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

                    MEDICARE PHYSICIAN PAYMENT: HOW TO BUILD A
                  PAYMENT SYSTEM THAT PROVIDES QUALITY, EFFICIENT
                         CARE FOR MEDICARE BENEFICIARIES

                                     HEARINGS

                                    BEFORE THE

                              SUBCOMMITTEE ON HEALTH

                                      OF THE

                        COMMITTEE ON ENERGY AND COMMERCE

                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION
                                  ____________

                           JULY 25 AND JULY 27, 2006

                              Serial No. 109-130

    Printed for the use of the Committee on Energy and Commerce

    Available via the World Wide Web:
               http://www.access.gpo.gov/congress/house

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                       COMMITTEE ON ENERGY AND COMMERCE

    JOE BARTON, Texas, Chairman
    RALPH M. HALL, Texas
    MICHAEL BILIRAKIS, Florida
      Vice Chairman
    FRED UPTON, Michigan
    CLIFF STEARNS, Florida
    PAUL E. GILLMOR, Ohio
    NATHAN DEAL, Georgia
    ED WHITFIELD, Kentucky
    CHARLIE NORWOOD, Georgia
    BARBARA CUBIN, Wyoming
    JOHN SHIMKUS, Illinois
    HEATHER WILSON, New Mexico
    JOHN B. SHADEGG, Arizona
    CHARLES W. "CHIP" PICKERING,  Mississippi
      Vice Chairman
    VITO FOSSELLA, New York
    ROY BLUNT, Missouri
    STEVE BUYER, Indiana
    GEORGE RADANOVICH, California
    CHARLES F. BASS, New Hampshire
    JOSEPH R. PITTS, Pennsylvania
    MARY BONO, California
    GREG WALDEN, Oregon
    LEE TERRY, Nebraska
    MIKE FERGUSON, New Jersey
    MIKE ROGERS, Michigan
    C.L. "BUTCH" OTTER, Idaho
    SUE MYRICK, North Carolina
    JOHN SULLIVAN, Oklahoma
    TIM MURPHY, Pennsylvania
    MICHAEL C. BURGESS, Texas
    MARSHA BLACKBURN, Tennessee
    JOHN D. DINGELL, Michigan
      Ranking Member
    HENRY A. WAXMAN, California
    EDWARD J. MARKEY, Massachusetts
    RICK BOUCHER, Virginia
    EDOLPHUS TOWNS, New York
    FRANK PALLONE, JR., New Jersey
    SHERROD BROWN, Ohio
    BART GORDON, Tennessee
    BOBBY L. RUSH, Illinois
    ANNA G. ESHOO, California
    BART STUPAK, Michigan
    ELIOT L. ENGEL, New York
    ALBERT R. WYNN, Maryland
    GENE GREEN, Texas
    TED STRICKLAND, Ohio
    DIANA DEGETTE, Colorado
    LOIS CAPPS, California
    MIKE DOYLE, Pennsylvania
    TOM ALLEN, Maine
    JIM DAVIS, Florida
    JAN SCHAKOWSKY, Illinois
    HILDA L. SOLIS, California
    CHARLES A. GONZALEZ, Texas
    JAY INSLEE, Washington
    TAMMY BALDWIN, Wisconsin
    MIKE ROSS, Arkansas

    BUD ALBRIGHT, Staff Director
    DAVID CAVICKE, General Counsel
    REID P. F. STUNTZ, Minority Staff Director and Chief Counsel

    SUBCOMMITTEE ON HEALTH
    NATHAN DEAL, Georgia, Chairman
    RALPH M. HALL, Texas
    MICHAEL BILIRAKIS, Florida
    FRED UPTON, Michigan
    PAUL E. GILLMOR, Ohio
    CHARLIE NORWOOD, Georgia
    BARBARA CUBIN, Wyoming
    JOHN SHIMKUS, Illinois
    JOHN B. SHADEGG, Arizona
    CHARLES W. "CHIP" PICKERING,  Mississippi
    STEVE BUYER, Indiana
    JOSEPH R. PITTS, Pennsylvania
    MARY BONO, California
    MIKE FERGUSON, New Jersey
    MIKE ROGERS, Michigan
    SUE MYRICK, North Carolina
    MICHAEL C. BURGESS, Texas
    JOE BARTON, Texas
      (EX OFFICIO)
    SHERROD BROWN, Ohio
      Ranking Member
    HENRY A. WAXMAN, California
    EDOLPHUS TOWNS, New York
    FRANK PALLONE, JR., New Jersey
    BART GORDON, Tennessee
    BOBBY L. RUSH, Illinois
    ANNA G. ESHOO, California
    GENE GREEN, Texas
    TED STRICKLAND, Ohio
    DIANA DEGETTE, Colorado
    LOIS CAPPS, California
    TOM ALLEN, Maine
    JIM DAVIS, Florida
    TAMMY BALDWIN, Wisconsin
    JOHN D. DINGELL, Michigan
      (EX OFFICIO)

    CONTENTS

    Page
    Hearings held:

    July 25, 2006
    1
    July 27, 2006
    144
    Testimony of:

    Marron, Donald B., Acting Director, Congressional Budget Office
    33 Steinwald, A. Bruce, Director, Health Care, Government
    Accountability Office 50 Miller, Mark, Executive Director, Medicare
    Payment Advisory Commission 74
    Guterman, Stuart, Senior Program Director, Program on Medicare's
    Future, The Commonwealth Fund 86
    McClellan, Hon. Mark, Administrator, Centers for Medicare &
    Medicaid Services 148
    Wilson, Dr. Cecil B., Chair, Board of Trustees, American Medical
    Association 192
    Heine, Dr. Marilyn, on behalf of Alliance of Specialty Medicine
    203
    Rich, Dr. Jeffrey B., Mid-Atlantic Cardiothoracic Surgeons, on
    behalf of Society of Thoracic Surgeons	210
    Opelka, Dr. Frank, Associate Dean of Healthcare Quality and
    Management, LSU Health Sciences Center Dean's Office, on behalf
    of American College of Surgeons	 221
    Kirk, Dr. Lynne M., Associate Dean for Graduate Medical Education,
    University of Texas Southwestern Medical School, on behalf of
    American College of Physicians	248
    Schrag, Dr. Deborah, Past Chair, Health Services Committee,
    American Society of Clinical Oncology	267
    Brush, Dr. John, on behalf of American College of Cardiology 272
    Martin, Dr. Paul A, Chief Executive Officer and President,
    Providence Medical Group, Inc. and Providence Health Partners,
    LLC, on behalf of American Osteopathic Association  282
    Additional material submitted for the record:

    Miller, Mark, Executive Director, Medicare Payment Advisory
    Commission, response for the record  312
    Guidry, Orin F., M.D., President, American Society of
    Anesthesiologists, submission for the record	314

    MEDICARE PHYSICIAN PAYMENT: HOW TO BUILD A PAYMENT SYSTEM THAT
    PROVIDES QUALITY, EFFICIENT CARE FOR MEDICARE BENEFICIARIES

    TUESDAY, JULY 25, 2006

    HOUSE OF REPRESENTATIVES,
    COMMITTEE ON ENERGY AND COMMERCE,
    SUBCOMMITTEE ON HEALTH,
    Washington, DC.

    	The subcommittee met, pursuant to notice, at 10:05 a.m., in
    Room 2125 of the Rayburn House Office Building, Hon. Nathan Deal
    (Chairman) presiding.
    Members present:  Representatives Bilirakis, Norwood, Shadegg,
    Pickering, Pitts, Ferguson, Rogers, Myrick, Burgess, Barton
    (ex officio), Towns, Pallone, Eshoo, Green, Capps, Allen, Dingell
    (ex officio), and Deal.
    	Staff Present:  Melissa Bartlett, Counsel; Ryan Long,
    Counsel; Brandon Clark, Policy Coordinator; Chad Grant, Legislative
    Clerk; Bridgett Taylor, Minority Professional Staff Member; Amy
    Hall, Minority Professional Staff Member; and Jessica McNiece,
    Minority Research Assistant.
    MR. DEAL.  Good morning.  We will call the committee to order.
    Today we will have a hearing entitled "Medicare Physician Payment:
    How to Build a Payment System that Provides Quality, Efficient Care
    for Medicare Beneficiaries."  I am pleased to say that we will be
    hearing from three panels of witnesses over a two-day period.
    	Today's session will focus on the Medicare physician
    payment system, and we will hear from witnesses from the
    Congressional Budget Office, the Government Accountability Office,
    the Medicare Payment Advisory Commission, and the Commonwealth Fund.
    	The second session will begin on Thursday morning and will
    focus on quality measurement activities and the concept of pay-for-
    performance in physician payment.  This hearing is intended to
    provide a forum for committee members to consider the current
    physician payment system, options for fixing or replacing the
    payment system, while constraining the continued growth in physician
    spending, and the costs associated with these options.
    	This hearing will also provide committee members an
    opportunity to hear CMS and physician representatives highlight
    their collaborative work on quality measurement and development
    in an effort to build a new payment system that pays physicians
    based on the quality and appropriateness of the care they provide.

    y colleagues are no doubt aware, this committee is
    the committee of primary jurisdiction on the issue of Medicare
    physician payment, and without question, this issue is one of the
    most important and daunting legislative tasks we will undertake.
    As always, I am looking forward to having a cooperative and
    productive conversation on this topic today, and to working with my
    colleagues on both sides of the aisle to come up with effective
    solutions to the problems addressed at this hearing.  Again, I would
    like to thank all of our witnesses for participating today.  We look
    forward to hearing from you and we have reviewed your testimony
    already.
    	At this time, I would like to ask for unanimous consent that
    all members be allowed to submit statements and questions for the
    record.  Without objection, it is so ordered.
    	[The prepared statement of Hon. Nathan Deal follows:]

    PREPARED STATEMENT OF THE HON. NATHAN DEAL, CHAIRMAN, SUBCOMMITTEE
    ON HEALTH

    The Committee will come to order, and the Chair recognizes himself
    for an opening statement.
    Today's hearing is entitled "Medicare Physician Payment:  How to
    Build a Payment System that Provides Quality, Efficient Care for
    Medicare Beneficiaries" and I am proud to say that we will be
    hearing from three expert panels of witnesses over a two day period.
    appearing before us this morning that will help us examine the
    concerns raised by MedPAC, CMS, and others regarding the rapid
    growth of the use of imaging services in Medicare.
    Today's hearing will also provide a forum for witnesses to provide
    suggestions for how to determine what is proper versus improper
    growth of services, and how to best control for overutilization or
    misuse of services.
    Over the past few years, there has been rapid growth in the volume
    of imaging services paid under Medicare fee-for-service.
    MedPAC has found that Medicare spending for imaging services paid
    under the physician fee schedule nearly doubled between 1999 and
    2004, from $5.4 billion per year to $10.9 billion per year.
    In addition, the volume of imaging services has grown at almost twice
    the rate of all other physician services.
    Clearly, this level of growth is unsustainable.
    Some growth in use of imaging services is argued to be attributable
    to technological innovations that allow physicians to better
    diagnose disease.  However, many observers argue that such growth
    may reflect overuse or misuse of imaging services.
    MedPAC has determined that spending for MRI, CT, and nuclear
    medicine has grown faster than for other imaging services.
    Accordingly, MedPAC has identified some factors that may
    contribute to the rapid growth in volume and intensity of imaging
    services, including:
    1. The possible misalignment of fee schedule payment rates and costs
    2. Physicians' interest in supplementing their professional fees
    with revenues from ancillary services
    3. Patients' desire to receive diagnostic tests in more convenient
    settings.
    In its March 2005 report to Congress, MedPAC recommended that
    Congress direct the Secretary to set standards for physicians
    interpreting or performing diagnostic imaging services.
    This is a recommendation I hope my colleagues on this subcommittee
    will carefully consider as we start to look at possible solutions to
    this problem.
    As my colleagues are no doubt aware, the Deficit Reduction Act of
    2005 (DRA), included a provision that caps reimbursement for the
    technical component for imaging services performed in a physician's
    office at the hospital outpatient payment rate.
    Imaging services paid under the physician fee schedule involve two
    parts, a technical component and a professional component.  The
    technical component of the payment covers the cost of the equipment,
    supplies, and non-physician staff.
    The DRA provision capping the technical component of physician
    payment for imaging services was intended to move toward payment
    neutrality across sites of service delivery.
    This provision takes effect January 1, 2007, and will save the
    Medicare program almost $3 billion over 5 years.
    Of course, many physician groups and industry stakeholders are
    pushing for a delay in the effective date of this provision.
      However, it is important to remember that these savings were a
    major financial component in preventing physicians from taking the
    4.4% reduction in fee schedule payments that was scheduled to be
    implemented under the SGR formula for 2006.
      Unfortunately, few groups are offering legitimate offsets in order
    to pay for this requested delay in implementation.
      It kinda reminds me of the lyrics of an old Bobbie Gentry song,
    "Everybody wants to go to Heaven...but nobody wants to die."
      I am looking forward to having a cooperative and productive
    conversation on this topic today and to working with my colleagues
    on both sides of the aisle to come up with effective solutions to
    the problems addressed at today's hearing.
      Again, I would like to thank all of our witnesses for participating
    today, and we look forward to hearing your testimony.
     At this time, I would also like to ask for Unanimous Consent that
    all Members be allowed to submit statements and questions for the
    record.
     I now recognize the Ranking Member of the Subcommittee, Mr. Brown
    from Ohio, for five minutes for his opening statement.

    	MR. DEAL.  I am now pleased to recognize Mr. Pallone, who is
    our stand-in as the Ranking Member today, for 5 minutes for his
    opening statement.
    	Mr. Pallone.
    	MR. PALLONE.  Thank you, Mr. Chairman, and let me begin by
    also thanking our witnesses today, and I appreciate your attendance.
    I know we are looking forward to hearing from you.
    	Mr. Chairman, since Medicare's inception, Congress and
    various administrations have struggled to determine a fair and
    appropriate way to pay physicians for the services they provide, and
    in spite of these efforts, it is very clear that we are still very
    far from achieving that goal, and I have to admit I am still baffled
    by the fact that after 40 years, we still have not found a fair way
    to pay physicians for the actual costs.
    	Under the current system, physician payments continue to
    decline as costs skyrocket, and it creates an unsustainable situation
    that ultimately undermines what lies at the heart of Medicare, a
    program that ensures our Nation's seniors have access to affordable
    and quality healthcare.
    	Since 2002 when the problems with the current system first
    started to appear, this subcommittee has held hearing after hearing
    on the need to reform the current payment system.  By now, I doubt
    that there are few, if any, members who aren't painfully aware of the
    problems that we face.  And yet, there have been very few signs of
    progress in terms of enacting a permanent solution.
    	And year after year, the Republican majority has successfully
    avoided the issue by passing temporary payment increases.  As we all
    know, these Band-Aid measures have actually made things worse,
    increasing the cuts physicians will face in future years under the
    current program, as well as the cost of any permanent solution that
    Congress eventually agrees upon.
    	Moreover, the Majority has managed to squander any extra
    time we bought with these quick fixes, and let us be clear, here we
    are in the last week before Congress recesses for the month of
    August.  That leaves a handful of legislative days in the month of
    September and a lame duck session to enact a permanent solution,
    which we all know is unlikely.
    	We shouldn't make any mistake about it.  The groundwork has
    already been laid for yet another stopgap measure to be enacted in
    the final days of the 109th Congress, probably in the lame duck, and
    of course, I am going to support such a measure, Mr. Chairman,
    simply because we can't afford not to pay our doctors.
    	However, we must begin to make progress on a permanent
    reform.  And what is the biggest roadblock we face?  Without a
    doubt, it is the overwhelming cost that is associated with
    overhauling the current payment system.  Simply by freezing
    physician payments at their current level, instead of allowing the
    4.6 percent cut scheduled for next year to take place, would
    increase net spending for Medicare in 2007 by $1.1 billion and $11
    billion through 2011.  Repealing the sustainable growth rate, the
    SGR, altogether would even be more expensive.  Dr. McClellan of CMS
    previously testified such a proposal could amount to approximately
    $180 billion over 10 years, and CBO placed the cost around $218
    billion.
    	Now, I highly doubt that any of my Republican friends have
    the appetite to support something so costly, and of course I always
    criticize them because they have no problem enacting policies that
    drain our Treasury with tax cuts primarily for the wealthy, but I
    still think given all that, given the deficit, it is unlikely they
    are going to want to support this kind of a costly fix.
    	I would be remiss if I didn't highlight the fact that under
    the current system, which again the President and the Majority put
    together, Medicare spends 11 percent more for beneficiaries in
    Medicare Advantage Plans than for people in fee-for-service.  When
    physicians come to Congress to ask why Medicare is paying them below
    costs and cutting their reimbursements, we should also be asking why
    Medicare is paying HMOs their full costs plus a bonus of 11 percent.
    	Now, Mr. Chairman, the other problem we face is that there
    doesn't seem to be any consensus on how to fix the current system.
    Do we keep the SGR in place with modifications?  Should we strip it
    out altogether?  And if so, what do we replace it with?  And of
    course, most eyes have turned to a value-based purchasing system,
    which will be talked about more, I think, on Thursday's hearing.
    But I like the idea of paying physicians for providing quality and
    efficient healthcare, but like many physician groups, I have
    concerns about how we can move to such a system in a fair and timely
    manner.
    	Calls to move to such a system by January 2007 are
    unrealistic, and I think will place beneficiaries in harm's way, and
    I also have very serious concerns about how such a system would
    operate.  Particularly, I remain unsatisfied about how we guard
    against doctors cherry-picking healthier patients simply to get
    better payments.
    	And again, Mr. Chairman, I know this isn't easy, and I do
    appreciate the fact that we are having this hearing today and
    Thursday.  I hope that these 2 days will not simply be a forum to
    rehash what we have already heard before, but to provide the
    committee members, physicians, and beneficiaries with some hopeful
    solutions for the problems we face with the current payment system.
    	And I did want to mention that I support a bill that
    Congressman Stark has introduced, H.R. 4520, the Medicare Physician
    Payment Reform Act, which was introduced, I guess, last December.
    I think that would be something that we should certainly look at as
    a way to try to deal with this problem.  But there are obviously
    other ways, and that is what we are here for today.
    	So, thank you again.
    	MR. DEAL.  Thank you.  Dr. Norwood, you are recognized for
    an opening statement.
    	MR. NORWOOD.  Thank you very much, Mr. Chairman, for this
    hearing, and of course, as always, we thank the witnesses for taking
    their time.  This should be a very interesting 2 days.
    	As a medical professional and as a Member of Congress, and
    a 65 year old American as of this week, I have a great interest in,
    indeed a duty, to see that Medicare beneficiaries maintain access to
    their doctor.  Now, I would choose not to take Medicare,
    Mr. Chairman, but you know, you won't let me out.  I have got to
    take it, so if I have got to take it, I would like for us to see
    that it is maintained.
    	I simply don't believe that we are going to be able to
    maintain this program if we continue to use the SGR formula, and
    don't start paying our providers a fair wage.  I know that repealing
    SGR will be extremely costly, but in my view, the dangers we face
    in healthcare are much greater if we don't.  Doctors in Medicare
    face a 4.6 percent cut next year.
    	I have worked very hard with my good friend Dr. Burgess on
    H.R. 5866.  It replaces the SGR, and makes several important updates
    to Medicare.  Dr. Burgess, I really thank you and your staff for all
    of your good work, and I was delighted to be able to assist in any
    small way.
    	As much as I have tried to get this committee to see the
    potential shortcomings of pay-for-performance plans, I know it is
    coming up again.  You don't have to tell me the fee-for-service model
    has its problems.  I know it does.
    	But I have not been able to get one person, to my
    satisfaction, to define what pay-for-performance would look like, how
    it would work across Medicare, or how much it actually might cost.
    It may improve outcomes in some test cases, but when government
    bureaucrats, not patients and doctors, start defining good medicine,
    it makes me automatically very suspicious.
    	How would you feel if you were expected to provide harder to
    provide expanded services while taking more patients as the Baby
    Boomers retire?  A bunch of non-physician government clerks, and
    believe me, they are out there and they are at work, tell you how to
    do your job, and this is going to be even more so in the future.
    We are going to cut your paychecks, even though we pay no more
    than costs today, because some folks, who have never had any
    experience in medicine determine you aren't efficient enough.
    I wonder if anybody in the world would put up with that mess in
    their business in any other thing in the world but healthcare.
    I know I wouldn't.
    	Doctors are not machines.  Work faster, do fewer tests,
    God forbid you use your imaging machine too much.  You might
    diagnose something that we have to pay for.  Spend less on physical
    exams.  Doctors need to know how the payments will be updated, and
    Congress is going to address the larger issue.  I know Dr. Burgess
    is with me.  We are willing to roll up our sleeves, and do what it
    takes to get this done.  Maybe Mr. Pallone will be with us, too.
    	I look forward to working with members on both sides of the
    aisle on this very important issue.  Mr. Chairman, thank you again
    very much for having these hearings.
    	MR. DEAL.  I thank the gentleman.  Ms. Eshoo is recognized
    for an opening statement.
    	MS. ESHOO.  Thank you, Mr. Chairman.  This is an important
    hearing, and welcome to the important witnesses that are here today.
    	This committee has held a number of hearings examining the
    Medicare physician payment system over the last several years.  Many
    of us have been calling for reforms for even longer, and there are a
    number of bills in Congress, and proposals from groups in our
    communities and our States that seek to do this.
    	In my view, there are two major reforms that should be made
    to the physician fee schedule.  One, we should eliminate the
    sustainable growth rate, the SGR payment formula, and replace it
    with the Medicare Economic Index, the MEI.  And two, we should
    update the Medicare geographic payment locality.  I think we are
    fully cognizant that serious reforms to the SGR are necessary, and
    I think they need to be taken care of before Congress adjourns this
    year.
    	The SGR is inappropriately tied to a non-medical index, the
    GDP, which has resulted in proposed physician payment cuts of more
    than 4 percent each year since 2003.  And Congress scrambles toward
    the end of the year, and throws something into some big bill.  I
    think that we need to do it in a much more thoughtful way, so that
    it is thoughtful, so that it makes sense.  We just keep revisiting
    this in kind of a haphazard way, to kind of quiet the many voices
    that are directed at us.
    	The MEI is an index which is based on actual medical
    practice costs, and it would be used to reimburse all other
    providers in the Medicare program, including hospitals and nursing
    homes.  MedPAC and many State medical associations are supportive of
    a proposal to eliminate the SGR payment formula and adopt the MEI
    for physician payments.
    	Another issue of considerable concern to me is the geographic
    payment locality.  Let me just use some examples.  In Chairman
    Deal's district, Pickens County physicians are underpaid by 12
    percent.  In Chairman Barton's district, Ellis County physicians
    are underpaid by 7.5 percent.  In Ranking Member Dingell's
    district, physicians in Monroe and Livingston Counties are underpaid
    by 4 percent, and in my Congressional district, in the Santa Cruz
    County portion, physicians are underpaid by 10.2 percent.  It is
    driving doctors right out of Medicare, and the people that we
    represent are the ones that are left holding the bag.  They have
    to travel long distances in order to get the care that they
    deserve.
    	To the gentleman from Georgia, who said that he is in
    Medicare, and he can't get out of it, if you pay for it out of your
    own pocket, you don't have to submit your claims to Medicare, and
    neither does anyone else.  The fact of the matter is it is a system
    that I think we have a responsibility to make sure it works, and it
    is not.  So, while it is not a national problem, it is a huge
    problem for the affected areas.
    	So, I hope that members of the committee will seriously
    consider the proposals that are out there, and make the changes that
    really need to be made.  And I think the two hearings, Mr. Chairman,
    that you are having are going to underscore and highlight the changes
    that need to be made, and that we address them before the 109th
    Congress adjourns.
    	Thank you.
    	[The prepared statement of Hon. Anna Eshoo follows:]

    PREPARED STATEMENT OF THE HON. ANNA ESHOO, A REPRESENTATIVE IN
    CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Chairman, this Committee has held a number of hearings examining
    the Medicare physician payment system over the last several years.
    Many of my colleagues and I have been calling for reforms for even
    longer, and there are a number of bills in the Congress and
    proposals from groups in our communities that seek to do this.
    In my view, there are two major reforms that must be made to the
    physician fee schedule:
    1. eliminate the sustainable growth rate (SGR) payment formula and
    replace it with the Medicare Economic Index (MEI), and
    2. update the Medicare Geographic Payment Locality.

    I think we're fully cognizant that serious reforms to the SGR are
    necessary, and they're necessary now.
    The SGR is inappropriately tied to a non-medical index, the Gross
    Domestic Product (GDP), which has resulted in proposed physician
    payment cuts of more than 4% each year since 2003.
    The MEI is an index which is based on actual medical practice costs
    and is used to reimburse all other providers in the Medicare
    program (including hospitals and nursing homes).
    MedPAC and many state Medical Associations are supportive of a
    proposal to eliminate the SGR payment formula and adopt the MEI for
    physician payments.
    Another issue of considerable concern to me is the Geographic
    Payment Locality.  Despite major demographic changes across the
    country since 1966, the Geographic Payment Locality hasn't been
    updated in any meaningful way.  The result is that physicians in
    32 states and 174 counties are inaccurately underpaid by up to 14%
    per year.
    For example, in Chairman Deal's District, Pickens County physicians
    are underpaid by 12%.
    In Chairman Barton's District, Ellis County physicians are underpaid
    by 7.5%.
    In Ranking Member Dingell's District, physicians in Monroe and
    Livingston Counties are underpaid by 5.4%.
    And in my District, Santa Cruz County physicians are underpaid by
    10.2%.  As of June 1st of this year, physicians in Santa Cruz County
    are no longer accepting new Medicare patients.  This means that
    patients in Santa Cruz must travel nearly 25 miles to neighboring
    Santa Clara County to receive care, if they can find a doctor who
    will accept new Medicare patients.
    Although this is not a national problem, it's a huge problem for
    the affected localities.  The California Congressional Delegation
    has proposed to update the payment localities and help these
    recently urbanized counties while holding the rural counties
    harmless from cuts.  I urge you, Mr. Chairman and Members of this
    Committee to seriously consider this proposal and include it in any
    SGR fix, as well as a commitment to reform the Medicare Physician
    Payment system before the 109th Congress adjourns.

    	MR. DEAL.  I thank the gentlelady.  Dr. Burgess is recognized
    for an opening statement.
    	MR. BURGESS.  Thank you, Mr. Chairman, and like everyone
    else, I want to thank you for holding this hearing.  I look forward,
    in a couple of day's time, I guess this morning, we have four
    economists telling us how doctors should be paid, and on Thursday,
    we have got seven doctors telling us how to pay economists.  And I
    think that is a good balance that we always ought to strive for on
    this committee.
    	Well, I am a healthcare professional.  I do understand how
    crucial Medicare payments are to the future of healthcare.  When in
    the practice of medicine, I can well remember the financial strain
    when the cost of providing Medicare services doubled relative to
    that which I was being reimbursed.  I appreciate the witnesses
    taking time to share their views with us, and look forward to their
    testimony.
    	I do feel strongly that the current system needs reform, and
    to that end, I recently introduced H.R. 5866, legislation introduced
    with Congressman Norwood, along with Congressman Boustany and
    Congressman Weldon, that creates a framework to fix this problem.
    The Medicare Physician Payment Reform and Quality Improvement Act
    of 2006 has four main goals:  to ensure that physicians receive
    full and fair payment for their services rendered; to create
    quality performance measures that allow patients to be informed
    consumers when choosing their Medicare provider; to improve
    quality improvement organization accountability and flexibility;
    and finally, to find reasonable methods of paying for these
    benefits.
    	Current law calculates an annual update for physician
    services based on the sustainable growth rate, as well as the
    Medicare economic index, and an adjustment to bring the MEI update
    in line with the SGR target.  When expenditures exceed the SGR
    target, the update for a future year is reduced.  If expenditures
    fall short, the update for a future year is increased.  This is an
    economic incentive for physicians to limit healthcare spending, in
    other words, to ration healthcare in the treatment.
    	Unfortunately, this system doesn't work.  Healthcare
    spending continues to grow, and physicians exceed their target
    expenditures every year.  Subsequently, Medicare reimburses them
    less and less.  This bill ends application of the SGR on
    January 1, 2007.  Instead, we propose using a single conversion
    factor for Medicare reimbursement, the MEI index.  This eliminates
    the negative feedback loop that constantly creates a deficit in
    healthcare funding, and introduces a market sensitive system.
    For 2007, the MEI forecasts that the input prices for physician
    services will increase by approximately 2.8 percent.  We have
    already heard testimony that that creates a 10 year budgetary
    charge of $218 billion, according to CBO.  In order to accommodate
    the high cost, we propose Medicare-reimbursed physicians at an MEI
    minus 1 percent for this bill.
    	Regarding quality measures, the AMA and other physician
    organizations have been working to create a relevant evaluation
    system for outpatient care.  This is a good thing.  This bill does
    not attempt to reinvent the wheel.  Those provisions establishing
    quality performance measures are designed to build on work
    undertaken by the AMA, by the specialty organizations, and by
    other groups.  Each physician specialty organization will create
    their own quality measures applicable to core clinical services
    which they will submit to a consensus-building organization.
    Taken as a whole, these measures should provide a balanced overview
    of the performance of each physician.
    	To offset the cost of these changes, we are looking at
    multiple options.  Redirecting the stabilization fund from the
    Medicare Modernization Act provides approximately $10 billion.
    Also, Medicare currently pays for indirect costs of medical
    education, but pays for them twice:  directly, by inflating
    payments to Medicare Advantage Plans it pays directly; and by
    inflating payments to Medicare Advantage Plans.  By paying only
    directly, we can find additional savings.
    	This bill, and its pay-fors, is just a start.  We are
    trying to develop a product that will ultimately be satisfactory
    to all stakeholders, and we welcome the input from those that are
    interested in a dialogue.
    	Also, I would like to extend a particularly warm welcome to
    a fellow North Texan, Dr. Lynne Kirk, who will be testifying on
    Thursday--that is the day we set rates for economists.  As both a
    physician and educator, she brings a unique perspective to this
    hearing.  She is the Associate Dean for Graduate Medical Education
    at UT Southwestern, and an Associate Chief of Division of General
    Internal Medicine at UT Southwestern.
    	Thank you, Mr. Chairman.  You have been very indulgent, and
    I look forward to working with members on H.R. 5866.
    	MR. DEAL.  I thank the gentleman.  Mr. Green is recognized
    for an opening statement.
    	MR. GREEN.  With all due respect, I walked in after
    Ms. Capps.
    	MR. DEAL.  It was order of seniority before we started the
    hearing.
    	MR. GREEN.  Okay.  Sorry.  Thank you, Mr. Chairman.
    Mr. Chairman, I would like to have my full statement placed in
    the record.
    	I don't think any of us in this room that are elected
    officials haven't been educated by our local physician about the
    problems they have with the fee schedule and the rate reductions
    doctors are scheduled to receive over the next year.
    	It has been over a decade since the physician fee schedule
    was put into place to help control increases in Medicare payments
    to physicians.  Since 1997, the fee schedule has utilized the
    sustainable growth rate system to set a spending target for
    Medicare expenditures.  Despite the complicated formulas used to
    derive the SGR, the physician fee schedule, the idea behind the
    formula is fairly simple.  If Medicare expenditures on physician
    services exceed a target in a given year, CMS will decrease the
    payments for physician services next year.  If expenditures fall
    short of the target, physician payments will increase.
    	While Congress enacted these stopgap measures for rate
    cuts in 2002 through 2006, it is clear that the system contains
    some inherent flaws that must be addressed to ensure the long-term
    viability of Medicare access to beneficiaries.  When the current
    system essentially penalizes physicians for increased volume of
    physician services, it does not distinguish between simple
    over-utilization or increase in healthcare utilization actually
    leads to better health outcomes.
    	In my hometown of Houston, we have a great many of the
    world's best medical facilities where the scope of care is
    unmatched.  Yet, I meet physicians every day, in every working
    specialty, who say that this system threatens our Medicare
    beneficiaries' access to the healthcare they provide.  Yet,
    according to the recent GAO report, we have not reached that
    breaking point yet, but I worry about a future where fewer doctors
    will be willing to treat Medicare beneficiaries simply because of
    the reimbursement problems.  If we ever reach that point, Medicare
    would have failed its mission.
    	Mr. Chairman, that is why this hearing is so important.  We
    have a number of distinguished panelists, both today and for
    Thursday, and again, I would hope that we would look at both the
    needs of our physicians, but also realize that beneficiaries are
    scheduled to pay $98.20 for their monthly Medicare Part B in 2007.
    We must take into account the effects on the beneficiaries and
    their ability to afford healthcare under Medicare Part B.
    	And again, I welcome our witnesses, and yield back my time.
    	MR. DEAL.  I thank the gentleman.  Mr. Ferguson is
    recognized for an opening statement.
    	MR. FERGUSON.  Thank you, Mr. Chairman, and thank you for
    holding this hearing, and for your leadership on many healthcare
    issues.
    	Medicare physician payment is an issue that demands our
    attention, because it directly affects the ability of our Nation's
    physicians to provide care.  If we fail to act by the end of the
    year, physicians will see a cut of almost 5 percent in payments
    for Medicare, and if the SGR were allowed to continue to be
    applied in subsequent years, the cuts will continue to mount by as
    much as 37 percent through 2015.  And as physician payments go down,
    practice costs during the same period are expected to increase 22
    percent.  As medical liability premiums spiral upwards, and the
    Baby Boomers approach Medicare age, we cannot cut the legs out from
    under our doctors by slashing their Medicare payments.
    	The SGR is fatally flawed, and it is time we start writing
    its obituary today.  Instead of the SGR, payment updates should be
    based on other factors, perhaps based on annual increases in
    practice costs.  And I look forward to hearing from our
    distinguished panels today about their suggestions.  I understand
    that the solution may be costly, and combined with other expensive
    priorities discussed in the past weeks in this committee, like
    restoring cuts to imaging services, we have a lot on our plates to
    address.  But there is no doubt that we must find a comprehensive
    approach to solving this problem, and I believe that there are ways
    which we can craft a solution.
    	Our physicians deserve more than having to beg to be
    compensated justly for their services.  It is our duty to address
    this issue, and I am happy that we are doing it with these two
    hearings this week.
    	Thank you, again, Mr. Chairman, and I look forward to
    working with you and other members of our committee to help solve
    our Nation's problems, particularly with regard to physicians, as
    we try to fix this mess.  And I yield back.
    	MR. DEAL.  I thank the gentleman.  I now recognize the
    Ranking Member of the full committee, Mr. Dingell, for an opening
    statement.
    	MR. DINGELL.  Mr. Chairman, thank you, and thank you for
    holding this hearing on physician payment issues under Medicare.
    	The vast majority of Medicare beneficiaries are satisfied
    with their doctor, and they would like to continue going to the
    doctor of their choice.  We must protect this right by providing
    physicians with fair and adequate compensation.  This week's
    hearings will examine this very critical issue in Medicare.
    	But once again, I would point out that the Majority has
    chosen to ignore another critical issue.  For 4 months, the
    Majority has failed to afford the Minority the hearing on
    beneficiary issues with Medicare prescription drug benefits.
    We are entitled to these hearings under Rule XI.  We have many
    witnesses that the committee should hear from.
    	But what we are addressing today is also very important
    to beneficiaries.  Doctors are facing major payment cuts under
    Medicare for the foreseeable future, and this is going to have a
    significant impact upon the practice of medicine, and upon the
    beneficiaries as well.  Fixing the Medicare physician payment
    system is expensive, but it can and it should be done.
    	Last year, in an effort to head off a major problem, I
    offered an amendment in this committee during a markup of the
    Deficit Reduction Act that would have provided a minimum update
    consistent with MedPAC's recommendations for this year and the
    next, and protected beneficiaries from increased premium costs.
     Unfortunately, it was defeated, with only one Republican member
    joining us in our efforts to protect Medicare and Medicare
    beneficiaries.
    	This week, I intend to introduce legislation along these
    same lines, providing doctors with 2 years of updates based on
    MedPAC's recommendations, and protecting beneficiary premiums
    until a long-range solution can be found.  I do find it curious
    that doctors are going to be given a 4.6 percent cut in payment,
    while year after year, HMOs in Medicare continue to receive
    overpayments.  This is a scandalous situation.  It appears that
    there are many who want to see Medicare as we know it ended by
    squeezing payments to the doctors who care for Medicare patients
    under fee-for-service, and forcing seniors into HMOs.
    	It is also, again, curious, I repeat, that we are giving
    what we acknowledge is more than they are entitled to to the HMOs,
    in the way of payments from the Federal government.  Why should HMOs
    continue to prosper at the expense of doctors in a time of budget
    deficits?  Of course, many changes to the physician payment system
    that increases Medicare spending should also protect beneficiaries
    against further out-of-pocket spending increases.  Many seniors
    already see their entire cost-of-living payments adjustment in
    their Social Security check eaten up by record increases in Part
    B premiums.
    	On the second day of this hearing, we will hear about
    "pay-for-performance."  This is one of the newest healthcare
    buzzwords.  Linking payments to quality is a good goal, but I
    think that we must proceed in a measured fashion, and be sure that
    we know what we are doing.  It is fair, I think, here that we
    should apply the abjuration to the doctors:  "First, do no harm."
    	Jumping into a reporting system in 2007 without proper
    measures in place, and without understanding how those measures
    will work, and then attempting to base payments on this system, is
    almost certain to bring about worse rather than better quality care.
    This hastefully conceived movement to pay-for-performance, coupled
    with severe cuts to the doctors, is going to drive more seniors into
    managed care plans, not by choice, because they really don't want
    this, but by grim necessity.  Many of these plans tend to be more
    expensive, not as efficient, and to make biased medical decisions
    more beneficial to their shareholders than to patients.  Poor
    medicine, indeed.
    	This Committee and the Administration should be moving to
    protect the ability of our seniors and people with disabilities to
    see their own doctor, and it should be noted that the committee last
    year failed when it had a chance, and all the hearings in the world
    will not hide that decision and its unfortunate consequences.
    	I thank the witnesses here today, and those who will be here
    on Thursday, for addressing these important issues, and I look
    forward to their testimony.
    	Thank you, Mr. Chairman.
    	MR. DEAL.  I thank the gentleman.  We now recognize the
    Chairman of the full committee, Mr. Barton, for an opening statement.
    	CHAIRMAN BARTON.  Thank you, Mr. Chairman, and thank you for
    holding this very important hearing.  I want to welcome our witnesses
    today.  I look forward to hearing from their perspectives on the
    issue of physician payment for providing Medicare services.
    	Last week, your subcommittee heard about the rapid growth in
    physician spending for imaging services and the concerns of many
    groups regarding Medicare's payment for those services.
    	Today, we are going to examine more broadly the current
    Medicare fee-for-service physician payment system.  We are going to
    hear from several payment policy experts about how the Federal
    government currently reimburses physicians for the Medicare services
    they provide, the trends in utilization of those services, the
    current problems associated with appropriate payment for the
    provision of those services, and the impact of how we reimburse
    physicians on beneficiary access to these services.
    	Medicare, as we all know, is the largest single purchaser
    of healthcare in the United States.  In 2004, the last year we have
    complete records for, Medicare spent $300 billion, which is 19
    percent of all the personal healthcare spending in this country.
    By itself, Medicare accounts for 3 percent of our national gross
    domestic product.  In the last 25 years, Medicare has grown more
    than ninefold, from $37 billion in 1980 to $336 billion in 2005.
    As the Baby Boomers begin to retire, the projected spending
    growth for Medicare is estimated to be 7 to 8 percent annually until
    2015.  This would be roughly two to three times the rate of growth
    in the economy and the rate of growth in inflation.
    	These numbers leave little room to doubt that there is a
    trend of tremendous growth in Medicare.  It is a big problem, but
    not all growth is bad.  Some of this growth is due to advances in
    medical technology, which is good.  We are doing a phenomenal job
    of keeping people alive today, and providing the best healthcare
    the world has to offer.  However, we must ensure that we can
    continue to offer this care for years to come.  Therefore, a
    discussion on how to better reimburse physicians for the cost of
    care they provide should also include an appropriate volume control
    and quality check on the provision of these services.
    	Since 1997, physician payments have been linked to something
    called SGR, sustainable growth rate.  Over the last several years,
    Congress has prevented negative updates in this system, pursuant to
    the SGR.  What we have done is, year after year, intervened with a
    short-term fix.  We did that last year.  While affording some
    relief, these fixes have not been achieved.  Last year, physicians
    faced a 4.4 percent cut.  We intervened and replaced the cut with a
    one year freeze.  This modest action, in budgetary terms, cost
    billions of dollars.  To provide just a 1 year freeze again this
    year will cost billions more.
    	I don't believe that we can continue this Band-Aid approach
    to fixing the recurring physician payment problem.  I don't think it
    is fair to the doctors who treat Medicare patients.  I don't think
    it is fair to Medicare patients to see their premiums rise each
    year.  I don't think it is fair to the taxpayers who see what we
    spend from the general fund go up year after year.
    	If at all possible, I think we need to fix the basic
    structure of the program for as long a term as possible.  I think
    we need to consider how to build a payment system that adequately
    reimburses physicians for the care they provide.  We need to account
    for the trend of rapid spending for physician services, particularly
    imaging.  We need to ensure that proper volume controls are in
    place.  In part two of this hearing, we are going to hear about
    quality measurements and pay-for-performance in physician
    payment.  The current Medicare system does not account for whether
    or not the services provided by a physician are appropriate.  The
    fact that Medicare reimburses a physician for services rendered,
    no questions asked, raises concerns with many people about overuse,
    underuse, and misuse.
    	I applaud Dr. McClellan's leadership and foresight with
    regards to his pay-for-performance initiative and quality
    measurement effort.  I am eager to hear from him about his efforts
    to date and to hear from the physician representatives about their
    collaboration with Dr. McClellan and his associates.  I want to hear
    from private payers and other people like that.
    	Mr. Deal, I want to thank you for holding this hearing.  I
    think it is very important.  I want to reiterate I think it is
    possible to fix the system and I think it is possible to fix it in
    this Congress, which means in the next 2 months.
    	Thank you for holding the hearing.
    	[The prepared statement of Hon. Joe Barton follows:]

    PREPARED STATEMENT OF THE HON. JOE BARTON, CHAIRMAN, COMMITTEE ON
    ENERGY AND COMMERCE

    Good morning.  I would like to welcome all of our witnesses here
    today.  I look forward to hearing your perspectives on the issue of
    physician payment for providing Medicare services.
    Last week, in this subcommittee, we heard about rapid growth in
    physician spending for imaging services and the concerns of many
    regarding Medicare's payment for those services.  Today we will
    have the chance to examine more broadly the current Medicare
    fee-for-service physician payment system.  We will hear from
    several payment policy experts today about how the federal
    government currently reimburses physicians for the Medicare
    services they provide, the trends in utilization of these services,
    the current problems associated with appropriate payment for the
    provision of these services, and the impact of how we reimburse
    physicians on beneficiary access to these services.
    Medicare is the largest single purchaser of health care in the
    United States.  In 2004, Medicare spending was roughly $300
    billion-19 percent of all the personal health care spending in
    this country.  Presently, Medicare spending accounts for 3 percent
    of the national GDP.
    In the last 25years, Medicare has grown more than nine-fold, from
    $37 billion in 1980 to $336 billion in 2005.  As the baby boomers
    begin to retire, the projected spending growth for Medicare is
    estimated to be 7 to 8 percent annually until 2015.
    These numbers leave little room to doubt that there is a trend of
    tremendous growth in the Medicare program.  That's a big budget
    problem, but not all growth is bad.  I hope some of it will be due
    to advances in medical technology.  We are simply doing a
    phenomenal job of keeping people alive and providing the best
    health care the world has to offer.
    However, we must ensure that we can continue to offer this care for
    years to come.  Therefore, any discussion on how to better
    reimburse physicians for the costs of the care they provide should
    also include a consideration of appropriate volume controls and
    quality checks on the provision of these services.
    Since 1997, with the passage of the Balanced Budget Act, physician
    payments have been linked to the Sustainable Growth Rate-the SGR.
    Over the last several years, Congress has prevented negative
    updates in physician payment pursuant to the SGR.  Year after year,
    Congress intervenes with short-term fixes.  While affording
    physicians some relief, however small, these fixes have not been
    cheap.  Last year, physicians faced a 4.4 per cent cut.  Congress
    again intervened and replaced the cut with a one-year freeze.
    This modest action cost billions of dollars.
    To provide just a one-year freeze again this year will cost billions
    more.  We simply cannot continue this Band-Aid approach to fixing
    this recurring physician payment problem. It is not fair to the
    doctors who treat Medicare patients; it is not fair to the patients
    who see their premiums rise each year; and it is not fair to the
    taxpayers who entrust us with their money.  We need to fix the
    basic structure of this program for as long a term as is possible.
    We need to consider how to build a payment system that
    appropriately reimburses physicians for the care they provide.  We
    need to account for the trend of rapid spending for physician
    services, particularly imaging, and we need to ensure that the
    proper volume controls are in place.  In part two of this hearing,
    we will hear about quality measurements and pay-for-performance in
    physician payment.  The current Medicare payment system does not
    account for whether or not the services provided by a physician
    are appropriate.  The fact that Medicare reimburses a physician
    for services rendered-no questions asked-raises concerns with many
    people, myself included, about overuse, underuse,  and misuse.
    I applaud Dr. McClellan's leadership and foresight with regards
    to his pay-for-performance and quality measurement efforts.  I am
    eager to hear from him about his efforts to date, and to hear from
    physician representatives about their collaboration with
    Dr. McClellan, private payors, and each other to develop
    appropriate quality measures.
    I want to thank Chairman Deal for calling this hearing, and
    reiterate my thanks to all the witnesses for coming today and
    Thursday.  I look forward to their testimony.

    	MR. DEAL.  I thank the gentleman.  Ms. Capps is recognized
    for an opening statement.
    	MS. CAPPS.  Thank you, Mr. Chairman, and thank you for
    holding this hearing.  It is an important one, as my colleagues have
    mentioned, and I appreciate the panel of witnesses we have before us.
    	We are one of the committees with oversight responsibility of
    the Medicare program, and thus, it is our responsibility to fix the
    physician reimbursement system.  Every year, however, we find
    ourselves in the same situation.  Because of a bad law that needs
    to be fixed systemically, physicians face significant cuts to their
    reimbursements, and Congress steps in at the last minute with a
    Band-Aid or two to save them temporarily.  Just this past year, we
    once again prevented another cut, but these short term Congressional
    fixes really don't address the heart of the problem.
    	We should be making real reforms that would adequately
    reimburse physicians for services they provide in a way that ensures
    the very best care for Medicare beneficiaries.  MedPAC and other
    leading nonpartisan experts have encouraged Congress to enact such
    fixes, and it is about time, I believe, that we follow their
    suggestions.
    	The first two changes I think we would all like to see are
    a replacement of the sustainable growth rate, the SGR, and an update
    to the geographic adjustment.  I am pleased that we are going to take
    the time to discuss the SGR today, but we need to take an opportunity
    to urge this committee, and I hope panelists might do that, to look
    at the geographic adjustment issue as well, because until we do that
    piece of it, we are not going to address this problem.  That is,
    the geographic adjustment is actually, after all, a huge factor in
    determining physician fees, and unfortunately, a huge barrier for
    physicians in many counties trying to run a practice.  I represent
    two of these counties, San Luis Obispo and Santa Barbara, that
    currently receive reimbursements much lower than the actual
    geographic cost factors for those counties.  In fact, there are
    175 counties in 32 states where physicians are paid 5 to 14 percent
    less than their Medicare assigned geographic cost factors, because
    they are assigned to inappropriate localities.
    	I hope my colleagues are taking notice, and I am going to
    repeat some of the statistics that my colleague, Anna Eshoo, gave,
    because several members of this subcommittee have such counties in
    their district, and this is just an indication of how pervasive it
    is.  Chairman Barton was just here, and I know he knows that in
    Ellis County, Texas, his physicians are receiving 7.5 percent less
    than the true cost of practicing medicine.  And my colleague already
    mentioned that Chairman Deal represents the poster child for this
    discrepancy, where physicians receive a staggering 12 percent less
    than the true cost of practicing medicine.  After a period of time,
    it is going to tell you something about the quality of medicine
    being practiced in that county.  Similarly, several of us,
    Mr. Norwood, Mr. Shimkus, Mr. Pickering, Ms. Myrick, Ms. Eshoo,
    Mr. Green, Ms. DeGette, Mr. Dingell all have counties where
    physicians are underpaid by over 5 percent.
    	Proposals have been put forward to correct the situation
    by moving those counties into localities that reflect the true
    geographic cost factors of those counties, but none of them have
    been acted upon.  I hear about this problem of underpayment
    constantly from physicians and patients as well in my district.
    Physicians leave the area because they can't afford to practice
    there, and with each physician who leaves, the number of patients
    who are left have to find new doctors, wait longer for
    appointments, travel further for their visits.
    	So, I hope today is truly a dialogue that can lead to
    some real solutions for the problems that plague our Medicare
    physician system.  And I yield back.
    	MR. DEAL.  I thank the gentlelady.  Mr. Bilirakis is
    recognized for an opening statement.
    	MR. BILIRAKIS.  Thank you very much, Mr. Chairman.
    	Mr. Chairman, as we know, it is imperative that we discuss
    ways to improve the Medicare physician payment system, and that we
    do the improvement soon.  I think it is time that we stop talking
    about it, and decide to do something about it.
    	Congress has specified a formula, again, as we know, known
    as the sustainable growth rate, SGR, to provide an annual update
    to the physician fee schedule.  The problem is that the SGR formula
    upon which the updates are based is irreparably flawed, principally
    because it fails to link payments to what it actually costs doctors
    to provide services to Medicare beneficiaries.  These and other
    shortcomings have precipitated cuts in reimbursement which threaten
    the access of Medicare beneficiaries to the critical care physicians
    provide.
    	I am pleased, of course, that the Deficit Reduction Act
    included provisions to stop this year's projected cuts, but we again
    find ourselves in the very familiar position of having to act in the
    waning days of a session to avoid potentially disastrous Medicare
    cuts next year.
    	Our colleague from Georgia, Mr. Norwood, has introduced
    legislation, which I have cosponsored, to stop future reimbursement
    cuts and guarantee that physicians would receive at least level
    payments until we can address this issue in a comprehensive manner.
     Dr. Burgess recently introduced a more comprehensive bill to
    address the problem, which we should study thoroughly, because
    these two Members speak from practical, real-world experience.
    The problem with providing temporary fixes, though they are much
    needed, and I have helped enact them previously, is that doing so
    adjusts future updates downward to make up for added program
    spending.  It is clear to me that Congress must design an update
    system which ensures that Medicare payments keep pace with the true
    costs, the true costs, again, I underline, of providing care, and
    rewards physicians who provide high quality care as cost effectively
    as possible.
    	I certainly support the goal of improving quality and
    avoiding unnecessary healthcare costs.  I supported including in the
    Medicare prescription drug law a pay-for-performance demonstration
    project, and again, I emphasize demonstration project, to study the
    feasibility of using technology and evidence-based outcome measures
    for improving care.
    	Dr. McClellan, who we will hear from on Thursday, has
    indicated that such projects may provide valuable information to
    help Congress determine whether performance measures can be crafted
    to create such a program.  I am unsure, however, whether reasonable
    pay-for-performance measures can be crafted in conjunction with this
    year's effort to stop planned provider cuts in Medicare.  I believe
    that we should proceed with caution in this area, seriously,
    Mr. Chairman, with great caution in this area, to ensure that we
    are not simply making more work for physicians without corresponding
    measurable increases in healthcare quality.
    	I look forward, as you know, to working with you and the
    others on a bipartisan basis, because it is going to take
    bipartisanship to design a more efficient payment system, and
    ensuring that the annual updates physicians receive for treating
    Medicare patients are sufficient to ensure that beneficiaries
    continue to have access to the high quality care they deserve.
    	Thank you for your consideration, Mr. Chairman.
    	MR. DEAL.  I thank the gentleman.  Mr. Allen is recognized
    for an opening statement.
    	MR. ALLEN.  Mr. Chairman, thank you for convening this
    hearing.
    	The Budget Reconciliation Law froze Medicare physician
    payments at 2005 rates, averting a scheduled 4.4 percent reduction in
    payments.  While this action maintained payment rates for this year,
    unless Congress fixes the current reimbursement formula, physicians
    can expect a 26 percent decline in payments over the next 6 years.
    By 2013, Medicare payment rates will be less than half of what they
    were in 1991, after adjusting for practice cost inflation.
    	We need to replace the current formula with one that more
    fully accounts for physicians' practice costs, new technology, and
    the age and health status of the patient population being served.
    Physicians are the only providers subject to the sustainable growth
    rate formula.  Every other provider in Medicare gets increased
    payments based on their increased costs.  Insufficient payment hurts
    rural States like Maine particularly hard, because they have a
    disproportionate share of elderly citizens, and patients have limited
    access to physicians, particularly specialists.
    	We have two challenges facing us today.  One, how to fix the
    problem of negative payment updates, and two, how to pay for it.
    The burden of fixing this payment formula should not fall on the
    shoulders of Medicare beneficiaries, whose Part B premium has
    increased almost $12 this year, to $78.20 a month.  Next year, it
    goes up a full $20, to $98.20 a month.  This increase comes at a
    time when many beneficiaries will be facing an increased financial
    burden if they fall into the doughnut hole gap in drug coverage.
    Moreover, savings must not be squeezed from providers through
    hastily designed pay-for-performance targets.
    	I hope that our panelists can help us to understand the
    flaws of the current payment system, and how to ensure that Medicare
    patients across the U.S. have access to their doctors, and with that,
    Mr. Chairman, I yield back.
    	MR. DEAL.  I thank the gentleman.  Mr. Shadegg is recognized
    for an opening statement.
    	MR. SHADEGG.  Thank you, Mr. Chairman, and I commend you for
    holding these hearings.
    	It seems to me that everyone in the room understands the
    current system is flawed.  I believe the current system is flawed
    almost by design, that is to say, we consistently, as a Congress,
    promise benefits to the American people, and then, when the tab
    comes due to pay for those benefits, we discover we do not have
    the cash available to do that, and so, rather than going out and
    getting the money to accomplish the task, we decide we should
    shortchange the providers.  That is an unacceptable system.  It
    is not a service to the public, and it is not a service to the
    medical community providing the services.
    	We owe an obligation to the American people, I believe,
    Mr. Chairman, when we promise a level of benefits, to pay for that
    level of benefits, and it is unrealistic and inappropriate to expect
    providers to continue to provide care that we promise at rates less
    than provide them a decent standard of living, or compensate them
    for the training they have received.
    	I understand that we are focused at the moment on a
    short-term solution, and I believe that it is very important that we
    do work out a short-term solution, but in the long run, Mr. Chairman,
    we need to redesign this system.  I believe the system is
    fundamentally flawed in its structure, wherein it does not
    compensate providers for the real cost of providing the services or
    pay them at appropriate levels for their services.  In the United
    States, we have what I think is unquestionably the best healthcare
    system in the world.  However, we are in danger of losing that, if we
    continue to provide payment to providers at below market rates, or
    below what rates they should be paid, given their training and their
    services to the country.
    	The latest buzzword in this whole debate, Mr. Chairman, is
    pay-for-performance.  I am a huge fan of the concept of pay-for-
    performance, and it sounds like a good idea.  Indeed, I believe
    everywhere in our society, we have established that when you pay
    people to perform, they perform better.  However, count me as a
    skeptic in pay-for-performance as currently proposed in the Medicare
    arena, and in this particular field, because I am afraid we are not
    going to establish pay-for-performance based on the performance
    delivered to the consumer, the patient, but rather,
    pay-for-performance measured by some government standard.
    	Again, disassociating the consumer from the payment, and
    measuring performance by some government-set standard, rather than
    by the accurate measure, that is, what the patient believes they
    received out of the care, will, I believe, set us once again on a
    track to distort what is the system.  At the end of the day, I
    believe it is very important to get consumers back into the process.
     If we measure pay-for-performance based on whether or not patients
    are happy with their outcome, then I think we have taken the system
    in the correct direction.  If we measure the system based on whether
    or not a government bureaucrat believes the physician met certain
    standards that the government bureaucrat set, I am not at all
    convinced we are aiding in the system.
    	I do believe this hearing is very, very important.  I
    believe it is critical that we stop shortchanging providers in the
    whole structure.  I believe we can create a better structure, and I
    believe we absolutely must at least provide an update for the
    current cycle, so that we do not continue to burden providers,
    essentially forcing them to provide services at below market rates,
    and cost shift to other consumers in the private.
    	Again, Mr. Chairman, I commend you for this hearing.  I did
    have a written statement, which I would like to put into the record,
    and with that, I yield back.
    	[The prepared statement of Hon. John Shadegg follows:]
    PREPARED STATEMENT OF THE HON. JOHN SHADEGG, A REPRESENTATIVE IN
    CONGRESS FROM THE STATE OF ARIZONA

    Mr. Chairman, thank you for holding this hearing. Everyone knows we
    have a serious problem to deal with. The current system of physician
    payment under Medicare is not sustainable, nor is it reasonable to
    expect physicians to take a 4.6 percent reduction in payments, which
    is what will happen in 2007 if we fail to act this year.  Moreover,
    failure to act now would result in a 5 percent reduction in payments
    in each year from 2008-2016 under current law.
    I think we need to look at this issue, not just to enact a temporary
    fix but instead with an eye toward more permanent reform.  It is
    evident that, over the last 20 years, the various standards to
    control physician payment under Medicare, volume performance
    standards, behavioral offsets, and sustainable growth rates simply
    have not worked. We need fundamental reform, but that will be
    "costly" under Congressional budget scores.
    The question is not how much we pay physicians this year, the
    question is how do we fairly compensate physicians for the work
    the government asks them to do? I think there is even a more
    fundamental question and that is: can the government go on promising
    a level of benefits and then, when they discover the cost of that
    level of benefits is higher than anticipated, push that burden,
    shove that gap between cost and what they are willing to pay off
    on the providers?
    I would suggest that, since the creation of this program, we have
    had that problem. Politicians have said well, we love to promise
    benefits to the public, tell them we will provide these services,
    outline vast expansive services and then when the bill comes home,
    they like to say, my gosh, I didn't realize it was going to cost
    that much, what can I do. I don't want to raise taxes so I will
    short change the providers. The effects of that in the short term
    and in the long term are extremely serious.
    I believe this reality demonstrates that government-run health care
    fundamentally doesn't work. I think it demonstrates that government
    planners don't know the answer, and I think it demonstrates that
    politicians that promise benefits and refuse to pay for them don't
    belong in office.
    I believe we need to pay physicians for the services they provide.
    But it seems to me that we are forever looking at one more
    government solution, one more government plan.
    The latest buzz phrase is "pay-for-performance." I remain skeptical
    about what this term implies.  I am skeptical about
    pay-for-performance because while we may think pay-for-performance
    sounds wonderful, I think we need to ask one more question: who is
    going to decide what level of performance we are going to pay for?
    And, in none of the plans presented is it the patient that is going
    to decide what performance they pay for.
    To the contrary, it will be a government bureaucrat who is going to
    layout a set of practices and tell the doctor; perform to this
    standard, and then we will pay you.
    If I wanted to get my health care from a government bureaucrat, I
    would go to a government bureaucrat for my health care, but I don't.
    I go to physicians whom I trust and whom I believe in, and I would
    rather pay them based on the quality of the care I believe they
    deliver.
    Mr. Chairman, I commend you for holding this hearing, however, I
    don't think we will ever fully resolve this issue until patients
    are in control of their health care dollars.  Only then will we
    have pay-for-performance.  I look forward to hearing from our
    distinguished panelist on this important topic.
    Mr. Chairman, I yield back my time.

    	MR. DEAL.  I thank the gentleman.  Without objection, it
    will be in the record.
    	Mr. Towns is recognized for an opening statement.
    	MR. TOWNS.  Thank you very much, Mr. Chairman, first for
    holding this hearing, and I would also like to welcome our witnesses
    here today.
    	The importance of this hearing cannot be overstated.  It is
    critical that we pay attention to how and what we pay our doctors
    under Medicare.  A large part of the challenge is that we have been
    sending the wrong messages and giving the wrong incentives to our
    doctors.  We want them to provide quality care, yet we pay them to
    see as many patients as possible as quickly as possible.  We then
    reward them for providing the most expensive procedures they can
    provide.
    	This emphasis, in my view, is wrong.  We should emphasize
    quality and effective care to extend the lives of our aging
    population.  It is clear we have gone down the wrong road.
    Beneficiaries have seen increases in their monthly payments without
    an increase in their quality of care.  Sometimes, seniors have
    already been priced out of the healthcare market.  There is something
    wrong here.  I hope today that we can look at quality of care issues,
    and include these in the mix of how we reward our physicians, which
    will make it possible to provide the right incentives for all
    concerned, lower the costs of providing care, and give the quality
    of care that our Medicare beneficiaries deserve.
    	Let me point out, Mr. Chairman, that cutting the pay of
    doctors is not the solution to the problem that we are facing.  I
    am hoping that we will take this information that we are going to
    receive, look at this matter in a very careful fashion, and come
    back in a very bipartisan way, and work out a solution to the
    problem.  I am really concerned that we are going to lose a lot of
    good and effective and committed physicians, because they want to
    feed their families, and will go into another area.
    	Thank you, Mr. Chairman, and I yield back on that note.
    	MR. DEAL.  I thank the gentleman, and recognize Mr. Pickering
    for an opening statement.
    	MR. PICKERING.  Mr. Chairman, I thank you for this hearing,
    and I hope it sets the groundwork for action on these critical issues
    in the near future.
    	I do want to join with other colleagues who have talked about
    the need to make sure that we get right our physician payment system,
    and that we find a way to reform it in a way that will be sustainable
    over the long term.  As we look at performance, I want to make sure
    that we enhance performance, to get away from the bureaucratic
    compliance models, and go toward incentive-based outcome, a result
    oriented system that will give the physicians and the healthcare
    providers the flexibility and the freedom to do their job in the
    best way that they see fit, to give better healthcare.  And I hope
    that we can move away from the past and the old models, and find a
    new way to incent good care, quality care, and better performance.
    	I look forward to hearing the testimony today, and I thank
    you for all your work in bringing us to this point, and I hope that
    we can see action in the very near future on these critical issues.
    	Thank you, Mr. Chairman.
    	MR. DEAL.  Thank you.  Mr. Pitts is recognized for an
    opening statement.  Mr. Pitts waives.  Mr. Rogers?
    	MR. ROGERS.  I waive.
    	MR. DEAL.  All right.  I believe we have covered all members
    for opening statements.
    	[Additional statements submitted for the record follow:]

    PREPARED STATEMENT OF THE HON. FRED UPTON, A REPRESENTATIVE IN
    CONGRESS FROM THE STATE OF MICHIGAN

    	Mr. Chairman, thank you for convening today's hearing to
    explore options for reforming the Medicare physician fee schedule to
    ensure it accurately reflects the cost of providing high-quality,
    efficient care.  Reform will be a daunting undertaking. There are no
    easy or cheap fixes to the current complex and unpredictable system
    that will get us to where we need to be-a system that accurately
    reimburses for the cost of quality care efficiently and prudently
    provided. But we cannot let things just roll along as they are,
    continuing to subject physicians to year-to-year uncertainly over
    whether or not their reimbursement will be significantly reduced and
    limiting their ability to provide care for their current Medicare
    patients and accept the onrush of new beneficiaries that will join
    the rolls as the Baby Boom retires.
    Carefully crafted reform is particularly needed to preserving access
    to care for Michigan's Medicare beneficiaries. With 13.2 physicians
    per thousand Medicare beneficiaries, Michigan is below the national
    average, and that ratio is going to get worse.  Further, about 33
    percent of today's Michigan physicians are over 55 and approaching
    retirement.
    According to a recently released study of Michigan's physician
    workforce, Michigan will see a shortage of specialists beginning in
    2006 and a shortage of 900 physicians overall in 2010, rising to
    2,400 in 2015 and 4,500 in 2020.  Cuts in Medicare reimbursement
    will only exacerbate these shortages and seriously undermine access
    to care in our state.
    Since coming to Congress in 1987, one of my top priorities has been
    strengthening access to health care for all Americans, and
    particularly for our senior citizens and persons with disabilities.
    I look forward to working with you and my colleagues on both sides
    of the aisle to develop a stable, predictable physician reimbursement
    system that links reimbursement to the true cost of care and the
    prudent delivery of quality care.

    PREPARED STATEMENT OF THE HON. SHERROD BROWN, A REPRESENTATIVE IN
    CONGRESS FROM THE STATE OF OHIO

    	It is my pleasure now to introduce our witnesses.
    	MS. ESHOO.  Mr. Chairman.  Mr. Chairman, I am sorry to
    interrupt.  There were two pieces of paper that I wanted, or
    information that I wanted to include in the record, one from the
    California CMA, and another, a letter from the California bipartisan
    delegation relative to Medicare physician payments, for the record.
     I ask unanimous consent.
    	MR. DEAL.  Without objection.
    	[The information follows:]

    	MS. ESHOO.  Thank you, Mr. Chairman.
    	MR. DEAL.  We are pleased to have Donald B. Marron, who is
    the Acting Director of the Congressional Budget Office; Mr. A. Bruce
    Steinwald, who is the Director of Health Care of the Government
    Accountability Office; Mr. Mark Miller, who is the Executive
    Director of the Medicare Payment Advisory Commission; and Mr. Stuart
    Guterman, who is the Senior Program Director of the Program on
    Medicare's Future of the Commonwealth Fund.
    	Gentlemen, you are our first panel.  Your written testimony
    has been made a part of the record, and we would ask in your 5
    minutes if you would summarize your testimony.  We will proceed to
    questions following the completion of the testimony of the entire
    panel.
    	Mr. Marron, we are pleased to have you start.

