting that system up and running and 
finding one that can really do what you need it to do. There 
are a lot of systems out there that do that, and a lot of the 
help that we provide involves those commercial systems. So, for 
many specialties, many physician offices, they are going to 
want a system with additional bells and whistles that have 
additional capabilities, and that is great. I think our only 
goal is to make sure that all physicians are moving in the 
direction of electronic health care as quickly and as 
effectively as they can.
    I think there is a vibrant private market for health 
information technology systems. It is going to get even better 
as we keep working together to establish interoperable 
standards that the private sector wants to use so that these 
systems can work with each other effectively. We are all for 
supporting that effort. That is key to the whole quality 
improvement effort behind performance-based payments.
    Mr. MCCRERY. Well, as you know, we are developing 
legislation in the House, and the Senate is doing the same on 
the other side of the Capitol, which--I believe both approaches 
will call for HHS to involve the private sector in developing 
standards for interoperability. I am just curious if you have 
thought about how encouraging the widespread use of this one 
technology or this one software application that has certain 
standards obviously in it will affect the development by HHS of 
standards for interoperability that we think is best for the 
country.
    Dr. MCCLELLAN. It is a very good question. The VA has been 
working with HHS and the rest of this Administration with this 
goal of interoperability. The adoption of those standards will 
be led by the private sector. That is where we are looking for 
guidance here. As the adoption of those standards are adopted, 
the VA and every other part of the FederalGgovernment is going 
to have to make sure they are in compliance with them. The VA 
is, I think, committed to making sure their software gets 
updated to be fully compliant with additional standards as they 
are developed. Again, I think there will be a broad range of 
privately developed products that will provide not only the 
sort of basic services the VA system does but many additional 
services as well and may even work with or on top of the 
existing VA software.
    Mr. MCCRERY. Okay, good. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Mr. Doggett.
    Mr. DOGGETT. Thank you very much, Madam Chairman; and thank 
you for your testimony and service, Dr. McClellan. Is it 
correct, with reference to the handbook that Congressman Lewis 
was just asking about, that all or parts of it have already 
gone to the printer?
    Dr. MCCLELLAN. I believe that parts of it have gone to the 
printer. I don't know if the whole thing has gone to the 
printer.
    Mr. DOGGETT. Well, the concern I have is that, while I 
hardly agree with the attitude and the manner in which you 
present it today--as far as cooperation with everyone here, as 
you may know or may not know the level of cooperation up to 
this point on this very important handbook has been rather 
minimal. The initial draft was not provided to our staff.
    It was provided, I think, to some interest groups, 
including consumer interest groups; and eventually I gather, 
after some additional revisions were made in the draft, our 
staff was permitted to look at it in a time-restricted manner 
in the HHS offices; limited to looking at the entire 
publication for less than 2 hours. Since that time, staff has 
received no indication, of any type, as to whether any of the 
recommendations that they made have been accepted.
    For example, the concern of our staff was that this 
handbook--you are well aware of the concerns that have been 
expressed not just about the Medicare prescription drug program 
but in the U.S. Department of Education, the U.S. Department of 
Agriculture--of using public resources to propagandize on 
behalf of the Administration. There was a particular feeling 
that people were being nudged toward HMOs and out of 
traditional Medicare without--hearing what the benefits were 
but not hearing what the limitations are. What opportunity is 
there at this point for any meaningful further comment or 
interaction on the contents of that book if part of it has 
already gone to the printer?
    Dr. MCCLELLAN. Well, just to go back, Congressman, the 
whole document of that preliminary draft was made widely 
available----
    Mr. DOGGETT. Not to our staff----
    Dr. MCCLELLAN. Well, we received detailed comments from 
your staff on that first draft, and there were suggested 
changes like separating our now private fee-for-service health 
plans and Medicare that in the first draft had been combined 
with original fee-for-service government plans. The suggestion 
was that those should be separate, because the fee-for-service 
programs, the private ones, are small. Most Medicare 
beneficiaries in the original plan should have a clear 
description of that. Absolutely right. I agree with that, and 
that has been taken in revisions. On the point that you just 
raised about Medicare Advantage plans versus the original 
Medicare Programming, there is some tradeoff there. On the one 
hand, under the Medicare Advantage Program, you are generally 
going to get----
    Mr. DOGGETT. Let me say, I understand there is a tradeoff. 
Our concern about your handbook was that it only told about the 
pluses and not the minuses. I guess the bottom line is, at this 
point, when you talk about cooperation on the handbook, is 
there any cooperation that will occur other than you will give 
us a copy of what has already been printed up before everyone 
else gets it?
    Dr. MCCLELLAN. I just want to review the comment process 
here, which is that we sent this draft, preliminary draft, 
labeled as such, out to literally hundreds of groups, and got 
comments back from them, from many of your staff, which we have 
taken in the revision process. That is how this works. You get 
input from all quarters, and then you finalize the document. 
You have to finalize it according to a specific time schedule 
because you have to mail this thing to 42 million beneficiaries 
to get it out on time.
    Mr. DOGGETT. Let me shift to physician payments, but say, 
in conclusion, the amount of comment time that our staff had 
was about an hour and a half sitting in an office without the 
ability to take any of the papers back; and I think the level 
of cooperation we are being offered at this point is that we 
will get mailed a copy of the final published version ahead----
    Dr. MCCLELLAN. That is what I am going to see to. It may 
not make you feel any better, but our staff got to do that full 
extensive round at first, and then there is more limited time. 
Once you have responded to all those comments, there is more 
limited time on the second round. I didn't get to see that 
second round for much longer than you did----
    Mr. DOGGETT. Well, that troubles me----
    Dr. MCCLELLAN. We do need to meet the timeframe----
    Mr. DOGGETT. Let me ask you on physician's payment, before 
my time runs out. I believe you have indicated that we have got 
a projection of another 4.3 percent cut this next year.
    Dr. MCCLELLAN. Yes, sir.
    Mr. DOGGETT. How do you recommend that the Congress deal 
with that if you have not arrived at a long-term solution by 
that time?
    Dr. MCCLELLAN. The kinds of ideas that we are discussing 
today, that would consider changing the way that we pay, 
instead of just paying based on volume of services, changing to 
a system that at least partly bases payments on quality on 
steps that help patients stay healthier, avoid unnecessary 
costs, keep overall costs down, is the right direction, and 
that is why we and so many medical groups, I think Members on 
both sides of the aisle, are interested in a better solution.
    As Chairwoman Johnson said, we cannot abide 7 years of 
projected negative updates. As Congressman Stark said, and as 
the Administration has said, we cannot just add in more and 
more money to a system that is already having rapid increases 
in costs and in premiums. This is, I think, the best way 
forward. There has been a tremendous amount of progress in the 
last few months, and I am confident that if we all keep working 
closely together and constructively, we can get to a better 
result than where we are currently headed
    Mr. DOGGETT. Madam Chairwoman, if I may just follow up. Do 
you expect that the Administration will have a specific 
recommendation to our Chairwoman and to all of us about what we 
should do on the 4.3 percent cut that is coming up to 
physicians within a few months?
    Dr. MCCLELLAN. I certainly hope that we can all come 
together on an effective approach. I know that you all are 
drafting legislation as well. We are happy to continue to 
provide technical support and help through that process.
    Mr. DOGGETT. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Mr. Hulshof.
    Mr. HULSHOF. Thank you, Madam Chair. Welcome, Dr. 
McClellan. Picking up on Mr. McCrery's analogy, I am not sure 
if this is going to be a curve ball or a fast ball or right 
down the middle.
    Dr. MCCLELLAN. As long as it is not aimed at the batter.
    Mr. HULSHOF. For the Medicare population, cancer, diabetes, 
heart disease and stroke are the primary killers.
    Dr. MCCLELLAN. Yes.
    Mr. HULSHOF. Obviously these diseases also account for 
greatest the portion of spending in the Medicare Program. That 
is why over the past decade, and certainly during at least my 
short tenure here, Medicare has increased its focus on 
prevention, on screenings, chronic care, obviously in an effort 
to improve the overall health of those patients, those 
beneficiaries. In fact, in the Medicare Modernization Act, we 
did include these additional measures for early detection of 
disease in seniors. As a result of that, more and more health 
care is being delivered in the outpatient settings by 
physicians, versus, say, inpatients, or in the hospitals.
    I certainly support that focus. I believe, as most of us 
do, that prevention, early detention and early diagnosis are 
essential, and here is where the pitcher is beginning to wind 
up, Dr. McClellan. I guess my question is whether the shift to 
more outpatient physician services is being calculated 
accurately in the current formula? It seems that, whether on 
your end or perhaps on our end, we are, through Medicare, 
encouraging beneficiaries to utilize more physician services, 
while at the same time, we are trying to control the volume of 
physician services through the SGR formula. So, let me just 
give maybe an open-ended question to you. Can you comment on 
how CMS projects utilization of physician services, and--maybe 
the tougher one, maybe a loaded question--are you confident 
that these calculations are accurate?
    Dr. MCCLELLAN. Well, we certainly are trying to do the best 
job that we can. It is a very important topic. I think the 
especially good news is that recently, we have had a lot of 
constructive input from the AMA, from other medical 
professional groups, to help us understand, as Chairwoman 
Johnson mentioned at the outset, why exactly costs are going 
up. There is some discussion of this in my written testimony, 
so I would refer you to that. I think you are right that there 
are certainly some new treatments, new initiatives by doctors 
in their offices to help patients with those very costly 
chronic diseases, stay healthy and avoid complications.
    The challenge that we have is that we have been peeling 
back the layers of what we are spending money on and that we 
are still seeing some cases where we are paying a lot of money, 
but it is not clear what we are getting for it. My worry is 
that we are not the experts here. What we would like to do is 
support doctors in doing the best job possible in preventing 
complications, and our current payment system does not do a 
great job of that. That is not something that is going to be 
fixed with more detailed calculations of exactly what caused 
spending growth.
    Just to give you a couple of examples, you mentioned heart 
failure. Well, in the area of heart failure, we are seeing more 
patients paying for more specialists in any given time period. 
That may be good, but on the other hand, if you look at the way 
our payment system works, if one specialist spends time talking 
to a patient's internist, you may not need so much effort from 
another specialist, or by the time they get to the next 
specialist there won't be as much to talk about if all of these 
different doctors are communicating well, sharing records, 
managing the patient effectively together.
    We pay less when they do that. We will pay more if they 
have more specialist visits, we do not give any bonus, in fact, 
it is kind of a penalty, because it means less use of lab tests 
and everything else if all of these doctors are actually 
talking to each other effectively about the patient's care. So, 
those are the kinds of problems that we are not going to get at 
just by making more accurate calculations about what exactly is 
causing the increases in spending. I do think we need to keep 
looking at those causes of increases in spending to find ways 
to better promote effective care by doctors. Again, I think 
more fundamentally, as many people here have said, we need a 
payment system that more directly gives doctors the support 
they need.
    Mr. HULSHOF. I appreciate that answer.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much. Mr. 
Thompson.
    Mr. THOMPSON. Thank you, Madam Chair. Thank you for being 
here, Doctor. What is the status of the demonstration projects 
that CMS is doing?
    Dr. MCCLELLAN. Which one? We are doing a number of 
demonstrations.
    Mr. THOMPSON. Aren't there three of them?
    Dr. MCCLELLAN. For physician payments?
    Mr. THOMPSON. Yes.
    Dr. MCCLELLAN. Some of them are underway. Others are going 
to be starting soon. The ones that we are implementing are, in 
many cases, modeled on programs that are already being used by 
other health care payers in the private sector. So, we are 
spanning the spectrum between large multidisciplinary group 
practices, down to small individuals, one or two doctor 
offices, through the demonstration program.
    Mr. THOMPSON. When are they expected to be completed?
    Dr. MCCLELLAN. They will run over the next several years, 
and we expect to keep getting useful information within a year 
of the program starting. We had a hospital payment 
demonstration program start a bit over a year ago, and we have 
already learned a lot from it in just 1 year.
    Mr. THOMPSON. So, you do not think we should complete these 
before we implement the pay for performance?.
    Dr. MCCLELLAN. It depends on what you mean by implementing 
pay for performance. You will hear more from the medical 
specialties in a minute, but what some of them have proposed, 
and what I understand Chairwoman Johnson and others have been 
working on, would be to start out with paying for reporting 
information, not making the payments based on the information, 
but pay on reporting information. Then, over several years, 
move toward a performance-based payment. That would certainly 
be enough time to incorporate what we have learned from these 
demonstration projects.
    Mr. THOMPSON. As we learn more from the demonstration 
programs, we can tune-up?
    Dr. MCCLELLAN. That is right. I think the questions we need 
to answer are, how quickly and how extensively you can get down 
that road. I do think that there are good measures either 
available now or available by next year that we can start using 
as we march through that process.
    Mr. THOMPSON. Thank you. In your testimony you had 
mentioned Lumetra and the work that they have been doing.
    Dr. MCCLELLAN. Yes. That is the California QIO.
    Mr. THOMPSON. I am assuming that the areas where they were 
working are, if not in my district, in districts or in areas 
similar to it.
    Dr. MCCLELLAN. I hope so. I hope you will let me know if 
they are not.
    Mr. THOMPSON. Can you give me an idea of what sort of 
problems they have been able to point out in regard to rural 
practices and the hurdles that they are facing?
    Dr. MCCLELLAN. There are several problems for rural 
practices. One is they tend to be smaller, and so they are 
unlike a large multi specialty group, where it is easier for 
people to pool together, to invest in electronic record systems 
or other steps that help them work together better to improve 
quality. They may also be on their own more for making 
decisions about patients. So, when you are in an urban setting 
you are either practicing with doctors in different specialties 
or they are right close by for referrals, whereas in the rural 
setting you have to do more things on your own. That requires a 
different approach when you are thinking about quality 
improvement opportunities. What Lumetra has done is, just to 
take electronic records systems as an example, is try to 
identify systems that have already been working in certain 
rural doctor practices. It is unusual for rural docs to have 
electronic records, but it is not unheard of; it is increasing 
around the country now.
    So, they have tried to develop tailored support programs to 
help rural doctors. They are on their own, they do not have a 
lot of staff, they do not have a lot of time to devote to 
figuring out how all of this software should be installed, so 
they have tried to help them follow some simpler rules or 
proven approaches to get those electronic record systems in 
place. Just as a side note on rural doctors, and these 
performance-based payments, when you look at some of the 
performance measures that we are most interested in, and also 
look at overall cost of health care, which we want to keep 
down, many of these rural practices do very well already.
    I do not know if it is just knowing your patients better 
than you can in an urban setting or what, but in terms of 
quality and cost, many of these rural doctors are doing well. I 
think they could do well under these performance-based payment 
systems, but just to make sure that happens we need to keep 
building on support programs like what Lumetra is doing.
    Mr. THOMPSON. I yield back.
    Chairman JOHNSON OF CONNECTICUT. Thank you. Mr. Emanuel.
    Mr. EMANUEL. I would like to thank you, Dr. McClellan. You 
know I am about to say something that I really wish I was not 
going to say.
    Dr. MCCLELLAN. You do not have to say it.
    Mr. EMANUEL. When you hear it, I think you will hear why. 
Secretary Levitt is in my district, and I got an hour notice. 
He is in the district today. My gut tells me that if he was in 
Missouri, in my colleague's district, then he would be notified 
well in advance and invited. That would be true about my 
colleague from Arizona, that would be true about my colleague 
from Louisiana, that would be true about my colleague from 
Connecticut. We may have different views about the prescription 
drug benefit. I am not an expert like you, and I am not an 
expert like Dr. Levitt, but I have a couple of views about it. 
I would rather be talking about the pay for fee services today 
that we are supposed to be talking about.
    Now, the prescription drug benefit is not very popular. 
There is a lot of questions about it out there. In fact, 
because of its complexity, there is a lot of hesitancy about 
it. Now, you are going to the Copernicus Center in my district 
today. I got about an hour notice that you were coming. I think 
I know something about what the people on the north side of 
Chicago think about that benefit, and I think I could be 
helpful. Now we have differences on reimportation, we have 
differences on direct negotiation, but I think this is a rank 
amateur move. Now, your agency was cited by the GAO for the 
advertisements you have done, and cited on the propaganda 
issue. A lot of people have some doubts about it because you 
politicized this process.
    I hope the mailing you send out to the 42 million senior 
citizens does not include that same kind of political overture 
statement, because we can help get this benefit accepted. If 
you look at the acceptance by people for your discount card, 
which is unbelievably low, it comes from politicizing this 
process. I would prefer to use my time appropriately here, and 
I kind of resent that I am doing this, but I would like to, 
since you are the only one here from HHS, I would like to 
logger with you. We have our differences, but we serve the same 
people. I also have the eldest district in the State of 
Illinois. There are some senior citizens, for a former 
Congressman that happened to represent this district who were 
once hood ornaments to that Congressman's car because of their 
views of health care.
    Now, I can help explain the benefit, whether I agree or 
disagree or vote for it. Now, having said that, we will talk at 
some other point about reimportation, direct negotiation, how 
to deal with pricing. If this bill and the legislation was a 
little simpler, you would not require all of the explanation 
that is going to be involved in it. Now, with that, I would 
like to ask you, how do you ensure that been beneficiary will 
not pay more in this program than you would like to look at in 
the fee-for-service and the bonus structure?
    Dr. MCCLELLAN. For the physician payment?
    Mr. EMANUEL. Yes.
    Dr. MCCLELLAN. I will answer that, but I do want to go back 
first to the issues raised earlier, because I truly appreciate 
your interest and willingness to get the facts out about the 
benefit itself. There a lot of people who disagree on what 
exactly should be in the Medicare drug benefit and how it 
should operate. I personally think these approaches that we are 
taking to get the prices down and to make sure that the 
benefits are up to date are going to make sure that Medicare's 
benefits don't fall behind like they have over the last 40 
years, but there are differences about that. What we are doing 
with the outreach effort to educate seniors about the drug 
benefit is really about the facts of the benefit itself, and 
what it means for each of them. In your district, I did not 
realize this event was in your district this morning.
    Mr. EMANUEL. It is going on right now.
    Dr. MCCLELLAN. That is a locally-focused event, and it 
involves not just Republicans; Mayor Daly, I understand is 
going to be there, and many local organizations that are 
helping to get that information out to seniors to make sure 
that we are working together.
    Mr. EMANUEL. I have a degenerative gene. I happen to do 
office hours at grocery stores. That is where I do my office 
hours. I greet people, whoever comes in and wants to talk or 
whatever. That is how I spend my time meeting my constituents. 
Now, I voted against this, but I have done a mailing explaining 
to people what the benefit is, where they can call. You and I 
and your office and your entire loyal public servants serve the 
same constituents. If I were somebody else on this panel, I 
would be rolling my eyes that I am wasting my time doing this 
with you personally. I really prefer not to be. The fact is, we 
have differences, but there are going to be people who are 
going to get that benefit. Now, we can have these differences, 
we are going to keep debating them out, and that is why 
politics is a good thing. There are some questions already 
about how this has been managed by HHS, and the politicization 
of this from the video that GAO cited you with. Now, I would 
suggest if you can stop continuing the politics, I did not need 
an hour-ahead call, you could have called ahead of time. I 
probably could not have made it because of votes here, but I 
would have appreciated it and could have helped you. Now, to 
the real issue at hand here that is also an important issue.
    Dr. MCCLELLAN. I do want to follow up with you on that and 
make sure that we are working effectively together. I 
appreciate your commitment to getting the facts out. On 
physician payment, if you do not mind me running over for a 
minute or two on answering this important question, that is 
part of the challenge that we face. When we do anything that 
increases the total spending in part B, 25 percent of that 
increase is paid for by the beneficiaries. So, that is why I 
think an approach of just adding more money into these same 
payment systems, which are rapidly increasing in cost, but are 
not helping to deliver high quality care as much as they could, 
is not the right way to go. The kinds of stuff that we are 
talking about, which would help doctors deliver better care, 
and avoid unnecessary services and help beneficiaries not only 
pay less money for their care, as a result, but also stay 
healthier are very important.
    There are some challenges in getting these systems 
implemented, but there has been a tremendous amount of 
progress. I also promised to keep you and other Members of this 
Committee closely informed about any beneficiary impacts of 
these kinds of payment changes, because we do want to try to 
avoid that.
    Chairman JOHNSON OF CONNECTICUT. Mr. Hulshof has a point to 
make, and I would like to give Mr. Cardin a chance.
    Mr. HULSHOF. Just for the record, Madam Chairwoman, I would 
like the record to reflect that in the year 2000, the President 
of the United States, who my friend from Illinois used to work 
for, came to the University of Missouri, Columbia, presumably 
to talk about patients' bill of rights. I was not invited, even 
though the event was three blocks from my home. My political 
opponent for Congress was invited, as was our late Governor, 
Mel Carnahan, who was a Democratic Senatorial candidate. So, 
since the gentleman referenced me earlier, I wanted the record 
to reflect the political nature of that event as well.
    Mr. EMANUEL. As you know from us being colleagues, I was 
gone in 1998. Had I been there, I surely would have invited 
you.
    Chairman JOHNSON OF CONNECTICUT. Mr. Cardin.
    Mr. CARDIN. Dr. McClellan, let me thank you for your 
testimony. I am a little bit concerned, though, about your last 
statement in that it gives me the impression that we are 
spending more money than we should for physician reimbursement, 
and we are not delivering the high level of care, at least that 
is just looking at the language that you just supplied Mr. 
Emanuel with. I am not so sure I agree with that statement. So, 
I, at least, want the record to reflect that I do think that 
the Medicare system does deliver a high level of care, and, 
yes, I think we need to improve it.
    I think there is now no disagreement that the SGR needs to 
eliminated as the payment structure for physicians. That seems 
to now be accepted, and we are now moving to where do we go 
from there, and I accept that. I just really want to put my 
concerns on pay for performance. I just do not quite understand 
what we are trying to achieve. Let me explain. It seems to me 
that if a physician provides high quality care, there is no 
need for a bonus, because that is what they should be doing.
    Dr. MCCLELLAN. Right.
    Mr. CARDIN. Second, if a physician provides the normal 
level of care, which is adequate care, there should not be a 
discount for that, they should get a reasonable reimbursement. 
So, I am not sure exactly what we are trying to achieve by 
these new standards. Maybe you can help me with that. I have 
the concern that if you set up a structure that gives extra 
payment for particular services, that the natural effect may 
well be to provide care for the reimbursement rather than 
providing care for the quality. Now, make me feel better about 
all of this.
    Dr. MCCLELLAN. First of all, let me agree with you that 
Medicare does provide high quality care for millions of 
beneficiaries every day, and that is not just because of us 
paying the bills, it is because we have a very high caliber of 
health professionals in this country that we are able to work 
with in delivering this care. This is an area where I think a 
lot of people get it wrong in thinking about economics and 
physicians. Physicians are not there doing this job every day 
just because they want to make money, or even mainly because 
they want to make money. These are smart people. I know a lot 
of them. Not that I am one of them myself.
    These are generally very smart people who are very 
committed to the work that they are doing, and they are there 
because they care about patients, because they want to deliver 
high quality care. In order to do that, they also have to keep 
their doors open. They have to be able to run their clinic, to 
pay their staff, to buy the equipment, and pay the bills that 
enable them to deliver high quality care. When we pay them in 
ways that gets in the way of that goal of high quality care, 
well, they cannot do their job as well as they could otherwise.
    Just to give you one example, if a physician buys an 
electronic health records system, and then uses it to send e-
mail reminders to their patients or to schedule visits more 
appropriately, or to enable them to contact the patient to head 
off complications or to get better information in on the 
patient's lab tests that are done elsewhere, what happens? They 
get paid less by Medicare. So, how can they make the 
investments in these kinds of quality-improving systems that 
they would like to be able to use to deliver better care if we 
do not have a payment system that supports that. Instead, what 
we will do is we will pay; if there are more lab tests done, if 
more of those patients come in to see that doctor or other 
doctors, if there are more complications for that patient with 
chronic illness, and so we end up spending more money getting 
less good health outcomes because we are not supporting doctors 
as effectively as we should. That is the goal.
    Mr. CARDIN. I agree with everything you said. I just urge 
that this not be money driven. It seems to me that if you have 
a dollar amount you are trying to achieve, and that is going to 
compromise quality, because you have to reach that dollar 
amount, then you compromise the whole concept of what you are 
trying to do here. That is how I find too much policy driven 
here in Washington, not because of you, but because of our 
system here, and being so budget driven. So, I hope that in 
developing this, that you are going to reach out and meet with 
all of the different groups. I would really like to talk to you 
about the game plan that you have in reaching out to the 
different medical groups and groups that are out there to make 
sure that they have input before we do this.
    I am concerned about this being driven more by money than 
driven by good health care policy. I could not agree with you 
more, our system can certainly be improved. We know that we 
have to get rid of the SGR. We all know that. That is going to 
cause those doors to close, and we do not want to see that 
happen.
    Dr. MCCLELLAN. I think it is very important for this whole 
effort to involve a lot of leadership from the physician 
community. That is absolutely right.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much. We 
will hear that from the physician community. I can certainly 
provide you with the documents that they have circulated from 
which we drew the criteria and the measures in our draft 
proposal, which I would be glad to circulate too. Dr. 
McClellan, thank you very much. I know you need to leave at 
2:30, so I won't proceed with some specific questions that I 
was holding until the end, but do I want to put them on the 
record.
    Dr. MCCLELLAN. We will be happy to follow up with you on 
them.
    Chairman JOHNSON OF CONNECTICUT. You know how strongly I 
feel about consistent decisions in Medicare, because I think 
they promote fair and equitable consequences. We have discussed 
this at great length on the issue of reclassification and 
recertification. I think the definition of physician services 
ought to be consistent. The fact that the definition of 
physician services is different under SGR than it is for the 
whole rest of Medicare is certainly distorting this program and 
hampering our ability to handle a fair and equitable 
reimbursement structure for physicians.
    Second, I think the spirit of the law is every bit as 
important as the letter of the law. While the letter says that 
the SGR has to be accommodated with changes in law and 
regulation, I would certainly maintain that program memorandum 
and national coverage decisions do have office visit 
implications, and those ought to be better reflected, and that 
is something we are going to have to look at carefully if we 
cannot do something truly more intelligent, which is to repeal 
the whole system, and substitute for it a more intelligent 
payment system, but also one that analyzes growth and evaluates 
it for appropriateness.
    There is no evaluation of appropriateness going on right 
now, although I know you and your staff are taking apart this 
big increase from the last year to begin to look at that. The 
new payment system, the new profiling effort will give us the 
tools we need to judge appropriateness of service increases, 
and we do not have those now. So, I do not want the system to 
be destroyed through a 15-percent increase that may very well 
represent a growth in preventive services, in quality 
practices. We just do not know. So, we have a lot of work to do 
together, if we are going to prevent the current law from going 
into effect. I hope you and your staff will work closely with 
us, and will be open to the level of change that we have to 
make if we are going to go forward in the future in the way you 
propose.
    Dr. MCCLELLAN. Thank you very much.
    Chairman JOHNSON OF CONNECTICUT. Thank you for being with 
us. If the next panel would please come forward. Good afternoon 
and welcome to the hearing. We hope that you will summarize 
your testimony in roughly 5 minutes. This is a very important 
subject, and you have written very interesting testimony. Then 
we will have time for some questions. Thanks.