    STATEMENTS OF DONALD B. MARRON, ACTING DIRECTOR, CONGRESSIONAL
    BUDGET OFFICE; A. BRUCE STEINWALD, DIRECTOR, HEALTH CARE,
    GOVERNMENT ACCOUNTABILITY OFFICE; MARK E. MILLER, EXECUTIVE
    DIRECTOR, MEDICARE PAYMENT ADVISORY COMMISSION; AND STUART GUTERMAN,
    SENIOR PROGRAM DIRECTOR, PROGRAM ON MEDICARE'S FUTURE, THE
    COMMONWEALTH FUND

    MR. MARRON.  Thank you, Mr. Chairman, members of the subcommittee.
    It is a pleasure to be here today to discuss Medicare's physician
    payment rates, and in particular, the sustainable growth rate
    mechanism.
    	As you know, Medicare spending is projected to grow rapidly
    in coming years.  Because of rising healthcare costs and the aging
    of the Baby Boomers, Medicare is projected to take up an increasing
    share of the Federal budget and of the overall economy.  The task of
    setting physician payment rates thus raises challenging issues of
    balancing increasing fiscal pressures, on the one hand, with the
    goal of ensuring beneficiaries adequate access to care on the other.
    	The SGR is the most recent of a series of efforts to control
    spending on physician services in Medicare.  As you know, the SGR
    attempts to limit spending by setting target amounts for both annual
    spending and cumulative spending, and then adjusts payment rates
    over time to bring spending into line with those targets.  Recent
    spending on physician services has significantly exceeded those
    targets.  In 2005, for example, expenditures were more than $94
    billion, about $14 billion more than the $80 billion target for
    that year.  At the end of 2005, total spending on physician services
    had exceeded the cumulative SGR target by about $30 billion, and
    that figure is growing rapidly.  Bringing spending back into line
    with the SGR targets would thus require significant reductions in
    physician fees.  Indeed, the SGR calls for sizable reductions in
    payment rates, 4 to 5 percent per year, for at least the next 5
    years.
    	As this hearing demonstrates, however, there is significant
    debate about whether those payment reductions will actually come to
    pass.  Recent history suggests that it would not be surprising if
    policymakers stepped in to override the SGR payment update.  CBO
    has estimated the Federal budget impacts of a variety of proposals
    to change the way that physician fees are determined.  The appendix
    to my written testimony reports estimates for a variety of possible
    changes, each of which would increase physician payments relative
    to current law, at least in the near term.
    	Such increases have three main budget impacts.  First and
    most obvious, increased fees result in higher physician payments in
    the near term.  The longer term impact depends on whether the SGR
    would recoup these increases by cutting fees in the future.
    Second, higher physician spending implies higher receipts from
    beneficiary premiums.  Those receipts reduce the budgetary impact
    of raising physician fees.  Third, the changes in physician payments
    also affect payments made for Medicare Advantage plans.  CBO's
    budget estimates take all of these effects into account.
    	Now, let me just go through quickly three possible options
    and the budgetary impacts of them.  One option would be to override
    the SGR for a single year, as has happened in recent years.  For
    example, Congress could specify that physician payment rates would
    increase 1 percent in 2007, rather than being cut, as required by
    current law.  This change would increase physician payments in the
    next few years, but it would not change the underlying SGR targets.
     The additional spending would thus eventually be recouped by the
    SGR mechanism in later years.  Of course, this implies that payment
    rates in those future years would be lower than scheduled under
    current law.  CBO estimates that this option would increase Federal
    outlays by about $13 billion over the 5 year budget window.  The
    cost over a 10-year budget window, however, would be only $6
    billion, because future payment cuts under the SGR would recoup the
    extra costs.  Of course, there is some question whether that
    recoupment would actually happen.
    	A second approach would be to override the payment update
    for a single year, and in addition, raise the target levels of
    spending, so that the update would not be recouped.  This could be
    done, for example, by specifying that the update is a change in law
    for purposes in calculating the SGR targets.  CBO estimates that
    this approach would cost $13 billion over 5 years, the same as the
    first option.  These costs are the same, because under current law,
    no new recoupment could begin until after the 5 year budget window.
    In the absence of recoupment, costs would continue to grow in
    subsequent years, so that over a 10 year budget window, this option
    would cost significantly more, at $31 billion.
    	A third approach would be to eliminate the SGR entirely, and
    replace it with annual updates based on inflation, as measured by
    the Medicare Economic Index.  Instead of being reduced by 4 to 5
    percent annually for the next several years, payment rates would
    increase between 2 and 3 percent annually, CBO estimates.  Those
    updates would not be subject to further adjustments, and spending
    increases would not be recouped.  CBO estimates that this approach
    would increase net Federal outlays by $58 billion over the next 5
    years and by $218 billion over 10 years.
    	Thank you.  I look forward to any questions.
    	[The prepared statement of Donald B. Marron follows:]

    PREPARED STATEMENT OF DONALD B. MARRON, ACTING DIRECTOR,
    CONGRESSIONAL BUDGET OFFICE

    	MR. DEAL.  Thank you.  Mr. Steinwald.
    	MR. STEINWALD.  Thank you, Mr. Chairman, members of the
    subcommittee.
    	MR. DEAL.  Pull the microphone closer, and make sure it is
    on.
    	MR. STEINWALD.  I will.  Is that all right?
    	MR. DEAL.  Yes.

    MR. STEINWALD.  Thank you for inviting me here today to participate
    in your discussion of how to build a more efficient and effective
    Medicare payment system.  Given the fiscal crisis facing the Medicare
    program, I commend you for undertaking this difficult challenge.
    	I would like to begin my remarks with a brief look at the
    trends that have led us to the situation we face today.  With all
    the negative publicity that SGR has received, it may be worth
    remembering why we have it in the first place.  First slide.
    	[Slide]
    	The slide before you shows the annual trends in physician
    service spending per Medicare beneficiary, beginning in the 1980s,
    due to increases in the volume and intensity of services received.
    Volume refers to the number of services, and intensity to the
    complexity or expensiveness of those services.  During the 1980s,
    efforts made by the Congress to limit physician spending increases
    were largely unsuccessful, and Medicare spending per beneficiary on
    physician services increased rapidly.  Next slide.
    	[Slide]
    	OBRA in 1989 created a national fee schedule and a system of
    spending targets, which together first affected physician fees in
    1992, and from 1992 through 1999, volume and intensity growth was
    moderated, and as a result, spending on physician services grew much
    more slowly than in the '80s.  During this period, the Balanced
    Budget Act put into place the SGR system, which was first used to
    adjust fees in 1999.  Next slide.  No, previous slide, please.
    	[Slide]
    	Beginning in 2000, physician spending per beneficiary began
    trending upward again.  The increases over the 2000 to 2005 period
    were more than the SGR formula permits, triggering the system's
    automatic response to reduce fees in order to bring spending on
    physician services in line with the system's spending targets.  Next
    slide.
    	[Slide]
    	Now, let us look at the fee updates under the SGR system,
    from 2001 through 2005.  Through 2001, the system produced positive
    updates, generally in excess of inflation in the cost of running a
    medical practice.  However, in 2002, because of the rising trends
    in volume and intensity of services, the SGR system called for a fee
    decrease of 4.8 percent.  Further fee cuts in subsequent years were
    averted by Congressional action.  Not shown on the chart is the fee
    freeze in 2006.  Next slide.
    	[Slide]
    	Now, I have added the trend in physician spending per
    Medicare beneficiary next to the fee updates.  As you can see, while
    physician fees rose only a cumulative 4.5 percent over this period,
    physician spending per beneficiary rose 44 percent.  The beneficiary
    increase suggests that, despite the low fee updates, there had been
    no deterioration in access to physician services.  In fact, GAO has
    just issued a study that examines beneficiary access over this time
    period.  The next slide provides some highlights from that study.
    	We found that the proportion of beneficiaries who received
    services from a physician over the period, grew 9 percent, and for
    treated beneficiaries the number of services also grew, in this
    case, 14 percent.  The amounts were lower in rural areas, but the
    trend was virtually identical.  Our study also showed that the
    intensity increases were as important a contributor to spending
    increases as these trends in volume, and by way of example, when
    more comprehensive office visits replace routine office visits,
    that is an intensity increase.  When CAT scans replace X-rays, that
    is also an intensity increase.  Next slide.
    	[Slide]
    	Finally, our study found that over this time period, the
    number of physicians billing Medicare rose 11 percent.  This
    increase exceeded the rise in the number of Medicare beneficiaries
    over the same period, which was about 8 percent.
    	In conclusion, Mr. Chairman, let me say I appreciate the
    difficulty of the dual problem you face with respect to Medicare
    physician payment.  As you know, the SGR system will require fee
    cuts of about 5 percent per year for multiple years, beginning in
    2007.  Although we haven't seen a problem to date, successive years
    of fee cuts could undermine beneficiary access to physician
    services.
    	As many have suggested, Congress could repeal SGR, and hope
    that pay-for-performance and related initiatives could have their
    desired effect, and spending will be moderated as it was during
    the '90s.  Alternatively, spending controls different from SGR
    could be imposed.
    	But the recent spending trends are alarming, Mr. Chairman,
    and if left unchecked, could compromise the Medicare program's
    ability to serve its beneficiaries in the future.
    	We look forward to working with the subcommittee and with
    other Members of Congress as policymakers seek to find ways to
    moderate spending growth while ensuring appropriate physician
    payments.
    	Mr. Chairman, this concludes my remarks.  I would be happy
    to answer your questions, or those of the other subcommittee members.
    	[The prepared statement of A. Bruce Steinwald follows:]

    PREPARED STATEMENT OF A. BRUCE STEINWALD, DIRECTOR, HEALTH CARE,
    GOVERNMENT ACCOUNTABILITY OFFICE

    	MR. DEAL.  Thank you.  Mr. Miller, you are recognized.
    MR. MILLER.  Chairman Deal, Congressman Pallone, distinguished
    members of the subcommittee.  The Medicare Payment Advisory
    Commission advises Congress on a range of Medicare issues, and in
    so doing, tries to balance three objectives:  that beneficiaries
    get access to high quality care, that the program pay the efficient
    provider fairly, and that the greatest value is delivered to the
    taxpayer.
    	We see several issues with Medicare's current payment
    system.  Medicare physician expenditures, as you have already
    heard, are growing rapidly at annual rates between 8 and 12 percent
    in recent years.  This results in higher out-of-pocket costs for
    beneficiaries, and higher Part B premiums for beneficiaries.  Part B
    premium increases have been as high as 13 and 17 percent in the last
    few years.  For the taxpayer and for future Medicare beneficiaries,
    this raises questions about the long-run sustainability of the
    Medicare program, and obviously, increases pressure on the Federal
    budget.
    	The volume of services provided has also been increasing as
    well.  Over the last few years, it has accounted for at least half
    of the growth in the expenditures, and often more.  This rapid
    growth in service volume has no clear linkage to quality of care.
    Recent research by the RAND Group found that the elderly receive
    about half of recommended care.  Service volume also varies
    substantially across the country, and again, there is no clear
    linkage to quality of care.  Rather, it appears to be more closely
    linked to supply of physicians, the number of specialists, and
    practice styles of individual physicians.
    	Unfortunately, there is nothing in Medicare's payment
    systems that rewards higher quality.  Physicians are dissatisfied
    with the current payment system, because under current law volume
    controls they are slated to receive 4 and 5 percent negative updates
    for the next several years.  While beneficiary access to physician
    services is good, several years of negative updates will obviously
    make physicians less willing to serve Medicare beneficiaries.
    	MedPAC does not support the SGR.  We have recommended that
    it be eliminated, because it does not truly control volume, it is
    unfair to those physicians who do provide high quality care and
    are parsimonious in the use of their resources, and it treats all
    services, whether necessary or unnecessary, the same.
    	Each year, MedPAC evaluates what is needed for the
    physician payment update, and in so doing, considers a range of
    factors, such as the number of physicians serving Medicare
    beneficiaries, whether increase in practice costs are consistent
    with the increases for an efficient provider, and what rate is
    necessary to assure beneficiary access.  I would like to be clear
    that MedPAC's analysis does not have to result in a full MEI
    update.
    	We recognize that Congress must ultimately decide that
    expenditures are appropriate, and we view MedPAC's work as one
    input to that process.  We also recognize that Congress may wish
    to retain some budget mechanism linked to volume growth, and to
    that end, Congress has asked MedPAC to report in March of '07 on
    alternative mechanisms for the SGR.  We are currently doing that
    work.
    	However, over the last few years, MedPAC has made several
    recommendations designed to improve value in the Medicare program,
    and by value, I mean getting more for the dollars that are
    currently being spent.  One direction is for Medicare to
    differentiate among providers on the basis of their performance.
    For example, we have made recommendations for hospitals, physicians,
    HMOs, to link a small percentage of current payments, and
    redistribute it to the providers with the highest quality scores,
    or with the greatest increase in their quality scores.
    	MedPAC has also recommended that physician resource use be
    measured and fed back to physicians to allow them to assess their
    performance relative to that of their peers.  Over the longer run,
    and with additional experience, the Commission is considering the
    idea of reimbursing more to those providers who produce the highest
    quality of care with the fewest resources.
    	I won't go through it.  Last week, you had a hearing on
    imaging, so I won't go back through what was found there, but
    suffice it to say that we have made recommendations to set
    accreditation standards for those people who provide Medicare
    imaging services, and recommended coding edits to restrain
    unnecessary volume.
    	The Commission's work is also focused on improving the
    accuracy of the physician fee schedule.  We think that if prices
    are not set properly, that can also send signals that result in
    volume growth.  We have raised questions about some of the
    technical assumptions in the fee schedule related to imaging
    services.  We have recommended new policies to assure that certain
    physician services are not assigned inappropriately high values,
    and we have pointed out the need to systematically collect new
    practice expense data in order to properly calibrate the fee
    schedule.
    	All of these ideas involve significantly more administrative
    effort on the part of CMS, and in each instance, we have asked
    Congress to assure that CMS has the necessary resources to
    implement these ideas, if Congress chooses to go forward.
    	Thank you.  I look forward to your questions.
    	[The prepared statement of Mark Miller follows:]

    PREPARED STATEMENT OF MARK MILLER, EXECUTIVE DIRECTOR, MEDICARE
    PAYMENT ADVISORY COMMISSION

    Chairman Deal, Ranking Member Brown, distinguished Subcommittee
    members. I am Mark Miller, executive director of the Medicare
    Payment Advisory Commission (MedPAC). I appreciate the opportunity
    to be here with you this morning to discuss payments for physician
    services in the Medicare program.
    Medicare expenditures for physician services are growing rapidly.
    In 2005 spending on physician services increased 8.5 percent, while
    the number of beneficiaries in FFS Medicare increased only 0.3
    percent. Medicare expenditures for physician services are the
    product of the number of services provided, the type of service,
    and the price per unit of service. The number of services is often
    referred to as service volume, the type of services as intensity.
    For example, substituting an MRI for an X-ray would be an increase
    in intensity. To get good value for the Medicare program, the
    payment system should set the relative prices for services
    accurately. Providing incentives to control unnecessary growth in
    volume and intensity would be desirable, but it is much more
    difficult. (For simplicity, in the remainder of this testimony we
    will use the term volume as shorthand for the combined effect of
    volume and intensity.)
    In this testimony we briefly outline the history of the Medicare
    physician payment system and discuss several ideas for getting
    better value in the Medicare program including differentiating
    among providers through pay for performance and measuring physician
    resource use, better managing imaging services, and improving the
    internal accuracy of the physician fee schedule.

    Historical concerns about physician payment
    Physicians are the gatekeepers of the health care system; they order
    tests, imaging studies, surgery, and drugs as well as provide patient
    care. Yet the payment system for physicians is fee for individual
    service; it does not reward coordination of care or high quality-by
    definition it rewards high volume. Several attempts have been made
    to address this tendency to increase volume and payments.
    The Congress established the fee schedule that sets Medicare's
    payments for physician services as part of the Omnibus Budget
    Reconciliation Act of 1989 (OBRA 89). As a replacement for the
    so-called customary, prevailing, and reasonable (CPR) payment
    method that existed previously, it was designed to achieve several
    goals. First, the fee schedule decoupled Medicare's payment rates
    and physicians' charges for services. This was intended to end an
    inflationary bias in the CPR method that gave physicians an
    incentive to raise their charges.
    Second, the fee schedule corrected distortions in payments that had
    developed under the CPR method-payments were lower, relative to
    resource costs, for evaluation and management services but higher
    for surgeries and procedures and there was wide variation in payment
    rates by geographic area that could not be explained by differences
    in practice costs. (As we discuss later, there is evidence that
    relative prices in the fee schedule may have once again become
    distorted.)
    The third element of OBRA 89 focused on volume control, which is
    still a significant issue for the Medicare program. Rapid and
    continued volume growth raises three concerns: Is some of the growth
    related to provision of unnecessary services? Is it a result, at
    least in part, of mispricing? Will it make the program unaffordable
    for beneficiaries and the nation?
    Some volume growth may be desirable. For example, growth arising
    from technology that produces meaningful improvements in care to
    patients, or growth where there is currently underutilization of
    services, may be beneficial. But one indicator that not all services
    provided may be necessary is the range of geographic variation in
    the volume of services provided, coupled with the finding that there
    is no clear relationship between increased volume of services and
    better patient outcomes.
    Volume varies across geographic areas. As detailed in our June 2003
    Report to the Congress, the variation is widest for certain
    services,  including imaging, tests, and other procedures.
    Researchers at Dartmouth have reached several conclusions about
    such variation:
     Differences in volume among geographic areas is primarily due to
    greater use of discretionary services (e.g., imaging and diagnostic
    tests) that are sensitive to the supply of physicians and hospital
    resources, and less due to differences in the volume of
    non-discretionary services such as major procedures.
      On measures of quality, care is often no better in areas with high
    volume than in areas with lower volume. The high-volume areas tend
    to have a physician workforce composed of relatively high proportions
    of specialists and lower proportions of generalists.

    The Dartmouth researchers focus on variation in the level of volume.
    Growth in volume also varies among broad categories of services:
    Cumulative growth in volume per beneficiary ranged from about 19
    percent for evaluation and management to almost 62 percent for
    imaging, based on our analysis of data comparing 2004 with 1999
    (Figure 1), and growth rates were higher for services which
    researchers have characterized as discretionary.
    Impact on beneficiaries-For beneficiaries, increases in volume lead
    to higher out-of-pocket costs in the form of coinsurance, the
    Medicare Part B premium, and any premiums they pay for supplemental
    coverage. For example, volume growth increases the monthly Part B
    premium. Because it is determined by average Part B spending for
    aged beneficiaries, an increase in the volume of services affects
    the premium directly. From 1999 to 2002 the premium went up by an
    average of 5.8 percent per year. By contrast, cost-of-living
    increases for Social Security benefits averaged only 2.5 percent
    per year during that period. Since 2002 the Part B premium has gone
    up faster still-by 8.7 percent in 2003, 13.5 percent in 2004, 17.4
    percent in 2005, 13.2 percent in 2006, and a projected 11.2 percent
    in 2007. Beneficiaries also pay coinsurance of 20 percent for most
    Part B services and supplemental insurance premiums will eventually
    reflect higher volumes of coinsurance.
    Impact on taxpayers- Volume growth also has implications for
    taxpayers and the federal budget. Increases in volume lead to higher
    Medicare Part B program expenditures that are supported by the
    general revenues of the Treasury. (The Medicare Prescription Drug,
    Improvement, and Modernization Act of 2003 (MMA) established a
    trigger for legislative action if general revenues exceed 45 percent
    of total outlays for the Medicare program.) Medicare is growing
    faster than the nation's output of goods and services, as discussed
    in the Medicare trustees' report, and will continue to put pressure
    on the federal budget, raising questions about the long run
    sustainability of Medicare.

    Note:		E&M (evaluation and management).
    Source:	MedPAC analysis of Medicare claims data.

    OBRA 89 established a formula based on achievement of an expenditure
    target-the volume performance standard (VPS). This approach to
    payment updates was a response to rapid growth in Medicare spending
    for physician services driven by growth in the volume of those
    services. From 1980 through 1989, annual growth in spending per
    beneficiary, adjusted for inflation, ranged widely, from a low of
    1.3 percent to a high of 15.2 percent. The average annual growth
    rate was 8.0 percent.
    The VPS was designed to give physicians a collective incentive to
    control the volume of services. But, experience with the VPS
    formula showed that it had several methodological flaws that
    prevented it from operating as intended. Those problems prompted
    the Congress to replace it with the sustainable growth rate system
    in the Balanced Budget Act of 1997.

    The sustainable growth rate (SGR) system
    Under the SGR, the expenditure target allows growth for factors that
    should affect growth in spending on physician services namely:
     inflation in physicians' practice costs,
     changes in enrollment in fee-for-service Medicare, and
     changes in spending due to law and regulation.

    The SGR also has an allowance for growth above those factors based
    on growth in real gross domestic product (GDP) per capita. GDP, the
    measure of goods and services produced in the United States, is used
    as a benchmark of how much additional growth in volume society can
    afford. The basic SGR mechanism only lowers the update when
    cumulative actual spending exceeds target spending.
    Like the VPS, the SGR approach has run into difficulties. The SGR
    formula is based on a cumulative spending target. If actual
    spending exceeds the SGR system's allowance for growth, excess
    spending continues to accumulate until it is recouped by reduced
    updates. The SGR system calculated negative updates beginning in
    2002. In 2002 the update was negative 5.4 percent. However, from
    2003 on, legislative actions modified or overrode the negative
    updates calculated by the SGR system, resulting in fee increases
    in 2003 (1.6 percent), 2004 (1.5 percent), and 2005 (1.5 percent)
    and in flat fees for 2006. Volume has continued to grow strongly
    throughout this period. Figure 2 shows that Medicare spending for
    physician services has been growing rapidly despite the restraint
    on fee increases since 2002. The conversion factor in 2006 is the
    same as in 2001, yet spending is 49 percent higher. This rapid
    growth has created an ever-larger gap between target and actual
    spending. CMS estimates that by the end of 2006, actual spending
    will exceed allowed spending by more than $47 billion. To work off
    this excess, according to the Medicare trustees, the SGR will call
    for annual updates of about negative five percent (the largest
    allowed under the system) for nine consecutive years. The trustees
    have characterized this series of updates as "unrealistically low.
    " In terms of budget scoring, these projections make legislative
    alternatives to the SGR very expensive.

    Note:	FFS (fee-for-service). Dollars are Medicare spending only
    and do not include beneficiary coinsurance. For 2006, the Deficit
    Reduction Act froze the fee schedule's conversion factor, but
    refinements in relative value units resulted in a small increase
    in payment rates.
    Source:	2006 annual report of the Boards of Trustees of the
    Medicare trust funds.

    The SGR approach has other flaws as well:
     It is a flawed volume control mechanism. Because it is a national
    target, there is no incentive for individual physicians to control
    volume.
     It is inequitable because it treats all physicians and regions of
    the country alike regardless of their individual volume-influencing
    behavior.
     It treats all volume increases the same, whether they are desirable
    or not.

    The underlying assumption of an expenditure target approach, such as
    the SGR, is that increasing updates if overall volume is controlled,
    and decreasing updates if overall volume is not controlled, provides
    physicians a collective incentive to control the volume of services.
    However, physicians do not respond to nationwide incentives.
    An efficient physician who reduces volume does not realize a
    proportional increase in payments. In fact, such a physician stands
    to lose twice, receiving lower income from both lower volume and the
    nationwide cut in fees. Not surprisingly, there is evidence that in
    such circumstances physicians have increased volume in response to
    fee cuts.
    MedPAC has consistently raised concerns about the SGR-both when it
    set updates above and when it set updates below the change in input
    prices. Instead of relying on a formula, MedPAC recommends that
    updates should be considered each year to ensure that payments for
    physician services are adequate to maintain Medicare beneficiaries'
    access to care.
    The Commission recognizes the desire for some control over rapid
    increases in volume particularly given the evidence that higher
    volume is not always associated with better quality. Volume growth
    must be addressed by determining its root causes and designing
    focused policy solutions. A formula such as the SGR that attempts
    to control volume through global payment changes that treat all
    services and physicians alike will produce inequitable results for
    physicians.

    Improving value
    We recommend a series of steps to improve payment for physician
    services. They will not, by themselves, solve the problem of rapidly
    growing expenditures for physician services. However, they are
    important steps that will improve quality for beneficiaries and lay
    the groundwork for obtaining better value in the Medicare program.
    MedPAC recommends the following steps, which we discuss in more
    detail below:
     A year-to-year evaluation of payment adequacy to determine the
    update.
     Approaches that would allow Medicare to differentiate among
    providers when making payments as a way to improve the quality of
    care. Currently, Medicare pays providers the same regardless of
    their quality or use of resources-Medicare should pay more to
    physicians with higher quality performance and less to those with
    lower quality performance.
     Measuring physicians' use of Medicare resources when serving
    beneficiaries and providing information about practice patterns
    confidentially to physicians.
     With regard to imaging, a rapidly growing sector of physician
    services, ensuring that providers who perform imaging studies and
    physicians who interpret them meet quality standards as a condition
    of Medicare payment.
     Ensuring that the physician fee schedule sets the relative price of
    services accurately.

    A different approach to updating payments
    In our March 2002 report we recommended that the Congress replace
    the SGR system for calculating an annual update with one that
    balances a range of factors. A new system should update payments
    for physician services based on an analysis of payment adequacy,
    which would include the estimated change in input prices for the
    coming year, less an adjustment for growth in multifactor
    productivity. Updates would not be automatic (required in statute)
    but be informed by changes in beneficiaries' access to physician
    services, the quality of services being provided, the appropriateness
    of cost increases, and other factors, similar to those MedPAC takes
    into account when considering updates for other Medicare payment
    systems. Furthermore, the reality is that in any given year the
    Congress might need to exercise budget restraints and MedPAC's
    analysis would serve as one input to Congress's decision making
    process.
    For example, we used this approach in our recommendation on the
    physician payment update in our March 2006 Report to the Congress.
    Our assessment was that Medicare beneficiaries' access to physician
    care, the supply of physicians, and the ratio of private payment
    rates to Medicare payment rates for physician services, were all
    stable. Surveys on beneficiary access to physicians continue to
    show that the large majority of beneficiaries are able to obtain
    physician care and nearly all physicians are willing to serve
    Medicare beneficiaries. In August and September of 2005, for
    example, we found that among beneficiaries seeking an appointment
    for illness or injury with their doctor, 83 percent reported they
    never experienced a delay. This rate was higher than the 75 percent
    reported for privately insured people age 50 to 64.
    A large national survey found that among office-based physicians who
    commonly saw Medicare patients, 94 percent were accepting new
    Medicare patients in 2004. We have also found that the number of
    physicians furnishing services to Medicare beneficiaries has kept
    pace with the growth in the beneficiary population, and the volume
    of physician services used by Medicare beneficiaries is still
    increasing. CMS has found that two subpopulations of beneficiaries
    more likely to report problems finding new physicians are those who
    recently moved to a new area and those who state that they are in
    poor health.  The Center for Studying Health Systems Change has
    found that rates of reported access problems by market area are
    generally similar for Medicare beneficiaries and privately insured
    individuals.  This finding suggests that when some beneficiaries
    report difficulty accessing physicians, their problems may not be
    attributable solely to Medicare payment levels, but rather to other
    factors such as population growth.

    Differentiating among providers
    In our reports to the Congress we have made several recommendations
    that taken together will help improve the value of Medicare
    physician services. Our basic approach is to differentiate among
    physicians and pay those who provide high quality services more,
    and pay those who do not less. As a first step, we make
    recommendations concerning:  pay for performance and information
    technology (IT), and measuring physician resource use.

    Pay for performance and information technology
    Medicare uses a variety of strategies to improve quality for
    beneficiaries including the quality improvement organization (QIO)
    program and demonstration projects, such as the physician group
    practice demonstration, aimed at tying payment to quality. In
    addition, CMS has announced a voluntary quality reporting
    initiative for physicians. MedPAC supports these efforts and
    believes that CMS, along with its accreditor and provider partners,
    has acted as an important catalyst in creating the ability to
    measure and improve quality nationally. These CMS programs
    provide a foundation for initiatives tying payment to quality and
    encouraging the diffusion of information technology.
    However, other than in demonstrations, Medicare, the largest single
    payer in the system, still pays its health care providers without
    differentiating on quality. Providers who improve quality are not
    rewarded for their efforts. In fact, Medicare often pays more when
    poor care results in unnecessary complications.
    To begin to create incentives for higher quality providers, we
    recommend that the Congress adopt budget neutral pay-for-performance
    programs, starting with a small share of payment and increasing over
    time. For physicians, this would initially include use of a set of
    measures related to the use and functions of IT, and next a broader
    set of process measures.
    The first set of measures should describe evidence-based quality-
    or safety-enhancing functions performed with the help of IT. Some
    suggest that Medicare could reward IT adoption alone. However, not
    all IT applications have the same capabilities and owning a product
    does not necessarily translate into using it or guarantee the
    desired outcome of improving quality. Functions might include, for
    example, tracking patients with diabetes and sending them reminders
    about preventive services. This approach focuses the incentive on
    quality-improving activities, rather than on the tool used. The
    performance payment may also increase the return on practices' IT
    investments.
    Process measures for physicians, such as monitoring and maintaining
    glucose levels for diabetics, should be added to the
    pay-for-performance program as they become more widely available
    from administrative data. Using administrative data minimizes the
    burden on physicians. We recommend improving the administrative data
    available for assessing physician quality by combining clinical
    laboratory values with prescription data and physician claims to
    provide a more complete picture of patient care. As clinical use of
    IT becomes more widespread, even more measures could become
    available.

    Measuring physician resource use
    For Medicare beneficiaries living in regions of the country where
    physicians and hospitals deliver many more health care services
    there is no clear relationship with better quality of care or
    outcomes. Moreover, they do not report greater satisfaction with
    care than beneficiaries living in other regions. This finding, and
    others by researchers such as Wennberg and Fisher, are provocative.
    They suggest that the nation could spend less on health care,
    without sacrificing quality, if physicians whose practice styles
    are more resource intensive moderated the intensity of their
    practice.
    MedPAC recommends that Medicare measure physicians' resource use
    over time, and feed back the results to physicians. Physicians
    could then start to assess their practice styles, and evaluate
    whether they tend to use more resources than their peers. Moreover,
    when physicians are able to use this information with information
    on their quality of care, it will provide a foundation for them to
    improve the efficiency of the care they and others provide to
    beneficiaries. Once greater experience and confidence in this
    information is gained, Medicare might begin to use the results in
    payment, for example as a component of a pay-for-performance program.
    In our June 2006 Report to the Congress we discuss early results
    from using episode groupers to measure Medicare resource use. An
    episode grouper links all the care a beneficiary receives that is
    related to a particular spell of illness or episode.

    Managing the use of imaging services
    The last several years have seen rapid growth in the volume of
    diagnostic imaging services when compared to other services paid
    under Medicare's physician fee schedule. In addition some imaging
    services have grown even more rapidly than the average (Figure 3).
    To the extent that this increase has been driven by technological
    innovations that have improved physicians' ability to diagnose and
    treat disease, it may be beneficial. However, other factors driving
    volume increases could include: possible misalignment of fee
    schedule payment rates and costs, physicians' interest in
    supplementing their professional fees with revenues from ancillary
    services, patients' desire to receive diagnostic tests in more
    convenient settings, and defensive medicine.
    There is an ongoing migration of imaging services from hospitals,
    where institutional standards govern the performance and
    interpretation of studies, to physician offices, where there is
    less quality oversight. In addition, according to published studies
    and private plans, some imaging services are of low quality.
    Therefore, we recommended that Medicare develop quality standards
    for all providers that receive payment for performing and
    interpreting imaging studies. These standards should improve the
    accuracy of diagnostic tests and reduce the need to repeat studies,
    thus enhancing quality of care and helping to control spending.
      In addition to setting quality standards for facilities and
    physicians, we recommended that CMS:
      measure physicians' use of imaging services so that physicians
    can compare their practice patterns with those of their peers,
     expand and improve Medicare's coding edits for imaging studies
    and pay less for multiple imaging studies performed on contiguous
    parts of the body during the same visit, and
     strengthen the rules that restrict physician investment in imaging
    centers to which they refer patients.

    CMS adopted some of these recommendations in the 2006 final rule for
    physician payment by prohibiting physician investment in nuclear
    medicine facilities to which they refer patients and reducing
    payments for multiple imaging studies performed in the same
    session on contiguous parts of the body. The Congress (as part of
    the Deficit Reduction Act) also adopted our recommendation to
    reduce payments for multiple imaging services.  (Please see our
    July 18 testimony to this Committee for a fuller discussion of
    managing the use of imaging services.)

    Note:	MRI (magnetic resonance imaging), CT (computed tomography),
    cath (cardiac catheterization).
    Source:	MedPAC analysis of Medicare claims data.

    Improving the physician fee schedule
    As progress is made on the steps discussed above, it is also
    important to assure that the relative rates for physician services
    are correct. Medicare pays for physicians' services through the
    physician fee schedule. The fee schedule sets prices for over 7,000
    different services and physicians are paid each time they deliver a
    service. It is important to get the prices right because otherwise,
    Medicare would pay too much for some services and therefore not
    spend taxpayers' and beneficiaries' money wisely. In addition,
    inaccurate rates can distort the market for physician services.
    Services that are overvalued may be overprovided. Services that
    are undervalued may prompt providers to increase volume in order
    to maintain their overall level of payment or opt not to furnish
    services at all, which can threaten access to care.  Over time,
    whole groups of services may be undervalued, making certain
    specialties more financially attractive to new physicians than
    others, potentially affecting the supply of physicians.
    The Commission is examining several issues internal to the physician
    fee schedule that could be causing the fee schedule to misvalue
    relative prices.
    In our March 2006 Report to the Congress we examined the system for
    reviewing the relative value units (RVUs) for physician work which
    determine much of the fee schedule prices. Changes to the review
    process are necessary because it does not do a good job of
    identifying services that may be overvalued. The Commission
    recommended improvements that will help reduce the number of
    physician fee schedule services that are misvalued, thereby making
    payment more accurate. We recommended that the Secretary establish
    a standing panel of experts to help CMS identify overvalued services
    and to review recommendations from the American Medical Association's
    relative value scale update committee (RUC), and that the Congress
    and the Secretary ensure that this panel has the resources it needs
    to collect data and develop evidence. In consultation with this
    expert panel, the Secretary should initiate reviews for services
    that have experienced substantial changes in factors that may
    indicate changes in physician work, and identify new services
    likely to experience reductions in value. Those latter services
    should be referred to the RUC and reviewed in a time period as
    specified by the Secretary. Finally, to ensure the validity of the
    physician fee schedule, the Secretary should review all services
    periodically.
    In our June 2006 Report to the Congress we reviewed the data sources
    that CMS uses to derive practice expense payments-another important
    determinant of pricing accuracy in the physician fee schedule. One
    source, a multispecialty survey on the costs of operating
    physicians' practices, dates from the 1990s. Several specialties
    have submitted more recent data, but updating the physician fee
    schedule using newer data from some but not all specialties may
    introduce significant distortions in relative practice expense
    payments across specialties. We recognize that collecting and
    updating practice cost data will substantially increase demands
    on CMS. However, because it will improve the accuracy of Medicare's
    payments and achieve better value for Medicare spending, the
    Congress should provide CMS with the financial resources and
    administrative flexibility to undertake the effort.
    We are also concerned about the accuracy of Medicare's payment
    rates for imaging studies. In a recent proposed rule, CMS proposed
    basing payments for the technical component of imaging services on
    resource use (these rates are currently based primarily on
    historical charges). These resources include clinical staff,
    medical equipment, and supplies. Equipment is a large share of the
    cost of many imaging services, such as MRI and CT. CMS's estimate
    of the cost of imaging equipment per use may be too high. The agency
    assumes that imaging machines (and all other types of equipment) are
    used 50 percent of the time a practice is open for business. We
    surveyed imaging providers in six markets and found they were using
    MRI and CT machines much more frequently, which should lead to lower
    costs per use. In addition, CMS assumes that providers pay an
    interest rate of 11 percent per year when purchasing equipment, but
    more recent data suggest that a lower interest rate may be more
    appropriate (a lower interest rate would reduce the estimated cost
    of equipment). CMS should revisit the assumptions it uses to price
    imaging equipment.

    Creating new incentives in the physician payment system
    MedPAC has consistently raised concerns about the SGR as a volume
    control mechanism and recommended its elimination. We believe that
    the other changes discussed previously-pay for performance,
    encouraging use of IT, measuring resource use, setting quality
    standards for imaging services, and improving payment accuracy-can
    help Medicare beneficiaries receive high-quality, appropriate
    services and help improve the value of the program. Although the
    Commission's preference is to directly target policy solutions to
    the source of inappropriate volume increases, we recognize that the
    Congress may wish to retain some budget mechanism linked to volume.
    An ideal volume control mechanism would overcome the incentive under
    fee-for-service to increase volume and instead create incentives
    for physicians to practice in ways that improve care coordination
    and quality while prudently husbanding Medicare resources. The
    Congress has tasked the Commission to evaluate several alternative
    volume control mechanisms including differing levels of application
    such as group practice, hospital medical staff, type of service,
    geographic areas, and outliers. We will report on these alternatives
    in March 2007.

    	MR. DEAL.  Thank you.  Mr. Guterman.
    MR. GUTERMAN.  Thank you, Chairman Deal, Congressman Pallone, and
    members of the committee, for the opportunity to discuss Medicare
    physician payment with you today.
    	As all of the member statements and the previous statements
    on this panel indicate, Congress is facing a challenging dilemma in
    considering how much to pay physicians.  The problem arises from the
    fact that the Sustainable Growth Rate mechanism offers no control
    over the volume and intensity provided by the individual physician.
    	There appears to be no relationship between the physician
    fee update in any given year and the rate of increase in physician
    spending.  Between 1997 and 2001, according to the letter that was
    sent from CMS to MedPAC detailing their plans for physician fee
    updates, fees increased at a rate of 3.4 percent a year, and
    spending per beneficiary increased at a rate of 7.4 percent a year.
     Between 2001 and 2005, fees decreased at a rate of 0.7 percent a
    year, and spending per beneficiary rose at the same rate of 7.4
    percent a year that it had in the previous 5 years.
    	Increasing physician spending puts more burden on Medicare
     beneficiaries, especially the most vulnerable ones by raising the
    Part B premium and the deductible.  In 2006, the Part B premium
    increased in double digits for the third consecutive year, and by
    2015, CMS actuaries project it will raise to $122.40.  Almost 40
    percent higher than its current level, which is almost 9 percent
    of the average Social Security check.
    	However, it might be necessary to avoid the kinds of steep
    cuts that physicians are facing in the future that have been
    referred to by the previous speakers, to protect beneficiaries'
    access to care.  Even though, as GAO reports, there doesn't seem
    to be a problem at present.  However, regardless of what we pay
    physicians, we need to get more for our money.  Quality and
    coordination in care are lacking in the system, both absolutely
    and in comparison to other countries.  There is a lot at stake,
    both in terms of beneficiaries' health and Medicare spending.
    	Life expectancy at age 65 in the U.S. is worse than any
    other OECD countries.  Adult patients, as referred to before,
    receive only about half of recommended care.  Medical error rates
    are high.  Communications are poor between doctors and patients,
    and among the multiple doctors who treat a growing chronically ill
    population in Medicare.  The continuity of care is lacking.
    	About 20 percent of Medicare beneficiaries have five or
    more chronic conditions, and they account for two-thirds of
    Medicare spending each year.  That is about $300 billion on the
    table in 2007, to treat these people with very complicated
    conditions and high health needs.  We could hardly do worse than
    we are doing now in addressing the needs of this population, and
    that affects both beneficiaries' health and Medicare spending.
    	There is wide variation around the country in Medicare
    spending per beneficiary.  When spending and quality in any measure
    are compared across areas, there does not seem to be any apparent
    relationship between those two factors.
    	Current pay-for-performance initiatives show promise for
    improving quality, but the designs of those systems and the best
    ways to implement them will require careful thought and analysis.
    I support the tendency in Congress to avoid the use of
    pay-for-performance as a term and to focus on value-based
    purchasing.  Pay-for-performance makes it seem like we are grading
    doctors and downgrading them for poor care.  Value-based purchasing
    puts the emphasis on buying the services that help beneficiaries
    achieve better care, and doesn't put the implication out there that
    physicians are poor performers by nature.
    	There are almost 100 quality improvement initiatives with
    financial incentives currently underway, and some have begun to
    show promising results, and we need to track those initiatives
    carefully, and we need to evaluate what works and what doesn't,
    and when it works and when it doesn't.  Medicare has a number of
    these initiatives underway and others in development.  These
    initiatives should be encouraged and given a chance to feed into
    policy changes on an ongoing basis.  That doesn't mean waiting
    until we have the perfect system, but it means using what we know
    now, tomorrow, and the next day to continually improve healthcare
    quality.
    	Financial incentives need to focus on aligning what we pay
    with what we want from our healthcare providers.  I believe
    providers generally want to provide good care for their patients,
    but they need a financing system that pays for best practices,
    encouragement in adopting those practices, and a quality improvement
    oriented environment in which to apply them.  Not punishing doctors,
    but making payment consistent with the care that they would like to
    provide for their patient.  I think the goal should not be to ask
    them to do more, but ask them to do more of what helps patients.
    Both costs and quality need to be considered together, rather than
    separately.  Efficiency improvements should be encouraged and
    rewarded.
    	I think there are lots of ways we can accomplish these
    goals, and I would be glad to talk more about them in the question
    and answer period.  Thank you.
    	[The prepared statement of Stuart Guterman follows:]

    PREPARED STATEMENT OF STUART GUTERMAN, SENIOR PROGRAM DIRECTOR,
    PROGRAM ON MEDICARE'S FUTURE, THE COMMONWEALTH FUND

    Summary of Major Points

    The Congress faces a challenging dilemma in considering how much to
    pay physicians, arising from the fact that the Sustainable Growth
    Rate (SGR) mechanism offers no control over the volume and intensity
    provided by the individual physician.
    Increasing physician payments would put more burden on Medicare
    beneficiaries-especially the most vulnerable ones-by raising the
    Part B premium.  It may be necessary to raise fees in the future to
    protect beneficiaries' access to care, however, although that
    doesn't seem to be a problem at present.
    Regardless of what we pay physicians, we need to pay more attention
    to what we get for our money-quality and coordination of care are
    lacking, both absolutely and in comparison to other countries.
    Current pay-for-performance initiatives show promise for improving
    quality, but the designs of those systems and the best ways to
    implement them will require careful thought and analysis.
    Both cost and quality need to be considered-but together rather
    than separately; efficiency improvements (which consider both
    quality and cost) should be encouraged and rewarded.
    Cost and quality should be evaluated on a broader basis than
    individual services or providers, to encourage better performance
    and coordination across health care settings and for the whole
    person.
    Potential improvements in payment policy should be evaluated for
    their long-run impact, and not necessarily discarded based on
    short-term resource requirements or lack of immediate impact.
    Other tools, in addition to payments, are available to improve
    performance, such as information collection and dissemination,
    securing better cooperation and coordination among providers,
    and the provision of support to providers to enhance their ability
    to improve, such as through Medicare's Quality Improvement
    Organizations.
    In addition to serving an important role in providing access to care
    for aged and disabled beneficiaries, Medicare can be a useful and
    important platform for developing and implementing improvements in
    the performance of the health care system.
    Sufficient resources should be devoted to research on best
    practices, development and application of quality standards, and
    the development of other knowledge and tools to improve the
    performance of the health care system, for Medicare and all
    Americans.

    Thank you, Chairman Deal, Congressman Brown, and Members of the
    Committee, for this invitation to testify on Medicare physician
    payment.  I am Stuart Guterman, Senior Program Director for the
    Program on Medicare's Future at the Commonwealth Fund.  The
    Commonwealth Fund is a private foundation that aims to promote
    a high performing health care system that achieves better access,
    improved quality, and greater efficiency, particularly for
    society's most vulnerable, including low-income people, the
    uninsured, minority Americans, young children, and elderly adults.
    The Fund carries out this mandate by supporting independent
    research on health care issues and making grants to improve health
    care practice and policy.
    The Congress faces a challenging dilemma in considering how much
    to pay physicians: on the one hand, Medicare spending is rising at
    a rate that threatens the program's continued ability to fulfill its
    mission; on the other, the sustainable growth rate (SGR) mechanism,
    which is intended to address that problem, produces annual reductions
    in physician fees that are equally difficult to accept.  This dilemma
    arises from the underlying mismatch between the primary cause of
    rising spending, which is the volume and intensity of services
    provided by physicians, and the focus of the SGR, which is to set
    the fees that physicians receive for each service they provide.
    Because the SGR offers no control over the volume and intensity
    provided by the individual physician-and, in fact, may create an
    incentive to increase volume and intensity to offset reductions in
    fees-it does not address the underlying cause of physician spending
    growth.
    Determining how much to pay physicians certainly is an important
    issue, but of at least equal importance is determining how to pay
    physicians so that the Medicare program gets the best care possible
    for its beneficiaries.  While the payment amount may have an effect
    on beneficiaries' access to physician services, the payment
    mechanism (as well as other tools) can be used to make sure that
    the quality and appropriateness of medical care is maximized, so
    that beneficiaries' health status is enhanced and the Medicare
    program gets the most for the money it spends.  In fact, there is
    evidence that, at least given the current state of the health care
    system, improved quality and reduced cost may both be achievable, and
    we can, at least in a relative sense, have our cake and eat it, too.
    In this testimony, I will first discuss Medicare physician payment
    and some issues related to the SGR mechanism and the problems that
    it fails to address.  I then will discuss the imperative for
    Medicare to become a better purchaser of health care, rather than
    remaining a payer for health services, and suggest some areas on
    which initiatives in this direction should focus.  Finally, I will
    briefly discuss some of the promising initiatives that currently are
    underway, and offer some opinions as to how they might be used to
    improve the Medicare program and the health care system in general.

    Why Physicians Are Different Than Medicare's Other Service Providers
    Physicians are unique among Medicare providers in being subject to
    an aggregate spending adjustment.  By contrast, most Medicare
    services now are paid through prospective payment systems that set
    a price for a bundle of services.  In these systems, the provider is
    free to make decisions about the volume of services provided to the
    patient, but the payment for the bundle is fixed.
    Physicians are unique in their role in determining the volume of
    services they can provide.  Physicians are the gatekeepers and
    managers of the health care system; they direct and influence the
    type and amount of care their patients receive.  Physicians, for
    example, can order laboratory tests, radiological procedures, and
    surgery.
    Moreover, the units of service for which physicians are paid under
    the Medicare are frequently very small.  The physician therefore may
    receive payment for an office visit and separate payment for
    individual services such as administering tests and interpreting
    x-rays-all of which can be provided in a single visit.  Contrast
    this with the hospital, which receives payment for each discharge,
    with no extra payment for additional services or days (except for
    extremely costly cases).
    Further, once a physician's practice is established, the marginal
    costs of providing more services are primarily those associated
    with the physician's time.  That means that any estimates of the
    actual cost of providing physician services are extremely
    malleable, because they are largely dependent on how the physician's
    time is valued.  Even at that, there is no routinely available and
    auditable source of data on costs for individual physicians or even
    practices, such as there is for hospitals via the Medicare Cost
    Report.
    Attempts to Control Spending by Adjusting for Volume
    In an attempt to control total spending for physicians' services
    driven by volume, the Congress in the Omnibus Budget Reconciliation
    Act of 1989 established a mechanism that set physician fees for
    each service and tied the annual update of those fees to the trend
    in total spending for physicians' services relative to a target.
    Under that approach, physician fees were to be updated annually to
    reflect increases in physicians' costs for providing care and
    adjusted by a factor that reflected the volume of services provided
    per beneficiary.  The introduction of expenditure targets to the
    update formula in 1992 initiated a new approach to physician
    payments.  Known as the volume performance standard (VPS), this
    approach provided a mechanism for adjusting fees to try to keep
    total physician spending on target.
    The method for applying the VPS was fairly straightforward but it
    led to updates that were unstable.  Under the VPS approach, the
    expenditure target was based on the historical trend in volume.
    Any excess spending relative to the target triggered a reduction
    in the update two years later.  But the VPS system depended heavily
    on the historical volume trend, and the decline in that trend in
    the mid-1990s led to large increases in Medicare's fees for
    physicians' services.  The Congress attempted to offset the
    budgetary effects of those increases by making successively larger
    cuts in fees, which further destabilized the update mechanism.
    That volatility led the Congress to modify the VPS in the Balanced
    Budget Act of 1997, replacing it with the sustainable growth rate
    mechanism in place today.
    Like the VPS, the SGR method uses a target to adjust future payment
    rates and to control growth in Medicare's total expenditures for
    physicians' services.  In contrast to the VPS, however, the target
    under the SGR mechanism is tied to growth in real
    (inflation-adjusted) gross domestic product (GDP) per capita-a
    measure of growth in the resources per person that society has
    available.  Moreover, unlike the VPS, the SGR adjusts physician
    payments by a factor that reflects cumulative spending relative to
    the target.
    Policymakers saw the SGR approach as having the advantages of
    objectivity and stability in comparison with the VPS.  From a
    budgetary standpoint, the SGR method, like the VPS, is effective
    in limiting total payments to physicians over time.  GDP growth
    provides an objective benchmark; moreover, changes in GDP from year
    to year have been considerably more stable (and generally smaller)
    than changes in the volume of physicians' services.

    Problems with the Current Approach
    A key argument for switching from the VPS approach to the SGR
    mechanism was that over time, the VPS would produce inherently
    volatile updates. But updates under the SGR method have proven to
    be volatile as well.  Through 2001, that volatility was to the
    benefit of physicians-overall, the increase in fees in the first
    three years during which the SGR method was in place was more than
    70 percent higher than the MEI over the same period.
    The pattern since then has been considerably different.  In 2002,
    Medicare physician fees declined for the first time, by 3.8 percent
    (Figure 1).  Notably, however, physician expenditures per
    beneficiary increased-although at the lowest rate in four years.
    In succeeding years, the Congress has wrestled with a succession
    of negative updates produced by the SGR formula that they enacted.
     In the Medicare Modernization Act, they froze physician fees for
    two years beginning in 2004 (which actually was an increase relative
    to the reductions called for by the SGR formula)-but physician
    expenditures per beneficiary continued to rise.  In fact, while
    physician fees actually fell over the period between 2001 and 2005,
    physician expenditures per beneficiary actually rose at the same
    rate as in the previous four years (Figure 2).

    Impact on Beneficiaries
    Decisions about how much to pay physicians under Medicare affect the
    program's beneficiaries in two ways: rising spending for physicians'
    services mean higher Part B premiums, which exacerbates the
    financial burden they face, particularly among the more vulnerable
    groups with low incomes, fragile health, disabilities, or chronic
    illnesses; on the other hand, rates that are too low may affect
    access to needed physician care, either because physicians will
    refuse to treat new Medicare patients (or stop treating any
    Medicare patients at all) or because they will refuse to take the
    Medicare payment rates as payment in full for their services, which
    could mean that the beneficiary is responsible for some additional
    payment to the physician.
    Medicare Part B, which covers physician, outpatient hospital, and
    other ambulatory services, is voluntary (although the Medicare
    beneficiary is automatically enrolled in most cases unless he/she
    indicates a desire to "opt out") and requires payment of a monthly
    premium (generally deducted from the beneficiary's Social Security
    check), which currently is $88.50, or almost nine percent of the
    average Social Security check.1  Because the premium is set so that
    it covers 25 percent of projected Part B costs, every increase in
    physician payments has a proportional effect on the Part B premium.
    In 2006, the Part B premium increased by more than 10 percent for
    the third consecutive year, causing concern among beneficiaries and
    their advocates.2  Overall, the Part B premium has increased from
    $43.80 in 1998 to $88.50 in 2006-at an annual rate of more than
    nine percent (Figure 3); by 2015, it is projected to rise to
    $122.40-climbing at a much slower rate than in the past few years,
    but still almost 40 percent higher than its current level.3
    The potential impact on Medicare beneficiaries-particularly those
    who are most vulnerable because of low incomes or other economic or
    health-related factors-can put further financial pressure on those
    who can least withstand it.  Medicare beneficiaries tend to be
    particularly vulnerable to the financial pressures of health care
    costs: 78 percent of the Medicare aged are in fair or poor health
    or have a chronic condition or disability (compared with 31 percent
    of the population under 65 with employer coverage) and 46 percent
    of them have incomes below 200 percent of the federal poverty level
    (compared with 21 percent of the younger population with employer
    coverage) (Figure 4).  In fact, these twin problems of low income
    and poor health-two-thirds of beneficiaries have one or the other
    of these problems-are the major reason that Medicare was enacted
    in the first place.
    Even typical aged beneficiaries had out-of-pocket costs that were
    more than 20 percent of their incomes on average (Figure 5).  That
    burden was projected to rise to almost 30 percent by 2025-although
    that number may be somewhat reduced by the availability of
    prescription drug coverage under Medicare Part D.  Beneficiaries
    with physical or cognitive health problems and no other health
    insurance were paying 44 percent of their incomes on average for
    their health care costs out of their own pockets, with that burden
    projected to grow to more than 60 percent by 2025-although again,
    the availability of Medicare Part D may reduce that number somewhat,
    beneficiaries in that category clearly are in a precarious position.
    Access to physicians does not seem to be a problem-at least, so
    far.  Telephone surveys conducted for the Medicare Payment Advisory
    Commission (MedPAC) indicate that 74 percent of beneficiaries never
    had a delay in getting an appointment for routine care, and 83 percent
    had the same response in cases of illness or injury (Figure 6); these
    percentages were about the same as in the previous two years-and
    somewhat higher than for people who were privately insured.
    Similarly, the vast majority of beneficiaries reported no problems
    finding a new physician-either primary care or specialist-with the
    numbers being about the same across years and source of insurance
    coverage.
    MedPAC also reports that, although Medicare physician payments
    overall are only 83 percent of the rates paid by private insurers
    in 2004, that ratio has been fairly stable over the past five years
    and, if anything, has increased slightly.4  Moreover, 99 percent of
    allowed charges for physician services were assigned in 2002, which
    means that essentially all physicians accept the Medicare payment
    rates as full payment for their services.5
    Nonetheless, given the cuts scheduled in every year from 2007
    through 2011, MedPAC concludes that: "We are concerned that such
    consecutive annual cuts would threaten access to physician services
    over time, particularly primary care services."6  In addition, they
    state that: "The Commission considers the SGR formula a flawed,
    inequitable mechanism for volume control and plans to examine
    alternative approaches to it in the coming year."7
    The Congress will need to evaluate these alternatives in light of
    three potentially conflicting concerns: the desire to control the
    growth of Medicare spending, the desire to provide a fair rate of
    payment to physicians and preserve access for Medicare
    beneficiaries, and the desire to keep the financial burden on the
    most vulnerable beneficiaries from becoming worse.

    What Are We Getting for Our Money?
    Regardless of the ultimate decision as to how much to pay physicians
    under Medicare, there is a basic issue that needs to be addressed
    for the good of the Medicare program, its beneficiaries, and the
    rest of the health care system.  It is by now well-known that adult
    patients in the U.S. receive only 55 percent of recommended care
    overall, with even lower proportions for patients with some
    conditions-such as hip fracture, with only 23 percent (Figure 7).
    This poor performance is particularly striking given the fact that
    the U.S. devotes 16 percent of its GDP to health services-by far,
    the highest in the world.8,9
    Not surprisingly, the poor performance of the health care sector in
    general has implications for Medicare.  Life expectancy at age 65
    in the U.S. is among the lowest in the industrialized countries
    (Figure 8).
    This general poor performance is the product of many specific
    aspects of the way health care is structured and provided in the
    U.S. that need improvement.  The complexity and fragmentation of
    our health care system, specialization of physicians, intensive use
    of medications, and poor coordination of care make health care in
    the U.S. more costly and less safe.  The Commonwealth Fund has found
    that 34 percent of patients in the U.S. surveyed in 2005 reported a
    medical mistake, medication error, or test error in the past two
    years, compared with 22 percent in the United Kingdom (the lowest
    rate among the survey countries) and 30 percent in Canada (the next
    highest rate) (Figure 9).
    Interpersonal aspects of health care also are lacking: 35 percent
    of community-dwelling adults age 65 and older reported that health
    providers did not always listen carefully to them, 41 percent
    reported that health providers did not always explain things clearly
    (Figure 10).  In addition, 31 percent of sicker adults in the U.S.
    surveyed in 2002 reported that they had left a doctor's office in
    the past two years without getting important questions answered,
    compared with 19 percent in the U.K. (Figure 11).
    Coordination is an important dimension of health care delivery, with
    a rising proportion of the population-especially seniors-having
    multiple chronic conditions and correspondingly being treated by
    multiple doctors.  More than 20 percent of Medicare beneficiaries
    have five or more chronic conditions, and they are treated by an
    average of almost 14 different doctors in a given year.10  In our
    current payment system, there is nothing to encourage physicians
    to communicate with each other about patients they may have in
    common.  Although there have been some efforts to change this,
    fee-for-service Medicare is still largely based on the acute
    care model, in which a patient becomes ill and is treated by a
    doctor in the office or in the hospital until the discrete episode
    is over and the patient can resume his/her normal life.11  Moreover,
    until recently, there were substantial barriers to the
    appropriate coordination of care even in the Medicare+Choice
    program.12
    Difficulties in care coordination are evident around the world,
    but nowhere as much as in the U.S.: 33 percent of adults with health
    problems reported that in the past two years a doctor had ordered
    tests for them that had already been done or that test results or
    records were not available to their doctor at the time of their
    appointment, compared with 19 percent in the U.K. and Australia
    (the lowest proportions) and 26 percent in Germany (the highest
    next to the U.S.) (Figure 12).  Although most U.S. adults
    (84 percent) with health problems reported having a regular doctor,
    only half of them had been with that doctor for five years or more
    (Figure 13).
    The number of doctors treating a patient, not surprisingly, is
    correlated with coordination problems: In the U.S., 22 percent of
    patients with one doctor had experienced at least one of these
    problems, while 43 percent of patients with four or more doctors
    had experienced those problems-almost twice as many (Figure 14).
    This pattern held in all of the countries in which the survey was
    conducted.
    Addressing the lack of care coordination in the U.S. is not just a
    quality issue-as I mentioned before, about 20 percent of Medicare
    beneficiaries have five or more chronic conditions, but this group
    also accounts for two-thirds of Medicare spending each year
    (Figure 15).  That means that about $300 billion is going to be
    spent for this group of people next year, and the evidence is that
    it could be spent much more productively than it is being spent
    now.13

    The Role of Health Information Technology
    One factor that is commonly pointed to as a tool for improving both
    the quality and coordination of care is health information
    technology.  It is also widely recognized that the diffusion of
    health information technology across the health care sector has
    been much slower than would be desired: researchers at RAND found
    that only 20 to 25 percent of hospitals across the country have
    adopted electronic medical records (EMRs), while EMRs were in use
    in only 15 to 20 percent of physicians' offices.14  In fact, the
    use of electronic technology in physicians' offices is fairly
    common, but that technology may have many applications that fall
    short of the comprehensive quality-enhancing EMR that proponents of
    health information technology envision.  In a 2003 survey of
    physicians, the Commonwealth Fund found that almost 80 percent of
    all physicians used electronic billing in their offices, and almost
    60 percent used health information technology for access to test
    results (Figure 16).  Only 27 percent used the technology for
    electronic ordering, however, and about the same proportion had
    electronic medical records.
    In most instances, larger practices make more use of health
    information technology.  In 2004 and 2005, the Commonwealth Fund
    supported a study of solo and small group practices, to investigate
    the business case for technology adoption in those settings; that
    study found that adopting, installing, and using electronic health
    records could be substantial (Figure 17).  In addition to the
    initial costs, which averaged almost $44,000 per provider, there
    were ongoing costs of almost $8,500 per provider per year.  There
    were also substantial financial benefits, and the average practice
    recouped its costs in about two and a half years.
    It is important here to note that the financial benefits of
    adoption which averaged about $33,000 per provider per year, came
    from two main sources:  increased efficiency, which accounted for
    almost $16,000 per provider per year; and increased coding levels,
    which accounted for almost $17,000 per provider per year
    (Figure 18).  It is also noteworthy that of the 14 practices in
    the study, only two reported any quality performance rewards, and
    they were nominal.  Some quality improvement activities were
    implemented at almost all of the practices, but these varied in
    focus and intensity.15

    Can We Get More for What We Spend?
    The Dartmouth Atlas has produced a chart that is by now well-known,
    which shows the wide variation in Medicare spending per beneficiary
    among different areas in the U.S. (Figure 19).  In 1996, the 20
    percent of areas with the highest spending were about 60 percent
    higher than their counterparts at the low end; by 2000, that ratio
    had not changed much, and it is the same today (as of 2003).  In
    fact, these numbers conceal the tremendous amount of variation in
    spending across individual regions: in 2003, spending in Miami,
    Florida-the area with the highest Medicare spending per
    beneficiary-was more than two and a half times that in Salem,
    Oregon-the area with the lowest spending.
    Similar variation in spending was found in data recently analyzed
    by the Commonwealth Fund on Medicare spending for beneficiaries with
    all three of the following conditions: diabetes, chronic obstructive
    pulmonary disease, and congestive heart failure.  Using the same
    area definitions used by the Dartmouth Atlas, we found that median
    spending per patient across all areas was almost $30,000, but the
    variation across areas ranged from less than $15,000 to almost
    $80,000 (Figure 20).  Those costs then were compared to a composite
    measure of several indicators of quality of care that are relevant
    to the three study conditions; this comparison indicates that there
    is no obvious correlation between cost and quality across areas-some
    areas with high quality scores had low costs, and some had high
    costs; in addition, some areas with high costs had
    lower-than-average quality scores.
    While the quality measures represented in the previous figure are
    process measures-that is, measures that represent what doctors
    do-the same relationship appears to hold between spending and
    outcomes-that is, what happens to beneficiaries.  Data from the
    Dartmouth Atlas show that Medicare beneficiaries in states with
    higher Medicare spending per beneficiary do not appear to have lower
    overall mortality rates than in states with lower spending
    (Figure 21).
    Remember that these data are aggregated at the area level, while the
    decisions that determine both cost and quality are made by
    individual providers; they should not be taken as an indication
    that costs can be easily be reduced at an aggregate level without
    harming quality or access to care, or that even quality improvements
    that save money in the long run may not cost more in the short run.
    But they do indicate that there appear to be patterns in how health
    care decisions are made that are not necessarily driven by factors
    that improve quality, and that we should be able to figure out how
    to use our resources more effectively to provide higher quality care
    at the same or even lower costs than we currently face.

    Do Efforts to Improve Quality Work?
    One of the underlying problems with our health care financing
    mechanism is that we generally pay providers for providing more
    care and more intensive care, but not necessarily better care.
    This problem is particularly evident in the way that Medicare
    pays physicians-in fact, it is the real issue that confronts the
    Congress in discussing how to "fix" the SGR.  What we need to be
    discussing is how to restructure the payment system so that we
    get what we want for the tremendous amount of money that we spend.
    Both private and public payers, purchasers, and providers have
    over the past several years been developing efforts to address
    this problem; the Leapfrog Group Incentive & Reward Compendium
    lists 97 programs around the country that are aimed at providing
    financial incentives to improve quality.16  Several of these
    initiatives are already beginning to produce results, and they
    indicate that there is some promise to this approach.
    In a pay-for-performance program run by the Integrated Healthcare
    Association in California-involving about 35,000 physicians in more
    than 200 physician organizations-participants reported that they
    screened about 60,000 more women for cervical cancer, tested
    nearly 12,000 more individuals for diabetes, and administered
    about 30,000 more childhood immunizations in 2005 than they had
    in 2004.17  Earlier findings indicated that the use of information
    technology in various clinical applications also had increased
    substantially under the initiative (Figure 22).
    In an analysis of a natural experiment in pay-for-performance,
    PacifiCare Health Systems paid its medical groups in California
    bonuses according to performance on a set of quality measures,
    while those in Washington and Oregon were not part of the
    program.   Performance on cervical cancer screening improved
    significantly (Figure 23).  There was no significant increase,
    however, in mammography screening or hemoglobin A1c testing.18
    The National Committee for Quality Assurance (NCQA), with the
    American Diabetes Association, has developed a Diabetes Physician
    Recognition Program that awards recognition to physicians who
    demonstrate that they provide high quality care to patients with
    diabetes.19  Although no financial incentive generally is provided
    under this program (in fact, there is a fee to participate), there
    have been several areas of improvement, including the proportion of
    patients with hemoglobin A1c counts below 7 percent-which rose from
    25 to 46 percent between 1997 and 2003-and the proportion of
    patients with low-density Lipoprotein cholesterol levels below
    100 milligrams per deciliter-which rose from 17 to 45 percent
    (Figure 24).
    Can We Get Better Care at Lower Cost?
    All of the pay-for-performance initiatives described above have
    focused primarily on quality improvement, which certainly is an
    area that needs improvement.  The comparison of the cost and
    quality data, however, seem to indicate that we should be able
    to achieve a higher level of quality at lower cost.  Some of the
    ongoing initiatives are producing data that support that hope.
    The Hospital Quality Incentive demonstration is being conducted
    by the Centers for Medicare & Medicaid Services with Premier,
    Inc., including about 255 hospitals.  Under this demonstration,
    hospitals are awarded bonus payments based on their performance
    on discharges in each of five clinical conditions, based on a
    total of 34 measures.  In the first year, a total of almost
    $9 million in bonuses was paid, and quality improved in each of
    the five performance domains.20  Premier, Inc. also found that
    better performance along several dimensions at least partially
    related to efficiency also seemed to be correlated with better
    performance on quality; for example, the readmission rates for
    pneumonia were 25 percent lower for the 10 percent of the hospitals
    in the top quality group than for the hospitals in the bottom
    quartile (Figure 25).
    A study sponsored by the Commonwealth Fund has found that
    coordination across sites of care was correlated with factors that
    could indicate more appropriate use of health care providers: among
    patients who, when they left the hospital, said they had a good
    understanding of what they were responsible for in managing their
    health, the rates of subsequent emergency department use and
    hospital readmissions were significantly lower (Figure 26).
    In another study sponsored by the Commonwealth Fund, the application
    of advanced practice nurse care for congestive heart failure
    patients reduced the total cost per patient from $9,618 to $6,152
    (Figure 27).  It's important to note that this decrease was composed
    of a 45 percent increase in the cost of ambulatory care and a 44
    percent decrease in the cost of inpatient care-because inpatient
    care is much more expensive, the decrease in inpatient costs more
    than offset the increase in ambulatory care costs.  However, with
    our current fragmented health care financing and delivery systems,
    it is difficult to implement programs that shift resources across
    providers, even if they could both improve the quality of care and
    save money overall.