    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 AMA, and a practicing trauma, 
critical care and general surgeon from Miami, Florida. The AMA 
would like to commend you, Madam Chairman, and Members of the 
Subcommittee, for your leadership in recognizing the need to 
replace the current Medicare physician payment formula. We also 
appreciate your repeated efforts, Madam Chairman, with Chairman 
Thomas, in pressing CMS to make administrative changes to the 
physician payment formula. This would help Congress enact a new 
formula that keeps pace with physician practice costs by 
lowering the cost of legislation.
    We also commend Representatives Shaw and Cardin, and the 
over 100 cosponsors of H.R. 2356, the Preserving Patient Access 
to Physicians Act of 2005. This bill would replace the current 
physician payment formula. Madam Chairman, today we are here to 
discuss the legislation you are developing. We understand it 
would repeal the fatally flawed physician payment formula, and 
implement a value-based purchasing program for Medicare 
physician services. The AMA and its member physicians are 
staunchly committed to quality improvement. Over the last 5 
years, the AMA has dedicated over $5 million in convening the 
physician consortium for performance improvement for the 
development of performance measures and related quality 
activities.
    As a result of these efforts, CMS is now using these 
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 principles and 
guidelines for pay-for-performance programs, and these are 
attached to our written testimony. Overall, many of the 
elements we understand would be included in your legislation 
are consistent with a number of these principles and 
guidelines.
    For example, we understand your goals in developing 
legislation are: To repeal the SGR and provide positive updates 
for physicians that reflect increases in practice costs; to 
allow voluntary physician participation; and to require 
evidence-based valid performance measures developed by the 
medical specialties in a transparent process. We want to work 
further with you and Members of the Subcommittee to address 
areas of concern.
    Pilot testing prior to full implementation is essential. 
Measures of efficiency should not simply reward the lowest cost 
provider while ignoring quality of care. Efficiency measures 
must meet the same evidence-based standards as quality 
measures. There also needs to be a reliable method for risk 
adjustment. In addition, we are concerned about potential 
adverse effects of public reporting, such as exacerbating 
disparities in care for minority and other vulnerable 
populations. Providing patients with flawed information would 
undermine the goals of value-based purchasing, and violate the 
physician's oath of, first, do no harm.
    Physicians should be fairly reimbursed for their 
administrative costs, especially for information technology 
systems necessary for the collection and transmission of 
accurate quality data. Finally, the AMA appreciates the 
Chairman's recognition that the current flawed physician 
payment formula cannot coexist with a value-based purchasing 
program. Value-based purchasing may save dollars for the 
program as a whole by reducing hospitalizations, but the 
majority of measures, such as those focused on prevention and 
chronic disease management ask physicians to deliver more care. 
If the physician payment or SGR formula is retained the so-
called reward for physicians will be additional pay cuts. This 
would only compound an ongoing serious problem. Physician pay 
cuts of 31 percent over the next 7 years are projected 
beginning January 1, 2006.
    A recent AMA survey showed that these cuts will impair 
patient access. For example, more than a third of physicians 
would decrease the number of new Medicare patients they accept. 
More than half would defer the purchase of information 
technology that is necessary to make value-based purchasing 
work. A majority will be less likely to participate in Medicare 
Advantage. It is clear that the current physician payment 
formula must be replaced. We agree with your conclusion, Madam 
Chairman, and the conclusion of Chairman Thomas, that CMS 
should help lower the cost of enacting a new formula by using 
its authority to remove drugs from the SGR retroactively, and 
including in the payment formula increased spending due to 
national coverage decisions and government health promotion 
policies. We look forward to working with the Subcommittee on a 
new payment system that truly benefits our patients. Thank you.
    [The prepared statement of Dr. Armstrong follows:]
   Statement of John H. Armstrong, M.D., Member, Board of Trustees, 
                      American Medical Association
    Chairman Johnson, Ranking Member Stark and Members of the 
Subcommittee, the American Medical Association (AMA) appreciates the 
opportunity to provide our views today regarding value-based purchasing 
for physicians under the Medicare program.
    The AMA would like to commend you, Madam Chairman, and each Member 
of the Subcommittee, for all of your hard work and leadership in 
recognizing the fundamental problems inherent in the Medicare physician 
payment update formula and the need to replace the flawed formula. A 
new formula that keeps pace with physician practice cost inflation is 
critical. Without it, we are in grave danger of a Medicare meltdown 
that would present serious access problems for our nation's senior and 
disabled patients.
    We also greatly appreciate, Madam Chairman, that you are in the 
process of developing legislation that would repeal the current 
physician sustainable growth rate (SGR) formula and replace it with an 
alternative system that is intended to better reflect physician 
practice costs. The draft legislation would also implement a value-
based purchasing program for Medicare physicians' services. Overall, 
many of the elements that we understand you are considering for 
inclusion in your legislation would be consistent with AMA principles 
recently adopted by our House of Delegates relating to value-based 
purchasing programs (or ``pay-for-performance'' programs), as we 
discuss further below, along with a couple of issues about which we 
urge further consideration.
    In addition, the AMA extends its gratitude to Chairman Thomas and 
Subcommittee Chairman Johnson for your repeated efforts in pressing the 
Centers for Medicare and Medicaid Services (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, and requests that CMS review its procedures for 
determining the costs of national coverage decisions (NCDs). The AMA 
adamantly agrees with the Chairmen that CMS should retroactively remove 
drugs from the SGR and reflect in the SGR increases in physician 
spending due to NCDs, and we urge CMS to do so for the 2006 physician 
payment rule.
    We also commend Representatives Shaw and Cardin and the over 90 co-
sponsors of H.R. 2356 (the Preserving Patient Access to Physicians Act 
of 2005) for your leadership and efforts in addressing the flawed 
Medicare physician payment formula. Your bill also would relieve 
looming Medicare physician access problems by repealing the current SGR 
formula and implementing positive updates in 2006 and beyond that would 
reflect increases in the cost of practicing medicine.

 VALUE-BASED PURCHASING FOR PHYSICIANS AND CURRENT SGR FORMULA CANNOT 
                                CO-EXIST

    The AMA appreciates the Chairman's recognition that the current 
flawed Medicare sustainable growth rate (SGR) physician payment formula 
must be replaced and cannot co-exist with a value-based purchasing 
program for physicians. The end-goals of the SGR and value-based 
purchasing are in conflict.
    Value-based purchasing programs are based on the notion that the 
management of potentially costly conditions in the physician's office 
will prevent or shorten hospitalizations paid for under Medicare Part 
A. This also means, however, that more care will be delivered in 
physician offices under Medicare Part B. Thus, although pay-for-
performance may save money for Medicare Part A or to the program as a 
whole, it likely will result in increased spending on physician Part B 
services. During his May 11, 2004 testimony before this 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.''
    Increased Medicare spending on Part B physicians' services would 
trigger additional Medicare pay cuts for physicians because, as 
discussed further below, Medicare pays for Part B physician services 
based on the SGR spending target. If physician spending exceeds the SGR 
target, Medicare payments to physicians are cut. In other words, pay-
for-performance and the SGR are inconsistent concepts. This would only 
compound ongoing serious problems resulting from application of the 
current SGR physician payment formula.
    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. The Medicare Trustees project that physicians and other 
health professionals face steep pay cuts (about 26%) from 2006 through 
2011. 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.
    The AMA conducted a survey of physicians in February and March 2005 
concerning significant Medicare pay cuts from 2006 through 2013 (as 
forecast in the 2004 Medicare Trustees report.) Results from the survey 
indicate that if the projected cuts in Medicare physician payment rates 
begin 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 to defer the 
purchase of information technology;
      A majority of physicians (53%) will be less likely to 
participate in a Medicare Advantage plan;
      About a quarter of physicians plan to close satellite 
offices (24%) and/or discontinue rural outreach services (29%) if 
payments are cut in 2006. If the pay cuts continue through 2013, close 
to half of physicians plan to close satellite offices (42%) and/or 
discontinue rural outreach (44%); and
      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 (or even the threat of repeated 
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.
    The AMA is happy to have the opportunity today to address problems 
with the physician payment formula, as well as administrative action 
that can be taken now to help alleviate the cost of enacting a new 
physician payment formula. We also look forward to working with the 
Subcommittee and CMS to ensure a stable, reliable payment system that 
preserves patient access and keeps up with the costs of practicing 
medicine. This would treat physicians similarly to other Medicare 
providers, such as hospitals, home health agencies and skilled nursing 
facilities.

             VALUE-BASED PURCHASING PROGRAMS FOR PHYSICIANS

  AMA Commitment to the Development of Effective Quality Improvement 
                                Programs

    The AMA is committed to quality improvement, and we have undertaken 
a number of initiatives to achieve this goal. Over the last five years, 
the AMA has spent over $5 million in convening the Physician Consortium 
for Performance Improvement for the development of performance 
measurements and related quality activities. The activities of the 
Consortium, as well as other AMA initiatives in performance improvement 
are described in the attached document.

           AMA Pay-for-Performance Principles and Guidelines

    As quality improvement efforts have evolved, so has the concept of 
value-based purchasing (or pay-for-performance). The AMA believes that 
physician pay-for-performance programs designed properly to improve 
effectiveness and safety of patient care may serve as a positive force 
in our healthcare system. If done improperly, however, they could harm 
patients, and, thus, in our ongoing efforts to advance the development 
and effective implementation of pay-for-performance programs, the AMA's 
House of Delegates adopted in June comprehensive pay-for-performance 
(PFP) principles and guidelines.
    Overall, these principles 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. 
Associated with each principle, however, are more specific guidelines. 
These principles and guidelines are attached.
    Similar to these AMA principles, which support the use of quality 
of care measures created by physicians across appropriate specialties, 
the code set used to capture quality of care measures also needs to be 
created by physicians working with the specialty societies. The CPT 
codes set, using the CPT editorial process, provides the appropriate 
combination of clinical methodological rigor and broad stakeholder 
expertise to support the application of codes to quality of care 
measures. In fact, the AMA/CPT Editorial Panel has already established 
a Performance Measurement Advisory Group (PMAG) utilizing nationally 
recognized performance measurement experts to provide guidance on the 
development of CPT Category II performance measurement codes. To date 
over 30 CPT Category II codes have been developed utilizing an 
inclusive and thorough process.
    We strongly urge use of the CPT Editorial Panel process and use of 
the CPT Category II codes as the preferred code set for transmitting 
performance measurement information under pay for performance programs.

              Physician Value-Based Purchasing Legislation

    The value-based purchasing legislation being developed by Chairman 
Johnson appears to be consistent with a number of key AMA PFP 
guidelines discussed above. For example, we understand the legislation 
would require the development of a value-based purchasing program for 
physicians' services that contains at least the following elements: (i) 
allocation of new funds for physicians who report and meet performance 
measures; (ii) voluntary physician participation; (iii) evidence-based 
performance measures developed in a transparent, open process that 
allows each of the individual medical specialty societies to have input 
into the process of developing performance measures; (iv) allowance for 
variations in individual patient care based on a physician's clinical 
judgment; (v) performance measurement that is scored against both 
absolute values and relative improvements in those values; (vi) a 
phase-in of the program during 2007, 2008 and 2009; (v) safeguards 
against patient de-selection; (vii) measures that take into account 
patient non-compliance; (ix) patient privacy; (viii) the option by 
physicians to bill at a group level; and (xi) the ability for 
physicians to review and comment on and appeal performance ratings, 
with a requirement that physicians' comments be released along with 
their rating.
    There are several areas of concern that the AMA urges the 
Subcommittee to consider as it moves forward in developing value-based 
purchasing legislation. First, all physicians should receive a base 
payment update, while physicians achieving quality goals can receive a 
bonus payment. In addition, any pay-for-performance program needs to be 
pilot tested 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 prior to full implementation of the program.
    Measures of efficiency are another strong area of concern. 
Efficiency measures have the danger leading to rewards for the lowest-
cost provider, while ignoring quality of care. Thus, it is imperative 
that efficiency measures meet the same standards as are applied to 
quality measures. These measures must be evidence-based, valid measures 
developed through a transparent process that allows input from the 
medical specialties. Efficiency cannot only relate to cost issues, as 
we have learned from the experience of UnitedHealthcare. Its United 
Performance insurance product was introduced this year, but two large 
medical groups have already informed United they will not participate 
in the performance program because performance ratings for efficiency 
essentially are based on United's financial liability, not the quality 
of care provided. Finally, there must be broad-based consensus 
regarding what constitutes appropriate levels of care before measuring 
for efficiency.
    Development of risk-adjustment techniques are of great concern to 
the physician community. Currently, there is no reliable method for 
risk-adjustment, which has grave consequences for purposes of 
determining a fair comparison of physician performance, payment and 
public reporting, as discussed below.
    The AMA also is very concerned about public reporting, which if not 
approached thoughtfully, can have unintentional adverse consequences 
for patients, including, for example, patient de-selection in the case 
of those with certain ethnic, racial, socioeconomic or cultural 
characteristics that make them less compliant. Further, health literacy 
may not be adequate to comprehend basic medical information. Yet, 
programs must be designed so that appropriate information must be 
available to patients to enable them to make educated decisions about 
their health care needs. If done correctly, public reporting has the 
potential to help provide such appropriate information to patients. 
There remain, however, 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 
consumer/patient. Moreover, in accordance with the AMA guidelines, 
physicians must have the opportunity for prior review and comment and 
the right to appeal with regard to any data that is part of the public 
review process. Physicians should also have the right to have their 
comments included with any publicly reported data.
    Further, in implementing performance measures, it is important to 
learn from private sector programs already in existence. We know from 
some private sector programs that application of measures is more 
effective if they are implemented on a graduated basis. It is best to 
begin by implementing only a limited number of measures to assess how 
well they work, and then build upon the program from that starting 
point. Thus, we recommend that pay-for-performance legislation include 
limits on the number of measures with which physicians must comply over 
certain time periods.
    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.
    Finally, the AMA wishes to raise overall factors to be considered 
as we move forward in developing value-based purchasing legislation for 
physicians: (i) physician practices are vastly different in size and 
type across the country, and, in stark contrast to hospitals, which are 
fairly homogenous, one size does not fit all; (ii) the number of 
patients needed to achieve a statistically valid sample size; (iii) the 
desire to keep the data collection burden low, while at the same time 
maintaining accuracy of the data; (iv) level of scientific evidence 
needed in establishing appropriate measures; (v) the ability to trace a 
performance measure back to one or many physicians involved in a 
patient's care; and (vi) 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.
    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.

                            SPENDING TRENDS

    Medicare pays for services provided by physicians and numerous 
other health care professionals based a target rate of growth, called 
the sustainable growth rate (SGR). If Medicare spending on physicians' 
services exceed allowed spending in a particular year, physician 
payments are cut in the subsequent year. Conversely, if allowed 
spending is less than actual spending, physician payments increase.
    Only physicians (and other health professionals whose payments are 
tied to the physician fee schedule) are subject to arbitrary cuts due 
to factors beyond their control. Every other category of health care 
provider receives positive updates, based on a measure of inflation in 
their practice costs. For example, CMS recently announced positive 
updates of 2.5% for home health services and 3.2% for hospitals.
    On March 30, the Centers for Medicare and Medicaid Services 
reported that Medicare spending on physician services grew by 15% in 
2004. Other Medicare data, including the 2005 Medicare Trustees Report, 
suggests spending growth of 12% to 13%. About 7% represents an increase 
in services per patient. This follows utilization increases of about 
5.5% in 2001, 6% in 2002 and 5% in 2003. What happened in 2004 is not 
some ``unprecedented'' spending spike. It is the continuation of a 
trend brought about by expanded life-spans, more chronic disease and 
better treatments.
    Nevertheless, it is not surprising that Medicare spending on 
physician services continues to increase. First, Medicare's two public 
trustees have noted that much of the growth in physician services can 
be traced to technological advances. Revolutionary changes in the 
practice of medicine have made it possible to keep millions of 
Medicare's elderly and disabled beneficiaries alive and active well 
into their 80s. Second, the prevalence of expensive chronic conditions 
such as kidney failure, heart disease and diabetes has increased 
dramatically, despite these vast improvements in mortality and quality 
of life, More than three-fourths of Medicare beneficiaries now have at 
least one chronic illness and about two-thirds have a least two and 20% 
have five or more. Thus, with the positive results of medical advances 
and the increase in widespread chronic conditions among the elderly, 
Medicare spending on physician services is a good investment. Congress 
has recognized the value of investing in physician services by twice 
intervening to avert sharp Medicare cuts.
    CMS has also noted that an increase in Medicare payments for 
physician and other health professionals would, in turn, increase the 
Medicare Part B premium for beneficiaries. Physician pay cuts, however, 
will ultimately cost beneficiaries more because these cuts will force 
physicians to discontinue providing certain services in the physician's 
office. Rather, patients will have to receive these services in higher-
cost hospital settings. This means that Medicare patients will 
experience more inconvenience, exposure to life-threatening infections, 
and higher deductibles and co-payments when they are treated in the 
hospital. In fact, increased spending on hospital outpatient services, 
whether due to the hospital payment update or utilization increases, 
also increases beneficiary premiums.

           PROBLEMS UNDER THE SUSTAINABLE GROWTH RATE SYSTEM

    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. (as 
further discussed below under ``Administrative Action Needed.'')

Problems with the Payment Formula Due to GDP
GDP Does Not Accurately Measure Health Care Needs
    The SGR permits utilization of physicians' services per beneficiary 
to increase by only as much as GDP. The problem with this 
``relationship'' is that GDP growth does not track the health care 
needs of Medicare beneficiaries. For example, when a slowed economy 
results in a decreased GDP, the medical needs of Medicare patients 
remain constant, or even increase, despite the economic downturn. Yet, 
physicians and numerous other health professionals, whose Medicare 
payments are tied to the physician fee schedule and who are doing their 
best to provide need services, are penalized with lower payments 
because of a slowly growing economy, resulting in the decreased GDP. 
Further, GDP does not take into account the aging of the Medicare 
population, technological innovations or changes in the practice of 
medicine.
    Historically, health care costs have greatly exceeded GDP. Yet, the 
SGR is the only payment formula in Medicare tied to that index. In 
contrast, payments for hospitals, skilled nursing facilities and home 
health, for example, are all tied to their inflationary pressures.
Technological Innovations Are Not Reflected in the Formula
    The Congressional Budget Office has said that Medicare volume 
increases are due to ``increased enrollment, development and diffusion 
of new medical technology'' and ``legislative and administrative'' 
program expansions. The SGR system's artificial cap on spending growth 
ignores such medical advances when it limits target utilization growth 
to GDP growth.
    The United States' population is aging and new technologies are 
making it possible to perform more complicated procedures on patients 
who are older and more frail than in the past. Over the last decade, 
life expectancy has risen by a year for women and two years for men. 
Life-spans for both sexes rose by about a half year just between 1999 
and 2002, and 65-year-olds of both sexes now can expect to become 
octogenarians. Improvements in the field of anesthesia and surgery make 
it possible to operate on older and older patients when complex surgery 
is required. People 80 and older now frequently undergo extensive 
surgery to prevent heart attacks and strokes.
    Both Congress and the Administration have demonstrated their 
interest in fostering advances in medical technology and making these 
advances available to Medicare beneficiaries through FDA modernization, 
increases in the National Institutes of Health budget, and efforts to 
improve Medicare's coverage policy decision process
    The only way for technological innovations in medical care to 
really take root and improve care is for physicians to invest in those 
technologies and incorporate them into their regular clinical practice. 
The invention of a new medical device cannot, in and of itself, improve 
health care--physicians must take the time to learn about the 
equipment, practice using it, train their staff, integrate it into 
their diagnosis and treatment plans and invest significant capital in 
it. Although the Medicare hospital payment system allows an adjustment 
for technological innovations, the physician payment system does not do 
so. The physician payment system is the only fee structure of Medicare 
that is held to GDP, and no other Medicare payment system faces as 
stringent a growth standard.
    Government efforts to foster technological innovations could be 
seriously undermined as physicians now face disincentives to invest in 
new medical technologies or to provide them to Medicare beneficiaries.
Site-of-Service Shifts Are Not Considered in the Formula
    Another concern that is not taken into account in the SGR formula 
is the effect of the shift in care from hospital inpatient settings to 
outpatient sites for certain medical procedures. For example, when the 
2005 Medicare Trustees report was released, CMS noted that expenditures 
for inpatient hospital services covered by Part A were lower than 
previous forecasts, but failed to mention that lower inpatient spending 
was a contributor to increased Part B spending for physicians' 
services.
    It has been a goal by Congress and the Bush Administration to 
utilize more physician services through disease management and 
prevention initiatives in order to avoid expensive hospitalizations and 
nursing home admissions. Technological innovations have also made it 
possible to treat many services that once required hospitalization in 
physicians offices instead. Physicians are keeping seniors with chronic 
diseases out of hospitals by managing their care in the office. 
Hospital days per 1000 population between 1995 and 2002 declined by 
more than 15% among 65 to 74 year olds and by more than 10% for those 
75 and older.
    Where inpatient care is avoided, deductibles are reduced from about 
$900 to about $100; if ambulatory care is involved, co-payments are 
limited to 20% of Medicare's allowed charge in physician offices 
compared to up to 45% in a hospital outpatient department.
    While these trends have led to the treatment of increasingly 
complex cases in physicians' offices, the increased use and intensity 
that results is not recognized in the SGR formula.
Beneficiary Characteristics Are Not Reflected in the Formula
    A related factor that also is unrecognized in the SGR formula is 
changes over time in the characteristics of patients enrolling in the 
fee-for-service program. For example, increases in patients diagnosed 
with, or having complications due to such diseases as obesity, diabetes 
and end stage renal disease, require greater utilization of physicians' 
services. Yet, these types of changes in beneficiary characteristics 
are not reflected in the SGR.

  ADMINISTRATIVE ACTION NEEDED TO ASSIST CONGRESS IN REPLACING THE SGR

    Apart from the inherent problems in the physician payment formula, 
there are other problems with implementation of the SGR that seriously 
threaten patient access and inequitably affect payment updates due to 
factors that are beyond physicians' control.
1. CMS Must Remove Medicare-covered, physician-administered drugs and 
        biologics from the physician payment formula, retroactive to 
        1996

           CMS has the Authority to Remove Drugs from the SGR

    The AMA joins Chairman Thomas and Subcommittee Chairman Johnson in 
urging CMS to remove spending on physician-administered drugs from 
calculations of the SGR, retroactive to 1996. As discussed above, in 
the July 12, 2005, letter to Administrator McClellan, Chairmen Thomas 
and Johnson affirmed CMS' authority to remove spending on physician-
administered drugs from calculation of the SGR.
    When CMS calculates actual Medicare spending on ``physicians' 
services,'' it includes the costs of Medicare-covered prescription 
drugs administered in physicians' offices. The July 12 letter explains 
that 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. Further, drugs are not paid under the Medicare physician fee 
schedule, and it is illogical to include them in calculating the SGR. 
Finally, the July 12 letter also discusses that CMS has the authority 
to revise its previous calculations of actual spending under the SGR by 
removing the costs of drugs back to the base period using this revised 
definition. Once CMS has revised calculations of actual spending back 
to the base period, it will have revised calculations of allowed 
spending, by definition, because the statute sets the base period 
allowed spending equal to the base period actual spending. This process 
would remove drugs entirely from both actual and allowed spending back 
to the SGR base period. CMS has demonstrated its authority to revise 
calculations of actual spending by actually revising spending to 
account for omitted codes and more complete claims data. This analysis 
was corroborated in a legal memorandum that we submitted to the 
Subcommittee in February 2005. It was drafted by Terry S. Coleman, a 
former Acting General Counsel of the U.S. Department of Health and 
Human Services, as well as a former Chief Counsel and Deputy 
Administrator of the Health Care Financing Administration.

                  CMS Should Remove Drugs from the SGR

    In the past, some CMS officials have argued that including drugs in 
the SGR was necessary to counter-balance incentives for over-
utilization in the drug reimbursement system. The AMA does not accept 
this premise. Certainly physicians are not administering chemotherapy 
drugs to patients who do not have cancer. Even if such incentives 
existed, however, they were surely eliminated by the reductions in 
payment for these drugs under the MMA. Pharmaceutical companies, not 
physicians, control the cost of drugs. Further, pharmaceutical 
companies and United States policy, not physicians, control the 
introduction of new drugs into the market place.
    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.
    Further, between the SGR's 1996 base year and 2004, the number of 
drugs included in the SGR pool rose from 363 to 444. Spending on 
physician-administered drugs over the same time period rose from $1.8 
billion to $8.7 billion, an increase of 365% per beneficiary compared 
to an increase of only 63% 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 10% 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 expanded funding for the National 
Institutes of Health and streamlining of the drug approval process. The 
AMA shares and applauds these goals. However, it is not equitable or 
realistic to finance the cost of these drugs through cuts in payments 
to physicians.
2. Ensure that government-induced increases in spending on physicians' 
        services are accurately reflected in the SGR target
    As discussed above, the government encourages greater use of 
physician services through legislative actions, as well as a host of 
other regulatory decisions. These initiatives clearly are good for 
patients and, in theory, their impact on physician spending is 
recognized in the SGR target. In practice, however, many have either 
been ignored or undercounted in the target. 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 these estimates were 
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 
determined 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, 
yet this benefit was enacted in BBA 1997 nearly eight years ago. 
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 revising the 2005 and 
2006 SGR.
    CMS should also seek to identify other spending increases 
attributable to quality improvement programs and ensure that they, too, 
are reflected in the SGR law and regulation factor. For example, 
Medicare's Quality Improvement Organizations (QIO) have encouraged 
physicians to determine the left ventricular function of all patients 
with congestive heart failure, measured using a nuclear medicine test 
or an echocardiogram. Further, CMS revised the codes for end-stage 
renal disease services in 2004 to encourage four physician visits per 
month. From 2003 to 2004, consistent with CMS' intent, Medicare 
spending for the new ESRD codes rose 17% above 2003 spending for the 
old codes.
    Spending due to all of the foregoing government initiatives should 
be reflected in the SGR.
3. Ensure that the SGR fully reflects the impact on physician spending 
        due to national coverage decisions
    When establishing the SGR spending target for physicians' services, 
the law requires that impact on spending, due to changes in laws and 
regulations, be taken into account. The AMA believes that any changes 
in national Medicare coverage policy that are adopted by CMS pursuant 
to a formal or informal rulemaking, such as 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. With respect to the magnitude of impact, as one 
example, CMS reported in January that the recent expansion of coverage 
for implantable defibrillators would make the devices available to some 
500,000 people. In addition, CMS has provided us with data showing that 
2004 Medicare Part B spending on PET scans was $387 million, a 51% 
increase over 2003, and the agency has acknowledged that PET scans play 
an important role in diagnosing a number of diseases.
    The AMA, along with 33 national medical organizations and state 
medical associations, contracted with the National Opinion Research 
Center (NORC) to estimate the costs of several NCDs to illustrate that 
it is possible to make such estimates and provide a sense of their 
magnitude. NORC's evaluation of the cost of the expanded coverage of 
photodynamic therapy to treat macular degeneration considered the cost 
of exams and flourescein angiography tests to determine the 
appropriateness of treatment as well as treatment costs. NORC was also 
able to separate the costs that Medicare would have incurred due to 
local carrier coverage decisions from the expected costs associated 
with the NCD for treatment of the occult form of macular degeneration, 
for which Medicare prohibited coverage prior to the NCD. NORC 
conservatively estimates that the new coverage is increasing 
expenditures by more than $300 million a year and could boost spending 
by more than twice that amount if used by all the eligible Medicare 
patients.
    While the AMA strongly supports Medicare beneficiary access to 
these important services, physicians and other practitioners should not 
have to finance the costs resulting from the attendant increased 
utilization. Accordingly, CMS should ensure that the impact on 
utilization and spending resulting from all national coverage decisions 
is taken into account for purposes of the SGR spending target.
                                 ______
                                 
    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 patient access as well as payments that keep up 
with the costs of practicing medicine.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Dr. 
Armstrong, for that very clear evaluation of the response of 
physicians if we do not take action. Dr. Hedberg.

  STATEMENT OF C. ANDERSON HEDBERG, M.D., PRESIDENT, AMERICAN 
           COLLEGE OF PHYSICIANS, WINNETKA, ILLINOIS

    Dr. HEDBERG. I am Dr. C. Anderson Hedberg, President of the 
American College of Physicians. I offer the perspective of a 
practicing internist who has spent almost four decades caring 
for patients in the Chicago area, and as the leader of the 
Nation's largest specialty society. The College believes firmly 
that the medical profession has a responsibility to address 
documented gaps in quality. We support the goal of 
restructuring Medicare to provide incentives for improving 
quality. We have joined with others to create the Ambulatory 
Care Quality Alliance, AQA, a multi-stakeholder consensus group 
that reached agreement in May on a starter set of performance 
measures for ambulatory care. The AQA work groups are now 
working on developing additional measures, including efficiency 
measures, and on principles on data sharing and reporting for 
the next AQA meeting in September. There are several points I 
hope to leave with you.
    First, the College appreciates Chairman Johnson's efforts 
to develop a Medicare value-based purchasing framework that 
includes repeal of the SGR formula. Second, we should be 
mindful of how such a program will play out in the real world 
of practicing physicians. Third, the initial steps toward 
value-based purchasing must be followed by a reexamination of 
the way that Medicare reimburses physicians.
    The College understands that Chairman Johnson is working on 
a bill that includes several policies essential to successful 
implementation of Medicare quality improvement. First, quality 
improvement cannot take place in an environment where 
physician's fees are being cut. Addressing volume of services 
through careful analysis will be far more effective in ensuring 
appropriate care than using the flawed SGR. Second, quality 
measures should be developed by medical specialty societies, 
validated through a consensus-building organization such as the 
AQA, and phased in gradually.
    The College applauds Chairman Johnson for her willingness 
to consider these important principles in her draft bill. As 
this legislation moves forward, I ask you to keep in mind how 
it will affect physicians and patients. One of my 
responsibilities is to travel around the country to learn from 
my colleagues. Internists, especially those in primary care 
practices, tell me that payments are not keeping up with 
practice expenses. Many are reluctantly considering closing 
their doors to new Medicare patients or even getting out of 
practice. They worry that pay-for-performance will be another 
unfunded mandate leading to more paperwork, more expense, less 
revenue and less time with patients.
    They are concerned it could create adverse consequences for 
sicker and noncompliant patients. Medical students tell me that 
they do not see a future in primary care. We are already seeing 
a marked decline in the number of students choosing to be 
trained in general internal medicine.
    If we do it right, value-based purchasing can help. Doing 
it right means assuring that Medicare reimbursement is 
sufficient to create positive incentives for performance 
improvement. It means providing funding commensurate with a 
physician's contributions to quality improvement. It means 
assuring that the data collection necessary to support quality 
improvement does not impose a heavy administrative burden on 
the physician. It means supporting the role played by primary 
care physicians, working with a team of subspecialty 
consultants and ancillary personnel, to assure that patients 
get the best possible care. Most importantly, it means that 
better quality must be the measure of success; cost savings 
should come as a result of quality improvement, but never at 
its expense.
    Finally, the initial framework should be followed by a 
reexamination of Medicare payment policies. Paying physicians 
on a per-visit or per-procedure basis is not a model that 
supports continuous improvement in the care of patients with 
chronic diseases. The College advocates a new payment model to 
reward physicians for coordinating team-based care of patients 
with chronic diseases. We welcome the opportunity to discuss 
these ideas with the Subcommittee.
    In conclusion, the College supports the goal of aligning 
Medicare's incentives with physicians' commitment to improve 
quality. As we do so, let us keep in mind two questions: Will 
we end up with a system that supports the physician-patient 
relationship by providing resources to help physicians improve 
care of their patients? Or will it be a system that undermines 
that relationship resulting in more paperwork, more expense, 
less revenue, and less time with patients. As a life-long fan 
of the Chicago Cubs, I am, by nature, an optimist. I believe 
that when good people work together, good things will happen. 
However, my optimism is tempered by the knowledge that hoping 
for the best is not enough. Value-based purchasing is a 
promising idea. Let's make sure we do what is needed to get it 
right the first time, be aware of the risk of unintended 
consequences and be prepared to make corrections if needed. I 
appreciate your attention, and I will be pleased to answer any 
questions.
    [The prepared statement of Dr. Hedberg follows:]
Statement of C. Anderson Hedberg, M.D., President, American College of 
                     Physicians, Winnetka, Illinois
    The American College of Physicians (ACP), representing over 119,000 
doctors of internal medicine and medical students, is pleased to 
provide testimony on the issue of value-based purchasing for physicians 
under Medicare. This testimony is provided for the July 21, 2005 
hearing held by the Health Subcommittee of the United States (U.S.) 
House of Representatives Ways and Means Committee. Our testimony will 
focus on the following areas:

     1. The steps the College is taking to lay the groundwork for 
value-based purchasing by helping internists understand how to 
incorporate proven quality improvement methods in their practices and 
to provide them with the technological capacities to support quality 
improvement.
     2. The College's leadership role in selecting performance measures 
for ambulatory care that could be used in a Medicare value-based 
purchasing program as well as in other quality improvement programs.
     3. The College's views on how to design a legislative framework 
for value-based purchasing that will support and strengthen the ability 
of physicians to engage in continuous quality improvement.
     4. The College's views on the importance of carefully assessing 
the impact of provider-based purchasing on practicing internists and 
the relationships they have with their patients.
     5. The College's views on the need to engage in a comprehensive 
re-examination and restructuring of Medicare payment policies to 
support quality improvement, particularly for patients with multiple 
chronic diseases.
LAYING THE GROUNDWORK FOR VALUE PURCHASING
    ACP firmly believes that the medical profession has a professional 
and ethical responsibility to engage in activities to continuously 
improve the quality of care provided to patients. We therefore commend 
this committee for addressing quality in the Medicare program through 
the concept of value-based purchasing. ACP was among the first medical 
professional organizations to support the concept of linking payments 
to physician performance on evidence-based measures. We recognize, 
however, that pay-for-performance cannot by itself lead to quality 
improvements if physicians in practice lack the capabilities to 
incorporate proven quality improvement methods in their practices. 
Accordingly, the College is engaged in over forty projects to improve 
the quality of care provided to patients, including two new grant-
funded programs to improve the care of patients with diabetes and to 
implement quality measures for the frail elderly.
    ACP is also actively engaged in initiatives to develop the health 
information technology infrastructure to support quality improvement. 
We serve on the boards of the Certification Commission for Health 
Information Technology and the Electronic Health Initiative; co-chair 
the Physicians Electronic Health Record Coalition (PEHRC), and are 
actively involved in the Connecting for Health initiative. We have 
developed recommendations for legislation to provide initial funding 
and sustained reimbursement support to help clinicians, particularly 
those in small practices, acquire and use HIT to support their 
participation in quality improvement projects. The College has joined 
with other stakeholders to submit proposals in response to Secretary 
Leavitt's requests for proposals on standard harmonization and 
certification of electronic health records.
    The College is also committed to providing practice internists with 
practical tools to help them improve quality. ACP's Physicians 
Information and Education Resource (PIER) provides ACP members--at no 
cost to them--with access to ``actionable'' evidence--based guidelines 
at the point of care for over 300 clinical modules. PIER has also been 
incorporated into several electronic health record systems. PIER is 
currently in the process of aligning its evidence-based content to 
support a starter set of measures selected by the Ambulatory Care 
Quality Alliance (AQA). PIER is also creating paper order sets that 
imbed such quality measures in the order set, so that physicians who 
have not made the transition to electronic health records could still 
rely on PIER content to support their participation in performance 
measurement initiatives.
    ACP's PracticeManagementCenter has developed resources to help 
internists go through the decision-making process on electronic health 
records and is in the process of working with other entities in the 
College to provide internists with tools and best practices to help 
them redesign their office processes to improve health care quality.
    ACP is also directly involved in supporting several federal 
demonstration projects to improve quality. We are directly involved in 
implementation of the Chronic Care Improvement Program/Medicare Health 
Support pilots in Mississippi and Pennsylvania as authorized by Section 
721 of the Medicare Modernization Act, working with the awardees to 
develop mechanisms to support physicians' roles in coordinating and 
improving care of patients with diabetes and congestive heart failure. 
The College has also endorsed the Doctor's Office Quality Information 
Technology (DOQ-IT) demonstration project and is working with the 
American Health Quality Association to support the 8th Scope 
of Work.
    Through these and other initiatives, the College is laying the 
groundwork for Medicare value-based purchasing by educating internists 
on how to incorporate performance measurement and improvement in their 
practices, by providing them with evidence-based clinical decision 
support, by partnering with others to develop the health information 
technology infrastructure to support quality improvement, by providing 
internists with practical tools to help them redesign office processes 
to improve quality, and by gaining first-hand knowledge from federal 
demonstration projects and pilot programs on how to incorporate quality 
improvement in the Medicare program.
SELECTING PERFORMANCE MEASURES FOR AMBULATORY CARE
    ACP's long-standing commitment to evidence-based medicine and 
continuous quality improvement is also evidenced by our active 
involvement in the Ambulatory Care Quality Alliance (AQA), which in May 
2005 took a major step toward improving the quality of the U.S. health 
care system by selecting a ``starter set'' of 26 clinical performance 
measures for the ambulatory care setting. (We ask that the starter set 
of measures, which is attached to this statement, Attachment 1, be 
recorded in the official record on this hearing.) ACP is one of four 
original organizations that organized and convened the first AQA 
meeting in the fall of 2004 (the other three co-conveners are America's 
Health Insurance Plans, the American Academy of Family Physicians, and 
the Agency for Healthcare Research and Quality) and we continue to 
serve on its steering committee.
    The AQA, a national consortium of large employers, public and 
private payers, and physician groups, aims to improve health care 
quality and patient safety through a collaborative process in which key 
stakeholders agree on a strategy for measuring, reporting and improving 
performance at the physician level. The AQA also works to promote 
uniformity in order to provide consumers and purchasers with consistent 
information and to reduce the burden on providers. This approach is 
similar to the Hospital Quality Alliance, which involved a broad array 
of stakeholders with the goal of producing a standardized set of 
measures for inpatient care.
    The AQA's starter set of ambulatory care measures is intended to 
provide clinicians, consumers and purchasers with a set of quality 
indicators that may be utilized for quality improvement, public 
reporting and pay-for-performance programs. The rationale behind the 
measurement starter set is to allow physicians to get used to tracking 
a few simple performance goals, while more sophisticated measurements 
and implementation guidelines are developed. While the College and 
other medical groups would prefer to take an evidence-based approach by 
waiting for results from pay-for-performance pilots and demonstrations, 
the market simply will not wait. Instead, ACP is confident that the 
AQA's starter set of measures represents the first of several 
generations of increasingly sophisticated performance measurement sets 
that can be used with confidence to measure quality of care in the 
ambulatory area.
    AQA's uniform starter set comprises prevention measures for cancer 
screening and vaccinations; measures for chronic conditions including 
coronary artery disease, heart failure, diabetes, asthma, depression, 
and prenatal care; and, two efficiency measures that address overuse 
and misuse. Except for the two efficiency metrics, the AQA limited its 
review to those measures that are currently under review by the 
National Quality Forum.
    ACP, and the other members of the consortium, worked hard to ensure 
that the initial set of measures relied principally on administrative 
data that is readily available for most practices, thereby reducing the 
administrative burden of having to extract information from medical 
records. In addition, they ensured that the starter set met the 
standards of scientific validity, feasibility, and relevance to 
physicians, patients and purchasers. AQA participants are also 
beginning to seriously address the complex issues associated with 
creating the infrastructure for performance reporting. The AQA is also 
working on a model for aggregating, sharing and stewarding data that 
maintains appropriate restrictions on privacy and confidentiality, as 
well as principles for reporting information to providers, consumers 
and purchasers.
ACS'S VIEWS ON A LEGISLATIVE FRAMEWORK FOR VALUE BASED PURCHASING
    The College recently released a detailed draft proposal for a 
legislative framework for Medicare that linked financial incentives to 
performance quality, which was shared with the staff of the Ways and 
Means Health Subcommittee and other key health committees. ACP, along 
with other national organizations representing primary care physicians, 
also sent a letter to Congressional leaders that affirmed our joint 
commitment to work with Congress to develop an effective legislation on 
framework for Medicare quality improvement (Attachment 2). There are 
several key elements, as outlined in our recommended framework and in 
the joint letter that we believe should be incorporated into any 
legislation to establish a Medicare value-based purchasing program.
THE USE OF AQA PRINCIPLES IN A VALUE-BASED PURCHASING SYSTEM
    First, it is critical that any value-based purchasing system that 
links physician reimbursement to evidence-based performance measures 
follow principles similar to those that guided the AQA process. For 
one, there must be an explicit role for a consensus-oriented multi-
stakeholder group to select and validate quality and efficiency 
measures for clinical conditions and to evaluate issues of feasibility 
and meaningful data collection. It is absolutely necessary that this 
process be transparent. It is also important that adequate feedback be 
provided on why certain measures are not selected in order to allow the 
measures to be further refined and resubmitted and to ensure that the 
scientific evidence behind the measure, administrative feasibility of 
data collection, and other elements are well considered. This multi-
stakeholder group must also have strong representation of national 
physician specialty societies in the leadership and governing board 
structure of the entity. The leadership of ACP and others in the AQA 
process has been essential for the credibility of the process, and we 
would hope to maintain a comparable leadership role in any new entities 
created by legislation.
THE USE OF EFFICIENCY MEASURES
    Second, ACP supports evidence-based clinical performance measures 
in a value-based purchasing program that address overuse, underuse and 
misuse, but we are concerned that efficiency measurement will be driven 
by statistical economic profiling rather than a review of the clinical 
evidence. Appropriate quality measures take into account evidence to 
support or not support particular interventions based on evidence-based 
guidelines on overuse and underuse rather than just using a statistical 
profile of cost and volume. A strict volume/cost analysis derived from 
claims data for utilization patterns will not provide accurate data on 
quality or cost and should not be used to determine payments based on 
performance. Comparisons of utilization patterns are not a substitute 
for true efficiency measures that consider the quality and costs 
associated with treatment of particular conditions.
    It is unlikely that a risk adjustment methodology will soon be 
developed that can adjust for all problems related to reporting on the 
efficiency of individual physicians in providing care to patients based 
on a comparative analysis of claims. Statistical comparisons need to 
take into account not only the need to risk adjust for severity of 
illness, but also for socioeconomic factors such as income, race, 
culture, and language proficiency, which significantly influence a 
patient's willingness to trust the health care provider and comply with 
recommended treatments. Without such adjustments, physicians who see a 
disproportionate number of low-income or racial/ethnic minority 
patients would be penalized for factors outside their control and 
dissuaded from participating in quality improvement programs. Quality 
improvement programs should not inadvertently exacerbate health 
disparities or create other unintended consequences for patients or 
physicians who have sicker patient populations as well as noncompliant 
patient populations.
PUBLIC REPORTING
    Third, while ACP understands that public reporting potentially 
provides patients and purchasers with a more informed choice about 
physicians; public reporting can create severe adverse unintended 
consequences for patients if not done correctly. Studies show that 
public reporting can create unintended incentives for physicians to 
avoid higher risk or non-compliant patients that will result in their 
public report being less favorable. This is particularly a concern for 
patients with certain ethnic, racial, socioeconomic or cultural 
characteristics that make them less compliant with recommended 
treatments, less likely to see a physician for preventive care, and 
less likely to take prescribed medications. Sufficient risk adjustment 
and methodologies to reduce the risk that public reporting will create 
such unintended consequences are essential before physician-specific 
quality data are released to the public. In addition, many patients 
function at a health literacy level that makes it difficult for them to 
understand basic medical information given to them by their clinician, 
never mind comparative data on quality. More studies are needed on 
whether patients benefit more from seeing reports on whether or not 
their physician surpasses a minimum threshold of quality improvement or 
from ranking of physicians based on quality indicators. For this 
reason, the College has advocated for a well-designed demonstration 
project on public reporting of quality improvement data.
    ACP agrees with the Medicare Payment Advisory Commission (MedPAC) 
recommendation that physician performance profiling first be shared 
confidentially with physicians as an educational tool. Furthermore, ACP 
believes that when public reporting is implemented, physicians should 
be allowed to not only review data before it is released but to appeal 
it to an independent reviewer that would be charged with resolving 
concerns relating to the public report in a way that assures that all 
information that is reported is unbiased and accurate. Physicians 
should also have the right to have their comments on the report 
included along with the data that are reported.
A PHASED IN APPROACH 
    Fourth, ACP strongly supports a phased in approach to valued-based 
purchasing linked to physician performance.
    The College believes that a Medicare value based purchasing program 
should start with pay for achieving basic structural measures (pay-for-
reporting), followed by payment for participating in quality 
improvement programs that use evidence-based clinical measures (pay-
for-participation), followed by pay for achieving quality gains as 
measured by such evidence-based measures (pay-for-performance):
Stage One: Pay-for-Reporting
    ACP recommends Medicare institute a pay-for-reporting initiative 
beginning in 2007 using a structure along the lines of the MedPAC 
recommendation to begin paying for structural measures (i.e., assessing 
whether the provider has the capability to deliver quality care) 
consisting of quality-enhancing functions and outcomes facilitated by 
the use of information technology (HIT) and other improvements. A 
process should be created for physicians to begin reporting during the 
calendar year that they have the structural capabilities to support 
quality improvement. Additional payments would then be allocated to 
physicians, during the same calendar year, who met the pay-for-
reporting requirements.
Stage Two: Pay-for-Participation
    ACP recommends that Medicare should institute a more robust and 
voluntary pay-for-participation program beginning in 2008 that would 
allocate additional payments (i.e., in addition to and separate from 
the annual Medicare fee schedule update) to physicians on a graduated 
basis who agree to voluntarily participate in quality improvement 
programs that use evidence-based measures for clinical conditions that 
have the greatest potential to yield the greatest quality improvements 
and potential system-wide savings stemming from improved quality. 
During the pay-for-participation phase, payment should be based on 
documentation of participation in such programs, not on how well the 
individual physician does in meeting the actual measures.
    Such additional payments should be graduated and proportionate to 
the level of commitment on the part of the physician to participating 
in approved performance measurement programs. Because participation in 
performance measurement programs involves substantial costs (for HIT, 
data collection and reporting) and time commitment from physicians and 
their staffs, pay should increase proportionately based on the number 
of dimensions of care being measured, the number of measures, the time 
and costs associated with documenting performance based on the 
measures, and the level of HIT acquired by the practice to support 
participation in approved quality improvement programs. For example, 
physicians who just meet the basic structural measures as outlined in 
Stage One should receive a lower bonus payment than physicians who are 
participating in programs that use multiple evidence-based measures 
designed to improve care of patients with high cost chronic diseases. A 
graduated payment structure would create stronger incentives for 
physicians to participate in performance improvement programs (and for 
specialties to develop evidence-based measures of performance) than 
paying all physicians the same amount regardless of their level of 
commitment to such programs.
Stage Three: Pay-for-Performance
    ACP recommends that HHS be directed to consult with medical 
professional societies and other stakeholder groups on development of a 
pay-for-performance program that would be initiated no earlier than 
calendar year 2010. The pay-for-performance program would provide 
graduated bonus payments to physicians who demonstrate success in 
meeting evidence-based performance measures.
ASSURING SUFFICIENT FUNDING
    Fifth, the College believes it is essential that Congress assure 
adequate funding for the value-based purchasing program, starting with 
repeal of the sustainable growth rate (SGR) formula. The need for a 
long term solution for updating the Medicare physician fee schedule is 
underscored by continued projections of deep cuts. Despite Congress' 
success in preventing cuts from taking effect in 2003-2005, payment 
reductions of over 4 percent next year and 26 percent from 2006-2011 
are forecast. The underlying flaw of the SGR formula is the link 
between the performance of the overall economy and the actual cost of 
providing physician services. The medical needs of individual patients 
are not related to the overall economy.
    ACP strongly urges Congress to pass legislation to replace the SGR 
formula once and for all. In the future, annual updates in Medicare 
payments should instead be linked to increases in the actual costs of 
medical practice. ACP supports basing updates on the projected change 
in input prices less an adjustment for productivity growth, as has been 
recommended by MedPAC. Applying this methodology would result in a 2.7 
percent increase in the fee schedule conversion factor next year and a 
similar increase in 2007 (currently projected to be 2.4 percent).
    ACP also supports the MedPAC recommendation that volume should be 
managed through a process in which the reasons for each significant 
volume increase are identified, and specific measures be taken either 
administratively or through legislation to control those increases not 
related to improvements in quality of care. Addressing volume through 
careful analysis and consideration, with appropriate policy 
interventions, will be far more effective in assuring that appropriate 
care is provided than the flawed SGR.
APPLYING ACP'S RECOMMENDED FRAMEWORK TO CHAIRMAN JOHNSON'S PROPOSED 
        DRAFT LEGISLATION
    The College understands that Chairman Johnson will be introducing a 
value-based purchasing bill. Based on our understanding of what the 
bill likely will include, the College anticipates that the overall 
approach will be consistent with the College's recommendations, as 
summarized above.
    We are very pleased that the bill will likely include repeal of the 
SGR and will base future updates on the Medicare Economic Index, minus 
a productivity factor, as recommended by MedPAC. By doing so, it 
recognizes that successful implementation of Medicare quality 
improvement cannot take place in an environment where physician fees 
are being cut. We also understand that the proposal will reduce the 
update by a yet-to-be-defined percentage for physicians who decline to 
participate in the performance measurement and reporting program.
    Although the College would prefer that new money be provided to 
support the value-based purchasing program, we understand that budget 
constraints may limit the initial funding to an amount that is no 
higher than levels recommended by MedPAC. However, we urge the 
subcommittee to establish a floor on the annual updates in 2006, 2007, 
and 2008, so that all physicians receive a positive update. The College 
specifically recommends that all physicians receive an update that is 
no lower than 1.5 percent, and that an additional amount be provided to 
those who participate in the performance reporting and measurement 
program, up to the full amount recommended by MedPAC.
    We also recommend that the bill give HHS the authority to weigh the 
performance-based payments so that those physicians who engage in 
reporting data using multiple measures can qualify for higher payments 
than those who report on only a few structural measures. For instance, 
an internist who participates in a program that uses the AQA starter 
set will be obligated to report performance for as many as 24 separate 
measures (the two measures relating to pediatric care are not 
applicable to most internists), requiring a substantial investment of 
time and practice resources. Unless performance--based payments are 
commensurate with effort, physicians will be discouraged from doing 
anything more than the most elementary and basic measurement and 
reporting required to qualify for the full update.
    We also understand that the bill likely will call for a gradual 
phase-in of the measures, starting with pay-for-reporting of structural 
and quality measures before Medicare begins paying physicians on the 
measures themselves, similar to the step-wise approach recommended by 
ACP.
    We also understand that the proposal will likely recognize the 
critical role played by medical specialty societies in developing 
measures that are then validated through a consensus building 
organization involving multiple stakeholders. As noted above, our 
experience with the AQA demonstrates that a consensus process, with 
physician leadership, can result in getting ``buy-in'' from physicians, 
purchasers, payers, and consumers on a practical set of measures.
    The College is concerned that the value-based purchasing program 
for physicians is funded totally out of savings in Medicare Part B and 
in reductions and set asides from the conversion factor paid to 
physicians. Value-based purchasing should recognize physicians' 
collective and individual contributions to achieving system-wide 
savings through better quality. Accordingly, we urge that a provision 
be included in the legislation directing the Secretary to develop a 
methodology, in consultation with the Medicare Payment Advisory 
Commission (MedPAC), the Practicing Physician Advisory Council (PPAC), 
national membership organizations representing practicing physicians 
and other appropriate experts to increase the total pay-for-quality 
bonus pool available to physicians based on evidence that the value-
based purchasing program for physicians has resulted in system-wide 
Medicare savings. Such savings should include savings in Medicare Part 
A, such as from preventing unnecessary hospitalizations caused by 
complications. The methodology should allow for individual physicians 
to share in such system-wide savings that are attributable to their 
participating in performance measurement and improvement programs and 
physician-guided chronic care coordination. The methodology and 
recommendations should be reported to Congress no later than December 
30, 2006. Legislation should be required to institute the methodology.
    In summary, based on our understanding of the overall direction 
that Chairman Johnson is likely to propose in her bill, the College 
expects that we will be able to support the legislation, although we 
hope to have the opportunity to continue to recommend ways to make the 
framework as effective as possible, including assuring that the overall 
funding for the program is sufficient to result in the desired changes. 
We commend Chairman Johnson for her leadership on this issue and her 
responsiveness to the views offered by ACP and other medical 
organizations on how to structure the legislation.
ASSESSING THE IMPACT OF VALUE-BASED PURCHASING ON PRACTICING INTERESTS
    As Congress moves forward on developing a Medicare value-based 
purchasing program, we believe that it is essential that Congress be 
mindful of the potential impact on practicing internists and potential 
unintended adverse consequences.
    Internists are encountering an aging population that requires 
substantial care and support as a result of an increasing number of 
chronic conditions. These practitioners, who provide the predominance 
of care to our Medicare beneficiaries, are also aware of the 
significant gaps in health care quality as reflected by the landmark 
Institute of Medicine report, Crossing the Quality Chasm. Our members 
are primed to meet this challenge to improve healthcare quality, safety 
and access, and make the necessary changes in their practices to better 
meet the needs of their patients. These changes include the increased 
need to coordinate care, to reach out to patients to ensure they are 
following their treatment regimens and to implement available health 
information technology (e.g. electronic health records, patient 
registries, e-prescribing, clinical decision support tools) into their 
daily office routine. These changes are difficult to make in an 
environment characterized by the specter of payment cuts throughout the 
foreseeable future. Repealing the SGR is an essential first step, but 
by itself, will not stabilize the economic environment for many 
internists sufficiently to allow them to provide high quality care and 
engage in continuous quality improvement.
    For most primary care physicians, Medicare payments are not keeping 
up with their practice expenses. Many are reluctantly considering 
closing their doors to new Medicare patients or even getting out of 
practice. They worry that pay-for-performance will be another unfunded 
mandate, leading to more paperwork, more expense, less revenue, and 
less time with patients. They are concerned that it could create 
unintended adverse consequences for sicker and non-compliant patients. 
It is not just physicians in practice who express these concerns. 
Medical students do not see a future in primary care, as evidenced by 
the marked decline in recent years in the number of physicians who are 
being trained in general internal medicine and family practice.
    Done correctly, value-based purchasing can help. By doing it right, 
it means assuring that Medicare money is sufficient to provide updates 
based on inflation and to create positive incentives for performance 
improvement. It means providing rewards commensurate with an individual 
physician's commitment of time and resources to support quality 
improvement. It means lifting up all boats rather than leaving some to 
founder. It means assuring that the data collection does not impose a 
heavy administrative burden. It means supporting the crucial role 
played by primary care physicians, working with a team of skilled 
subspecialist consultants, in assuring that patients get the best care 
possible. Most importantly, it means that better quality must be the 
measure of success; cost savings should be the result of quality 
improvement but never at its expense.
    Primary care is at an important crossroads at this time. Fewer 
physicians are choosing to enter into primary care and those in the 
profession are expressing increased dissatisfaction. Primary care can 
be re-energized to the extent this current pay-for-quality discussion 
in Congress results in an improved payment system that adequately 
rewards physicians for providing the coordinated quality care required 
and implementing necessary practice changes. If the discussion results 
in a pay-for-quality system perceived as punitive by our practitioners, 
replete with additional unfunded demands and unproductive ``time 
stealers'' from the physician and their staff, it can serve as the 
straw that figuratively breaks the camel's back and leads to an 
unfortunate acceleration in the shortage of primary care practitioners. 
Reduced access to primary care physicians would be very detrimental to 
our Medicare beneficiaries. The majority of Americans have demonstrated 
a preference for a sustained relationship with a primary care provider 
and studies indicate that a continuous patient-physician relationship 
correlates with patient satisfaction, improved health, positive 
outcomes, reduced malpractice litigation, as well as reduced emergency 
department use and reduced health care costs per patient.
RE-EXAMINING AND REFORMING DYSFUNCTIONAL PAYMENT POLICIES
    Finally, the initial framework should be followed by a 
comprehensive re-examination of Medicare payment policies. 
Unfortunately, Medicare payment policies are based on the way that care 
was provided in 1965--not the way it is being delivered today or will 
be in the future.  When Medicare was created in 1965, patients 
generally were treated only when sick (acute condition); there was 
little or no emphasis on prevention and coordination; care was based on 
doctor's best judgment as informed by continuing medical education and 
journals but not on scientific guidelines; and payment was made only 
for work involved in a specific visit or procedure, not on results.  
Medical care today and in the future will involve treating patients' 
chronic conditions, not just acute illnesses; preventing and managing 
illness rather than just treating disease; care will be rendered by 
coordinated teams of health professionals; clinical judgment will be 
informed by evidence-based clinical decision support; and the results 
of care will be rewarded.
    The College specifically advocates a new payment model to reward 
physicians for coordinating team-based care of patients with chronic 
diseases in a way that will result in better quality and potential 
cost-savings, including the work that falls outside of the traditional 
office visit, such as working with family caregivers on helping 
patients manage their own diseases and arranging for team-based care 
involving other health professionals. This ``patient-centered, 
physician-guided'' chronic care model is based on the work of Ed 
Wagner, MD, FACP and it provides physicians designated by beneficiaries 
as their ``medical home'' with payments based on their ability to 
effectively manage and coordinate care. We welcome the opportunity to 
discuss our ideas with the subcommittee.
CONCLUSION
    In conclusion, the College supports the goal of aligning Medicare's 
incentives with physicians' commitment to improve quality and we 
commend Chairman Johnson for her leadership on developing a practical 
approach to value-based purchasing that includes repeal of the SGR. As 
Congress moves forward on the legislation, we ask that you keep in mind 
two critical questions: will we end up with a system that supports the 
physician-patient relationship by providing resources to help 
physicians improve care of their patients? Or will it be a system that 
undermines that relationship, resulting in more paperwork, more 
expense, less revenue, and less time with patients? The College is 
dedicated to working with the subcommittee to assure that it is the 
first question, not the second, which gets a resounding yes from 
physicians and their patients.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much. Dr. 
Kassirer.