    Challenges in Aligning Financial Incentives with Better Performance
    Although pay-for-performance mechanisms may be promising in
    encouraging improved health care, careful attention must be paid to
    the design of the payment systems intended to elicit these
    improvements; systems designed with even the best of intentions
    can have unintended consequences.  For example, in the previously
    mentioned evaluation of the PacifiCare pay-for-performance
    initiative in California, it was found that, although cervical
    cancer screening rates improved, the greatest improvement was
    among the doctors who initially were in the lowest performing
    group (Figure 28).  This could, in fact, be interpreted as an
    encouraging result, but the study also found that the vast majority
    of the bonus money went to the doctors who initially were in the
    highest performing group-but this group had the smallest
    improvement.  As MedPAC has recommended, a balance needs to be
    struck between rewarding the level of performance and improvement
    in performance.21
    It should also be noted that, despite the scores of
    pay-for-performance initiatives being implemented, the majority of
    physicians have not been involved in any sort of collaborative effort
    to improve the quality of care (Figure 29).  Although these data
    are several years old, they probably are not very different from the
    current situation.  Perhaps these results are not surprising, given
    the small number of physicians who are financially affected by
    quality considerations-only 19 percent of physicians surveyed in
    2003 indicated that quality bonuses or incentive payments were a
    major factor affecting their compensation (Figure 30).  These data
    indicate that the involvement of Medicare on a nationwide basis
    is needed to draw physicians into coordinated efforts to improve
    quality-and efficiency.

    Conclusions
    As the Congress considers Medicare physician payments for the
    remainder of this session and beyond, several points must be kept
    in mind.
    First, the current SGR mechanism for updating physician fees does
    not work-it produced inappropriately large increases in fees in its
    early years and untenable reductions for the past several years and
    the foreseeable future.  Because the updates produced by the SGR
    formula are incorporated in the budget baseline, which is used
    to "score" the budgetary effects of new legislation, even freezing
    physician fees for the next ten years would be "scored" as "costing"
    the Medicare program billions of dollars, making it difficult for
    the Congress to appropriately address the problem without appearing
    to exacerbate the federal deficit.  Moreover, it does not appear
    that the current mechanism has been effective in controlling the
    growth in Medicare spending-which is produced primarily by increased
    volume and intensity, rather than fees.
    Second, it must be remembered that the Medicare program is more than
    a line item in the federal budget or a source of income for
    providers-it is a social program (one of the most popular in
    history!) that provides access to care for 43 million aged and
    disabled beneficiaries, who tend to be sicker and poorer than other
    Americans.  As the Congress considers changes to Medicare physician
    payment, it must weigh the effects of those changes on the Part B
    premium that beneficiaries must pay; increases in physician
    payments proportionately raise the premium and put more financial
    pressure particularly on the most vulnerable groups of
    beneficiaries.  At the same time, the sharp cuts in fees projected
    for the next several years are a potential threat to beneficiaries'
    access to care, and the potential for problems on that front must
    also be considered.
    These issues, however, must be put in the context of a health care
    system that has the highest costs in the world, but fails to yield
    commensurate results in terms of the quality and appropriateness of
    care it provides.  This failure cannot-and should not-be tolerated
    any longer.  Fragmentation, lack of communication among physicians
    caring for a patient and between physicians and patients, medical
    errors and duplication of tests and other services, and the absence
    of a mechanism that encourages-or even, in some cases,
    allows-care coordination across sites of care are attributes of a
    health care system that is not a health care system at all.
    There are many efforts in both the private and public sectors that
    are aimed at addressing at least some of these problems.  Many of
    these initiatives are still in their early stages, but the evidence
    that is beginning to become available indicates the promise of some
    success.  Both CMS and the Congress have expressed the desire to
    move toward pay-for-performance in Medicare, starting with
    hospitals and physicians, as well as nursing homes.  Efforts to
    accomplish this should be maintained, with an eye toward ensuring
    that the systems that are put in place are appropriate and will
    actually encourage broadly improved care rather than narrowly
    focused activities to meet specific quality goals.
    Progress in this direction is being enhanced by several CMS
    demonstration and pilot projects that are currently in operation,
    such as the Hospital Quality Incentive demonstration I mentioned
    earlier, the Physician Group Practice demonstration, and the
    Medicare Health Support pilot, as well as several that are being
    developed, such as the Medicare Care Management Performance
    demonstration, the Nursing Home Quality-Based Purchasing
    demonstration, the Medicare Hospital Gain-Sharing
    demonstration-and particularly the Medicare Health Care Quality
    demonstration, which will test different approaches to broader
    system redesign.
    Resources must be made available for continued efforts to develop
    appropriate measures of quality and the means to apply them.  One
    hurdle that needs to be overcome in developing new approaches to
    improving quality is the possibility that some of these
    improvements may require high initial costs-this is particularly a
    problem in the context of Medicare, where demonstration projects
    that are intended to produce higher quality are required to meet
    a "budget neutrality" requirement that may be applied so strictly
    as to hinder the development of some potentially beneficial
    projects.  To be sure, the projected spending impact of proposed
    demonstration projects is extremely important, but that issue needs
    to be considered more broadly.  An especially difficult situation
    that needs to be addressed is accounting for the overall effects
    on Medicare and Medicaid-rather than the effects on each of the
    two programs separately-of projects that might enhance the
    quality-and overall efficiency-of care provided to the almost
    eight million beneficiaries who are eligible for both programs.
    Pay-for-performance also must be considered in the context of
    other tools available to improve quality and efficiency.  The
    primary objective of paying for performance should not be merely
    to reward good providers and punish bad ones, but to align the
    health care financing mechanism with what we'd like to see the
    health care system produce.  Prices are messages to producers-and
    the message we are sending health care providers is that we want
    more services-and particularly more procedures-but that we don't
    care very much about how well those services are provided or how
    much they help patients achieve better health.  There are several
    additional tools that can be used to achieve the desired
    objectives, and we should pursue all of them to get where we want
    to be:
    Public information on quality and cost should be made available in
    a format that can be understood by patients and their advocates and
    acted upon by providers.  This means that patients with a particular
    medical need should be able to identify providers that are best able
    to give them appropriate and efficient care, and that providers
    should be able to use that information to improve their quality
    and efficiency.  Public reporting has been shown o be an effective
    tool in spurring quality improvement efforts.22
    Ways need to be found to encourage more productive and beneficial
    interaction between patients and providers.  This means that, in
    addition to rewarding physicians for producing units of care in an
    effective and efficient way, they must be encouraged to provide that
    care in a way that is effective and efficient in a broader sense.
    Examples of these types of incentives would be payments to specific
    providers for serving as the patient's "medical home"-that is,
    taking responsibility for obtaining and coordinating all the care
    needed by the patient across settings, including at home.  Other
    ways to provide more coordination of care across sites-such as
    follow-up by hospitals for patients discharged with on-going
    conditions-should be developed.
    Making extra payment available for achieving certain quality and
    efficiency goals helps to align the incentives of the financing and
    delivery systems, but some providers may face other barriers to
    achieving the goals that are established for them.  Additional
    resources must be available to establish an infrastructure that
    enables providers to improve their performance.  Medicare's
    Quality Improvement Organizations (QIOs) currently are tasked
    with that function, but relatively little is known about its
    priority in their list of requirements and their effectiveness
    in fulfilling that role.
    All of these approaches hold promise in improving provider
    performance, not only for Medicare but for all patients.
    Finally, payment reform to reward excellence and efficiency would
    be greatly facilitated by a major enhancement of health services
    research funding that includes research on best practices,
    performance of different forms of health care delivery organization,
    diffusion of innovation, quality standards, evidence-based medicine,
    cost-effectiveness and comparative effectiveness, and the
    development and application of quality standards.  This would
    require some effort and perhaps a substantial amount of
    resources, but it is the only way to avoid the seemingly endless
    spiral of spending that we face and improve the value of what we
    spend.

    	MR. DEAL.  Thank you.  Thank all of you.  I will start out
    with the questions.
    	We are going to put you at a little bit of a disadvantage
    because we are probably going to be asking you to comment about
    testimony that is going to not be heard until later in the week.
    But in our effort to seek a better solution, I think we must do that.
    	I notice that virtually all of you made the point that
    quality of care is not really a factor that is rewarded under the
    current system.  Mr. Miller, I think you said it very pointedly.  I
    do like the term of value-based purchasing, or something as an
    alternative to pay-for-performance, because I think you are right,
    it does have the implication of grading somebody in a negative sort
    of way.
    	Is it possible, in a value-based purchasing system, to have
    adequate volume controls, because obviously, volume drives the
    cost?  How do you incorporate, Mr. Miller, in a pay-for-performance
    model, still have cost containment measures that must, in some way,
    be directly related to both volume and intensity?
    	MR. MILLER.  I think there are a couple of things to parse
    through here, in trying to answer this.  I mean, there is a
    distinction that I think you have to draw between whether it is
    formulaic, much like an SGR volume containment, or whether you get
    more targeted approaches.  So, I think the Commission's view on this
    is, and I think most people would say this, I mean,
    pay-for-performance or value-based purchasing, however you want to
    say it, won't necessarily restrain volume in and of itself, although
    I can give you some examples where, and I will in just a second, of
    where it could come about.  But you may need, in addition to any
    kinds of programs like this, to have targeted approaches still
    aimed at restraining volume growth.
    	I know many members of this committee didn't want to hear
    some of this in the last hearing, but it may require still, for
    example, restraints on, for example, the coding edits that we have
    recommended on imaging, so that you are trying to restrain some
    obvious places where volume is growing very quickly.  So, you might
    need some of the value-based purchasing, and then, some targeted
    approaches on volume.
    	And then, to give you an example of how things can come
    together, put yourself in a mind of one demonstration that is going
    on now at CMS, where groups of physicians are coming together, this
    is a group of physicians with say, a hospital, come together and
    say, we want to be evaluated both on the quality metrics related to
    our diabetics, say, and we want to be evaluated on how much we save,
    let us say, for example, we forestall an admission to a hospital.
    And in that instance, they are allowed to share in the savings.
    They come together, they try and target their efforts at quality,
    and reducing resources, avoiding an admission.  And in that instance
    a circumstance like that could reduce volume.  But just to be clear,
    in and of itself, it doesn't necessarily restrain volume, and not in
    the way that people are looking at here.
    	MR. DEAL.  That is a very good point, and I want to
    elaborate in the little bit of time we have.
    	One of the complaints that I have heard is that if we go to
    a performance-based system, it may very well increase the volume of
    services by the physician.  Therefore, if he is isolated in the
    Part B, the savings may actually be realized in Part A, under the
    hospital portion of it, as you indicated about avoiding emergency
    room visits or other hospitalizations.
    	How do we adequately cross and bridge that barrier between
    the volume increase on the physician side that is actually saving
    money on the hospital side, with the two silos that we currently
    have?
    	MR. MILLER.  That is a really good point, and let me give
    you at least two thoughts.  I mean, there is obviously, it is a
    difficult problem.  But let me first give you two thoughts.
    	Just as you heard some of the testimony here, I wouldn't
    completely abandon the thought that there aren't improvements that
    can be gained just on the physician side.  There is a significant
    lack of coordination and handoff between physicians, physicians
    unable to track their patients and inform them that they need to
    get their blood sugars checked and that type of thing.  So, I
    wouldn't abandon it entirely, but to your question, the idea is
    here, you want to look at these things in a much more episode-based
    basis, so that you are looking at the physician services, the
    hospital services, the post-acute care services together, and then,
    when you make a judgment about how the care was provided, you are
    looking at the entire episode, not just the physician's work
    themselves.
    	MR. DEAL.  Thank you.  My time has expired, but I do think
    that is the track we are going to have to follow in the future.
    	MR. MILLER.  And I apologize for being long-winded.
    	MR. DEAL.  No, I appreciate your answer.  I think it is not
    one of those things that is easily answered quickly.
    	Mr. Pallone.
    	MR. PALLONE.  Thank you, Mr. Chairman.
    	I wanted to start out with Mr. Guterman, and my questions
    relate to the concern about beneficiaries facing increased costs
    because of changes in the physician payment formula.  And I was just
    going to ask you sort of yes or no questions initially, and then,
    we will get into some explanations.
    	I guess this is like, I will call this John Dingell style.
    Mr. Guterman, isn't it true that beneficiaries have faced record
    Part B premium increases under Medicare over the past few years?
    	MR. GUTERMAN.  Yes.
    	MR. PALLONE.  Okay.  Isn't it true that in recent years,
    some beneficiaries have seen their entire cost-of-living adjustment
    in the Social Security check eaten up as a result of Medicare
    Part B premium increases?
    	MR. GUTERMAN.  That is quite possible.
    	MR. PALLONE.  Now, isn't it also true that today, the
    average Medicare beneficiary spends 9 percent of his Social Security
    check on the Part B premium?
    	MR. GUTERMAN.  That is true.
    	MR. PALLONE.  And isn't it correct that changes that
    adequately paid physicians will increase both the beneficiaries'
    Part B premium and the amount of the coinsurance beneficiaries
    pay?
    	MR. GUTERMAN.  Yes.
    	MR. PALLONE.  All right.  Now, we get into explanations.
    If Congress is to fix the Medicare physician payment formula, is it
    your view that we should also protect beneficiaries from excessive
    increases in their Part B premiums?
    	MR. GUTERMAN.  I think there are protections that are
    needed, particularly among vulnerable beneficiaries, the proportion
    of out-of-pocket spending even for Medicare-covered services, the
    proportion of their income that is spent on out-of-pocket spending
    is very high, and certainly Congress should take into account the
    needs of those groups that are most vulnerable.
    	MR. PALLONE.  Okay.  Now, I keep hearing from the physicians
    that we need formulas to reflect actual costs.  I mean that is what
    they always say, of course, and of course, they are right.  I mean,
    if you are going to keep the system going, you have to have the
    reimbursements reflect actual costs at some level.
    	So, my question is, if Congress were to adopt a payment
    formula for physicians that no longer had a global spending target
    like the current system, would beneficiary premiums be more or
    less susceptible to large increases than they are today, and if
    more, how would we address that?
    	MR. GUTERMAN.  That is a good question, and it is very
    complicated.  There is a very complicated answer, and I don't know
    that there is a definitive answer.  Certainly, removing constraints
    on volume would make the beneficiary more susceptible to the results
    of increasing volume, but we have to keep in mind that the current
    system really isn't successful at all in controlling volume or
    total spending anyway.
    	So, I think we need to shift our emphasis to approaches that
    encourage more quality and efficiency, which will be not only
    cheaper for the beneficiary and the program, but also, better for
    the beneficiary and the program.
    	MR. PALLONE.  Okay.  Now, I am going to go to Mr. Miller,
    because I only have less than 2 minutes here.  And again, my concern
    is that, to what extent cuts in physician payments jeopardize access
    to care.
    	The Sustainable Growth Rate is having some unintended
    consequences on a physician's ability to provide services.  Physician
    payments are expected to take a 4.6 percent cut next year, as you
    know, and because Congress decided not to directly pay for the 2006
    physician payment fix, and instead, recoup the cost from future
    payments, doctors will see further reductions in physician payments
    over the next 10 years, unless we do something.  So, even though
    physician costs will go up, reimbursements over time will go down
     significantly, and that will likely jeopardize access to care, you
    would think.
    	So, while the current MedPAC report does not find
    significant problems with Medicare beneficiaries' access to care,
    do you think that we will see problems with access to care in the
    future if the anticipated cuts in Medicare payments to doctors take
    effect, as is currently projected over the next 10 years?
    	MR. MILLER.  Yes.  The Commission has said several times
    that if the cuts that are assumed in current law go into effect,
    you have negative 5 percent for 6, 9 years, depending on which
    estimate you look at, they are very concerned that access problems
    would result.
    	MR. PALLONE.  Okay.  Now, let me go back to Mr. Guterman.
    GAO recently released a report that says access to physician
    service is largely unchanged for Medicare beneficiaries in
    fee-for-service Medicare, and this is over a time when there was
    only one year of a negative update to doctors' reimbursement.
    	But do you believe that patients would still have the same
    degree of access if we were to allow the cuts in the Medicare
    physician fee schedule every year for the next 10 years to take
    place?  And what effect do you think that would have on beneficiary
    access?
    	MR. GUTERMAN.  I think it is difficult to believe that
    beneficiaries would be able to retain their current access under
    those kinds of cuts.  Let me also say, in response to a statement
    you made before, there has been a lot of discussion about the
    level of physician payments matching the level of cost of the
    provision of care.  I suggest that the level of value of physician
    care ought to be what is looked at, and how much it would cost to
    provide the care that patients need.  Not just to provide the care
    that is currently provided.
    	MR. PALLONE.  Okay.  Thank you, gentlemen.  Thank you, Mr.
     Chairman.
    	MR. DEAL.  Thank you.  Chairman Barton is recognized for
    questions.
    	CHAIRMAN BARTON.  Thank you, Mr. Chairman.  The gentleman
    that is representing CBO, I can't really read it, Mr. Marron?
    	MR. MARRON.  Marron from CBO.
    	CHAIRMAN BARTON.  Yes, CBO.  Okay.  Does CBO have a view of
    the MedPAC's proposed change for the SGR?  I think the MEI is what
    they are calling it.
    	MR. MARRON.  Sir, obviously, we don't have an opinion of--
    	CHAIRMAN BARTON.  Push the button.
    	MR. MARRON.  Yeah.  Obviously, we don't have an opinion
    about whether that would be good or bad policy.  We have cost
    estimates for various permutations of changes to the SGR.  Let me
    just see if I have that one.
    	So, we have an estimate for a permanent change to the MEI,
    for which over the 10 year budget window, is the $218 billion
    number that I mentioned earlier.
    	CHAIRMAN BARTON.  Okay.  The gentleman who is representing
    MedPAC, Mr. Miller, does your group have a proposal on how to pay
    for your proposed fix?
    	MR. MILLER.  No.  We have, throughout all of our
    deliberations, we have identified savings in several areas.  For
    example, we have put out a set of recommendations related to managed
    care payments.  We also put out a set of recommendations related to
    some updates.  We don't have something that amounts to $218 billion,
    but there is at least two points I would like to make about this.
    	The MedPAC idea is not MEI every year, and it gets
    characterized that way, and I tried to make this point in the
    opening statement.  We look at a variety of factors, and if we
    think that there is a reason to justify less than that, we
    recommend less than that.  The other point I would make about
    the $218 billion, and this is with all respect to CBO, and I
    understand how they go through their analysis, you also have to
    evaluate the cost of that proposal against what will actually
    happen.  The $218 billion assumes that for the next 9 or 10 years,
    you get minus 4 updates, and so, relative to what will truly happen,
    it is not $218 billion.  But we certainly understand how the scoring
    is done.  I have been there.  I understand it, and I agree with how
    they do it.  I think it is just sort of the--
    	CHAIRMAN BARTON.  So, we have got a real quandary here.  It
    doesn't seem reasonable to have a system that we never use, and we
    are not using the SGR.  It just doesn't seem, for lack of a better
    term, it doesn't seem fair to subject doctors to a cut, when we are
    giving increases to the other part of the healthcare system, in
    terms of what Medicare and Medicaid are reimbursing.
    	Yet, when we try to find a way to change the current system
    to something that could be sustained, there is absolutely nobody
    putting forward any proposals on how to pay for it.  My friends on
    the Minority side, as the Minority is supposed to do, quite
    obviously point out the problems of the current system, and they
    want to be on the side of the angels in terms of providing more
    money for our physicians, but they don't have a solution on how to
    pay for it.
    	We get into this box at the end of every budget cycle, which
    we are in right now.  If we let the current system go into place and
    have this cut, it is not right.  Yet, if we try to change to a
    system that is sustainable, we can't pay for it.  So, we end up
    scratching around trying to find $4 billion or $5 billion to just
    do the Band-Aid approach.  I would like to get out of that box, but
    at some point in time, I need somebody to put some proposals forward
    on how to actually pay for the change.
    	I guess one question I will ask the gentleman with the
    Commonwealth Fund, Mr. Guterman, what about allowing for balanced
    billing?  Would that be a part of a solution?  Let physicians decide
    if their patients could afford to pay some out of their own pocket
    without violating Federal law?
    	MR. GUTERMAN.  I have two responses to that.  One is, again,
    as Mr. Miller said, you need to be more realistic about what the
    costs are and interpreting the meaning of the term costs from CBOs
    perspective.  CBO rightly gives a baseline under current law, but
    if the performance of the last several years is to be taken into
    account, fixing physician payments, or at least avoiding cuts in
    physician payments year by year, may look like smaller pieces.  If
    you look at it over time, it is going to add up to the same thing.
    So, you Members have to decide whether you are going to be
    constrained by the CBO baseline, which is indeed costs relative to
    what would be under current law, or whether you are going to take
    these piecemeal approaches to avoiding an untenable situation, and
    try to come up with a more comprehensive--
    	CHAIRMAN BARTON.  Well, how about an answer to my question
    on balanced billing?
    	MR. GUTERMAN.  The balanced billing approach, again, doesn't
    change the costs.  It just changes who pays for it, and so, you
    would be shifting the payment onto the beneficiary, which I don't
    think would particularly change anything from the perspective of
    the healthcare system.  It wouldn't necessarily encourage better
    care, either.  I personally would tend to be against that kind of
    approach.
    	CHAIRMAN BARTON.  Okay.  My time has expired.  Thank you,
    Mr. Chairman.
    	MR. DEAL.  Thank you.  Ms. Capps.
    	MS. CAPPS.  Thank you, Mr. Chairman, and I want to thank the
    Chairman of the full committee for zeroing in on a real problem, and
    hope that we can work on it, and I think there is bipartisan
    interest in doing that.  I am not sure if the last suggestion is
    necessarily, it sounds like means testing, but you know, the topic
    is how to build a payment system that provides quality, efficient
    care for Medicare beneficiaries.  It is a great topic, Mr. Deal,
    for these two-part hearings.
    	But as I mentioned in my opening statement, the SGR is not
    the only formula that needs to be reexamined.  Geographic
    adjustments are intended to compensate for the varied costs of
    living throughout the country, but unfortunately, the system
    whereby counties are grouped into localities whose geographic
    adjustments are averaged out, has led physicians, as I said earlier,
    in 175 counties in 32 States being underpaid by 5 or more percent
    for the cost of their services.
    	Mr. Steinwald, when GAO prepared for this hearing, did you
    look at discrepancies between the counties' geographic adjustments
    and those counties' locality adjustments, as to how they were being
    taken into account when you examined beneficiary access?  Kind of a
    yes or no answer.
    	MR. STEINWALD.  Not in preparation for this hearing, but we
    do have a study underway.
    	MS. CAPPS.  It's underway, is it completed?
    	MR. STEINWALD.  Not completed.  We initiated it about a
    month ago at the request of the Chairman of the House Ways and
    Means Committee, and we have talked with the California Medical
    Association already, and understand their views.  But to complete
    the study, we will need to do a fairly comprehensive analysis of
    Census data, and that will take us into next year.
    	MS. CAPPS.  Well, Mr. Chairman, I would hope that that
    would be the topic for a conversation, and I know that California
    Medical Association representatives are here.  I know that, based
    on my constituents' experiences in San Luis Obispo and Santa
    Barbara counties, there is a very strong and appropriate reason,
    a direct correlation between the two, the result that many of us
    see every day is that our district offices get calls that physicians
    are being forced to shut down their practices, because they can't
    afford to sustain it.  They are not able to pay the rent.  They are
    not able to send their kids to college.  And then, that begs the
    question of being able to attract new physicians who will care for
    Medicare beneficiaries.
    	And so, I think we definitely need the study.  We needed it
    several years ago, because this has been an ongoing thing, but I
    appreciate very much that it is underway, and look forward to
    getting a copy of it, and also would suggest that we have hearings
    on that.
    	But just with the remaining time that I have, every year,
    Mr. Miller, that the geographic issue is avoided, the problems
    become more costly to fix.  I wish a representative from CMS was
    here today to discuss the reluctance to address it in a fair manner.
     Even without the study, I think there is enough evidence to know
    that we should be working on this.
    	But I want you to comment, if you would, on the
    determination that MedPAC has arrived at, that there needs to be
    a fix, counties and localities whose geographic adjustments are 5 or
    more percent less than those counties' own geographic adjustment
    factors.  In other words, expand on your recommendations, if you
    would, please.
    	MR. MILLER.  What we have done on this issue is, you know,
    this issue came to our attention, we analyzed it a couple of a
    different ways to look at it.  But the short answer is, is in our
    agenda, we took it up, and the commissioners discussed it in either
    May or April at their public meeting, and did not come to consensus
    on what the solution should be.  It is something that may come back
    around on our agenda, but at that particular meeting, did not come
    to a consensus.
    	MS. CAPPS.  But you did arrive at the determination that
    there is, needs to be some adjustment.
    	MR. MILLER.  What we arrived at is, as we went through and
    we did an analysis of the localities, and like you said, we are
    looking at the underlying cost of care, and how the geographic
    localities approximate that.  What we found is, is that nationally,
    for the most part, it does approximate it, and then, there are some
    anomalies across the country.  And then, when we got into, when
    the commissioners got into a discussion of what that meant, and how
    to resolve it, that is where they did not come to consensus.
    	MS. CAPPS.  So, 175 counties, I guess not in a majority of
    the counties in the country, but a pretty substantial subset, where
    there are disparities in, there doesn't seem to be any fix.  You
    would agree?
    	MR. MILLER.  I am sorry.  I am not--doesn't--
    	MS. CAPPS.  You said that overall, in the country, it fits,
    but--
    	MR. MILLER.  Right.
    	MS. CAPPS.  But there are exceptions.
    	MR. MILLER.  But there are exceptions, absolutely.
    	MS. CAPPS.  And 32 States have this problem, 175 counties.
    	MR. MILLER.  I am assuming those are CMA numbers.  I don't
    recall what our numbers specifically came up with, but they did
    discuss this.  They did not come to consensus on how to resolve it.
    	MS. CAPPS.  So, the diagnosis is there, and I believe that
    fits in, then, with GAO's analysis also.  That I am assuming, back
    to you, again, Mr. Steinwald, that you wouldn't be doing this study
    if you didn't have some indication that there is a problem.
    	MR. STEINWALD.  Yes.  It is something that we thought was
    worth looking at, and hasn't received a lot of attention in recent
    years.  The system that is in place right now hasn't been adjusted
    in some time, so we thought it was worth a look.  Although we are
    not coming to the conclusion in advance that there is a problem that
    needs to be fixed, but we are certainly looking at it.
    	MS. CAPPS.  Thank you.  I yield back.
    	MR. DEAL.  Dr. Norwood is recognized for questions.
    	MR. NORWOOD.  Thank you very much, Mr. Chairman.
    	Marron, is that how you say it?
    	MR. MARRON.  Marron.
    	MR. NORWOOD.  Marron.  Good.  I am sort of interested in some
    of the numbers you folks come up with.  I have always, to date, been
    a little surprised how CBO scores its cost savings in
    pay-for-performance plans, because I will be honest with you, not
    anybody knows really what that is yet.  Dr. McClellan can't explain
    to me in detail precisely the movement of a pay-for-performance
    plan.  I know there are some demonstration projects going on under
    Part C, but really, the results are not in, and I think it is pretty
    interesting that you guys are pretty definite in your scoring model
    of oh, it will save this amount of money.
    	How do you do that when we really, truly don't understand
    exactly how pay-for-performance is going to work?  Or what did we
    call it, value-based purchasing.
    	MR. MARRON.  So, I am very sympathetic with where you are
    coming from as your general point, which is--
    	MR. NORWOOD.  Which means you don't know if your score is
    right or not?
    	MR. MARRON.  No, I am going to come back to our score.  In
    essence, yes.  Pay-for-performance is still, in essence, in an R&D
    stage.  A lot remains to be seen about how it will actually operate
    in practice.  We will learn a lot in the hearing on Thursday.
    	I was going to say the one case in which we were able to
    score it cleanly is that one of the pay-for-performance measures
    that has been implemented by Congress has the feature that what it
    does is it delays payments to doctors and, in essence, says we are
    going to take some money away from you, and then we are going to pay
    it back when you file some information with us to get it.  And in
    our scoring model, we are able to score that precisely because it
    is a timing shift.
    	MR. NORWOOD.  So, you are going to be a slow payer, we are.
    	MR. MARRON.  Exactly.
    	MR. NORWOOD.  Yeah, well, we have been through that.  That
    is a great plan.  Mr. Steinwald, I will just ask you very briefly,
    if you were told that perhaps you had lung cancer, would you rather
    have a CAT scan or a chest film?
    	MR. STEINWALD.  I take your point.  You are relating to the
    intensity increases.
    	MR. NORWOOD.  I am indeed.
    	MR. STEINWALD.  Well, you are the doctor, and I am--the
    implication of the question is I would probably rather have a CAT
    scan, so I will go with that.
    	MR. NORWOOD.  Well, there is not any implication.  Are you
    crazy or not?  Would you rather have a chest film or a CAT scan,
    and the answer is, you know, I think it is a good idea to have a
    CAT scan, because they actually can diagnose exactly, maybe, where
    the cancer is, versus a chest film.  You look like a smart man.
    I know what you would choose.  That increases intensity, does it
    not?
    	MR. STEINWALD.  Yes.
    	MR. NORWOOD.  That you were talking about earlier, but it
    also increases the cost to you a little bit, doesn't it?
    	MR. STEINWALD.  Yes.  It does, and I would gladly pay it.
    My point in raising it--
    	MR. NORWOOD.  Of course.
    	MR. STEINWALD.  --is that it also increases spending per
    beneficiary, and much of that increased spending per beneficiary
    goes to  physicians.  So, the fee--
    	MR. NORWOOD.  Okay.  Time out.  Time out.  Correctly, if
    I may.
    	MR. STEINWALD.  Yes, sir.
    	MR. NORWOOD.  I take your point, too, and what you say is
    there has been a great increase in intensity and volume, and of
    course there has.  There has been great improvement in medicine
    and healthcare.  There have been a lot more seniors on Medicare
    than before.  So, I am not sure that that tells us anything by
    you saying that.
    	All of you are economists or statisticians?  None of you
    are healthcare providers, are you?
    	MR. STEINWALD.  No.
    	MR. NORWOOD.  Okay.  I find that very interesting.  If each
    of you would, then, give--because you have used this word a
    lot--healthcare quality and healthcare efficiency, could you define
    that for me?  What the hell is healthcare quality?  Excuse me,
    what is healthcare quality?
    	MR. MARRON.  Certainly.  I think I managed to avoid
    mentioning that in my opening statement.  You know, its real
    challenge--to a geeky economist, it would be some story about
    appropriately balancing the value of the healthcare you receive
    against the cost of it, quality determined basically in the quality
    of your healthcare outcomes, and how the person values those.
    	MR. NORWOOD.  Okay, what about efficiency?  You have missed
    quality.  What about efficiency?  How do you define healthcare
    efficiency?
    	MR. MARRON.  So efficiency would essentially be, if you could
    define a unit of healthcare delivered or a unit of quality
    healthcare delivered, the cost of delivering that, and the
    efficiency, the lower that is, the more efficient it is.
    	MR. NORWOOD.  It is no wonder you guys got it wrong.
    Mr. Steinwald, you define healthcare quality for me.
    	MR. STEINWALD.  Given your response to Dr. Marron, I think
    I will pass, but efficiency--so I do think it relates to what we
    are now trying to call value-based purchasing, getting the most
    for the dollars we spend, and there is a lot of evidence that we
    are not getting the most for the dollars we spend right now in the
    Medicare program.
    	MR. NORWOOD.  Is it quality when, if the doctor does
    everything humanly possible to treat you, and you die, is that
    healthcare quality?
    	MR. STEINWALD.  It certainly could be.
    	MR. NORWOOD.  That is right.  Now you got it.  Now, let us
    go on down the line quickly, Mr. Chairman.  Mr. Miller, healthcare
    quality and efficiency.  What do you think it is?
    	MR. MILLER.  The Commission views efficiency as the highest
    quality, the best quality outcome, with the lowest resources.
    	MR. NORWOOD.  What is a quality outcome?
    	MR. MILLER.  It would depend on the clinical situation that
    you are talking about.  So, for example, with diabetes, it might be
    avoiding a hospitalization, because you control the blood sugars.
    	MR. NORWOOD.  Yeah, but maybe you don't.  Is that lack of
    quality?
    	MR. MILLER.  It depends on whether that result--if the
    physician has done everything that they thought they need to do,
    and that still resulted, it may be.  If a physician failed to get
    a beneficiary back in to get their blood sugars checked, that might
    be poor quality.
    	MR. NORWOOD.  What if the physician tried and the patient
    wouldn't come?
    	MR. MILLER.  There are definitely issues of compliance,
    but--
    	MR. NORWOOD.  So, we have got these boxes we checked to
    determine the quality, which is based on many things.
    	Mr. Guterman, quality and efficiency please.
    	MR. GUTERMAN.  All right.  Let me try to address that by
    saying that I think quality is what the doctor thinks, on a clinical
    basis, is good for my health if I am his or her patient.  What I
    would like to see is, since we are talking a lot about economists
    telling doctors what to do, I would like to see the doctor be able
    to make those decisions based on purely clinical considerations
    instead of economic considerations, which the current payment
    system encourages.
    	MR. NORWOOD.  I know my time is up.  I agree with that.
    But Mr. Chairman, this is so important to point out, that if these
    men actually are going to define what is quality in
    pay-for-performance, we are in trouble.  No offense, gentleman, it
    is just you are not--
    	MR. DEAL.  That is all right.  Dr. Burgess is going to set
    their fee next Thursday, I believe.  Thank you.
    	Mr. Allen, you are recognized for questions.
    	MR. ALLEN.  Thank you, Mr. Chairman, and thank you all for
    being here.
    	A couple of my colleagues earlier on said we had the best
    healthcare system in the world, and I want to play off that a little
    bit.  It seems to me that is probably true in most areas that I know
    about, and I am not a doctor, for someone.  But the challenge is when
    you look at the healthcare system as a whole, you look at it as a
    system, and you look at the cross-national comparisons, there are
    lots of ways in which we don't have the best healthcare system, even
    if we would choose, for a particular condition, if we had access to
    the best person and the best healthcare somewhere in this country, we
    would choose to be here rather than other countries.
    	The point I am trying to make is I think we need to deal
    with this as a system, and you know, Mr. Guterman at one point said
    the cost and quality need to be considered together.  I want to list
    that a little bit higher.  I think that Dr. Norwood is right about
    intensity.  All the people I know who talk about the healthcare
    system would say that technology is a major factor in driving up
    costs, and we do want to pay, it is fair for the society to pay more
    for better results, but let me start with you, Dr. Miller.
    	I am concerned that we are paying too much for Medicare
    Advantage plans, and this gets back a little bit, Chairman Barton
    was saying well, we don't have any proposals to pay for this.
    Well, I am going to make one.  In the past, MedPAC has issued
    reports detailing the overpayments to Medicare HMOs.  The June
    2006 MedPAC report states that you believe Medicare should be
    financially neutral with respect to Medicare Advantage and
    fee-for-service, unlike the current payment system.  CBO estimates
    from March of this year show we can save $63 billion over the next
    10 years if we were to eliminate the overpayments to Medicare
    Advantage plans.  That doesn't get us all the way to a permanent
    fix, but even in D.C., $63 billion is not chump change.
    	So, my question is, Mr. Miller, has MedPAC quantified the
    current amount of overpayments to Medicare HMOs?
    	MR. MILLER.  Yeah.  And just to take one qualification
    before I say it, what we quantified is how much more managed care
    plans are paid above fee-for-service.  Whether it is an overpayment
    is sort of a judgment for the Congress to make.  We quantified
    that.  It is 11 percent.
    	MR. ALLEN.  I understood that your calculation was based
    on an adjustment for treating the same kind of patient, same kind
    of condition, in Medicare fee-for-service versus Medicare Advantage.
     Is that right?
    	MR. MILLER.  Yeah.  I think I understand what you are driving
    at, 11 percent is sort of a product of two things: how the payment
    system is structured, for example, certain benchmarks are set well
    above fee-for-service in certain areas of the country, and the fact
    that managed care organizations at the present time appear to enroll
    people who are more healthy, which presumably means you would spend
    less on them.  But they are, under the current--although this is
    changing, because DRA changed the law, but currently, those
    payments, which would come down, stay with the plans, although
    that is beginning to phase out, based on a law change in DRA.
    	MR. ALLEN.  At least, based on the current estimates--
    	MR. MILLER.  Eleven percent.
    	MR. ALLEN.  Eleven percent.
    	MR. MILLER.  Absolutely.
    	MR. ALLEN.  CBO says that is $63 billion.  That goes over 10
    years.  If you made that change now, immediately, it seems to me
    that you have paid for a significant portion of a long-term fix, not
    the only portion.  Now, I would agree that we need to do something
    on the cost side, and I guess beyond just finding additional money.
    	And are there other suggestions, I would guess I would say,
    for places where we can have systemic cost containment, in a way
    that just doesn't sort of make a blanket reduction in payments?
    And that would be for anyone.
    	MR. MILLER.  I mean, I will just say this.  I don't think
    this is the systemic thing you are looking for.  We have made other
    recommendations that look at specific Medicare payment systems, and
    would result in savings, but I don't think it is the systemic idea
    that you are looking for.
    	MR. ALLEN.  Very quickly, Mr. Miller.  Have you considered
    pay-for-performance for HMOs?
    	MR. MILLER.  Absolutely.  We made a recommendation on that,
    I think, 2 years ago, at this point, maybe a year and a half ago.
    	MR. ALLEN.  And what has the response been to that
    recommendation?
    	MR. MILLER.  It has not been picked up by the Congress
    or administratively.
    	MR. ALLEN.  Okay.  I would love to explore it, but my time
    is up, and I yield back.
    	MR. NORWOOD.  [Presiding]  Dr. Burgess, you are recognized
    for questions.
    	MR. BURGESS.  Thank you, Dr. Norwood, and Mr. Miller, if we
    could, let us just pursue Mr. Allen's line of questioning for a
    moment, under the systemic cost containment.  I referenced a bill,
    H.R. 5866, which was recently introduced, to introduce an MEI
    minus 1, replacing the SGR.  There are certain pay-fors written
    into that bill.  One of them is elimination of the HMO stabilization
    fund in the Medicare Modernization Act.  I hope Mr. Allen hasn't
    left, because I am sure he is now going to rush to cosponsor this
    legislation, and I look forward to him joining us on that.
    	But I wonder, I know you haven't had a chance to look at
    that, but I wonder if, Mr. Chairman, if it wouldn't be out of order
    to ask the MedPAC folks to take a look at this legislation, and to
    give us your thoughts as to what other systemic cost containment we
    might look for in that bill.
    	MR. MILLER.  We can do that.  Everything that we have ever
    said about what would save money is a matter of public record.  It
    is in our reports, and I mean, even without looking at the bill,
    we can extract that and send it to you.
    	MR. BURGESS.  Very good.  I would appreciate that very
    much.
    	MR. MILLER.  We are also obviously happy to look at a
    bill.
    	MR. BURGESS.  Mr. Miller, you also referenced the episodic
    basis on, sometimes, in which care is rendered, and I know this was
    asked earlier by another member, but under the pay-for-performance
    parameters, it is very difficult to know when someone is managing
    a group of diabetics, if they are doing everything correctly.  Who
    avoided a hospitalization and who didn't, and how much money was
    saved by those hospitalizations that were avoided?
    	And then, for Mr. Marron on the other hand, when he is
    trying to figure out the actuarial basis as the bottom line, how is
    he going to be able to figure in the cost of that saved
    hospitalization when it didn't occur?
    	MR. MILLER.  When it didn't occur.
    	MR. BURGESS.  Well, the doctor who is doing everything
    according to the book on his pay-for-performance guidelines managing
    a cadre of, a panel of diabetics, doing all the hemoglobin A1cs,
    doing all the visual field checks, everything that is supposed to
    happen, if he avoids a hospitalization in that panel of patients,
    how is Mr. Marron going to know that?  How is he going to find that
    savings to extrapolate it down to the bottom line?
    	MR. MILLER.  Well, let me, first of all, I am sure
    Mr. Marron has views on how he would do this, but let me just make
    a couple of points.  Before we talk about the episode, I also think
    it is a step forward, even just in the physician world, to say
    things to give performance metrics or value metrics, whichever our
    label is for today, that says you know, do you have a tracking
    system, simple things like this, that allow you to track your
    diabetics, and inform them that they need to have their blood
    sugar levels.  I mean, that is just a step forward that doesn't
    exist now.  Now, to your question--
    	MR. BURGESS.  It doesn't uniformly exist.  It does exist
    in some--
    	MR. MILLER.  It does, I am sorry, but certainly, not
    uniformly, and certainly, the Medicare payment system doesn't do
    anything to encourage it.  If anything, it probably discourages it.
    So, I am sorry, I overspoke, but that is what the thought was.
    	To the point, I mean, I think, for example, and again,
    you will want to comment on this, I mean, if, in the demonstration
    that I was referring to--
    	MR. BURGESS.  And let me ask you to submit that answer for
    the record in writing.
    	MR. MILLER.  All right.  Sure.
    	MR. BURGESS.  I do need to get on to a couple of other
    things.  Mr. Guterman, we also heard some comments about the
    cost-of-living adjustment for seniors is consumed by the increase
    in the Part B premium.  Isn't that essentially what the SGR was
    designed to do, since it goes up every year by the amount of the,
    set to the GDP figure?  Is that--I mean, wouldn't that be the
    intended consequence?
    	MR. GUTERMAN.  To control spending?
    	MR. BURGESS.  Yes.
    	MR. GUTERMAN.  Yes.  Yeah, that was.  It just hasn't worked.
    	MR. BURGESS.  Wouldn't it--the activity to income related to
    Part B premium on the Medicare Modernization Act of--I am sorry,
    in 2003.  Did that modify that loss of the COLA every year for
    low-income individuals?  If we fully implemented the income relating
    to Part B program, would that modify the loss of the COLA for
    low-income individuals?
    	MR. GUTERMAN.  That would tend to spread the cost more
    toward the high end of the income distribution, that is true.
    If I may add two quick points in response to one of your previous
    questions: prior to coming to the Commonwealth Fund, I was at CMS
    and was involved in the development of demonstration programs.
    One of the problems we faced was justifying demonstration programs,
    because we had to show that they promised savings, or at least
    budget neutrality, and the argument we used to give was that that
    was why we were doing demonstration programs.  We tried to generate
    the kind of information that Mr. Marron would need to make better
    estimates of cost savings resulting from these kinds of programs.
    	We are starting to get some of that information.  In the
    Premier Hospital Quality Incentive demonstration, for instance, it
    was found that hospitals that were the highest performers also had
    a lower percentage of readmissions among their patients, which is a
    direct reduction in cost to Medicare for their patients, because
    Medicare pays for every admission.  The National Committee for
    Quality Assurance has found that physicians that participate in
    their diabetic care program have achieved improvements in crucial
    measures of diabetic care, which also could be probably traced to
    cost.
    	MR. BURGESS.  Well, let me interrupt you, because the
    Chairman is going to tell me I am out of time here in just a
    moment.  Chairman Barton referenced we need to be able to get out
    of the box that SGR has placed us into.  Let me just ask that
    question from a different perspective.  Maybe we ought to assume
    that SGR is a good formula, and it is one that everyone ought to
    live by.  Should we incorporate SGR to Part A, Part C, and Part D
    the same as we have done to Part B?  That is, should hospitals,
    drug plans, and Medicare Advantage plans live under a cost
    reduction every year, or reimbursement reduction every year, in
    order to control the growth?  And I will leave that question for
    anyone who cares to try to answer it.
    	MR. STEINWALD.  I think there are some reasons, and I tried
    to portray the history of spending that led to SGR, that Part B
    really is different from other parts.  If you take the Inpatient
    Prospective Payment System, for example, which is still the largest
    part of Medicare, we are now, as you know, paying by DRG, and in
    essence, the update is being set by Congress every year as part of
    the budget process.  So, you have got--
    	MR. BURGESS.  But that is a market basket update based on
    the cost of inputs.  Physicians have no such update that is related
    to the cost of delivering the car.
    	MR. STEINWALD.  Yeah, but it is a much larger bundle of
    services included in the--
    	MR. BURGESS.  So, the savings could be much greater.
    	MR. STEINWALD.  Sure.  I mean, if part of the implication is
    should we have value-based purchasing that goes beyond Part B,
    absolutely.
    	MR. NORWOOD.  Thank you very much, Dr. Burgess.  Your time
    has expired.  Mr. Green, you are recognized for questions.
    	MR. GREEN.  Thank you, Mr. Chairman.  Mr. Miller, in your
    testimony, you mentioned pay-for-performance proposals, and the use
    of health information technologies.  You allude to the notion that
    such, just any old piece of IT equipment won't work.
    	Would you elaborate on the importance of widespread health
    IT adoption models, and the success of pay-for-performance models?
    And given the financial pressures currently faced by physicians,
    does MedPAC believe that participation in a pay-for-perform
    ance model is enough incentive for physicians to invest in the
    health IT equipment, or would a Medicare add-on payment help further
    increase efficiency through a speedier adoption of health IT invest
    to pay-for-performance?  And again, the health IT that really will
    be beneficial to Medicare.
    	MR. MILLER.  You have got a couple of questions in there,
    and let me go at it this way.  The Commission has discussed in
    detail in going through its pay-for-performance or value-based
    purchasing recommendations, and at the time that they considered
    this, there was great concern that simply reimbursing or paying
    additionally for the adoption of IT would not necessarily result in
    improvements in the quality of care.  There are a lot of examples
    out in the private sector where people have purchased IT systems,
    but not necessarily changed their delivery mechanisms of care, and
    that the purchase of the IT was an expenditure, and basically, a
    failure where quality was concerned.
    	And so, the way the Commission ended up going at this is we
    said, make these the functionality of IT.  Do you have a tracking
    system for your diabetics?  Can you identify every patient that has
    taken this drug?  Make those functionalities part of the way
    physicians get performance payments, and then allow the market to
    come in and say here are the systems that will help you reach those
    metrics.  And then, you change the business proposition of saying,
    I am not paying for IT, but I know  I will get more payments if
    my  functionality improves, so I will purchase IT.  That was the
    line of reasoning.
    	MR. GREEN.  Okay.  But in the IT, is there, and I know
    MedPAC doesn't want to say this plan is good, this process is good,
    is bad, but again, you want one that actually does track the
    success, for example, in tracking diabetics.
    	MR. MILLER.  Absolutely.  We wouldn't have the expertise to
    say this package versus that package, but we wrote up in the report
    efforts that are currently underway in the private sector and in the
    public sector, defining operational standards and languages, and all
    that type of stuff, but we wouldn't make a specific recommendation.
    But the answer, yes, that is what we are looking for.
    	MR. GREEN.  Okay.  This question is for, frankly, anyone on
    the panel.  The U.S. system--on Thursday, we will hear from
    Dr. McClellan and a panel of physician representatives out
    implementing a pay-for-performance system in Medicare.
    	First, I would like to get the opinions of Dr. Miller and
    Mr. Steinwald and Mr. Guterman on whether we know exactly what
    pay-for-performance is for physicians in Medicare, such as it could
    begin in January of next year.  Do we know enough now to be able to
    do something?
    	MR. GUTERMAN.  Let me take that one.  I think the answer is
    probably no, not completely.  I think we need to be prepared to take
    some interim steps, like requiring, if we are going to avoid the
    decreases in physician payments that are in line for the next several
    years, to focus on getting something for that extra money.  In
    particular, to improve the ability to collect quality measures and
    provide a financial incentive for submission of quality measures,
    similar to Section 501 of the Medicare Modernization Act for
    hospitals.
    	MR. MILLER.  This follows right off of what you were asking
    me before.  The Commission's view of it was for physicians to start
    with this IT functionality, is something that could be within reach.
    Now, for January of '07, which is essentially a couple of weeks away
    at this point, it is probably, it would be hard to get to that
    point, and harder still to get to a full array of performance
    measures.  And what the Commission talked about is bringing together
    clinicians, people who study quality, the private sector, who is
    already into this, and medical societies, and ask them to put
    forward, which in some respects, they are doing now, put forward
    the metrics that they thought should be part of this.
    	MR. GREEN.  Mr. Steinwald.
    	MR. STEINWALD.  For GAO, I think it is wonderful to hear
    about all of these demonstrations and other initiatives taking
    place, but in terms of something systemic that could be put into
    place on January 1, obviously, it would be interesting to hear what
    Dr. McClellan has to say on Thursday, but I would be very doubtful
    that there would be such a system that would be implementable in
    that short a timeframe.
    	MR. GREEN.  Thank you, Mr. Chairman.  In fact, if I
    have--oh, I am over time.  Okay.  I was going to yield some time
    to my colleague from Texas, because I knew he didn't have enough.
    	MR. NORWOOD.  Thank you very much Mr. Green.  I would like
    to recognize Chairman Bilirakis now for 5 minutes for questioning.
    	MR. BILIRAKIS.  Thank you, Mr. Chairman.  Gentleman, others
    have gone into the pay-for-performance, value-based purchasing, I
    guess it has been called, whatnot.  Echocardiograms, that is, I
    guess you might say, well, if it is done by a primary care physician
    in his office, to use basically as a screening device for every
    patient, is that good quality medicine?  Is that value-based
    purchasing?
    	MR. MILLER.  Did you say on every patient?
    	MR. BILIRAKIS.  I said on every patient.
    	MR. MILLER.  Well, without knowing exactly every patient,
    but I would assume every patient, that might raise some questions.
    	MR. BILIRAKIS.  But there is a history of this physician
    having picked up problems early on, which all of them, may of
    course save money, and that sort of thing.  Would that be considered
    good quality medicine, or is that taking advantage of the system, so
    to speak?
    	MR. MILLER.  I mean, if you were involved in a
    pay-for-performance system, and let us just pick an example.  So,
    let us say we are in that situation.
    	MR. BILIRAKIS.  Yes.
    	MR. MILLER.  We are in the group of physicians that have
    come together, like the example that I was talking about, and this
    physician's practice style resulted in avoided hospitalizations, and
    savings resulted from that, and obviously, the outcomes of the
    patients were all positive, then that practice style would be
    rewarded, but if they were just really imaging, or whatever the case
    may be, every person that walked in, literally, I am not sure that
    many clinicians, I think, would look at that and raise questions
    about whether that makes sense or not.
    	MR. BILIRAKIS.  All right.  Well, let us say it wasn't every
    patient.  Let us say maybe it was patients that reached a certain
    age, possibly maybe had a family history, that sort of thing.
    	MR. MILLER.  And you see there, I think now, that is what
    we are talking about.  I mean, I think there are things that,
    standards that have been put together by associations and societies
    of physicians who say you know, when somebody walks in with lower
    back pain, you don't necessarily load them up and put them on the
    MRI right there.  There are steps that you take before you go ahead
    and take the imaging.
    	And I think that is the kind of thing that we are talking
    about, and those kinds of, if we could create incentives for
    physicians to be judicious in how they use this, and to focus it on
    the people who are actually in need, as opposed to, well, anybody
    who walks in here, I am going to run this imaging, we think that
    would be a positive step.  Right now, the system rewards the
    physician, literally, who runs the echo or the image on anybody
    that walks in.
    	MR. BILIRAKIS.  Right.  Yeah.  Well, I certainly don't want
    to be the person having to sit down and draft up the definition of
    value-based purchasing.  I mean, how would you be able to possibly
    cover virtually every occurrence that might possibly take place.
    	Well, that is another thing.  Let me ask, does the SGR
    accurately reflect the costs that physicians incur for providing
    Medicare services?  Dr. Guterman.  No or yes.
    	MR. GUTERMAN.  No.
    	MR. BILIRAKIS.  No.
    	MR. GUTERMAN.  It is not intended to do that.
    	MR. BILIRAKIS.  It does not.  Dr. Miller.
    	MR. MILLER.  Same.
    	MR. BILIRAKIS.  And Mr. Steinwald.
    	MR. STEINWALD.  No.
    	MR. BILIRAKIS.  And Mr. Marron.  No.
    	MR. MARRON.  No.
    	MR. BILIRAKIS.  All right.  Now, you started to explain,
    Dr. Guterman.
    	MR. GUTERMAN.  Well, the SGR is intended to adjust physician
    fees for the amount of resources that, overall, should be devoted to
    physician care based on the growth in the economy as a whole.  So it
    actually is explicitly severing the total amount, the setting of
    physician fees from the, or at least removing the setting of
    physician fees from totally being driven by resource costs.
    	MR. BILIRAKIS.  And well, don't you think that the intent,
    when it was created, was that it would cover adequately the actual
    physician fees, the practically expected, anticipated physician
     fees?
    	MR. STEINWALD.  I will give that a try.  One of the elements
    of SGR is MEI, inflation in the cost of running a medical practice,
    the Medicare Economic Index.  That is one of four elements.  But the
    other important element is real growth in the economy, and at the
    time it was enacted, it was the sense of the Congress that that
    would be an allowance for volume and intensity or technology growth,
    that this was what was affordable, and that was why it was put into
    the formula, I believe.
    	And the other two elements are the growth in the
    fee-for-service population, or the change in that, and the change
    in law and regulations that could affect Medicare spending per
    beneficiary.
    	MR. BILIRAKIS.  Well, would we say that it was intended more
    to serve as an incentive to control the overutilization of services
    provided by physicians to Medicare beneficiaries, or to serve as a
    formula, if you will, to determine the actual cost improvements to
    those physicians?
    	MR. STEINWALD.  Well, as I said earlier, remember, when it
    was put in place, there were enormous increases in the '80s in
    spending per beneficiary, under the old physician fee schedule
    system.  Congress froze fees and did other things during that period
    that were unsuccessful, and therefore--
    	MR. BILIRAKIS.  Your insurance.
    	MR. STEINWALD.  Therefore, the combination of the national
    fee schedule and the spending targets that went into place in 1992
    led to a period where spending increases were moderate over the
    1990s.
    	MR. BILIRAKIS.  Well, all right.  My time is up.  That 5
    minutes really flies.  But apparently, it hasn't worked.  I think
    you all would agree it is not working.  Thank you.
    	Thank you, Mr. Chairman.
    	MR. NORWOOD.  Thank you very much, Mr. Chairman.  And I
    think your question, one specifically, was outstanding, and Mr.
    Miller points out the problem.  You say that well, that physician
    should not take that MRI unless, for example, there are some
    standards which might be age, might be family history, and that
    is great.  That really saves money and that works, except that
    one 48 year old patient who doesn't fit any of those standards,
    who you have misdiagnosed because you didn't take the MRI.  What
    do you do with that?  I don't need an answer.  I am just throwing
    that out.
    	Dr. Burgess, I would recognize you for a last question, if
    you have one.  If not, hand it back.
    	MR. BURGESS.  Actually, I had a last page of questions.
    	Let me then, if I could, Mr. Miller, I know you said this
    earlier, but in your testimony, you said a full, if we were to
    change from the SGR to a more MEI-based formula, the full MEI was
    not necessary on a year over year basis.  Did I understand that
    correctly?
    	MR. MILLER.  You did.
    	MR. BURGESS.  And the cost of inputs that the MEI addresses,
    that could be adjusted over time as was necessary, if we were to go
    to an MEI formula?
    	MR. MILLER.  Yeah.  If I understand your question, what I
    was saying is, is that MedPAC looks that--and let us say the MEI is
    some percentage increase.  Actually, let me give you a different
    example.  For the last several years, the hospital's market basket,
    which is the hospital's version of the MEI, has been going up
    3, 3.5, 4 percent.  There were a couple of years there where
    hospital costs were growing at 6, 7, 8 percent, and the Commission
    went through an analysis, and looked at those costs, and said we
    don't think that the Medicare program should recognize all of that
    cost growth, and so, the point I was making is that just because the
    MEI says 2.5, 3.5, whatever percent, the Commission wouldn't
    necessarily look at that and say physicians get 2.5 or 3.5 percent.
    They would look at other factors, and they may lower that MEI.  That
    is what I was trying to say.
    	MR. BURGESS.  And indirectly, you have alluded to the
    problem, in that there is very little in the cost of doing business
    today that is a whole lot less than what it was 5 years ago.  That
    is, electricity rates are higher, rates for employees are higher,
    rates for malpractice insurance are higher, so the physicians have
    seen that, have seen their market basket increase in what they are
    having, the checks they are having to write to keep their doors
    open, and at the time, the SGR is pounding on them on the other end
    by saying we are going to cut you 4.5, 5.4, whatever percentage that
    is.
    	There is also the perverse activity of, some insurance
    companies do peg their rates to Medicare rates, so every time we put
    a 4.4 percent whack onto our friends in the physician community, the
    other insurances will follow suit, and we have the unintended
    consequence of making it even harder for that practice--I think
    Ms. Capps referenced this--making it even harder for that practice
    to stay open, because we are reducing their rates in the private
    sector as well.  We never intended these rates to be Federal price
    controls, but in reality, that unfortunately is many times what
    happens.
    	Mr. Chairman, you have been very kind, and I will yield.
    	MR. NORWOOD.  Thank you very much.
    	I think it is important for the record.  I started this
    hearing out by saying that I am lucky enough to be on Medicare by
    the end of the week, and Ms. Eshoo pointed out to me that well, I
    didn't have to be on Medicare.  I could simply pay for my own
    healthcare, but I want the record to reflect that isn't true.  You
    can't find a doctor, frankly, and any doctor who would treat me for
    me paying them gets kicked off Medicare plus fines, et cetera, so it
    isn't exactly like I could go out into the marketplace and pay for
    my own healthcare after 65.
    	I think the conclusion to this hearing, from my mind, is
    that probably we have the finest healthcare in the entire world in
    the United States, yet Congress is busy trying to set the prices for
    physicians, trying to tell them how to practice medicine, trying to
    take over the administration of their office with IT, and I just
    wonder, are we going to continue to have the finest healthcare in
    the world once Congress, through you gentlemen, and I mean no offense
    to you earlier, through you gentlemen doing what we ask you to do,
    is healthcare in this country going to stay like it is today, in
    terms of the great quality and outcomes that we have?
    	This hearing will now recess.
    	MR. BURGESS.  Mr. Chairman.  Mr. Chairman, can I ask
    unanimous consent that you posed a hypothetical situation where if
    you went to a physician off of Medicare, or on Medicare, and you
    wrote him a check for reimbursement, can we just have in the record
    what the penalties would be for that Medicare physician, or that
    physician who accepted an assignment under Medicare, what the
    penalties would be for that physician if he accepted payment from
    you?
    	MR. NORWOOD.  So ordered.
    	[The information follows:]

    MR. NORWOOD. Mr. Pallone pointed out what is the point?  I couldn't
    pay for it anyway.
    	We will recess until Thursday morning at 10:00 a.m.  Thank
    you very much, gentlemen, for your time and cooperation.
    	[Whereupon, at 12:20 p.m., the subcommittee recessed, to
    reconvene Thursday, July 27, 2006, at 10:00 a.m.]

    MEDICARE PHYSICIAN PAYMENT: HOW TO BUILD A PAYMENT SYSTEM THAT
    PROVIDES QUALITY, EFFICIENT CARE FOR MEDICARE BENEFICIARIES

    THURSDAY, JULY 27, 2006

    HOUSE OF REPRESENTATIVES,
    COMMITTEE ON ENERGY AND COMMERCE,
    SUBCOMMITTEE ON HEALTH,
    Washington, DC.

    The subcommittee met, pursuant to notice, at 10:05 a.m., in Room
    2125 of the Rayburn House Office Building, Hon. Mike Ferguson
    presiding.
    	Members present:  Representatives Gillmor, Norwood, Shimkus,
    Buyer, Ferguson, Burgess, Barton (ex officio), Brown, Gordon,
    Rush, Eshoo, Green, Capps, and Allen.
    	Staff Present:  Melissa Bartlett, Counsel; Brandon Clark,
    Policy Coordinator; Chad Grant, Legislative Clerk; Bridgett
    Taylor, Minority Professional Staff Member; Amy Hall, Minority
    Professional Staff Member; and Jessica McNiece, Minority Research
    Assistant.
    	MR. FERGUSON.  Good morning.  We will reconvene our hearing,
    entitled "Medicare Physician Payment:  How to Build a Payment System
    that Provides Quality, Efficient Care for Medicare Beneficiaries."
    	I will begin by saying that I will be chairing the hearing
    today in place of Chairman Deal, who is tending to his 99 year old
    mother in Georgia, who is in failing health.  I know you join me
    in offering our thoughts and prayers to the Chairman and his family
    and his mom.
    	Secondly, I will alert the committee that members will be
    acknowledged today in the order that was established in the first
    part of our hearing, and we will obviously, because this is a
    continuation of a hearing, we will not have opening statements from
    members.
    	I now would like to acknowledge Dr. Mark McClellan.
    Dr. McClellan, thank you for being here with us today.  Dr. McClellan
    is Administrator of the Centers for Medicare & Medicaid Services.
    Dr. McClellan has asked for 10 minutes to present his opening
    statement, and we will offer him the 10 minutes.
    	Dr. McClellan, welcome.  You are recognized.