    STATEMENT OF JEROME P. KASSIRER, M.D., PROFESSOR, TUFTS 
      UNIVERSITY SCHOOL OF MEDICINE, BOSTON, MASSACHUSETTS

    Dr. KASSIRER. Thank you, Madam Chairman. I am Jerome 
Kassirer, a physician and professor with medical school 
appointments at Tufts University in Boston and Case Western 
Reserve University in Cleveland. I am a former editor of the 
New England Journal of Medicine and author of On the Take, How 
Medicine's Complicity with Big Business Can Endanger Your 
Health. I am representing no institution or no medical 
professional organization. With respect to financial 
incentives, I will assert that the medical profession has 
become excessively dependent on the largesse of the 
pharmaceutical industry, that these financial connections have 
a negative influence on the quality and cost of patient care 
and the trust of the public, and that the profession's response 
to these threats has been inadequate.
    American doctors train many years, many go into massive 
debt to become physicians, and then work very hard in practice. 
There is no other country where I would prefer to get care for 
myself or my family. Our medical institutions are respected 
around the world. Like the rest of us, however, doctors respond 
to financial incentives. I need not remind any of you that what 
a struggle it has been to try to eliminate self-referral of 
patients to privately-owned health care facilities. The 
magnitude of self-referral and the professional incentives of 
value-based purchasing, in my opinion, pale compared to the 
enormous financial incentives generated for doctors by the 
pharmaceutical and device industries. By themselves, the drug 
companies are powerless, but they have willing accomplices, 
namely, many thousands of physicians. We do not need to look 
far back for striking examples of medical decisions that may 
have been influenced by perverse financial incentives.
    A few weeks ago a U.S. Food and Drug Administration (FDA) 
panel recommended that Vioxx return to the market by a narrow 
margin despite its cardiac toxicity. Nine of the 10 panel 
members who had financial arrangements with industry voted in 
favor. Panel members with no conflicts voted 12 to 8 against. 
The drug's return would have been vetoed if none of the 
conflicted members had voted. Recently State Medicare managers 
became alarmed about the burgeoning use of the drug Natrecor. 
The drug had been approved for patients with acute episodes of 
heart failure, but instead, it is being given by infusion 
routinely and repeatedly in many doctors' offices, despite the 
opinion of experts that routine use of the drug has no benefit, 
and that the drug causes kidney damage and even death.
    The incentive for each office infusion is about $600. The 
issue here is similar to the cancer drugs discussed by Dr. 
McClellan. Last week, the Wall Street Journal reported that in 
2004, the number of pharmaceutical company-sponsored meetings 
and talks that featured doctors as speakers had grown to nearly 
240,000, a four-fold increase over the previous 6 years. There 
is a natural tendency for a speaker to reciprocate for a $1,000 
or $2,000 honorarium by favoring a company's products, 
including their off-label uses. We have learned that if they 
criticize the company's products, their tenure as a speaker 
will be short. A year ago, a practice guideline on cholesterol 
issued by three prestigious organizations unveiled treatment 
recommendations so stringent that millions of Americans at risk 
for heart disease would have had to start taking expensive 
statin drugs.
    As it turned out, six of the nine panel members who wrote 
the recommendation had been on the payrolls of three to five of 
the companies that manufacture statins. Flaws in research study 
design, bias in reporting of research, and risk to patients in 
clinical trials constitute another serious consequence, and a 
constant promotion of expensive drugs with free samples 
heightens the cost. If anything, companies are tightening and 
extending the connections, increasingly recruiting physicians 
to their marketing efforts.
    Leaders of the profession have done little to counter a 
trend in which the profession has become increasingly beholden 
to industry. Most professional organizations have published 
ethical guidelines, but they allow physicians to receive gifts 
and meals and are silent on the appropriateness of physicians 
as consultants on marketing, promotion of off-label drugs and 
membership on speakers bureaus. These activities, in my view, 
should be eliminated. The public, and many in the profession, 
are becoming increasingly exercised about the profession's tilt 
to industry. Extracting medicine completely from this financial 
magnet may be difficult, but I believe it must start. If the 
profession fails to act, I believe Congress should.
    [The prepared statement of Dr. Kassirer follows:]
  Statement of Jerome P. Kassirer, M.D., Professor, Tufts University 
               School of Medicine, Boston, Massachusetts
    I am Jerome P. Kassirer, M.D., Distinguished Professor at Tufts 
University School of Medicine in Boston, Adjunct Professor of Medicine 
and Bioethics at Case Western Reserve University School of Medicine in 
Cleveland, former Editor-in-Chief of the New England Journal of 
Medicine, and sole author of the book, ``On The Take: How Medicine's 
Complicity With Big Business Can Endanger Your Health,'' published nine 
months ago by Oxford University Press. I represent no institution or no 
medical professional organization. I am here to offer the findings of 
my research into the consequences of perverse financial incentives in 
medicine. I will assert that the medical profession has become 
excessively dependent on the largesse of the pharmaceutical industry, 
that these financial connections have a negative influence on the 
quality and cost of patient care and the trust of the public, and that 
the profession's response to these threats has been inadequate. I 
appreciate the opportunity to share these concerns with you.
    American doctors train for many years, and many go into massive 
debt to become physicians. They then work long hours, struggling in a 
complex health care delivery system to reduce the burden of illness. 
There is no other country where I would prefer to get care for my 
family or myself. Our physicians, hospitals, medical centers and 
medical professional organizations are respected around the world.
    But doctors are human, and like the rest of us they respond to 
financial incentives. I need not remind any of you what a struggle it 
has been to try to eliminate physician self-referral of patients to 
privately owned health care facilities. But the magnitude of self-
referral pales compared with the enormous financial incentives 
generated for physicians by the pharmaceutical, biotechnology, and 
medical device industries.
    As you watch the pharmaceutical ads on television, you are likely 
to conclude that the drug industry is spending most of its promotional 
money to get you to ask your doctor whether Cialis or Nexium is right 
for you, but in fact, over 80% of the more than $20 billion yearly 
advertising expenses of the industry is directed at doctors and other 
health care professionals. There is nothing fundamentally wrong with 
advertising products, but when financial incentives yield inappropriate 
or dangerous care, when they inordinately raise the cost of care, and 
when their effect is to damage the trust of patients in the profession, 
they have gone too far.
    It is too easy to lay the blame on the companies, though there is 
plenty of blame to go around. By themselves, the companies are 
powerless, but they have willing accomplices, namely thousands of 
physicians in academic medical centers and in private practice. We need 
not delve into ancient history to find striking examples in which 
questionable or flawed medical decisions have been attributed to 
financial incentives from industry. A few weeks ago we learned that an 
FDA panel recommended to allow Vioxx to return to the market by a 
narrow margin despite its recognized cardiovascular toxicity. The 10 
panel members who had financial arrangements with industry voted 9:1 to 
bring the drug back; panel members with no such arrangements voted 12: 
8 against. If none of the conflicted members had voted, the drug's 
return would have been rejected. In the past few weeks we've also heard 
that state Medicare managers have become alarmed about the burgeoning 
use of Natrecor, a drug estimated to reach sales of almost $700 million 
this year. The drug was approved by the FDA for patients with acute 
episodes of heart failure, but it is widely being given by infusion 
routinely and repeatedly in many doctors' offices instead. The 
financial incentive for routine office use? A Medicare payment for each 
visit of $500--$600. Unfortunately, according to expert cardiologists, 
there are no data that routine use is beneficial, and there is 
increasing evidence that the drug damages the kidneys and may even 
increase the death rate. Despite this information, many physicians 
continue to prescribe the drug.
    This is as good a time as any to explore physician motivation, and 
the continued use of Natrecor despite lack of evidence of efficacy and 
in the face of toxicity provides an excellent example. Heart failure is 
a common condition, and infusing only one patient a day could yield 
$150,000 a year to a physician's bottom line. The first and most 
obvious conclusion is that the doctors who use the drug by routine 
infusion are motivated by greed. Perhaps some are, but this explanation 
is much too simplistic. Some physicians probably first use the drug on 
one or two patients, were impressed with the results, and because they 
are free to use any drug off-label, began to use it on others. The 
reimbursement for the procedure may have played no role in their 
decision, or at best it had only a subconscious influence. The problem 
with conflict of interest is that we are unable to fathom financially 
conflicted individuals' motivations; psychologists tell us that people 
themselves might not even know their motives. What we do know is that a 
powerful financial incentive exists to exploit the reimbursement 
system.
    Influence on FDA advisory boards and the kinds of perverse 
incentives in day to day practice represent only a small part of the 
ways that physicians' financial involvement with industry can affect 
clinical care and costs. Last October I reported in the Washington Post 
about efforts of pharmaceutical companies to enlist physicians in their 
marketing efforts. Drug companies are precluded by the FDA from 
promoting off-label uses of drugs, but physicians have no such 
prohibitions, and many, through their industry interactions, are in 
essence becoming the modern drug reps. Industry implements physician 
marketing by a number of approaches. One is the funding of product--
promoting front organizations such as the National Anemia Action 
Council and the Council for Hormone Education. These organizations are 
funded by industry and are comprised of many financially conflicted 
physicians. Prominent academics head them, and they hire academic 
physicians to collect and edit medical content, which is distributed 
with the avowed purpose of educating doctors and improving patient 
care. The material looks like medical content that doctors might find 
in journals, but it does not undergo peer review. Although some of the 
content may be worthwhile, some is overtly biased in favor of the 
sponsors' products. Industry cannot do this kind of marketing without 
the willing partnership with doctors. I am quick to point out that off-
label drug use by physicians is not only legal, but in some instances a 
drug approved only for one particular condition is found to work quite 
well for others. At the same time, off-label use can have disastrous 
effects, especially if the drug is widely used and only shows serious 
toxicity after widespread use. Our experiences with phen-fen is a sorry 
reminder of this scenario.
    Industry-funded educational lectures constitute still another major 
source for flawed drug use and increased expense, and the number of 
physicians appointed to drug company speaker's bureaus is growing. Last 
week the Wall Street Journal reported that in 2004, the number of 
pharmaceutical company-sponsored meetings and talks that featured 
doctors as speakers had grown to nearly 240,000, a four fold increase 
over the previous six years. At present, industry pays for well over 
half of the expense of doctors' continuing medical education; virtually 
all the continuing education departments in hospitals, medical centers, 
and medical schools rely on drug-company funding. Drug companies also 
pay individual doctors to speak at national meetings, medical center 
conferences, and restaurant back rooms. Companies recruit speakers 
known to be sympathetic to their products and give them further 
training. Although the speakers are usually told that they are not 
obliged to mention the sponsor's drugs, there is a natural sense of 
obligation to reciprocate for the $750 to $4,000 honorarium. Some 
physicians say they feel subtle pressure to promote products because 
they want to stay on the speakers list; others hold back from 
criticizing companies whose fees they receive. Harking back to the 
issue of the cardiovascular complications of Vioxx, we learned that 
several physicians on Merck's speaker's bureau were threatened by a 
Merck senior vice president to stop telling their audiences about the 
risks of Vioxx; big brother had been listening in on their lectures. 
Even when speakers honestly believe that they are not promoting 
products, the presence of drug company representatives and drug 
brochure handouts at a dinner lecture exposes the feigned attempt at 
objectivity. There is little doubt that company-sponsored lectures 
increase the use of drugs mentioned in the lecture; given that the 
drugs mentioned are usually the newest, most expensive agents and 
certainly not the generics, the physician lecturers are contributing to 
the increased, and increasing, cost of medical care. Whether the recent 
attempts of the organization responsible for accrediting physicians' 
educational programs, the Accreditation Council for Continuing Medical 
Education (ACCME) to sanitize speakers' presentations by applying 
increasingly stringent regulations on financially conflicted speakers 
will succeed is not yet known.
    Even more worrisome than the effect of bias on the part of 
individual speakers is the potential effect of financial conflict of 
interest in the development of clinical practice guidelines, the 
professional society advice to practicing doctors about the treatment 
of certain conditions. Similar to the broad influence of FDA decisions 
on drug use, a statement from the American College of Physicians or the 
American Neurological Association on the treatment of migraine, for 
example, would have a major impact on the use of the drugs recommended 
in a guideline report. Both the public and the profession paid close 
attention one year ago when a clinical practice guideline issued by 
three prestigious organizations, the American Heart Association, the 
American College of Cardiology, and the National Institutes of Health, 
unveiled guidelines for cholesterol levels so stringent that millions 
of Americans at risk of heart disease would have to take costly statin 
drugs to meet the proposed low limits. What the three organizations 
didn't reveal was that most panel members who helped write the 
recommendations had financial ties to the pharmaceutical companies that 
stood to gain enormously from increased use of statins. The extent of 
the connections was stunning: Of the nine members of the panel that 
wrote the guidelines, six had each received research grants, speaking 
honoraria or consulting fees from at least three and in some cases all 
five of the manufacturers of statins; only one had no financial links. 
In response to criticism of the panel composition, the Heart 
Association said that the policy had been reviewed by many others, not 
just formulated by nine people, yet they did not disclose the conflicts 
of any other reviewers. Even if they had, such disclosures would tell 
us little about the objectivity of the statin recommendations.
    Professional societies rely heavily on financial support from the 
drug industry, and nowhere are society-industry connections more 
evident than at yearly national meetings. Companies can purchase 
attendance lists replete with the attendees demographic information; 
they can pay for cocktail parties, free e-mail kiosks, tote bags, 
meals, trinkets, and buses to ferry people from hotels to convention 
centers. What the companies get in return is well shrouded, but company 
logos on official society slides and publications reflect a minimal 
visible evidence of sponsorship. Especially problematic at these 
meetings are company-sponsored talks by company-paid speakers. Some are 
held only outside of the official program (but still approved by the 
society) and in other meetings are blatantly interspersed in the 
official scientific program. Once again, the drug companies are not 
only to blame. Many medical societies solicit drug company support with 
flagrant come-ons that tout the benefits to the companies of reaching 
their elite professional members.
    Any consideration of loosening the ties between the profession and 
industry must take into account the extent of the involvement. While we 
have little definitive information on the pervasiveness of these 
arrangements, we have hints that they are widespread. Medical journal 
editors complain that they are unable to find non-conflicted experts to 
serve on their editorial boards or to write editorials and review 
articles; financial connections of study authors listed in journal 
articles disclose as many as 10-15 companies for a single author. And 
the statement by the Washington Legal Foundation, an organization 
devoted in part to protecting the pharmaceutical industry from 
excessive regulation by the FDA and the ACCME issued the following 
statement, ``It is widely acknowledged that most of the top medical 
authorities in this country, and virtually all of the top speakers on 
medical topics, are employed in some capacity by one or more of the 
country's pharmaceutical companies.'' If we take this statement at face 
value, which would certainly be appropriate given the close 
relationship of this organization to the drug industry, it suggests 
that industry has successfully co-opted an exceptionally high fraction 
of the most authoritative and influential members of the profession.
    And what have leaders of the profession done to counter a trend in 
which the profession has become increasingly beholden to industry, at 
times to the detriment of the public that they have pledged to serve? 
Not much. Most professional organizations, including the American 
Medical Association and the American College of Physicians have 
published ethical guidelines but they allow physicians to receive gifts 
and meals and are silent on the appropriateness of membership on 
speaker's bureaus. Most have no proscription against members' 
involvement as consultants to industry for marketing or for the 
development of educational materials. Most professional organizations 
have no rules about what constitutes an ethical lapse, how they monitor 
their members' conflicts, or how they deal with a member who violates 
an ethical precept.
    I do not underestimate the achievements of the pharmaceutical, 
biotechnology, and device industries. Neither do I want to stop the 
highly effective collaborations between academic scientists and these 
companies. In my recent book, I made this comment, ``Thousands of 
physicians effectively collaborate with the pharmaceutical, 
biotechnology, and device industries to develop new diagnostic tools, 
prostheses, and medications. . . . I am not opposed to big business, to 
capitalism, or to making money. Viewed from a long-term perspective, 
these industries have produced medications that have extended life, 
prevented serious illnesses, and improved the quality of life of 
millions of people. The companies are also a vigorous engine that 
accounts, in part, for our country's phenomenal economic growth. Even 
if we were unwilling to overlook some of the inappropriate behavior of 
drug, device, and biotechnology companies, we would have to conclude 
that overall, the companies have produced a great many products that 
benefit us.''
    This brief description covers only a small fraction of the 
consequence of medical-industry financial connections. Flaws in 
research study design, bias in reporting of research, and risk to 
patients in clinical trials constitute other serious consequences, and 
a constant promotion of expensive drugs through free samples adds to 
the cost of care. I hope it is clear that the concerns I raised at the 
outset are real, namely that the medical profession has become 
excessively dependent on the largesse of the pharmaceutical industry, 
that these financial connections have a negative influence on the 
quality and cost of patient care and the trust of the public, and that 
the profession's response to these threats has been weak. By making 
tenacious financial connections with physicians, industry has tainted 
the very profession that it relies on to appropriately use its 
products, and, if anything, the companies are trying to tighten and 
extend the connections, increasingly recruiting physicians to their 
marketing efforts.
    During the height of managed care, the public became aware of the 
influence of payment incentives on the kind of care they were 
receiving. They began to appreciate that they might be subjected to 
excessive testing when physicians were paid on a fee-for-service basis 
and denied testing when physicians were working in a capitated system. 
Survey studies show that the public is wary of physician involvement 
with industry, but nothing is a better guide to public awareness of 
physician-industry connections than the media. Already, episodes of 
inappropriate behavior by financially conflicted physicians have 
appeared in the comics in Dilbert and other cartoons and on television 
on ER and the Simpsons. Already there seems to have been a public 
devaluation of medicine: instead of medical experts arguing scientific 
issues in the public domain, the press now publishes debates about 
psychiatry between prominent Hollywood film actors, and commentaries 
about the toxicity of vaccines and the cause of autism by environmental 
lawyers.
    I believe that the public will become increasingly exercised about 
the profession's tilt to industry. Given the extensive involvement, 
extracting medicine from industry's financial magnet will be extremely 
difficult, but I believe it must be done. Needless to say, Congress has 
the clout to set new rules, yet I continue to favor vigorous action by 
the profession. Such action will be painful, but probably less painful 
than inappropriate and more costly medical care or the opprobrium of a 
disenchanted public. I believe that if the profession fails to act, 
Congress should.
    Contact information: Jerome P. Kassirer, M.D., Tufts University 
School of Medicine, 136 Harrison Ave., Boston MA 02111. Phone 617-636-
6523; Cell 617-306-9788.
    E-mail [email protected].