    STATEMENT OF DR. MARK MCCLELLAN, ADMINISTRATOR, CENTERS FOR
    MEDICARE & MEDICAID SERVICES

    	DR. MCCLELLAN.  Thank you very much Mr. Chairman, and
    Representative Green.
    	MR. FERGUSON.  Would you just turn on your microphone?
    	DR. MCCLELLAN.  Turn on my microphone.  All the distinguished
    members of the committee.  I want to thank you for inviting me to
    discuss this very important issue of how Medicare reimburses
    physicians to provide care for people with Medicare.
    	As this committee and others have recognized, the current
    method for determining Medicare's payments to physicians is not
    sustainable.  From the standpoint of access to quality care, it
    is not sustainable to significantly reduce payment rates year after
    year, but it is also not sustainable to simply keep adding more
    money into the current system to head off scheduled payment
    reductions due to rapidly rising costs.
    	In the recently released mid-session review of the budget,
    Medicare Part B expenditures are again projected to be significantly
    higher than previously estimated, $30 billion higher over 5 years,
    reflecting rapid growth in the use of both physician-related
    services and hospital outpatient services.
    	The main reason for the 10 percent growth in expenditures
    for physician services in 2005 is growth in the volume and
    intensity of services by over 7 percent.  The volume and intensity
    of physician services has been going up by between 5 and 7 percent
    per year in recent years.  The volume and intensity of outpatient
    services rose by more than 8 percent in 2005, and this has resulted
    in a projected increase in next year's Part B premium, to $98.40.
    That is an increase projected of 11 percent, that would go up even
    more if physician payment rates are increased.
    	So, we are in an unsustainable situation that is the direct
    result of paying more for more services regardless of their quality
    or impact on patient health.  In fact, if physicians take steps to
    improve quality and keep overall healthcare costs down, we pay them
    less.  If a primary care physician invests in a health IT system
    that enables her to share information with colleagues and track
    patients better, resulting in fewer lab tests and fewer visits to
    the doctor, and maybe fewer hospital admissions and complications,
    Medicare pays her less.  So, the physician can't take these steps
    and make ends meet in her office practice.
    	But on the other hand, if she performs duplicative lab
    tests because she can't easily get the results of tests done
    already, or if her patients have more visits for complications,
    because the care is poorly coordinated, Medicare pays more.  If a
    surgeon takes steps to prevent infections, for example, by taking
    a little more time to work with the surgical team to improve
    postoperative care, we pay her less.  But if the surgical team
    doesn't take steps to prevent post-op complications, so the
    patient needs further procedures, and spends more time in the
    hospital, we pay more.  We can't afford to pay this way any more.
     That is why the President's budget has proposed budget neutral
    payment reforms to redirect the dollars we are spending, to help
    physicians deliver the kind of care they want to provide.
    	I am pleased to report that the physician community,
    supported by CMS and by broad-based, privately led quality
    alliances, has been making great strides in developing the sorts
    of quality measures that will help us in supporting the kind of care
    we want.  These measures are being developed and implemented by
    practicing healthcare professionals, working with health plans and
    employers and consumer representatives.  These initiatives are
    focused on promoting care that the evidence shows improves patient
    health and avoids unnecessary medical costs.
    	For example, diabetes is one of the leading causes of death
    and impairment among Medicare beneficiaries, and accounts for a
    significant portion of Medicare spending.  Physicians involved in
    diabetes care have identified measures of quality, including
    measures of the control of blood sugar and cholesterol and blood
    pressure.  The medical evidence indicates that improvements in
    these measures can lead to fewer hospitalizations by avoiding
    complications from diabetes, such as amputation and kidney failure,
    and heart disease.  We also now know that public reports on these
    quality measures can help patients with diabetes learn more about
    how they can get the best care for their condition, and that paying
    at least a little more to help physicians to improve results, rather
    than simply provide more treatments to diabetic patients, can lead
    to better outcomes.
    	With even a small portion of payments tied to better
    results, physicians can spend more time doing what is best for
    the patient.  Maybe it is spending extra effort on patient education
    about nutrition and monitoring for a patient who is having a hard
    time with compliance with their diet and medication.  Maybe it is
    regular phone calls from a specially trained nurse to identify
    problems early in a patient with brittle diabetes.  By helping
    patients use medications or implement diet and lifestyle changes
    effectively, we can avoid emergency room visits and surgeries that
    result when a diabetic patient doesn't have good control over their
    blood sugar or blood pressure or cholesterol.
    	The American Medical Association and many medical societies
    have been very active this year in developing a range of new
    quality measures.  Currently, there are 57 unique measures that can
    be used by one or more of 34 medical specialties.  Among those
    specialties, 26 have at least 3 measures they can use, and 8 more
    have 1 or 2 measures.  Many measures apply to many specialties, such
    as those related to preventing infections and blood clots after
    surgery, and those related to preventive services and preventing
    complications of common conditions like diabetes.  And we are
    expecting that physician groups, in collaboration with the quality
    alliances, will develop more measures in the near future.
    	There is growing evidence that quality measures like these
    help patients choose better care, and help reduce overall healthcare
    costs.  We are seeing this with public reporting on hospital
    quality, where Medicare hospital payments are now tied to quality
    reporting, and hospitals nationwide are reporting on an increasing
    range of quality measures.  These measures will expand to include
    patient satisfaction and risk-adjusted outcomes for common health
    problems next year.
    	And we are also seeing that paying for better quality can
    make a difference.  In our Premier Hospital Quality Incentive
    Demonstration project, we are using quality measures in five
    clinical areas, including heart attacks, heart failure, pneumonia,
    coronary artery bypass surgery, and hip and knee replacements.
    Providers that fall into the top 20 percent in these reported
    measures receive higher payments.  In this demonstration program,
    we have seen across the board improvements in quality in the five
    clinical areas over the past 2 years.  Readmission rates for
    pneumonia, for example, were 25 percent lower for the top 10
    percent of hospitals.  That translates into substantial cost
    savings, not to mention better patient outcomes.
    	While reporting and payment based on physician quality
    measures isn't as far along yet, we are also seeing promising
    results for physicians.  This year, CMS started the Physician
    Voluntary Reporting program, in which thousands of physicians are
    now reporting on evidence-based measures of quality of care
    relevant to their practice.  With physician support and feedback,
    this voluntary pilot is helping us identify feasible and effective
    ways for physicians to report on quality of care and improve their
    care.
    	We are also starting to see some promising results when we
    pay more for better physician care.  Our Physician Group
    Practice Demonstration program involves reporting on 32 quality
    measures on performance by 10 large physician groups, with a total
    of over 5,000 physicians.  The goals are to encourage better
    coordination of Part A and Part B services, and to support
    physicians for achieving better health outcomes and overall
    reductions in healthcare costs.  Participating groups have told us
    that the quality reporting and payment bonuses for quality and
    efficiency have made it possible for the groups to make quality
    improvement, particularly moves to invest in health IT and moves
    to improve coordination of care.
    	Early results show reduced hospitalizations, especially for
    heart failure patients.  The private sector has also been very
    active in implementing innovative payment systems that recognize
    and reward high quality care.  For example, the Integrated
    Healthcare Association, a collaboration of many large health plans,
    employers, and physician groups in California, now involves
    reporting by some 35,000 physicians on various aspects of clinical
    quality, patient satisfaction, and the use of health IT
    effectively.
    	The IHA recently announced that in 2005, they saw across
    the board improvements in clinical measures, including 60,000 more
    screening services for cervical cancer than in 2004, 12,000 more
    screenings for diabetes, and 30,000 more childhood immunizations.
    In addition, physicians increased their adoption of health IT.
    	There are many other examples around the country right
    now where preventable health problems are actually being prevented,
    and costs are being reduced for common chronic diseases like heart
    failure and diabetes, and where patients undergoing thoracic surgery
    and other surgical procedures are experiencing better results and
    fewer costly postoperative complications.
    	The fact is, physicians want to provide the best care
    possible, but we are making it difficult for them, and more
    expensive for all of us, by paying more for more complications and
    poor coordination of care, rather than paying more for what we
    really want, better care and lower overall costs.  There is more
    and more evidence that it doesn't have to be this way when we
    involve patients and doctors in measuring and improving care.
    	This is the direction that we want to go in Medicare,
    and for the sake of our health and the sustainability of the
    Medicare program, it is the only direction that we can afford.
    	We look forward to continuing to work with the Congress
    on that goal.  Mr. Chairman, I would be happy to answer any
    questions that you and the other committee members may have.
    	Thank you.
    	[The prepared statement of Hon. Mark McClellan follows:]

    PREPARED STATEMENT OF THE HON. MARK MCCLELLAN, ADMINISTRATION,
    CENTERS FOR MEDICARE & MEDICAID SERVICES

    Introduction
    Chairman Deal, Representative Brown, distinguished members of
    the Subcommittee, thank you for inviting me here today to discuss
    our efforts to promote high-quality physicians' services for our
    Medicare beneficiaries.  The Centers for Medicare & Medicaid
    Services (CMS) is actively engaged with both the Congress and
    physician community on this important topic.  This is a very
    significant time.  It is a moment when, with your leadership, we
    can make real progress in identifying ways to align Medicare's
    physician payment system with the goals of health professionals
    for high-quality care, without increasing overall Medicare costs.
    If we are able to design a payment system that aligns reimbursement
    with quality and efficiency, we can better encourage physicians to
    provide the type of care that is best suited for our beneficiaries
    -- care focused on prevention and treating complications; care
    focused on the most effective, proven treatments available.  This
    is far preferable to the current physician payment system, which
    simply increases payment rates as the volume of services continues
    to grow rapidly.
    In order to move toward this vision, CMS has supported and worked
     collaboratively with the physician community to develop measures
    that capture the quality of care being provided to our Medicare
    beneficiaries.  We continue to support efforts to expand the
    available measures of physician quality, including measures of the
    overall cost or efficiency of care.  Through the Physician Voluntary
    Reporting Program (PVRP), CMS is also working with the physician
    community to develop and gain experience with the infrastructure
    and methods needed to collect data on several quality measures and
    provide confidential feedback to physicians based on those reports.
    CMS is also conducting demonstration programs designed to test a
    pay-for-performance system in the physician office setting that we
    hope will yield information helpful to the agency and the Congress
    as we consider options for revising the Medicare physician payment
    system.  Throughout all of these efforts, CMS will continuously
    work with physicians and their leadership in an open and transparent
    way in order to support the best approaches to provide high quality
    health care services without creating additional costs for
    taxpayers and Medicare beneficiaries.

    Physician Payment Update
    Currently, 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 comparison of cumulative targets for each year and actual
    spending from 1996 to the current year.  If actual spending exceeds
    the targets, updates in subsequent years are negative until such
    time as spending comes into line with the targets and vice versa.
    The use of targets is intended to control the growth in aggregate
    Medicare expenditures for physicians' services.
    Actual spending on physicians' services has been growing at a
    faster rate than target spending.  For several years now, in
    response to this rise in spending, the statutory update formula
    would have operated to impose payment cuts.  However, to stave off
    the cuts, in the Medicare Modernization Act (MMA) and Deficit
    Reduction Act (DRA), Congress temporarily suspended the requirements
    of the formula in favor of a specific, statutorily dictated update
    in 2004, 2005, and 2006.  In passing these measures, Congress did
    not include a long-term modification to the underlying update
    formula.  This resulted in actual spending that, rather than being
    held back, actually advanced, furthering the gap between actual
    spending and the targets, exacerbating the already difficult
    situation.
    When, in 2007 and beyond, the statutory formula is reactivated under
    current law, it is expected to impose cuts in payments to physicians
    over a number of years, to bring actual spending back in line with
    the targets.  Sustained reductions in payment rates raise real
    concerns about the current system's ability to ensure access to
    care for Medicare beneficiaries.  In addition, it does not create
    incentives for physicians to provide the highest quality care at
    the lowest overall cost.  For these reasons, finding better
    approaches for payment that do not increase overall costs remains
    an urgent priority.
    The existing system is designed to control spending in the
    aggregate, but in recent years it has not been successful in
    limiting spending growth by influencing the behavior of individual
    physicians.  We recently released the Mid-Session Review of the
    Budget.  Medicare Part B expenditures are now projected to be
    significantly higher than budgeted, as a result of rapid growth
    in the use of both physician-related services and hospital
    outpatient services.  The main reason for the 10 percent growth
    in expenditures for physicians' services in 2005 is an increase in
    the volume and intensity of services.  Increases in the volume and
    intensity of physicians' services are estimated to be 7 percent for
    2005, and are projected to be 6 percent for 2006.  The continuing
    rapid growth in utilization and thus in Part B spending has two
    important consequences:  it will lead to substantial increases in
    Part B premiums, and will increase the difference between actual
    and target expenditures with the existing update formula.
    Furthermore, the increases in volume and intensity do not appear
    to be driven primarily by evidence-based changes in clinical
    practices.  And with reductions in payment rates when volume rises,
    some health care providers may feel more pressure to increase volume
    in order to sustain revenues.  This sort of behavior is precisely
    what we do not want.  There is already substantial evidence of
    overuse, misuse, and underuse of medical treatments that results
    in potentially preventable complications and higher costs.  Yet by
    paying more for more treatments, regardless of their quality or
    impact on patient health, our current system does little to address
    these quality problems and in certain respects could support and
    encourage less than optimal care.  Instead, we should be paying for
    care in a way that encourages improved quality and keeps overall
    costs down.  Fully addressing this situation will require
    legislative action by the Congress.  The Administration looks
    forward to working with the Congress as it explores a budget-neutral
    legislative resolution to this challenge, but CMS believes that any
    new payment system must emphasize quality and appropriateness of
    care, as opposed to paying more for higher volume and intensity.

    Developing Quality Measures
    The physician community understands the urgency of revising
    Medicare's payment system, and for some time now, supported by
    CMS, has been engaged in efforts to develop useful, agreed upon
    measures of quality care.  Quality measures are the basic foundation
    and pre-requisite for a payment system that encourages physicians in
    their efforts to provide the most clinically appropriate care, rather
    than the most volume.
    For several years, CMS has been collaborating with a variety of
    stakeholders to develop and implement uniform, standardized sets
    of performance measures for various health care settings.  In the
    past year, thanks to the leadership of many physician
    organizations, these efforts have accelerated even further.
    Our work on the quality measures has been guided by the following
    widely-accepted principles.  Quality measures should be
    evidence-based.  They should be valid and reliable.  They should be
    relevant to a significant part of medical practice.  And to assure
    these features, quality measures should be developed in conjunction
    with open and transparent processes that promote consensus from a
    broad range of health care stakeholders.  It also is important that
    quality measures do not discourage physicians from treating
    high-risk or difficult cases, for example, by incorporating a risk
    adjustment mechanism when needed.  In addition, quality measures
    should be implemented in a realistic manner that is most relevant
    for quality improvement in all types of practices and patient
    populations, while being least burdensome for physicians and other
    stakeholders.
    There are several distinct steps pertaining to the implementation of
    physician quality measures, including:  1) development through a
    standardized process; 2) consensus endorsement of measures as valid,
    usable, important, and feasible; and 3) consensus endorsement of
    measures for use in the healthcare market.

    Development through a standardized process.  There are a limited
    number of experienced physician quality measure developers. These
    include the American Medical Association's Physician Consortium
    for Performance Improvement (AMA-PCPI), the National Committee for
    Quality Assurance (NCQA), and some physician specialty societies.
    Most of the physician measurement development work prior to 2006
    pertained to primary care specialties.
    Consensus measure endorsement. Once measures are developed, it is
    still necessary to achieve a broader consensus on their validity,
    usability, and importance as a measure of healthcare quality.  The
    National Quality Forum plays a significant role in this process.
    Most of the NQF endorsed measures as of 2006 relate to ambulatory
    care and therefore primary care specialties.
    Consensus for use in healthcare marketplace.  There is an additional
    need for consensus on measures for practical use in the marketplace.
    This is to promote uniformity by payers and purchasers in
    implementing quality reporting programs for physicians that have the
    maximum impact on improving quality and avoiding unnecessary costs.
    Without this consensus, physicians could not only be burdened by
    dealing with numerous sets of measures for numerous payers, but
    also the results themselves would suffer by the small number of
    patients that any individual payer would represent for a particular
    physician practice.  This consensus-building role is fulfilled by
    the Ambulatory Care Quality Alliance (AQA). The AQA in April, 2005
    endorsed a 26 measure starter set of measures pertaining to primary
    care specialties. In 2006, the AQA is focusing on adding non-primary
     care specialties to its consensus measures.
    Implementation for reporting.  Implementation of measures requires
    additional considerations, particularly the method of clinical data
    reporting.  Generally, physician claims do not include all the
    clinical data required for physician quality measurement.
    Physicians and payers do not necessarily have interoperable
    electronic health records that have potential for automating the
    process of data gathering either.  As a result, any method of
    quality measure reporting should build on existing claims reporting
    systems if it is to be successful in the near future.  The AQA has
    a specific workgroup that focuses on developing consensus in
    reporting, and CMS is supporting efforts by the AQA, AHIC, and
    others to assure that interoperable electronic health records
    systems will support more automated collection and reporting of
    consensus measures as they become available.

    Examples of Quality Measures
    Examples of three ambulatory quality measures are based on the
    results of the hemoglobin A1C and LDL and blood pressure tests for
    diabetic patients.  The clinical evidence suggests that patients
    who have a hemoglobin A1C test below 9 percent, an LDL less than
    or equal to 100 mg/dl, and blood pressures less than or equal to
    140/80 mmHg have better outcomes.  These measures are
    evidence-based, reliable and valid, widely accepted and supported,
    and were developed in an open and transparent manner.  Evidence
    indicates that reaching these goals can lead to fewer
    hospitalizations by avoiding complications from diabetes such as
    amputation, renal failure, and heart disease .
    Two quality measures endorsed by the National Quality Forum (NQF)
    for heart failure patients include placing the patient on blood
    pressure medications and beta blocker therapy.  Here too, these
    therapies have been shown to lead to better health outcomes and
    reduce preventable complications.  Together, diabetes and heart
    failure account for a large share of potentially preventable
    complications.
    In addition to primary care quality measures, other specialties are
    developing measures.  For example, measures of effectiveness and
    safety of some surgical care at the hospital level have been
    developed through collaborative programs like the Surgical Care
    Improvement Program (SCIP), which includes the American College
    of Surgeons.  Preventing or decreasing surgical complications can
    result in a decrease in avoidable hospital expenditures and use of
    resources, and more important, avoiding complications improves the
    health, functioning, and quality of life of Medicare beneficiaries.
     For example, use of antibiotic prophylaxis has been shown to have
    a significant effect in reducing post-operative complications at
    the hospital level.  This particular measure is well developed and
    there is considerable evidence that its use could not only result
    in better health but also avoid unnecessary costs.
    This post-operative complication measure, which is in use in our
    Hospital Quality Initiative, is being adapted for use as a physician
    quality measure.  Application of this type of post-operative
    complication measure at the physician level has the potential to
    help avoid unnecessary costs as well as improve quality.
    We also are collaborating with other specialty societies, such as
    the Society of Thoracic Surgeons (STS), to implement quality
    measures that reflect important aspects of the care of specialists
    and sub-specialists.  The STS has already developed a set of 21
    measures at the hospital level that are risk adjusted and track many
    common complications as outcome measures.  STS is also conducting a
    national pilot program to measure cost and quality simultaneously,
    while communicating quality and efficiency methods across regional
    hubs with the objective of reducing unnecessary complications and
    their associated cost.  The STS measures have been adapted to a
    set of five quality measures for physicians, such as for a patient
    who receives by-pass surgery with use of internal mammary artery.
    Many other specialties have also taken steps to develop
    evidence-based quality measures.

    The Physician Voluntary Reporting Program
    As a first step toward aligning Medicare's physician payment system
    with the goals of quality improvement, CMS launched the PVRP in
    January 2006.  The goals of the PVRP include:  1) developing methods
    for collecting data submitted by physicians' offices on the
    quality measures; and 2) providing physicians' offices with
    confidential feedback reports detailing their performance rate and
    reporting rates on applicable measures.  CMS anticipates that this
    effort will provide the agency and the physician community with
    experience in gathering data on quality and help us better
    understand what may be required in moving toward a system that
    rewards quality care, not simply volume of care.

    PVRP Quality Measures
    When CMS conceived of the PVRP the agency decided to draw on
    measures of quality previously developed in collaboration with the
    physician community, including efforts by the American Medical
    Association's Physician Consortium for Performance Improvement
    (AMA-PCPI), the National Committee for Quality Assurance (NCQA),
    and other physician specialty societies.  Where there were no
    measures to address specialty services, the PVRP incorporated
    adaptable measures endorsed by the NQF.  We are working closely
    with various parties, including the Ambulatory Quality Alliance
    (AQA), to expand the initial set.  We anticipate that this
    cooperative effort, culminating in endorsement by the AQA of an
    expanded set of measures, will continue to expand the scope of
    covered services.  CMS expects that physicians will continue to
    be the leaders in the development of performance measures for the
    various specialties.  They are in the best position to understand
    which measures will represent high quality care and have a
    significant impact if made available and used within their
    profession.  As they do so, we will be able to incorporate them
    into the PVRP.
    There are currently 16 quality measures in the PVRP.    When
    selecting the 16 measures, preference was given to measures that
    were endorsed by both the NQF and AQA and that collectively covered
    a broad range of medical specialties and did not add undue burden
    to physicians.  CMS is working to expand the PVRP measure set beyond
    the 16 to cover medical specialties that account for the majority of
    Medicare payments.  	We anticipate an expanded set of PVRP
    measures this fall that physicians can report during the first
    quarter of 2007.  In that effort we are continuing to work with the
    physician community.  The Alliance of Specialty Medicine, for
    example, has provided CMS with feedback on the implementation of
    the PVRP pilot program, and has been working closely with its
    members to develop additional quality improvement and performance
    measures for the future expansion of the PVRP program.  In that
    effort to expand available measures, CMS focused on those measures
    subject to the standardized measure development process, and
    consensus endorsement through AQA and NQF.  In addition, CMS
    entered a contract with Mathematica in September, 2005 to develop
    physician specialty measures. Mathematica chose the AMA and the
    NCQA as sub-contractors for this work that is being carried out
    through the AMA-PCPI process.

    PVRP Data Collection
    The usual source of clinical data for quality measures is
    retrospective chart abstraction but this process is costly and
    burdensome to physicians' offices.  As a result, the PVRP was
    designed to enable physicians' offices to submit quality measures
    data through the pre-existing administrative claims submission
    process.  Specifically, physicians can submit a predefined set of
    Healthcare Common Procedure Coding System (HCPCS) codes, commonly
    referred to as the G-codes, to report data on the PVRP measures.
    When a physician determines that a particular measure is applicable
    to the work he or she does, the PVRP is designed to allow use of a
    single G-code to report on that measure, thus minimizing the burden
    on the physician.
    We anticipate that the use of G-codes to report on the PVRP quality
    measures will be reasonably straightforward while avoiding the
    burden of chart abstraction.  For example, the HCFA-1500 form
    currently used by all physicians for Medicare billing purposes
    (and by many private payers as well) is being used to report the
    PVRP G-codes, paralleling the process physicians have been using
    for years to report and bill for the medical services they
    provide.
    The AMA has designed CPT Category II codes based upon this same
    principle of utilizing the pre-existing administrative claims
    process.  These codes are supplementary tracking codes used for
    measurement of clinical performance measures, rather than for
    reporting specific procedures performed in the treatment of a
    patient.  Where available, CMS has incorporated CPT Category II
    codes for use in the PVRP.
    The use of G-codes on the pre-existing administrative claims form
    is an interim reporting mechanism until electronic submission of
    clinical data through electronic health records (EHR) is more
    widely available.  EHR will greatly facilitate clinical data
    reporting by physicians' offices in the future but its adoption
    is not widespread.  CMS is currently able to accept the electronic
    submission of data for primary care physicians and we are working
    with EHR vendors to expand acceptance of electronic data beyond
    primary care.  CMS is also exploring the possibility of leveraging
    pre-existing data base registries.  One such registry that CMS is
    actively exploring is the one developed by the Society of Thoracic
    Surgeons.

    PVRP Feedback to Physicians
    One of the purposes of the PVRP is to assist physicians with their
    own quality improvement goals.  Therefore, CMS will be providing
    physicians' offices the opportunity to receive confidential
    feedback reports.  These reports will be first available in
    December 2006 and will contain the performance and reporting rates
    for the PVRP quality measures for which that office submitted data.
    CMS hopes that such information will provide physicians' offices
    with the guidance they need to implement their own internal quality
    improvement programs.
    CMS will also be working collaboratively with the physician
    community in order to gauge the utility and relevance of the
    information provided to them in the confidential feedback report.
    CMS anticipates working with physicians to ensure that the
    confidential feedback report provides information that is deemed
    useful, complete, and accurate.
    In addition to the provider feedback report, CMS is reaching out to
    physician communities on many other levels to ensure that they
    receive needed information and support.  A few of the activities
    that CMS has undertaken include:
    1) Local level support through the CMS Regional Offices
    2) PVRP email address for questions at PVRP@cms.hhs.gov
    3) Informational website support, including Frequently Asked
    Questions (FAQs), at www.cms.hhs.gov/PVRP
    4) PVRP Community collaborative website, to be released in early
    August 2006.  The PVRP Collaborative website will allow participants
    the opportunity to utilize discussion threads to provide input or
    seek answers from other participants, including sharing of best
    practices or lessons learned.
    5) Help Desk support for the registration process and PVRP
    Community collaborative website.  The Help Desk is available for
    support from 7 am - 7 pm (CST) at (866) 288-8912

    CMS finds the information provided by the physician community to be
    very valuable and will continue to explore other venues to offer the
    physician community the information and support that they need.

    Quality Based Payment System
    CMS does not have the statutory authority to implement a
    quality-based payment system.  However, the PVRP initiative will
    give us an opportunity to educate ourselves and our physician
    partners about what is needed to set up a quality data gathering
    and reporting system that works best for our patients and that is
    least burdensome to the participating physicians.  We also hope to
    provide useful information to physicians' offices that will assist
    them with their professional quality improvement goals.  We will
    continue working with the physician community to increase the
    number of available measures so that physicians of all specialties
    will have a set of measures applicable to the work that they do.
    We are pleased that at this point we have almost 6,400 physicians
    who have indicated a willingness to participate in the PVRP.  Though
    we would like to see this number continue to increase, the current
    number of participants is adequate for testing our quality measures
    reporting infrastructure

    Demonstration Projects Focused on Quality
    In addition to the PVRP, demonstration projects being undertaken by
    the Agency are designed to help us understand how to use our payment
    systems to encourage quality care by our physician partners.

    The Physician Group Practice Demonstration
    In early 2005, CMS announced the Physician Group Practice (PGP)
    demonstration.  This demonstration is designed to encourage
    physician groups to coordinate their care to chronically ill
    beneficiaries, give incentives to groups that provide efficient
    patient services, and promote active use of utilization and clinical
    data to improve efficiency and patient outcomes.
    Many physician practices and other supportive practices can lead to
    better patient outcomes and lower overall health care costs.  For
    example, there is good evidence that by anticipating patient needs,
    especially in those patients with chronic diseases, health care
    teams that partner with patients and coordinate across physician
    practices can help implement physicians' plans of care more
    effectively, reducing the need for expensive procedures,
    hospitalizations for preventable complications and perhaps even
    some office visits.  Medicare's current payment system reimburses
    physicians based on the number and complexity of specified
    services and procedures that they provide, not how physicians work
    together to avoid problems in the first place.
    Medicare is now testing whether performance-based payments for
    physicians under the demonstration  result in better care.  The
    PGP demonstration is the first value-based purchasing initiative
    for physicians under Medicare.  The PGP demonstration rewards
    physicians for improving the quality and efficiency of health care
    services delivered to Medicare fee-for-service beneficiaries.
    Mandated by Section 412 of the Medicare, Medicaid, and SCHIP
    Benefits Improvement and Protection Act of 2000, the PGP
    Demonstration seeks to:
     encourage coordination of Part A and Part B services,
     promote efficiency through investment in administrative structure
    and process, and
     reward physicians for improving health outcomes.

    The demonstration is allowing CMS to test physician groups'
    responses to financial incentives for improving care coordination,
    delivery processes and patient outcomes, and the effect on access,
    cost, and quality of care to Medicare beneficiaries.
    Physician groups participating in the demonstration are paid on a
    fee-for-service basis.  However, they will implement care
    management strategies designed to anticipate patient needs,
    prevent chronic disease complications and avoidable
    hospitalizations, and improve quality of care.  To the extent
    they implement these strategies effectively to improve care,
    physician groups will be eligible for additional performance
    payments derived from any savings that are achieved through improved
    care coordination for an assigned beneficiary population.
    Performance targets will be set annually for each group based on
    the growth rate of Medicare spending in the local market.
    Performance payments may be earned if actual Medicare spending
    for the population assigned to the physician group is below the
    annual target.  Performance payments will be allocated between
    efficiency and quality, with an increasing emphasis placed on
    quality during the demonstration.  The demonstration is required
    by law to be budget neutral.
    CMS selected ten physician groups on a competitive basis,
    representing some 5,000 physicians with over 200,000 Medicare
    fee-for-service beneficiaries, to participate in the demonstration.
     The groups were selected based on a variety of factors including
    technical review panel findings, organizational structure,
    operational feasibility, geographic location, and demonstration
    implementation strategy.  The groups will be implementing a variety
    of methods for improving quality and CMS will measure and evaluate
    the results of each.
    Below are preliminary examples of quality and efficiency innovations
    being put into place by two of the groups participating in CMS'
    PGP demonstration.  Please note that references to results in
    these examples are based on the organizations' information and
    not official CMS demonstration results.  Therefore, the references
    should be considered with caution and not interpreted as conclusive.

    1.  Disease Management Strategies
    Park Nicollet Health Services (PNHS) is redesigning its care
    processes for patients with congestive heart failure and diabetes.
     Through the use of nurse case managers and information technology,
    over 600 congestive heart failure patients are monitored daily in
    order to identify patients at-risk of de-compensating so case
    managers can follow-up with the patients and/or their physicians
    regarding next steps, including getting the patients to see their
    physician that same day.  According to PNHS, preliminary results
    suggest that as a result of this activity, the estimated number
    of averted hospitalizations for heart failure patients has
    increased steadily over time.
    In addition, clinical care processes have been redesigned for
    diabetes patients so physicians can treat patients based on today's
    test results, nurse case managers identify patients overdue for
    tests or who are not meeting their health goals and work with their
    physicians on next steps, and certified diabetes educators are
    available at the clinic via immediate referral to teach patients on
    how to administer insulin, read meters, use new medications, and
    coordinate follow-up care.  According to PNHS, preliminary results
    are suggesting that nurse visits with diabetes patients have
    increased over time and more patients are receiving their required
    insulin treatments.

    2.  Transition Management
    The Everett Clinic's (TEC's) primary goal is to improve care delivery
    for seniors through their senior care model that improves
    post-discharge and emergency room visit follow-up and promotes
    palliative care for qualifying seniors.  Hospital patient coaches
    focus on improving follow-up care while the patient is hospitalized
    and an automatic encounter request system reminds primary care
    physicians to follow-up with recently hospitalized patients within
    five days of discharge.  Palliative care is promoted through the
    presence of hospice nurses within primary care offices who also
    provide intense case management and end-of-life planning education.
     According to TEC's preliminary results, the implementation of the
    automatic encounter request system could show promise in improveing
    patient follow-up and decreasing the hospital readmission rate for
    its patients aged 65 and older.  TEC has also indicated a favorable
    trend in inpatient admissions and believes that both proper
    follow-up and improved care coordination and palliative care have
    all contributed to these positive results.

     2006 Oncology Demonstration Project
    CMS worked closely with the American Society for Clinical Oncology,
    the National Comprehensive Cancer Network and the National Coalition
    for Cancer Survivorship to develop a demonstration project that would
    assess oncologists' adherence to evidence based standards as part of
    routine care.  The categories of data collected include:
     the primary focus of the evaluation and management (E&M) visit;
     whether current management adheres to clinical guidelines; and
     the current disease state.

    Participating oncologists and hematologists qualify for additional
    payments if they submit data from each of the three categories when
    they bill for an evaluation and management (E&M) visit of level 2,
    3, 4, or 5 for established patients.  Physicians reporting data on
    all three categories qualify for an additional payment of $23 in
    addition to the E&M visit.  The results will be closely analyzed
    by CMS.
    The evaluation will use a combination of quantitative and qualitative
    methods to examine the impact of the demonstration on:
     Medicare spending;
     beneficiary outcomes;
     physician practice adherence to clinical guidelines; and
     financial status of physicians' practice.

    In addition, through field assessments and physician surveys, the
    evaluation will examine how the demonstration impacted the way
    physicians delivered care to beneficiaries, and the types of
    modifications they needed to make in order to be able to report the
    data.  The evaluation will include a validation study of
    physician-reported adherence to guidelines (American Society of
    Clinical Oncology guidelines and National Comprehensive Cancer
    Network guidelines).
    The evaluation of the 2006 demonstration is being managed jointly by
    CMS' Office of Research, Development and Information (ORDI) and the
    National Cancer Institute (NCI).  Contractor bids have been submitted
    for the evaluation and an award is expected to be made by fall
    2006.  The demonstration is scheduled to be completed at the end
    of 2006.

    Value-Based Purchasing (VBP) and the Private Sector
    Ambulatory Quality Alliance (AQA) and Hospital Quality Alliance (HQA)
    Efforts
    Part of an effective value-based purchasing system is provision of
    information to the public and healthcare purchasers so that patients
    can make informed decisions about which providers they seek care from.
      The AQA and the HQA are both organizations made up of a broad cross
    section of stakeholders (including CMS) that have focused their
    efforts on improving care by collecting data on agreed upon quality
    measures in their respective settings, and then making that
    information available to consumers, payers and health care
    professionals.  The AQA recently announced a number of pilot
    programs charged with the responsibility of identifying, collecting
    and reporting data on the quality of physician performance across
    care settings.  The HQA has been reporting meaningful and useful
    information on the quality of heart attack, heart failure and
    pneumonia care to patients in more than 4,000 of the nation's
    hospitals since April 2005 and recently expanded that data set to
    include information on surgical site infections.
    The two organizations recently announced a joint committee to help
    coordinate some of their efforts.  As a first step, they will
    coordinate and expand several ongoing pilot projects that are
    designed to combine public and private information to measure and
    report on performance in a way that is fully transparent and
    meaningful to all stakeholders.  These sorts of efforts are the
    kind of thing we need to move us to an environment where physicians
    and other providers are acclimated to the idea that quality measures
    are important, that they can help them provide the best care to
    their patients and at the same time, reward them for doing so.
    That is a fundamental shift away from the way Medicare currently
    pays physicians.

    Integrated Healthcare Association
    Value-based purchasing is a concept being tested in the private
    market as well.  For example, the Integrated Healthcare Association
    (IHA), an organization made up of health plans, physician groups,
    and healthcare systems, plus academic, consumer, purchaser, and
    pharmaceutical representatives all in California have been working
    for several years now to promote the use and reporting of quality
    measures in physician practices in that state.
    California's value-based purchasing  program involves approximately
    35,000 physicians in 211 physician organizations, who care for over
    6 million individuals enrolled in seven major health plans (Aetna,
    Blue Shield, Blue Cross, CIGNA, Health Net, PacifiCare, and Western
    Health Advantage).  Physicians are rewarded by the plans based on
    their physician group's performance in relation to clinical quality
    and patient satisfaction measures, and for investment in
    information technology.
    Earlier this month, IHA announced that compared to 2004, physician
    groups participating in IHA's VBP program in 2005 reported that they
    screened about 60,000 more women for cervical cancer, tested nearly
    12,000 more individuals for diabetes, and administered approximately
    30,000 more childhood immunizations for their patients enrolled in
    HMO plans.
    In addition to the across-the-board improvements on the
    evidence-based clinical measures, physician groups participating in
    the program increased their use of IT for such activities as
    prescribing, monitoring lab results, preventive and chronic care
    reminders, and electronic messaging.  The percentage of physician
    groups achieving the maximum score for IT use increased by 11
    percent in 2005.  Prior year results showed that physician groups
    that received full credit on IT measures had average clinical scores
    that were significantly higher than those that showed little or no
    evidence of IT adoption.
    Bridges to Excellence
    The Bridges to Excellence program, a multi-state, multi-employer
    coalition developed by employers, physicians, plans, healthcare
    services researchers and other industry experts, and supported by
    the Robert Wood Johnson Foundation's Rewarding Results program is
    working to encourage significant leaps in the quality of care by
    recognizing and rewarding  health care providers who demonstrate
    that they deliver safe, timely, effective, efficient and
    patient-centered care.
    This organization is offering participating physicians up to $50 per
    year for each patient covered by a participating employer or plan
     based on their implementation of specific processes to reduce
    errors and increase quality.  In addition, a report card for each
    physicians' office describes its performance on the program measures
    and is made available to the public.
    Physicians treating diabetics who meet certain high performance
    goals can receive up to $80 for each diabetic patient covered by
    a participating employer and plan.  In addition, the program offers
    a suite of products and tools to help diabetic patients get engaged
    in their care, achieve better outcomes, and identify local
    physicians that meet the high performance measures.  The cost to
    employers is no more than $175 per diabetic patient per year with
    savings of $350 per patient per year.
    Physicians treating cardiac patients who meet established
    performance goals can receive up to $160 for each cardiac patient
    covered by a participating employer and plan.  As with the diabetes
    program, cardiac Bridges to Excellence makes available a suite of
    products and tools to help cardiac patients get engaged in their
    care, achieve better outcomes, and identify local physicians who
    meet the high performance measures.  The cost to employers is no
    more than $200 per cardiac patient per year with savings up to
    $390 per patient per year.

    Rochester Individual Practice Association
    Health plans are not the only organizations pushing VBP.  Physicians
    have embraced this approach as well, because they recognize that it
    will reward them for what they want to do, which is provide the best
    care possible.  The Rochester Individual Practice Association
    (RIPA), a physician-led IPA with over 3,000 participating
    physicians, 900 of whom are in primary care specialties, has been
    using VBP principles for several years now.  The organization
    provides physicians' services to more than 300,000 Blue Cross HMO
    members in upstate New York and its physicians are paid on a
    capitated basis by the plan.
    Physicians in this organization pool a portion of the capitated
    payments they receive from the HMO.  These funds are then
    reallocated based on the physicians' performance.  A busy internist
    my contribute $15,000 and, depending on his/her performance, receive
    back between $7,500 and $22,500.  RIPA measures patient satisfaction
    and compliance with a range of clinical standards.  Physicians are
    sent an individualized report three times per year, comparing them
    to their colleagues.  Their year end report includes payment based
    on how they performed and they are told at that time, how much more
    they would have earned, had they increased their performance by a
    given amount.
    This approach has produced results.  Just for example, RIPA reports
    that physicians succeeded in reducing the inappropriate use of
    antibiotics, which resulted in a yearly savings of over $1 million
    to the HMO.  These savings were used to increase bonuses to the
    physicians.  In addition, RIPA identified diabetes management and
    coronary artery disease patients in 2002 and trended their costs
    forward.  They then compared these projected trends with their
    actual costs with a VBP program in place.  It is notable that
    pharmacy costs increased due to more intense treatment, but in a
    very short time, costs for hospitalizations went down, which
    resulted in a multi-million dollar savings.

    Conclusion
    Mr. Chairman, thank you again for this opportunity to testify on
    physician payments within the Medicare program.  We look forward to
    working with Congress and the medical community to develop a system
    that ensures appropriate payments for providers while also promoting
    the highest quality of care, without increasing overall Medicare
    costs.  As a growing number of stakeholders now agree, we must
    increase our emphasis on payment based on improving quality and
    avoiding unnecessary costs.  I would be happy to answer any of your
    questions.