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much. Dr. 
Kassirer, your testimony is very interesting. It is very 
relevant to a consideration of how the FDA functions, and the 
responsibility of government to follow the experience of an 
approved drug. That experience, once it is population-wide is 
going to be very different than the experience in a clinical 
trial no matter how good that clinical trial. It is not 
directly relevant to how we implement pay for performance, 
except that as we get better and better at looking at quality 
of care, and what physician services support quality now, 
remember quality is going to be based on specialty groups, 
protocols, expert's opinion about what works and what should be 
done when, and if you do it at this point, what will be the 
outcome.
    As we are able to hold the system more and more accountable 
for those kinds of early actions, and as we ourselves are able 
to gather the information and pay more attention to what is the 
outcome, we will have a better and better physician payment 
system, and I think that it will affect our use of drugs. One 
of the problems is that we approve drugs on the basis of rather 
narrow clinical trials, and then we use them more broadly and 
sometimes, as you know, their off-label use turns out to be 
more important than the uses for which they were approved.
    So, I appreciate the problem of drugs and the costs of 
producing new drugs in today's level of science, and I think 
all of those things are important. In our instance, ironically 
every time a doctor recommends a part B drug, he is, in a 
sense, sealing his own reduction in payment for the office 
visit. We count drugs under this global amount. It cuts his 
cost. As drugs get to be $1,000, $2,000 average use many years, 
in the 60-, 70,000--it actually works against him. We do not 
want that disincentive anymore than we want the incentive that 
you point to as a real danger of overutilization or 
inappropriate utilization of a drug.
    So, I would also remind you that this is the Subcommittee 
that proposed, in the Medicare Modernization Act, that we go to 
electronic prescribing in 2 years, because that gets rid of--
that looks at drug interactions, it looks at appropriateness, 
and it has some potential to weed out overuse and to reform the 
way we actually think about the treatment regimens that we are 
recommending. So, I do you thank you for your very 
knowledgeable statement. As to both of the other witnesses from 
the AMA and the American College of Surgeons, first of all, 
thank you for your collaboration and your discussion with us 
over many months, and with the Administration, and with the 
other specialty groups, because we could not have gotten to 
where we are without your input. We cannot go forward unless we 
continue to think and evaluate the process that has been 
developed so far.
    I want to be sure that we are as serious about it as we 
need to be. I thought, Dr. Hedberg, your comments about the 
lack of family practitioners and the unwillingness of young 
students to go into these areas, absolutely true. Unless we can 
reward quality practice at that level, they will not come in, 
and the current system disadvantages them; because the more 
tests they run, the more they look at prevention, the more they 
have you come back to be sure that you are sticking to the 
regimen, the more likely they are to suffer a payment cut. So, 
it is a perfect example of how desperately we need to turn 
things around. Now, let me just make a last comment, and then I 
will give Pete a chance to ask questions and I will come back 
later.
    This issue of team, of the new payment model that rewards 
team-based care. We had direct experience with that in 
reforming the oncology payment system. The reason we had to 
change the practice expense so much is that delivering oncology 
care as a team issue, the doctor is not there all of the time. 
The doctor is essential to it, but it is the doctor and his 
whole team that delivers it. When you look at prevention, 
particularly in some of the more complicated diseases and 
complex cases, it is a team effort. It is you, your nurse, you 
may even have to hire someone who does nothing but oversees and 
manages and provides the management component that we know is 
useful to good care. We just passed a bill we were all proud 
of, $25 million for care managers just in cancer, because we 
know it is hard to manage, to navigate the system; because it 
is not just about the treatment, it is getting exercise, it is 
right diet, it is all of those things, and compliance means 
better health and lower health care costs.
    So, we do not, in the proposal that we will make available 
to circulate now--we are waiting until after this hearing--you 
will see, we do not get there, but we do allude to it. I do not 
know yet how to look at team medicine in anything other than 
the narrow world of oncology care delivery, but you are 
absolutely right, and I want to work with you. I do not want to 
jump into bundled payments; that can be a nightmare. So, thank 
you for bringing it up and for acknowledging its importance.
    For those of you who have been so helpful in us making this 
first step, it is only a first step, but if we can repeal the 
SGR and put in place something--a fair payment system that 
gives us the power that Pete is very concerned with, to control 
volume growth, I am convinced we can reduce the rate of growth 
in part B premiums, by better analyzing and having better 
opportunity to look at every one of the factors, sort of 
encompassed under the SGR, and properly managing their growth. 
So, let me turn to Pete now and see what he has.
    Mr. STARK. Well, we have heard of a lot of testimony about 
paying doctors and not very much about helping patients, which 
I guess is a concern of many of us. Dr. Armstrong, representing 
an agency or a group, AMA, whose membership has been declining 
for the past 5 years, you now represent less than a quarter of 
the doctors in the country, it used to be two-thirds, somebody 
had suggested, Dr. Wolf, that you have not been doing a very 
good job. Your statement that you staunchly are committed is 
wonderful. I do not know who wrote that for you, but, as 
somebody said, you follow the money. I think that was the guy 
from the Federal Bureau of Investigation, Deep Throat, who said 
follow the money.
    Well, $5 million over 5 years. Once you spent $600,000 
trying to defeat me and Andy Jacobs and we got higher 
percentages that year than we ever did. I am so proud of you; 
$5 million or $1 million a year for quality. In the same 5 
years, you spent $65 million on lobbying firms. So, that shows 
you; $65 million to mostly lobby us to pay you more, and $5 
million on quality. This last June though, you just broke the 
bank, and I think this is spectacular. A $60 million program--
this is $60 million a year that you are going to start to 
improve your image and portray doctors as every-day heroes. 
Now, I think that is what this country needs. I hope those 
television shows of you doctors driving around in those Porsche 
convertibles with your lances out there going after the 
dragons--I just think $60 million a year, that is $300 million, 
$65 million on lobbyists, that is $365 million, and all of the 
time you are spending $1 million a year on quality.
    I think for the AMA and its members, that says it all. So, 
now we go to this question, and through all of the testimony, 
Dr. Hedberg, yours, Dr. Armstrong, everybody says, you got to 
reward us, you cannot penalize us. You do not want us to tell 
anybody who does not live up to the standard, you want more 
money, and you resist in here the fact that we might cut the 
pay for doctors who are lousy performers. Now, Dr. Kassirer, 
have you seen the working draft of the recommended starter sets 
of clinical performance measurements for ambulatory care?
    Dr. KASSIRER. No.
    Mr. STARK. Let me go through a few of these just real 
quickly: breast cancer screening, colorectal cancer screening, 
cervical cancer screening, tobacco use, advising smokers to 
quit, inoculations for few vaccinations, pneumonia 
vaccinations, drug therapy for lowering cholesterol, and I go 
on and on and on, diabetes management. Have you ever seen, or 
do you know of any medical school, including that famous school 
in Grenada, that could graduate as a medical doctor who would 
not know this as rote hornbook medical care? Is there anything 
in there that the rawest recruit out of medical school would 
not know even before they did their internships?
    Dr. KASSIRER. Well, Mr. Stark, these are really very common 
indices of health outcomes.
    Mr. STARK. Pretty standard, are they not?
    Dr. KASSIRER. I would say so.
    Mr. STARK. Would you say that any graduate of any medical 
would not know about this stuff?
    Dr. KASSIRER. I would not go quite that far, Mr. Stark, but 
at Tufts, it is certainly something that everybody should know.
    Mr. STARK. All right. Now, why in God's name we should pay 
extra to people for doing what they know they ought to do--and, 
in fact, I think somewhere they took an oath that they would, 
and I hope in California that they had to pass a licensure test 
that says that they can understand this. On the other hand, 
what about saying we will raise everybody's pay? That is what 
the two gentlemen to your right are here for; they do not care 
much about patients, they care about getting more money.
    Dr. KASSIRER. Oh, I doubt that.
    Mr. STARK. Come on. If we raised their pay, what about 
saying we raise everybody's pay, but anybody who does not 
adhere to these things gets dropped from the program, or 
penalized or sent to jail, I do not care what. In other words, 
what is wrong with turning it around and saying, okay, we will 
pay you more, but we penalize people who do not perform.
    Dr. KASSIRER. Well, Mr. Stark, I think this is a 
fundamental question about what is an important financial 
incentive to physicians. The answer is, that there are all 
kinds of financial incentives, and what you would like to do is 
put the incentives in the right place. Coming back to your 
comment, Madam Chairman, I would say the same thing. The 
question is, where are the incentives? Are in they in the right 
place or the wrong place? With respect to some of the Medicare 
reimbursements, they are clearly in the wrong place. As I 
mentioned in my testimony, and as Dr. McClellan mentioned 
before, with respect to cancer care, they are in the wrong 
place. With respect to Natrecor, they are in the wrong place. 
That is the sort of thing that needs to be fixed.
    Chairman JOHNSON OF CONNECTICUT. Right. Thank you. Mr. 
Hulshof.
    Mr. HULSHOF. Thank you, Madam Chair. Mr. Stark has made 
some interesting comments. Let me ask just, first of all, Dr. 
Armstrong, do you care about patients?
    Dr. ARMSTRONG. Personally, and on behalf of the AMA and our 
246,000 members, we care about patients first and foremost.
    Mr. HULSHOF. Dr. Hedberg, I have got to ask you the same 
question. Do you, sir, actually care for patients?
    Dr. HEDBERG. I was born into the family of an internist, 
and have spent all of my life hearing about and caring about 
patients. That is the most important thing in the world to me.
    Mr. HULSHOF. Let us really then get to the crux, and I 
referenced this with Dr. McClellan, and it was more of--it was 
not specific, but, certainly, as the subject of this hearing is 
the SGR formula, and under the current Medicare system 
encouraging beneficiaries to utilize more physician services, 
and yet at the same time attempting to control the volume of 
physician services. Let me pick up on the thread that the 
gentleman from California has raised, and Dr. Hedberg, let us 
go to you, because the American College of Physicians has been 
one of the founding members with the Ambulatory Care Quality 
Alliance. What say you then about this challenge, if you will, 
that you know any resident knows that this 26-measure starter 
set, that this is a no-brainer? What do you say to that?
    Dr. HEDBERG. Well, I would say this: it is hard to believe, 
but the figures that are taken out of practices and have been 
used in the ``Crossing the Quality Chasm'' report from the 
Institute of Medicine (IOM) show the chasm of quality. The 
figures that have been done in the ambulatory care areas where 
some medications, some on this list are used, show that they 
are used less than 50 percent of the time than they should be. 
We have a whole spectrum of doctors out there; we have older 
doctors, middle-aged doctors, younger doctors. I would think 
that, in this day and age, they would all know these things, 
but, when you go and look, you become amazed at what is going 
on, and I think we need quality improvement.
    I would like to comment, too, at some point on what 
Chairman Johnson said about the change in the practice of 
medicine for chronic care, how that is changing and how 
prevention is becoming so important. This data, these first 26 
performance measurements actually speak to the long-range care 
of patients, which goes beyond next year's budget. The diabetic 
is prevented from blindness, heart attacks, renal failure, 
neuropathies in the legs, and much more, by the care that is 
done on a week-to-week, month-to-month basis in the doctor's 
office. We don't necessarily know about this, if we don't have 
quality improvement data through using electronic health 
records, which are expensive to purchase for our offices. The 
money that Mr. Stark was talking about that I crave, as he 
alluded to, is really so that we can get these electronic 
health records and machines and computers into our offices, 
because, how do we know if we are doing poorly unless we can 
measure it? That is the revolution in medicine; we have to 
measure these things to know if we are doing it right. The 
figures show we have got a long way to go.
    Mr. HULSHOF. Well, let me amplify something you said, 
because speaking of common sense and what we would expect the 
most basic general practitioner or resident to know, folks back 
home, going back to my first term of Congress on this Committee 
back in the Balanced Budget Act 1997--I know it is a four-
letter word to many that are here in the room--but nonetheless, 
it took an act of Congress for us to actually focus on 
preventive screenings, early screenings for colorectal cancer, 
pap smears, Type II diabetes, test strips, mammograms in 
problem cases; it actually took an act of Congress for us to 
come up with these commonsense ideas to focus not just on the 
fiscal health of Medicare, but more importantly, the personal 
health of the beneficiary. So, I appreciate you responding to 
that. Madam Chair, thanks for letting me go out of order, given 
the other matters I have got going on.
    Dr. HEDBERG. Thanks for the opportunity because this is 
germane to the whole picture
    Chairman JOHNSON OF CONNECTICUT. Absolutely, very germane. 
Mr. Lewis.
    Mr. LEWIS. Thank you very much, Madam Chair.
    Dr. Kassirer, you asserted in your book and in your 
testimony today that there is much waste in the system because 
of this maybe unholy alliance between pharmaceuticals and 
physicians. As Members of Congress, we watch television, we 
listen to the radio, we read the newspaper, we see the weekly 
magazines, we see all of these commercials, we see all of these 
ads. I thought for a long time, when a patient went in to 
confer with a physician, they would say, Doctor, I saw this, I 
saw that, why don't you try this, give me this prescription. 
You are telling us that it is not really geared toward the 
consumer so much, but it is geared toward reaching the medical 
community, the physicians?
    Dr. KASSIRER. Well, Mr. Lewis, direct consumer advertising 
is only a modest fraction of the total budget of advertising of 
the pharmaceutical, device and biotechnology industry. They 
spend about $4.5 billion on direct consumer advertising. When 
you are sitting in your living room listening to why you should 
be taking Cialis or Viagra, what you don't appreciate is the 
overwhelming fraction of the $20 billion or more that is spent 
by the pharmaceutical and device industries is going to doctors 
to influence doctors to make one decision or another. I think 
it is quite clear that the public is beginning to appreciate 
the problems with the connection between physicians and 
industry. We have already seen cartoons in Dilbert. We have 
seen other cartoons. We have also seen television programs, 
like ``ER'' and ``The Simpsons,'' where doctors collaborating 
with industry are shown doing some pretty nasty things. So, the 
public is getting fed up with these complex relations between 
doctors and industry. If the profession doesn't do something 
about it soon, it is going to seriously harm the relationship 
between doctors and patients.
    Mr. STARK. Would the gentleman yield for just a second?
    Mr. LEWIS. I yield.
    Mr. STARK. In an attempt to keep the AMA from portraying me 
as the antihero in these ads, I want to commend them because, 
as I understand, one of the principles that they put forth at 
their recent convention was to restrict or limit these direct 
consumer ads for prescriptions, and they are to be commended 
for that position.
    Mr. LEWIS. Dr. Kassirer, how will you go back correcting 
this? What will you recommend? Should there be action on the 
part of this Committee, on the part of the Congress?
    Dr. KASSIRER. I would prefer that Congress stay out of it 
for now, quite frankly, yes.
    Mr. LEWIS. I am not a physician, not a person of medicine 
like Dr. Stark----
    Dr. KASSIRER. Well, I can make you a doctor very easily 
just by calling you it. I believe the profession needs to do 
something about it. I think bringing the attention of the 
public to it more, as I tried to do in my book, and talking 
about it more, getting much more widespread disclosure of how 
frequent these relationships are, how serious they are, is 
something that needs to be done first before, I hope, Congress 
does anything.
    Mr. LEWIS. Thank you. Thank you, Madam Chair. I yield back.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much. Dr. 
Hedberg, you talk about the quality standards that you have 
developed. What would be the impact of those quality standards 
on office services?
    Dr. HEDBERG. Well, I think two things. First, by knowing 
what your personal profile is on these things, we know that if 
doctors are given performance measurements results, compared 
with the rest of the country, that they will get better. Most 
doctors want to be good. They want to do their best, as Dr. 
McClellan said. It is hard to improve unless you have the data. 
Once you show that, of the hundred diabetics I have, too many 
of them have a hemoglobin A-1C, which is a blood-sugar 
measurement over a period of time, over the value of nine, that 
is not good. There is a certain desirable percentage. There are 
tough cases, and there are easy cases to do this with, and you 
should be able to tell from your own figures how you are doing. 
If you have a hundred patients with diabetes, you don't know 
until you collect the data. You will improve; your quality will 
improve. Furthermore, you will save, not only now but into the 
future, a lot of money because the patients won't come back 
needing amputations, needing retinal surgeries, needing cardiac 
bypasses. It is a very simple concept, but it stretches out 
over years, and the savings are going to be enormous.
    I heard recently that just by putting in health information 
technology and totally connecting interoperable communications 
between doctors, which are very deficient in our country, and 
the communications between doctors, laboratories and hospitals 
we will probably save over $100 billion a year. So, the savings 
are there.
    Chairman JOHNSON OF CONNECTICUT. Well, I couldn't agree 
with you more that the savings in the electronic potential--
concerning a solid electronic interoperable system is going to 
save us lots of money, eliminate errors, improve the quality 
for patients. In the 26 measures starter set, for instance, 
some of those measures are screenings for cancer, flu and 
pneumonia vaccines, diabetes patients' blood levels, 
cholesterol levels; now, those are all things that go on in the 
doctor's office. If we do all that, it is true we will save the 
system care, but under the current system, the doctor's 
payments will be cut. Now this hearing----
    Dr. HEDBERG. Well, doctors don't share in those savings; 
that is for sure.
    Chairman JOHNSON OF CONNECTICUT. That is the irony. Well, 
if we get good practice under the current law, we get poor 
payments. So, my colleague from California said, I haven't 
heard much about payments in this hearing--speaking about 
patients in this hearing but only about doc payments--this is 
all about patients, because if you deliver the care you need to 
deliver, you are going to improve the quality of health care 
and save them a lot of suffering and us a lot of cost.
    On the other hand, under the current system, ironically, if 
you deliver that care, then we will have 10 years of 5 percent 
cuts rather than 7 years of 5 percent cuts. That is really a 
very, very big problem, because in the past years, 
reimbursement rates have gone up either not at all or very well 
below inflation. We know what happens when that happens because 
we have done it in Medicaid. It is not as if this country 
doesn't know what happens when you don't pay people for the 
work they provide; they stop participating in your system. So, 
in many parts of the country, it is very hard for patients to 
find a doctor who will care for them under Medicaid.
    One of the reasons I have introduced legislation and am 
determined to introduce legislation, in spite of the barriers 
of the supposed make-believe costs, to repeal one system and 
replace it with another that I think will be more accountable 
on the issues of quality and volume, is because if we don't do 
it, it isn't rocket science what will happen. It is 
predictable. It is simple, and it is inevitable. Reimbursements 
will fall, and professionals will either not join the 
specialties we need, or not join the programs we want. Now, if 
any one of you disagrees with that, you better tell me, but 
then I have one other question I want to ask. So, anyone 
disagree with that?
    Then the last thing I want to ask you is, the IOM's 
studies, which were really the incentive for all of this--the 
quality chasm incentive, and what it told you was something we 
have known a long time. We just didn't do anything about it. 
You can make this analogy in public education. I first heard 
this as a freshman Member of Congress in the eighties, that it 
took 15 years from the time we thought up a new weapon system 
to the time we decided to do it. We produced it. We trained. We 
integrated it into frontline. That is unacceptable. That is 
what the IOM study said, too. It is 15 years from the time we 
invented a new treatment to the time we got compliance out 
there. In today's world, that is simply unacceptable. The rate 
at which new diagnostic capabilities are developing, new 
treatment capabilities, new pharmaceutical options, we can't do 
it that way anymore.
    So, I think the importance of what all of you have said is 
that we have to move to a new system, and we have to back it 
with the educational and technological components to make it 
work. The drugs, you have to provide help for the physicians to 
understand how some of these new very complicated and different 
types of drugs are going to work and what to watch for. How we 
do that, whether the old system, pharmaceutical agents 
visiting--certainly the old system of annual meetings isn't 
going to work; it is not equal to the task. Advertising at 
least lets consumers know that you might want to ask about 
this, but it is driving inappropriate care. So, we have a big 
job cut out for us if we are going to create a system in which 
we deliver the right care at the right time to get the maximum 
quality of life for people who either have short-term or long-
term illnesses.
    So, it is a huge challenge. I look forward to your input as 
we go through the process of developing this bill. When 
anything starts out like this in the House and the Senate, it 
has a long road to travel, and I invite you all to participate. 
I would mention to you, Dr. Kassirer, you probably aren't aware 
of this--I wasn't aware of this--but the direct to consumer 
voluntary guiding principles have received preliminary approval 
from the board, so your book has apparently hit home. I will be 
interested in your feedback on that issue. Thank you for being 
with us at this time.
    Mr. STARK. I would like to ask the panel this----
    Dr. KASSIRER. Excuse me, Mr. Stark. Could I be excused? I 
have to leave----
    Chairman JOHNSON OF CONNECTICUT. You certainly can. Thank 
you for being here and for your testimony.
    Mr. STARK. I would ask the remaining panelists this: There 
has to be an incentive, I presume, in the fees. I have 
contended that, with the cuts we are talking about, physician 
income hasn't dropped that much, totally. Per procedure fee has 
dropped, but the gross payments have either gone up or remained 
the same. In my district, half the people, not half the 
insured, but half the people in my district, somewhere over 
300,000, receive their medical care from physicians who are 
paid on a salary. What do I do with them? Can I not, if I were 
running--half my constituents are in Kaiser Permanente, so do I 
just say, Doc, your salary gets cut if you don't live up to 
this? Or what do we do there?
    Dr. HEDBERG. Who are you asking?
    Mr. STARK. Either of you.
    Dr. HEDBERG. Well, I spent half my career in private 
practice and half of it being in a university, so I have been 
under both systems. The pressure in the university system--and 
that is a salaried doctor you are talking about--is that the 
payments are the same as in private practice. If you are 
coding, you send in your charges; your secretaries take care of 
it, but you get the same amount. The dean of the medical school 
can then say your costs are too high. So, you have a middle 
man, but you are still responsible to be fiscally sound in most 
salaried positions. You are still responsible for productivity.
    So, I think you just go ahead with the total package, and 
the middle man has to deal with it back at the university, and 
you still have to deal with it to be productive for the people 
you are working for. I haven't found too much difference 
hanging by my fingernails to keep my private office practice 
going, or hanging by my fingernails to see enough patients to 
keep my salary going. I think that is the way it is working 
now, and I think it is pretty much the same for private 
practice and salaried physicians. By the way, when you are in a 
system that is as good as Kaiser Permanente, you have a lot of 
quality performance help, too.
    Mr. STARK. Yes, we do, but I would presume that they would 
lay this tablet down before their physician group and say----
    Dr. HEDBERG. Oh, they do.
    Mr. STARK. Ladies and gentlemen, these are our procedures, 
and if salaries are adjusted, that would be something else 
again.
    Dr. HEDBERG. It is very common now, in salaried positions, 
to adjust them for the amount of patients you see.
    Mr. STARK. Also for your productivity.
    Dr. HEDBERG. Exactly.
    Dr. ARMSTRONG. Regardless of the practice setting, there 
needs to be viable practice economics.
    Mr. STARK. Then it could be an increase in the overall 
payment with a penalty for not performing really; could it not? 
The physicians could come out pretty much the same way. You are 
suggesting, I believe, both of you, that we shouldn't penalize 
the physician who doesn't voluntarily prescribe to these new 
benefits. I am saying, why not say all physicians have to do 
this, and we will raise the pay?
    Dr. HEDBERG. You mean like performance measurements----
    Mr. STARK. As in, if you don't do it, we will then penalize 
you.
    Dr. HEDBERG. Well, sure. All of us now have to do 
performance measurements within our employment.
    Mr. STARK. Like I said, it could have worked either way. 
I'm not sure Armstrong would agree.
    Dr. ARMSTRONG. I don't think we do well when we penalize. I 
think we do much better to provide a viable practice economics 
as a framework upon which to build system-wide quality 
improvement efforts, and incentives go a long way toward doing 
that. We have to remember that quality improvement is a system-
based effort. We have to think of everybody involved in the 
care of patients and focus on those linkages across the system.
    Chairman JOHNSON OF CONNECTICUT. Would the gentleman yield?
    Mr. STARK. I thank the Chair.
    Chairman JOHNSON OF CONNECTICUT. In the hospital arena, we 
provide a full market basket if you meet all the criteria, and 
less than that if you don't. That is the model that is in my 
proposed bill, full Medicare Economic Index (MEI) if you meet 
all the criteria; MEI minus 0.5 if you don't. Now, that is not 
a lot of penalty, but it should be enough to get people's 
attention. I think that that is easier than the other way, 
which given our budget constraints would be everybody gets MEI 
minus 0.5, and then if you achieve it, you get MEI, which is 
really the same thing. So, I don't want it to be seen as 
punitive, but there does need to be a differential between one 
or the other. Now, the last question I forgot to ask you was 
profiling. You both have had experience in profiling. The 
Administration intends to profile according to claims data. 
Insurance companies frequently do this. Others have said to me, 
it is not adequate, claims data. What do you each think about 
that? What do we need to profile effectively and honestly?
    Dr. ARMSTRONG. You need the right data, and you need data 
that reflects accountability for the care that has been 
provided, data that can be easily collected, data that is 
evidence-based.
    Chairman JOHNSON OF CONNECTICUT. Presumably, we will have 
that, if we set these measures correctly, because we are 
conscious, and we would say in the law that they have to be 
evidence-based and they have to be easily collected. So, is 
that going to be adequate?
    Dr. ARMSTRONG. That is a step in the right direction, but 
the larger issue, after one gets the data, is how one actually 
reports this data. We want to make sure that, in the process of 
reporting data, particularly on individuals, understanding that 
quality of care is a system issue, we want to be very careful 
that we do not create disincentives to care for the sickest 
patients, the most vulnerable patients in our society.
    Chairman JOHNSON OF CONNECTICUT. For the least compliant, 
for one reason or another.
    Dr. HEDBERG. I was going to say a risk adjustment is 
extremely important here because you have disparities in care 
that comes from different socioeconomic populations. You don't 
want to have doctors who are taking care of people who are 
disadvantaged or are noncompliant penalized because patients 
can't afford to get to the doctor for one reason or another. We 
have courageous physicians who spend all their time on that, 
and their profiling may not look too good because the patients 
aren't as compliant and, for very good reasons having to do 
with their socioeconomic environment, can't participate in 
their own care.
    Particularly people in poverty. We know they don't do well. 
If the doctor's lab data is looked at for not having done this 
and that and they haven't come in, well, he can be seen as a 
poor physician, and I think that is not fair. So, I think 
doctors are very cognizant of this, and they want to be sure 
when this profiling is done, that it is adjusted for that. We 
don't have good risk adjustments now, particularly in primary 
care. It might be a little easier to do in surgery, but we 
don't have them in primary care. We have to work on that.
    Chairman JOHNSON OF CONNECTICUT. Well, it might be useful 
if you would give us something in writing on this subject 
because this is the most difficult subject.
    Dr. HEDBERG. It is really.
    [The information was not received at the time of printing.]
    Chairman JOHNSON OF CONNECTICUT. While we do recognize it 
all in our draft, over time, we do need to kind of----
    Dr. HEDBERG. Actually, the scheme that you are working on 
and what we have been very interested in, as this process 
unfolds over the next 3 to 4 years and fully comes in--the full 
pay-for-performance in the year 2009 gives us time to work on 
adjustment like this that are really important.
    Chairman JOHNSON OF CONNECTICUT. We may want to specify 
certain things that need to be focused on during that time 
period because some of these issues are very, very hard, and we 
just don't know. So----
    Dr. HEDBERG. I'm appreciable to your appreciation of that.
    Chairman JOHNSON OF CONNECTICUT. That would be an 
improvement, thank you. Thank you all. The hearing is 
concluded, and I thank the Members who stayed.
    [Whereupon, at 3:28 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
      Statement of Jack Ebeler, Alliance of Community Health Plans
    The Alliance of Community Health Plans (ACHP) commends the Ways and 
Means Health Subcommittee for convening a hearing on the opportunities 
for Medicare to use value-based purchasing of physician services to 
improve quality. We are pleased to have the opportunity to share our 
perspective.
    ACHP is a leadership organization of non-profit and provider-
sponsored health plans that are among America's best at delivering 
affordable, high-quality coverage and care to their communities. Today, 
ACHP member plans serve more than one million Medicare beneficiaries--
about 20 percent of current Medicare Advantage members.
    ACHP has a proud legacy of leadership on quality improvement and 
was formed more than twenty years ago to help innovative health plans 
share best practices. 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.
    Health plan measures assess plans' performance in areas such as 
cancer and heart disease screening and prevention, control of diabetes 
risk factors, and how well patients feel the plan and their physician 
listen to them. To help Medicare beneficiaries make informed decisions 
about their health plan choices, CMS makes comparative information 
about plan performance available on-line through www.medicare.gov and 
in printed publications. Together, 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.
Quality Matters
    A 2003 comprehensive, peer-reviewed RAND Health assessment of 
health care quality published in the New England Journal of Medicine 
found that Americans received recommended health care only about half 
of the time. NCQA's 2004 State of Health Care Quality report documented 
that the gap between the quality of care delivered through the nation's 
best health plans and the care most Americans receive results in an 
estimated 42,000 to 79,000 premature deaths each year. Yet, as the 
Medicare Payment Advisory Commission (MedPAC) has said, the Medicare 
program is largely neutral or negative towards health care quality. 
Medicare providers are paid the same regardless of the quality of 
service provided and, at times, are paid more when quality is worse.
    To address the quality chasm in health care, the Institute of 
Medicine (IOM) has called for realigning financial incentives to 
achieve better patient outcomes. MedPAC also has recommended the 
introduction of quality incentive payment policies in Medicare for 
health plans, physicians, hospitals, dialysis facilities and home 
health agencies.
    Having led the way in establishing health plan performance 
measures, ACHP echoes the IOM and MedPAC's assessment that pay-for-
performance is an idea whose time has come. We share the Subcommittee's 
commitment to advancing the use of quality measures in fee-for-service 
Medicare. For beneficiaries to make well-informed health care choices, 
they need to be able to make ``apples-to-apples'' comparisons between 
the quality of care in Medicare Advantage plans--which they can 
evaluate through publicly reported data on a range of quality 
measures--and the care offered by fee-for-service Medicare providers--
for which public reporting is just beginning. Today's hearing is an 
important step in advancing this goal.
Next Steps
    Mark McClellan, M.D., Ph.D., Administrator of the Centers for 
Medicare and Medicaid Services (CMS), indicated in his June letter to 
Ways and Means Committee Chairman Bill Thomas that CMS has been working 
with physician groups and other stakeholders on the development and use 
of quality measures for physician-related services. Many of the 
measures under consideration are drawn from the HEDIS 
measure set that has been developed and refined through health plan 
use. We are pleased that the lessons learned from health plans' 
experiences with quality measurement are helping to inform the 
evolution of physician measurement. We look forward to serving as a 
resource to the Subcommittee as it continues its work on this issue.
    In addition, as the Subcommittee moves forward in its consideration 
of value-based purchasing for physicians, we encourage you to consider 
the opportunities offered by introducing value-based purchasing in 
Medicare Advantage. Having spent considerable time examining how 
Medicare could help beneficiaries receive higher quality health care, 
MedPAC's June 2003 assessment of where and how to begin pay-for-
performance in Medicare pointed to health plans as a likely starting 
point. MedPAC noted that Medicare Advantage plans are good candidates 
for quality incentives because ``they meet, in whole or part, all of 
the criteria for successful implementation.'' Medicare Advantage plans 
have:

      Standardized, credible measures of performance and 
customer satisfaction that are reported annually to CMS;
      Data collection capacity and mechanisms to report on 
quality measures already in place;
      Leverage to improve performance across the variety of 
settings with which they contract; and
      Opportunities to improve coordination of care across 
settings in a way that is ``not possible through provider-specific 
efforts.''
ACHP and Pay-for-Performance
    ACHP believes that adopting pay-for-performance for Medicare 
Advantage plans would be an important initial step in moving Medicare 
toward a more performance-driven system, while also helping to advance 
the development of measures and mechanisms for using incentives with 
physicians, hospitals and the other health care sectors.
    ACHP's work on value-based purchasing is informed by our key 
principles for pay-for-performance. They include the following:

      Payment-for-performance incentives 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.
      Pay-for-performance incentives should be based upon 
standards of excellence and improvement.
      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 and should emphasize 
clinical effectiveness.
      To ensure successful implementation and sustainability, 
pay-for-performance incentives should be financed with a new, dedicated 
stream of funding.