    	MR. FERGUSON.  Thank you, Dr. McClellan.  The Chair
    recognizes himself for questions.
    	We are going to have 5 minutes for questions with the
    committee members this morning, and I will try and set a good
    example.  I am going to ask committee members to try and be good
    at keeping to their 5 minutes.
    	Dr. McClellan, just very briefly, you and I had talked
    about a separate issue recently, and just if you could very briefly
    address this gain sharing issue from the Deficit Reduction Act.
    Specifically, when the RFP may be going out for this.  We are
    already a little bit overdue on that, and also, the discrepancy
    between the interpretation of the gain sharing demonstration project
    between six States, as was my understanding, or, as some have said,
    for the demonstration project to include six hospitals.  If you
    could just very briefly touch on that.
    	DR. MCCLELLAN.  Well, let me start by saying that gain
    sharing, properly implemented, is an important step.  It actually
    does fit in very closely with the topic of this hearing, the idea
    that we need to help doctors work together with hospitals to improve
    care, prevent avoidable healthcare costs and complications, is
    something that gain sharing done right is exactly designed to
    support.
    	So, we are looking at the best way to implement the
    demonstration program, as you said, different Members of Congress
    have had different interpretations, and we are going to reflect
    that when we go forward with the RFP and our other related initiatives
    in this broad area of helping doctors and hospitals work together.
    We do have other authorities that enable us to promote the same
    goals of gain sharing, which is supporting payments, increased
    payments to physicians, when quality improves in overall costs
    of care, including hospital care go down.
    	I know how important this is to you, and it is very
    important to me, because it does fit in with these overall goals
    of helping healthcare providers work together to improve quality
    and costs.
    	MR. FERGUSON.  We can expect that RFP.
    	DR. MCCLELLAN.  You can expect it very soon, I think within
    a matter of a few weeks.
    	MR. FERGUSON.  Okay.  Can you please take me through the
    quality measurement process, from the creation of a clinical
    quality measurement all the way through the reporting on that
    measure.
    	DR. MCCLELLAN.  Well, it starts with, the best measures
    start with physician involvement.  Physicians who are practicing
    have the best on the ground grasp of where there are opportunities
    to support better care by measuring what we are trying to do, and
    providing better financial or public reporting support for it.
    So, most of the measures that have been developed began with
    medical groups.  The American Medical Association has a Physician
    Consortium that works together to develop consistent measures
    across specialties.  Many medical specialties have also developed
    their own areas of focus for clinical quality measurement, and the
    principles that I think are important here, besides physician
    leadership, are the use of identifying an important clinical area,
    where a valid measure, a clinically valid measure can be developed,
    and there is a real meaningful opportunity to improve care.
    	MR. FERGUSON.  How many clinical quality measures should we
    expect to be reported by any one physician?  I mean, is it the goal
    that every physician, every service that a physician provides be
    measured?
    	DR. MCCLELLAN.  Physicians provide a very broad range of
    service, and the programs that have been most successful have
    identified key areas, common conditions like diabetes or heart
    failure, where there are clear opportunities for improving care and
    keeping costs down, and focusing on measures in those areas.  Such
    areas exist in just about every specialty, and that is why I think
    just about every specialty is developing one or more measures now.
    	MR. FERGUSON.  Some have suggested that we may be jumping
    the gun a little bit here, that with a focus on clinical quality
    measurements if data collection can be better with health IT,
    should we wait a little bit to see how that works before we move
    to this new phase?
    	DR. MCCLELLAN.  Health IT adoption would definitely help
    with automatic reporting on quality of care, and that could reduce
    some burdens for physicians.  The problem is, as you know, that
    most physician offices don't have electronic record systems in
    place now.  So if we want to move forward on providing better
    support for doctors, to improve care, to do what they think is
    best, and keep costs down, we really can't wait for broad adoption.
    	And it is also a chicken and an egg problem.  Right now,
    if we pay for more lab tests and more volume of services, the money
    is going to pay for these potentially duplicative procedures and
    less efficient care, rather than giving physicians the financial
    support they need for investing in health IT.  I think when we
    start moving in this direction, we can actually encourage the
    adoption of health IT, and as quickly as possible, reduce any
    reporting burdens.
    	MR. FERGUSON.  Well, how do efficiency measures differ
    from quality measurements, and how do they work together?  How can
    they work together?
    	DR. MCCLELLAN.  Well, I think they should work together, and
    the kind of efficiency that we want to improve is, when I think
    about efficiency, I think about getting down unnecessary costs,
    duplicative lab procedures, preventable hospitalizations, and that
    involves starting with the quality measures.  So, you can't look at
    efficiency in isolation from quality, but if you start looking at
    episodes of care for common conditions, like heart failure or an
    elective surgical admission, you can identify ways where you can
    improve quality and keep costs down.
    	I mentioned in my opening statement the case of diabetes,
    where we see lots of examples of patients having difficulty
    complying with their medicines, and as a result, ending up with
    kidney failure or emergency room admissions or other problems.
    The same thing is true in surgical conditions.  Surgeons have
    identified ways to prevent postoperative infections and other
    complications.
    	If we can provide more support for that, we can get better
    quality, and reduce costs at the same time.  So, efficiency,
    properly considered, should go right along with the quality
    measures.
    	MR. FERGUSON.  I am only 36 seconds over time.  Mr. Green.
    The gentleman from Texas, Mr. Green, is recognized for 5 minutes for
    questions.
    	MR. GREEN.  Thank you, Mr. Chairman.  I would like to again
    welcome Dr. McClellan.
    	DR. MCCLELLAN.  Thank you.
    	MR. GREEN.  I appreciate working with you in lots of
    different capacities over the last few years, whether it is the FDA
    or CMS.
    	Like a lot of my colleagues, I am concerned that moving too
    quickly into requiring reporting quality measures would result in
    more bureaucracy, not necessarily more quality care.  And in looking
    at the 2007 expected physician measures, it strikes me that these
    quality measures are fairly basic to start with, like checking for
    cataracts in the ophthalmology specialty, and it seemed like the
    real measurement of quality improvement would be patient outcomes,
    yet outcome measures are more difficult to develop, in the sense
    that they require adjustments for patient complications and other
    factors.
    	Now, I know you start with asking doctors to report the
    basic quality measures.  Is there a way, as we move along, to merge
    both quality and outcome into that quality measure?
    	DR. MCCLELLAN.  There is.  That is what we have done with
    our hospital quality reporting.  In 2004, when reporting began, it
    was mainly on evidence-based clinical practices that we know, if
    followed, will lead to better outcomes for patients.  The hospital
    quality measure is next year going to expand to include patient
    satisfaction, which is a really important outcome, and also, some
    risk-adjusted outcomes for common causes of admissions, like heart
    attacks.  So, there is a gradual progression there.
    	Thanks to the leadership of some of the physician groups,
    particularly the American College of Physicians, the American
    Academy of Family Practice, we actually do have some outcome-related
    quality measures that physicians feel confident, physician groups
    feel confident we could start reporting soon.
    	For example, for diabetes, measures of hemoglobin A1c
    level.  This is a good overall measure of how well controlled
    diabetes is, and thanks to the physician groups, we can start with
    that one.  But I would expect, gradually and with careful
    development and leadership from the physician groups, we will see
    more of those outcome types of measures developed over the next few
    years.
    	MR. GREEN.  Thank you.  Obviously, I have some other
    questions, Mr. Chairman.  I would like to ask one that has been an
    issue.  A lot of my colleagues are quite concerned with the CMS
    proposed rule relating to documentation for citizenship under
    Medicaid beneficiaries.  And being from Texas, you know our
    situation.  No practicing in California.  We are particularly
    concerned that the rule would cause millions unnecessarily to lose
    their health coverage.  Current law is very clear, stating that a
    child born in our country is a U.S. citizen.  In cases where
    Medicaid has paid for the child's birth in the U.S. hospital, can
    you explain why the CMS rule would fail to allow the State to use
    that claim for payment as proof that the child was a U.S. citizen?
    It seems pretty standard.
    	DR. MCCLELLAN.  Well, I do want to make sure that this law
    is implemented effectively.  It matters a great deal to members of
    this committee who, on the one hand, want to make sure that Medicaid
    benefits are targeted where they need to go, but on the other hand,
    don't want to impose undue burdens on citizens and Medicaid
    beneficiaries.
    	For new births, there are a number of ways that we identified
    in our regulation, and we are seeking comment on this regulation,
    too, so we can add to it further, such as using the automatic vital
     statistics.  Texas and other States have told us hey, we do get
    automatic records, as you are saying, when a birth occurs.  Let us
    just link to that data that we already have, rather than require
    someone to go through a pay per base process, and that is definitely
    a process that States can set up.
    	We are monitoring this very closely, Congressman, and if
    there are specific suggestions for how we can improve implementation,
    we would be glad to do it, but using existing State data, like data
    on vital statistics of birth, is something that can be part, can be
    provided for documentation.
    	MR. GREEN.  That seems like an easy one.  Again, if a child
    is born in Texas, they are a citizen, no matter what the citizenship
    of their parents are.  And according to the Administration of Child
    Welfare Policy Manual, States are currently required to verify the
    citizenship and immigration status of all children receiving Federal
    foster care.  I have no problem with that, but this verification
    mandate, it seems like CMS has failed to exempt children in foster
    care from those with citizenship requirements, the same way SSI
    beneficiaries and Medicare beneficiaries are exempt.
    	Is there a way we could make those regulations apply to
    both--again, we are talking about some obvious cases, a child who
    is born in our country would have the same documentation
    requirements as maybe an SSI beneficiary.
    	DR. MCCLELLAN.  Well, interpreting the law as written, and
    working with Members of Congress to make sure we got that right, it
    did appear to us that SSI beneficiary seniors were, dual eligible
    beneficiaries were not subject to the same restrictions.  For
    foster care beneficiaries, again, there are a lot of steps that
    States can use.  States often have records in other parts of their
    databases since the foster children will be eligible for a number
    of services, they have vital statistics records, and so forth that
    can be used, and the rules build in a lot of opportunities for
    States to take the time needed to gather the information.  It
    doesn't require immediate provision of proof of citizenship in
    order for services to continue.
    	So far, we have seen States moving forward on implementing
    this effectively.  We will keep watching closely to make sure that
    foster children and every Medicaid beneficiary who is entitled to
    services continues to get them.
    	MR. GREEN.  Okay.  Mr. Chairman, let me just have one
    followup, and we will work with you on this.
    	DR. MCCLELLAN.  Be glad to do that.
    	MR. GREEN.  Like in a lot of other cases.
    	MR. FERGUSON.  I would just ask that it be very brief.
    	MR. GREEN.  Okay.  The CMS requires the original documents
    for proof of citizenship, and I know it may be difficult, but for
    parents, for example, to mail in their driver's license or their
    original birth certificate to the State for the eligibility process,
    it can take weeks.  I know you can get a certified copy of your
    birth certificate, but again, that takes weeks.  But for an adult
    to mail in their, I don't want to give up my Texas driver's license,
    except to a law enforcement officer--
    	DR. MCCLELLAN.  I don't either.
    	MR. GREEN.  --who asks for it.  So, I think there might be
    some effort that we can do to look at that on verification.
    	DR. MCCLELLAN.  There is, and States like Texas that have set
    up good verification systems for their driver's license can actually
    provide that data automatically.  The State can do it.  They can link
    to their driver's license databases, so that nobody has to mail
    anything.
    	MR. GREEN.  Okay.  Thank you, Mr. Chairman.
    	MR. FERGUSON.  Speaking of Texas, the distinguished Chairman
    of the full committee, Mr. Barton, is recognized for questions.
    	CHAIRMAN BARTON.  Thank you, Mr. Chairman.  It is good to
    see somebody from New Jersey in the chair.  That is a good thing.
    	Dr. McClellan, thank you for being here, and thank you for
    trying to implement that requirement in our reform act from last
    year that tries to funnel as many possible Medicaid benefits to
    U.S. citizens.  I know that is a radical idea, but I think it is
    important.  We don't want to make the burden too hard on the States
    to prove citizenship, but prior to that, the States couldn't even
    ask a citizenship question.  Given the skyrocketing costs, I think
    it is fair to the taxpayers and to the people that to the largest
    extent possible, those benefits go to our citizens.  So I appreciate
    your efforts in that regard.
    	On the subject of today's hearing, could you explain, in
    layman's terms, what a quality measure is?  What does that really
    mean?  We are having all this debate about pay-for-performance and
    physician quality measures.  I don't really understand what a
    quality measure is.
    	DR. MCCLELLAN.  Mr. Chairman, done right, it is what we want
    our healthcare system to provide, and it is what doctors want to do
    in delivering medical care.  Right now, we measure a lot of things
    in how we pay for Medicare benefits.  We measure the number of lab
    tests you do, the number of visits you have.  There is a whole lot
    of paperwork around that.  That is not what healthcare is really
    all about.  Healthcare is about keeping people well, preventing
    complications from their chronic diseases, helping them deal with
    the consequences of serious illnesses.
    	And quality measures are indicators or ways of making sure
    that we are supporting what we really want in healthcare.  When they
    are developed by physicians, and developed in the private sector,
    so they can be implemented feasibly, they can help us do a better
    job of providing support to physicians who want to deliver the
    best care possible, and they can help patients make better
    decisions about their care.  When you are choosing where to get a
    car, where to get any other product in our economy, you like to get
    good information on the quality of the product and the cost of the
    product.
    	CHAIRMAN BARTON.  Does a quality measure, to be valid in a
    medical sense, have to be replicable and developed by methods that
    are standard?  I mean, that is provable, testable, verifiable?
    	DR. MCCLELLAN.  That is right.  Those are all parts of
    \measures that are valid, and unless those steps are taken, I doubt
    that any physician would regard this as a worthwhile indicator of
    how they are doing in providing care.
    	CHAIRMAN BARTON.  So, it is supposed to be something that
    is a fact, that is accepted, that if you meet that standard it is
    almost certain or certain that something good is going to happen,
    or nothing bad will happen.
    	DR. MCCLELLAN.  That is the idea.
    	CHAIRMAN BARTON.  Okay.  Now, you have some demonstration
    programs that are underway trying to develop these quality
    measures.  Isn't that correct?
    	DR. MCCLELLAN.  Yes, sir.
    	CHAIRMAN BARTON.  All right.  Are there any results, or are
    there any results that have been developed in these demonstration
    projects?  If there are, what does the evidence that has been
    developed to date show?
    	DR. MCCLELLAN.  Well, let me give you a couple of examples
    from our Physician Group Practice Demonstration.  This is where we
    are paying physician groups more when they do what they are trying
    to do, which is get better outcomes for their patients and lower
    the overall cost of care.  The measures that we are using in
    this demonstration include measures like best practices for caring
    for patients with diabetes and heart failure, and promoting the use
    of preventive care, screening for cancer, screening for heart
    disease and diabetes.
    	What we have seen in the early results from these
    demonstrations is reports from each of the physician groups that
    they are taking steps like investing in health IT systems, or using
    nurse practitioners to help do better on these quality measures, to
    help their healthcare system improve.  They are making investments
    that didn't make financial sense under Medicare's old payment
    systems.  You know, when we paid more for more lab tests, they
    wouldn't get the money they needed to invest in health IT.
    	Now, when we are paying more for better results for diabetes
    patients, health IT systems make financial sense.  They can make
    ends meet in the practice, and do more with it.  So, they are
    starting to see better results in patient care, particularly for
    diabetes and heart failure, and they are changing the way that they
    practice in ways that are good for patients, according to these
    physician groups.
    	CHAIRMAN BARTON.  Okay.  Well, I have 10 seconds, so I need
    to get to the $64,000 question, which shows how old I am, that I
    would remember that phrase.
    	What would happen if we do away with the SGR system that we
    currently have for physician reimbursement, that we are not using,
    for all intents and purposes.  We substitute something for it every
    year, and it is that time of the year to do that.  We went to this
    MEI index that has been proposed by MedPAC, but for this year, just
    increased payments from last--switched to MEI, maybe give a
    1 percent increase, and then allow balanced billing.
    	DR. MCCLELLAN.  I don't think there are formal estimates of
    the impact of balanced billing.  If all we did was switch to MEI or
    MEI minus 1, that would lead to much higher projected costs, because
    we wouldn't be doing anything about the rapid increases in volume
    of services that we are seeing.  We wouldn't be taking steps
    directly to promote better quality care, which again, according to
    many of the physician groups, we really need to do.
    	CHAIRMAN BARTON.  Do you have enough confidence in MEI as
    a system, just as a system, that if we just scrapped SGR?  It is
    not working, it is not going to work, we can't fix it, so let us
    just do away with it.  Is there enough confidence in MEI that we
    could use that as the base, and then play with it plus or minus?
    	DR. MCCLELLAN.  Well, it would need to be combined with
    some other important steps to promote better quality and to keep
    costs down.  You mentioned balanced billing.  That is one idea
    that could potentially have an impact on how people use services.
    Quality reporting, so that people can make more informed decisions
    about their care, could make a difference.  I know Congressman
    Burgess, Congressman Norwood, and others have ideas for promoting
    quality improvement efforts in other ways at the same time.
    	We very much want to work with this committee to take
    steps in the direction of not just paying more for the same
    physician payment system, or just going to MEI, but making sure
    we are paying better, by promoting--again, doctors have some great
    ideas for keeping overall costs down and improving quality of care,
    and that is what we really want to support.
    	CHAIRMAN BARTON.  Well, does the Administration support us
    doing something structurally reforming the system this Congress?
    	DR. MCCLELLAN.  We do.  We want to be careful, though, that
    we are promoting quality, and keeping overall costs down at the
    same time.  If all we do is add in more money to the physician
    payment system, premiums are going to up.  Getting rid of the MEI
    system alone would increase costs over 10 years for Medicare by
    more than $240 billion, according to our estimates, and that means
    probably $80 billion in additional costs for beneficiaries.  We have
    got to do better than that.
    	CHAIRMAN BARTON.  Okay.  Well, I thank you, Doctor, and as
    you know, Ways and Means also has jurisdiction, but I think Chairman
    Thomas shares my frustration with the current system, and we will
    make a serious effort to work with you and the Administration and
    his committee to try to structurally change the system this year.
    	DR. MCCLELLAN.  Thank you very much.  We look forward to
    working closely with you.
    	CHAIRMAN BARTON.  Thank you, Mr. Chairman.
    	MR. FERGUSON.  Ms. Eshoo is recognized for questions.
    	MS. ESHOO.  Thank you, Mr. Chairman.  Nice to see you in
    the chair.  Good morning, Dr. McClellan.
    	DR. MCCLELLAN.  Good morning.
    	MS. ESHOO.  There was some mention of, on your part, and I
    think some of the members about HIT.  There is a bill from this
    committee that is going to be on the floor today, and I want to
    link HIT and what really isn't in the bill, relative to
    interoperability, to the whole issue of this pay-for-performance
    issue.
    	My observation of where you all are on this is that there
    really isn't any meat on the bones.  I think you have to kind of
    pull up the emergency brake on this thing, and really work it
    through, and I don't think it is ready for primetime, and most
     frankly, if you are going to rely on HIT to implement it, you
    know what the bill has in it that is on the floor today?  Three
    years.
    	So, it is not forthcoming.  I tried to amend the bill, but
    the Rules Committee rejected the amendment to speed this up.
    I believe in HIT, but if there is not interoperability, it simply
    is not going to work.  Hospitals and our entire healthcare system
    have to be able to be connected to one another in order to receive
    information and talk to each other.  I mean, it is as simple as
    that.
    	So, the two are not meshing, and I think that there has to
    be a lot more work done on that.  Having said that, I want to turn
    to an issue that you and I have gone round and round on, and that
    is the whole issue of the geographical locality payment system.
    You, I think, have an appreciation, even though nothing has
    happened, that it is more than 30 years overdue.  You, I believe,
    have the ability to implement an administrative solution to the
    problem.  I think you are aware of the proposal that has been
    forwarded by the bipartisan California delegation which allows
    counties whose individual county geographic adjustment factor
    exceeds its locality geographic adjustment factor by 5 percent,
    to move to a new payment locality, and be reimbursed at their own
    appropriate levels.  The plan also provides for automatic updates
    every 3 years, and establishes a hold harmless provision for rural
    counties.
    	So, my question is have you considered this proposal?  Can
    CMS support it, and implement the change effective in 2007?  Again,
    I believe you have the ability and the authority to implement an
     administrative solution.  I am told that CMS will not mandate
    locality changes nationally until it receives the approval of every
    State medical association.  Is this the case?
    	DR. MCCLELLAN.  Well, as you know, we can only implement
    reforms administratively that are budget neutral, so that means that
    if we take steps to increase payments in certain counties, there
    are going to be doctors in other counties who will face payment
    reductions, and so, that is why it is helpful for us to implement
    these changes successfully with having support from the physicians
    who are going to be affected by the changes, and the State medical
    societies is one group--
    	MS. ESHOO.  Right.  Now, if the medical association supports
    it, what does that say to you?
    	DR. MCCLELLAN.  That the physicians who might be adversely
    affected agree--
    	MS. ESHOO.  Yeah, CMA has endorsed this.
    	DR. MCCLELLAN.  --this is an appropriate step.  Well, as I
    understand it, the proposal that CMA has endorsed is a legislative
    proposal.  It is not one that would be--
    	MS. ESHOO.  Well, would you support it?
    	DR. MCCLELLAN.  Well, it would have additional costs.  We
    would want to look at ways that those costs would be paid for.  We
    are absolutely for, as you know, I have spent a lot of time on this
    with you, steps to make payments more accurate for physicians.  As
    far as I know, though, the CMA or anyone else has not identified
    where these additional costs would come from.
    	MS. ESHOO.  The last time we had a conversation about
    this, Dr. McClellan, was last year, late last fall.  I spoke to you
    before we went home for our Thanksgiving vacation.  You were going
    to talk to and meet with Chairman Thomas, and get back to me.  And
    it is wonderful to see you today, but--
    	DR. MCCLELLAN.  It is good to be back.
    	MS. ESHOO.  I haven't heard back from you.  So, what was the
    upshot of your conversation with Chairman Thomas at that time?
    That was last November.
    	DR. MCCLELLAN.  Congresswoman, we received a letter from
    Chairman Thomas suggesting that we collect some additional data on
    this problem this year, and we are working on this, as well as GAO,
    and I believe MedPAC, and then report on that--
    	MS. ESHOO.  How close are you to--
    	DR. MCCLELLAN.  They wanted a report on that--
    	MS. ESHOO.  --completing the report?
    	DR. MCCLELLAN.  --in 2007, with proposals that could be
    implemented in 2008.  So, that is one of the steps that we are
    taking.  We have also--I also sent a letter to Jack Lewin, the
    head of the CMA, earlier this year, and met with him earlier this
    year, asking him if they had any administrative proposals that they
    wanted us to consider or put out for public comment with our
    physician rule this year, and the answer was no.  There is this
    legislative proposal that you mentioned, which is part of the process
    that we are doing in this study, and I know the CBO and MedPAC--
    	MS. ESHOO.  So, your answer to this--
    	DR. MCCLELLAN.  --are looking--
    	MS. ESHOO.  --entire issue is, is that hopefully, by the end
    of this Administration, something might be done.  That is--
    	DR. MCCLELLAN.  Well--and I would like to spend more
    time, I would like to get something done sooner.
    	MS. ESHOO.  Can you?
    	DR. MCCLELLAN.  We have talked about--well, we talked before
    about leadership on this issue.  Leadership only works when there
    are other people who are following in the same direction, and at
    this point, many of the physician groups in California have objected
    to this change.  CMA has specifically said they do not want an
    administrative solution.  They only want the legislative solution,
    which would come with, I think, something like $10 billion in
    additional costs.  So, that is higher Medicare costs, higher
    premiums for beneficiaries.  We really need to look at that
    carefully.  I will keep working as closely as I can with you.
    I think this is--many of my physician friends, my colleagues,
    are affected by this in Northern California.  As you know well--
    	MS. ESHOO.  Only when you leave are they going to lynch
    you.
    	DR. MCCLELLAN.  Well, they are--
    	MR. FERGUSON.  The gentlewoman's time--
    	DR. MCCLELLAN.  They are letting me know now.
    	MS. ESHOO.  Yeah, right.
    	MR. FERGUSON.  The gentlewoman's time has expired.
    	MS. ESHOO.  Thank you.
    	DR. MCCLELLAN.  Thank you.
    	MR. FERGUSON.  Dr. Norwood is recognized for questions.
    	MR. NORWOOD.  Thank you very much, Mr. Chairman.
    	Dr. McClellan, we have had our ups and downs over the years,
    but when you do good, you do good, and I want to congratulate you
    and CMS on the fine job I think that you all have done in working
    out this problem of non-citizens receiving Medicaid in this country.
     The law of the land says that only citizens of the country should
    receive it, and I get a little discouraged when people come here and
    nitpick about it.  I think you have done a great job.  Next year, we
    should have an oversight hearing, and perhaps make some changes in
    it, but you are doing the right thing, and you handled it
    beautifully, and I do appreciate that.
    	DR. MCCLELLAN.  Thank you.
    	MR. NORWOOD.  Now, having said that, tell me which country
    in the world you think has the best healthcare.
    	DR. MCCLELLAN.  Our country, without question.
    	MR. NORWOOD.  I think so too.  Does that imply we have
    quality healthcare in this country?
    	DR. MCCLELLAN.  We have very high quality healthcare.  We
    also have a lot of opportunities to do even better at a lower cost.
    	MR. NORWOOD.  Well, that is the implication here.  That is
    what the bureaucrats are saying, the people outside of healthcare,
    and I know you all love to bring in oh, this practicing doctor's
    group says, this specialist group says.  I would like for everybody
    here not to get confused.  Why they are cooperating with you is
    because you won't pay them costs for what they do now, and they
    don't have any choice but to cooperate with you, because they are
    facing a large cut coming up.  So, try not to trick yourself into
    thinking everybody that is practicing medicine out there today
    agrees that bureaucrats stuck away in Baltimore and in Washington,
    D.C. actually know how to improve healthcare in this country.
    	I frankly think a lot of what is said about
    pay-for-performance, Dr. McClellan, is a slap in the face to our
    physician community, who does, indeed, have the best healthcare in
    the world.  Now, everybody would agree you can improve on it.  You
    can start by paying for preventive procedures.  You know, how dumb
    is that?  How long has it taken us to figure that out, that we ought
    to be paying for prevention?  But we don't do it.  You might even
    consider paying some of these folks' costs for what they do.  You
    would be absolutely surprised, maybe, what they can do if they
    just don't have to figure out how to stay in business, because you
    pay them less than it costs to do the procedures.
    	And I am not telling you something you don't know.  You know
    that is true.
    	DR. MCCLELLAN.  And you know very well the law that we are
    implementing that pays at these rates that are just, like I said, it
    is not sustainable.
    	MR. NORWOOD.  What you are doing is paying them for what they
    already do.  If you don't believe me, let Dr. Burgess get the
    microphone in just a minute, or I can line up doctors from here to
    Baltimore.  They do all this stuff you are talking about.  Who is
    filling out these forms that you say we have increased quality over
    the last 5 years?  Who filled those forms out?
    	DR. MCCLELLAN.  That information comes from the physicians
    and the group practices and the hospitals and their practices.
    	MR. NORWOOD.  They don't put a notation at the bottom,
    we've already been doing this, because they want you to finally
    start paying them something.  I mean, we just need to be honest
    with ourselves about this.  I wasn't very happy with your definition
    to the Chairman about what really is healthcare quality.  Now, do
    that again for me.  Explain to me, at the end of the day, what we
    are testing here.  And maybe start by telling me, does healthcare
    quality mean outcomes?  Does it mean whether the patient lived or
    died?  What does healthcare quality mean?
    	DR. MCCLELLAN.  Healthcare quality has many aspects, because
    as you know, from talking to many practicing physicians, different
    patients have different needs.  Healthcare quality is about getting
    the right care to the right patient at the right time, that often
    will result in better outcomes.  There certainly are a lot of
    preventable complications that happen today when people don't get
    good quality care, but it depends a lot on the circumstance of the
    individual patient.
    	MR. NORWOOD.  Excuse me to interrupt.  Let us stop right
    there for a second now.  That is true, but that doesn't necessarily
    mean you can make that happen from Baltimore, nor does it mean you
    can make that happen from a physician's office.  That, in itself,
    is complex, because a lot of that has to do with the person being
    treated.  But it is pretty hard to figure that out on forms
    sometimes.  But excuse me for interrupting.  Go ahead and finish
    this definition of quality.  I am trying to understand it.
    	DR. MCCLELLAN.  Well, I agree with your point about we
    can't make this happen from Baltimore.  My concern is that the way
    that we pay now actually gets in the way of this happening.
    I have talked to doctors, I was in practice myself.  I filled out
    those forms.  It can be very frustrating to go through a lot of
    paperwork, and then hardly get any money to be able to make your
    practice ends meet, and not get paid for what you really know can
    make a difference in preventing complications and keeping a
    patient well.
    	Now, our current system doesn't do that.  It is a lot of
    paperwork, as you said.  It is not sufficient payment, even though
    the costs have been going up at double digit rates, even though
    Medicare premiums for beneficiaries have been going up at double
    digit rates, we are working on trying to find a way to do this
    better with a lot of leadership from the physicians, including
    some of those practicing physicians.  It is not easy, but I can
    tell you our current system isn't getting the job done.
    	MR. NORWOOD.  Well, that is the system that you set up in
    Baltimore.  I mean, you have been telling doctors how to practice.
    You have been setting their fees for a long time, and you tell
    them how to practice through their fees.  Now, we are fixing to
    do the administrative part for the physician's office, so let us
    understand what has caused this problem to start with.
    	I see it, Mr. Chairman.  Thank you very much.
    	MR. FERGUSON.  Mr. Brown is recognized for questions.
    	MR. BROWN.  Thank you, Mr. Chairman, and thank you,
    Mr. Green.  Dr. McClellan, nice you see you again.
    	DR. MCCLELLAN.  Nice to see you.
    	MR. BROWN.  I understand the Administration wants--and it
    is a bit of a followup on Dr. Norwood's questions, is sort of the
    general area--wants to link physician payments to the quality of
    care they provide, but my understanding is that Medicare doesn't
    have, yet, consensus measures, validated by the National Quality
    Forum and the Ambulatory care Quality Alliance, that could be
    reported by each physician specialty.  Is that right?
    	DR. MCCLELLAN.  There are a number of measures that have
    been validated by the NQF and AQA for many specialties, not all,
    and many specialties are in the process of getting measures
    through that consensus process.  The measures start with the
    physician groups, and then get consensus from other stakeholders,
    insurers, businesses, consumer groups.  That process is ongoing
    now.
    	MR. BROWN.  But I assume we are a long way away from having
    them across the board for all physician specialties.
    	DR. MCCLELLAN.  Well, when we started with hospital
    quality measurement, we didn't have measures of hospital quality
    for everything.  You may remember in the Medicare Modernization
    Act, hospitals got paid a little bit more for reporting on 10
    measures of quality.  Over time, that has grown, and next year,
    we are going to see a much broader range of quality measures,
    including patient satisfaction and some important outcomes of
    care.  This is a gradual process, and we are not trying to rush
    into anything.  On the other hand, if we don't do something to
    help physicians deliver better quality care at a lower cost, we
    are going to continue to see rising Part B spending and rising
    Part B premiums for beneficiaries.
    	So, that is why there is some urgency.  At the same time
    that we want to be careful in supporting physician groups and
    moving this effort forward.
    	MR. BROWN.  The Medicare carriers that process Medicare
    physician claims are undergoing, my understanding is, a massive
    consolidation, though, and will be hard pressed to provide both
    training and education for doctors to make the necessary systems
    changes needed to implement any new physician reporting systems
    in January.  Is that generally right?
    	DR. MCCLELLAN.  The reason for the reforms in how we are
    paying our contractors that process claims is because we want to do
    a better job of getting claims processors, that gives physicians
    what they need:  high quality service, accurate payments, timely
    payments.  The contractors that are going to be rewarded, and they
    are going to expand in these processes, are the ones that are doing
    the best job.  We are taking a performance-based approach to
    supporting doctors and hospitals in the program, really for the
    first time.  So, I think it could actually help the doctors and the
    hospitals get better service.  That is certainly the goal.
    	MR. BROWN.  So, how does--I am a bit confused how this adds
    up in enabling us to gauge or measure pay-for-performance.  We have
    got a lot of physician specialties where the work is not yet done.
    You compared it to hospitals.  There are a few thousand hospitals.
    There are 800,000 doctors, so it is a more complicated process.
    We have the consolidation of the Medicare carriers.  How does this
    add up so that we can measure pay-for-performance?
    	DR. MCCLELLAN.  It adds up that we are giving doctors better
    service in claims processing and the administrative support they
    need to get paid for their service.  Right now, there are some very
    divergent error rates and times for processing among the contractors
    that pay for physician services and hospital services.  At the same
    time, physician groups are helping to lead this effort towards paying
    better for better care.  If you put those two together, what I
    am aiming for is better service for the physicians and hospitals in
    Medicare, and better payments for what it is that they think is
    really important to improve quality and keep overall cost down.
    	MR. BROWN.  Okay.  Let me shift in my last minute to Medicaid
    real quickly.  And on Wednesday, a letter was sent to Secretary
    Levitt, signed by all 205 House Democrats and Bernie Sanders,
    opposing the regulatory cuts the Administration has proposed on
    Medicaid.  I have copies of all these letters that I am going to
    mention, if you would like a second copy.
    	These cuts, as is pointed out in the letter, can harm
    children's access to services needed to learn in schools, harming
    hospitals, nursing homes, and facilities that care for the
    indigent.  There was a letter May 8 signed by 83 House Republicans
    opposing the $12 billion.  I have that letter, too.  Two other
    House Republicans wrote separate letters, bringing the total to
    85.  That is 291 House Members opposing these cuts.  I have a letter
    dated July 20, signed by 50 Senators of both parties opposing any
    action by the Administration to move forward with these
    administrative cuts.  The National Governors Association also wrote
    a letter opposing these cuts as well.
    	There are not too many examples of that kind of broad-based
    support, majority of the House, half the Senate, and the Governors
    Association so united in opposition to an Administration's potential
     administrative action.  Given this Congressional concern and the
    concern of so many others, can you assure this subcommittee that
    your Administration won't move forward to implement the regulatory
    cuts to Medicaid outlined in the President's budget?
    	DR. MCCLELLAN.  Well, Congressman, I can assure you that as
    we move forward, we will do it taking account of any concerns that
    are raised about potential harms.  There are many examples, as you
    know, in Medicaid spending not going for the intended purposes of
    improving care for people who the most vulnerable members of our
    society.  We have seen that we can work with States to redirect
    spending, and in some cases, save money while delivering better
    care.
    	I was very pleased that Secretary Levitt and Governor Romney
    yesterday were able to announce the approval of a waiver in
    Massachusetts that has the potential to expand coverage to everyone
    in the State, because we were taking dollars that were going in
    some potentially concerning directions, towards high payments for
    institutions, excessive emergency room care, and we are redirecting
    that to where it really needs to go, delivering better benefits for
    people with Medicaid, giving them control over getting preventive
    services, getting care in the community.
    	That is the purpose of all of our steps in improving the
    Medicaid program.  I am very pleased we have been able to expand
    coverage by taking these steps and make the program more sustainable
    at the same time, and we are going to bring that same care and
    caution, and close analysis, to moving forward on any of the
    Medicaid regulatory reforms.
    	So, you will hear more from us about this, and I will look
    forward to discussing these steps with you further.
    	MR. BROWN.  Mr. Chairman, my guess is that the people that
    signed those letters aren't convinced that they won't do significant
    damage when they make these cuts--
    	MR. BURGESS.  [Presiding]  Right.  I would remind the
    gentleman this is a hearing about Medicare reimbursement rates, and
    we are under some time constraints.
    	I will recognize Mr. Shimkus for 5 minutes for questions.
    	MR. SHIMKUS.  Thank you, Mr. Chairman.  Dr. McClellan, it
    is great to have you here, and why would you volunteer to have this
    job?  Sometimes, I don't know.
    	DR. MCCLELLAN.  Thank you.
    	MR. SHIMKUS.  But I know your heart is in the right place,
    and these are always difficult challenges.  What happens when doctors
    decide not to treat Medicare patients because of the reimbursement
    schedule?
    	DR. MCCLELLAN.  Well, when that happens, that is clearly a
    quality of care problem.  If patients in Medicare don't have access
    to the physicians they need, primary care practitioners, specialists,
    their healthcare will suffer, and that really puts their health in
    jeopardy.  That would be a real concern.
    	MR. SHIMKUS.  Yeah, I have always, and a lot of the folks in
    the audience, know that I am really blessed to be on this committee,
    but it is one of the most frustrating ones, because you really have
    providers who, you know, they love their job, they love providing
    healthcare to individuals, and the reimbursements are always out of
    whack, and one of the reasons are we are a big provider of healthcare
    to Americans.  I mean, we are a big payer, and Medicare and Medicaid
     actuarially can't sustain itself.  We have got to figure out a way
    to do that.
    	In the private sector, in the competitive market environment,
    price is determined by, I mean, a consumable good, the consumer
    chooses, based upon cost and quality of care.  I always believe it
    is best for the individual in a free market society to make that
    decision, because those are consumers that want higher quality, they
    will pay a higher cost.  But when you have a big Federal bureaucracy
    that is trying to manage that, that is really, I don't envy, I don't
    know how you really do it, because I always go back to the
    individual consumer, because that is where the responsibility
    should fall upon.
    	Now, we know we have consumers that are very diligent in
    looking at their payments and their bills, and they call us when
    they see billing questions and stuff, but a lot of them, we have
    developed a system where the public, especially those under these
    programs, really aren't as active as we would like them to be in
    what I would think is a consumer-driven--and I think healthcare
    across the country is moving to the point of wholeness and
    wellness.  Even in the insurance industry, if we keep people
    well, keep healthy lifestyles, that affects our bottom line in
    the future.
    	So, I mean, that is my little filibuster, and that is where
    we want to go, but there is a lot of perceived damage along the way,
    and I don't know if we'll ever get there.  I don't know how a large,
    bureaucratic pricing control system really encourages individuals to
    shop around and know their doctor, get advice and counsel, address
    wellness and wholeness issues, and how that has empowered in the
    individual.
    	Again, that is just my statement for the record, but I need
    to ask about a letter that Tom Allen and I sent, which is also
    coauthored by 40 Members of Congress who are requesting an
    Administration and budget neutral correction to the practice
    expense calculations for cardiothoracic surgeons, asking you all
    to restore reimbursement to those surgeons for the clinical staff
    that they bring into the operating room.  Can you comment on that
    letter and that request?
    	DR. MCCLELLAN.  I don't have the letter in front of me.  I
    would be happy to get back to you in more detail.  I can tell you we
    have been working closely with the thoracic surgeons who have some
    great ideas that they are actually implementing to get to better
    reimbursement, including reimbursement that would pay better support
    for the whole surgical team, to prevent complications and get better
    outcomes for the operations.  The Society of Thoracic Surgeons in
    particular has helped the way in some of these efforts to identify
     opportunities to improve care.
    	Many of the surgical groups have written me, have written
    the committees, to say that look, better care isn't more expensive.
     We can do this better, we need to focus on--surgeons are very
    outcome focused.  You know, they want to get fewer complications
    and better results for patients, and they have got some good ideas
    about how to do it.  We don't provide enough support for that now,
    and just going back to your earlier point, that is why I have been
    in this job for the last couple of years, because I firmly believe
    we can do better by getting better measures of what it is that we
    really want in healthcare, that patients and doctors can use, and
    by putting our money behind those efforts, rather than these
    bureaucratic processes paying for each individual lab test, and
    regulating the prices, and bringing them down and so forth.
    	We can do a lot better than we are doing now.  It is not
    easy, but it can clearly happen.  We saw it with Part D, when
    people chose the drug plans, their premiums are 40 percent lower
    than had been predicted, or if the Government had designed the
    system and implemented it themselves.  So, there were lots of
    opportunities to help the cardiothoracic surgeons and any other
    physician group do what they want to do, which is deliver better
    care, and prevent complications and unnecessary costs.
    	MR. SHIMKUS.  Thank you, and I appreciate your service.
    And I also appreciate the service of those who are in the hearing
    room, providing, really a quality of care to our citizens.
    Chairman, with that, I will yield back.
    	MR. BURGESS.  I thank the gentleman for yielding back.
    The gentleman from Maine, Mr. Allen.  The gentleman from Tennessee,
    Mr. Gordon, you are recognized for 5 minutes for questions.
    	MR. GORDON.  Thank you, Mr. Chairman, and thank you,
    Ranking Member.  And Mr. McClellan, thanks, or Dr. McClellan,
    thanks for joining us today.
    	As I have said on a number of occasions, I am very concerned
    that we are on the verge of national access to healthcare crisis.
    I witnessed firsthand in Tennessee, when TennCare, which was well
     intended, was rushed into play without giving adequate stakeholders
     thoughtfulness, and again, it was a money sort of deal.  But it has
    been counterproductive.  I don't want to see that happen on a
    national level, so we do need to think through these well
    intentioned approaches.
    	We had a hearing the other day concerning defensive medicine,
    and it was pretty well acknowledged that that is an expense to this
    country, and I am concerned that if we don't thoughtfully look into
    this pay-for-reporting plan, that you know, one program doesn't fit
    all specialties.
    	DR. MCCLELLAN.  Right.
    	MR. GORDON.  And if we are going to have a 10 point plan,
    and we are going to get the same type of defensive medicine, by virtue
    of doing maybe number 3 and  number 7, which really isn't needed in
    specialty 24, or whatever it might be.
    	So, with that editorial, let me get into my question.  In
    your testimony, you inferred that since some hospitals are reporting
    in Medicare, it would be no problem for physicians to report as
    well.  However, I think there may be some differences in these two
    provider types.  Reporting for physicians won't be as simple as some
    make it out to be.
    	For example, isn't it true that most if not all hospitals
    have an infrastructure in place to report this information to CMS,
    yet many physicians do not have the health information technologies
    necessary for reporting, and additionally, isn't it true that while
    there are only a few thousand hospitals in the country, there are
     more than 800,000 physicians in many different specialties,
    providing many different types of care?  And additionally, I don't
    disagree that we need to work toward getting physicians to report
    information, but I don't think it is quite as simple as applying
    what the hospitals are doing, to doctors.  I believe that some more
    work has to be done, and isn't it true that we do not yet have an
    approved quality measure for all physicians' specialties?
    	And finally, since we have so many different physician
    specialties within Medicare, and we only have 5 months to go
    before January, what really do you expect to get done in January,
    and what happens if half of the specialties have worked out a
    program and the other half haven't?
    	DR. MCCLELLAN.  Congressman, those are all very good
    questions that we are working very hard with the physician groups
    and many other stakeholders to address.  That is why we are
    implementing a voluntary reporting program.  Right now, we have got
    thousands of physicians participating who don't have electronic
    records, in reporting on some of the quality measures that have
    been through this process, that the doctors think are valid and
    important ways of measuring the quality of care.  They are reporting
    on, through the claim systems, not through electronic records, that
    is the most feasible approach.
    	MR. GORDON.  And I know, and you have mentioned that it is
    going well.  So, what do you expect on January 1, that you are
    going to implement, and what is going to happen if all the
    specialties--
    	DR. MCCLELLAN.  Well, first of all, we are not implementing
    anything unless it comes through you, because we don't have the
    authority to implement any kind of mandatory program on quality
    reporting, or any tie of our payment systems to paying more for
    reporting on quality, without Congressional action.  We can do
    pilot programs.  We can do voluntary programs, and that is what
    we are doing now.  What I can tell you is that 34 specialties
    have developed measures that can be reported, using claims-based
    systems, that are being evaluated right now in these pilots, in
    these voluntary reporting systems.  There are only five specialties
    that don't have any measures.  There are more of these measures in
    process, and what I can also tell you, you are right.  Time is
    short.  It is only 5 months away.  But the only other alternative
    here seems like is just putting more money into the current system,
    which means higher costs for everyone, and higher beneficiary
    premiums.
    	By the way, going back to your point about liability, I
    think you are exactly right.  We could save billions of dollars
    while improving quality of care, by implementing liability reform
    now.  There is strong evidence of that.  CBO will score the
    savings.  That would be one way to pay--
    	MR. GORDON.  Well, I agree, but in retrospect, looking at
    what happened in Tennessee, I think most folks would have said we
    wish we had waited another year to get it right, and so, I guess
    my question to you, are you going to oppose any type of increase
    in physician reimbursement, if we don't have it ready to go right
    this year?
    	DR. MCCLELLAN.  The Administration's position is that we
    want to see budget neutral reforms in physician and other payment
    systems, the payment reforms that don't increase costs of
    beneficiaries and taxpayers, by providing better support for
    quality care.  This is going to be a gradual process.  Not
    everything is going to be implemented in one fell swoop on
    January 1.  That is what has happened with hospitals--
    	MR. GORDON.  I guess the only thing that will be implemented
    under what you are talking about is no increase in physician
    reimbursement.  That is the only thing that we know for sure that
    you are proposing.
    	DR. MCCLELLAN.  Well, we know that reporting on quality can
    lead to better care.  We know from the pilot programs that we have
    implemented and that the private sector has implemented, that many
    Medicaid programs have implemented, that you can prevent costly
    complications, coordinate care more effectively, avoid unnecessary
    costs.
    	MR. GORDON.  These are all anecdotes, but you are talking
    about changing a whole system.  Thank you, Mr. Chairman, for your
    time.
    	DR. MCCLELLAN.  We would want to do it gradually, not rush
    into anything all of a sudden on January 1, and you have some very
    good points.
    	MR. BURGESS.  Thank you, Mr. Gordon.  You yield back, I
    presume.  I do want the gentleman from Tennessee to know that there
    actually is a lot of work going on on the ground right now, H.R.
    5866 is a House bill that provides a framework for dealing with a
    lot of these issues.  It repeals the SGR, replaces it with MEI, and
    builds on the work that is already being done by various quality
     organizations, such as the AMA and our friends in the Medical
    Specialty Alliance.  It builds on the work that they have already
    been doing on the parameters that were laid down with Mr. Thomas
    and Mr. Grassley last year.
    	So, there is work going on in that, and it is not just the
    inevitable 4.4 percent negative update that we faced January 1,
    which is the only certainty.  If the committee is willing to do its
    work, and the Congress is willing to do its work, I believe this
    is something that we can get done this year.
    	MR. GORDON.  I agree, Mr. Chairman--
    	MR. BURGESS.  It is incumbent upon us.
    	MR. GORDON.  --that progress is being made, but--
    	MR. BURGESS.  Reclaiming my time, because our time is short.
    	MR. GORDON.  Did you have time?  I thought you were
    editorializing.
    	MR. BURGESS.  Oh, no, I guess I was.  I will be happy to
    yield.
    	MR. GORDON.  Well, I would just follow the footsteps of that
    great philosopher that once said "No wine before its time."  This
    may very well be a good program, and we are making progress, but I
    have seen a disaster in Tennessee by not implementing it at the
    right time, and so hopefully, we can get it right.
    	MR. BURGESS.  But you also acknowledge the pending disaster
    and the crisis of access that you so eloquently alluded to that
    will occur if we don't fix it, and again, I think we have available
    to us the minds that can help us do this.  As Dr. McClellan so
    correctly pointed out, it is an incremental, it is an evolutionary
    process, and medicine is constantly evolving, constantly changing.
    	The practice that I left in 2002 was vastly different than
    the type of medicine I practiced in 1981, and it happened slowly.
    It wasn't painful.  The types of operations I was doing in 2002,
    I would have never dreamed I was going to do in 1981.  It is just
    part of the process.  No one came to me and said you have got to
    do it this way, because it is better quality, and you get patients
    out of the hospital faster.  It was just it was the right thing
    to do.
    	We had better start my time.  I was asked yesterday if I
    had any additional question, and actually, I had an additional
    page of questions.  I have a page of questions that I am going to
    submit in writing, because the 5 minutes does go very fast, and
    would ask for a response for that.
    	MR. GORDON.  I do too.
    	MR. BURGESS.  You probably could just comment on some of
    the colloquy that was just going on.  What about building on the
    work that has already been done by a lot of the various quality
    organizations?  I know my TMF back in Texas has been working on
    this for some time.  I know the AMA has been working on it.
    Again, the sort of gentleman's agreement after the DRA last
    year.  Do you have any thoughts on that?
    	DR. MCCLELLAN.  That is exactly the right approach, and
    I can say we have seen an acceleration, I think, over the past
    year, in leadership, and in activity from many of those
    physician groups across a broad range of specialties, the AMA,
    I mentioned the ACP and family practitioners earlier, the
    Alliance for Specialty Medicine.  Across the board, we are seeing
    increasing activity, and developing and testing ideas.
    	I want to give a particular note of thanks to the
    Ambulatory care Quality Alliance, or it is now just known as the
    AQA, which in just a couple years, has taken these ideas to
    actually getting implementation.  We are doing six pilot programs
    that we are supporting around the country now, that the AQA has
    led, that is resulting in quality measurement, quality improvement
    efforts, quality reporting for ambulatory care.  It is going to lead
    to, I think, better quality care and better information that
    doctors and patients can use to get the right care, and it fits
    very well with some of the ideas in your new bill, Mr. Chairman.
    	MR. BURGESS.  Thank you, and again, Mr. Gordon referenced
    it, and I was pleased and happy that he did, but it bears
    mentioning again.  We have talked about some things, that perhaps
    some other things besides quality reporting that could help.
    Balanced billing was brought up, balanced billing as it would
    pertain to those identified by the income relating the Part B
    premiums as being at the upper end of the income scale.
    	Additionally, liability reform, and like you, I believe
    there is significant savings to be had.  Whether it is pursuing
    what was worked so well in Texas, with capping non-economic
    damages.  We heard a panel just the other day talk about a
    philosophy of early settlement, early offer.  I think we have to
    change some things at the National Practitioner Data Bank aspect
    to get that done, but these are intriguing prospects, and I believe
    it was your study 10 years ago that showed just how much money
    could be saved if the practice of defensive medicine could be
    curtailed just a little bit, and make no mistake about it,
    defensive medicine goes on every day.
    	DR. MCCLELLAN.  Right.
    	MR. BURGESS.  We are going to hear testimony in our second
    panel from our friends at the Alliance of Medical Specialties, and
    in their testimony, they talk about the fact that if doctors follow
    the quality measures as outlined here, that CMS has provided for
    us, there may be a shorter hospitalization.  There may be an
    avoided hospitalization.  There may be a simpler surgery, rather
    than a more complicated surgery.  So, the savings that are
    available by following these quality measures, it is hard to know
    where that savings has come from, and our good friends at CBO
    were, in fact, unable to identify money that was saved from a
    hospitalization that didn't happen.
    	So, they raised the very valid point that because you have
    got the funding silos in the Medicare program, the savings are
    occurring because of the quality measures on the Part B program.
    How do you get the money back into the Part B program to pay for
    the best doctors in the world to practice the best medicine in the
    world on patients who are arguably going to be our sickest and most
    complex, our seniors?
    	DR. MCCLELLAN.  That is exactly the right question and the
    right approach.  We need to find a way to get past the silos to
    enable physicians and their group practices to get better support
    when they take steps that bring overall costs down.  We are actually
    doing this now for large physician groups.  In our Physician Group
    Practice Demonstration program, there are a number of clinical
    quality measures that are tracked, along with the overall costs of
    care, Part A and Part B costs, for a Medicare beneficiary that is
    getting their care through that multi-specialty group.  And when
    the group improves quality of care and reduces the trend in
    healthcare costs, we share those savings back with the group.
    	We are also doing a demonstration program now, under Section
    646 of the Medicare Modernization Act, that enables multiple
    healthcare organizations to come together and capture those
    savings, from taking steps like investing in interoperable health
    IT, or better coordination of care, better integration of care, to
    keep costs down.  So, we are doing this on a demonstration basis
    now.  I would like to see it happen more nationally.  One
    challenging area is the individual and the small group
    practitioners, where you know, for a large multi-specialty group,
    you can set up this system based on the overall costs of care;
    individual practitioners, that is a little bit more challenging,
    but we are also doing demonstration programs there.
    	It is exactly the right question that this committee needs
    to answer, as to how to make sure the savings that are achieved in
    overall care get channeled back to support the physicians and the
    physician groups that are making that happen.
    	MR. BURGESS.  I appreciate that, and not necessarily
    rewarding the multi-specialty group over the solo practitioner, or
    the one or two physician offices.
    	DR. MCCLELLAN.  Right.
    	MR. BURGESS.  Thank you.  We will now recognize the
    gentlelady from California, Ms. Capps, for 5 minutes, for questions.
    	MS. CAPPS.  Thank you, Mr. Chairman, and thank you,
    Dr. McClellan, for appearing yet another time.
    	DR. MCCLELLAN.  Good to see you again.
    	MS. CAPPS.  I am concerned about the rush, as some of my
    colleagues are, to implement a nationwide system linking payments
    to reporting.
    	I want to talk about costs, because as we discussed in this
    first segment of the hearing on Tuesday, we know our system of
    physician reimbursement is in dire need of a change, and as you
    know, I associate myself strongly with my colleague who spoke
    earlier, or questioned you about a situation in Northern
    California, Central Coast, and other parts, actually, 32 States
    have disparities in reimbursement.  But don't you think we should
    first improve our basic fee for service payments before we
    complicate it with reporting requirements?  That is one sort of
    rhetorical question.
    	And another. How are doctors expected to pay for expenses
    associated with more in-depth reporting requirements, when we are
    asking them to do that, on one hand, and on the other hand,
    cutting their reimbursements.  But more specifically, then I will
    allow you to answer, how would you account for comorbidity, for
    example, when determining reporting standards for specialists?
    And also, different risks exist for patients in different regions
    of the country, different income levels.  Will that be compensated
    for as well?
    	DR. MCCLELLAN.  Those are definitely issues that must be
    addressed.  I would connect your--
    	MS. CAPPS.  Have they been?
    	DR. MCCLELLAN.  Well, let me go through your questions.
    	MS. CAPPS.  Sure.
    	DR. MCCLELLAN.  Your first question is, well, what about
    improved payments, and if by improved payments, you mean increased
    payments, I mean sure, you know, in an ideal world, we would be able
    to pay physicians large amounts of money for everything that they
    do.  The problem is that is not reality.  We are seeing rapid growth
    in Medicare costs, rapid increases in Part B premiums paid by
    beneficiaries, and if we simply add more money into the payment
    systems, those payments are going to go up even more.
    	With respect to your second question, about how can doctors
    pay for this, well, that is why we are asking and working closely
    with physicians and physician groups to identify ways in which
    they can deliver better care at a lower cost.  So, yes, it is some
    effort to report, but it is also a lot of effort to report now, to
    go through all the Medicare paperwork, for lab tests and other
    procedures that are billed low--
    	MS. CAPPS.  And comorbidity?
    	DR. MCCLELLAN.  With the work with the physician groups, we
    want to get to measures that are clinically valid, and that means--
    	MS. CAPPS.  But we haven't yet.
    	DR. MCCLELLAN.  --for comorbidity.  Well, the measures that
    have been endorsed are measures that broad groups of physician
    experts are saying do account for comorbidity.  You are a health
    professional.  You know that the best place to look for what it is
    that we ought to be supporting for healthcare--
    	MS. CAPPS.  It is pretty complicated, though, right?
    	DR. MCCLELLAN.  It is from the health professionals.
    	MS. CAPPS.  And also, then, getting into different
    geographic levels, different income levels, and so forth.  There
    is a lot of differences around the country.  But I want to switch,
    I know there is never enough time, but I want to focus the rest of
    my time with you on why we are doing this in the beginning.
    	You ask patients why they seek out a doctor, especially as
    they get older.  They often rely on recommendations from their
    family, their friends, or their health providers.  Is there any
    reason to believe that Medicare patients who are, by definition,
    either older or disabled are going to spend time reviewing reporting
    results from physicians in order to determine who they are going to
    make an appointment with?  I mean, that must be why we are getting
    at this.
    	And what about cases, and this is getting back to the
    previous topic, so many areas of the country, the problem is not
    finding the right physician.  It is finding a physician who will
    take Medicare.  I mean, so, what are we going to do, well, how will
    you address this goal, linking payments to reporting, with the fast
    disappearing number of providers who will serve the Medicare
    population?
    	DR. MCCLELLAN.  Well, I am very concerned about that, which
    is why I think we need to get to a better--that are sustainable--
    	MS. CAPPS.  How are we going to get to that through this
    legislation?
    	DR. MCCLELLAN.  Well, that is what--that is the whole point,
    I think, of the process that we are talking about here.  Not
    expecting that we can make a massive change immediately on
    January 1, 2007, but recognizing that if we don't make some progress
    now, we are going to be facing both higher costs and problems in
    access to care.  The GAO did a recent study showing that at this
    point, the vast majority of Medicare beneficiaries do have access
    to providers, but that is no reason for us to step back.
    	We need to act now to improve the payment system, to get to
    a more sustainable payment system as soon as we can.  So, I think
    those are important steps that we can take right now together to
    address this issue.
    	MS. CAPPS.  I guess that begs me back to the first part.
    Aren't we--
    	DR. MCCLELLAN.  Sorry, you had a lot of questions there, and
    I am trying to answer all of them.
    	MS. CAPPS.  I did, and I know there is just never enough
    time.  It seems to me that we should focus on one beginning, and
    with this goal, we are putting the cart before the horse in so many
    ways, because we are back to the same point.  If they are not being
    compensated, reimbursed adequately, they are not even able to make
    the expenses of a Medicare provider, why is this going to help them
    to stay in business?
    	DR. MCCLELLAN.  Because when I talk to many of these doctors,
    they are saying they are being compensated for the wrong things.  We
    will pay them more when they order a duplicative lab test, or when
    their patient has a preventable complication.
    	MS. CAPPS.  Is this bill, is this going to get at that?
    	DR. MCCLELLAN.  It does, by asking doctors and working
    with physician groups to identify what it is that we want in our
    healthcare system that we are not getting today.  There are many
    examples why we have the best healthcare system in the world.  There
    are many examples where it is falling short, where we are seeing
    big variations in the use of many procedures without any
    consequences for patient health, where we are seeing many examples
    of where early intervention, more prevention oriented care, could
    keep people well, keep them out of the hospital.
    	The measures that are in development are all focused on
    evidence-based steps, identified by health professionals, that can
    lead to better quality care and lower costs, so that we can take
    down the pressure right now that we are facing on Medicare's
    payment system, and on beneficiary premiums, by getting to better
    care.  We can get people healthier the same time as we are getting
    costs down.  Our payment system today does not do that.  It creates
    a lot of paperwork and a lot of frustration and barriers to
    healthcare professionals delivering the best care at the lowest
    cost.
    	MS. CAPPS.  With your last statement I totally agree.  I
    guess I would differ on--
    	MR. BURGESS.  The gentlelady's time--
    	MS. CAPPS.  --on ways to get there.
    	DR. MCCLELLAN.  Well, we need to get there.
    	MR. BURGESS.  --has expired, and we are going to recognize
    the gentleman from Maine for 5 minutes for questions.  Mr. Allen.
    	MR. ALLEN.  This is one of those microphones that just
    doesn't move.  I thank the gentleman for the hearing.  And
    Dr. McClellan, a couple of questions.
    	My understanding is every 5 years, the AMA has a Relative
    Value Update Committee that evaluates the work values assigned to
    many of the procedures codes that physicians use and are billed
    under Medicare.
    	DR. MCCLELLAN.  That is correct.
    	MR. ALLEN.  That is made up from experts from a variety of
    different specialties, and they are charged with making
    recommendations.
    	DR. MCCLELLAN.  Right.
    	MR. ALLEN.  I understand there is an unusual situation
    that has developed with CMS, as a result of this, or in accordance
    with this 5-year review of the physician payment rule.  My
    understanding is that according to the CMS-proposed rule, there
    will now be more work value in a three artery heart bypass surgery
    than in a four artery procedure, and I don't quite understand how
    removing an extra artery from a leg or wherever, and how that winds
    up being less work than the other one.
    	In addition, a heart transplant has always been considered
    the most difficult medical procedure, but not any more.  Now, there
    are seven procedures, I understand, upon the proposed codes, that
    are more difficult than transplanting a human heart.  So, since the
    RUC, the AMA's committee, are experts at valuing physician work, and
    the CMS is not, the CMS has traditionally accepted, my
    understanding, 95 percent of their recommendations, but this year,
    when it comes to values for heart and lung surgery, CMS rejected 98
    percent of the recommendations.  Can you help me?  Can you explain
    what is going on?
    	DR. MCCLELLAN.  I am not sure the numbers are right, and I
    would be happy to get back to you with the specific details.  The
    RVU committee this year made some very important and actually,
    very significant reform recommendations that have the effect of
    putting a lot more value on spending time with patients, evaluating
    the patient, explaining to the patient their options, counseling
    them about what they need to do, which I think is a very important
    step.  We are not paying enough to surgeons or any other doctor
    today for getting patients involved in their care, making sure they
    understand what to expect, and they will get better outcomes and
    fewer complications as a result of that very valuable physician
    time.
    	That is the overall thrust of the recommendations this year,
    which we fully support.  We did put this proposal out for comment.
    I think we followed probably 95 percent of the recommendations of
    the RVU committee again, just as we have in the past.  If there are
    some specific areas where we can do better, that is why we have it
    out for comment now.
    	So, I look forward to going over the details with you.
    	MR. ALLEN.  Well, I will give you a chart.  This is
    something that you can't really see from where you are, but
    essentially, it shows that virtually all of the recommendations,
    with respect to codes, virtually, with almost all of the
    RUC-recommended proposals, CMS is well below.  But--
    	DR. MCCLELLAN.  For cardiothoracic surgery in particular?
    	MR. ALLEN.  Yes.
    	DR. MCCLELLAN.  Okay.  Well, we--
    	MR. ALLEN.  Adult cardiac and general thoracic surgery.
    	DR. MCCLELLAN.  Okay.  We want to get it right.
    	MR. ALLEN.  And I will provide this to you.
    	DR. MCCLELLAN.  Okay.  Thank you.
    	MR. ALLEN.  Second question.  Many of the pay-for-performance
    or value purchasing initiatives to date focus on groups of doctors,
    and in Maine, and lots of places around the country, we still have
    solo practitioners, believe it or not, in rural areas.  And so, a
    group practice-based pay-for-performance strategy may not work for
    those people.
    	Many practitioners still use paper claims, making reporting
    of measures more difficult, and they need funding to do the
    transition.  So, could you comment on how we can ensure that rural
    and solo practitioners are not going to be penalized in a
    pay-for-performance system, and in particular, what if anything CMS
    is doing with respect to that?
    	DR. MCCLELLAN.  Well, of course, we have been focusing on
    reporting that can work for rural doctors who do not have electronic
    records, and are in solo practice.  We need to find an approach that
    is feasible for them, and I am very pleased that many of the
    participants in our voluntary reporting program are from solo or
    small practices, and are giving us some firsthand opportunities to
    make sure that we have a reporting system that can work for doctors
    in exactly those circumstances.
    	These reports are based off of claims filing systems that
    the rural doctors are already used to.  That is how they bill
    Medicare today, so that is where we want to start.  We are also
    looking at pilot programs for paying more for quality in these
    settings.  We want to pilot this first, in addition to the quality
    reporting, to enable the small practitioners to fully participate as
    well.
    	So, just as we have gone in a gradual process, from
    reporting to moving towards performance-based payments for
    hospitals, physicians are behind that, and there are definitely some
    special challenges for the rural doctors, but that is why we are
    working with them now on voluntary reporting and on pilot programs
    for these payment reforms.
    	MR. ALLEN.  Thank you.  My time is really almost up.  I just
    want to pose one problem.  The work is going forward to move forward
    with pay-for-performance, but you recognize that not all specialties
    have the right criteria, and so, there is an issue here, I think,
    about how you move forward with a system when perhaps not all
    specialties are going to be part of that system, and whether those
    who haven't will be penalized in some way, and--
    	DR. MCCLELLAN.  Well, if I could just briefly respond, we
    have seen a lot of progress in recent months, from a broad range
    of specialties at this point, 34 medical specialties, accounting
    for over 90 percent of Medicare spending, have developed measures
    that are going through this consensus process, that we talked about
    before.
    	So, we are seeing some very broad participation, and we want
    to help every specialty along.  We are going to keep doing all we
    can to make sure that we are doing as much as we can for every
    specialty, to improve quality and keep costs down.
    	MR. BURGESS.  The gentleman's time has expired.  The
    gentleman from Illinois, Mr. Rush, is recognized for 5 minutes for
    questions.
    	MR. RUSH.  Thank you, Mr. Chairman.  Dr. McClellan, I want
    to ask you for your indulgence, because I want to move quickly from
    Medicare to Medicaid.  It is an extremely important issue in my
    district and in my State.
    	Dr. McClellan, it is my understanding that the Administration
    is now crafting rules that will severely restrict Medicaid funding
    to government providers, and in Illinois, in Cook County, there is
    a heavy user--Illinois and Cook County are heavy users of the IGTs,
    and this money is being used to provide low-income healthcare
    services to all of our citizens, and last year, the Administration's
    budget assumed that these changes to Medicaid financing had to come
    from Congress, and Congress rejected IGT and other Medicaid changes
    in the DRA, the Deficit Reduction Act.
    	I have two questions.  What exactly is the Administration
    proposing with these rule changes in Medicaid, and secondly, why do
    you not seek Congressional authority?
    	DR. MCCLELLAN.  Well, we wouldn't propose anything in
    regulation where we don't think we already have the regulatory
    authority.  In fact, under the Medicaid statute, we are required by
    law to make sure that the dollars spent on the Federal Medicaid
    program are going to pay for patient care, necessary services, and
    that they are matched by State or locally contributed dollars
    through intergovernmental transfers, and any regulation that we put
    out would be absolutely consistent with this statutory requirement
    of the Medicare program.  There are many uses of IGTs in this
    country that are, as you point, contributing importantly to the
    quality for Medicaid beneficiaries, and any such legitimate IGTs
    would not be affected by any of these regulations at all.
    	At the same time, as Medicaid costs have increased rapidly
    in the last few years, we have seen more use by more States of what
    are called recycling methods, where IGT dollars are really, at least
    in part, Federal dollars that are recycled back through, that get
    away from the requirements of the Medicaid statute, that the State
    has to put up matching funds.
    	So, to make sure that we are addressing this effectively,
    and to make sure that we are promoting more use of Medicaid dollars
    for improving patient care, we will have proposed regulations in
    this area.  There will be a full opportunity for public comment on
    that, to make sure we are getting it right.
    	Again, what we have seen over the last few years is that
    when we work together with the State, we can often get more for the
    dollars that we are spending.  Massachusetts just yesterday got a
    waiver approved that is taking a lot of dollars, including some
    that involved IGTs or institutional care contributions and so forth,
    and are now directing it to providing more affordable insurance
    for potentially everyone in the State.
    	So, that is the goal that we have, is to make sure that
    Medicaid dollars are going to their intended purpose, which is, as
    you said, to serve very vulnerable populations, and that we are
    using those dollars as effectively as possible, and we will look
    forward to discussing any regulations we propose with you, to make
    sure that we are implementing them effectively.
    	MR. RUSH.  Well, last year, didn't the President's budget
    assume IGT reform needed Congressional approval?
    	DR. MCCLELLAN.  The President's budget had some proposals
    for a range of IGT reforms which might need Congressional approval.
    Again, we would not propose any reforms that we don't have the
    statutory authority, in fact, the statutory mandate to implement.
    The reforms proposed in our budget represent less than 0.5 percent
    of State spending, and represent only a fraction of the increase in
    spending that we have seen over the last few years.
    	And again, I am convinced, having worked with a lot of
    States to take a look at where their money is going, and many
    times, States don't know what they are getting for a lot of these
    IGTs or institution-based payments.  As they look more closely, we
    can find ways to use those dollars better, to get more people into
    good health insurance, just as we have done in Massachusetts, we
    have done in Arkansas, we have done in many other States, and I
    want to work to address your concerns in Illinois as well.
    	MR. RUSH.  Okay.  Let me just give you an example.  The
    Administration's proposal to cut hospitals under Medicaid, which is
    pay no more than cost, was considered under the DRA and rejected.
    Is that right?  And why do you think you should now move forward
    with a proposal that Congress rejected last year?
    	DR. MCCLELLAN.  I think you will find that the proposal
    that, to the extent we move forward with these proposals, they are
    going to be different from some of the ideas under consideration
    last year, and they are going to reflect steps that we need to take
    in order to make sure that the Medicaid dollars are spent according
    to the statute.
    	MR. RUSH.  So, you don't see any provision, or any move in
    the near future to get Congressional approval?
    	DR. MCCLELLAN.  I am sure, Congressman, that we are going
    to have a lot of ongoing discussions.  We already have, with the
    letters that you mentioned earlier.  We will be responding to
    those.  Around any regulations we propose, I am sure there will
     be many comments on those, so there will be plenty of opportunity
    to make sure that we are doing things that are within the statutory
    mandate.  In fact, I think we are compelled to do many of these
    steps to make sure that the Medicaid dollars go to their intended
    \purposes, and that they are having the biggest impact possible on
    actually improving care for Medicaid beneficiaries.
    	MR. RUSH.  Well, I know that my entire caucus, the
    Democratic caucus, has sent you a letter--
    	DR. MCCLELLAN.  Yes.
    	MR. RUSH.  When do you think we will see these proposed
    regulations, and--
    	DR. MCCLELLAN.  As--
    	MR. BURGESS.  Last question.
    	DR. MCCLELLAN.  Quick answer, as soon as we can make sure
    we are doing them right, and--
    	MR. BURGESS.  There you go.
    	DR. MCCLELLAN.  --take account of some of the concerns
    raised.
    	MR. BURGESS.  The gentleman's time--
    	MR. RUSH.  Thank you, Mr. Chairman, for all your
    indulgence.
    	MR. BURGESS.  --has expired.
    	This committee will stand in recess, subject to the call of
    the chair.  I do want to thank Dr. McClellan, once again, for being
    here and being with us.
    	DR. MCCLELLAN.  Thank you.
    	MR. BURGESS.  I do believe we could solve this problem.  The
    only thing that stands in our way is a political wall, and we will
    have the second panel after the reconvening of the committee.
    	[Recess]
    	MR. FERGUSON.  We will now get started with our second panel
    of today's portion of the hearing.  I will introduce each of the
    panelists, and then invite Dr. Wilson to begin, and we will go this
    way.
    	But we have for our second panel, Dr. John Brush, from the
    American College of Cardiology; Dr. Marilyn Heine, from the Alliance
    of Specialty Medicine; Dr. Lynne Kirk, on behalf of the American
    College of Physicians; Dr. Paul Martin, on behalf of the American
    Osteopathic Association; Dr. Frank Opelka, on behalf of the American
    College of Surgeons; Dr. Deborah Schrag, who is the Past Chair of
    the Health Services Committee at the American Society of Clinical
    Oncology; Dr. Jeffrey Rich, on behalf of the Society of Thoracic
    Surgeons; and Dr. Cecil Wilson, who is Chair of the Board of
    Trustees of the American Medical Association.
    	Welcome to you all.  We appreciate your patience and your
     understanding with this crazy schedule that we live, but we are
    delighted that you are here.  We appreciate your making yourselves
    available today.
    	Dr. Wilson, will you please begin.  We have your testimony.
    It has been made a part of the record.  We would ask you to
    summarize your testimony in 5 minutes.

    STATEMENTS OF DR. CECIL B. WILSON, CHAIR, BOARD OF TRUSTEES,
    AMERICAN MEDICAL ASSOCIATION; DR. MARILYN J. HEINE, ON BEHALF OF
    ALLIANCE OF SPECIALTY MEDICINE; DR. JEFFREY B. RICH, MID-ATLANTIC
    CARDIOTHORACIC SURGEONS, ON BEHALF OF SOCIETY OF THORACIC SURGEONS;
    DR. FRANK OPELKA, ASSOCIATE DEAN OF HEALTHCARE QUALITY AND
    MANAGEMENT, LSU HEALTH SCIENCES CENTER DEAN'S OFFICE, ON BEHALF OF
    AMERICAN COLLEGE OF SURGEONS; DR. LYNNE M. KIRK, ASSOCIATE DEAN FOR
    GRADUATE MEDICAL EDUCATION, UNIVERSITY OF TEXAS SOUTHWESTERN MEDICAL
    SCHOOL, ON BEHALF OF AMERICAN COLLEGE OF PHYSICIANS; DR. DEBORAH
    SCHRAG, PAST CHAIR, HEALTH SERVICES COMMITTEE, AMERICAN SOCIETY OF
    CLINICAL ONCOLOGY; DR. JOHN E. BRUSH, ON BEHALF OF AMERICAN COLLEGE
    OF CARDIOLOGY; AND DR. PAUL A. MARTIN, CHIEF EXECUTIVE OFFICER AND
    PRESIDENT, PROVIDENCE MEDICAL GROUP, INC. AND PROVIDENCE HEALTH
    PARTNERS, LLC, ON BEHALF OF AMERICAN OSTEOPATHIC ASSOCIATION

    DR. WILSON.  Well, thank you, Mr. Chairman.  My name is Cecil
    Wilson.  I am Chair of the Board of Trustees of the American
    Medical Association, and I am also an internist from Winter Park,
    Florida.
    	The AMA commends you, Mr. Chairman, and members of the
    subcommittee, for your leadership in addressing the flawed Medicare
    payment system, in order to assure access and quality of care for
    Medicare patients.  We also thank Dr. Burgess, for making an
    important step toward replacing the flawed SGR through introduction
    of House bill 5866.
    	The Medicare physician payment system is broken.  The
    Medicare trustees project physician pay cuts totaling 37 percent
    from 2007 through 2015.  These cuts will follow 5 years of payment
    updates that have not kept up with practice cost increases, and as
    the overhead shows, payment rates in 2006 are about the same as
    in 2001.
    	In building a new physician payment system, Congress and
    policymakers envision physician investment in health information
    technology, and participation in quality improvement programs as a
    means to continue the hallmark of Medicare, access to the highest
    quality of care.  However, physician payment updates that accurately
    reflect increases in medical practice costs are vital for the
    significant financial investment required for health information
    technology and quality improvement.
    	We urge the subcommittee to ensure that Congress acts before
    the October target adjournment date to avert the 5 percent cut to
    2007, set the update at 2.8 percent, as recommended by MedPAC, and
    replace the SGR with a system that adequately keeps pace with
    increases in practice costs.  This will give physicians the needed
    tools to continue advancing quality care for Medicare payments.
    	Quality improvement has long been a priority for the AMA and
    our physician members.  In 2000, we convened the Physician
    Consortium for Performance Improvement.  The Consortium will help
    develop approximately 150 measures by the end of 2006.  This
    includes measures for conditions that account for the vast majority
    of Medicare spending.
    	In addition, the AMA has developed CPT II codes for all
    Consortium measures, along with a process to expedite approval of
    these codes as measures are completed.  These measures and codes
    can be used in the development of a Medicare quality reporting
    program.
    	Physicians, however, must have confidence that a reporting
    program will meet its quality improvement goals.  Therefore, we urge
    adherence to several key principles.  First, all performance
    measures must be developed through the consortium endorsed by the
    National Quality Forum, and implemented through the Ambulatory
    Quality Alliance, to ensure that a uniform set of measures is used
    by all parties.  Second, a reporting program must offset
    physicians' administrative costs in reporting quality data.  And
    finally, it is critical that Congress recognize that a quality
    improvement program is incompatible with the use of SGR.
    	Quality improvements may save dollars for the Medicare
    program as a whole by avoiding costly Part A hospitalizations
    and readmissions.  The dilemma is that this will increase Part B
    spending, and this concept conflicts with the SGR, which penalizes
    physicians with pay cuts for Part B spending increases.  In
    addition, several of the Medicare payment policy changes set for
    2007 will result in further cuts for many individual physician
    services.  A 2006 AMA survey shows that steep cuts will impair
    access for Medicare, as well as TRICARE patients, who already have
    access difficulties.
    	And further, as the overhead shows, more than 35 States will
    lose over $1 billion each by 2015.  Florida and California will each
    lose almost $300 million in 2007, and more than $17 billion from
    2007 through 2015.  Texas will lose $13 billion, New Jersey almost
    $8 billion, Ohio more than $7 billion, and Georgia, about $5 billion
    over this time period.  We urge this subcommittee to avoid the
    serious consequences for patients that will occur if the cuts
    take effect.
    	We look forward to working with the subcommittee and CMS
    to ensure a positive 2.8 percent update in 2007, achieve a long-term
    payment solution that will support investment in health information
    technology and participation in quality improvement programs, and
    ensure access to the highest quality of care for our Medicare
    patients.
    	And Mr. Chairman, I thank you for the opportunity of being
    here, and look forward to the question period.
    	[The prepared statement of Dr. Cecil B. Wilson follows:]

    PREPARED STATEMENT OF DR. CECIL B. WILSON, CHAIR, BOARD OF TRUSTEES,
    AMERICAN MEDICAL ASSOCIATION

    The American Medical Association (AMA) appreciates the opportunity
    to provide our views regarding "Medicare Physician Payment: How to
    Build a Payment System that Provides Quality, Efficient Care for
    Medicare Beneficiaries."  We commend you, Mr. Chairman, and Members
    of the Subcommittee, for all your hard work and leadership in
    recognizing the fundamental need to address the fatally flawed
    Medicare physician payment update formula, called the sustainable
    growth rate, or SGR, and enhance quality of care for our nation's
    senior and disabled patients.
    The AMA was founded in 1847 to advance quality of care and that
    goal remains paramount to the AMA and its physician members.  Over
    the last 158 years, AMA efforts have strengthened medical
    licensure requirements, reformed medical training programs, and
    provided oversight for continuing medical education activities.
    To further advance quality improvement, the AMA also convened the
    Physician Consortium for Performance Improvement (the Consortium)
    in 2000, well in advance of the current quality improvement
    environment that has since emerged across various sectors of the
    health care industry.  The Consortium currently is working to meet
    its commitments to Congress and the Centers for Medicare and
    Medicaid Services (CMS) in furtherance of the development of
    physician performance measures, as discussed below.  These efforts
    will assist Congress and CMS in advancing their goal of a physician
    payment system that delivers the highest quality of care to
    patients using health information technology (HIT) and quality
    improvement initiatives.
    It is important to recognize, however, that the current Medicare
    physician payment update formula cannot coexist with a payment
    system that rewards improvement in quality.  Quality improvements
    are aimed largely at eliminating gaps in care and are far more
    likely to increase rather than decrease utilization of physician
    services.  In fact, data from the Medicare Payment Advisory
    Commission (MedPAC) suggest that some part of the recent growth in
    Medicare spending on physicians' services is associated with
    improved quality of care.  Under the SGR, however, physicians are
    penalized for this growth with annual cuts in Medicare payments.
    While Congress has intervened to avert these cuts in 2003 through
    2006, it has done so by delaying cuts and pushing the problem into
    the future rather than adding more funds to the system.  As a
    result, the gap between actual and allowed spending under the SGR
    has mushroomed to nearly $50 billion, half of which is attributable
    to the temporary "fixes" that were made in each of the last four
    years.
    The Administration has often made the point that "it supports
    reforms in physician payment that provide better support for
    increasing quality and reducing overall health care costs, without
    adding to Medicare expenditures."  It is difficult to see how
    structuring payments to  reward quality could possibly eliminate
    the enormous SGR deficit that is triggering nine consecutive years
    of 5% physician pay cuts.  Positive annual physician payment
    updates, that accurately reflect increases in physicians' practice
    costs, are vital for encouraging and supporting the significant
    financial investment required for HIT and participation in quality
    improvement programs.  Currently, due to the SGR, the Medicare
    Trustees are forecasting payment cuts totaling 37% from 2007
    through 2015.
    We urge the Subcommittee to ensure that Congress acts this year
    before the October adjournment target date to: (i) avert the 5%
    cut for 2007 and enact a 2.8% physician payment update, as
    recommended by the Medicare Payment Advisory Commission (MedPAC);
    and (ii) repeal the SGR physician payment system and replace it
    with a system that adequately keeps pace with increases in medical
    practice costs.  We emphasize to Congress that every time action
    to repeal the SGR is postponed, the cost of the next legislative
    fix, whether a short-term or long-term solution, becomes
    significantly higher and increases the risk of a complete meltdown
    in Medicare patients' access to care.

    ADVANCES IN QUALITY IMPROVEMENT
    In 2000, the AMA convened the Physician Consortium for Performance
    Improvement for the development of performance measurements and
    related quality activities.  The Consortium brings together
    physician and quality experts from 70+ national medical specialty
    societies and almost 20 state medical societies, as well as
    representatives from the Centers for Medicare and Medicaid
    Services, the Agency for Healthcare Research and Quality (AHRQ),
    and the Consumer-Purchaser Disclosure Project.  The Joint
    Commission on Accreditation of Healthcare Organizations and the
    National Committee for Quality Assurance (NCQA) are also liaison
    members.
    The Consortium has become the leading physician-sponsored initiative
    in the country in developing physician-level performance measures.
    CMS is now using the measures developed by the Consortium in its
    large group practice demonstration project on pay-for-performance,
    and plans to use them in demonstration projects authorized by the
    MMA.  Further, the Consortium has been working with Congress to
    improve quality measurement efforts, as well as with CMS to ensure
    that the measures and reporting mechanisms that could form the
    basis of a voluntary reporting program for physicians reflect
    the collaborative work already undertaken by the AMA, CMS, and the
    rest of the physician community.  To achieve our mutual quality
    improvement goals, the AMA has taken the following steps:
    * The AMA has allocated significant additional resources to
    accelerate the development of physician performance measures.  We
    are in the process of doubling the staff dedicated to performance
    measure development, which is allowing us to significantly accelerate
    the work of the Consortium.  By the end of 2006, the Consortium
    plans to have developed at least 140 physician performance measures.
    * To date, the Consortium has developed 98 measures covering 17
    clinical conditions, and an additional 52 measures have been drafted
    and are moving through the Consortium approval process.  They are
    expected to be completed by the end of this year.
    * Consortium measures developed to date account for conditions
    covering a substantial portion of Medicare spending.  For example,
    according to the Congressional Budget Office, 85% of Medicare
    spending is "strongly linked" to high-cost beneficiaries with
    chronic conditions like coronary artery disease, chronic obstructive
    pulmonary disease, congestive heart failure and diabetes.
    Completed Consortium measures address these four conditions.
    * The AMA's Current Procedural Terminology (CPT) Editorial Panel
    has also put in place an expedited process for developing and
    approving CPT II codes.  Use of CPT II will allow physicians to
    submit quality data to CMS on the claim form for the particular
    service furnished to the patient, and many stakeholders believe this
    is a better alternative than the proposed G codes developed by CMS
    for reporting quality data.  The AMA has developed and approved
    CPT II codes for all completed measures, and will continue to
    fast-track approval of these codes as additional measures are
    developed.
    * The AMA/Consortium is continuing to accelerate the development of
    measures and is working through the National Quality Forum (NQF)
    for endorsement and Ambulatory Care Quality Alliance (AQA) for
    implementation to ensure that a uniform set of measures is used
    by all parties.
    * The AMA is continuing to expand educational activities for our
    member physicians on incorporating quality measurement and
    improvement in their practices.

    As the AMA continues in our ongoing efforts to enhance quality
    improvement, we strongly urge federal policymakers to ensure the
    development of a quality reporting program that physicians are
    confident will improve quality of care.  To maximize such
    physician confidence, certain principles are paramount.  First,
    performance measures should be developed through a transparent and
    consistent process through the Consortium.  They should then be
    reviewed and endorsed by the NQF and implemented in a uniform
    manner across all payers and other entities through the  Ambulatory
    Care Quality Alliance AQA.  The AMA believes it is critical for CMS
    to work through these existing multi-stakeholder groups to pursue
    its quality roadmap.  CMS already participates in these groups as
    well.  Without input and buy-in from physicians, patients, private
    sector purchasers and health plans, establishing successful quality
     improvement initiatives will be extremely difficult.
    Second, the selection of performance measures must be governed by
    certain tenets: (i) measures should be developed for areas of
    medical care where there is the greatest need for quality
    improvement; (ii) there should be evidence showing that a measure
    is meaningful, i.e., that following the guidelines specified by the
    measure will actually improve quality of care; (iii) measures should
    be developed for medical conditions that have a high cost for the
    health care system; and (iv) measures should cut across as many
    specialties as possible, with uniformity across all specialties
    that treat that same medical condition.
    In developing physician measures, it is critical to recognize the
    complexities involved in developing and selecting performance
    measures for the physician community, as compared to other types
    of health care providers, such as hospitals.  It is extremely
    difficult to develop measures that apply to many or all physicians
    because there are so many different types of medical specialties
    that treat multiple medical conditions.  Hospitals and other health
    care institutions, by comparison, are more homogenous and thus it
    is easier to develop measures that apply to most or all hospitals.
    Third, the primary factor in creating physician confidence in a
    reporting program is a Medicare physician payment system that
    adequately reflects increases in medical practice costs, as well as
    one that offsets physicians' costs incurred in reporting quality
    data.  As noted above, the SGR and a system that rewards quality
    improvement are incompatible.  Quality improvements are expected to
    encourage more preventive care, better management of chronic
    conditions, lower rates of hospital-acquired infections and fewer
    complications of surgery.  While such results would reduce
    spending for hospital services covered by Part A of Medicare, they
    do so by increasing spending for the Medicare Part B physicians'
    services that are included in the SGR, and thus cannot compensate
    for the $50 billion deficit that has already accumulated in the SGR.
    The majority of performance measures, such as those focused on
    prevention and chronic disease management, ask physicians to deliver
    more care.  This conclusion is consistent with a long-term national
    study (The Rewarding Results Project) by the Leapfrog Group,
    including seven experimental projects designed to test a variety of
    pay-for-performance models.  The study showed significant increases
    in physician visits for many services.  MedPAC also evaluated the
    impact on quality of care with regard to 38 quality measures for
    ambulatory care.  Initial results show that the number of patients
    receiving appropriate care increased for 20 of the 38 measures and
    remained the same for most others.  Significantly, the study also
    found that for several measures, increases in the use of physician
    services was associated with declines in potentially avoidable
    hospitalizations.
    More physician services means increased Medicare spending on
    physician services.  The SGR imposes an arbitrary target on Medicare
    physician spending and results in physician pay cuts when physician
    spending exceeds the target.  Thus, more physician services under a
    quality reporting program will result in more physician pay cuts.
    Further, pay-for-performance programs depend on greater physician
    adoption of information technology, which was indicated by the
    Leapfrog study, at great cost to physician practices.  A study by
    Robert H. Miller and others found that initial electronic health
    record costs were approximately $44,000 per full-time equivalent
    (FTE) provider per year, and ongoing costs were about $8,500 per
    FTE provider per year. (Health Affairs, September/October, 2005).
     Initial costs for 12 of the 14 solo or small practices surveyed
    ranged from $37,056 to $63,600 per FTE provider.  Unless physicians
    receive positive payment updates, these HIT investments will not be
    possible.  In fact, a 2006 AMA survey shows that if the projected
    nine years of cuts take effect, 73% of responding physicians will
    defer purchase of new medical equipment, and 65% will defer purchase
    of new information technology.  Even with just one year of cuts,
    half of the physicians surveyed will defer purchases of information
    technology.
    Because of the potentially significant administrative costs to
    physicians in reporting the quality data, we urge the Subcommittee
    to ensure that any quality reporting program  are premised on: (i)
    positive Medicare payment updates that reflect increases in
    physicians' practice costs; and (ii) additional payments to
    physicians for reporting quality data.
    The AMA looks forward to continuing our work on quality improvement
    with Congress and CMS.  Working together, the Administration,
    Congress, and the physician community can strengthen the Medicare
    program by maximizing quality of care, as well as establishing a
    stable physician payment system, with adequate, positive updates
    that preserve Medicare patient access to their physician of choice.

    CONGRESSIONAL ACTION IS NEEDED THIS YEAR
    TO HALT PHYSICIAN PAYMENT CUTS
    The AMA is grateful to the Subcommittee and Congress for taking
    action to forestall steep Medicare physician payment cuts in each
    of the last four years.  Yet, a crisis still looms, and, in fact,
    is getting worse.  Congress must act this year, before the October
    target adjournment date, to avert the almost 5% physician pay cut
    that is projected for January 1, 2007, along with a total of 37%
    in cuts from 2007 through 2015.
    These cuts will occur as medical practice costs, even by the
    government's own conservative estimate, are expected to rise by 22%.
     They follow five years of payment updates that have not kept up
    with practice cost increases.  As the chart below illustrates,
     payment rates in 2006 are about the same as they were in 2001.
    In fact, data in a recent proposed rule impacting physician
    payments indicate that Medicare now covers only two-thirds of the
    labor, supply and equipment costs that go into each service.

    There is widespread consensus that the SGR formula needs to be
    replaced: (i) there is bipartisan recognition in this Subcommittee
    and Congress that the SGR, with its projected physician pay cuts,
    must be replaced with a formula that reflects increases in practice
    costs; (ii) MedPAC has recommended that the SGR be replaced with a
    system that reflects increases in practice costs, as well as a 2.8%
    payment update for 2007; (iii) CMS Administrator McClellan has
    stated that the current physician payment system is "not
    sustainable;" and (iv) the Military Officers Association of America
    (MOAA) has stated that payment cuts under the SGR would significantly
    damage military beneficiaries' access to care under TRICARE, which
    will have long-term retention and readiness consequences.
    Only physicians and other health professionals face such steep cuts.
     Other providers have been receiving updates that fully keep pace
    with their costs (and will continue to do so under current law).
    In 2006, for example, updates for other providers were as follows:
    3.7% for hospitals, 3.1% for nursing homes, and 4.8% for Medicare
    Advantage (MA) plans (which are already paid at an average of 111%
    of fee-for-service costs).  In addition, CMS announced earlier this
    year a 7.1% update for MA plans for 2007, which is used to develop a
    benchmark against which MA plans submit bids (for providing Part A
    and B benefits to enrollees).  Using this as a benchmark, CMS
    expects an average MA update of 4% in 2007, with some plans still
    receiving up to 7.1%.
    Physicians and other health care professionals (whose payment rates
    are tied to the physician fee schedule) must have payment equity
    with these other providers.  Physicians are the foundation for our
    nation's health care system, and thus a stable payment environment
    for their services is critical.

    THE MEDICARE SUSTAINABLE GROWTH RATE FORMULA
    Fundamental Flaws with the SGR
    The projected physician pay cuts are due to the SGR formula, which
    has two fundamental problems:
    1. Payment updates under the SGR formula are tied to the growth in
    the gross domestic product, which does not factor in patient health
    care needs, technological advances or physician 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 and other
    factors, that although beneficial for patients, increase Medicare
    spending on physicians' services.

    Because of these fundamental defects, the SGR led to a 5.4% cut in
    2002, and additional reductions in 2003 through 2006 were averted
    only after Congress intervened and replaced projected steep
    negative updates with positive updates of 1.6% in 2003, 1.5% in
    each of 2004 and 2005, and a freeze in 2006.  We appreciate these
    short-term reprieves, yet, even with this intervention, the average
    Medicare physician payment updates during these years were less
    than half of the rate of inflation of medical practice costs.
    Now physicians are facing nine additional years of cuts.  The
    vast majority of physician practices are small businesses, and
    the steep losses that are yielded by what is ironically called the
     "sustainable growth rate," would be unsustainable for any
    business, especially small businesses such as physician office
    practices.

    Increases in Volume of Services
    Some have argued that the SGR formula is needed to restrain the
    growth of Medicare physicians' services.  The AMA disagrees.
    Spending targets, such as the SGR, cannot achieve their goal of
    restraining volume growth by discouraging inappropriate care.
    Spending target systems are based on the fallacious premise that
    physicians alone can control the utilization of health care
    services, while ignoring patient demand, government policies,
    technological advances, epidemics, disasters and the many other
    contributors to volume growth.  In addition, expenditure targets
    do not provide an incentive at an individual physician level to
    control spending, nor do they distinguish between appropriate
    and inappropriate growth.  At a recent hearing before this
    Subcommittee concerning Medicare imaging cuts, CMS officials
     argued that recent rapid increases in the use of imaging service
    raises questions about whether such growth is appropriate, but CMS
    did not provide the Subcommittee with any evidence of inappropriate
    growth.
    Further, volume growth has continued at a relatively constant rate
    despite the SGR, and any assumption that this growth is
    inappropriate ignores the fact that spending on physician services
    is growing for a number of legitimate reasons.  The number of
    elderly Americans is increasing and more of them suffer from
    obesity, diabetes, kidney failure, heart disease, and other
    serious chronic conditions.  In addition, last year, Medicare
    officials announced that spending on Part A services was
    decreasing.  This suggests that, as technological innovations
    advance, services are shifting from Part A to Part B, leading to
    appropriate volume growth on the Part B side.  In fact, new
    technology and drugs have made it possible to treat more people
    for more diseases and provide this treatment in physicians'
    offices rather than in more expensive hospital settings.  Quality
    improvement initiatives in providing medical services have also
    reached out to more beneficiaries, which, in turn, has increased
    volume.  This has led to fewer hospital admissions, shorter lengths
    of stay, longer life spans with better quality of life, and fewer
    restrictions in activities of daily living among the elderly and
    disabled.  One of the more interesting findings in MedPAC's 2006
    Report to Congress is that, based on its 38 quality tracking
    measures, more Medicare beneficiaries received necessary services
    in 2004 than in 2002 and potentially avoidable hospitalizations
    declined as well.
    The foregoing suggests that a number of factors drive appropriate
    volume growth and that spending on physicians' services is a good
    investment.  In fact, the government recently reported that U.S.
    life expectancy reached a record high of 77.9 years.  In addition,
    the National Center for Health Statistics reported that there were
    50,000 fewer U.S. deaths in 2004, the biggest single-year drop in
    mortality since the 1930s.  Despite the aging of the population and
    growing rates of obesity, reductions in deaths due to heart
    disease, cancer and stroke accounted for most of the improvement.
    We urge Congress, in developing a new physician payment system,
    to ensure that the first priority is to meet the health care needs
    of our elderly and disabled patients, as well as avoid a system
    that forestalls the major improvements in medical care and quality
    of care described above.  To achieve this goal, Congress and
    policymakers should not impose spending targets that effectively
    penalize all physicians for volume growth - whether appropriate
    or inappropriate.  Rather, if there is a problem with inappropriate
    volume growth regarding a particular type of medical service,
    Congress and CMS should address it through targeted actions that
    deal with the source of the increase.  This would give Congress more
    control over the process than exists under the current system.

    COMPOUNDING FACTORS TO THE SGR IN 2007
    In addition to the 2007 physician cuts, due to the flawed SGR, other
    Medicare physician payment policy changes will take effect on
    January 1, 2007, and will have a significant impact on a large
    number of physicians.  These include: (i) expiration of the MMA
    provision that increased payments in 58 of the 89 Medicare payment
    localities; and (ii) recent CMS proposals that will change both
    the "work" and "practice expense" relative values, each of which
    are components in calculating Medicare physician payments for each
    individual medical service.  These changes, many of which were
    supported by the AMA, will mitigate the impact of the SGR cuts for
    some specialties.  However, a required budget neutrality adjustment
    could lead to cuts of 5% or more for other physicians' services, and
    we are concerned that the combined impact of the SGR cut with these
    budget neutrality adjustments could jeopardize the financial
    viability of some practices.
    The AMA is also concerned about cuts in imaging services furnished
    in physicians' offices, as mandated by the DRA, which are scheduled
    to be implemented beginning January 1, 2007.  These imaging cuts
    will exacerbate the looming Medicare payment crisis, and the AMA
    requests that these cuts be repealed or delayed in accordance with
    AMA policy adopted by our House of Delegates in June 2006.
    The Medicare physician payment system has a multitude of moving
    parts.  We urge the Subcommittee to recognize that, for many
    physicians, these foregoing factors will compound the 2007 physician
    pay cuts due to the SGR and, taken together, these cuts will
    substantially deter the existing momentum in the physician
    community to move in the direction of adopting HIT and making the
    financial investment necessary to participate in quality improvement
    programs.  Congress must provide physicians' with an adequate
    payment system that supports Congress' goal of an HIT- and quality
    improvement-based system.
    It is also important to recognize that despite all the different
    factors that will affect Medicare physician payment rates in 2007,
    physicians are united in their view that the most important problem
    that Congress needs to address is the 5% pay cut scheduled to take
    effect January 1, 2007.  This cut will reduce payments for all
    specialties and all payment localities, and action by Congress to
    replace this 5% cut with a positive 2.8% update for 2007 will help
    physicians in every state and specialty.

    ACCESS PROBLEMS FOR MEDICARE BENEFICIARIES UNDER
    THE CURRENT MEDICARE SGR PHYSICIAN PAYMENT FORMULA
    AMA Survey Shows Patient Access Will Significantly Decline
    if the Projected SGR Cuts Take Effect
    Physicians simply cannot absorb the pending draconian payment cuts,
    and an inadequately funded payment system will be most detrimental
    to Medicare patients.  Although physicians want to treat seniors,
    Medicare cuts are forcing physicians to make difficult practice
    decisions.  According to a 2006 AMA survey:
     Nearly half (45%) of the responding physicians said that if the
    scheduled cut in 2007 is enacted, they will be forced to either
    decrease or stop seeing new Medicare patients, and 43% responded
    the same with respect to TRICARE patients.
     By the time the full force of the cuts takes effect in 2015, 67%
    of physicians will be forced to decrease or stop taking new Medicare
    patients.  The same percentage of physicians responded in the same
    way with respect to TRICARE patients.
     If the cut in 2007 goes into effect, 71% of responding physicians
    said they will make one or more significant patient care changes,
    including reducing time spent with Medicare patients, increasing
    referral of complex cases and ceasing to provide certain services.
     Almost two-thirds of responding physicians said that in their
    community: (i) more Medicare patients are being treated in the
    emergency room for conditions that could have been treated in a
    physician's office; (ii) more physicians are referring Medicare
    patients with complex problems to other physicians; and (iii) it
    has become more difficult to refer Medicare patients to certain
    medical and surgical specialists.
     In rural areas, more than 1/3 of physicians (37%) said they will
    be forced to cut off outreach services if the scheduled cut in 2007
    is enacted, with more than half (55%) discontinuing rural outreach
    services if the cuts are enacted through 2015.
    Continual physician pay cuts put patients' access to care at risk,
    and there are signs of a problem already.  A MedPAC survey found
    that, in 2005, 25 percent of Medicare patients looking for a new
    primary care physician had some problem finding one and that a
    growing number had a "big problem."  It concluded that some
    beneficiaries "may be experiencing more difficulty accessing
    primary care physicians in recent years and to a greater degree
    than privately insured individuals."
    In the long-run, all patients may have more trouble finding a
    physician.  The Congressionally-created Council on Graduate Medical
    Education is already predicting a shortage of 85,000 physicians by
    2020, and multi-year cuts in Medicare are nearly certain to
    exacerbate this shortage by making medicine a less attractive
    career and encouraging retirements among the 35 percent of
    physicians who are 55 or older.  These predictions of shortages
    are underscored by the demographics of practicing physicians in
    certain  states.  For example, nearly half of the practicing
    physicians in California and Florida and nearly 40% of practicing
    physicians in Georgia, Ohio and Texas are above the age of 50.
    A survey by a national physician placement firm found that just
    over half of physicians between the ages of 50 and 65 plan to take
    steps in the next one to three years that would either take them
    out of a patient care setting or reduce the number of patients
    they see.
    Medicare physician cuts have a ripple effect across the entire
    health care system and drive down payment rates from other sources.
    For example, TRICARE, which provides health insurance for military
    families and retirees, ties its physician payment rates to Medicare,
    as do some state Medicaid programs.  Thus, Medicare cuts trigger
    TRICARE and Medicaid cuts as well.  In fact, MOAA has sent letters
    to Congress urging Congressional action to avert the physician
    payment rate cuts, which would "significantly damage" military
    beneficiaries' access to health care services.  MOAA stated that
    "[w]ith our nation at war, Congress should make a particular effort
    not to reduce health care access for those who bear and have borne
    such disproportionate sacrifices  in protecting our country."

    Impact of Projected SGR Cuts on Individual States
    If Congress allows the pay cuts forecast by the Medicare Trustees to
    go into effect, there will be serious consequences in each state
    across the country.  As the map below illustrates, more than 35
    states will see their health care funds reduced by more than one
    billion dollars by the time the cuts end in 2015.  Florida and
    California are the biggest losers, with each of these states
    losing close to $300 million in 2007 alone.  Medicare payments in
    Florida would be cut by more than $18 billion from 2007-2015;
    California will lose more than $17 billion over the 9-year period,
    and Texas is not far behind with nearly $13 billion in cuts.
    Ohio is facing losses of more than $7 billion and Georgia will
    see about $5 billion in cuts.

    Seniors cannot afford to have their access to physicians
    jeopardized by further reducing Medicare payment rates below the
    increasing costs of running medical practices.  Ohio's 1.6 million
    Medicare beneficiaries comprise 14% of the state's population and
    Florida's nearly 3 million beneficiaries are 16% of its
    population.  Even before the forecast cuts go into effect, Georgia
    only has 208 practicing physicians per 100,000 population and Texas
    has 207 practicing physicians per 100,000 population, which means
    both states are far below the national average of 256.  Florida
    only has 15 practicing physicians for every 1,000 Medicare
    beneficiaries, 25% below the national average.
    The negative effects of the cuts in the Medicare physician payment
    schedule are not only felt by patients, but also by the millions of
    employees that are involved in delivering health care services in
    every community.  Data from the Bureau of Labor Statistics show
    that the physician payment cuts will affect:  80,274 employees in
    Georgia; 112,176 employees in Ohio; 195,288 employees in Florida;
    200,469 employees in Texas; and 292,171 employees in California.
    We urge the Subcommittee to avoid the serious consequences for
    patients that will occur if the projected SGR cuts take effect,
    and establish a Medicare physician payment system that helps
    physicians serve patients by providing the positive payment updates
    and incentives needed to invest in HIT and quality improvement
    programs.
    _____________________________

    The AMA appreciates the opportunity to provide our views to the
    Subcommittee on these critical matters.  We look forward to working
    with the Subcommittee and CMS to achieve a long-term, permanent
    solution to the chronic under-funding of physicians' services for
    our nation's senior and disabled patients and ensuring their access
    to the highest quality of care.

    	MR. FERGUSON.  Thank you, Dr. Wilson.  Dr. Heine.
    DR. HEINE.  Good afternoon.  My name is Dr. Marilyn Heine.  I am an
    emergency physician from Norristown, Pennsylvania.  On behalf of the
    Alliance of Specialty Medicine, a coalition of 11 medical specialty
    societies, representing nearly 200,000 specialty physicians, thank
    you for the opportunity to speak with the subcommittee today about
    the pay-for-reporting and pay-for-performance initiatives.
    	Patient safety and quality are cornerstones of the care we
    deliver.  Alliance physicians are highly trained, and meet rigorous
    continuing medical education standards throughout our careers.  We
    have been at the forefront of developing clinical guidelines based
    on sound evidence.  The concepts of pay-for-reporting and
    pay-for-performance are consistent with your practice of medicine.
    In other words, while we have a diversity of patients, practice
    types, settings, and degree of specialization, we all share a
    commitment to improving patient safety and quality.
    	At the same time, we realize the limitations of medicine,
    such as when a patient is noncompliant.  Consider a patient whom I
    will call Robert, a 67 year old man who came to my emergency
    department with seizures, worsening of his diabetes, and a life
    threatening heart rhythm.  He was there because he had not followed
    his physician's recommendations for care.  Fortunately, our team
    successfully resuscitated him.  His case points out, though, that
    the best practice of medicine cannot produce the desired outcome
    if a patient like Robert does not follow his physician's advice.
    	As we move to a federally mandated pay-for-performance
    system for physicians, please remember that hospitals started with
    a reporting program with only 10 measures that were widely
    applicable across all hospitals, developed over many years in an
    incremental and orderly process, while hospitals were receiving
    yearly positive payment updates based on inflation.  In addition,
    hospitals generally have an infrastructure that enables them to
    collect and report data.
    	In contrast, a majority of physicians are in small practices
    without such an infrastructures.  Physicians perform about 10,000
    different procedures, and have faced statutory Medicare payment
    reductions that were averted only by Congressional action.  Please
    also remember that steps for submitting and obtaining final
    approval of quality measures are complex and lengthy, and can take
    at least 2 years.  As we move forward, we urge you to clearly
    define the measure development process, especially since it is
    not delineated in either law or regulation.
    	The Alliance is expeditiously engaged within the Physician
    Consortium and other groups, including the Ambulatory care Quality
    Alliance and National Quality Forum.  We also have worked closely
    with CMS on their Physician Voluntary Reporting Program.  We are
    concerned, though, that most measures presented by Alliance
    societies were not included, preventing most of our physicians
    from participating in this program.
    	For a program to be successful, all physicians must have
    the opportunity to participate.  That includes all specialists
    and all subspecialists.  Even though a specialty may have a measure
    for a specialty in the program, the measure may not pertain to all
    the subspecialists in that field.  Therefore, we urge you to
    incorporate the feedback you receive from us and other medical
    societies.  In fact, quality measures should be generated by the
    medical specialty societies with expertise in the area of care in
    question.
    	The program should include risk stratification to account
    for patient demographics, severity of illness, and comorbidities,
    to ensure that the system does not penalize physicians who treat
    patients with complex medical problems, and create incentives for
    physicians to avoid sicker patients, or increase health
    disparities.  We also urge Congress and CMS to establish national
    standards for health information technology to ensure prudent
    investment by physicians in HIT systems.  Performance quality must
    remain confidential, and not be subject to discovery in legal or
    other proceedings.
    	Finally, financing for the system is critical.  A physician
    who participates in a new data collection and reporting initiative
    should be rewarded with bonus payments, in addition to receiving
    existing Medicare reimbursement.
    	It is also vital to consider that physician compliance with
    this initiative may increase the volume of physician services and,
    therefore, the cost.  The current Medicare physician payment formula
    is based on a flawed sustainable growth rate that must be replaced
    with a more equitable, stable payment system before we implement a
    pay-for-reporting or pay-for-performance program.  This would allow
    physicians to pilot test data collection methods and quality
    measures.  In addition, savings to Medicare Part A resulting from
    physicians' efforts should flow to Medicare Part B.
    	The Alliance of Specialty Medicine appreciates the
    leadership of this subcommittee in preventing cuts in physicians'
    Medicare payments since 2003.  I particularly thank Dr. Burgess for
    his introduction of H.R. 5866.  We pledge to work with you to build
    a payment system that provides quality, efficient care for Medicare
    beneficiaries.
    	Thank you.
    	[The prepared statement of Dr. Marilyn Heine follows:]

    PREPARED STATEMENT OF DR. MARILYN HEINE, ON BEHALF OF ALLIANCE OF
    SPECIALTY CARE

    Mr. Chairman and members of the subcommittee, let me first thank you
    for holding this important hearing on Pay-for-Reporting and
    Pay-for-Performance.  I appreciate your giving me the opportunity
    to present the perspective of medical specialists on this
    initiative, as well as provide recommendations on how to create a
    system that enhances our ability to deliver high-quality,
    evidence-based medical care.
    In addition to working as an emergency physician in Norristown,
    Pennsylvania, I also serve as Chair of the Federal Government
    Affairs Committee for the American College of Emergency Physicians
    (ACEP).  I am here today representing the Alliance of Specialty
    Medicine - a coalition of 11 medical societies, representing nearly
    200,000 specialty physicians.
    The Alliance of Specialty Medicine represents physicians who care for
    millions of patients each year.  Patient safety and quality are
    cornerstones of the patient care we deliver. Even before the concept
    of Pay-for-Reporting or Pay-for-Performance was introduced on
    Capitol Hill, medical specialty societies within the Alliance were
    already developing, and constantly updating, best practices and
    clinical guidelines to ensure our patients receive the best medical
    care possible, based on sound clinical evidence and principles.  In
    fact, some of the Alliance specialty societies were, and continue
    to be, involved with developing and reporting hospital measures
    that were included in the "Medicare Prescription Drug, Improvement
    and Modernization Act of 2003" (P.L. 108-173).
    Hospital reporting measures were not created overnight, but in an
    incremental, orderly process that has been ongoing for years.
    These measures are voluntarily reported.  However, P.L. 108-173
    provided a new, strong incentive for eligible hospitals to submit
    their quality data.  The law specifies that if a hospital does not
    submit performance data, it will receive a 0.4 percent reduction
    in its annual payment update for fiscal years 2005, 2006, and
    2007.  In contrast to recent years where physicians have been
    exposed to statutory Medicare payment reductions, which were only
    averted due to congressional action, hospitals receive yearly,
    positive payment updates based on inflation.  It is also important
    to understand that hospitals are currently involved with a
    Pay-for-Reporting program and not Pay-for-Performance - there is
    a distinct difference between the two initiatives.
    Every Alliance organization is a member of the Physician Consortium
    for Performance Improvement (Physician Consortium) of the American
    Medical Association and has a committee focused on
    Pay-for-Performance (P4P) or Quality Improvement. Each organization
    has targeted efforts on turning evidence-based clinical guidelines
    into quality measures, or developing guidelines where none
    previously existed.  However, there are challenges in creating
    standard quality measures for the diverse medical specialists and
    sub-specialists that we represent.  For example, only 10 to 20
    percent of a medical specialty may be represented by a given quality
    measure due to the high rate of sub-specialization.
    Clinical practice guidelines are the foundation for developing
    quality measures, and for various reasons, such as liability
    concerns or lack of an appropriate level of supporting evidence,
    not all medical specialty societies have developed practice
    guidelines.  Also, due to the nature of certain specialty care, no
    randomized, controlled clinical trial data exists that would lead
    to the development of practice guidelines in these areas.

    Measure Development Process
    The Alliance of Specialty Medicine members have worked diligently to
    prepare physicians for a quality improvement initiative that rewards
    physicians for providing, or improving their delivery of high-quality
    medical care.  We have worked closely with the Centers for Medicare
    & Medicaid Services (CMS) on the initial development of quality
    measures that could be voluntarily reported through a claims-based
    system and helped develop the new CMS Physician Voluntary Reporting
    Program (PVRP).  Unfortunately, some of the measures presented by
    medical specialty societies were not included in the final PVRP,
    because those measures had not been properly scrutinized through
    the consensus-building process.  Therefore, most of our medical
    specialty organizations have not been able to participate.
    As with many newly created programs, the PVRP, while a promising
    first step, could use refinement in selected measures and
    processes.  The current structure for the submitting and approving
    quality measures can be a long, complex process - one that has
    never been formally identified in either statute or regulation.
    The members of the Physician Consortium understand the current
    measure development process to include (1) a medical specialty
    organization proposes a quality measure, based on a practice
    guideline; (2) the measure is reviewed by the Physician Consortium;
    (3) the Physician Consortium-approved measure is submitted to the
    National Quality Forum (NQF), which endorses the measure and
    gathers stakeholders - including health plans, employers,
    consumers, etc. - to review and approve; (4) the NQF-approved
    measure is then submitted to the Ambulatory Care Quality Alliance
    (AQA), which focuses on how the measure could be implemented; and
    (5) once the quality measure has been cleared by the Physician
    Consortium, the NQF and the AQA, it is sent to CMS for
    implementation.  So how long does it take for a quality measure to
    go from its initial Physician Consortium submission to CMS
    implementation?  The answer is two years or more.  Of course, this
    does not take into account the medical society's own timeframe to
    discuss, develop, test and approve the original practice guideline
    that is the foundation for the quality measure.
    Our medical specialty societies are working as expeditiously as
    possible within the process operated by the Physician Consortium,
    and there are, thus far, a number of quality measures that have been
    developed by Alliance members currently under review by various
    Physician Consortium committees.
    While the measure development process should be fully understood and
    uniformly applied across all organized medicine, as well as
    scrupulously followed, it has been vulnerable to misunderstanding.
    For example, we are aware of an effort by CMS to circumvent the
    consensus-driven measure development process by requesting the
    AQA review several measures that have not yet been approved by the
    Physician Consortium.
    We urge Congress to clearly define the measure development process
    before moving toward a Pay-for-Reporting or Pay-for-Performance
    initiative.  While it may be necessary to streamline this process
    in order to meet statutory or regulatory deadlines that may be
    imposed, we urge caution because quality may be sacrificed in an
    expedited process.  For these reasons, the Alliance of Specialty
    Medicine will make a formal request to Congress and the
    Administration for clarification of the procedure to be followed by
    medical societies that have quality measures that they would like
    to submit for implementation by CMS.
    As Congress continues to discuss the creation of a statutory
    Pay-for-Reporting or Pay-for-Performance initiative, the Alliance
    of Specialty Medicine would like to share our clinical experience,
    expertise and recommendations with you in terms of what should be
    considered when developing its Pay-for-Reporting or
    Pay-for-Performance initiative.

    Pay-for-Reporting/Pay-for-Performance Recommendations
    We urge you to make sure quality measures are developed by the
    medical specialty societies with expertise in the area of care
    in question, based on factors physicians directly control, and
    kept current to reflect changes in clinical practice over time.
    Risk stratification should be considered to appropriately account
    for patient demographics, severity of illness and co-morbidities
    in order to provide meaningful information, and ensure the system
    does not penalize physicians who treat patients who have complex
    medical problems, create incentives to avoid sicker patients, and
    increase healthcare disparities.
    In addition, quality measures must be pilot-tested and phased-in
    across a variety of specialties and practice settings to help
    determine what does and does not improve quality.  If successfully
    pilot tested, Pay-for-Reporting or Pay-for-Performance should be
    phased-in over a period of years to enable participation by all
    physicians in all specialties.
    Understanding that a suitable platform must be identified to allow
    physicians to report on their implementation and use of quality
    measures, it is important that the federal government establish
    national standards for Health Information Technology (HIT) systems
    to ensure prudent investment by physicians in HIT systems that will
    not become obsolete.  Many solo practitioners or small group
    practices will need financial assistance to make up-front
    investments in HIT and Congress and the Administration should
    recognize that lost productivity and practice disruption typically
    occur when a fundamental change in work processes takes place, such
    as the implementation of new HIT systems.
    In addition to these fundamental and technical issues, there are
    legal issues that must be considered as well when developing and
    implementing a Pay-for-Reporting or Pay-for-Performance system.
    Performance quality must remain confidential at all times and not
    be subject to discovery in legal or other procedures - such as
    credentialing, licensure and certification - aimed at evaluating
    whether or not a physician has met standards of care.  Because
    state peer-review laws vary in the scope of protections afforded
    to physicians participating in quality improvement activities, a
    national standard (similar to the one included in recently enacted
    federal patient safety legislation, P.L. 109-41) should be
    implemented.  A non-punitive auditing system is necessary to ensure
    accurate information is entered into the system. Prior approval
    from patients to collect and report data must not be required and
    HIPAA should be amended as needed to facilitate data collection
    efforts.
    Financing of a Pay-for-Reporting or Pay-for-Performance system is
    critical.  Physicians, as is currently the case with hospitals,
    should be rewarded with "bonus" payments for participating in a new
    data collection and reporting initiative.  Such bonus payments
    should be in addition to, or outside the scope of, the current
    Medicare physician payment system.  If additional money is not
    provided for a Pay-for-Reporting or Pay-for-Performance
    initiative, and there are still physicians who are not yet able
    to participate because their measures have not completed the
    lengthy development and approval process mentioned previously,
    the system would become punitive, potentially further eroding
    physician availability for Medicare beneficiaries.
    Physician compliance with a Pay-for-Reporting or Pay-for-Performance
    system has the potential to increase the volume of physician
    services and, therefore, the annual Medicare Sustainable Growth R
    ate (SGR) expenditure target formula must be replaced.
    Finally, due to the nature of the funding silos that exist in the
    Medicare program, when physicians' efforts result in fewer
    complications and fewer or briefer hospitalizations for Medicare
    beneficiaries, thereby creating additional savings to Medicare
    Part A, that money should flow to Medicare Part B in recognition
    of where the savings were generated.

    Medicare Payments
    The Alliance of Specialty Medicine recognizes and appreciates the
    leadership of this committee in preventing cuts in physicians'
    Medicare payments since 2003, and we hope to have your continued
    support.  We understand that Congress and the Administration are
    intent on moving the Medicare program into a quality-reporting and
    value-based purchasing system.  We are asking Congress to
    acknowledge the fundamentally flawed Sustainable Growth Rate (SGR)
    Medicare physician payment formula is incompatible with
    Pay-for-Reporting or Pay-for-Performance systems.  For physicians
    to embrace Pay-for-Reporting or Pay-for-Performance, it is critical
    for the SGR to be replaced with a more equitable and stable payment
    system so that physicians can invest in HIT and pilot-test
    data collection methods and quality measures as steps toward
    establishing a Pay-for-Performance system that actually improves
    care for the Medicare patients we serve.
    Conclusion
    The Alliance of Specialty Medicine's physician organizations are
    continually striving to offer the highest level of quality care to
    all of our patients.  The recommendations we have made here today
    are crucial in moving to a system that produces a more efficient,
    reliable and stable patient care system.  We stand ready to work
    with Congress and the Administration to enhance quality measurement
    for the specialty care provided to our nation's seniors and
    individuals with disabilities.

    	MR. FERGUSON.  Thank you, Dr. Heine.  Dr. Rich.
    DR. RICH.  Thank you.  Good afternoon, Chairman Ferguson and members
    of the subcommittee.  Thank you for inviting the Society of Thoracic
    Surgeons to this hearing.  My name is Jeffery Rich, and I am a
    practicing cardiac surgeon at Sentara Healthcare.  I am testifying
    on behalf of the Society of Thoracic Surgeons, where I serve on the
    Board of Directors and chair the Taskforce on Pay-for-Performance.
    	As many of you know, the members of the STS have been
    measuring and improving patient outcomes in cardiac surgery for
    nearly 2 decades.  We are currently involved in several
    pay-for-performance initiatives with private plans, and believe it
    is time for the Government to undertake similar initiatives, which
    have been shown to reduce costs while saving lives.
    	Over the years, we have encountered several serious pitfalls
    to avoid.  We have also found that improved quality can save money,
    and that significant cost reductions are within our reach.  Our
    goal now is to implement P4P programs that will replicate the work
    of the Society of Thoracic Surgeons.  Today, I would like to talk
    about the experience that we have had in this area, and the lessons
    learned along the way.  Slide 1, please.
    	[Slide]
    	First, let me illustrate how powerful a quality improvement
    tool the database has been.  In slide 1, on the left side, you can
    see that our patients are older and sicker, and have an expected
    mortality rate that has increased by 35 percent over the last decade.
      Yet, in the graph on the right, you can see that by using
    information from the database, STS cardiac surgeons have managed to
    achieve a 30 percent reduction in risk adjustment mortality.  This
    has been achieved through the collection of accurate clinical data
    and feedback to providers on their performance as compared to
    national benchmarks.  However, we have gone one step further.  The
    STS participants in the State of Virginia have formed a true
     hospital/physician quality alliance, and have created a unique
    database.  Slide 2, please.
    [Slide]
    	This database is a blend of the STS clinical database and
    the CMS financial database, creating a clinical/financial tool that
    allows cardiac surgery teams in the State to monitor quality
    improvement and examine its impact on the cost of care.  As seen
    in this chart, the incremental costs of the major complications
     associated with cardiac surgery have been identified.
    Obviously, complications are costly, and can easily double or
    triple the cost of an operation.  Slide 3, please.
    	[Slide]
    	Armed with this data, we have identified best practices
    and implemented State-wide protocols to reduce complications, such
    as atrial fibrillation, a common heart arrhythmia following
    surgery.  As seen in the slide, within 6 months of State-wide
    implementation, the rate has already declined 15 percent from its
    baseline.  The individual hospital rates are seen on the bottom
    for 2004, and also, in 2005, and the marked reduction can be seen.
     So, how has this impacted costs?  Slide 4.
    	[Slide]
    	This illustrates the savings achieved by our efforts.  The
    top left graph shows the incidence of frequently seen complications,
    including atrial fibrillation.  The bottom left chart shows the cost
    of each of these complications.  The top right graph shows the
    estimated savings in Virginia, and the bottom right, the estimated
    savings in the country.  Please move the cursor to 5 percent.
    	This represents the reduction in atrial fibrillation we
    have achieved.  As you can see, as the rate of complication fell,
    savings accrued through reductions in costs.  Again, these are real
    cost savings, achieved through quality improvement efforts, and are
    based on real data.  The top line in the two right hand graphs gives
    total savings for the State, and in theory, the Nation; $3 million
    has been saved in the State just for this one complication, and if
    we apply these same principles across the Nation, approximately
    $250 million would have accrued already.  Please run the slide.
    	This illustrates the real impact of continuous quality
    improvement on costs, with growing savings to the healthcare system
    as quality is improved, and please note that these are on the basis
    of outcomes measures, not process measures.  Because of these
    results, Wellpoint/Anthem and the Virginia members have developed
    a P4P program with incentive payments for quality to both the
    hospitals and physician, a real functioning program that has been
    in existence at least, on the hospital side, for 2 years.
    	Much has been learned from these experiences, and we wish
    to share four of those with this subcommittee.  Lesson one.  Every
    effort must be made to encourage the development of accurate
    clinical databases.  Lesson two, not all measures are equal.
    Structural, process, and outcomes measures have markedly different
    attributes, and yield differing results under P4P programs.
    Outcome measures must be the ultimate goal of P4P, as they will
    promote ownership in the healthcare system, and create needed cost
    savings.
    	Lesson three, the use of quality data solely for profiling
    physicians and other providers will miss an opportunity to make
    broad improvements in quality, and may have unintended
    consequences.  Lesson four, no single P4P program will fit all
    physicians or apply to all patients.  The concept that one size
    fits all will not improve quality.  Hospital-based physicians will
    need different measures and incentive structures than ambulatory
    care physicians.  The STS has real experience in these areas.
    	In conclusion, the STS has proposed a 10 step roadmap,
    in our written document, for P4P, and I will highlight just four
    of those.  Number one, begin with structural measures and
    pay-for-participation in clinical databases.  Number two, create
    an interoperable data repository that can accept data from specialty
    society clinical databases, and can match clinical with financial
    data from CMS, as we have done in Virginia, so that providers will
    have the right tool to improve quality and contain costs.
    	Number three, identify and preferentially reward
    risk-adjusted outcome measures that have links to cost containment.
     Four, develop P4P programs unique to the setting of care.  One size
    does not fit all.  And finally, put ownership back in the healthcare
    system, and put ownership back in the vocabulary of all providers,
    by rewarding physicians for quality improvement and efficient care
    delivery.
    	Thank you for this opportunity to appear before you today.
    	[The prepared statement of Dr. Jeffrey B. Rich follows:]

    PREPARED STATEMENT OF DR. JEFFREY B. RICH, MID-ATLANTIC
    CARDIOTHORACIC SURGEONS, ON BEHALF OF SOCIETY OF THORACIC SURGEONS

    	MR. FERGUSON.  Thank you, Dr. Rich.  Dr. Opelka, 5 minutes,
    please.
    DR. OPELKA.  Mr. Chairman, Congressman Allen, and members of the
    subcommittee, thank you for the opportunity to testify today on
    behalf of the American College of Surgeons.  My name is Frank
    Opelka, and I practice colorectal surgery in New Orleans, and serve
    as the Associate Dean for Healthcare Quality and Safety at LSU.
    I also serve as the Chair of the Surgical Quality Alliance, or SQA,
    through which specialties that provide surgical care are
    collaborating to improve care for all our patients, and to divine
    principles of surgical quality measurement and reporting.
    	We are grateful to you for holding this hearing on how to
    build a payment system that provides high-quality, efficient care
    for the Medicare beneficiaries.  The College has been a leader in
    the effort to improve the quality of our Nation's surgical care for
    many years.  You can see details of this in our written testimony.
    	We fully support the concept of value-based purchasing.
    Hopefully, we can offer a potential solution that would
    significantly improve the payment system and allow quality
    improvement efforts to thrive.  First of all, it is important to
    keep in mind that there are unique issues confronting performance
    measurement in surgery.  For example, surgical care is provided as
    part of a system or a team, which complicates development of
    performance measures that address accountability at the surgeon
    level.
    	Secondly, for many procedures performed in a hospital
    setting, risk-adjusted patient outcomes are the preferred method of
    measuring performance.  Accurate risk adjustment can only be made
    using clinical, rather than administrative data.
    	Third, an increasing number of procedures are now performed
    in an office or an ambulatory surgical center.  The SQA has
    developed four global process measures for surgical care that have
    been submitted to CMS, along with detailed comments on the existing
    PVRP measures.  We have also made progress in developing global
    quality measures for ambulatory surgical care.
    	With respect to the PVRP, many note that the College
    initially welcomed its introduction as to the pilot tests we had
    requested prior to the implementation of the payment-related quality
    reporting system.  Nonetheless, a number of problems have been
    identified as obstacles to surgeons participating in the program.
    So far, these have not yet been addressed by CMS.
    	In particular, the surgical measures reflect broader
    hospital accountability, and do not focus directly on the
    surgeon's responsibility.  Secondly, many surgical measures contain
    serious flaws.  To highlight an obvious example, the PVRP now asks
    the surgeons to report on steps taken to avoid deep vein blood clots
    during procedures to harvest organs from cadavers.  We brought these
    issues to CMS's attention, and are hopeful that the agency will soon
    develop a process through which surgeons can have input into the
    adoption of performance measures, and so participate in the pilot.
    	While value-based purchasing can improve the quality of
    care patients receive and allow healthcare stakeholders to make more
    informed decisions, it cannot fix a broken Medicare physician
    payment system.  We urge Congress to prevent the 4.7 percent payment
    cut that will go into effect on January 1st, 2007, and to explore
    long-term solutions to this ever growing problem.
    	While all policymakers agree that there are problems with
    the SGR formula, what receives less attention is the devastating
    impact policies are having on specific specialties and the patients
    they treat.  For surgeons, reimbursements have declined steeply over
    the past 2 decades, even though service volume for major procedures
    has remained stagnant, growing by less than 2 percent per year.
    While volume increases in certain areas are justified, and can lead
    to better overall healthcare, surgeons are now subsidizing these
    increases.
    	The College supports MedPAC's recommendations to replace the
    SGR with an updated system that reflects real increases in the cost
    of providing care.  For that reason, we are grateful for the efforts
    by Representative Burgess and others to find a way to reach the
    solution that has continued to elude us.  But if we cannot eliminate
    the expenditure targets entirely, the College, along with the
    American Osteopathic Association, has developed an alternative
    that we believe has the potential to solve, at least part, many of
    our current problems.
    	Our proposal would replace the universal SGR with a new
    service category growth rate, the SCGR, that recognizes the unique
    nature of different services by setting targets for six distinct
    physician service categories already used by CMS.  These are the
    evaluation and management services, major procedures, minor
    procedures, radiology, diagnostic laboratory, and
    physician-administered Part B drugs.
    	The SCGR would be based on the current SGR factors, except
    that the GDP would be eliminated from the formula and replaced with
    a 7 percentage point growth allowance for each service category.
    Like the SGR, the annual update for service category would be the
    MEI plus the adjustment factor.  The Secretary could set aside up
    to 1 percent point of the conversion factor for any service category
    for pay-for-performance incentive plans.  By recognizing the unique
    nature of the different physician services, we believe the SCGR
    would enable better assessment of the volume growth of different
    physician services to determine whether or not that volume growth
    is appropriate.  In addition, we believe it would provide a
    framework for the development of value-based purchasing systems
    that are tailored to differences in the way various physician
    services are provided.
    	Thank you for providing this opportunity to share with you
    the challenges facing surgeons under the Medicare program today.
    The College looks forward to continuing to work with you to reform
    the Medicare physician payment system, and to ensure that Medicare
    patients will have access to the high quality surgical care they
    need.
    	[The prepared statement of Dr. Frank Opelka follows:]

    PREPARED STATEMENT OF DR. FRANK OPELKA, ASSOCIATE DEAN FOR
    HEALTHCARE QUALITY AND MANAGEMENT, LSU HEALTH SCIENCES CENTER
    DEAN'S OFFICE, ON BEHALF OF AMERICAN COLLEGE OF SURGEONS

    Chairman Deal, Ranking Member Brown, and distinguished subcommittee
    members, thank you for the opportunity to testify today on behalf
    of the 71,000 Fellows of the American College of Surgeons (ACS).
    My name is Frank Opelka.  I practice colorectal surgery in New
    Orleans, and serve as Associate Dean for Healthcare Quality and
    Safety at Louisiana State University.  I also serve as the Chair
    of the Surgical Quality Alliance.
    We are grateful to you for holding this hearing on the Medicare
    physician payment system and, specifically, how to build a payment
    system that provides high-quality and efficient care for Medicare
    beneficiaries.  ACS has been a leader in the effort to improve the
    quality of our nation's surgical care for many years.  A detailed
    description of key ACS efforts is included at the end of this
    testimony in Attachment A.
    ACS supports the concept of value-based purchasing and shares the
    view that it holds real potential to bring value to patients
    through improved quality and informed choices.  Our concerns arise
    in reference to the development and implementation of some of these
    specific value-based purchasing programs.
    	This morning, I would like to discuss some of the current
    quality improvement efforts and some of the unique issues
    confronting performance measurement in surgery.  In addition, I would
    like to discuss the relationship between value-based purchasing and
    the current physician payment environment.  Quality improvement
    programs will only reach their full potential if an appropriate
    payment system is created in which high-quality care and quality
    improvement are encouraged. This is impossible under the constructs
    of Medicare's current physician payment system, which we all
    understand is unsustainable.  ACS believes that we have a solution
    that would significantly improve the payment system and allow
    quality improvement efforts to thrive.

    Unique Issues Confronting Performance Measurement in Surgery
    	Surgical care is provided in a variety of settings
    including hospitals, offices, and ambulatory surgery centers.
    While our ability to provide care in diverse settings can bring
    value to the patient and the healthcare system, it also creates
    complexities.  For example, responsible reporting of clinical
    information for quality monitoring and improvement can be especially
    difficult when a patient's course of treatment occurs across
    multiple settings.
    	Regardless of the setting, surgical care is provided as part
    of a system or team.  The surgeon is one member of a team that also
    includes nurses, anesthesiologists, technicians, and other staff.
    Many gaps in the quality of surgical care exist in areas of
    overlap between participants in the system.  For instance, the
    surgeon, anesthesiologist, nurse, and pharmacist all contribute to
    the patient receiving appropriate and timely prophylactic
    antibiotics.  This team-oriented approach to surgical care can
    complicate the development of measures addressing accountability at
    a physician level rather than system level.  Divergent views on
    whether measures in a pay-for-performance system should focus on
    surgeon or system performance have become a serious obstacle to
    measure development and implementation.  Indeed, given the unique
    team-oriented environment in which surgeons practice, few
    performance measures existed that focused on the individual surgeon.
     ACS has been working with the surgical specialty societies over the
    past year to identify areas that can be attributed directly to the
    surgeon, such as ordering of various therapies, for use in
    value-based purchasing initiatives.
    	  Additionally, each surgical setting presents its own
    unique challenges in measuring performance.  For many procedures
    performed in a hospital setting, risk-adjusted patient outcomes
    are the preferred method of measuring performance.  Risk adjustment
    is a necessary component of surgical outcomes data and should
    include adjustment for age, weight, and co-morbid conditions, such
    as diabetes, that could affect the patient's risk.  Currently,
    accurate risk-adjustment models can only be used in conjunction
    with clinical data because administrative data do not capture all
    of the necessary data points required for accuracy.  In addition,
    claims are submitted well before the 30-day outcome of an operation
    is known, making them a poor vehicle to report outcomes data.
    Finally, current risk-adjustment tools focus on a system of care as
    with ACS National Surgical Quality Improvement Program (NSQIP)
    data, instead of on an individual physician or surgeon.
    On the other hand, most procedures performed in an office or
    ambulatory surgery center have extremely good outcomes with few
    complications.  This presents a challenge for some surgical
    specialties in the development of useful and valid measures that
    close a gap in care and can be used in value-based purchasing
    programs.  Traditional outcome and process measures are not
    appropriate in these settings if a gap in care cannot be
    identified.  This challenge of measurement must be addressed as
    we move toward a pay-for-performance system.
    	Finally, surgery has become a highly specialized profession
    in which a surgeon may only perform a small fraction of the
    thousands of CPT codes that address surgical procedures.  Developing
    measures that capture a significant portion of each specialty's
    procedures or that are applicable to multiple specialties has been
    a challenging and time-consuming task.  The Surgical Quality
    Alliance (SQA) took on this daunting task and developed four
    global, process measures for surgical care.  These measures were
    twice submitted along with proposed revisions to the Centers for
    Medicare & Medicaid Services (CMS) for inclusion in the Physician
    Voluntary Reporting Program (PVRP).
     Preoperative Smoking Cessation - Smoking prior to surgery can
    lead to increased incidence of wound complications, diminished
    vascularity, and poor wound healing.  Preoperative smoking cessation
    results in fewer complications and faster healing leading to an
    easier recovery for the patient and reduced strain on the healthcare
    system.
     Surgical Timeout - Participation in a preoperative surgical timeout
    in which the patient, procedure(s), and surgical site(s) are
    identified and agreed upon by the surgical team leads to fewer
    adverse events including wrong-site, wrong-side, wrong-procedure,
    and wrong-person operations.
      Patient Copy of Preoperative Instructions - Adverse events occur
    when patients are not fully informed prior to surgery.  Patients
    should be given a copy of preoperative instructions that can be
    taken home, easily read and referred to, and shared with
    appropriate family, friends and/or caregivers prior to surgery.
      Patient Copy of Postoperative Instructions - Keeping patients
    informed and engaged in their own care leads to fewer complications
    and readmissions following surgery.  Postoperative instructions
    should be easy to read and reference and should include information
    on activity level, diet, discharge medications, proper incision care
    (if applicable), symptoms of surgical site infection, what to do if
    symptoms worsen, and follow-up appointments.

    Physician Voluntary Reporting Program (PVRP)
    ACS welcomed the introduction of the PVRP as the "pilot test"
    physician organizations had requested prior to implementation of a
    payment-related quality reporting system.  A voluntary program is a
    vital step to examine potential administrative and workflow
    challenges involved in collecting data from individual physicians
    on performance-related issues.  Nonetheless, the following points
    have been identified by ACS and other surgical societies as
    obstacles in the PVRP as it is currently constructed that need to
    be addressed:
     The surgical measures reflect broader hospital accountability and
    do not focus directly on the surgeon's responsibility.  This focus
    on the facility/system in a physician-oriented program severely
    limits the usefulness of the data collected for quality improvement
    purposes.
     Many numerators and denominators are incorrect, and CMS has been
    unresponsive to surgery's efforts to recommend changes.  The
    rationale behind CPT codes selected for the program and those
    excluded is not apparent, and codes appear to have been selected
    randomly.  In addition, some of the codes challenge the credibility
    of the program, which further presents obstacles to encouraging
    participation by surgeons.
     As the PVRP measures are currently defined, it is difficult for
    surgeons to participate.  The CPT codes included in the surgical
    measures are limited and do not allow for participation by many
    surgical specialties.  As a result, we are not really "testing" how
    patient care information can be retrieved and reported across
    inpatient and outpatient settings.

    In a live surgical patient, a deep vein thrombosis (DVT)
    (or blood clot) is a severe and potentially life-threatening
    complication; fortunately, a number of preventive measures are
    effective in reducing the incidence of DVT.  However, it is
    unnecessary to guard against DVT in procedures involving a cadaver
    donor.  Yet, CMS' list of procedures for which DVT prevention is
    to be used includes four procedures for harvesting an organ(s)
    from a cadaver--lung (CPT code 32850), heart-lung (code 33930),
    liver (code 47133) and kidney (code 50300).  To further show the
    arbitrary nature of the list, CMS properly excludes harvesting only
    the heart (code 33940).
    A prophylactic antibiotic should be given when there is significant
    risk of acquiring an infection during a surgical procedure.  While
    many factors contribute to a patient's risk for a surgical site
    infection, one determinant is the length of the procedure.
    Whipple-type procedures are open procedures in which part of the
    pancreas is removed and extensive surgery is performed on nearby
    organs.  We can obtain the length of the time from incision to
    closing of the wound (known as "skin-to-skin" time) from a
    database maintained by the American Medical Association/Specialty
    Society Relative Value Update Committee (RUC) and available to CMS.
    The skin-to-skin times for the four Whipple-type procedures are 290
    to 360 minutes.  Yet, none of the four Whipple-type procedures is on
    the list for antibiotic administration.
    Throughout the codebook, there are codes for procedures that are not
    listed in CPT.  (For example, code 43999 is "Unlisted procedure,
    stomach".)  We expected that CMS would be consistent in their
    treatment of these codes, but they are not. The PVRP includes
    unlisted procedures for the intestine, rectum and cardiac surgery,
    but not for the esophagus, stomach, liver or other anatomical areas.
    End stage renal disease (ESRD) patients on hemodialysis need
     vascular access to connect their bloodstream to the dialysis
    machine.  There are many types of vascular access, but fistulas
    have the lowest failure and complication rates.  Fistula access
    involves connecting a patient's own vein and artery, instead of
    connecting a prosthetic tube to the artery or placing a plastic
    catheter into the vein, both of which are associated with higher
    morbidity and mortality rates.  It is important to place a native
    access in patients before they advance to ESRD status because a
    fistula cannot be used immediately as it needs time to mature.
    However, the PVRP measure for receipt of autogenous arteriovenous
    fistula applies only to ESRD patients.  The SQA, including the
    Society for Vascular Surgery, proposed the addition of advanced
    chronic kidney disease patients to promote fistula use prior to
    ESRD and to obtain a more accurate representation of current
    fistula use.
    Our concerns with the PVRP are outlined in two letters from the
    SQA to CMS Administrator Mark McClellan, MD, PhD.  The letters also
    include the four global, process measures for surgery listed above.
    The March 1 and June 1 letters are included as Attachment B to this
    testimony.

    Progress in the development of surgical measures
    	In addition to the measure revisions and global process
    measures submitted to CMS by the SQA, the surgical community has
    been working with various quality organizations to develop and
    implement surgical performance measures.  ACS continues to work with
    the AMA's Physician Consortium for Performance Improvement (PCPI)
    serving as the lead organization for two Perioperative Care
    Workgroups.  The first perioperative workgroup focused on the
    assessment of cardiac risk, while the second is focused on the
    prevention of surgical site infections and DVT.  The current measure
    set includes appropriate timing, selection, and discontinuation
    of prophylactic antibiotics as well as appropriate DVT prophylaxis
    for selected surgical procedures.  The measure set is open for
    public comment through August 4.  Surgical specialty societies
    are also working with the PCPI to develop measure sets for eye
    care, osteoporosis, stroke, and skin cancer.
    	The Society for Thoracic Surgeons participated in the
    National Quality Forum's (NQF) project to develop a set of consensus
    standards for cardiac surgery.  A slightly refined version of the
    NQF-endorsed cardiac surgery measure set, specific to coronary
    artery bypass graft, was also approved by the AQA as the starter
    set for measuring cardiac surgery.  In addition, ACS continues to
    participate in the NQF's cancer care project and has submitted
    measures relating to diagnosis and treatment of colon and breast
    cancer, some of which we are told are being considered for
    modification and inclusion in the PVRP.
    	The SQA recently embarked on a project to address surgical
    performance measurement in the ambulatory and office settings.  As
     stated earlier, these environments provide unique challenges in a
    quality improvement initiative because patient outcomes are
    extremely good.   SQA project participants met earlier this month
    and developed a starter set of measures that include structure,
    process, adverse-event reporting, and patient satisfaction measures
    applicable to ambulatory and office-based care.

    Reporting Quality and Performance Data
    	Healthcare is comprised of many stakeholders, including the
    purchasers of health insurance, the insurers who sell and contract
    for care, the providers including physicians, hospitals, and nursing
    homes, and most importantly, the patients.  Each stakeholder has a
    unique perspective, investment, and interest in quality improvement
    and reporting.  Patients use reports to make informed decisions
    about healthcare providers; payers and purchasers use reports
    to contract with providers who produce high-quality and efficient
    care; and, providers use reports to influence the strategic direction
    of internal quality improvement efforts.
    	Given the important and distinctive interests of each
    stakeholder, reports and performance measures must be developed and
    designed with a specific goal in mind.  Different data elements are
    important to different healthcare stakeholders.   For instance,
    complex clinical data points may not be as valuable to consumers as
    they are to providers for internal quality improvement efforts.
               Regardless of the audience, however, accurate data and
    the appropriate context of that data are integral to improving
    quality.  It is easy to make incorrect assumptions about the quality
    of a healthcare provider based on incomplete data.  Current
    performance measure sets are comprised primarily of process measures
    that examine a point of care, including assessment of elderly
    patients for falls for primary care physicians and ordering of
    antibiotics for surgeons.  Process measures are important to quality
    improvement efforts because they are an actionable item for the
    physician or system being measured.   In addition, process measures
    have been favored because they are easily reported using the claims
    processing system.  However, process measures alone do not define
    the quality of a surgeon, because compliance with process measures
    does not guarantee high-quality outcomes.  For example, a surgeon
    who complies with antibiotic process measures but has high morbidity
    rates due to poor technique is not a high-quality surgeon.
    To accurately represent the overall quality of a surgeon, a
    report must contain many variables, including risk-adjusted outcome
    (observed outcome/expected outcome), process, structure, patient
    satisfaction, and quality-of-life measures.   ACS continues to
    collaborate with multiple stakeholders in an effort to develop an
    appropriate and comprehensive measure set that incorporates many
    quality areas.
    Another important component in value-based purchasing is the cost
    of the services provided.  As our nation's healthcare expenditures
    continue to rise, methods to reduce cost have been widely examined.
     Cost of care measures are controversial, complex, and are easy to
    misuse.  In linking cost of care measures to quality to develop
    "efficiency" measures, there is the potential to greatly amplify
    the errors that exist in the cost component of the measure.

    The Current Payment Crisis
    	 While value-based purchasing can improve the quality of
    care patients receive and allow healthcare stakeholders to make
    informed decisions about healthcare, it cannot fix the broken
    Medicare physician payment system.  The benefits of a value-based
    purchasing system will not be fully realized until a stable, fair
    physician payment system is implemented.   The College urges
    Congress to prevent the 4.7 percent payment cut that will go into
    effect on January 1, 2007, and explore long-term solutions to this
    ever-growing problem.

    The Sustainable Growth Rate Formula is Broken
    For the sixth year in a row, Medicare payments to physicians are
    scheduled to be cut
    under the sustainable growth rate (SGR) formula.  In 2002, Medicare
    physician payment was cut by 5.4 percent, and in 2003, 2004, 2005,
    and 2006 Congress took action to override the SGR and prevent the
    predicted payment cuts.  The Medicare Payment Advisory Commission
    (MedPAC), CMS Administrator McClellan, and numerous other
    authorities and policymakers have acknowledged the SGR's problems
    and limitations and have called on Congress to fix the broken
    formula.  Under the SGR formula, Medicare physician payment will
    be cut across-the-board by more than 37 percent by 2015, while at
    the same time the cost of providing care will increase by 20
    percent.  Simultaneously, other providers, including hospitals
    and skilled nursing facilities, are enjoying yearly increases in
    payment rates.

    The 4.7 Percent January 1, 2007 Cut Must be Prevented
    While ACS greatly appreciates Congress' actions over the past six
    years to prevent the payment cuts, it is more important than ever
    that Congress take action to prevent the 4.7 percent cut scheduled
    for January 1, 2007.   The conversion factor increases and freezes
    over the past several years have not kept pace with the rising cost
    of delivering care to Medicare beneficiaries.  Since 2001, the
    Medicare Economic Index (MEI) has risen 16 percent, but the
    conversion factor has decreased and is less than it was in 2001.
    These differences have been offset by physician practices that are
    not likely to be able to absorb additional disparities.  In its
    March 2006 report, MedPAC recommended a 2.8 percent positive update
    for physicians in 2007, and the College supports this recommendation
    	It is important to understand that in 2007 substantial
    changes to other components of the Medicare payment formula will
    shift billions of dollars from certain specialties and practice
    types to others, which will lead to cuts of up to 10 to 12 percent
    for some physician services.  It is essential that Congress act to
    provide a rational update to the conversion factor in order to
     bring some element of stability to an already turbulent system and
    to help alleviate the payment cuts caused by unrelated policy
    changes.  The non-SGR related changes to physician payment in 2007
    include:

    1.  Five-Year Review
    Every five years, CMS is required by law to comprehensively review
    all work relative value units (RVUs) and make needed adjustments.
    These adjustments must be made in a budget neutral manner.  Changes
    related to the third five-year review will be implemented on
    January 1, 2007.  In total, more than $4 billion will be shifted
    to evaluation and management (E/M) codes alone, which will be
    increased by upwards of 35 percent in some instances.  The $4
    billion needed to fund these increases is more than total Medicare
    physician spending on general surgery, cardiac surgery,
    neurosurgery, colorectal surgery and vascular surgery combined.
    In order to fund these increases, the work RVU of every code on
    the fee schedule will be reduced by an estimated 10 percent or
    there will need to be an additional 5 percent cut to the conversion
    factor. Because there are so many payment changes being implemented
    as a result of the five-year review, it is difficult to predict the
    exact impact on various specialties and services. Some services,
    including the E/M services, will receive overall increases in
    payment while others, including several key surgical codes, will
    receive reductions in addition to the budget neutrality adjustments
    being made because of changes in the time and intensity related to
    these codes.  Further, codes that were not examined in the five-year
    review will be decreased between 3 and 6 percent to pay for the
    increases to the E/M codes.   For example, if a code has the same
    value in the 2007 fee schedule as it did in the 2006 fee schedule,
    it will nonetheless be cut between 3 to 6 percent as a result of
    increases to other codes. These codes are not being cut because the
    work and intensity of the codes has changed, but instead are being
    cut to fund increases to other services in the budget neutral
    environment.

    2.  Practice Expense
    In its June 20 Notice of Proposed Rule Making, CMS announced
    significant changes to the formulas used to determine the practice
    expense RVUs.  These changes are also budget neutral and will
    shift approximately $4 billion to nine medical specialties. These
    increases will again be paid for by cuts to other specialties, most
    notably neurosurgery, orthopaedic surgery, ophthalmology, and
    cardiothoracic surgery.

    3.  Geographic Practice Cost Index (GPCI)
    The Medicare Prescription Drug, Modernization and Improvement Act of
    2002 (MMA) included a three-year floor on work GPCI adjustments.
    Nationwide, 58 of the 89 physician payment areas received a 1 to 2
    percent benefit from this provision, which will expire on
    December 31, 2006.  Without the provision, certain providers,
    mainly in rural areas, will see their payments cut by an additional
    1 or 2 percent.
    This unprecedented and dramatic shift in the allocation of funding
    will have a remarkable impact on many physician practices across
    the country.  The College is deeply concerned about the consequences
    of an SGR-imposed cut in conjunction with those that will result
    from a reallocation of funding and policy changes.  While the total
    impact of the changes will vary by specialty, geographic location,
    and practice composition, physicians specializing in certain types
    of services could see cuts of up to 12 percent before any
    adjustments to the conversion factor are made as a result of the
    SGR.  Almost all surgical services will receive cuts of 2 to 8
    percent in 2007 as a result of these changes.  To bring stability
    to the payment system, offset the reductions some specialties will
    experience, and maintain the increases granted to other specialties,
    ACS strongly encourages Congress to provide a positive update to
    the conversion factor for 2007.

    The Impact of the Current Payment Policy
    While it seems all policymakers agree there are problems with the
    SGR formula, what receives less attention is the devastating impact
    current payment policies are having on specific specialties and the
    patients they treat.  For surgeons, reimbursements have declined
    exponentially since the inception of the Resource Based Relative
    Value System (RBRVS) in 1992 and the SGR in 1996.  While some of
    these decreases are related to actual decreases in the time and
    intensity of a specific service due to advances in technology,
    many are not.  In general, reimbursement policies have shifted
    billions of dollars from surgery to other medical specialties.

    1. Volume Increases
    In the past five years, spending on Medicare physician services has
    increased between 7 and 14 percent per year.  These increases are
    fueled by growth in the volume and intensity of E/M services,
    imaging, lab tests, physician-administered drugs, and minor
    procedures.  However, volume for major procedures, those with a
    10 or 90 day global period, have remained stagnant--growing by
    less than 2 percent a year.  While other specialties have increased
    Medicare billings by increasing the volume of the services they
    provide, surgeons have not.  It is much more difficult for
    surgeons to compensate for payment reductions by providing
    additional services or by seeing an individual patient more
    often.  As a result, between 1998 and 2005, spending on major
    procedures and related anesthesia services dropped from 22 percent
    of total Medicare spending to less than 14 percent.  While volume
    increases in certain areas are justified and can lead to better
    overall healthcare for beneficiaries, under the current payment
    system, surgeons are subsidizing these volume increases.  For the
    short term at least, we can anticipate this problem of
    cross-subsidizing the cost care to become worse, as efforts to
    increase preventive care and better manage chronic conditions lead
    to further volume increases in non-surgical service categories,

    2. Decreasing Reimbursements/Rising Costs
    Since the inception of the Resource-based Relative Value Scale,
    reimbursement for many surgical procedures has been cut by more
    than 50 percent, before the effects of inflation are taken into
    account.  At the same time, costs for providing services has
    increased and policies related to practice expense have shifted
    funds away from the surgical specialties.  While the MEI is similar
    for all specialties, the surgical specialties have been
    impacted disproportionately by rising professional liability
    premiums. The average premium for surgeons is more than eight
    times that of other specialties, with certain surgical specialties
    like neurosurgery paying more than $200,000 a year.
    Medicare reimbursement rates have not changed proportionately to
    reflect these changes in the market.  A recent study from the
    Center for Studying Health System Change found that surgeons'
    income fell by 8.2 percent between 1998 and 2003 despite the fact
    that the time surgeons spent providing direct patient care
    increased by 6.2 percent during this same period, widening the gap
    between hours worked by surgeons and by other physician
    specialties.  Also during that same period, overall professional
    income in the United States rose by more than 7 percent.

    Service
    1989 avg.
    2006 avg.
    2007 est.
    % change
    Cataract removal
    $1573
    $684
     $608
    -61%
    Total knee replacement
    $2301
    $1511
    $1314
    -43%
    TURP - prostatectomy
    $1139
    $695
    $738
    -35%
    Colectomy
    $1256
    $1226
    $1134
    -10%
    Laminectomy
    $2078
    $1051
    $962
    -54%
    CABG
    $3957
    $2049
    $2051
    -48%
    Mastectomy
    $1051
    $997
    $958
    -9%
    Repair retinal detachment
    $2833
    $1375
    $1274
    -55%
    Craniotomy for hematoma
    $2018
    $1749
    $1677
    -17%
    Caesarian delivery
    $1038
    $1884
    $1814
    75%
    Office visit
    $31
    $53
    $60
    94%
    2007 estimates based on CMS June 20, 2006 Notice of Proposed Rule
    Making

    3.  Effects on Medicare Beneficiaries
    The effects of Medicare payment trends are being felt throughout
    the healthcare system.  In May, the Institute of Medicine concluded
    in a series of reports entitled the Future of Emergency Care that
    many of the nation's emergency departments and trauma centers are
    experiencing shortages in the availability of on-call specialists.
    Surgeons provide lifesaving care to beneficiaries suffering from
    both traumatic injuries and medical emergencies.  Patients suffering
    from strokes, blockages, and injuries often require timely treatment
    in order to prevent permanent disability or even death.  Without the
    prompt availability of on-call surgeons, these beneficiaries do not
    receive the crucial care that they need.
    In a report entitled A Growing Crisis in Patient Access to Emergency
    Surgical Care, ACS documented this phenomenon even further.  The
    supply of surgeons has not kept pace with the patient population and
    a third of all practicing surgeons are nearing retirement age.
    Across the country, surgeons have reduced their call schedules and
    dropped or reduced risky or poorly paid services in order to
    maximize their time in the office.
    Many medical students are avoiding a career in surgery all
    together.  In 2006, only 60 percent of first-year surgical
    residency slots were filled and only 38 percent were filled with
    U.S.-trained medical students.  For some surgical specialties,
    including cardiac surgery, resident match numbers continue to
    plummet as medical students choose more lucrative specialties and
    those that offer more attractive lifestyles.

    Reforming Medicare's Physician Payment System
    While, in the short term, ACS sincerely hopes that Congress will
    act to increase Medicare physician payments in 2007, the College
    just as strongly supports Medicare payment reform that yields a
    long-term solution to the future problems posed by the current
    Medicare physician payment system.
    In addition to the immediate challenges posed to surgical care by
    the pending 4.7 percent cut and the upcoming fee schedule changes
    for 2007 outlined earlier, there are larger systemic challenges
    that seriously threaten Medicare beneficiaries' ability to access
    surgical care in the future.  Nowhere was this reality more evident
    than in this year's Medicare Trustees Report, which was the first
    report to project nine straight years of cuts in Medicare
    physician reimbursement, totaling over 37 percent in cuts over
    that period.
    This hearing, along with others held by the Health Subcommittee,
    demonstrates that the Medicare physician payment crisis is not lost
    on the Energy and Commerce Committee or on the Congress as a
    whole.  The College greatly appreciates the efforts Committee
    Chairman Barton, Subcommittee Chairman Deal, Ranking Members Dingell
    and Brown, and the Committee staff have put forth to study how
    best to address the long-term challenges posed by the current
    structure.  The College also greatly appreciates Dr. Burgess's
    recent introduction of the "Medicare Physician Payment and Quality
    Improvement Act of 2006" and believes his legislation furthers this
    effort by recognizing the need to replace the current structure
    with meaningful, lasting reforms.
    The College also appreciates the support of this Committee and the
    Congress to avert Medicare cuts every year since 2003.
    Unfortunately, these temporary measures have not eliminated the
    challenges posed by the SGR, and creating a rational payment system
    that provides incentives for high-quality care and quality
    improvement is virtually impossible under the construct of
    Medicare's current physician payment system.  That said, this does
    not mean that a rational payment system that provides incentives
    for quality care is unattainable, and we believe that a Medicare
    payment system that recognizes the unique nature of various
    physician specialties and services would bring the rational
    structure for comprehensive reform, including a structure that
    could more easily facilitate the move to a value-based purchasing
    system in which surgeons can participate.
    One of the most irrational elements of the current method for
    determining physician reimbursement is the universal application
    of the volume and spending target imposed by the SGR.  Even though
    the nature and type of services provided by different physician
    specialties often bear little resemblance to those provided by
    their colleagues in other specialties, the SGR subjects all
    specialties and services to an universal target on volume and
    spending that fails to recognize the unique nature of the care
    and services provided by the different specialties, or different
    degrees to which various specialties contribute to overall increases
    in Medicare physician spending.  In addition to the obvious
    differences in the type of care provided by surgeons and other
    physicians, the services they provide are also billed differently.
    For example, surgical services are paid on a global basis, which
    means that, after the initial consultation, all pre- and
    post-operative care associated with a procedure (up to 90 days after
    the operation) is included in one payment bundle, regardless of
    complications or how many post-operative services are required.
    With respect to service volume, for surgery generally--especially
    for major procedures-volume growth has been relatively inelastic,
    with volume growth averaging between 3 and 4 percent per year.
    In fact, in its recently released report on Medicare Physician
    Services, the General Accounting Office (GAO) found that from
    April 2001 to April 2005, the number of major procedures has
    declined by 3 percent.  The GAO further found that volume generally
    increased for evaluation and management, minor procedures, imaging,
    and tests. There are several reasons for this inelastic growth in
    major procedures, including the fact that patients rarely
    self-refer to surgeons; rather, in most cases, surgeons only see
    patients after another physician has determined that a surgical
    assessment is needed.  As a result, surgeons--along with other
    physicians who provide services with lower growth rates--bear a
    disproportionate cost of increased utilization of services they
    do not provide, regardless of whether or not that growth is
    justified.  This difference in volume elasticity was recognized
    as far back as 1989, when the current payment system was initially
    constructed to include different volume growth targets for two,
    and later three, categories of service.
    While the College, along with other physician organizations, has
    advocated for an elimination of the SGR expenditure target system,
    that remedy has been elusive for many reasons, not the least of
    which has been cost concerns.  As a result, the College has
    developed an alternative proposal that we believe has the potential
    to solve, at least in part, many of the problems posed by the SGR,
    and has the potential to provide a rational structure that could
    serve as the basis for other reforms such as value-based
    purchasing. This proposal also enjoys the support of the American
    Osteopathic Association.

    The Solution - The Service Category Growth Rate
    Our proposal would do the following:
     Replace the universal SGR volume target and replace it with a new
    system, known as the Service Category Growth Rate (SCGR) that
    recognizes the unique nature of different physician services by
    setting targets for six distinct categories of physician services,
    based on the Berenson-Eggers type-of-service definitions already
    used by CMS:
     Evaluation and management services;
     Major procedures (includes those with 10 or 90 day global service
    periods) and related anesthesia services;
     Minor procedures and all other services, including anesthesia
    services not paid under physician fee schedule;
     Radiology services and diagnostic tests;
     Diagnostic laboratory tests; and
     Physician-administered Part B drugs, biologicals, and
    radiopharmaceuticals.
     The SCGR target would be based on the current SGR factors (trends
    in physician spending, beneficiary enrollment, law and regulations),
    except that GDP would be eliminated from the formula and be replaced
    with a statutorily set percentage point growth allowance for each
    service category.  To accommodate already anticipated growth in
    chronic and preventive services, we estimate that E/M services would
    require a growth allowance about twice as large as the other
    service categories (between 4 and 5 percent for E/M as opposed to
    somewhere between 2 and 3 percent for other services).  Like the
    SGR, spending calculations under the SCGR system would be
    cumulative.  However, the Secretary would be allowed to make
    adjustments to any of the targets as needed to reflect the impact of
    major technological changes.
    * Like the SGR, the annual update for a service category would be
    the MEI plus the adjustment factor.  But, in no case could the final
    update vary from the MEI by more or less than 3 percentage points;
    nor could the update in any year be less than zero.
    * The Secretary could set aside up to one percentage point of the
    conversion factor for any service category for pay-for-performance
    incentive payments.  In addition, different set aside percentages
    could be established for each service category.
    * The SCGR would provide a framework for the development of
    value-based purchasing systems that are tailored to differences in
    the way various physician services are provided.

    By recognizing the unique nature of different physician services,
    the SCGR would enable Medicare to more easily study the volume
    growth in different physician services and determine whether or
    not that volume growth is appropriate.  In spite of the fact that
    the only area that many physicians have in common with their
    colleagues in other specialties is the fact that they are medical
    school graduates, for reimbursement purposes, Medicare treats all
    physicians to one global target for the services they provide, even
    though services often bare little resemblance to those provided by
    their colleagues.  Like the SGR, the SCGR would retain a mechanism
    for restraining growth in spending for physician services.  It
    would also recognize the wide range of services that physicians
    provide to their patients.  As a result, unlike the current
    universal target, which penalizes those services with low volume
    growth at the expense of high volume growth services, the SCGR would
    provide for more accountability within the Medicare physician
    payment system by basing reimbursement calculations on targets that
    compare like services, and providing a mechanism to more closely
    examine those services with high rates of growth without forcing
    low growth services to subsidize them, as is the case under the
    current system.
    In addition, the SCGR would provide a framework for starting a basic
    value-based purchasing system.  One of the ideas often floated among
    our meetings with policymakers is their desire to find a set of
    measures, a number between 3 and 5 is often mentioned, that broadly
    apply to all physicians.  Given the diversity of physician services
    provided to patients, this is an almost impossible task.  Yet, under
    the SCGR this task for measure development should be much easier
    since similar services will be compared.  For example, in the case
    of major procedures, preoperative smoking cessation, measures for
    marking the surgical site, a surgical timeout, and appropriate
    post-operative follow-up could apply to most situations, and
    measuring for such processes could actually be meaningful in
    improving patient outcomes.
    Mr. Chairman, thank you for providing the American College of
    Surgeons this opportunity to share with you the challenges facing
    surgeons under the Medicare program today. Whether the focus is on
    value-based purchasing or on the sustainable growth rate, the
    College looks forward to continuing to work with you to reform the
    Medicare physician payment system to ensure that Medicare patients
    will have access to the surgical care they need, and that the
    surgical care patients receive is of the highest quality.

    Attachment A

    ACS History of Involvement in Quality Improvement Initiatives

    In 1918, the College initiated a Hospital Standardization Program in
    an effort to ensure a safe environment and effective system of care
    for surgical patients and others who are hospitalized.  That
    program ultimately led to the establishment of what is known today
    as the Joint Commission on the Accreditation of Healthcare
    Organizations (JCAHO).  This commitment continues through the
    participation of three ACS JCAHO commissioners, as well as through
    other programs and initiatives conducted by College committees and
    programs.