    We share your strong commitment to ensuring that Medicare 
beneficiaries have access to quality information about all of their 
Medicare options and applaud the Subcommittee for its ongoing efforts 
to examine value-based purchasing models for physicians. We agree with 
MedPAC's assessment that health plans are a logical place to begin 
using quality payment incentives and that Medicare should aggressively 
work to develop quality measures for other sectors, including fee-for-
service settings such as physician offices.
    Thank you for the opportunity to share our views. We look forward 
to working with the Subcommittee on this and other issues of mutual 
interest.

                                 

 Statement of Michael Fleming, American Academy of Family Physicians, 
                            Leawood, Kansas
Introduction
    This statement is submitted on behalf of the 94,000 members of the 
American Academy of Family Physicians to the House Ways and Means 
Subcommittee on Health as part of its hearing on Medicare Physician 
Reimbursement Issues, scheduled for Thursday, July 20, 2005. The AAFP 
greatly appreciates the work that this subcommittee has undertaken to 
examine how Medicare pays for physician services and we share the 
subcommittee's concerns that the current system is unproductive. This 
is why the AAFP supports the restructuring of Medicare payments to 
reward quality and care coordination. This restructuring must be built 
on a fundamental reform of the underlying fee-for-service system.
    AAFP currently has over 57,000 members in active practice, the vast 
majority of whom are in small and medium size practices, not large 
groups. We anticipate that this will be the typical construct of family 
medicine well into the future. Most people in this country receive the 
majority of their care from physicians in small and medium size 
ambulatory care settings. Currently about a quarter of all office 
visits in the U.S are to family physicians, and the average family 
practice has about a quarter of patients who are Medicare 
beneficiaries. Implementing value based purchasing or pay for 
performance in the Medicare program has tremendous implications for 
millions of patients and for the specialty of family medicine, and AAFP 
is therefore committed to involvement in the design of a new pay-for-
performance program that meets the needs of patients and physicians.
Physicians and Pay for Performance
    The AAFP supports moving to pay for performance in the Medicare 
program with the goal of continuously improving care of patients. As we 
recently stated in a joint letter to Congress with our colleague 
organizations ACP, AAP and ACOG, ``we believe that the medical 
profession has a professional and ethical responsibility to engage in 
activities to continuously improve the quality of care provided to 
patients--Our organizations accept this challenge.'' We have committed 
to work toward transformation of medical practice, to strengthen the 
infrastructure of medical practice to support pay for performance, and 
to engage in development and validation of performance measures. While 
several specific issues remain that must be addressed in implementing 
pay for performance in Medicare, AAFP has a framework for a phased in 
approach for Medicare.
    AAFP is involved in several efforts that are fundamental to moving 
toward a pay for performance system.
    First of all, we know that the development of valid, evidence-based 
performance measures is imperative for a successful program to improve 
health quality. The AAFP participates actively in the development of 
performance measures through the Physician Consortium for Performance 
Improvement. We believe that multi-specialty collaboration in the 
development of evidence-based performance measures through the 
consortium has yielded and will continue to yield valid measures for 
quality improvement and ultimately pay for performance.
    The AAFP was the first medical specialty society to join the 
National Quality Forum (NQF). And along with ACP, AHIP and AHRQ, the 
AAFP is a founding organization of the Ambulatory care Quality Alliance 
(AQA). However, it is important to distinguish between the role of the 
NQF and that of AQA. With its multi-stakeholder involvement and its 
explicit consensus process, the NQF provides essential credibility to 
the measures that it approves--measures developed by the Physician 
Consortium, NCQA and others. The AQA's purpose is to determine which of 
the measures approved through the NQF consensus process should be 
implemented initially (the starter set), and which should then be added 
so that there is a complete set of measures, including those relating 
to efficiency, sub-specialty performance, and patient experience. 
Having a single set of measures that can be reported by a practice to 
different health plans with which the practice is contracted is 
critical to reducing the reporting costs borne by medical practices. 
Measures that ultimately are utilized in a Medicare pay-for-performance 
program should follow this path.
Information Technology in the Office Setting
    Health information technology effectively utilized in the 
physician's office is necessary to the success of quality improvement 
and pay-for-performance programs. We have learned from the Integrated 
Healthcare Association's (IHA) experience in California that physicians 
and practices that invested in EHRs and other electronic tools to 
automate data reporting were both more efficient and achieved better 
quality results, and did so at a more rapid pace than those that lacked 
advanced HIT capacity. The AAFP created the Center for Health 
Information Technology (CHiT) in 2003 to facilitate adoption and 
optimal use of health information technology with the goal of improving 
the quality and safety of medical care and increasing the efficiency of 
medical practice. We now estimate that over 20 percent of family 
physicians are utilizing EHRs in their practices, which is twice the 
number from this time last year. Through a practice assessment tool on 
the CHiT website, physicians can assess their readiness for EHRs. We 
know from the HHS-supported EHR Pilot Project conducted by the AAFP 
that practices that had a well defined implementation plan and analysis 
of workflow and processes had greater success in implementing an EHR.
    We also know that cost can be a barrier to IT adoption and have 
worked aggressively with the vendor community through our Partners for 
Patients Program to lower the price point. The AAFP's Executive Vice 
President serves on the Certification Commission for Health Information 
Technology (CCHIT) which certifies EHRs. The AAFP sponsored the 
development of the Continuity of Care Record standard, now successfully 
balloted through the American Society for Testing and Materials (ASTM). 
We initiated the Physician EHR Coalition, now jointly chaired by ACP 
and AAFP, to engage a broad base of medical specialties to advance EHR 
adoption in small and medium size ambulatory care practices. Our Board 
of Directors has set an ambitious goal of having 50 percent of family 
physicians using EHRs by the end of 2005. We are committing our 
organizational resources to assist our members achieve this goal.
    The AAFP quality initiatives span efforts to emphasize measures 
like quality improvement, office redesign, and integration of the 
chronic care model. Here are two examples. Through our Practice 
Enhancement Program, teams of physicians and their office staff 
participate in an intense educational experience accompanied with pre 
and post course work to acquire the practical tools, skills and 
knowledge to implement the planned care model into their everyday 
practices. Through the web-based METRIC (Measuring, Evaluating and 
Translating Research into Care) program, family physicians assess their 
systems in practice, review charts and enter patient data, receive 
feedback on their performance, implement a quality improvement plan, 
re-measure and reassess. Two module topics currently are available: 
diabetes and coronary artery disease.
    The AAFP takes seriously the responsibility to work with our 
members to continuously improve their clinical care and office 
infrastructure to better meet the needs of their patients.
Current Payment Environment
    While these innovations are exciting and hold great promise, the 
environment in which physicians practice is challenging at best. And it 
will come as no surprise that family physicians, while they enjoy 
caring for their patients, are not enthusiastic about the Medicare 
program. This program has a history of disproportionately low payments 
to family physicians, largely because it is based on a reimbursement 
scheme that is designed to reward volume and to discourage innovations 
in the provision of care. In general, the prospect of annual cuts in 
payment is discouraging. The regulatory approach is punitive, and 
physicians live in fear of violating rules they don't even know about. 
In the current environment, physicians know that they will face a 4.3-
percent cut in January 2006, and that without Congressional action to 
repeal the Sustainable Growth Rate formula and create a structure for 
sustainable financing, they face steadily declining payments into the 
foreseeable future, even while their practice costs are increasing. To 
overlay a pay-for-performance program in Medicare, therefore, poses a 
unique set of challenges and it must be done thoughtfully and carefully 
because of its size and complexity.
    Our consistent message to Congress is that if it is not done well, 
a value-based purchasing program will not only fail to improve health 
care quality but could unravel the preparation and progress that 
medical specialty societies have carefully undertaken.
    ``Doing it well'' means phasing in a value-based purchasing program 
that provides incentives for structural and system changes, that 
encourages reporting of data on performance measures and ultimately 
rewards continual improvements in clinical performance. Yet, moving the 
Medicare program in this direction cannot be accomplished in an 
environment of declining physician payment; Congress must take steps to 
stabilize physician payment through positive updates, as proposed by 
MedPAC. Furthermore, because of its financing structure with Part A and 
Part B, we believe it is important that Congress require a report on 
Medicare program savings resulting from Part B quality improvement 
efforts so that physicians are not penalized into the future.
A Framework for Pay for Performance
    The following is a proposed framework for phasing in a Medicare 
pay-for-performance program for physicians that is designed to improve 
the quality and safety of medical care for patients and to increase the 
efficiency of medical practice.
Phase 1:
    All physicians would receive a positive update in 2006, based on 
recommendations of MedPAC, reversing the projected 4.3-percent 
reduction. Congress should establish a floor for such updates in 
subsequent years.
Phase 2:
    Following completion of development of reporting mechanisms and 
specifications, Medicare would encourage structural and system changes 
in practice, such as electronic health records and registries, through 
a ``pay for reporting'' incentive system such that physicians could 
improve their capacity to deliver quality care. The update floor would 
apply to all physicians.
Phase 3:
    Assuming that physicians have the ability to do so, Medicare would 
encourage reporting of data on evidence-based performance measures that 
have been appropriately vetted through mechanisms such as the National 
Quality Forum and the Ambulatory Care Quality Alliance. During this 
phase, physicians would receive ``pay for reporting'' incentives; these 
would be based on the reporting of data, not on the outcomes achieved. 
The update floor would apply to all physicians.
Phase 4:
    Contingent on repeal of the SGR formula and development of a long 
term solution allowing for annual payment updates linked to inflation 
plus funds to provide incentives through pay for performance programs, 
Medicare would encourage continuous improvement in the quality of care 
through incentive payments to physicians for demonstrated improvements 
in outcomes and processes, using evidence-based measures such as the 
provision of preventive services, performing HbA1c screening and 
control, prescribing aspirin to diabetics, etc. The update floor would 
apply to all physicians.
    This sort of phased-in approach is crucial for appropriate 
implementation. While there is general agreement that initial 
incentives should foster structural and system improvements in 
practice, decisions about such structural measures, their reporting, 
threshold for rewards, etc. remain to be determined. The issues 
surrounding collection and reporting of data on clinical measures are 
also complex. For example, do incentives accrue to the individual 
physician or to the entire practice, regardless of size? In a health 
care system where patients see multiple physicians, to which physician 
are improvements attributed?
    The program must provide incentives--not punishment--to encourage 
continuous quality improvement. For example, physicians are being asked 
to bear the costs of acquiring and using health information technology 
in their offices, with benefits accruing across the health care 
system--to patients, payors, insurance plans, etc. Appropriate 
incentives must be explicitly integrated into a Medicare pay-for-
performance program if we are to achieve the level of infrastructure at 
the medical practice to support collection and reporting of data.
    The AAFP appreciates the opportunity to share our enthusiasm for, 
yet caution about, a Medicare pay-for-performance program.

                                 

                American College of Obstetricians and Gynecologists
                                               Washington, DC 20024
                                                      July 22, 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.
    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. Road to Maintaining Excellence requires 
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 is summarized and compiled by ACOG, and periodically reported to 
our members.
    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, FACOG
                                                          President

                                 

                                       American College of Surgeons
                                               Washington, DC 20007
                                                      July 20, 2005
The Honorable Nancy L. Johnson
Chair, Subcommittee on Health
Ways and Means Committee
U.S. House of Representatives
Washington, DC 20515

Dear Mrs. Johnson:

    The undersigned surgical specialty organizations are grateful for 
your leadership in developing and promoting reforms to the Medicare 
physician payment system. In particular, we appreciate your efforts to 
balance calls for restructuring current physician payment incentives 
with the need to eliminate the sustainable growth rate system that has 
destabilized the program and now threatens the financial viability of 
physician practices and patient access to care.
    As the Ways and Means Health Subcommittee continues to review these 
issues, especially the many practical concerns involved in developing a 
meaningful value-based purchasing program, it is important to keep in 
mind the diversity of physician practices and services. In particular, 
it seems that much of the discussion to-date has focused on ambulatory 
services such as chronic disease management and preventive care, with 
little acknowledgement of the very different concerns associated with 
acute care procedures or hospital-based care. Even within surgery, 
there are substantial differences between hospital and ambulatory 
services that must be taken into account. The implications and the 
strengths associated with such diversity must be assessed carefully if 
the changes that are being considered for the Medicare physician 
payment system are truly aimed at improving the quality and processes 
of patient care.
    With that in mind, surgery offers the attached framework for 
consideration if Congress is to develop a broad-based quality 
improvement program for Medicare. Like your draft legislation, this 
framework envisions a phased approach that begins with broadly 
applicable and relevant measures that can be reported by physicians 
through administratively simple means. The starter set of five 
potential surgical measures addresses key patient safety goals and can 
be implemented promptly. Over time, more complex specialty--and service 
site-specific measures and systems--including but not limited to those 
described in the document--can be developed to ensure broad 
applicability and participation across specialties and across sites of 
service.
    Thank you again for your leadership and your support. We all look 
forward to working with you further on developing effective Medicare 
payment system reforms.
                                  American Academy of Ophthalmology
          American Academy of Otolaryngology--Head and Neck Surgery
                      American Association of Neurological Surgeons
                       American Association of Orthopaedic Surgeons
                                       American College of Surgeons
                American Society of Cataract and Refractive Surgery
                               American Society of General Surgeons
                               American Society of Plastic Surgeons
                                    American Urological Association
                                  Congress of Neurological Surgeons
                                       Society for Vascular Surgery
       Society of American Gastrointestinal and Endoscopic Surgeons
                                 Society of Gynecologic Oncologists
                                       Society of Surgical Oncology
                                   The Society of Thoracic Surgeons
                                 ______
                                 
DEVELOPING A QUALITY IMPROVEMENT
FRAMEWORK FOR SURGICAL CARE
    Surgical organizations have long stood for quality and safety. They 
were among the first to champion peer review reporting in morbidity and 
mortality conferences, and were at the forefront of developing 
standards for the facilities in which surgical care is provided. 
Although surgeons continue to advance evidence-based care, surgical 
specialists and the research and processes they have developed have 
largely been omitted from recent debates on ways to report and measure 
healthcare quality in a Medicare pay-for-performance program. Instead, 
the focus has been principally on public health and primary care 
services, and on processes that are relatively simple to measure 
through ambulatory service claims. If policymakers begin to pursue the 
development of pay-for-performance, surgical participation is vital.
    It is important to highlight key distinctions in surgical quality 
improvement from preventive and chronic care quality measures. For 
example, surgery is more episodic and less focused on chronic disease 
management, preventive services, and screening. In surgery, the 
ultimate outcome produced by a specific intervention is much more 
immediate and clear than disease management strategies that may span 
many years. As a result, surgery lends itself much more readily to 
rigorous clinical outcome measurement. And, while it is typical for 
generalist physicians to see a wide array of patients, surgeons tend to 
have more focused areas of practice that make it difficult to apply 
broad quality measurement sets. Administrative records other than the 
operative report--such as claims records--provide much less useful 
information about processes of care because of the way surgery is 
packaged and billed. Finally, successful patient management in a 
primary care setting generally results in increased utilization of 
preventive services. In surgery, ``more'' rarely means ``better'' care. 
For surgery, the best measures focus on elaborate decision-making 
processes that call for direct action to determine the right 
procedures, at the right time, for the right patient. Surgical quality 
initiatives limit acute complications and provide immediate cost 
savings, with enhanced outcomes and improved operational efficiencies 
through process development.
    Of course, individual physicians and specialties are in different 
stages of preparedness for participation in meaningful pay-for-
performance programs. Some individuals do not have access to 
sophisticated information technology that facilitates participation, 
and some specialties have yet to develop the rigorous clinical evidence 
that is needed to identify processes of care that improve patient 
outcomes. Nonetheless, there is general consensus among leading 
surgical societies on an overall framework for any program intended to 
promote high-quality surgical care.
    We envision a phased approach that will afford a process of 
continuous improvement in the overall quality of surgical patient care 
while allowing further progress on the development, testing, and 
refinement of new measures.
First Phase
    Phase I would essentially implement a ``pay for reporting'' system 
focusing on administratively simple, self-reported information about 
processes that are widely accepted and promoted for their contribution 
to improving patient safety and advancing the principle of patient-
centered care--which are among the aims included in the Institute of 
Medicine's framework for improving the health care system, Crossing the 
Quality Chasm. In this phase, which can be implemented through claims-
based reporting, we envision a set of standards that assures the 
surgeon's role in improving quality and safety. These standards might 
include the following:

      Confirmation of Operative Site and Side. While rare, 
wrong-site or wrong-patient operations do occur. A wide range of 
physician organizations and specialty societies, along with other 
provider groups, payers, and accreditation organizations have not only 
called on surgeons but also on surgical team members and patients to 
ensure that the operative site is appropriately signed and confirmed by 
either the patient or a representative for the patient. So-called 
``sign your site'' programs have been endorsed by the Joint Commission 
on the Accreditation of Healthcare Organizations (JCAHO), Agency for 
Healthcare Research and Quality (AHRQ), Department of Veterans Affairs 
(VA), American Academy of Orthopaedic Surgeons, American College of 
Surgeons (ACS), and other national organizations representing surgical 
specialists and perioperative nurses.
      Pre-Operative ``Time-Out.'' When errors do occur in the 
operating room, poor communication among surgical team members is often 
cited as a key cause. In addition, after signing the site for surgery, 
a variety of circumstances, such as a change in scheduling or operating 
rooms, can occur and potentially lead to a wrong-site or wrong-patient 
procedure, or to an operation for which the surgical team lacks the 
necessary tools or equipment. For these reasons, a broadly-endorsed 
technique known as the surgical ``time-out''--a checklist type process 
based on airline safety practices--should occur prior to making the 
surgical incision. This process is currently endorsed and promoted by 
JCAHO, AHRQ, the VA, and a variety of national organizations 
representing members of the operating room team, including ACS.
      Immediate Post-Operative Documentation. In addition to 
improving communication through a pre-operative time-out for the 
surgical team prior to surgery, an important aspect of patient care is 
to prevent so-called ``hand-off'' errors by ensuring that those who 
provide post-operative care have essential information about the 
patient's condition. Prompt documentation in a brief post-operative 
report by the surgeon that includes any specific directives for care 
can help ensure that the post-operative health care team is prepared 
for potential complications that may need to monitored or addressed. 
This practice fulfills one of JCAHO's 2006 National Patient Safety 
Goals across various care settings.
      Post-Operative Pain Management. Pain management is an 
important but sometimes neglected component of a patient's treatment 
and important in speeding recovery. Surgeons need to incorporate into 
their post-operative care processes discussions with their patients 
about the level of their pain, followed by appropriate pain management. 
The Centers for Medicare and Medicaid Services (CMS) included pain 
management in its demonstration project for cancer patients undergoing 
chemotherapy; in addition, the CMS and AHRQ Hospital CAHPS venture 
surveys patients regarding the management of pain provided by their 
hospital.
      Appropriate Post-Operative Care. As important as the care 
the patient receives in the hospital is the care and the directives for 
care that the patient receives upon discharge. These follow-up steps 
may include: 1) scheduling post-operative visits with the surgeon or 
other relevant providers; 2) prescribing medications with the necessary 
instructions; 3) counseling for particular patient lifestyle choices, 
such as smoking cessation; 4) directives for patient representatives 
regarding care for the patient at home; and 5) any other directives 
appropriate to the patient's condition, such as wound care.

    These measures are broadly applicable across surgical specialties 
and across sites of services, and should be reportable through 
relatively straightforward administrative mechanisms. In addition, they 
are likely to have an immediate positive impact on the quality of care 
and, taken as a group, will produce little if any increase in service 
utilization. Indeed, collectively they may well produce system cost 
savings by preventing complications.
Second Phase
    Phase II of Medicare's pay-for-performance program could call more 
directly for surgeons to ``pay for participation,'' and involve 
targeted goals that rely on more complex process and outcomes measures 
that are applicable to broad service categories. For surgical care 
provided in the hospital setting, a widely endorsed set of measures 
that is applicable to most surgical specialties is incorporated into 
the Surgical Care Improvement Program (SCIP). SCIP addresses the 
following surgery-related quality and safety issues:

      Surgical site infections (SSIs) account for 14 to 16 
percent of all hospital-acquired infections and are a common 
complication of care, occurring in 2 percent to 5 percent of patients 
after clean extra-abdominal operations and up to 20 percent of patients 
undergoing intra-abdominal procedures. Among surgical patients, SSIs 
account for 40 percent of all hospital acquired infections. By 
implementing projects to reduce SSIs, hospitals could recognize a 
savings of $3,152 and reduction in extended length of stay by seven 
days on each patient developing an infection. Among the practices known 
to prevent surgical site infections are timely administration and 
proper duration of antibiotics, glucose control, and proper hair 
removal.
      Adverse cardiac events are complications of surgery 
occurring in 2 to 5 percent of patients undergoing non-cardiac surgery 
and as many as 34 percent of patients undergoing vascular surgery. 
Certain perioperative cardiac events, such as myocardial infarction, 
are associated with a mortality rate of 40 to 70 percent per event, 
prolonged hospitalization, and higher costs. Current studies suggest 
that appropriately administered beta-blockers reduce perioperative 
ischemia, especially in patients considered to be at risk. It has been 
found that nearly half of the fatal cardiac events could be preventable 
with beta-blocker therapy.
      Deep vein thrombosis (DVT) occurs after approximately 25 
percent of all major surgical procedures performed without prophylaxis, 
and pulmonary embolism (PE) occurs in 7 percent of operations conducted 
without prophylaxis. More than 50 percent of major orthopaedic 
procedures are complicated by DVT, and up to 30 percent by PE, if 
prophylactic treatment is not instituted. Despite the well-established 
efficacy and safety of preventive measures, studies show that 
prophylaxis is often underused or used inappropriately.
      Postoperative pneumonia has been associated with high 
fatality rates, according to the Centers for Disease Control and 
Prevention (CDC). Postoperative pneumonia occurs in 9-40 percent of 
patients and has an associated mortality rate of 30-46 percent. Studies 
have found that many of the factors that can lead to post-operative 
pneumonia respond favorably to medical intervention and so are 
preventable. A conservative estimate of the potential savings from 
reduced hospitalization due to postoperative pneumonia is $22,000 to 
$28,000 per patient per admission. Again, SCIP proposes tests that can 
be applied to test whether prevention strategies for postoperative 
pneumonia have been followed.

    The SCIP measures were proposed in a partnership that includes CMS, 
AHRQ, CDC, VA, JCAHO, ACS, and other national organizations 
representing members of the surgical team.
    Employing the SCIP criteria in a pay-for-performance program would 
involve coordinated efforts with hospitals and with Medicare's quality 
improvement organizations. Indeed, since hospital adherence to the SCIP 
protocols depends on surgical leadership, one way to align hospital and 
physician incentives in the payment system would be to pay ``bonuses'' 
to surgeons who refer their patients to hospitals participating in the 
SCIP.
    Of course, because SCIP measures focus on hospital care, other 
widely-accepted and clinically relevant goals, processes, and measures 
must be developed that are appropriate for physicians and surgeons 
whose practice is narrower in scope and those who practice in non-
hospital settings. Participation by the relevant professional 
organizations is key to this effort, as is adequate time for pilot 
testing and implementation.
Third Phase
    Phase III, the most forward reaching effort, would place greater 
emphasis on the outcomes of surgical care. Such quality initiatives 
will require large infrastructures to house and analyze data and to 
provide the professional expertise to define, refine, and report on 
quality and outcomes. This phase will also involve professional review 
of outcomes data that, in turn, will produce new performance processes 
that will further improve care. It may be possible during this stage to 
benchmark performance of individual surgeons for the purpose of public 
reporting.
    Surgery generally accepts the principle that reporting on outcomes 
provides the first step in a multi-step process toward quality 
improvement. Once risk-adjusted outcomes are identified, we can define 
opportunities for improving care and even highlight areas of 
exceptional care, and then use expert panels of clinicians to identify 
the processes that are involved in high-quality care delivery.
    Various patient databases can be used to launch this effort, 
including some developed in the private sector by surgical 
organizations such as ACS and the Society of Thoracic Surgeons (STS). 
The National Surgical Quality Improvement Program (NSQIP), developed 
first by the VA and now under development in the private sector by ACS, 
as well as the STS National Database for cardiac surgery, hold promise 
for providing the data and measures needed to identify the processes 
that improve patient care.
    Again, it is important to keep in mind that specialties are in 
various stages of preparedness in developing and adopting such systems, 
and this must be accounted for in any pay-for-performance framework 
that is ultimately adopted. This is particularly true for office-based 
practices and those in smaller communities where resources are more 
limited. Further, adequate time for developing and pilot testing new 
measures and processes is essential, because of the considerable risks 
associated with implementation of poorly constructed data collection 
and reporting systems.
    For this phase, in particular, the administrative investments will 
be significant and the potential for Medicare program costs savings 
outside the physician fee schedule can be substantial. So, alternative 
means of financing performance awards (e.g., shifting unspent funds 
from Medicare Part A to Part B, broader allowance of so-called gain-
sharing, and so forth) must be developed.
Pay-for-Performance
    It will be challenging to produce payment incentives that are fair 
for all physicians and across specialties and service settings. 
Nonetheless, surgery generally agrees that a Medicare performance-based 
payment system should incorporate the following principles:

      The primary goal of pay-for-performance programs must be 
improving health quality and safety.
      Physician participation in pay-for-performance programs 
must be voluntary, and a non-punitive audit system should be 
implemented to ensure the accuracy of data.
      Because of differences across specialties and in the 
federal government's ability to collect and analyze meaningful data, 
any Medicare pay-for-performance program must be pilot tested across 
settings and specialties and phased-in over an appropriate period of 
time.
      Practicing physicians and their professional 
organizations must be involved in the design of Medicare pay-for-
performance measures and programs.
      Physician performance measures used in Medicare pay-for-
performance programs must be evidence-based, broadly accepted, and 
clinically relevant. The metrics must be fair and balanced across 
specialties and developed using evidence-based work or consensus panels 
of expert physicians. They must also be kept current to reflect changes 
in clinical practice.
      Physician performance data must be fully adjusted for 
case-mix composition including factors of sample size, age/sex 
distribution, severity of illness, number of co-morbid conditions, and 
other features of physician practice and patient population that may 
influence the results. The program should foster the patient-physician 
relationship, and must not discourage physicians from treating patients 
with significant health problems or complications out of fear that they 
will have a negative influence on quality scores and reimbursement. 
There also must be a mechanism for exceptions to pay-for-performance 
compliance metrics for clinical research protocols, and in situations 
where measures are in conflict with sound clinical judgment.
      Performance measures should be scored against both 
absolute values and relative improvement in values, as appropriate.
      Medicare must positively reward physician participation 
in pay-for-performance programs, including physician use of electronic 
health records and decision support tools. Pay-for-performance programs 
must also compensate physicians for any administrative burden for 
collecting and reporting data.
      Pay-for-performance programs must not be budget neutral 
within the Medicare physician payment system or be subject to 
artificial Medicare payment volume controls such as the sustainable 
growth rate mechanism. Pay-for-performance programs should not penalize 
physicians for factors beyond their control.
      For surgical procedures performed in the hospital 
setting, the processes that improve care frequently involve a surgeon-
led team approach. Many of these processes are directed toward 
preventing costly complications, reducing length of stay, and avoiding 
readmissions, which substantially reduce hospital costs covered under 
Medicare Part A reimbursements. Mechanisms must be established to allow 
performance awards for physician behaviors in hospital settings that 
produce cost savings outside the physician fee schedule.
      Physicians must have the ability to review and correct 
performance data, and those data must remain confidential and not 
subject to discovery in legal proceedings.