    Commission on Cancer
    In 1922, the College established the multidisciplinary Commission on
    Cancer to set standards for high-quality cancer care.  Today, the
    commission is comprised of more than 100 individuals representing
    more than 39 national professional organizations.  Among other
    initiatives, the Commission on Cancer has established cancer program
    standards and conducted the accreditation of nearly 1,500 hospital
    cancer programs.  It also provides clinical oversight for
    standard-setting activities and for the development and
    dissemination of patient care guidelines; and it coordinates
    national cancer site-specific studies on pattern of care and
    patient management outcomes through the annual collection,
    analysis, and dissemination of data for all cancer sites through
    the National Cancer Database (NCDB).
    The NCDB is a nationwide, facility-based, oncology data set that
    currently captures 75 percent of all newly diagnosed cancer cases
    in the United States.  The database currently holds 15 million cases
    of reported cancer diagnosis for 1985 through 2002.  Data collected
    includes patient characteristics, tumor staging and characteristics,
    type of first course treatment, disease reoccurance, and survival
    information.

    American College of Surgeons Oncology Group
    The American College of Surgeons Oncology Group (ACOSOG) was
    established in 1998, primarily to evaluate the surgical management
    of patients with malignant solid tumors.  It includes general and
    specialty surgeons, representatives of related oncologic
    disciplines, and allied health professionals in academic medical
    centers and community practices throughout the U.S. and foreign
    counties.
    The ACOSOG is one of 10 cooperative groups funded by the National
    Cancer Institute to develop and coordinate multi-institutional
    clinical trials and is the only cooperative group whose primary
    focus is the surgical management of patients with malignant solid
    tumors.  Current clinical trials focus on tumors of the breast,
    melanoma, head and neck cancer, sarcoma and soft tissue tumors,
    thoracic tumors, and tumors of the central nervous,
    gastrointestinal, and genitourinary systems.  ACOSOG's work will
    be vital to the development of future standards of care for the
    surgical management of trauma patients.

    Committee on Trauma
    The Committee on Trauma (COT) develops the standards that most
    states employ to designate trauma centers.  Since 1989, ACS has
    been addressing the need for a strong, national, trauma care system
    through development of the National Trauma Data Bank (NTDB).
    Designed by a collaborative group of COT members, emergency
    medical organizations, government agencies, and trauma registry
    vendors, the NTDB now contains over 1.5 million cases from 565
    trauma centers.  This data represents the largest aggregation of
    trauma care data ever assembled.

    National Surgical Quality Improvement Program
    The National Surgical Quality Improvement Program (NSQIP) is the
    first nationally validated, risk-adjusted, outcomes-based program
     that has been demonstrated to accurately measure and improve the
    quality of surgical care.  The program was initially developed by
    the Department of Veteran's Affairs (VA) in the early 1990s as an
    outgrowth of the National VA Surgical Risk Study.  In the VA system,
    NSQIP had impressive results, with a 27 percent decline in
    post-operative mortality, a 45 percent drop in post-operative
    morbidity, a reduction in average post-operative length of stay from
    9 to 4 days, and increased patient satisfaction.  In 2001, the
    College developed its own NSQIP, which expanded the program to the
    private sector through a grant from the Agency for Healthcare
    Research and Quality.
    The program employs a prospective, peer-controlled, validated
    database to quantify 30-day risk-adjusted surgical outcomes,
    allowing valid comparison of outcomes among the hospitals in the
    program.  Medical centers and their surgical staffs are able to use
    the data to make informed decisions about their continuous quality
    improvement efforts. The program involves the following key
    components:
    	Data Collection
    	Data Monitoring
    	Validation Report Generation
    	Data Analysis

    Of particular interest to hospitals is the generation of a
    risk-adjusted, observed-to-expected outcome ratio for each center,
    which can be compared to other participating centers on a blind
    basis.  Statistical analysis of the pre-operative data identifies
    risk factors, and further analysis calculates the expected outcome
    for each hospital's patient population.
    NSQIP involves a number of mechanisms to provide feedback to the
    participating hospitals and to the program as a whole.  These
    mechanisms include annual data audits, site visits, and the sharing
    of best practices. This structured and careful feedback by program
    staff ensures the consistent reporting of data across sites and the
    rapid dissemination of information about successful surgical
    practices and the environments that produce the highest quality of
    care.
    The College has expanded the NSQIP program to over 100 hospitals,
    including Partners HealthCare hospitals (the Harvard Medical School
    system).  Many hospitals are in the queue for NQSIP adoption and are
    currently being added at a rate of five hospitals per month.  In
    2002, the Institute of Medicine named the NSQIP "the best in the
    nation" for measuring and reporting surgical quality and outcomes.

    Surgical Care Improvement Project
    The College is one of the 10 organizations on the Surgical Care
    Improvement Project (SCIP) steering committee.  SCIP is a national
    partnership of organizations dedicated to improving the safety of
    surgical care by reducing post-operative complications.  Its
    steering committee reflects the range of public and private
    organizations that must work together to reduce surgical
    complications, and includes groups representing surgeons,
    anesthesiologists, perioperative nurses, pharmacists, infection
    control professionals, hospital executives, and others who are
    working to improve surgical patient care.
    The program was initiated in 2003 by the Centers for Medicare and
    Medicaid Services and the Centers for Disease Control and
    Prevention.  This summer, the SCIP partnership will launch a
    multi-year national effort to reduce surgical complications by 25
    percent by 2010.
    SCIP quality improvement efforts are focused on reducing
    perioperative complications in the following four areas, where the
    incidence and cost of complications are significant:
    	Surgical site infections
    	Adverse cardiac events
    	Venous thromboembolism
    	Postoperative pneumonia

    SCIP stresses that surgical care can be improved significantly
    through better adherence to evidence-based recommendations and
    increased attention to designing systems of care with thorough
    safeguards. Other evidence-based programs such as NSQIP, the
    National Nosocomial Infections Surveillance (NNIS) system, and the
    Medicare quality improvement organizations, have demonstrated this
    time and again.  ACS is proud to play a leadership role in the
    development of the SCIP target areas, and our organization will
    continue to play a significant role in further developing SCIP
    initiatives.

    ACS Bariatric Surgery Center Network Accreditation Program
    Recently, ACS developed a Bariatric Surgery Center Network (BSCN)
     Accreditation Program to foster high-quality care for patients
    undergoing bariatric surgery for morbid obesity.  The program
    describes the necessary physical resources, human resources,
    clinical standards, surgeon credentialing standards, data reporting
    standards, and verification/approvals processes required for
    designation as a "bariatric surgery center."
    Severe obesity has reached epidemic proportions and because
    weight-reduction surgery provides an effective treatment for the
    condition -- and because the number of surgeons and hospitals
    providing this care has grown so quickly--the College decided to
    place a high priority on establishing this new accreditation
    program.  The College contracts with hospitals and outpatient
    facilities that agree to implement this program and other resource
    standards by reporting outcomes data on all their bariatric surgery
    patients, submitting to site visits, and completing annual status
    reports.  By reviewing existing studies and consulting with experts
    in the field, ACS has developed standards, defined necessary
    resources, organized the means of collect data, and organized the
    processes for conducting site visits to accredit hospitals and
    outpatient facilities in order to improve patient safety.

    Surgical Patient Safety: Essential Information for Surgeons in
    Today's Environment
    ACS has recently issued a patient safety manual titled Surgical
    Patient Safety: Essential Information for Surgeons in Today's
    Environment. This publication provides information and guidance
    for surgeons and others involved in surgical patient safety.
    It describes a variety of practical resources and provides a
    broad overview of key issues, such as the scientific basis of
    surgical patient safety.
    Specifically, this manual analyzes the human factors, systems
    analyses, and processes affecting surgical patient safety.
    Issues such as decision-support, electronic prescribing, and
    error detection, analysis, and reporting are analyzed.  Legal
    challenges for surgeon participation in patient safety activities
    are also reviewed.   Broad error prevention methods such as the
    use of surgical simulation, educational interventions, and quality
    improvement initiatives are covered.  In addition, the manual
    provides strategies for preventing wrong-site surgery and for safe
    blood transfusion and handling.

    Surgical Quality Alliance (SQA)
    	The SQA is a collaboration among specialty societies that
    provide surgical care to improve the quality of care for the
    surgical patient, to define principles of surgical quality
    measurement and reporting, and to develop awareness about unique
    issues related to surgical care in all settings.  It has been an
    important avenue for education, discussion, and cooperation between
    surgical disciplines, as well as a means of participating in the
    multitude of quality efforts.  At its first meeting in December
    2005, SQA members developed four global process measures that were
    submitted to CMS on March 1 and June 1, 2006. In addition, the SQA
    has commented on National Quality Forum and AQA initiatives and
    continues to develop performance measures and reporting tools for
    surgery.  The following specialty societies participate in the SQA:

    	American Academy of Ophthalmology
    	American Academy of Otolaryngology
    	American Association for Hand Surgery
    	American Association of Neurological Surgeons
    	American Association of Orthopaedic Surgeons
    	American College of Osteopathic Surgeons
    	American College of Surgeons
    	American Society of Anesthesiologists
    	American Society of Breast Surgeons
    	American Society of Cataract and Refractive Surgery
    	American Society of Colon and Rectal Surgeons
    	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 Endoscopic Surgeons
    	Society of Gynecologic Oncologists
    	Society of Surgical Oncology
    	Society of Thoracic Surgeons

    ATTACHMENT B

    		March 1, 2006

    The Honorable Mark B. McClellan, M.D., Ph.D.
    Administrator
    Centers for Medicare and Medicaid Services
    Room 445-G, Hubert H. Humphrey Building
    200 Independence Avenue, SW
    Washington, DC 20201

    Dear Dr. McClellan:

    	On behalf of the respective members of the undersigned
    societies representing specialties that provide surgical care, we
    are pleased to comment on the surgical measures included in the
    Physician Voluntary Reporting Program (PVRP) as announced by the
    Centers for Medicare and Medicaid Services (CMS) on October 28,
    2005 and as modified on December 27.
    	We understand that in the current health care environment,
    performance measurements are based on administrative data.  These
    data are collected for reimbursement purposes and, as shown by
    numerous studies, are a poor proxy for quality and performance
    measurements.   The surgical community strongly supports quality
    initiatives and believes the need for clinical data to replace the
    current proxy is essential to a successful program. In addition,
    physicians who participate in national, recognized clinical
    databases should have a mechanism to submit clinical data instead
    of administrative data for performance measurement.
    	Physician-specific performance measures defined by
    numerators, denominators, and inclusion and exclusion criteria
    represent a new means of capturing metrics. Our comments on the
    criteria in your proposal intend to better refine the codes to
    reflect a quality measure. For example, the use of CPT codes with
    10-day and 90-day global categories is another option for the
    denominator, and could be an efficient means of organizing certain
    surgical measures.  As your proposal currently stands, surgeons must
    keep a list of surgical procedures in front of them to know whether
    a procedure is subject to quality measures.  A more global approach
    could enhance end-user acceptance and provide the added benefit that
    CMS does not have to go through the CPT annual update to identify
    and classify new CPT codes.
    	Instructions for the PVRP should specifically address what
    is to be displayed and/or left blank on the claim form.  We request
    complete instructions for reporting Line 24, as there is a
    contradiction between current PVRP instructions and claim form
    instructions.  For example, are place and type of service to be
    shown for PVRP line items?  If so, are the same codes to be shown
    for the surgery? In addition, it is unclear if a G-code can be
    submitted on a supplemental form after the original claim has been
    submitted.  There are two instances when a supplemental G-code may
    be necessary, 1) the G-code is accidentally omitted from a claim
    form, or 2) the G-code does not occur at the same time as the
    corresponding procedure, as with discharge instructions.
    	With respect to PVRP participation, it is important to keep
    in mind that without funding, a high level of participation will
    likely be difficult to attain. Adding an administrative burden with
    a clinical interface represents a material change in the workflow of
    a clinical office. CMS should consider funding pilot programs in the
    next phase of the physician quality initiative.

    We appreciate your efforts to engage physicians on issues of
    performance measurement and quality improvement and hope that our
    comments will improve the PVRP and surgical patient care.

    SUGGESTED REVISIONS TO SURGERY-RELATED MEASURES

    The following are suggested revisions to surgery-related measures
    currently found in the PVRP.

    1) Receipt of autogenous arteriovenous fistula in advanced chronic
    kidney disease patient and end-stage renal disease (ESRD) patient
    requiring hemodialysis
    The current G-codes need to be expanded to include chronic kidney
    disease patients because a central goal of the Fistula First
    initiative is to place a native access in renal failure patients
    before they advance to ESRD.  We also suggest that additional
    wording be added to clarify that the G-codes be applied when the
    patient has undergone a non-catheter hemodialysis access
    operation. The proposed update:
     Allows for a more accurate representation of autogenous AV fistula
     use.
     Includes an exclusion code for patients who are not eligible for a
    fistula.
     Eliminates three CPT codes that are no longer relevant (36800,
    36810 and 36815).

    Proposed Update: Receipt of autogenous arteriovenous fistula in
    end-stage renal disease patient requiring hemodialysis
    GXXX1 (formally G8081): Advanced chronic kidney disease patient or
    end-stage renal disease patient undergoing non-catheter hemodialysis
    vascular access documented to have received autogenous AV fistula.
    GXXX2 (formally G8082) Advanced chronic kidney disease patient or
    end-stage renal disease patient requiring non-catheter hemodialysis
    vascular access documented to have received AV access using other
    than autogenous vein.
    GXXX3: Clinician documented that advanced chronic kidney disease
    patient or end-stage renal disease patient requiring hemodialysis
    vascular access was not an eligible candidate for autogenous AV
    fistula.

    Denominator: CPT codes 36818, 36819, 36820, 36821, 36825, and 36830
    with ICD-9-CM codes 585.4, 585.5, and 585.6.

    2) Antibiotic prophylaxis in surgical patient
    The current measure includes the language, "patient documented to
    have received antibiotic prophylaxis" making this a hospital-based
    measure.  The proposed update:
     More accurately measures a surgeon's performance by including the
    language "documentation in the medical record that surgeon ordered..."
     Expands the measure's applicability by including the use of
    antiseptics.
     Distinguishes between antibiotics/antiseptics not indicated for
    procedure and a medical or patient reason for not ordering
    antibiotics/antiseptics.
     Expands the denominator to include all non-emergency 10-day and
    90-day global procedures.

    Proposed Update: Antibiotics or Antiseptics Ordered Prior to Incision
    GXXX4 Documentation in the medical record that surgeon ordered
    prophylactic antibiotics or antiseptics be delivered within one hour
    of incision.
    GXXX5 No documentation in the medical record that surgeon ordered
    prophylactic antibiotics or antiseptics be delivered within one hour
    prior to incision.
    GXXX6 Documentation in the medical record of medical or patient's
    reason(s) for surgeon not ordering prophylactic antibiotics or
    antiseptics within one hour of incision.
    GXXX7 Documentation in the medical record that prophylactic
    antibiotics or antiseptics are not indicated for procedure.

    Denominator: All non-emergency 10-day and 90-day global procedures,
    and specified 0-day global procedures to be supplied by the American
    Academy of Otolaryngology.

    3) Thromboembolism prophylaxis in surgical patient
    As with the antibiotic prophylaxis measure, this measure's current
    wording makes it more applicable to hospitals than physicians.  The
    proposed update:
     More accurately measures a physician's performance by including
    the language "documentation in the medical record that surgeon
    ordered..."
     Distinguishes between DVT prophylaxis not indicated for procedure
    and a medical or patient reason for not ordering DVT prophylaxis.
     Expands the denominator to include all non-emergency 90-day global
     procedures.

    Proposed Update: DVT Prophylaxis
    GXXX8 Documentation in the medical record that surgeon ordered
    appropriate DVT prophylaxis consistent with current guidelines.
    GXXX9 No documentation in the medical record regarding appropriate
    DVT prophylaxis consistent with current guidelines.
    GXX10 Documentation in the medical record of medical or patient's
    reason(s) for not ordering appropriate DVT prophylaxis consistent
    with current guidelines.
    GXX11 Documentation in the medical record that DVT prophylaxis is
    not indicated for procedure.

    Denominator: All non-emergency 90-day global procedures.

    PROPOSED ADDITIONS TO THE PVRP
    The following are proposed surgery-related additions to the PVRP.

    1) Antibiotics or Antiseptics Administered Prior to Incision
    In the case of prophylactic antibiotics or antiseptics prior to
    incision, it is not only important to measure weather the service
    was ordered by the surgeon, but also to measure the administration
    of the prophylactic antibiotics or antiseptics by the
    anesthesiologist or other physician.

    Numerator:
    GXX12 Documentation in the medical record that anesthesiologist or
    other appropriate provider administered prescribed prophylactic
    antibiotics or antiseptics within one hour prior to incision (within
    two hours for vancomycin).
    GXX13 No documentation in the medical record that anesthesiologist
    or other appropriate provider administered prescribed prophylactic
    antibiotics or antiseptics within one hour of incision (two hours
    for vancomycin).
    GXX14 Documentation in the medical record that prophylactic
    antibiotics or antiseptics were not ordered for the procedure.

    Denominator:  All non-emergency 10-day and 90-day global procedures
    and anesthesia CPT codes 00100-01995 and 01999.

    2) Cardiac Risk, History, Current Symptoms and Physical Examination -
    Surgeon
    Adverse cardiac events occur in 2-5 percent of patients undergoing
    non-cardiac surgery and in 34 percent of patients undergoing
    vascular surgery.  The National Quality Forum (NQF) Safe Practices
    for Better Healthcare includes an evaluation of each patient
    undergoing non-emergency surgery for risk of an adverse cardiac
    event.

    Numerator:
    GXX15 Documentation in the medical record that the surgeon assessed
    the patient for history of conditions associated with elevated
    cardiac risk and examined the patient for current signs of cardiac
    risk.
    GXX16 Documentation in the medical record that surgeon received a
    cardiac risk assessment from an appropriate provider.
    GXX17 No documentation in the medical record that the surgeon or
    other appropriate provider assessed the patient for history of
    conditions associated with elevated cardiac risk and examined the
    patient for current signs of cardiac risk.
    GXX18 Documentation in the medical record that history of
    conditions associated with elevated cardiac risk could not be
    obtained.

    Denominator:  All non-emergency 10-day and 90-day global procedures.

    3) Cardiac Risk, History, Current Symptoms and Physical Examination - Anesthesiologist
    Both the surgeon and anesthesiologist's cardiac risk assessment are
    vital to the safety of the patient.  Both physicians should be able
    to report a cardiac risk assessment g-code.

    Numerator:
    GXX19 Documentation in the medical record that anesthesiologist
    assessed the patient for history of conditions associated with
    elevated cardiac risk and examined the patient for current signs
    of cardiac risk.
    GXX20 Documentation in the medical record that anesthesiologist
    received a cardiac risk assessment from an appropriate provider.
    GXX21 No documentation in the medical record that the
    anesthesiologist or other appropriate provider assessed the patient
    for history of conditions associated with elevated cardiac risk and
    examined the patient for current signs of cardiac risk.
    GXX22 Documentation in the medical record that history of
    conditions associated with elevated cardiac risk could not be
    obtained.

    Denominator:  Anesthesia CPT codes 00100-01995 and 01999.

    4) Preoperative Smoking Cessation
    Smoking cessation measures have been endorsed by various quality
    organizations including the NQF, the Joint Commission on
    Accreditation of Healthcare Organizations (JCAHO), and the Physician
    Consortium for Performance Improvement (PCPI) for patients with
    specific disorders.
    Smoking prior to surgery can lead to increased incidence of wound
    complications, diminished vascularity and poor wound healing.

    Numerator:
    GXX23 Documentation in the medical record that surgeon provided patient
    with information on the benefits of preoperative smoking cessation.
    GXX24 No documentation in the medical record that surgeon provided
    patient with information on the benefits of preoperative smoking
    cessation.
    GXX25 Documentation in the medical record that patient does not
    smoke.

    Denominator:  All non-emergency 90-day global procedures.

    5) Wrong-Side, Wrong-Site, Wrong-Person Surgery Prevention
    Wrong-side, wrong-site, wrong-person surgery is included in NQF's
    Serious Reportable Events in Healthcare and Safe Practices for
    Better Healthcare. Though JCAHO introduced the Universal Protocol
    for Preventing Wrong Site, Wrong Procedure, and Wrong Person
    Surgery in July 2004, problems still exist.  Between
    September 30, 2004 and September 30, 2005, 62 new cases of
    wrong-side, wrong-site, and wrong-person surgery were reported to
    JCAHO's Sentinel Event Database.  We believe it is important to use
    every means possible, including quality programs, to prevent
    wrong-side, wrong-site, and wrong-person procedures.

    Numerator:
    GXX26 Documentation in the medical record that surgeon participated
    in a "time out" with members of the surgical team to verify intended
    patient, procedure, and surgical site.
    GXX27 No documentation in the medical record that surgeon
    participated in a "time out" with members of the surgical team to
    verify intended patient, procedure, and surgical site.

    Denominator:  All non-emergency 10-day and 90-day global procedures.

    6) Patient Copy of Preoperative Instructions
    The NQF and the American Medical Association have written about the
    adverse events that occur when patients are not fully informed.  We
    believe that patients should be given a copy of preoperative
    instructions that can be taken home, easily referred to, and shared
    with appropriate family, friends, and caregivers.

    Numerator:
    GXX28 Documentation in the medical record that surgeon gave, or
    directed staff to give, a copy of preoperative instructions to the
    patient.
    GXX29 No documentation in the medical record that surgeon gave, or
    directed staff to give, a copy of preoperative instructions to the
    patient.

    Denominator:  All non-emergency 10-day and 90-day global procedures.

    7) Patient Copy of Postoperative Discharge Instructions
    JCAHO, NQF, and CMS have endorsed measures for discharge instructions
    for heart failure patients.  We believe that discharge instructions
    should be given to all surgical patients as a means of educating the
    patient and their family about activity level, diet, discharge
    medications, proper incision care, symptoms of a surgical site
    infection, what to do if symptoms worsen, and follow-up
    appointments.

    Numerator:
    GXX30 Documentation in the medical record that surgeon provided, or
    directed staff to provide, written discharge instructions that
    address all of the following: activity level, diet, discharge
    medications, proper incision care, symptoms of surgical site
    infection, what to do if symptoms worsen, and follow-up
    appointments.
    GXX31 No documentation in the medical record that surgeon provided,
    or directed staff to provide, written discharge instructions.
    GXX32 Patient died prior to discharge.

    Denominator:  All 10-day and 90-day global procedures.

    Thank you again for the opportunity to comment on the PVRP and for
    your efforts to improve the quality of our nation's healthcare.
    Please do not hesitate to contact us with any questions or concerns.

    Sincerely,

    American Academy of Ophthalmology
    American Academy of Otolaryngology
    American Association of Neurological Surgeons
    American Association of Orthopaedic Surgeons
    American College of Osteopathic Surgeons
    American College of Surgeons
    American Society of Anesthesiologists
    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 Thoracic Surgeons

    cc: Trent Haywood, JD, MD

    June 1, 2006

    The Honorable Mark B. McClellan, M.D., Ph.D.
    Administrator
    Centers for Medicare and Medicaid Services
    Room 445-G, Hubert H. Humphrey Building
    200 Independence Avenue, SW
    Washington, DC 20201

    Dear Dr. McClellan:

    On behalf of the respective members of the undersigned societies
    representing specialties that provide surgical care, we appreciate
    the opportunity to expand on our March 1, 2006 letter, as well as
    previous meetings and calls, regarding the Centers for Medicare and
    Medicaid Services' (CMS) Physician Voluntary Reporting Program
    (PVRP).  After reviewing the latest version of the PVRP (effective
    April 1), it is clear that the comments of the surgical community
    have not been incorporated into the program.
    While we understand your interest in the measures being developed
    in the Physician Consortium for Performance Improvement (PCPI) and
    have been actively involved in that effort, we also understand that
    measures from the Perioperative Workgroup will not be finalized for many months.  As your office has stated, the PVRP offers physicians an
    opportunity to report on performance measures as a "trial run".
    Unfortunately, many specialties, including plastic surgery,
    ophthalmology and anesthesiology are unable to participate because
    1) the current measures do not relate to their specialty or
    2) applicable specialty procedure codes are not included in the
    measure's denominator.
    It is vital that physician measures represent physician activities.
    As stated by the PCPI, performance measures should be "potentially
    actionable by the user.  The measure (should) address an area of
    health care that (is) potentially under the control of the
    physician, health care organization or health care system that it
    assesses."  Hospital-level measures should not be used to measure
    physician performance.
    On many occasions, CMS has stated that the current measure set has
    been through a consensus development process.  Unfortunately, the
    PVRP contains hospital-level, surgical measures that have not been
    vetted for physician measurement, including the antibiotic and VTE
    prophylaxis measures.
    While we appreciate your efforts to engage physicians on issues of
    performance measurement and quality improvement, it is also
    important to recognize quality efforts already in use.  Specialty
    societies collecting clinical data should be allowed to use that
    data for quality improvement programs, including the PVRP.
    Clinical data is superior in measuring quality and should be used
    instead of administrative data when available.
     	It is our understanding that the first quarter of the PVRP
    will end June 30, with the second quarter running from July 1
    through September 30.  In addition, we understand that significant
    lead time is required for implementation and therefore ask that our
    proposed changes and additions be reviewed for incorporation into
    the program for the third quarter beginning October 1, 2006 to
    ensure the entire surgical community has the option of voluntary
    participation.
    Thank you again for the opportunity to comment on the PVRP.  We hope
    that our comments will improve the program and care for the surgical
    patient.

    DENOMINATOR CHANGES NEEDED
    The current surgical codes included in the antibiotic and VTE
    prophylaxis denominators need to be reviewed for accuracy.  An
    example of current problems with the DVT Measure Denominator is
    below.
    47133 - Donor Hepatectomy, (including cold preservation), from
    cadaver donor.
    DVT prophylaxis does not need to be received by a cadaver.
    Developing denominators for performance measures that traverse
    many surgical specialties is a daunting task complicated by a
    paucity of reasonable evidence. For example, numerous common
    clinical practices do not address proper antibiotic or venous
    thromboembolism prophylaxis in surgery. In order to promote buy-in
    to the entire quality initiative, the surgical specialty societies
    and the American Society of Anesthesiologists are currently
    reviewing the evidence and guidelines for procedures in which
    antibiotic and venous thromboembolism prophylaxis are indicated.
    The societies will build consensus on codes for inclusion in these
    measures.  During this process, societies are examining families of
    codes in addition to single codes from the family that may be
    appropriate for inclusion in the denominators. The Surgical Quality
    Alliance will provide a list of codes and will periodically update
    the list to maintain current measures.

    SUGGESTED REVISIONS TO SURGERY-RELATED MEASURES
    The following are suggested revisions to surgery-related measures
    currently found in the PVRP.

    1) Receipt of autogenous arteriovenous fistula in advanced chronic
    kidney disease patient and end-stage renal disease (ESRD) patient
    requiring hemodialysis
    Proposed Update
    GXXX1 (formerly G8081): Advanced chronic kidney disease patient or
    end-stage renal disease patient undergoing non-catheter hemodialysis
    vascular access documented to have received autogenous AV fistula.
    GXXX2 (formerly G8082) Advanced chronic kidney disease patient or
    end-stage renal disease patient requiring non-catheter hemodialysis
    vascular access documented to have received AV access using other
    than autogenous vein.
    GXXX3: Clinician documented that advanced chronic kidney disease
    patient or end-stage renal disease patient requiring hemodialysis
    vascular access was not an eligible candidate for autogenous AV
    fistula.

    Denominator: CPT codes 36818, 36819, 36820, 36821, 36825, and 36830
    with ICD-9-CM codes 585.4, 585.5, and 585.6.

    2) Antibiotic prophylaxis in surgical patient
    Proposed Update
    GXXX4 Documentation in the medical record that surgeon ordered
    prophylactic antibiotics be delivered within one hour of incision.
    GXXX5 No documentation in the medical record that surgeon ordered
    prophylactic antibiotics be delivered within one hour prior to
    incision.
    GXXX6 Documentation in the medical record of medical or patient's
    reason(s) for surgeon not ordering prophylactic antibiotics within
    one hour of incision.
    GXXX7 Documentation in the medical record that prophylactic
    antibiotics are not indicated for procedure.

    3) Venous thromboembolism (VTE) prophylaxis
    Proposed Update
    GXXX8 Documentation in the medical record that surgeon ordered
    appropriate VTE prophylaxis consistent with current guidelines.
    GXXX9 No documentation in the medical record regarding appropriate
    VTE prophylaxis consistent with current guidelines.
    GXX10 Documentation in the medical record of medical or patient's
    reason(s) for not ordering appropriate VTE prophylaxis consistent
    with current guidelines.
    GXX11 Documentation in the medical record that VTE prophylaxis is
    not indicated for procedure.

    PROPOSED ADDITIONS TO THE PVRP
    The following are proposed surgery-related additions to the PVRP.

    1) Antiseptics Ordered Prior to Incision
    GXXX4 Documentation in the medical record that surgeon ordered
    prophylactic antiseptics be delivered within one hour of incision.
    GXXX5 No documentation in the medical record that surgeon ordered
    prophylactic antiseptics be delivered within one hour prior to
    incision.
    GXXX6 Documentation in the medical record of medical or patient's
    reason(s) for surgeon not ordering prophylactic antiseptics within
    one hour of incision.

    Denominator: 66830, 66840, 66850, 66852, 66920, 66930, 66940, 66982,
    66983, 66984, 66985, 66986.

    2) Antibiotics Administered Prior to Incision
    GXX12 Documentation in the medical record that anesthesiologist or
    other appropriate provider administered prescribed prophylactic
    antibiotics within one hour prior to incision or within two hours
    for vancomycin (from start time if no incision is required).
    GXX13 No documentation in the medical record that anesthesiologist
    or other appropriate provider administered prescribed prophylactic
    antibiotics within one hour of incision or within two hours for
    vancomycin (from start time if no incision is required).
    GXX15 Documentation in the medical record that prophylactic
    antibiotics were not ordered for the procedure.
    GXXX7 Documentation in the medical record that prophylactic
    antibiotics are not indicated for procedure.

    Denominator: Anesthesia CPT codes 00100-01995 and 01999.

    3) Cardiac Risk, History, Current Symptoms and Physical Examination
    - Surgeon
    GXX15 Documentation in the medical record that the surgeon assessed
    the patient for history of conditions associated with elevated
    cardiac risk and examined the patient for current signs of cardiac
    risk.
    GXX16 Documentation in the medical record that surgeon received a
    cardiac risk assessment from an appropriate provider.
    GXX17 No documentation in the medical record that the surgeon or
    other appropriate provider assessed the patient for history of
    conditions associated with elevated cardiac risk and examined the
    patient for current signs of cardiac risk.
    GXX18 Documentation in the medical record that history of conditions
    associated with elevated cardiac risk could not be obtained.

    Denominator: 10-day and 90-day global procedures.

    4) Cardiac Risk, History, Current Symptoms and Physical Examination -
    Anesthesiologist
    GXX19 Documentation in the medical record that anesthesiologist
    assessed the patient for history of conditions associated with
    elevated cardiac risk and examined the patient for current signs
    of cardiac risk.
    GXX20 Documentation in the medical record that anesthesiologist
    received a cardiac risk assessment from an appropriate provider.
    GXX21 No documentation in the medical record that the
    anesthesiologist or other appropriate provider assessed the patient
    for history of conditions associated with elevated cardiac risk and
    examined the patient for current signs of cardiac risk.
    GXX22 Documentation in the medical record that history of
    conditions associated with elevated cardiac risk could not be
    obtained.

    Denominator: Anesthesia CPT codes 00100-01995 and 01999.

    5) Preoperative Smoking Cessation
    GXX23 Documentation in the medical record that surgeon and/or
    anesthesiologist provided patient with information on the benefits
    of preoperative smoking cessation.
    GXX24 No documentation in the medical record that surgeon and/or
    anesthesiologist provided patient with information on the benefits
    of preoperative smoking cessation.
    GXX25 Documentation in the medical record that patient does not
    smoke.
    GXX26 Documentation of emergency surgery that did not allow
    preoperative smoking cessation.

    Denominator: 90-day global procedures.

    6) Wrong-Side, Wrong-Site, Wrong-Person Surgery Prevention (Time-Out)
    GXX26 Documentation in the medical record that surgeon participated
    in a "time out" with members of the surgical team to verify intended
    patient, procedure, and surgical site.
    GXX27 No documentation in the medical record that surgeon
    participated in a "time out" with members of the surgical team to
    verify intended patient, procedure, and surgical site.

    Denominator: 10-day and 90-day global procedures.

    7) Patient Copy of Preoperative Instructions
    GXX28 Documentation in the medical record that surgeon gave, or
    directed staff to give, a copy of preoperative instructions to the
    patient.
    GXX29 No documentation in the medical record that surgeon gave, or
    directed staff to give, a copy of preoperative instructions to the
    patient.
    GXX26 Documentation of emergency surgery that did not allow for
    preoperative instruction.

    Denominator: 10-day and 90-day global procedures.

    8) Patient Copy of Postoperative Discharge Instructions
    GXX30 Documentation in the medical record that surgeon provided, or
    directed staff to provide, written discharge instructions that
    address all of the following: activity level, diet, discharge
    medications, proper incision care, symptoms of surgical site
    infection, what to do if symptoms worsen, and follow-up appointments.
    GXX31 No documentation in the medical record that surgeon provided,
    or directed staff to provide, written discharge instructions.
    GXX32 Patient died prior to discharge.

    Denominator: 10-day and 90-day global procedures.

    Thank you again for the opportunity to comment on the PVRP and for
    your efforts to improve the quality of our nation's healthcare.
    Please do not hesitate to contact Julie Lewis at the American
    College of Surgeons (jlewis@facs.org or 202.672.1507) with any
    questions or concerns.

    Sincerely,

    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 Osteopathic Surgeons
    American College of Surgeons
    American Society of Anesthesiologists
    American Society of Cataract and Refractive Surgery
    American Society of Colon and Rectal Surgeons
    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 Endoscopic Surgeons
    Society of Thoracic Surgeons

    	MR. FERGUSON.  Thank you, Dr. Opelka.  Dr. Kirk, you are
    recognized for 5 minutes.
    	DR. KIRK.  Thank you, Mr. Chairman, and members of the
    committee.  I am Lynne Kirk, President of the American College of
    Physicians.
    	MR. FERGUSON.  Dr. Kirk, would you just turn your microphone
    on, please?
    DR. KIRK.  I am Lynne Kirk, President of the American College of
    Physicians.  I am a general internist and Associate Dean for Graduate
    Medical Education at UT Southwestern Medical Center in Dallas.  For
    26 years, I have had the privilege of providing healthcare to
    thousands of Texans, while training the next generation of
    physicians.  My community is just a short distance, by Texas
    standards, from the districts represented by Chairman Barton, Mr.
    Hall, Dr. Burgess, and Mr. Green.
    	The ACP is the largest specialty society in the U.S.,
    representing 120,000 internal medicine physicians and medical
    students.  More Medicare patients receive their care from internists
    than from any other specialty.  Medicare should support high quality,
     efficient care centered on patients' relationships with their
    personal physicians.  Instead, Medicare provides incentives that
    often result in fragmented, high volume, overspecialized, and
    inefficient care.
    	We are proposing the implementation of a model of healthcare
    that research suggests would improve healthcare outcomes, and
    ultimately, lower costs.  In slide 1, in the chart on slide 1, under
    appendix A in your handout, the Medicare Payment Advisory Commission
    has reported that high quality ambulatory care can prevent hospital
    admissions for diseases like chronic lung disease and diabetes.
    	In the next chart, it shows 10 clinical conditions where,
    according to the Commonwealth Fund, effective diagnosis, treatment,
    and patient education can prevent or delay complications of chronic
    illness, thus reducing hospitalizations.
    	Unfortunately, Medicare payments do not support the
    organization of our practices to help prevent some of the
    complications for patients with chronic diseases.  Medicare pays
    for office visits and procedures, but it will not reimburse for the
    time I spend following up with my patients on self-management plans,
    or for coordinating their care among other health professionals.  It
    does not reimburse for information technologies that help me to
    track their patient information and improve the care I provide.
    	Today, we call on Congress to direct Medicare to pilot
    test a new model of care, called the patient-centered medical
    home.  The American Academy of Family Physicians recently joined
    us in describing the four key elements of this patient-centered
    medical home.  First, each patient has a relationship with a
    personal physician trained to provide first contact, continuous
    and comprehensive care, working with a team that collectively
    takes responsibility for the care of a group of patients.
    Second, this care is coordinated across all domains of the
    healthcare system, and is facilitated by patient registries and
    HIT.  Third, patients participate in decision-making, and are
    provided with enhanced access through systems such as open
    scheduling and email consultations.  Finally, patient-centered
    medical homes are accountable.  Practices will demonstrate that
    they can provide patient-centered services, and will regularly
    report on the quality of care provided.
    	This patient-centered medical home requires a different
    way of reimbursing physicians.  Payments should reflect the values
    of services involved in coordinating care that falls outside of
    the office visit.  Payments should be sufficient to support needed
    HIT.  Physicians should be able to earn higher performance-based
    payments, and share in savings from avoidable hospitalizations.
    	ACP also calls for a broad-based program to begin linking
    Medicare payments to reporting on quality measures.  This program
    should be based on the work of AMA's consortium, the NQF, and the
    AQA.  The AQA is engaged in selecting quality measures for both
    ambulatory and inpatient care.  The ACP was one of the four
    original founding members of the AQA, which now includes over a
    hundred stakeholders working collaboratively to select uniform,
    transparent, and evidence-based physician performance measures.
    	The ACP believes that a Medicare pay-for-reporting program
    should be voluntary.  Physicians who participate should receive
    additional payments.  Those who do not should not be penalized with
    cuts.  It should be funded by creating a physician's quality
    improvement pool, in addition to allocating dollars to provide
    positive updates for all physicians.  Our written statement
    includes a pathway for repealing the sustainable growth rate and
    providing stable and positive updates.
    	We commend Dr. Burgess for proposing a similar pathway, and
    we also appreciate Mr. Dingell's introduction of legislation to
    avert the SGR cuts.  It should redirect a portion of savings in
    other parts of Medicare attributable to physicians' quality
    improvement efforts back to the physician quality improvement pool.
    It should begin with AQA's high impact clinical measures for
    ambulatory care, heart disease, and thoracic surgery.  These
    address diseases that are prevalent in Medicare, expensive, and
    sensitive to reduced hospital admissions.  It should allocate
    performance payments on a weighted basis, providing an incentive
    for physicians to report on measures to achieve the greatest quality
    strides, rather than on measures with little impact.  It should
    take into account patient severity of illness and adherence to
    prevent adverse selection of patients.
    	In conclusion, the patient-centered medical home can put
    Medicare on a pathway to a system that facilitates high quality
    and efficient care, centered on patients' relationships with their
    primary care physicians.
    	I appreciate this opportunity to share out views, and am
    pleased to answer any questions.
    	[The prepared statement of Dr. Lynne Kirk follows:]

    PREPARED STATEMENT OF DR. LYNNE M. KIRK, ASSOCIATE DEAN FOR GRADUATE
    MEDICAL EDUCATION, UNIVERSITY OF TEXAS SOUTHWESTERN MEDICAL SCHOOL,
    ON BEHALF OF AMERICAN COLLEGE OF PHYSICIANS

    Summary

    ACP believes that Congress should embrace the opportunity to report
    legislation this year that will transition dysfunctional Medicare
    payment policies to a bold new framework that will improve quality
    and lower costs by aligning incentives with the needs of patients.
    This transition should:
    1) Lead to repeal of the SGR by a specified date;
    2) Guarantee positive updates so that all physicians receive
    predictable and fair payments during any transition period;

    3) Allow time for Congress to review alternative approaches to
    addressing inappropriate volume increases during such a transition;
    4) Increase reimbursement for care provided  by primary and principal
    care physicians;
    5) Create a better process to identify potentially overvalued
    services;
    6) Implement a pilot test of the patient-centered advanced medical
    home and other reimbursement changes to facilitate physician-guided
    care coordination;
    7) Implement incentive-based payments for health information
    technology to support quality measurement and improvement; and

    Initiate a voluntary pay-for-reporting program that begins with
    "high impact" measures that have been approved by the NQF and AQA
    and that reimburses physicians on a weighted basis related to the
    number, impact, and commitment of resources associated with the
    measures being reported.
    Thank you, Chairman Deal and Ranking Member Brown:
    I am Lynne Kirk, MD, FACP.  I am President of the American College
    of Physicians, a general internist, and an Associate Dean for
    Graduate Medical Education at the UT Southwestern Medical Center
    in Dallas. For the past twenty six years, I have had the privilege
    to live and work in the great state of Texas, providing health care
    to thousands of Texans while training the next generation of
    American physicians.
    The College is the largest specialty society in the United States,
    representing 120,000 internal medicine physicians and medical
    students.   More Medicare patients count on internists for their
    medical care than any other physician specialty. Consequently, we
    have an abiding professional commitment to making sure that our
    Medicare patients get the best care possible, by advocating for
    Medicare payment policies that meet the needs of our elderly and
    disabled patients.
    Regrettably, they do not.
    Instead of encouraging high quality and efficient care centered on
    patients' needs, existing Medicare payment policies have contributed
    to a fragmented, high volume, over-specialized and inefficient model
    of health care delivery that fails to produce consistently good
    quality outcomes for patients.

    Medicare Payment Policies are Dysfunctional
    The College believes that Medicare payment policies are fundamentally
    dysfunctional because they do not serve the interests of patients
    enrolled in the program and the taxpayers that support the program:
    1. Medicare payment policies discourage internists and other primary
    and principal care physicians from organizing care processes to
    achieve optimal results for patients.

    Research shows that health care that is managed and coordinated by a
    patient's personal physician, using systems of care centered on
    patients' needs, can achieve better outcomes for patients and
    potentially lower costs by reducing complications and avoidable
    hospitalizations.   Such care usually will be managed and
    coordinated by a primary care physician, which for the Medicare
    population typically will be an internist who is trained and
    practices in general medicine or geriatrics or a family physician.
    In some cases,  a qualified internal medicine subspecialist, such
    as an endocrinologist, may fill this role as a "principal care"
    physician by accepting responsibility for managing and coordinating
    the total spectrum of a patient's health care needs rather than
    being limited only to providing care that falls within their
    specialized training.
    The Medicare Payment Advisory Commission (MedPAC) has reported
    that "potentially avoidable [hospital] admissions are admissions
    that high quality ambulatory care has been shown to
    prevent." [MedPAC, A Data Source, Healthcare Spending and the
    Medicare Program, June 2006,  emphasis added].  The Commission
    identified congestive heart failure and diabetes as two conditions
    where the evidence shows that high quality ambulatory care can
    reduce avoidable hospital admissions. [See Appendix A].
    The Commonwealth Fund has identified ten clinical conditions where
    "effective diagnosis, treatment, and patient education can help
    control the exacerbation of an illness and prevent or delay
    complications of chronic illness, thus reducing hospitalizations"
    [emphasis added]. [See Appendix B].  The Fund also concluded that
     "reducing preventable hospitalizations could help to preserve
    Medicare funds for needed services while concurrently improving
    patient health" and that "facilitating access to primary care in
    underserved areas might reduce the higher rates of preventable
    hospitalizations among Medicare beneficiaries" [emphasis added].
    [Commonwealth Fund's Quality of Health Care for Medicare
    Beneficiaries: A Chart Book, May 2005].
    Unfortunately, Medicare payment policies discourage primary and
    principal care physicians from organizing their practices to provide
    effective diagnosis, treatment and  education of patients with
    chronic diseases:
     Medicare pays little or nothing for the work associated with
    coordination of care outside of a face-to-face office visit. Such
    work includes ongoing communications between physicians and
    patients, family caregivers, and other health professionals on
    following recommended treatment plans;
     Low fees for office visits and other evaluation and management
    (E/M) services discourage physicians from spending time with patients;
     Except for the one-time new patient Medicare physical examination
    and selected screening procedures, prevention is under-reimbursed or
    not covered at all;
     Low practice margins make it impossible for many physicians to
    invest in health information technology and other practice
    innovations needed to coordinate care and engage in continuous
    quality improvement;
     Medicare's Part A and Part B payment "silos" make it impossible
    for physicians to share in system-wide cost savings from organizing
    their practices to reduce preventable complications and avoidable
    hospitalizations.

    2. Medicare payment policies are contributing to an imminent
    collapse of primary care medicine in the United States.

    Last November, my esteemed colleague, Dr. Vineet Arora, appeared on
    the College's behalf before this Subcommittee.  As a young internist
    who recently completed her training and is now practicing general
    internal medicine, she shared with the Subcommittee the reasons why
    so few of her colleagues view primary care as a viable career choice.
    In my capacity as an educator at the UT Southwestern Medical Center,
    I've encountered hundreds of young people who, like Dr. Arora, are
    excited by the unique challenges and opportunities that come from
    being a patient's primary care physician.  But when it comes to
    choosing a career path, very few see a future in primary care.
    My medical students are acutely aware that Medicare and other
    payers undervalue primary care and overvalue specialty medicine.
     With a national average student debt of $150,000 by the time they
    graduate from medical school, medical students feel that they have
    no choice but to go into more specialized fields of practice that
    are better remunerated.
    The numbers are startling:
     In 2004, only 20 percent of third year IM residents planned to
    practice general IM, down from 54 percent in 1998, and only 13
    percent of first year IM residents planned to go into primary
    care;
     The percentage of medical school seniors choosing general internal
    medicine has dropped from 12.2 percent in 1999 to 4.4 percent in
    2004;
     A 2004 survey of board certified internists found that after ten
    years of practice, 21 percent of general internists were no longer
    working in primary care compared to 5 percent for medical
    subspecialties working in their subspecialty.

    This precipitous decline is occurring at the same time that an
    aging population with growing incidences of chronic diseases will
    need more primary care physicians to take care of them.  Within 10
    years, 150 million Americans will have one or more chronic diseases
    and the population aged 85 and over will increase 50 percent from
    2000 to 2010.
    Medicare payment policies are contributing to the impending collapse
    of primary care because Medicare:
     Undervalues the time that primary and principal care physicians
    spend with patients in providing evaluation and management services.
     CMS has published a proposed rule that will begin to make
    significant improvements in payments for office visits and other
    evaluation and management (E/M) services.  The College strongly
    supports the proposed rule.  Even with the proposed increases,
    however, E/M and other primary care services will continue to be
    systematically undervalued compared to many procedural services;
    * Overvalues many procedures at the expense of services provided
    by primary care physicians.  In a "budget neutral" payment system,
    overvalued procedures-combined with inappropriate volume
    increases-divert resources from primary care and other services
    that are undervalued by Medicare;

    The Medicare Payment Advisory Commission has reported that
    overvalued procedures create incentives for inappropriate volume
    growth that disadvantage evaluation and management services provided
    by primary care physicians.  According to MedPAC, an Urban Institute
    analysis of changes in the relative values assigned to services
    during the first 10 years' experience with the physician fee
    schedule demonstrated that evaluation and management services
    initially gained from implementation of a resource-based relative
    value scale in 1992, but those gains have since been effectively
    nullified because of growth in the volume and intensity of other
    categories of services.  In 2002, evaluation and management services
    accounted for 49.7 percent of spending under the physician fee
    schedule. In 2003, the evaluation and management share was 49.2
    percent, and in 2004 it dropped to 46.5 percent.  [Source: Medicare
    Payment Advisory Commission, Report to Congress, June 2006];
     And, as noted previously, Medicare fails to reimburse primary
    and principal care physicians for organizing their practices to
    manage and coordinate care of patients with chronic diseases.

    3. The sustainable growth rate (SGR) formula has been wholly
    ineffective in restraining inappropriate volume growth, has led
    to unfair and sustained payment cuts, and has been particularly
    harmful to primary care.

    The SGR:
     Does not control volume or create incentives for physicians to
    manage care more effectively;
     Cuts payments to the most efficient and highest quality physicians
    by the same amount as those who provide the least efficient and
    lowest quality care;
    Penalizes physicians for volume increases that result from following
    evidence-based guidelines;
     Triggers across-the-board payment cuts that have resulted in
    Medicare payments falling far behind inflation;
     Forces many physicians to limit the number of new Medicare patients
    that they can accept into their practices;
     Unfairly holds individual physicians responsible for factors-growth
    in per capita gross domestic product and overall trends in volume
    and intensity-that are outside of their control;
     Is particularly detrimental to primary care physicians, because
    they are already paid less than other specialties and have such low
    practice margins that they cannot absorb additional payment cuts.

    The College recognizes and appreciates that with the support of
    this Subcommittee, Congress enacted legislation earlier this year
    to reverse the 4.4 percent SGR cut in Medicare payments that took
    place on January 1, 2006.  But because the legislation did not
    provide for an inflation update in 2006, this is the fifth
    consecutive year that Medicare payments have declined relative to
    increases in the average costs physicians incur in providing
    services to Medicare patients.  The temporary measures enacted by
    Congress over the past four years to reduce without eliminating the
    SGR cuts were paid for in large part by creating a $50 billion
     "payment deficit" that will now need to be closed to prevent an
    additional cut of 4.6 percent in 2007 and cuts of 30 percent or
    more over the next five years.

    Creating a Framework for a Better Payment and Delivery System
    It is essential that Congress act this year to avert more SGR cuts,
    but we urge Congress not to simply enact another temporary fix
    without replacing the underlying formula.  The so-called sustainable
    growth rate is simply not sustainable. We strongly urge this
    Subcommittee to report legislation that puts Medicare on a pathway
    to completely eliminate the SGR.

    The College also urges the Subcommittee to go beyond just addressing
    the SGR in a piece-meal manner.  Instead, we call on the
    Subcommittee to report legislation that will create an entirely new
    framework for fundamentally reforming a dysfunctional Medicare
    payment system:

    1. Congress should set a specified timeframe for eliminating the
    SGR.

    The College recognizes that the cost of eliminating the SGR on
    January 1, 2007 will be very expensive, but the cost of keeping
    it-as measured by reduced access and quality-is much higher.
    Instead of enacting another one year temporary reprieve from the
    cuts without eliminating the SGR, the College believes that it
    would be preferable to set a "date certain"-say, no more than five
    years from now-when the formula will be repealed.  Such a timetable
    will allow for a transition period during which Congress and CMS
    could implement other payment reforms that can improve access and
    reduce costs, thereby reducing the perceived need for formula-driven
    volume controls like the SGR.

    2. If there is a transition period before the SGR is repealed,
    Congress should mandate positive updates for all physicians in each
    year of the transition.  The positive updates should reflect
    increases in the costs of providing services as measured by the
    Medicare Economic Index (MEI).

    The College specifically recommends that any legislation that
    creates a pathway and timetable for repeal of the SGR should
    specify in statute the minimum annual percentage updates (floor)
    during the transition period. Establishing the minimum updates by
    statute will provide assurance to physicians and patients that
    payments will be fair and predicable during the transition.   The
    legislation should also direct the Medicare Payment Advisory
    Commission to report annually to Congress, during each year of the
    transition period, on the adequacy and appropriateness of the
    floor compared to changes in physician practice costs as measured
    by the MEI as well as indicators of access to care.  Congress
    would then have the discretion to set a higher update than the
    floor based on the MedPAC recommendations.

    3. During such a transition period, Congress would consider a longer
    term alternative approach for addressing inappropriate volume
    increases.

    The Deficit Reduction Act of 2005 requires that the Medicare Payment
    Advisory Commission report to Congress in March, 2007 on
    alternatives to the SGR, which could be the starting point for a
    discussion of the pros and cons of alternative policies to address
    inappropriate volume increases.
    We caution the Subcommittee not to conclude at this point that an
    alternative formula to control volume is needed or to decide on a
    specific formula to replace the SGR.
    Changing the underlying payment methodologies to support high
    quality and efficient care, as discussed in our following
    recommendations, may eliminate the need to have a back-up mechanism
    to control volume, because physicians would have clear incentives to
    organize their practices to improve quality and provide care more
    efficiently.
    Any consideration of alternative formula-based volume controls at
    this time should be mindful of the unintended consequences when
    Congress enacted ill-considered volume controls in prior
    legislation.  The SGR was the result of legislation enacted in
    1997 that has led to the adverse but largely unintended consequences
    that Congress is now struggling to correct.  In 1989, Congress
    enacted Medicare "volume performance standards" that led to
    different updates for different categories of services, with the
    result that some services-including evaluation and management
    services provided by primary care physicians-received lower updates
    than surgical procedures, adding to the payment inequities that
    undervalue primary care.  Congress then decided to end the policy
    of applying different targets and updates in 1997, replacing it
    with the SGR.
    This history suggests that any alternatives that would replace one
    formula (the SGR) with another formula-based target or multiple
    targets need to be carefully considered.  Otherwise, Congress might
    end up replacing the SGR with another methodology that will create
    more unintended consequences requiring legislative correction.
    The College believes that it is important to get it right this
    time by carefully considering a full range of payment reforms that
    can improve quality and create incentives for efficient care
    before deciding that the SGR should be replaced by another volume
    target or targets.  We suggest that the relatively short period of
    time left in this Congressional session does not allow for the kind
    of careful analysis of the potential unintended consequences of
    alternative volume controls. Instead, we strongly suggest that such
    decisions be made during that transition period to full repeal of
    the SGR.
    The College does believe that there are some steps that can be taken
    now to address inappropriate volume increases.   We support
    MedPAC's recommendation to establish an independent group of experts
    to review procedures that may be overvalued under the existing
    Medicare fee schedule.   As noted earlier, services that are
    overvalued are more likely to be over-utilized by physicians.
    And, as discussed later in this testimony, we support reforms to
    create incentives for primary and principal physicians to organize
    their practices to provide consistently better care, at lower cost,
    to patients with chronic diseases.  Substantial cost savings-mainly
    from reduced hospitalizations-could potentially be achieved through
    such reforms.  We also believe a program to begin linking payments
    to quality, as outlined later in our testimony, would create
    incentives for physicians to provide care that meets evidence-based
    standards of practice, resulting in quality improvements and
    potential cost efficiencies.

    4. Congress should authorize and direct Medicare to institute
    changes in payment policies to support patient-centered,
    physician-guided care management based on the advanced
    (patient-centered) medical home.

    The American Academy of Family Physicians and the American College
    of Physicians have developed proposals for improving care of
    patients through a patient-centered practice model called the
    "personal medical home" (AAFP, 2004) or "advanced medical home"
    (ACP, 2006).  Similarly the American Academy of Pediatrics has
    proposed a medical home for children and adolescents with special
    needs.    AAFP and ACP recently adopted a joint statement of
    principles that describes the key attributes of a patient-centered
    medical home:
    Personal physician - each patient has an ongoing relationship with
    a personal physician trained to provide first contact, continuous
    and comprehensive care.
    Physician- directed medical practice - the personal physician leads
    a team of individuals at the practice level who collectively take
    responsibility for the ongoing care of patients.
    Whole person orientation - the personal physician is responsible for
    providing for all the patient's health care needs or taking
    responsibility for appropriately arranging care with other qualified
    professionals.  This includes care for all stages of life: acute
    care; chronic care; preventive services; end of life care.
    Care is coordinated and/or integrated across all domains of the
    health care system (hospitals, home health agencies, nursing homes,
    consultants and other components of the complex health care system),
    facilitated by registries, information technology, health
    information exchange and other means to assure that patients get
    the indicated care when and where they need and want it.
    Quality and safety are hallmarks of the medical home:
     Evidence-based medicine and clinical decision-support tools guide
     decision making;
     Physicians in the practice accept accountability for continuous
    quality improvement through voluntary engagement in performance
    measurement and improvement;
     Patients actively participate in decision-making and feedback is
    sought to ensure patients' expectations are being met;
     Information technology is utilized appropriately to support optimal
    patient	care, performance measurement, patient education, and
    enhanced communication;
     Practices go through a voluntary recognition process by an
    appropriate non-governmental entity to demonstrate that they have
    the capabilities to provide patient-centered services consistent
    with the medical home model.

    Enhanced access to care through systems such as open scheduling,
    expanded hours and new options for communication between patients,
    their personal physician, and office staff.
    Payment appropriately recognizes the added value provided to
    patients who have a patient-centered medical home.  The payment
    structure should be based on the following framework:
     It should reflect the value of physician and non-physician staff
    work that falls outside of the face-to-face visit associated with
    patient-centered care management;

     It should pay for services associated with coordination of care
    both within a given practice and between consultants, ancillary
    providers, and community resources;
     It should support adoption and use of health information technology
    for quality improvement;
     It should support provision of enhanced communication access, such
    as secure e-mail and telephone consultation;
     It should recognize the value of physician work associated with
    remote monitoring of clinical data using technology;
     It should allow for separate fee-for-service payments for
    face-to-face visits. (Payments for care management services that
    fall outside of the face-to-face visit, as described above, should
    not result in a reduction in the payments for face-to-face visits);
     It should recognize case mix differences in the patient population
    being treated within the practice;
     It should allow physicians to share in savings from reduced
    hospitalizations associated with physician-guided care management
    in the office setting;
     It should allow for additional payments for achieving measurable
    and continuous quality improvements.

    Such payments could be organized around a "global fee" for care
    management services that encompass the key attributes of the
    patient-centered medical home.
    The College urges the Subcommittee to report legislation to direct
    HHS to design, implement and evaluate a nationwide pilot of the
    patient-centered medical home.  Attached to this testimony is draft
    legislative language that the College has prepared that could be
    accepted as a starting point for legislation to mandate a nationwide
    pilot of the patient-centered medical home.
    We also advocate incremental changes in the existing Medicare fee
    schedule to enable physicians to bill for separately-identifiable
    services relating to care coordination.  In its June 2006 report to
    Congress on "Increasing the Value of Medicare," the MedPAC suggests
    that Medicare create mechanisms to directly and indirectly improve
    care coordination and chronic care management including:
     Medicare could increase payments for evaluation and management
    services or establish new billing codes to enhance payments for
    chronic care patients associated with face-to-face visits.  These
    higher payments could be applied generally across all E/M codes, or
    they could be applied to services provided by patients with multiple
    chronic conditions;
     Other strategies include pay-for-performance initiatives and
    strategies to accelerate the adoption of information technology.

    5. Congress should direct Medicare to provide higher payments to
    physicians who acquire and use health information technology (HIT)
    to support quality measurement and improvement and authorize separate
    payments for e-mail and telephonic consultations that can reduce the
    need for face-to-face visits.

    MedPAC notes that "data management is a major component of care
    coordination programs.  Initiatives to accelerate physician adoption
    and use of IT may also improve the coordination of care for
    Medicare beneficiaries.  Indeed, pay-for-performance measures
    could spur physicians to adopt information technology that improves
    care."  [Source: MedPAC, Increasing the Value of Medicare,
    June 2006].
    The College commends the Energy and Commerce Committee for its
    leadership in reporting legislation to support health information
    technology.  We believe, however, the goal of accelerating the
    adoption of health information technology to support quality
    improvement also will require changes in Medicare reimbursement
    policy.
     The College has endorsed the bipartisan National Health Information
    Incentive Act of 2005, H.R. 747.  With 53 co-sponsors, this
    legislation is one of the most supported health information
    technology bills being considered by Congress.  We commend the
    members of the Energy and Commerce Committee-Mr. Gonzalez,
    Ms. Wilson, Mr.  Allen, Mr. Boucher, Mr. Green, Ms. Solis ,
    Mr. Towns, and Mr. Wynn-who have co-sponsored this important bill.
    Among other incentives for physician adoption of HIT, the
    legislation would direct Medicare to include an "add on" to office
    visit payments when such visits are supported by approved health
    information technology, conditioned on physician participation in
    designated programs to measure and report quality.  The bill targets
    the "add on" to physicians in small and rural practices, because the
    cost of acquiring HIT are insurmountable barriers for many of those
    practices.

    6. Congress should authorize CMS to begin a voluntary
    pay-for-performance program as soon as January 1, 2007.

    The College believes that linking Medicare payments to quality should
    be part of an overall redesign of payment policies to support models
    of health care delivery that result in better care of patients.
    ACP has been a lead organization in the development, selection and
    implementation of evidence-based performance measures for physicians
    through our participation in the American Medical Association's
    Physician Consortium for Performance Improvement ("the Consortium"),
    the National Quality Forum (NQF) and the AQA.   The College was
    among the four principals, along with the American Academy of
    Family Physicians, America's Health Insurance Plans, and the Agency
    for Healthcare Quality and Research, who founded the AQA in
    November 2005.  The AQA originally stood for the Ambulatory Care
    Quality Alliance, but is now known just by the acronym "AQA" because
    it has expanded its mission to include selection of measures for
    physician services provided in inpatient setting.  The AQA now
    includes over 100 stakeholders-CMS, health plans, providers, AARP,
    and employers-that are working collaboratively to select uniform,
    transparent and evidence-based performance measures for
    implementation across payers and programs.  It has endorsed a
    starter set of measures for ambulatory care, heart disease
    (American College of Cardiology measures), and thoracic and cardiac
    surgery (Society of Thoracic Surgery measures). It is also
    developing uniform guidelines on data aggregation and reporting
    of measures and has begun work on selecting cost of care measures
    for implementation.
    The College believes that programs that link payments to quality
    need to be carefully designed to assure that they achieve the
    desired outcomes, however:
     They should be based on the best available evidence-based measures
    as defined by the medical profession and as reviewed and endorsed by
    appropriate multi-stakeholder groups including the NQF and AQA;
     They should not be punitive toward physicians who are unable
    to report on the initial measures;
     They should be applied consistently and uniformly across payers;
     They should not impose excessive administrative reporting burdens
    on practices;
     They should pay physicians on a "weighted" basis based on their
    individual contributions to achieving quality improvement; and
     They should include safeguards so that sicker and less compliant
    patients are not harmed.

    Specifically, we recommend that any initial pay-for-reporting
    program should include the following elements:
    A.  Physicians who agree to voluntarily participate in a
    CMS-approved quality measurement and improvement program should be
    eligible to share in additional performance-based payments.  Such
    payments would be in addition to the floor on updates specified in
    legislation during the transition to complete repeal of the SGR, as
    described earlier.
    B.  The voluntary pay-for-reporting program should initially be
    funded by dedicating a designated amount of Part B funds into a
    physicians' quality improvement pool, which would be in addition to
    the floor on annual updates as described earlier.
    C.  Congress should specify that a portion of savings associated
    with reductions in spending in other parts of Medicare, which are
    attributable to quality improvement programs funded out of the
    physicians' quality improvement pool, should be redirected back to
    the pool.  Such savings would include: reductions in Part A expenses
    due to reductions in avoidable hospital admissions related to
    improved care in the ambulatory setting and savings in non-physician
    Part B expenses (such as reductions in avoidable durable medical
    equipment expenses or laboratory testing resulting from better
    management in the ambulatory setting that results in fewer
    complications).  MedPAC should be directed to recommend a
    methodology for measuring and attributing savings in other parts
    of Medicare that can be attributed to programs funded out of the
    physicians' quality improvement pool.
    As discussed earlier in this testimony, there is growing evidence
    that improved care in the ambulatory setting can reduce avoidable
    hospitalizations and other expenses under the Medicare program.
    The current pay "silos" make it impossible for physicians to share
    in such savings.  Congress can begin to break down such silos by
    mandating that a portion of savings that are attributable to
    physicians' quality improvement efforts would be re-directed back
    to the physicians' performance improvement fund, allowing it to
    grow over time.
    D.  The program should begin with those physicians who provide care
    for conditions where accepted clinical measures have been developed,
    endorsed, and selected for implementation through a multi-stakeholder
    process.  As long as all physicians are guaranteed a positive update
    (floor) by statute and the program is voluntary, Medicare should not
    wait until measures are developed and accepted for all physicians
    before the pay-for-reporting program can begin.
    E.  Validation and selection for implementation by a
    multi-stakeholder process will assure that the measures meet
    criteria related to strength of the evidence, transparency in
    development, and consistency in implementation and reporting across
    Medicare and other payers.  The multi-stakeholder process should
    include endorsement by the National Quality Forum and review and
    selection by the AQA for implementation.
    F. The pay-for-reporting program should phase in measures based on
    a process of prioritization that takes into account the potential
    impact of the measure on improving quality and reducing costs.
    The College believes it is more important to start with voluntary
    reporting on measures that can have the greatest impact on improving
    care for patients with multiple chronic diseases and reducing
    avoidable hospitalizations than developing more measures just to
    bring more specialties and physicians into the program.  We also
    believe that robust evidence-based clinical measures of quality
    will have a greater impact than simple and basic cross-cutting
    measures that would be broadly applicable to all physicians.
    Specifically, we recommend that a voluntary Medicare
    pay-for-reporting program start with the "high impact" measures
    selected by the AQA, because the AQA starter measures address the
    disease conditions that are most prevalent in Medicare, are among
    the most expensive to treat, and sensitive to reductions in
    avoidable hospitalizations by improving management of care in the
    ambulatory setting.
     Two thirds of Medicare funds are spent on the 20 percent of
    beneficiaries with five or more chronic diseases. [Source: Alliance
    for Health Reform, Covering Health Issues]  The AQA measures address
    the diseases most prevalent in the Medicare population with the
    greatest potential for quality improvements.
     Colorectal cancer screening (one AQA measure): In 2000, only one
    half of community-dwelling adults aged 65 and older received
    colorectal screening in the past ten years.  Colorectal cancer is
    the second most frequent cause of cancer death. [Source:
    Commonwealth Fund's Quality of Health Care for Medicare
    Beneficiaries: A Chart Book, May 2005]
     Coronary artery diseases (three AQA measures):  Coronary heart
    disease is the number one cause of death among elderly Americans.
    Prevention of disease "offers the greatest opportunity for reducing
    the burden of CHD in the United States."  Most elderly adults have
    reported that they had a cholesterol test in the past, but little
    more than half said they knew they had high cholesterol, less than
    one third were using cholesterol-lowering medications, and few had
    achieved control over high cholesterol. [Source: Commonwealth Fund
    chart book]
     Diabetes management (six AQA measures):  Diabetes is associated
    with increased functional disability and premature death.  Diabetes
    incidence increases with age.  Complications include blindness,
    kidney failure, and cardiovascular disease. Fourteen percent of
    elderly white males and almost one quarter of elderly black and
    Hispanic adults report that they have diabetes.  Most elderly
    Americans report that they are receiving recommended tests to
    monitor their blood sugars and lipids but one quarter did not have
    an eye exam and three out of ten did not have their feet checked
    for signs of diabetes complications.  [Source: Commonwealth Fund
    chart book]
     Treatment for depression (two AQA measures): An estimated 2 million
    elderly Americans, or 6 percent of those over age 65, suffer from
    depressive illness, and another 5 million, or 15 percent, suffer
    from depressive symptoms.  Late-life depression is associated with
    increased use of health care and an increased risk of medical
    illness and suicide.  Depressed elderly Americans are less likely
    than younger Americans to perceive that they need mental health care
    or receive any specialty mental health care. [Source: Commonwealth
    Fund chart book]
     Immunization of elderly adults (two AQA measures: influenza and
    pneumonia):  Influenza and pneumonia are the fifth leading causes of
    death among adults age 65 and older.  One third to one half of
    elderly adults were not immunized in 2003. [Source: Commonwealth
    Fund chart book]
     The AQA measures target conditions where the evidence suggests there
    could be substantial decreases in potentially preventable
    hospitalizations when patients receive timely and appropriate
    ambulatory care by physicians: congestive heart failure
    (two AQA measures), bacterial pneumonia (one AQA measure),
    uncontrolled diabetes and diabetes complications (five AQA measures),
     lower extremity amputation (one AQA measure) and adult asthma
    (two AQA measures). [Source: AQA; Commonwealth Fund chart book]
     MedPAC reports that "potentially avoidable admissions are admissions
    that high-quality ambulatory care has been shown to prevent."
    MedPAC further states that "rates of potentially avoidable
    hospitalizations are highest for congestive heart failure" and that
    "notable, given the amount of emphasis that CMS and others have
    placed on improving diabetes care, is the decrease in potentially
    avoidable hospitalizations for beneficiaries with diabetes, both for
    long- and short- term complications."
     From 2002-2004, MedPAC reported that "potentially avoidable
    hospitalizations due to high quality ambulatory care" declined by 61
    percent for COPD/Asthma, 29 percent for diabetes with long-term
    complications, and 9 percent for diabetes with short-term
    complications. [Source: MedPAC, A Data Book, Healthcare Spending
    and the Medicare program, June 2006]

    G.  The program should allocate the performance-based payments to
    individual  physicians on a weighted basis related to performance:
     Reporting on high impact measures should receive higher
    performance payments than lower impact measures;
     The weighted performance payments should acknowledge that reporting
    on a larger number of robust quality measures typically will require
    a greater commitment of time and resources than reporting on one or
    two basic measures;
     The weighted performance payments should take into account the
    physician time and practice expenses associated with reporting on
    such measures;
     The weighted performance payments should also provide incentives
    for physicians who improve on their own performance as well as those
    who meet defined quality thresholds based on the measures;
     The weighted performance payments should allow individual physicians
    to benefit from reductions in spending in other parts of Medicare
    attributable to their performance improvement efforts.