                                 

                                            Selma, California 93662
                                                      July 20, 2005

Dear Congresswoman Johnson, Congressman Thomas, and Congressman Nunes,

    First, please accept my gratitude for your interest in the issue of 
access to health care for women with breast cancer. The ability of 
patients in California (particularly those in rural areas) to find care 
is inextricably linked to Medicare policy. I hope that your colleagues 
share your concern; the stakes for my patients are high.
    I am a solo practice general surgeon in rural South Fresno County. 
I am the only Spanish-speaking surgeon in a region where over 80% of 
the population is Hispanic. As a woman who specializes in the treatment 
of breast cancer, I have found that many women, particularly the 
religious Catholic women I serve, prefer to be treated by a woman for 
reasons of modesty.
    It is incredibly difficult to attract qualified doctors to this 
area. It is more difficult, still, for the patients with few resources 
to find the specialists they need. As a surgeon in Selma, California, I 
am referred patients from as far north as Oakhurst and Coarsegold, and 
as far south as Earlimart. This is a 70-mile radius around Selma, and 
these patients travel over an hour for their appointments. There simply 
aren't enough specialists who accept patients covered by the State's 
Medi-Cal system, and this has a ripple effect on patients covered by 
Medicare.
    Prior to my establishing my practice in 2003, the only procedure 
performed locally for the treatment of breast cancer was Mastectomy. 
Additionally, all breast cancer diagnoses were obtained with Open 
Surgical Biopsy, a procedure performed in the hospital, which 
necessitates anesthesia and a noticeable scar. Because of my training 
as a surgical resident, I learned to offer Breast Conservation, a set 
of techniques which allows many women to avoid the pain and 
disfigurement of losing their breast. Additionally, I perform Minimally 
Invasive Biopsies for the diagnosis of breast abnormalities. Using 
local anesthetic and advanced technology in my office (including 
Ultrasound guidance and computerized probes), a woman with a breast 
lump can be given a diagnosis (whether benign of malignant) with 
minimal discomfort and a \1/8\-inch scar. Because surgery is not used 
for diagnosis, the results are available within days of a woman first 
identifying her breast lump or being told of an abnormal mammogram, and 
the method is more cost-effective than if a hospital procedure were 
required. This is an incredibly stressful time for any woman, and any 
delay just prolongs her and her family's anxiety.
    I brought Sentinel Lymph Node Biopsy to my rural hospital. This is 
another minimally invasive technique for staging breast cancer which 
spares many women the pain and complications associated with removal of 
all of the underarm glands (which used to be the only way to stage 
breast cancer, and led to severe permanent arm swelling in a large 
number of women).
    Financially, my practice is failing. The reasons for this are clear 
below. It is likely that in the absence of a change, I will be forced 
to close my practice and leave the San Joaquin Valley (and probably the 
State of California) within TWO YEARS.
    The negative consequences for me personally and for my patients 
will be significant. My husband's family has lived in this area for 
generations, and we had hoped to spend our lives here. My patients will 
be forced to travel even longer distances for breast cancer diagnosis 
and treatment, which will cause dangerous delays as they struggle to 
find doctors who are willing to care for them.
THE PROBLEMS:
MEDICARE
    1. Because of planned reimbursement cuts, the current Medicare 
system is on a collision course with disaster. Although physicians in 
the San Joaquin Valley (as the Centers for Medicare and Medicaid 
Services call us, ``Area 99'') are currently the LOWEST reimbursed in 
the state, we will be hit equally hard by the impending cuts. Coastal 
and urban areas, which have fewer difficulties attracting doctors, 
provide the highest reimbursement rates. The San Joaquin Valley has 25% 
fewer Primary Care doctors, 50% fewer Specialists and 75% fewer Mental 
Health providers than the rest of California.
    2. Without action by Congress, Medicare reimbursement to physicians 
will be cut an additional 4.3% in 2006 and between 4 and 5% ANNUALLY 
between 2006 and 2013. This despite the fact that for certain surgical 
procedures, my colleagues who practiced in the 1980s now are reimbursed 
less than HALF of what they were paid then. For younger doctors like 
me, we have no cushion to soften the fall. We will simply have to stop 
taking care of patients insured by Medicare or close our practices. IT 
IS UNACCEPTABLE TO FORCE WOMEN IN THE CENTRAL VALLEY TO UNDERGO 
UNNECESSARY MASTECTOMIES SIMPLY BECAUSE SURGEONS WHO PERFORM BREAST 
CONSERVATION CANNOT AFFORD TO PRACTICE HERE. I AM WILLING TO SERVE, BUT 
I WILL BE PUT OUT OF BUSINESS BY PLANNED REIMBURSEMENT CUTS.
    3. The problem of declining Medicare reimbursement doesn't affect 
only the elderly. The vast majority of private health insurance 
companies base their payments to physicians AS A PERCENTAGE OF MEDICARE 
REIMBURSEMENT RATES. So a cut in Medicare cuts payments across the 
board, making a difficult situation even worse. For those of us who 
accept Medi-Cal (despite the financial hemorrhage it creates in our 
practices--in mine, it is the only health coverage for up to 60% of my 
patients), the problem is multiplied. The financial viability of my 
practice, already tenuous, will be gone.
THE SOLUTIONS:
MEDICARE
    1. SPONSOR OR CO-SPONSOR THE ``PRESERVING PATIENT ACCESS TO 
PHYSICIANS ACT OF 2005.'' Senators Jon Kyl and Debbie Stabenow, and 
Representatives Clay Shaw and Ben Cardin have introduced this 
legislation as S. 1081 and H.R. 2356. This legislation will help ensure 
Medicare payments to allow Medicare patients continued access to needed 
surgical services, and provides an alternative to the upcoming 
reimbursement cuts that will decimate the Medicare program.
    2. OVERHAUL MEDICARE'S FLAWED ``GPCI'' FORMULA. As it stands, the 
``Geographic Physician Cost Index'' is a way of skewing Medicare 
payments toward physicians who choose to practice in geographically-
desirable areas (such as the Central Coast or San Francisco) and away 
from those of us in rural areas, including the San Joaquin Valley. This 
``unequal pay for equal work'' is supposedly based on factors such as 
physician expenses to practice in a particular area. But it totally 
ignores facts like the skyrocketing housing costs faced by Valley 
residents, and the very different patient population whom we serve 
compared with other parts of the State. We have TWICE the poverty 
level, more than THREE TIMES the unemployment rate, and $14,000 less 
per year in per capita income than the averages for counties better 
reimbursed by Medicare. Our percentage of Medi-Cal patients far exceeds 
that of our more affluent neighbors.
    3. STUDENT LOAN DEBT FORGIVENESS. As a surgeon, I spent thirteen 
years training to practice my profession. Although I worked throughout 
my education and earned scholarships to help relieve the financial 
burden (like most of us, my family couldn't provide unlimited resources 
to send me to school), I incurred nearly $200,000 in student loan debt 
by the end of my five-year residency training. At the age of 35, when 
most of my friends were well established in their careers, I was just 
starting. Despite the fact that the only debt my husband and I have is 
our mortgage (we don't have expensive habits; I drive a pickup truck 
and our last vacation was a stay with family in Big Creek, CA), we are 
struggling to meet my student loan payments and still keep our house. I 
am willing to serve as a specialist in an area with perpetual physician 
shortages, where it takes years to recruit even one physician. Perhaps 
this service has enough value to merit helping with the investment it 
took to get me here, so that I may stay and continue my work.
    4. CONSIDER THE IMPLICATIONS OF VALUE-BASED PURCHASING ON 
PHYSICIANS IN SOLO AND SMALL PRACTICES. I would gladly and willingly 
participate in a program which encourages better health care for 
patients by rewarding those who provide high quality care. I believe in 
my ability to provide such care; I would leave my profession if I 
couldn't meet the standards which my patients deserve. But PROVIDING 
HIGH QUALITY CARE IS A DIFFERENT MATTER THAN DOCUMENTING IT. As a solo 
practice rural surgeon, my ``bottom line'' would be devastated by 
having to come up with $15,000 or more for Information Technology in 
addition to the high overhead I already struggle to pay.
    As a solo practice physician, I have ONE employee, and not because 
I wouldn't like to hire more. I am the secretary, the bookkeeper, the 
medical assistant, the receptionist, the cashier, the laboratory 
manager, the equipment technician, the computer ``guy,'' and often the 
housekeeper. Oh, yes . . . I am the surgeon, too. I answer the phones 
at my office and do my own copying not because I prefer it to being a 
doctor; it's a financial necessity to keep my practice viable. Please 
consider the burden that a complicated, expensive reporting system 
would place on those of us who want to do good work but are limited in 
resources and staff to document it.
    Thank you, Muchas Gracias and Obrigado on behalf of my patients. G-
d bless you for your interest.
            Sincere regards,
                                              Linda Halderman, M.D.
                                                    General Surgeon

                                 

 Statement of Sandi Palumbo, Kern County Medical Society, Bakersfield, 
                               California
    Madam Chairman Johnson, distinguished Subcommittee members, 
honorable members of the House Committee on Ways and Means, the Kern 
County Medical Society (KCMS) appreciates this opportunity to submit 
comments for the record related to value-based purchasing for 
physicians under Medicare.
    Movement towards a process dependent upon investment in health IT 
infrastructure that ties increases in physician reimbursement to 
enhanced outcomes is of concern to Kern County Medical Society and 
physicians practicing in Kern County and the San Joaquin Valley 
communities.
Key Concern: Development of risk-adjustment techniques
    Taking into consideration the disparities facing both providers and 
residents of the San Joaquin Valley, of key concern is testimony 
provided by AMA noting, ``Currently, there is no reliable method for 
risk-adjustment, which has grave consequences for purposes of 
determining a fair comparison of physician performance, payment and 
public reporting.''
    Low health literacy and language barriers add to this concern. The 
lack of education, low literacy and language barriers compound 
difficulty related to comprehension of basic medical information. Yet, 
programs must be implemented to enhance and provide appropriate 
information to patients to enable them to make educated decisions about 
their health care needs. It is extremely important that physicians are 
not penalized for adverse consequences in the case of patients with 
certain ethnic, racial, socioeconomic or cultural characteristics that 
make them less or non-compliant.
    Exhibit A includes background related to the demographics, 
socioeconomic indicators, health access barriers and health disparities 
applicable to our region; providing a better understanding for our 
concern.
Key Concern: Availability and Cost of Health IT
    In the telecommunications arena, government and business--with 
support from the non-profit sector--have partnered to provide many 
Americans with quality telecommunication services. However, a closer 
look reveals a disparity between rural and urban/suburban communities, 
particularly in regards to highspeed Internet access.
    In California's rural areas, specifically in the Central Valley, 
home to most of the state's fastest growing communities, highspeed 
Internet access remains limited. In the 21st Century, this lack of 
access impedes participation in the global economy, as well as 
educational and health-related opportunities.
    In recognition of these issues the Great Valley Center with support 
from SBC, Surewest Communications, Verizon, Global Valley Networks, 
Pac-West Telecomm, UC Merced, and the California State Association of 
Counties, convened a summit on August 25, 2004 to discuss obstacles and 
opportunities related to rural telecommunications in the Central 
Valley. The participants included service providers (both large and 
small), non-profit and community-based organizations, educational 
institutions, and policymakers.
    Exhibit B outlines recommendations developed as a result of the 
August 25, 2004 Summit.
    While the use of IT in physicians' offices potentially can improve 
quality and reduce costs, implementation is costly because of up-front 
investments in capital, training and integrating IT systems with 
existing administrative and clinical processes. The business case for 
physician implementation of IT to improve health care quality is still 
being made, since the benefits of lower costs and improved health are 
uncertain and generally accrue more directly to health plans, employers 
and patients than to physicians. As a result, many physician practices 
may be reluctant to introduce IT beyond administrative and management 
systems that directly affect revenues.
    As noted in Issue Brief No. 89--Limited Information Technology for 
Patient Care in Physician Offices by Marie C. Reed and Joy M. Grossman, 
September 2004, Center for Studying Health System Change:
Practice Size Matters
    There is significant variation in the availability of information 
technology across practice settings. The almost 70 percent of 
physicians in traditional settings--solo, small groups with up to 50 
physicians or practices owned by hospitals--were least likely to be in 
practices using information technology, with IT adoption rates ranging 
between 8 percent and 50 percent
    Physicians in traditional practice settings less likely to be in 
practices with IT support for multiple functions. Just 7 percent of 
physicians in small practices reported having IT support, compared with 
20 percent of physicians in large groups and medical schools and more 
than 50 percent of those in staff/group HMOs. Readier access to capital 
and administrative support staff, the ability to spread acquisition and 
implementation costs among more physicians, and active physician 
leadership may explain why larger practices are more likely to adopt IT 
to support patient care.
Policy Options
    Because barriers to IT adoption appear to be greatest for smaller 
traditional physician practices, policy makers may need to design 
policies specifically aimed at these physicians. While some of the 
approaches to speed IT adoption, particularly those addressing 
financial barriers, may provide incentives for smaller practices, 
others are less likely to be successful, especially in the near term.
    Programs that focus on performance targets offer only indirect 
motivation--adopting IT may improve the practice's ability to meet the 
quality targets. Such quality initiatives are unlikely to address the 
financial barriers to IT adoption for smaller practices. IT investments 
typically must be made up-front, while incentive payments from a given 
quality initiative program are small, accrue incrementally on a per-
patient basis, and apply to a limited portion of a practice's patient 
base. In fact, until major health plans or Medicare offer practices 
significant financial incentives, quality initiatives are not likely to 
stimulate substantial IT adoption in smaller practices.
Key Concern: Increased Administrative Burden/Cost
    Any value-based purchasing program needs to ensure that physicians 
are not burdened with additional administrative costs, especially for 
information technology systems that are needed to participate in the 
program. Physicians cannot continue to absorb unfunded government 
mandates, and value-based payments for participation in the program 
should not be undermined by administrative costs.
    Many solo and small group San Joaquin Valley physicians find it 
increasingly hard to maintain a viable practice while providing 
appropriate care at low or less than optimal rates of reimbursement for 
high percentages of patients covered by government-funded programs or 
lacking coverage and the ability to pay for care. Some solo physicians 
find it necessary to serve in multiple business capacities related to 
managing their practice as limited revenue prohibits hiring additional 
staff. Compounding administrative burdens and costs for these 
physicians may ultimately force them to relocate their practices to 
higher reimbursed areas, thereby increasing access problems for areas 
already disadvantaged by lower numbers of physicians.
Low Federal Expenditure per Capita
    As reported in February 2005, preliminary results of a CRS study of 
the San Joaquin Valley and its counties noted the rate for the San 
Joaquin Valley was over $2,000 less per capita than the $6,814 per 
capita federal expenditure rate for the United States. Data showed that 
all San Joaquin Valley counties were less than the per capita rate of 
spending for the United States as a whole. Most counties were 
substantially below the national per capita rate of $6,814, ranging 
between approximately $1,200 to $2,800 per capita less.
    Exhibit C, excerpts from the February 5, 2005 Memorandum addressed 
to San Joaquin Valley Congressional Representatives by Tadlock Cowan, 
Coordinator, CRS Analyst in Rural and Regional Development Policy 
Resources, Science, and Industry Division, provides more detail related 
to low federal expenditure per capita for our region.
Additional Concerns
    In addition to the above addressed concerns, we wish to emphasize 
and echo the following overall factors raised by AMA for consideration 
as you move forward in developing value-based purchasing legislation 
for physicians:

        (i) physician practices are vastly different in size and type 
        across the country, and, in stark contrast to hospitals, which 
        are fairly homogenous, one size does not fit all;
        (ii) the number of patients needed to achieve a statistically 
        valid sample size;
        (iii) the desire to keep the data collection burden low, while 
        at the same time maintaining accuracy of the data;
        (iv) level of scientific evidence needed in establishing 
        appropriate measures;
        (v) the ability to trace a performance measure back to one or 
        many physicians involved in a patient's care; and
        (vi) the complexities of distributing payments when multiple 
        physicians are involved in a patient's care, and
        (vii) without violating any fraud and abuse laws and 
        regulations.

    We commend Chairman Johnson and House Ways and Means Chairman Bill 
Thomas for your continued efforts related to the difficult task of 
addressing flaws associated with the current Medicare physician 
reimbursement formula and appreciate your interest and understanding of 
factors impacting this matter. We look forward to a new payment system 
for physicians that keeps pace with the cost of practicing medicine 
while enhancing the care provided Medicare beneficiaries.
                                 ______
                                 
EXHIBIT A
San Joaquin Valley Socioeconomic & Health Indicators
    The San Joaquin Valley is located in the southern portion of the 
Central California Region and stretches almost 300 miles from just 
south of Sacramento to north of Los Angeles, bordered on the east and 
west by the Coastal and Sierra Nevada mountain ranges. The Valley 
comprises 17% of California's landmass. It is one of the largest rural 
and agricultural areas in the nation and is also one of the most 
culturally diverse.
    The San Joaquin Valley has grown faster than the rest of the state, 
and as of the 2000 U.S. Census was home to 3.3 million residents, 
approximately 10.3% of California's population. The Valley has become 
more ethnically and linguistically diverse in the 10 years between the 
1990 and the 2000 U.S. Census. In comparison to statewide demographics, 
the residents of the Valley have remained much poorer, with lower 
educational attainment.
    Unemployment has remained high and per capita income low. In 
contrast, since 1990, California as a whole has seen much greater 
improvements in areas such as income than has the Valley.
    Although the Valley enjoys agricultural riches, many of its 
residents endure very serious health problems.
    The dire health conditions of the residents of the San Joaquin 
Valley were first documented in 1996 in Hurting in the Heartland: 
Access to Care in the San Joaquin Valley. Eight years later, the 
report, Health in the Heartland: The Crisis Continues was published to 
provide an update on conditions related to the health status of the 
residents of the San Joaquin Valley. Data on over 60 health-related 
indicators was presented for the eight San Joaquin Valley counties 
(Fresno, Kern, Kings, Madera, Merced, San Joaquin, Stanislaus, and 
Tulare), comparing them to each other and to California as a whole.
    The Valley continues to have high rates of disease, poor community 
health, and lacks an adequate provider network. The Valley still leads 
the state in infant mortality, teen births, and late access to prenatal 
care. Some residents have a harder time than do other Californians in 
finding care due to lack of health insurance, a scarcity of providers, 
and language and cultural barriers.
    In the Valley, 10.2% of the population does not speak English 
``well or at all.'' Much research has documented the adverse impact on 
access to health care imposed by language barriers. Providers have 
difficulty communicating with patients and patients have trouble 
understanding providers, following directions, and obtaining insurance. 
Policies need to be developed that enable compliance with standards for 
limited-English-proficient patients, such as certification of 
interpreters and establishing an adequate delivery and reimbursement 
system for interpreter services.
    Perhaps the biggest challenge to Valley health is the quality of 
the air. The Valley has some of the worst air quality in the nation, 
which has severe impacts on the health of residents, the economy of the 
region, and the overall quality of life.
    The data demonstrate that poor health access and health status in 
San Joaquin Valley exist in the context of communities with high rates 
of poverty, low educational attainment, a high number of female 
householder families, and a larger percentage of immigrants and non-
English speakers. Although many of the San Joaquin Valley's health 
issues can potentially be explained by demographics, the economy also 
has an impact. The Valley's low-wage agricultural industry has left 
many Valley residents without health insurance and with fewer resources 
to improve their health. The demand for low-wage labor has fueled the 
immigration of new residents, mostly from Latin America, to work in the 
fields. Those who provide health services to these newly arriving 
workers struggle with limited public resources.
    Despite advances in medical care across the state, many Valley 
residents lack the most basic of services. The rising costs of 
treatment for chronic disease and continued reliance on state and 
federal funding in a climate of budgetary deficits will lead to further 
erosion in the health care delivery system and further economic 
decline.
    If current trends continue, the Valley will be less and less able 
to adequately care for its needy residents.
ACCESS TO CARE
Access to health care directly affects the well being of the population
    Every society requires adequate health care services to screen for 
and prevent disease, manage chronic conditions, and treat injuries and 
illness. Access to services that provide primary care, mental health 
care, and oral health care are essential.
    The health care delivery system in the San Joaquin Valley remains 
inadequate to serve the growing population. Provider shortages, 
hospital closures, and low reimbursement rates for services continue to 
plague the Valley. Clinics remain indispensable to the system for 
providing health care for diverse Valley populations. In the San 
Joaquin Valley, provider shortages are prevalent across the entire 
health care workforce, including physicians, dentists, nurses and 
mental health professionals. The San Joaquin Valley has one of the 
lowest ratios of physicians to population, whereas coastal, urban areas 
such as the San Francisco Bay Area have the highest ratios.
    Hospitals are also facing severe challenges. Closures, 
bankruptcies, and the financial deterioration of rural hospitals have 
affected the acute care delivery system in the San Joaquin Valley. Low 
reimbursement rates from public and private payers; shortages of 
nurses, pharmacists, and other personnel; implementation of nurse 
staffing standards; the burden of updating substandard facilities; the 
cost of compliance with the 2008 seismic standards; and a lack of 
capital have all contributed to the declining viability of vulnerable 
rural hospital facilities.
High rates of uninsured in the San Joaquin Valley
    Uninsured Californians are not all the same; they differ widely 
according to age group, ethnicity, and income, as well as in attitudes 
towards health insurance and reasons for not having coverage. If they 
are feeling well, many people do not perceive the need to see their 
primary care physician. However, many common health conditions do not 
cause people to have noticeable symptoms until they have had the 
condition for a number of years. In many cases, if a condition is 
diagnosed early (e.g. breast cancer and diabetes), treatments can be 
given that can significantly reduce mortality and morbidity that is 
otherwise associated with the condition if it is diagnosed after a 
prolonged period following its onset.
High Poverty Rate
    Lack of insurance is not simply restricted to the poor. 
Approximately 40% of the uninsured in California have a family income 
level at least twice that of the federal poverty level. Poverty is also 
a factor for many without sufficient access to health care.
Primary care physician shortages 
    Primary care physicians play an important role in care. Yet, often 
there are not enough to treat the population. Medicare reimbursement 
for San Joaquin Valley physician is among the lowest in the state. 
Medicare physician reimbursement rates impact upon more than services 
provided to Medicare beneficiaries as many private carriers use 
Medicare rates to establish their respective rates applicable to 
physician reimbursement. In spite of the bonus incentives provided by 
Medicare by means of primary care health manpower shortage designation 
or physician scarcity designation, known as having some of the lowest 
reimbursement rates in California San Joaquin Valley communities 
experience difficulty in recruiting and retaining an adequate supply of 
physician providers.
    Recent data show that the San Joaquin Valley had approximately 24% 
fewer primary care physicians and approximately 50% fewer specialists 
serving Valley residents than the residents of California as a whole. 
In 2000, there were 51.2 primary care physicians per 100,000 persons in 
the Valley, compared to 67.4 in California. There were only 73.2 
specialists per 100,000 persons in the Valley, compared to 122.2 for 
California. Areas of shortage of primary care physicians have been 
designated in every San Joaquin Valley County (See Exhibit D).
    Why is this important?

      Primary care physicians are primarily responsible for the 
prevention, early detection, and treatment of common chronic 
conditions. These efforts are critical to reducing mortality and 
morbidity.
      When there is a limited availability of physicians in a 
community, people are less likely to seek preventive care and more 
likely to go to a local emergency room or urgent care center for acute 
symptoms and/or health conditions.
The Rural Health Care Work Environment
    While it is generally accepted that the working conditions in the 
health care field are difficult and often are risk factors for the 
negative effects of professional quality of life, working in a rural 
community adds another layer of complexity. The issues faced by any 
provider may lead to burnout and work-related traumatization. These 
professional quality of life risk factors, briefly discussed below, are 
often increased in number and intensity for those working in rural and 
isolated environments.
    Many rural health professionals work as sole providers isolated by 
geography, distance, weather, and/or time. Often, because of community 
size, the people they treat are also friends, causing stresses on 
personal/professional relationships. They are required to be 
generalists, addressing a wide range of issues, effectively becoming 
'mini-specialists' to treat patients' specific conditions. In addition 
to needing individualized specialty knowledge, the overall frequency of 
seeing any one condition can be low, making it hard to maintain a 
broad, current level of knowledge and best practices.
    Beyond the typical rural clinical issues, it is difficult for 
professionals to find training time and funding. Coverage for 
professional leave is often nonexistent; in addition, time taken for 
leave is not reimbursed, causing a drop in income. Finally, traveling 
to access professional education can be hard. Many rural providers must 
drive one to three hours to reach a community large enough to provide 
the needed education or access to an airport to fly to a conference. To 
access continuing education, rural providers can easily lose two 
productive days of caregiving just in travel alone.
HEALTH STATUS
More seniors living on their own with disabilities in the San Joaquin 
        Valley than in other regions.
    The San Joaquin Valley has a higher (worse) level of senior 
disability when compared to California. Nearly half of non-
institutionalized seniors in the San Joaquin Valley live with 
disabilities. Seniors with disabilities require more specialized care, 
yet their independence is still very important to their well being. 
Access to care can be a greater issue for this population compared to 
seniors without disabilities.
    Why is this important?

      People with disabilities tend to report more anxiety, 
pain, sleeplessness, and days of depression and fewer days of vitality 
than do people without activity limitations.
      People with disabilities also have other disparities, 
including lower rates of physical activity and higher rates of obesity.
Valley wide, the rate of coronary heart disease deaths is slightly 
        above that of the state
    Many deaths could be prevented because coronary heart disease is 
related to certain lifestyle-related risk factors. These include high 
blood pressure, high blood cholesterol, smoking, diabetes, obesity, and 
physical inactivity--all of which can be controlled.
    One in five people without previous symptoms of coronary heart 
disease die suddenly from an arrhythmia or heart attack. The majority 
of people go on to live their lives affected by conditions such as 
shortness of breath, difficulty walking short distances, or difficulty 
with performing simple activities of daily living (i.e. preparing a 
meal). These symptoms contribute significantly to disability associated 
with coronary heart disease.
High incidence of cerebrovascular disease 
    The Central Valley has the second highest cerebrovascular disease 
death rate at 67 per 100,000 people when compared to the San Francisco 
Bay Area (69), California (63), and the Los Angeles Region (61). Within 
the Central Valley, the San Joaquin Valley (64.5) is slightly higher 
than the state average (63).
Death rate from diabetes highest in the San Joaquin Valley
    Overall, the risk for premature death among people with diabetes is 
about two times that of people without diabetes.
    Hispanic/Latino Americans are almost twice as likely to have 
diabetes than non-Hispanic whites of similar age.
The San Joaquin Valley has a higher Asthma prevalence rate than the 
        state average
    Although asthma affects Americans of all ages, races, and ethnic 
groups, children, low income, and minority populations are particularly 
affected. Asthma adversely affects the quality of life of both the 
person with asthma and his or her family. It often causes restrictions 
of many activities in which they participate, many nights of lost 
sleep, a disruption in daily routines, and is frequently associated 
with lost days of school and work.
SOCIAL INDICATORS
    Unlike the previous measures, social indicators rely primarily on 
behavioral changes to improve the health of the region. The emotional 
and related effects of these health-related issues can extend beyond 
those directly involved, with devastating effects on families and 
communities.

      Cigarette smoking can lead to numerous health problems, 
not the least of which is lung cancer. Smoking prevalence is highest in 
the Valley when compared to other California regions and the state.
      Domestic violence victims are most often women. The 
Valley is just above the state rate for both hospitalizations and 
homicides due to domestic violence.
      Long-term heavy drinking can lead to heart disease, 
cancer, alcohol-related liver disease, and pancreatitis. Aside from the 
effects that heavy alcohol use has on the body, it is also associated 
with abuse of loved ones, sexually transmitted diseases, and other 
social problems. Heavy alcohol use and alcohol abuse is strongly 
associated with motor vehicle accidents, homicides, suicides, and 
drowning. The Valley rate for alcohol abuse is higher than the 
California rate.
      Drug abuse in the San Joaquin Valley, where drug-related 
misdemeanor convictions exceed that of all Central Valley sub-regions, 
is higher than in other regions in the state.
                                 ______
                                 
EXHIBIT B
Great Valley Rural Telecommunications Summit
Rural Highspeed Access--Obstacles & Opportunities
Designing Regulatory, Economic, and Policy Recommendations for Rural 
        Highspeed Access
August 25, 2004--Sacramento, California
Conclusion/Recommendations
    As published in the position paper providing a summary of the 
Summit, recommendations can be grouped into the following areas 
identified for improvement:

    1)  Easing the process of extending communications infrastructure 
into rural areas by providing tax credits to providers, expediting the 
approval process for use of rights-of-way and permit requests, 
encouraging appropriate building and zoning codes, and creating an 
investment climate that is attractive to Internet service providers.
    2)  Addressing the issue of unused bandwidth in rural areas through 
spectrum reform and anchor tenancy. These concepts capitalize on 
existing broadband infrastucture not being used to its capacity and 
have the potential to lower costs and speed deployment to rural areas.
    3)  Developing a comprehensive policy on broadband use in rural 
areas which assures residents, providers, and investors of the State's 
commitment to providing broadband access to all residents.
    4)  Increasing and improving funding for communications 
infrastructure, education and training available through both state and 
federal channels.

    Summit participants believe, by making changes in these areas, 
steps can be made toward achieving greater parity in highspeed access 
between rural and urban/suburban communities, which will have positive 
effects on participation in the global economy, as well as access to 
educational and health-related opportunities.
                                 ______
                                 
Summit Participants
Sharon Avery, California Telemedicine and eHealth Center
Gretchen Beyer, Technology Network (TechNet)
Lisa Bickford, InReach Internet
Keith Boggs, County of Stanislaus
Merita Callaway, CA State Association of Counties
Carol Chamberlain, Prosper Magazine
Mark Cowart, County of Kings
Mark Crase, CA State University Long Beach
MaryLiz DeJong, SBC
Ron Dibelka, National Exchange Carriers Association
Jim Dolgonas, Corporation for Education Network Initiatives
Thomas Dorr, U.S. Department of Agriculture
Joel Effron, Pac-West Telecomm
Patrick Enright, Kronick Moskovitz
Seth Fearey, Joint Venture Silicon Valley Network
Margaret Felts, California Telephone Association
Douglas Garrett, Cox Communications
Susan Gonzales, Comcast
James Gordon, Communications Workers of America
Kathy Halsey, SBC
Allen Hammond, Santa Clara University School of Law
Peter Hayes, SBC
Yvette Hogue, SBC
Sheila Hurst, Great Valley Center
Sue Hutchinson, Global Valley Networks
Richard Jantz, County of Stanislaus
Stuart Jeffery, Wireless Communication Alliance
Eric Johnson, SBC
Barbara Johnston, California Telemedicine and eHealth Center
Susan Kennedy, CA Public Utilities Commission
Ross LaJeunesse, CA Public Utilities Commission
Pat Lanthier, Rivera Lanthier & Associates
Sarah Lapachet, Congressman Richard Pombo
Lesla Lehtonen, California Cable & Telecommunications Association
Scott Lindsay, Rural Broadband Coalition
Carolyn Lott, Great Valley Center
Mike Lynch, Great Valley Center
Jamie Malone, SBC
Timothy McCallion, Verizon
Camden McEfee, California Strategies
Bill Moreno, Fire2Wire
Baldwin Moy, California Rural Legal Assistance
Stephen Myers, Sacramento ACORN Del Paso Chapter
Dan Nguyen, CA State University Sacramento
Barbara O'Connor, CA State University Sacramento
Ted Olson, OACYS Technology
Colin Patheram, SBC
Robert Pepper, Federal Communications Commission
Bob Pickard, County of Mariposa
Daniel Roix, Great Valley Center
Duane Severson, Fire2Wire
John Sumpter, Pac-West Telecomm
Don Vial California, Foundation on Environment & Economy
Loretta Walker, SBC
Mark Welch, SBC
Carol Whiteside, Great Valley Center
Jeff Williams, California State Association of Counties
Ileana Winterhalter, SBC
                                 ______
                                 
EXHIBIT C
Excerpts: February 5, 2005 Memorandum to San Joaquin Valley 
    Congressional Representatives
by Tadlock Cowan, Coordinator
CRS Analyst in Rural and Regional Development Policy Resources, 
    Science, and Industry Division
    San Joaquin Valley vs. the United States: Per capita federal direct 
expenditures and obligations to the San Joaquin Valley were $4,736 for 
FY2002. The rate for the San Joaquin Valley was over $2000 less per 
capita than the $6,814 per capita federal expenditure rate for the 
United States. Data showed that all San Joaquin Valley counties were 
less than the per capita rate of spending for the United States as a 
whole. Most counties were substantially below the national per capita 
rate of $6,814, ranging between approximately $1,200 to $2,800 per 
capita less.
    San Joaquin Valley vs. California: All San Joaquin Valley counties 
had a lower rate than the direct federal expenditures and obligations 
rate of California, although the gap was somewhat less than that 
between the San Joaquin Valley and the United States. California's per 
capita rate of federal direct expenditures ($6,094) was also lower than 
that of the United States. With the exception of the category of 
federal salary and wages in two counties, all San
    Joaquin Valley counties had a per capita federal expenditure level 
below the national per capita rate in all of the established categories 
of federal spending (retirement and disability, other direct payments 
to individuals and others, grants, procurement contracts, and salaries 
and wages). The per capita rates of federal spending for most San 
Joaquin counties for each category were also lower than California's 
per capita rates.
    Metro vs Non-metro: With the exception of Kings County, the 8 
counties comprising the San Joaquin Valley are metro counties as 
defined by the U.S. Bureau of the Census. Metro counties in the United 
States, on average, receive higher per capita federal expenditure rates 
than the national rate. This was not the case in the San Joaquin 
Valley. Kern County had the highest per capita rate of direct federal 
expenditures ($5,667) followed by Kings County ($5,550), a non-metro 
county. Kern County had the second largest 2000 population after Fresno 
County while Kings County had the second lowest population in the San 
Joaquin Valley.
    San Joaquin Valley vs. the ARC Area: In 2002, the San Joaquin 
Valley received $1,295 per capita less (21%) than the Appalachian 
Regional Commission region in direct federal expenditures and 
obligations. The ARC region received $783 less than the national per 
capita rate while the San Joaquin Valley received $2,078 less than the 
national per capita rate. Only 6 of the 13 ARC state Appalachian 
regions, however, matched or exceeded the ARC region's per capita rate. 
Individual ARC counties within the 13 states that comprise the ARC 
region may also receive lower per capita rates than their respective 
state rates. In only one state's ARC counties (Georgia) was the per 
capita rate of direct federal expenditures lower than that of the San 
Joaquin Valley.
    Adjacent County Comparison: Two rural counties adjacent to the San 
Joaquin Valley, Mariposa and Tuolumne, received higher direct federal 
expenditures and obligations per capita in 2002 than did the San 
Joaquin Valley. Per capita rates for these two counties, however, were 
also lower than the national per capita rates, and Tuolumne County's 
per capita rate was lower than the state's per capita rate.
    Population Growth in the San Joaquin: The San Joaquin Valley has 
experienced significantly higher population growth rates between 1990 
and 2003 than California or the United States (30.6% vs. 19.2% and 
16.9% respectively).
    Total county federal expenditures to the San Joaquin for 2003, 
based on 2003 population figures, show that the same general patterns 
as noted above persist. Although the per capita federal expenditure 
rates for some San Joaquin Valley counties in 2003 were somewhat higher 
than in 2002, they were still lower relative to the 2003 per capita 
rates of the United States and California. For the Valley as a whole, 
however, the per capita rate fell $117 in 2003 while the population 
grew by approximately 280,000.
    Madera County: Madera County, which had one of the 10 lowest per 
capita income levels for any metropolitan area in the United States in 
2002, had a per capita decrease in federal expenditures of 
approximately $150 in 2003 compared to 2002. At the same time, the 
population of the county grew by over 10,000 (8.4%) between 2000 and 
2003. Madera also had the highest population growth rate in the San 
Joaquin Valley between 1990 and 2003 (51.5%) and between 1980 and 1990 
(39.6%). Population growth in the San Joaquin Valley is projected to 
grow by over twice the national rate between 2003 and 2020 and, in some 
counties, by over three times the national average between 2003 and 
2020. In contrast, growth in the adjacent counties of Mariposa and 
Tuolumne is projected to grow at about the national average between 
2003 and 2020 and less than the California average
Socioeconomic Characteristics of the San Joaquin Valley
    Population: The San Joaquin Valley population is growing rapidly. 
Each of the San Joaquin Valley counties exceeded the national rate of 
population growth between 1980-1990, 1990-2000, and 1990-2003. While 
California has also had relatively higher growth rates then the 
national average, each San Joaquin Valley county substantially outpaced 
the growth of California in the previous two decades. The adjacent 
counties of Mariposa and Tuolumne have also had generally higher growth 
rates than either California or the United States over the past 2 
decades. San Joaquin and Stanislaus counties now have population 
densities considerably higher than the California average. With the 
high proportion of federal land in Mariposa and Tuolumne, these 
counties have had relatively stable population densities.
    Population Projections: In addition to documenting population 
changes over time, the U.S. Bureau of the Census also makes population 
projections. The San Joaquin Valley population is projected to grow by 
14.3% between 2003 and 2010 compared to projected growth rates of 10.6% 
for California and 6.2% for the United States. Projected population 
growth for the San Joaquin Valley between 2003 and 2020 is 39.0% 
compared to a growth rate of 15.5% for the United States and 23.6% for 
California. Population growth between 2003-2020 for Mariposa and 
Tuolumne counties is projected to be about the same as the national 
average but less than California.
    Poverty and Income: Socioeconomic conditions in the San Joaquin 
Valley as measured by a range of variables including per capita income, 
poverty and unemployment rates, and median household income reveal an 
area that falls significantly below national and California averages. 
The 2000 poverty rate for the San Joaquin Valley (20.5%), for example, 
was significantly higher than the national rate (12.4%), California 
(14.2%), and the Appalachian Regional Commission area (13.6%). While 
the Valley's poverty rate was somewhat closer both to the national and 
California averages in the 1980s, during the 1990s, the San Joaquin 
counties saw significant increases in their poverty rates. All San 
Joaquin Valley counties were below the 2000 national median family 
income level ($50,046) or that of California ($53,025). With the 
exception of Stanislaus and San Joaquin counties, the Valley's counties 
were substantially below these national and California median family 
levels. The two adjacent counties (Mariposa and Tuolumne) had 2000 
poverty rates of 14.8% and 12.4% respectively, although their median 
family income levels were lower than both California's and the national 
rate. In contrast, poverty rates for the ARC region, 1980-2000 were 
significantly lower than those of the San Joaquin counties, although 4 
Social data tables prepared by Gerald Mayer, Analyst in Public Finance 
that of some Appalachian states was comparable to the Valley. ARC rates 
were slightly greater than the United States during those decades, 
although ARC poverty rates did vary by state.
    Immigration: Immigration plays a significant role in the 
demographic characteristics of the San Joaquin Valley and California, 
and this is likely to continue. Since 1995, the Central Valley as a 
whole has received substantially more migrants from other parts of 
California than they send to the rest of California. The counties of 
Madera, Fresno, Kings, Tulare, and Kern have received the most 
international migrants of any area of the Central Valley. These 
counties are economically dominated by industrial agriculture and they 
also are characterized by high rates of poverty among immigrants, who 
also have generally low education levels and limited English language 
skills. These characteristics present challenges to the region's social 
services, especially health and education providers.

                                 

   Statement of Cherrill Farnsworth, National Coalition for Quality 
                      Diagnostic Imaging Services
    Chairwoman Johnson, we are pleased to have this opportunity to 
provide testimony for the record to the House Ways and Means 
Subcommittee on Health at a hearing on ``Value-Based Purchasing for 
Physicians under Medicare.'' NCQDIS is comprised of more than 2,400 
outpatient imaging centers and departments in the United States. The 
coalition promotes ``best industry practices,'' strategies for 
healthcare cost savings and advocates for public and private sector 
standards for quality and safety in diagnostic imaging services.
    Advances in diagnostic imaging have led to great strides in patient 
care: from reducing the need for invasive surgical procedures to early 
detection of life-threatening diseases. NCQDIS and its members are at 
the forefront of medical technology, providing physicians and patients 
with the most state-of-the-art innovations, techniques and procedures 
available in diagnostic imaging.
    We are pleased to have this opportunity to comment to the House 
Ways and Means Subcommittee on Health on efforts to promote delivery of 
quality health care services and tie physician payments to quality 
performance. We believe that implementing quality standards for 
diagnostic imaging services is central to addressing quality issues in 
the Medicare program. Medicare currently pays the same amount for 
imaging services regardless of the quality of the service performed. 
Medicare payment does not take into account the quality of the imaging 
equipment used, the skill level of the technician facilitating the 
test, or the physician's proficiency in interpreting the images. In 
essence, Medicare pays the same amount for a test conducted on state-
of-the-art imaging equipment by a world-renowned radiologist as it does 
for an untrained physician conducting a test on obsolete diagnostic 
imaging equipment. The cost of diagnostic imaging to the Medicare 
program is significant. Imaging services accounted for over $10.1 
billion in Medicare Part B allowed charges in 2003, and implementing 
quality standards for complex diagnostic imaging services would result 
in Medicare savings in the range of $1.6--$4.8 billion over 10 years.
    As you can see, diagnostic imaging is one of the most obvious areas 
in which tying quality standards to payment for services can almost 
immediately increase the quality and safety of services provided to 
Medicare patients and maximize Medicare dollars for services rendered. 
NCQDIS is actively promoting legislative options that would increase 
the quality of care to Medicare patients while addressing the 
committee's cost concerns about the physician payment system. Today, 
many of the policies and standards supported by NCQDIS have been 
implemented by private payers to successfully reduce costs and improve 
patient safety and quality. The coalition believes that the same 
policies and programs that are working in the private sector should be 
available to protect Medicare beneficiaries and safeguard the Medicare 
Trust Fund.
Protecting Beneficiaries And The Trust Fund Requires Medicare Take A 
        Closer Look At Use Of Imaging
    As you know, data from MedPAC and the GAO have raised concerns 
about the growth of diagnostic imaging performed by non-radiologists. 
MedPAC found that imaging services increased by 9% between 1999 and 
2002.\1\ Other research has defined the growth in imaging services 
between 1993-2002 as 49% by non-radiologists. Interestingly, services 
provided by radiologists who typically have no incentive to self-refer 
have grown only by 7%. In addition, the growth in Medicare payments for 
radiology services grew by 72% for radiologists and by 119% for non-
radiologists.\2\
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    \1\ Report to the Congress: Medicare Payment Policy, MedPAC, March 
2003, page 77.
    \2\ Levin DC, Intenzo CM, Rao VM, Frangos AJ, Parker L, Sunshine 
JH. Comparison of recent utilization trends in radionuclide myocardial 
perfusion imaging among radiologists and cardiologists. J Am Coll 
Radiol, in press.
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Medicare Should Incorporate The Innovations Of The Private Sector
    Empirical evidence demonstrates that private sector management 
strategies promote high quality care. For example, Tufts Health Plan 
uses an Imaging Privileging Program to address quality and utilization 
issues for non-emergency, outpatient diagnostic imaging provided by 
non-radiologists. Services are covered when providers meet standards to 
perform specialty-appropriate imaging procedures; otherwise, imaging 
procedures must be provided by a radiologist or imaging facility. 
Miriam Sullivan, representing Tufts Health Plan, has testified to 
MedPAC that by expanding the use of freestanding imaging facilities and 
increasing competition, physician groups have less desire to purchase 
equipment and more incentives to use Tufts' quality and evidence-based 
guidelines.\3\
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    \3\ Medicare Payment Advisory Commission, Meeting Transcript, March 
18-19, 2004, page 53
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    We firmly believe that private sector quality standards should also 
be available to Medicare beneficiaries. Highmark uses guidelines where 
imaging facilities must have a documented Quality Control Program, 
Radiation Safety Program, and As Low As Reasonably Achievable (ALARA) 
Program. Highmark providers must be appropriately licensed and meet the 
physician specialty criteria in the plan's privileging guidelines.\4\
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    \4\ http://icael.org/icael/reimbursement/highmark_press.htm
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    States have also become concerned payers of diagnostic imaging 
services and are increasingly taking action at the state level to limit 
physician self-referral of services. The State of Maryland passed 
legislation in 2000 that is similar to the federal Stark ban on 
physician self-referral, except that Sec. 1-301(k)(2) of the law 
specifically excludes magnetic resonance imaging services, radiation 
therapy services, and computer tomography scan services from the in-
office ancillary services exception. The Maryland Attorney General 
released a legal opinion on January 5, 2004, stating that this law bars 
a non-radiologist physician from referring patients for tests on an MRI 
machine or CT scanner owned by that practice. Medicare should have the 
same opportunities to increase quality and contain unnecessary 
utilization that are being implemented at the state level.
Medicare Beneficiaries Should Be Assured Of Access To The Highest 
        Quality Imaging Services
    Like private payors, Medicare should only pay for imaging services 
that meet quality standards. Medical literature shows that imaging 
equipment and facilities operated by non-radiologists is often sub-
optimal. One private sector imaging site inspection program revealed 
that over \1/3\ of imaging facilities operated by non-radiologist 
physicians had one or more significant quality deficiencies, while only 
1% of facilities operated by radiologists had such deficiencies.\5\ 
Quality standards for equipment and facilities would reduce the need 
for duplicate scans or expensive therapy from incomplete images or 
misdiagnosis.
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    \5\ Orrison & Levin, Radiology 2002; 225(P):550
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    We are especially concerned that non-radiologists' offices are less 
likely to become accredited. Though the ACR has full accreditation 
programs for many diagnostic procedures, non-radiologist physician 
offices are not required to become accredited to provide these 
services. ACR began an MRI accreditation program in 1997, including 
standards for equipment and for qualifications of technologist's 
performing the test. Though non-radiologists may voluntarily become 
accredited, most do not. Almost all accredited entities are 
freestanding MRI centers owned by radiologists or hospitals, or are 
contracted with radiologists. NCQDIS believes that all physician 
offices providing imaging services should be accredited.
    In addition, the recycling of obsolete diagnostic imaging equipment 
should be curtailed by implementing strong equipment standards. Dr. 
Thomas Ruane, BC/BS of Michigan, testified to MedPAC that, ``The 
diagnostic equipment that becomes somewhat obsolete in our tertiary 
medical centers often does not go to the Third World. It often goes 
down the street to another doctor's office where it lives another 
life.'' \6\ NCQDIS believes that Medicare patients deserve better.
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    \6\ Medicare Payment Advisory Commission, Meeting Transcript, March 
18-19, 2004, page 34.
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NCQDIS Promotes The Appropriate Use Of Diagnostic Imaging By Trained 
        Specialists
    Proper training is essential to accurate interpretation of 
diagnostic images, particularly when dealing with complex diagnostic 
imaging procedures like MRI, CT, and PET. Radiologists spend 4-6 years 
in residency training to learn imaging techniques and interpretation. 
Physicians in other specialties get limited amounts of training in 
certain areas of imaging; however, sometimes that training may be 
informal and may not meet defined standards. Most troubling is that 
many non-radiologist physicians utilizing diagnostic imaging have 
limited or no formal training in image interpretation. To protect 
patient safety and reduce medical errors, Medicare should only 
reimburse for imaging services conducted by physicians that meet 
certain training and education standards.
    Evidence also demonstrates that quality of care is improved if 
properly trained specialists read diagnostic images. In 2000, one 
research group used a standardized set of chest radiographs to compare 
the accuracy of interpretation of radiologists and non-radiologists. 
The composite group of board-certified radiologists demonstrated 
performance far superior to that of non-radiologist physicians. Even 
radiology residents in training out-performed non-radiologist 
physicians.\7\
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    \7\ Potchen, RADIOLOGY 2000; 217:456.
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    It should be noted that radiologists and IDTFs serve an important 
role in providing quality diagnostic services to patients and 
practitioners. Radiologists working with other clinicians provide an 
important second opinion in clinical diagnosis, helping to minimize 
medical errors. Radiologists also serve as an important second opinion 
in clinical diagnosis, treatment, and management of patients needing 
diagnostic imaging services. IDTFs serve a similar role in patient 
treatment, and imaging centers owned by radiologists and IDTFs do not 
create any artificial demand for imaging services.  Business is 
independently referred to imaging centers from third party physicians 
who determine that a patient needs a diagnostic imaging test. 
Therefore, radiologists and IDTFs are limited in their ability to 
generate business outside of that which is referred.
NCQDIS Recommends That Medicare Take Steps Now to Protect Medicare 
        Beneficiaries
    NCQDIS is pleased to submit its recommendations to the House Ways 
and Means Subcommittee on Health on the best way to promote quality of 
care in diagnostic imaging. Congress has the opportunity to act now to 
address this important issue and protect Medicare beneficiaries.

    1.  Congress should expand the term ``diagnostic services'' under 
the definition of ``medical and other health services'' to create a 
separate category of diagnostic services, called ``complex diagnostic 
imaging services.'' This term would statutorily include include 
particular procedures (at a minimum: computed tomography, magnetic 
resonance, positron emission tomography) that must be ``furnished by or 
under the supervision of a physician in compliance with qualification 
criteria'' that include educational certification for physicians and 
technicians and quality and safety requirements. This provision makes 
``complex diagnostic imaging services'' a covered ``medical and health 
service'' only when the additional conditions are met.
    2.  Congress should then require the Secretary to establish 
qualification criteria for the provision of complex diagnostic services 
that include: (1) quality measures for diagnostic imaging equipment; 
(2) education and certification requirements for technicians; and (3) 
education and certification requirements for physicians. This provision 
will require that any party seeking reimbursement for complex 
diagnostic services will have to comply with the quality and safety 
standards as developed by the Secretary. Physicians and practitioners 
that do not meet these standards cannot be reimbursed through Medicare 
for the complex diagnostic imaging services provided.
    3.  NCQDIS also suggests that legislation create a ``phase-in'' 
period between enactment of the new definition of ``complex diagnostic 
imaging services'' and publication of a final rule establishing the 
quality standards required by the Act. This provision will allow 
radiologists to continue to perform these services while the Secretary 
conducts the appropriate rulemaking to establish education and quality 
standards for other appropriately trained specialists.
    4.  NCQDIS supports updating payment billing systems to align with 
changes in technology.
    5.  Finally, NCQDIS understands that implementing quality standards 
for additional diagnostic imaging services will take a significant 
amount of time to develop. Therefore, NCQDIS recommends that Medicare 
be authorized to implement a broader quality standards program through 
a demonstration project to be implemented one year from the date of 
enactment of the complex diagnostic imaging quality standards. This 
policy should detail by medical specialty those imaging tests permitted 
by the specialty.

    The framework of the NCQDIS proposal directly parallels the 
existing quality requirements embodied in the Medicare statute for 
coverage of mammograms. The definition of ``diagnostic services'' 
mentioned above also establishes that Medicare Part B covers diagnostic 
x-ray tests including diagnostic mammography if conducted by a facility 
that has a certificate under the Public Health Service Act. The 
regulations accompanying that Act require interpreting physicians and 
technicians to (1) engage in extensive education and training, and (2) 
use equipment that meets stringent quality standards in order to 
receive and maintain a certificate to furnish mammograms. Hence, 
Medicare pays for mammograms only if the provider or supplier is 
certified by the FDA to perform the types of mammography for which 
payment is sought and uses properly maintained and certified equipment. 
The NCQDIS proposal described above simply attaches similar education 
and quality standards to ``complex diagnostic imaging services.'' This 
approach will improve quality, protect Medicare beneficiaries, and 
safeguard precious Medicare Trust Fund dollars.
    Again, we appreciate this opportunity to present our views to the 
House Ways and Means Subcommittee on Health. We would be pleased to 
provide the Subcommittee with additional details about our proposal, 
and to discuss any views and concerns that may be raised with regard to 
it.

                                 
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