    An effective policy of linking payments to performance must provide
    greater rewards for those physicians who make the greatest
    commitment to reporting on measures that have the greatest potential
    to improve quality and achieve savings.  Otherwise, the financial
    incentive will be to report on the fewest measures possible, and
    those who accept the commitment to report on more than the most
    basic measures would be penalized because they would be taking on
    more responsibility and expense without receiving additional
    performance-based compensation.
    Particularly for chronic disease conditions, reporting on measures will require a substantial investment of physician time and resources in
    implementing the technologies needed to coordinate care effectively,
    in following up with patients on self-management plans, in organizing
    care by other health care professionals, and in measuring and
    reporting quality.  Other, more basic, measures will not require a
    comparable investment of time and resources.
    Of the measures approved by the AQA to date, internists might have
    to report on as many as 24 ambulatory measures as well as several
    cardiology measures for heart disease, and for a particular patient
    with multiple chronic conditions, they might have to report on a
    dozen or more measures for that one encounter.  Other physicians
    will have far fewer measures to report on.
    Such differences need to be recognized in how performance-based
    payments are weighted and allocated by Medicare in order to drive
    physicians to report on the measures that will have the greatest
    impact on quality and costs and to avoid creating new inequities
    in payments that disadvantage internists and other physicians that
    take care of large numbers of Medicare patients with multiple
    chronic diseases.

    H.  The program should include safeguards to protect patients.
    If implemented incorrectly, pay-for-reporting programs could have
    unintended but adverse consequences on patients.   It is
    particularly important that the program include safeguards to take
    into account differences in the "case mix" being seen by a
    particular physician and in patient populations that may be less
    compliant because of demographics, culture, or economic factors.
    Otherwise, physicians who are treating a greater proportion of
    sicker or less compliant patients could be being penalized with
    lower payments.  This in turn could create an unacceptable conflict
    between a physician's ethical and professional commitment to take
    care of the sickest patients and the financial incentives created
    by participating in a pay-for-reporting program to avoid seeing
    sicker or less compliant patients.
    Any program that would include public reporting of physician
    performance based on quality measures must be carefully designed
    to assure that the information being presented is accurate, useful
    to patients including those with low levels of reading and health
    literacy, and uses an open and transparent methodology.  Physicians
    must have the right to review the reports on their performance in
    advance of release, request changes to correct inaccuracies or
    misleading information, appeal requested changes that are not
    initially accepted, and to include their own comments and
    explanations in any report that is made available to the public.

    Conclusion
    The College commends Chairman Deal, Chairman Barton, Mr. Brown,
    Mr. Dingell and the members of the Subcommittee on Health of the
    Energy and Commerce Committee for holding this important hearing.
    We believe that Congress should embrace the opportunity to report
    legislation this year that will transition dysfunctional Medicare
    payment policies to a bold new framework that will improve quality
    and lower costs by aligning incentives with the needs of patients.
     This transition should:
     lead to repeal of the SGR by a specified date;
     guarantee positive updates so that all physicians receive
    predictable and fair payments during any transition period;
     allow time for Congress to review alternative approaches to
    addressing inappropriate volume increases during such a transition;
     increase reimbursement for care provided  by primary and principal
    care physicians;
     create a better process to identify potentially overvalued services;
     implement a pilot test of the patient-centered advanced medical
    home and other reimbursement changes to facilitate physician-guided
    care coordination;
     implement incentive-based payments for health information
    technology to support quality measurement and improvement;
     initiate a voluntary pay-for-reporting program that begins with
    "high impact"  measures that have been approved by the NQF and AQA
    and that reimburses physicians on a weighted basis related to the
    number, impact, and commitment of resources associated with the
    measures being reported; and
     Allow physicians to share in system-wide savings in other parts of
    Medicare that can be attributed to their participation in
    performance measurement and improvement.

    I began my testimony by discussing why Medicare's payment policies
    are dysfunctional because they are not aligned with patients'
    needs.
    Congress has the choice of maintaining a deeply flawed reimbursement
    system that results in fragmented, high volume, over-specialized
    and inefficient care that fails to produce consistently good quality
    outcomes for patients.  Or it can embrace the opportunity to put
    Medicare on a pathway to a payment system that encourages and
    rewards high quality and efficient care centered on patients'
    needs.
    The framework proposed by the College will benefit patients by
    assuring that they have access to a primary or principal care
    physician who will accept responsibility for working with them to
    manage their medical conditions.  Patients with chronic diseases
    will benefit from improved health and fewer complications that often
    result in avoidable admissions to the hospital.  Patients will
    benefit from receiving care from physicians who are using  advances
    in health information technology to improve care, who are fully
    committed to ongoing quality improvement and measurement, and who
    have organized their practices to achieve the best possible
    outcomes.
    Medicare patients deserve the best possible medical care.  They
    also deserve a physician payment system that will help physicians
    deliver the best care possible.  The College looks forward to
    working with the Subcommittee on legislation to reform physician
    payment that will help us achieve a vision of reform that is
    centered on patient's needs.

    ACP's Proposed Legislation to Implement a Pilot Test of the
    Patient-Centered Medical Home

    (1) QUALIFIED PATIENT-CENTERED  MEDICAL HOME.- The 'qualified
    patient-centered medical home' (PC-MH) is a physician-directed
    practice that has voluntarily participated in a qualification
    process to demonstrate it has the capabilities to achieve
    improvements in the management and coordination of care of patients
    with multiple chronic diseases by incorporating attributes of the
    Chronic Care Model.
    (2) CHRONIC CARE MODEL.- The 'chronic care model' is a model that
    uses health information and other physician practice innovations to
    improve the management and coordination of care provided to patients
    with one or more chronic illnesses.  Attributes of the model
    include:
    (A) use of health information technology, such as patient registry
    systems, clinical decision support tools, remote monitoring, and
    electronic medical record systems to enable the practice to monitor
    the care provided to patients with chronic disease who have selected
    the practice as their medical home (eligible patients), to provide
    care consistent with evidence-based guidelines, to share
    information with the patient and other health care professionals
    involved in the patient's care, to track changes in the patient's
    health status and compliance with recommended treatments and
    self-management protocols, and to report on evidence-based measures
    of quality, cost and patient satisfaction measures;
    (B) use of e-mail or telephonic consultations to facilitate
    communication between the practice and the patient on non-urgent
    health matters;
    (C) designation of a personal physician within the practice who has
    the required expertise and accepts principal responsibility for
    managing and coordinating the care of the eligible patient;
    (D) arrangements with teams of other health professionals, both
    internal and external to the practice, to facilitate access to the
    full spectrum of services that the eligible patient requires;
    (E) development of a disease self-management plan in partnership
    with the eligible patient and other health care professionals, such
    as nurse-educators;
    (F) open access, group visits or other scheduling systems to
    facilitate patient access to the practice;
    (G) other process system and technology innovations that are shown
    to improve care coordination for eligible patients.
    (3) CHRONIC CARE REIMBURSEMENT MODEL.- The chronic care reimbursement
    model is one or more methodologies to reimburse physicians in
    qualified PC-MH practices based on the value of the services
    provided by such practices.  Such methodologies will be developed
    in consultation with national organizations representing physicians
    in primary care practices, health economists, and other experts.
    Such methodologies shall include, at a minimum-
     (A) recognition of the value of physician and clinical staff work
    associated with patient care that falls outside the face-to-face
    visit, such as the time and effort spent on educating family
    caregivers and arranging appropriate follow-up services with other
    health care professionals, such as nurse educators;
    (B) recognition of expenses that the PC-MH practices will incur to
    acquire and utilize health information technology, such as clinical
    decision support tools, patient registries and/or electronic medical
    records;
    (C) additional performance-based reimbursement payments based on
    reporting on evidence-based quality, cost of care, and patient
    experience measures;
    (D) reimbursement for separately identifiable email and telephonic
    consultations, either as separately-billable services or as part of
    a global management fee;
    (E) recognition of the specific circumstances and expenses
    associated with physician practices of fewer that five (5) full-time
    employees (FTEs) in implementing the attributes of the chronic care
    model and the qualified AMH;
    (F) recognition and sharing of savings under part A and C of the
    medicare program that may result from the qualified PC-MH;
    (4) REIMBURSEMENT.- Reimbursement for services in the qualified PC-MH
    practice may be made through one or more methodologies that are in
    addition to or in lieu of traditional fee-for-service payments for
    the services rendered.  In developing the recommended chronic care
    management reimbursement model, the Secretary shall consider the
    following options or a combination of such options:
    (A) care management fees to the personal physician that covers the
    physician work that falls outside the face-to-face visit;
    (B) payment for separately identifiable evaluation and management
    services;
    (C) episode of illness payments; and

    (D) per patient per month payments that are adjusted for patient
    health status.
    (5) PERSONAL  PHYSICIAN.- A "personal physician' is defined as a
    physician who practices in a qualified PC-MH and whom the practice
    has determined has the training to provide first contact, continuous
    and comprehensive care.
    (6) ELIGIBLE BENEFICIARIES.- The term `eligible beneficiaries' are
    beneficiaries enrolled under part B of the Medicare program whom the
    Secretary has identified as having one or more chronic health
    conditions.  Eligible beneficiaries will be invited to select a
    primary care or principal care physician in a qualified PC-MH as
    their personal physician.  The Secretary may offer incentives for
    eligible beneficiaries to select a physician in a qualified PC-MH,
    such as a reduced co-payment or other appropriate benefit
    enhancements as determined by the Secretary.
    (7) PATIENT-CENTERED MEDICAL HOME QUALIFICATION.- The PC-MH
    qualification is a process whereby an interested practice will
    voluntarily submit information to an objective external
    private-sector entity. Such entity shall be deemed by the Secretary
    to make the determination as to whether the practice has the
    attributes of a qualified PC-MH based on standards the Secretary
    shall establish.
    (8) DEMONSTRATION PROJECT.- The term 'demonstration project' means
    a demonstration project established under subsection (b)(1).
    (9) MEDICARE PROGRAM.- The term `medicare program' means the
    health benefits program under title XVIII of the Social Security
    Act (42 U.S.C. 1395 et seq.).

    (b) DEMONSTRATION OF QUALIFIED PATIENT-CENTERED  MEDICAL HOME MODEL.-
    (1) ESTABLISHMENT.- The Secretary shall establish a demonstration
    project in accordance with the provisions of this section for the
    purpose of evaluating the feasibility, cost effectiveness, and
    impact on patient care of covering the advanced medical home model
    under the medicare program.
    (2) CONSULTATION.- In establishing the demonstration project, the
    Secretary shall consult with primary care physicians and
    organizations representing primary care physicians.
    (3) PARTICIPATION.- Qualified practices shall participate in the
    demonstration project on a voluntary basis.
    (4) NUMBER AND TYPES OF PRACTICES.- The Secretary shall establish a
    process to invite a variety and sufficient number of practices
    nationwide to participate in the demonstration project.
    Participation must be sufficient to assess the impact of the
    qualified PC-MH in rural and urban communities, under-served
    areas, large and small states, and be designed to facilitate and
    include the participation of physician practices of fewer than
    five (5) FTEs.

    (c) CONDUCT OF DEMONSTRATION PROJECT.-
    (1) DEMONSTRATION SITES.- The Secretary shall conduct the
    demonstration with any qualified PC-MH and eligible beneficiary.
    (2) IMPLEMENTATION; DURATION.

    (A) IMPLEMENTATION.- The Secretary shall implement the demonstration
    project under this section no later than June 30, 2007.
    (B) DURATION.- The Secretary shall complete the demonstration
    project by the date that is 3 years after the date on which the
    demonstration project is implemented.

    (d) EVALUATION AND REPORT.-
    (1) EVALUATION.- The Secretary shall conduct an evaluation of the
    demonstration project-
    (A) to determine the cost of providing reimbursement for the medical
    home model concept under the medicare program, and to determine cost
    offsets;
    (B) to determine quality improvement measures such as adherence to
    evidence-based guidelines and rehospitalization rates;
    (C) to determine the satisfaction of eligible beneficiaries
    participating in the demonstration project and the quality of care
    received by such beneficiaries; and to determine the satisfaction
    of participating primary care physicians and their staff;
    (D) to evaluate such other matters as the Secretary determines is
    appropriate.
    (2) REPORT.- Not later than the date that is 1 year after the date
    on which the demonstration project concludes, the Secretary shall
    submit to Congress a report on the evaluation conducted under
    paragraph (1) together with such recommendations for legislation
    or administrative action as the Secretary determines is
    appropriate.

    (e) AMOUNT OF REIMBURSEMENT.- The amount of reimbursement to a
    qualified PC-MH participating in the demonstration project shall
    be in a manner determined by the Secretary that takes into account
    the costs of implementation, additional time by participating
    physicians, and training associated with implementing this section;

    (f) EXEMPTION FROM BUDGET NEUTRALITY UNDER THE PHYSICIAN FEE
    SCHEDULE.- Any increased expenditures pursuant to this section
    shall be treated as additional allowed expenditures for purposes of
    computing any update under section 1848(d).

    (g) FINANCIAL RISK.- Practices participating in the demonstration
    project shall not be required to accept financial risk as a
    condition of participating in the demonstration project established
    under this section.

          MR. FERGUSON.  Thank you, Dr. Kirk.  Dr. Schrag, you are
    recognized for 5 minutes.
    	DR. SCHRAG.  Thank you very much.  Good afternoon.
    	MR. FERGUSON.  Just turn your microphone on, please.
    	DR. SCHRAG.  Sorry.
    	MR. FERGUSON.  It is a little button there.
    DR. SCHRAG.  Good afternoon, Chairman Ferguson, Congressman Allen,
    other members.  I am Deborah Schrag, a medical oncologist at Memorial
    Sloan-Kettering Cancer Center, and I am here today representing the
    American Society of Clinical Oncology, or ASCO, the leading medical
    society for physicians involved in cancer treatment and research.
    	Quality cancer care is central to ASCO's mission, and we have
    a number of initiatives that create a strong foundation for measuring
    quality in oncology.  Much of the Society's work in this field is
    based on our pioneering study, known as the National Initiative on
    Cancer Care Quality, or NICCQ.  This multiyear, multimillion dollar
    study was prompted by an IOM report that suggested that many cancer
    patients were not receiving care consistent with best medical
    evidence.
    	In response, ASCO worked with Harvard and RAND researchers
    to review 1,800 medical records of breast and colorectal cancer
    patients in five major U.S. cities.  The study looked at how
    patients' treatment compared to guidelines and best available
    evidence.  Each patient was also interviewed about his or her own
    care experience.  We found greater adherence to evidence-based
    medicine than had been expected; 86 percent of breast and 78 percent
    of colon cancer patients received treatment that was largely
    consistent with guidelines, but at the same time, we found real
    targets for improvement, particularly in documentation,
    communication, and coordination of care.
    	The study underscored the challenges of cancer care delivery
    in our highly mobile society, where treatment typically involves
    many specialists, and is played out over extended periods of time,
    and across many sites of care.  It was often very challenging to
    locate all of a patient's record to extract the necessary
    information from those records, and very little information was
    available in electronic form.  Our experience highlighted the need
    for a cancer treatment summary.
    	ASCO has taken the lead in developing a template that
    captures the patient's treatment history and the plan for follow-up.
      This treatment summary is intended to improve communication among
    oncologists, their patients, and other healthcare providers, such as
    those sitting around me at this table.  Such coordination is
    especially important as more patients become survivors, and confront
    long-term effects of their treatments.  We endorse the widespread
    use of treatment summaries, and also believe that the additional
    burdens involved in documentation by already busy cancer specialists
    should be appropriately recognized.
    	The NICCQ study also generated a set of quality cancer
    measures, exactly of the type that you asked Dr. McClellan so many
    questions about earlier, and we are now updating and refining those
    metrics in collaboration with the NCCN, a network of specialty
    cancer centers across the U.S.
    	ASCO has also developed a program that enables physicians
    to systematically assess the care they deliver, and compare it to
    established best practices.  The Quality Oncology Practice
    Initiative is a Web-based reporting system.  It was opened to
    ASCO's membership in January, and already has over 1,000
    oncologists voluntarily participating.  This is the only
    oncology-specific measurement program approved by the American
    Board of Internal Medicine to help physicians maintain board
    certification.
    	High-quality care incorporates the patient's unique
    personal preferences into decision-making.  We all know that a
    well-educated and informed patient is empowered and can get
    better care.  Therefore, a cornerstone of ASCO's mission is
    to provide patients with clear, informative, timely information
    about cancer treatment and the latest research.
    	The underpinning of all of ASCO's quality initiatives
    remains its evidence-based guidelines.  ASCO continues the work of
    developing, revising, and disseminating these guidelines, which are
    among the most rigorous in medicine.  CMS selected ASCO's
    guidelines, as well as those from the NCCN, as the basis for its
    ongoing 2006 Oncology Demonstration project.  In this project,
    physicians provide important information to CMS about the extent
    of disease, reasons for cancer treatment, and whether that treatment
    is based on accepted guidelines.
    	ASCO has worked closely with CMS, and believes that this
    effort is an important strategy for advancing the quality of cancer
    care.  It is important to note, however, that the data from the
    demonstration project will be most valuable if it is collected over
    time, over a number of years.  We urge CMS to continue the
    demonstration project, and we greatly appreciate the committee's
    support for the 2006 demonstration project, and seek your support in
    extending it.
    	Adherence to evidence-based guidelines is important in all
    fields of medicine in order to achieve the best results for our
    patients and to foster efficient healthcare delivery.  ASCO is
    firmly committed to continuing its investment and development of
    validated quality cancer measures, and we look forward to working
    with our colleagues from other medical disciplines, the
    Administration, Members of this committee and Congress to ensure
    that these measures are appropriately incorporated into medical
    practice.
    	Thank you very much for your attention.
    	[The prepared statement of Dr. Deborah Schrag follows:]

    PREPARED STATEMENT OF DR. DEBORAH SCHRAG, PAST CHAIR, HEALTH
    SERVICES COMMITTEE, AMERICAN SOCIETY OF CLINICAL ONCOLOGY

    Good morning, I am Deborah Schrag, a medical oncologist and health
    services researcher at Memorial Sloan-Kettering Cancer Center.
    Cancer researchers have made enormous strides in discovering the
    basic biological mechanisms that cause cancer.  While treatments
    are still far from perfect, they are becoming ever more effective.
    As a health services researcher, my research focuses on evaluating
    how we perform at actually delivering those treatments to the
    people who need them. Do we deliver care that improves patient
    outcomes?  Do we do it in a timely and efficient manner?  The goal
    of my research is to define and measure the quality of cancer care
    in the real world in order to develop strategies for improving
    health outcomes.  I am here today representing the American
    Society of Clinical Oncology, or ASCO, which is the leading
    medical professional society for physicians involved in cancer
    treatment and research.
    	Quality cancer care is central to ASCO's mission, and ASCO
    has a multi-faceted approach to improving the quality of cancer
    care. Oncologists are devoted to achieving the best results for our
    patients, who depend so much on our judgment and expertise.  For
    this reason, the 1999 Institute of Medicine (IOM) report, "Ensuring
    Quality Cancer Care," raised concern with ASCO members and leaders.
    The report concluded that some cancer patients receive less than
    optimal care, but noted the lack of data available to truly
    appreciate the extent of the problem. The IOM report called for
    research to better assess quality of cancer care in the United
    States.
    	In response, ASCO undertook a multi-year, multi-million
    dollar study, the National Initiative on Cancer Care Quality
    (NICCQ), to quantify the degree to which the actual practice of
    cancer care matched the evidence-based guidelines for care.  With
    generous support from the Susan G. Komen Breast Cancer Foundation,
    and research expertise from the Harvard School of Public Health and
    the Rand Corporation, the NICCQ study evaluated the quality of care
    received by breast and colorectal cancer patients in five
    metropolitan areas across the U.S.-Atlanta, Cleveland, Houston,
    Kansas City and Los Angeles.
    In the NICCQ study, professional abstracters received patients'
    permission and conducted in-depth reviews of every medical record
    for nearly 1,800 patients with breast and colorectal cancer. Each
    patient was also surveyed about his or her cancer care experience.
    The good news from this study was that adherence to evidence-based
    medicine was higher than previously reported.  Eighty-six percent of
    breast cancer and 78% of colon cancer patients received care that
    adhered to practice guidelines. The study identified some specific
    areas where the quality of care could be strengthened, including
    better documentation of care and optimizing chemotherapy dosing.
    In response, ASCO has developed a variety of office practice tools
    and systems to help its members address these issues.
    Although the overall NICCQ results were reassuring, the study
    highlighted just how complex cancer care delivery is and the wide
    variation in the extent of documentation, particularly for
    chemotherapy treatment.  For instance, we were surprised at the
    difficulty the researchers had in locating patient records because
    of the number of cancer specialists seen by each patient.  In
    addition, it was challenging to accurately determine from the
    multiple records the treatments patients had received.   The
    patients' health information was rarely available in electronic
    form.
    Without clear documentation, NICCQ demonstrated that it was
    difficult to assess whether patients received appropriate
    chemotherapy.  Further, in this highly mobile society, it is
    critical for cancer patients, and all their providers, to
    understand the plan for treatment and the patient's experience
    in carrying out that plan.  The NICCQ study and other quality of
    care research highlights the value of the chemotherapy "treatment
    summary" as an effective quality improvement tool. ASCO has played
    a leadership role by developing such a treatment summary template
    for use by treating physicians, patients and their families, and
    as part of an oncology-specific electronic health record.  The
    treatment summary will provide a brief synopsis of a patient's
    chemotherapy treatment history and the plan for follow-up care.
    The treatment summary is intended to improve communication of
    crucial treatment information between oncologists and their
    patients and between oncologists and other physicians.  As
    witnessed in the aftermath of hurricane Katrina, when medical
    records were destroyed or unavailable, it is important for cancer
    patients to know and understand their care plans. We are
    partnering with patient advocacy groups and the IOM to ensure
    this initiative is widely useful.  Also, a clear and widely adopted
    treatment summary and care plan would improve documentation so that
    the information needed to assess the quality of care is more
    readily accessible.  The additional burden of treatment summary
    documentation on busy cancer physicians should be appropriately
    recognized.
    The NICCQ measures themselves represent an important and ongoing
    contribution to improving the quality of care provided to cancer
    patients. Developing and validating quality measures is challenging
    and resource-intensive work.  As part of the NICCQ study, 61 cancer
    quality measures were created, specified and validated. To build
    upon and update this work, ASCO and the National Comprehensive
    Cancer Network (NCCN) launched a collaboration early this year to
    select a subset of NICCQ measures that are key indicators of
    oncology treatment and are directly supported by NCCN guideline
    recommendations. Content and methodology experts were charged with
    producing several breast cancer and colorectal cancer quality
    measures that are appropriate for diverse uses - including
    accountability for the quality of care. The ASCO/NCCN Quality
    Measures will be published on both organizations' web sites later
    this summer.
    It is imperative that quality measures undergo the thorough and
    careful review exemplified by the ASCO-NCCN process before they
    are used to judge performance.  It is also important to note that
    rapidly evolving cancer treatment standards require quality
    measures to be updated and monitored for ongoing relevance. ASCO
    has committed the resources necessary to update and review its
    quality measures on an ongoing basis.
    ASCO has also launched a number of quality-related projects with the
    common goal of improving patient care.   The Quality Oncology
    Practice Initiative, or "QOPI," was devised by Dr. Joseph Simone
    and a pilot group of ASCO members practicing in the community.
    Their vision was of an oncologist-developed and -led
    quality-improvement initiative offering tools and resources for
    self-assessment, peer comparison and improvement.  QOPI was launched
    as a pilot in 2002 and has now enrolled almost 150 practices across
    the country, representing more than 1000 oncologists.
    The QOPI quality measures are developed and updated by practicing
    oncologists and measurement experts.  Practices participating in
    QOPI abstract their medical records twice a year and enter
    deidentified data for each QOPI measure.  Each practice receives
    reports that enable them to compare their performance with that of
    their peers. This process of self-scrutiny and evaluation enables
    participating practices to learn from one another and to identify
    strengths and weaknesses in their care delivery.
    In the first round of QOPI data collection for 2006, more than 9,000
    charts were submitted for analysis.  As QOPI participation grows so
    does ASCO's database, making the program increasingly valuable for
    comparison and benchmarking.  We are delighted with the interest
    and especially the commitment of our members who are voluntarily
    joining this initiative because they find it valuable and because
    of their commitment to delivering quality care. We are also proud
    that the American Board of Internal Medicine has recognized QOPI as
    the only oncology-specific measurement program approved for use in
    meeting its new practice performance requirements for maintaining
    Board certification.
    All of ASCO's quality initiatives to improve cancer care promote the
    practice of evidence-based medicine.  For the past 10 year, ASCO's
    Health Services Committee has made a crucial contribution with the
    development of the Society's evidence-based guidelines, which are
    regarded as the most rigorous in oncology. Oncology is a field of
    medicine in which the pace of discovery is fast and the complexity
    of treatment great. Practice guidelines are essential to distilling
    the vast quantity of clinical data published regarding the care of
    cancer patients.
    	ASCO's guidelines focus on treatments or procedures that
    have an important impact on patient outcomes, represent areas of
    clinical uncertainty or controversy, or are used inconsistently in
    practice.  They are developed and updated by panels of ASCO member
    volunteer with content and methodological expertise in
    disease-specific areas, and patient representatives.  ASCO develops
    office practice tools that make the results of these guidelines
    relevant for day-to day practice and facilitate adherence the
    guideline recommendations. ASCO also creates patient guides for
    each guideline, translating science and recommendations into lay
    language so that patients can be empowered partners in medical
    decision making. After completing a multi-layered review process,
    these evidence-based guidelines, the office practice tools and the
    patient guides are made freely available on the Society's website.
    	Beyond these research and practice initiatives, ASCO is
    pursuing a quality-oriented agenda in the public policy arena by
    communicating regularly with key stakeholders.  One forum for policy
    development on quality issues is the Cancer Quality Alliance,
    jointly created by ASCO and one of its patient advocate partners,
    the National Coalition for Cancer Survivorship, or NCCS.  This
    alliance is the first specialty-specific effort of its kind.  It
    has broad public- and private-sector membership across the cancer
    community, including CMS officials and representatives of private
    payers, both of whom have an obvious interest in a robust program
    of quality cancer care. Other participants include oncology
    nurses, accrediting bodies, patient advocacy and medical
    professional organizations, cancer centers, community practices,
    the IOM, the National Quality Forum and the NCCN.  The Cancer
    Quality Alliance provides a forum for the various stakeholders in
    cancer care quality to discuss joint initiatives and develop
    coordinated strategies.
    	CMS has also taken an important step towards monitoring
    quality of care delivered to its beneficiaries in its 2006
    oncology demonstration project.  This demonstration offers a
    promising foundation for future pay-for-performance programs in
    Medicare.  The 2006 demonstration is structured to determine
    whether and how oncology providers follow well- established
    evidence-based guidelines developed by ASCO and NCCN.  ASCO has
    worked with CMS and provided expertise to CMS on an ongoing
    basis.
    	While the demonstration project provides a good basis for
    moving toward pay-for-performance, experts agree that the most
    useful information will be obtained only by accumulating data over
    multiple years. The demonstration project provides CMS with a
    mechanism for collecting clinical data through the claims
    system - clinical data that are absolutely critical to oncologists
    in making treatment decisions for cancer patients, and to anyone
    interested in assessing the appropriateness of cancer care. For the
    first time CMS has captured the basic information on cancer stage
    and other disease characteristics that provide both important new
    insight on patterns of care and a foundation for recognition of
    quality.  As third-party payers and other Alliance members have
    noted in our Cancer Quality Alliance deliberations, however, such
    assessment requires multi-year longitudinal data if it is to be a
    useful guide to future performance measurements.  We urge this
    Committee's support for extension of the current demonstration
    project for a sufficient period of time to enable meaningful
    analysis as policy moves toward a pay-for-performance model.
    As interest in using quality measures for accountability purposes
    grows, it becomes more important to ensure these measures are
    clearly specified and well validated. Failing to do so may lead
    to adverse consequences.  For example, numerous clinical trials
    demonstrate that patients with colon cancer that has spread to
    regional lymph nodes (stage III disease) benefit from a course of
    chemotherapy after surgery.  The clinical trials that form the
    evidence base for this treatment, however, have included very few
    patients over the age of 80.  While this treatment may be beneficial
    for all stage III colon cancer patients, the evidence for patients
    over 80 is not robust and there is great variability of the health
    status in this group. Implementing a quality measure stating that
    all patients with stage III colon cancer should receive a course
    of chemotherapy might encourage over treatment of older patients.
     Because careful specification is needed to avoid undesirable
    consequences, ASCO has focused extensively on developing the
    precise definition of the measures used in our quality
    initiatives.  Additionally, it is imperative to avoid creating
    systems that make it less desirable to care for especially complex
    patients with multiple problems for whom adherence to guidelines may
    be more challenging.
    ASCO has the expertise in and a demonstrated commitment to
    developing and promoting quality measures.  We will continue to
    engage in a variety of activities to define, measure, monitor and
    improve the quality of cancer care.  ASCO is well positioned to
    provide the expertise, tools, measures and other resources necessary
    to implement a thoughtful pay-for-performance programs that focus
    not just on efficiency and cost savings but even more importantly
    on quality care.  We look forward to collaborating with Congress as
    these initiatives are considered.

    	MR. FERGUSON.  Thank you, Dr. Schrag.  Dr. Brush, you are
    recognized for 5 minutes.
    DR. BRUSH.  Chairman Ferguson, Congressman Allen, and distinguished
    members of the subcommittee, thank you for holding this hearing, and
    offering me the opportunity to speak on behalf of the American
    College of Cardiology.  I am a practicing cardiologist from Norfolk,
    Virginia, and I chair the ACC's Quality Strategic Directions
    Committee.  I have experience nationally and at the grassroots
    level in quality improvement and pay-for-performance.
    	The American College of Cardiology has a long history of
    setting professional standards for cardiovascular care, through
    the development of guidelines and performance measures.  We have
    applied those standards through collaborative quality improvement
    initiatives and pay-for-performance programs.  We have developed
    data standards and a national data registry.  We bring to bear a
    broad experience with quality improvement, and we would like to
    offer the ACC as a resource to this subcommittee, as it wades
    through the complexities of developing a pay-for-performance system.
    	While we are proud of our accomplishments, we are well
    aware of lingering deficiencies in the quality of cardiovascular
    care.  Current quality problems are largely due to the fractionated
    and confusing environment in which we practice, and thus, we are
    determined to find ways to improve our systems of care.  Lingering
    quality lapses and troubling economic projections have led us to
    discuss new models of reimbursement that pay-for-performance.
    Current payment models do little to create a business case for
    the physician practices to invest in systems that will yield better
    outcomes.  Furthermore, projected cuts in physician payments,
    coupled with rising overhead costs, leave smaller operating margins
    and less available funds to invest in long-term system improvements.
    	Payers are rushing, it seems, towards pay-for-performance.
    While the ACC supports the concept of pay-for-performance, the
    rapid movement in this direction is occurring despite little
    experimental or empirical evidence that pay-for-performance achieves
    its intended effect in the short or long term.  There are more than
    a hundred pay-for-performance programs in various markets
    throughout the country, yet there are very few studies that have
    evaluated these programs.  Lacking solid evidence upon which to
    design new programs, it is imperative that we recognize certain
    important principles of design that will help ensure success.
    	Pay-for-performance programs must be based on scientifically
    validated performance measures that are developed and endorsed by
    the profession.  The ACC has a solid background in developing
    performance measures, and Medicare would be wise to partner with
    us and other professional organizations, not only to gain valid
    measures, but also, to gain widespread buy-in from the practicing
    community.
    	We should also recognize that a one size fits all approach
    would not be wise.  Some specialties may be more advanced in
    quality improvement than others, and should be allowed to pursue
    more highly developed programs.  In addition, we should design
    programs that engender continuous quality improvement, and avoid
    programs that attempt to weed out or punish lagging practitioners.
    Poorly designed payment schemes could exacerbate critical shortages
    in physicians in certain specialties in geographic areas, and could
    worsen problems with disparities in care.
    	We need to design programs that standardize and simplify the
    data collection process, and we must insist on accurate data
    collection and valid statistical methods.  We should recognize that
    for all its promise, pay-for-performance may have unintended
    adverse consequences, and we should accompany any program with a
    plan for health services research to evaluate the effects of the
    program.  We should focus on incremental steps that CMS can take
    now to improve quality and outcomes, and on what Congress can do
    to help build an infrastructure that will help support
    pay-for-performance systems.
    	I would like to offer a few modest, yet meaningful
    suggestions.  One simple suggestion comes from our Guidelines
    Applied in Practice Initiative in Michigan.  This initiative sought
    to improve the care of heart attack and heart failure patients
    through the use of a tool called a discharge contract.  A discharge
    contract is a disease-specific checklist assigned by the doctor,
    the nurse, and the patient, and is designed to assure that key
    processes of care are used reliably.  When a discharge contract
    is used, Medicare beneficiaries had improved 30 day and 1 year
    mortality rates and reduced readmission rates.  A simple
    pay-for-performance program could create a financial incentive
    to use a certified discharge tool that bundles key processes of
    care into a single process.  A special CPT or modifier code could
    provide that financial incentive.
    	The most significant quality improvement activities will
    involve the collection and reporting of clinical data, which are
    best captured through some type of an electronic health record.
    To jumpstart the movement toward EHRs, Medicare, as well as other
    payers, should consider a fee schedule enhancement to practices
    that document the use of certified EHRs.
    	We must address the damaging effect of our current tort
    system on the quality of care.  Because of the current malpractice
    environment, physicians have a strong financial and an even stronger
    emotional incentive to hide mistakes, missing valuable opportunities
    to seek ways to improve systems of care.
    	Finally, we encourage the subcommittee to support increased
    Federal funding for health services research.  We have a talented
    community of outcomes researchers, including Dr. McClellan, and many
    others who have the capacity to evaluate the way we deliver
    healthcare, but these researchers lack adequate funding.  Outcomes
    research provides a reality check on what is working and what is
    not, and will be invaluable for assessing the effectiveness of
    pay-for-performance programs.
    	In closing, I want to emphasize that the American College
    of Cardiology is committed to assisting this subcommittee and CMS
    in addressing the challenges ahead.  Our mission is to advocate
    for quality cardiovascular care through the development and
    application of standards and guidelines.  Our core value is to
    uphold the interest of our patients, and we feel a strong duty
    to work towards aligning patient systems to assure that our
    patients have access to high quality care.  We are optimistic that
    together, we can address our current challenges, and we assure you
    that the ACC is committed to helping move forward.
    	Thank you.
    	[The prepared statement of Dr. John Brush follows:]

    PREPARED STATEMENT OF DR. JOHN BRUSH, ON BEHALF OF AMERICAN COLLEGE
    OR CARDIOLOGY

    Chairman Deal and Members of the Subcommittee, thank you for holding
    this hearing today and for affording me the opportunity to discuss
    efforts by the American College of Cardiology (ACC) that support
    the provision of high quality care to Medicare patients.
    I am board-certified in interventional cardiology, as well as in
    general cardiology and internal medicine.   I am a member of a
    19-member private practice cardiology group in Norfolk, Virginia.
    I am chair of the ACC's Quality Strategic Directions Committee, a
    committee that directs and coordinates the ACC's quality efforts.
    I am also the president of the Virginia ACC Chapter.  Nationally
    and in Virginia, I have had extensive experience in quality
    improvement initiatives and in the design and implementation of
    pay for performance programs.  I represent the ACC, a
    33,000-member organization that is committed to helping Congress
    address daunting health care challenges.  I am honored to give
    testimony today, and am hopeful that my testimony will facilitate
    the important work of this Subcommittee.
    The U.S.  health care system is in the midst of a quality
    revolution.  At a time of spiraling national health care costs,
    health care providers and payers are struggling with the need to
    improve the quality of care through systems improvements.  At
    present, medical care consumes 16 percent of the gross domestic
    product (GDP), and experts project that medical spending will
    increase to 20 percent by 2015.1 Undoubtedly the economic burden of
    cardiac care will continue to rise because of the rising costs of
    cardiac technological advances2 and the increasing prevalence of
    cardiac disease.3 Our tremendous medical advances have turned once
    deadly diseases into chronic diseases that create a growing
    economic burden.  Therefore, we can expect that public and private
    payers will continue to focus on improving both the quality and
    efficiency of cardiac care.
    Current payment models do little to create a business case for
    physician practices to invest in the systems that will provide
    reliable, high quality care.  Payment is not currently based on
    performance, except in emerging demonstration projects.  Cuts in
    Medicare physician payments, including cuts in medical imaging
    payments and those associated with the current sustainable growth
    rate (SGR) formula, coupled with rising overhead costs leave smaller
    operating margins and little incentive for physicians to invest in
    long-term system improvements.
    Many practitioners note that high quality does not always pay and
    sometimes can lead to less pay.  Traditional models of payment, such
    as fee-for-service, pay for inputs of medical care, but do not pay
    for outcomes, and do not create a solid business case for investing
    in long-term system improvements that yield better outcomes.
    Fee-for-service payment may tend to encourage overuse, but other
    payment models like prospective payment in managed care have their
    own unintended consequences and may reward under-use.  What payers
    and providers can agree upon is that a medical payment system that
    consistently encourages and rewards appropriate, high quality care
    has yet to emerge.
    In the words of Avedis Donabedian, "there's lip service to quality...
    but real commitment is in short supply."4 The ACC recognizes the
    importance of inspiring greater focus on improving care delivery
    systems and supports the concept of paying for performance.  However,
    the ACC believes that physician pay-for-performance programs should
    support and facilitate the quality improvement process and
    strengthen the patient- physician relationship rather than solely
    report performance and outcomes for the purpose of quality
    assurance.
    Programs that support a continuous quality improvement process can
    serve to unify multiple participants in the health care system, to
    improve patient care and to realize the full potential of America's
    health care system.  The old quality assurance method sought
    to "cull out bad apples" and did not engender general improvement.
    Similarly, poorly designed pay-for-performance programs could be
    divisive and impede a coordinated effort to improve care.  Our
    current quality deficiencies are the result of deficient systems
    rather than the result of a few bad apples and we should focus our
    efforts on creating incentives for system improvement.
    Today I will demonstrate the ACC's current and ongoing commitment
    to the development of clinical standards in cardiovascular care and
    the translation of those standards at the bedside through the
    adoption of decision support tools and system change.  We are
    confident that our commitment to clinical standards naturally
    supports the development of progressive models of payment that will
    align incentives, and thereby facilitate the provision of high
    quality, appropriate care.  You will learn that the ACC has been a
    leader in the development of clinical guidelines, performance
    measures, and other quality improvement documents, strategies and
    tools.  The ACC continues to reach out across stakeholder boundaries
    with the goal of moving those standards of cardiovascular care into
    practice.
    I will also attempt to outline the challenges and complexities
    associated with instituting a pay-for-performance system,
    particularly for ambulatory care.  We firmly believe that
    inadequate understanding of these complexities, or bypassing the
    complexity of performance measurement with an overly simplistic
    approach, may not only fail to improve patient care, but could have
    other costly and damaging unintended consequences.

    Continuous Quality Improvement: ACC Leading the Way in
    Cardiovascular Care
    The ACC was founded in 1949 as a home where practicing cardiologists
    can exchange knowledge on the best ways to treat patients with
    cardiovascular disease.  Consistent with the ongoing fulfillment of
    the ACC's founding mission is the challenge of closing the gap
    between what is known to be best practices as shown by science and
    taught in educational courses, and what is applied in everyday
    practice.

    Guideline Development
    The ACC was an early promoter of evidence-based medicine and
    professional standards.  Beginning in the early 1980s, the ACC
    partnered with the American Heart Association (AHA) to develop
    clinical practice guidelines that would take the best science and
    interpret it for everyday practice.  The ACC is proud to carry the
    distinction of publishing one of the first clinical practice
    guidelines.  Published in 1994, the Pacemaker Guideline was
    published in part to proactively respond to the then Health Care
    Financing Administration's (HCFA) concerns about the costs and
    benefits of pacemaker implantation.
    Guidelines provide the foundation for evidence-based performance
    measures.  It should be noted, however, that the development of
    guidelines is time consuming and costly to professional medical
    societies.  The average amount of time it takes the ACC to develop
    and publish a guideline is approximately two years, and once
    published, those guidelines require periodic updating.  It costs
    the ACC and AHA more than a million dollars a year to support
    development and updating more than 2,100 recommendations contained
    in 15 published guidelines.  Despite the cost, the ACC views the
    development of guidelines and performance measures as a core
    responsibility and a critical function of the organization.

    National Measurement and Information Exchange Standards
    The ACC has been active in developing and promoting national
    standardization of performance measures and electronic medical
    data.  The ACC understood from the start of the pay-for-performance
    movement that a single, evidence-based national standard for
    measuring improvement would be essential.  Beginning in 2000,
    the ACC partnered with the AHA to develop national performance
    measurement standards and data standards for both inpatient and
    outpatient care based on our guidelines.  Together, the ACC and
    AHA published a methodology for the development of performance
    measures that outlined criteria to ensure that measures were not
    only evidence-based but actionable and feasible for quality
    improvement purposes.  To ensure the successful implementation
    of these measures, the ACC has developed programs such as the
    National Cardiovascular Data Registry (ACC-NCDR(r)) and the
    Guidelines Applied in Practice (GAP) program.  To facilitate the
    development and implementation of performance measures, we have
    partnered with other national organizations, including the
    Physician Consortium for Performance Improvement (PCPI), the Joint
    Commission on Accreditation of Healthcare Organizations (JCAHO),
    the Centers for Medicare and Medicaid Services (CMS), the Agency
    for Healthcare Research and Quality (AHRQ), and the Ambulatory
    Quality Alliance (AQA).  These activities have ensured the relevance
    of measurement standards to cardiologists' daily practice and to the
    larger stakeholder community, including patients.

    Cardiovascular Appropriateness Criteria
    Quality improvement efforts cannot ignore the reality that increasing
    health care costs are imposing fiscal pressures on payers, insurers,
    employers and patients.  Increased demands for health care services,
    especially expensive diagnostic imaging tests, have led to
    unsustainable trends in health care economics.  The response from
    the ACC has been the development of clinical appropriateness
    criteria which not only foster improved quality, but help providers
    avoid unnecessary tests.
    These directives are patient-centric and define "when to do" and
    "how often to do" a given procedure in the context of scientific
    evidence, the health care environment, the patient's profile and
    the physician's judgment.  Ultimately, appropriateness criteria can
    help facilitate reimbursement in a performance measurement-based
    system.

    Development and Adoption of Cardiovascular Performance Measures: A
    Status Report Pay-for-performance programs are unlikely to improve
    patient care without a foundation in valid performance measures.
    Professional organizations are a trusted source of scientifically
    valid performance measures and the ACC is a leader in setting
    professional standards for cardiovascular care.  The ACC is
    committed to continuing the task of developing and field-testing
    performance measures, a labor-intensive process that can take months
    or years to complete.
     	In 1993, the ACC lent support to development by CMS
    (then HFCA) of some of the earliest national clinical performance
    measures based on the ACC/AHA Guideline for the Early Management of
    Patients with Acute Myocardial Infarction.  Since then, the ACC has
    made tremendous strides in the development and adoption of
    cardiovascular performance measures.  For the outpatient setting,
    the ACC and the AHA, in collaboration with the PCPI, developed
    measurement sets for patients with coronary artery disease, heart
    failure, and perioperative care.  We are currently working with
    several other organizations to develop measures for atrial
    fibrillation, cardiac rehabilitation, primary cardiovascular
    disease prevention, and peripheral artery disease.  For the
    inpatient setting, the ACC along with the AHA have developed
    measurement sets for patients with acute myocardial infarction and
    heart failure.
    To date, 16 measures have been endorsed by the National Quality
    Forum (NQF) and eight measures have been endorsed by the AQA for
    physician-level measurement for cardiologists.

    Putting Cardiovascular Performance Measures into Practice
    Through the use of national measurement standards it is possible to
    bridge the gaps between science and practice.  Thanks to ACC, AHA,
    AHRQ, CMS and JCAHO, the entire United States now has a uniform set
    of measures that is the standard of care for every physician and
    every hospital in the country when caring for a patient with an
    acute myocardial infarction (heart attack).
    We cannot ignore the power and importance of such efforts for our
    practices and for our patients.  In a study published last year on
    the use of the JCAHO core measures (aligned with ACC/AHA measures),
    the overall rates for four of the measures for acute myocardial
    infarction (heart attack) showed gratifying improvement.5
    In patients with myocardial infarction, 95 percent received
    recommended aspirin treatment and 93 percent received recommended
    treatment with beta blocking agents.  Getting those measures right
    for every patient, every time, truly matters.  Research has shown
    that for every 10 percent increase in adherence to these few,
    simple measures, there is a commensurate reduction in mortality.
    We are committed to further improvements in the reliability of
    care, where every patient gets the appropriate life-saving
    treatment every time.  We have worked with the Institute for
    Healthcare Improvement and other organizations to improve the
    reliability of heart care.  We are preparing to launch a national
    campaign that seeks to ensure that patients with heart attacks who
    require urgent complex care will get that care consistently across
    the country.  Finally, we are committed to updating those measures
    to remain in step with emerging science and accumulating evidence.
    In Virginia, the ACC has worked with the commercial payer, Anthem
    Blue Cross Blue Shield, to develop two pay-for-performance
    programs.  The first, called Quality-In-Sights(r) Hospital Incentive
    Program (QHIP), rewards hospitals for reaching specified quality
    targets.  Forty-two percent of this program involves cardiac care.
    A second program, called Quality Physician Performance Program
    (QP3) was recently introduced.  This program rewards physicians
    based on aggregated hospital-wide performance and distributes the
    rewards to physician groups at each hospital based on a market
    share calculation.  This voluntary program gives physician groups
    the opportunity for up to an 8 percent across-the-board enhancement
    in the Anthem fee schedule.  Because the program uses aggregated
    hospital-wide performance data, it overcomes problems with small
    numbers and difficulties with attribution.  Because the rewards are
    based on shared performance, the program is intended to create
    incentives for competing physician groups to work together with
    hospital administration in a cooperative manner to achieve
    continuous quality improvement.

    Is Pay for Performance the Key to Quality?
    The key to quality improvement is matching clinical performance to
    the goals and standards set by the profession.  The ACC supports a
    Medicare payment system that properly aligns incentives, inspiring
    greater focus on clinical standards and on health care delivery
    systems that help practitioners reach those standards.  However,
    we need to recognize that the rapid movement toward pay for
    performance is occurring despite little experimental or empirical
    evidence that pay for performance achieves its intended effect in
    the short or long term.6  While there are as many as 100 existing
    pay-for-performance programs in different economic markets
    throughout the country,7, 8 there are essentially no randomized
    controlled trials demonstrating the effectiveness of these programs
    and very few reports that analyze existing programs.9, 10,
    11, 12, 13  Paying for performance seems logical, yet without
    thoughtful design and ongoing evaluation, it may fall short of
    expectations and could have damaging unintended consequences.

    Program Design
    Before a performance-based physician payment system is adopted by
    Medicare, program design must be thoughtfully considered and
    developed with the input of the physician community.
    Pay-for-performance programs generally are designed to reward
    providers for achieving specified levels of clinical performance,
    as measured by standardized quality indicators.  Typically, these
    programs provide more or less than the standard payment for a
    particular service using a formula based on measures of structure,
    process, outcome or cost.
    While all pay-for-performance programs are meant to induce change
    in individual or organizational behavior, specific programs can
    vary widely.   Programs can vary in scope (primary care physicians,
    specialists, hospitals, clinicians), in the dimensions of
    performance that are measured, or in the form of payment (straight
    bonus, enhanced fee schedule, block grant, or indirect payments).
    Pay-for-performance programs can also vary in how the reward
    relates to the measurement of performance.  A program can reward a
    provider either for showing a set amount of improvement, or for
    achieving a threshold of performance.  Programs that reward for
    improvement will stimulate providers at all starting points, but
    providers who start at high levels of performance may reach a
    ceiling where the reward will diminish.  On the other hand,
    programs that reward achievement of a threshold level of
    performance may discourage providers who start at a low level
    from participating and exacerbate existing disparities in care.
    Programs may reward for reaching absolute levels of performance,
    or may reward by grading providers on a curve relative to their
    peers.  Fixed targets and absolute thresholds provide a
    predictable opportunity for reward, whereas the latter model
    provides no up front guarantee and can inhibit cooperation, but
    may provide a competitive environment that creates sustained
    incentives.  Thus, the type of program can have different effects
    on providers, depending on one's specialty or practice environment.
    It would be unrealistic to hope for a "one size fits all" design
    that would simply and easily address all of our current quality
    and efficiency challenges.

    Operational Challenges
    The approach of adopting a set of basic, core performance measures
    that cut across all physicians generally follows the pattern
    Congress established for hospital payment policy beginning with
    passage of the Medicare Modernization Act in 2003.  The unique
    challenges to adopting ambulatory pay-for-performance programs were
    identified through a survey conducted of participants at the ACC's
    2005 Medical Directors Institute (MDI), discussions with national
    quality leaders, and a review of existing literature.  The
    challenges raised focus around the nature of care delivery in the
    outpatient setting.  Unlike the inpatient setting, where patient
    care can be tracked by a single organization, the ambulatory care
    setting involves multiple physician groups often lacking a
    centralized data collection infrastructure.  This presents a
    number of challenges about how to implement performance
    measurement, especially when it is directed at the individual
    physician.
    The cost of data collection is a major barrier.  It is possible
    that administrative data collection using g-codes can help
    streamline this process, but this will require pilot testing and
    careful design.  Data collection in the fragmented outpatient care
    setting raises important concerns regarding the need for data
    standards and standardized reporting methods.
    Using outcomes measures in the outpatient setting (e.g.
    mortality, or endpoints like blood pressure or cholesterol
    levels) raises methodological questions about attribution.  For
    example, whose performance is being measured when the performance
    measure is the blood pressure of patients treated by multiple
    providers?  Will we create incentives for providers to shun
    difficult or non-adherent patients?
    Finally, there are substantial statistical limitations when
    measuring the performance of an individual physician.  We would
    not judge a baseball player based on a batting average after only a
    few times at bat, and we should not judge physicians and adjust
    payments without robust statistical methods that allow us to make
    the sound judgments.  Adjusting payment based on statistical
    inferences requires accumulated measurement over time, or
    aggregated measurement of multiple providers to avoid problems
    of hasty judgments based on small sample sizes.
    For all its promise, we should recognize that pay for performance
    may have unintended adverse consequences.  These programs may have
    detrimental effects on professionalism, intrinsic motivation,
    cooperation and team building.  There may be an incentive to
    game - that is, to change behavior primarily for the benefit of
    achieving a reward.  Incentives could encourage physicians to
    narrowly focus on measured tasks, leaving unmeasured but important
    tasks undone.  Providers could tend to shun sicker patients or
    those perceived as non-compliant and seek patients who will produce
    a better return.  Public awareness of performance may cause sicker
    patients to choose certain providers, and measurement may not
    adequately adjust for differences in risk incurred by different
    providers.  Physicians working in underserved areas and treating
    disadvantaged patients may lack resources to perform at reward
    levels, which would further widen disparities in performance.
    We should remain aware of the potential for unintended consequences
    as we design and implement new models of payment.

    Beginning Quality Improvement by Starting with What Works
    The challenges to adopting a Medicare physician pay-for-performance
    system are daunting.  Yet, current trends in Medicare growth, if
    left unchecked, are likely to result in arbitrary cuts in Medicare
    payments, such as those to imaging services contained in the Deficit
    Reduction Act, that ultimately will have adverse effects on patient
    access and quality of care.  We caution Congress from attempting to
    employ a "one size fits all" approach to pay for performance.  No
    matter how well intended the effort, clinicians are unlikely to
    change their approach to gain rewards - particularly if the
    rewards are negligible - for actions they do not consider in the
    best interests of their patients or for which they do not believe
    they have much influence.  Physicians must believe that the measures
    truly reflect quality of care.  Furthermore, collecting data
    necessary to calculate rewards in both the in-patient and
    out-patient setting is costly and could be subject to inaccuracies.
     Administrative or claims data may be easiest to collect, but
    inaccurate; and clinical data may be a better reflection of actual
    care, but obtaining data through chart abstraction is costly.
    In the absence of widespread health information technology (HIT)
    adoption to facilitate the collection of clinical data, and in the
    absence of widespread systems change, there may be modest but
    meaningful changes that are worth exploring.  In the short term,
    we could begin to focus on specific behaviors, processes and modes
    of practice.  In the ACC's GAP project in Michigan, we introduced a
    tool called a "discharge contract" which addresses key processes of
    care at the time of discharge.  For hospitalized patients with
    heart attacks and heart failure, there are about eight processes
    of care that can prevent subsequent death and readmission, and these
    processes are currently tracked as "core measures."  In our GAP
    project, we bundled these processes of care in a discharge document
    or contract, which is signed by the discharging physician, the nurse
    and the patient.  A discharge contract is a disease-specific
    checklist that provides patients with instructions and a follow-up
    plan upon discharge.  The discharge contract bundles key care
    processes in a single simple process.  Use of this simple tool was
    associated with a substantial reduction in 30-day and one-year
    mortality among Medicare beneficiaries with myocardial infarction14
    as well as a reduction in 30-day hospital readmission rates and
    mortality among Medicare beneficiaries with heart failure.15  The
    quality improvement team at Intermountain Health showed similar
    results using a similar discharge tool.16
     A CPT code or modifier code could be developed to pay physicians
    who discharge their patients using a certified discharge contract,
    giving physicians a financial incentive to use this proven quality
    improvement tool.  Thus, a very simple pay-for-performance program
    could be developed that creates a financial incentive to use a
    discharge tool targeted to improve the care of Medicare
    beneficiaries with heart attacks and heart failure.
    As mentioned above, integration of an HIT infrastructure will be
    absolutely critical to the success of any pay-for-performance
    program.  The ACC thanks Chairman Deal for his leadership on HIT
    legislation and hopes that Congress will send a bill to the
    President's desk this year.  The reality is that physician practices
    have been slow to acquire and implement electronic health records
    (EHRs).  Both cost and the current lack of national standards are
    the most significant barriers to EHR adoption.  Physician practices
    face substantial implementation and maintenance costs without any
    defined return on investment.  CMS and other payers may actually
    see the return on the investment in EHR because the information
    systems will help coordinate care and will likely help weed out
    duplicative tests, thus generating long-term cost savings.  As
    such, it only seems appropriate that the federal government would
    provide some financial assistance to facilitate more widespread
    adoption by physician practices.  The ACC recommends that HIT
    legislation include financial incentives for adoption.  Medicare,
    as well as commercial payers, should provide an enhanced fee
    schedule to providers that can document the use of a certified
    EHR.
    We should recognize the damaging effect of our current tort system
    on quality of care.  Other industries, like aviation and nuclear
    power, have developed mechanisms to learn from mistakes and near
    misses.  Because of the current malpractice environment, physicians
    have strong financial and even stronger emotional incentives to
    hide mistakes, missing valuable opportunities to seek ways to
    improve systems of care.  In Florida, peer review and quality
    improvement efforts are in serious jeopardy as a result of a
    recent constitutional amendment that subjects to discovery
    previously protected peer review proceedings.  As a result, my
    cardiovascular colleagues in Florida say that physicians in the
    state are ill-advised to participate in peer-review or other
    quality improvement efforts at this time.
    Finally, we encourage members of this Subcommittee to support
    federal funding for health services research, such as that being
    conducted by AHRQ.  Outcomes research provides a reality check on
    what is working and what is not, and will be invaluable for
    assessing the effectiveness of pay-for-performance programs.

    ACC Principles to Guide Physician Pay-for-Performance Programs
    Due to the lack of health services research and solid supporting
    evidence regarding pay-for-performance programs, the ACC has
    developed principles to guide payers through the development of
    such programs.  (Table 1)  The ACC agrees with numerous other
    professional organizations that pay for performance should be based
    on valid, scientifically derived measures, should create true and
    sustainable incentives, and should use methods that are fair and
    predictable.

    Conclusion
    National efforts to address health care quality are critically
    important and the need is immediate.  The ACC has invested
    significant resources to address this issue, including support for
    education, clinical guidelines, appropriateness criteria, data
    collection, benchmarking, quality improvement tools and programs,
    and national standards.   Based on our experience, we know that
    deficiencies in quality and efficiency are not generally the result
    of uneducated or recalcitrant physicians, but rather the result of
    misaligned incentives and inadequate systems.  The ACC supports the
    concept of aligning financial incentives with the performance of
    evidence-based medicine and with improving our care delivery
    systems.   The ACC is committed to working with Congress and with
    Medicare to design payment models that will ultimately achieve the
    intended results of improving the health of all Americans.  Thank
    you for allowing us to share our experience in quality
    improvement.

    Table 1.  ACCF Pay for Performance Principles
    1. Built on established evidence-based performance measures
    2. Create a business case for investing in structure, best practices,
    and tools that can lead to improvement and high quality care
    3. Reward process, outcome, improvement and sustained high performance
    4. Assign attribution of credit for performance to physicians in ways
    that are credible and encourage collaboration
    5. Favor the use of clinical data over administrative claims data
    6. Set targets for performance through a national consensus process
    7. Address appropriateness
    8. Positive, not punitive
    9. Audit performance measure data
    10. Establish transparent provider rating methods
    11. Not create perverse incentives
    12. Invest in outcomes and health services research

    For more details on the American College of Cardiology's principles
    for pay for performance, go to:  http://www.acc.org/advocacy/pdfs/ACCFP4PPrinciplesFinal.pdf

    	MR. FERGUSON.  Thank you, Dr. Brush.  Dr. Martin.
    DR. MARTIN.  Good afternoon, Mr. Chairman.  I am honored to be
    here today on behalf of the American Osteopathic Association, the
    AOA, and the Nation's 56,000 osteopathic physicians, practicing in
    all specialties and subspecialties of medicine.
    	The AOA and our members appreciate the committee's continued
    efforts to improve the Nation's healthcare system.  Reforming the
    Medicare physician payment formula, and improving the quality of
    care provided to beneficiaries, are goals that we both share.  A top
    concern of the osteopathic profession remains the ongoing inequities
    associated with the current Medicare physician payment formula,
    especially the sustainable growth rate.
    	We urge Congress to take appropriate steps to ensure that
    every physician participating in the Medicare program receives a
    positive 2.8 percent update, as recommended by MedPAC for 2007.
    The AOA is committed to ensuring that future payment methodologies
    reflect the quality of care provided, and include incentives to
    improve health outcomes of patients.  We are supportive of programs
    to allow the reporting and analysis of reliable quality data.
    Additionally, we support a fair and equitable evaluation process.
    However, we are concerned that the current Medicare payment formula
    cannot support the implementation of such a process.
    	As the debate on quality reporting of pay-for-performance
    moves forward, the AOA proposes a set of principles to guide your
    efforts.  These include number one, the goal must be improvement
    in the overall health and outcomes of Medicare beneficiaries.
    Number two, financing of the program should not be budget neutral.
    Number three, physicians must remain central to the establishment
    and development of quality standards.  The AOA supports the ability
    of appropriate outside groups with acknowledged expertise to endorse
    developed standards that may be used.  Number four, the preferential
    use of clinical data, rather than claims data, in quality evaluation
    is recommended.  Number five, a single set of standards applicable
    to all physicians may not be optimal.  Physicians provide a wide
    variety of services to Medicare beneficiaries, and a quality
    reporting program should reflect these differences.  Number six, a
    viable, interoperable health information system is key to the
    implementation and success of quality improvement and
    performance-based payment methodologies.
    	The AOA has taken several steps to ensure that our members
    are educated, aware, and prepared for new quality reporting
    programs.  The most significant step is the establishment of the
    Web-based Clinical Assessment Program, known as the CAP, C-A-P.
    CAP was introduced in 2000 as a program to measure the quality of
    care in clinical practices in primary care osteopathic residency
    programs.  The goal of CAP is to improve patient outcomes by
    providing valid and reliable assessments of current clinical
    practices, and process sharing of best practices in care delivery.
    	CAP provides evidence-based measurement sets on eight
    clinical conditions, including diabetes, coronary artery disease,
    hypertension, women's health screening, asthma, COPD, childhood
    immunizations, and low back pain.  CAP is able to collect clinical
    data from multiple residency programs, and provide information
    regarding performance back to those participating programs.  This
    allows for evaluation of clinical data provided at a single practice
    site in comparison to other similar practice settings around the
    region, State, or the Nation.
    	CAP for residency programs has thus far been quite
    successful in meeting its initial goals, and has been widely
    acknowledged as a valuable tool to improve quality in ambulatory
    care settings.  Additionally, CAP is beginning to provide data on
    quality improvement.  In December 2005, CAP became available for
    physician offices.
    	In closing, the AOA urges Congress to take steps to
    eliminate the year-to-year uncertainty that plagues the Medicare
    physician reimbursement system.  The current formula should be
    eliminated and replaced with a payment system that more accurately
    reflects the costs of providing care to beneficiaries, and supports
    the implementation of a quality reporting program.  Such activities
    will ensure that physicians participate in the program, and that it
    remains robust and provides time for Congress to develop a new
    payment methodology.
    	The AOA has worked with the American College of Surgeons to
    develop a new payment methodology that was reported earlier, and
    would provide positive annual updates to physicians based upon
    increase in practice costs, while being conducive to quality
    improvement and pay-for-performance programs.  The proposal is
    outlined in our written statement also.  The AOA also wishes to
    thank Dr. Burgess for introducing H.R. 5866.
    	Thank you for the opportunity to testify before this
    committee.
    	[The prepared statement of Dr. Paul A. Martin follows:]

    PREPARED STATEMENT OF DR. PAUL A. MARTIN, CHIEF EXECUTIVE OFFICER
    AND PRESIDENT, PROVIDENCE MEDICAL GROUP, INC., ON BEHALF OF
    AMERICAN OSTEOPATHIC ASSOCIATION

    Executive Summary
    As a physician organization, we are committed to ensuring that all
    patients receive the appropriate health care based upon their
    medical condition and the latest research information and
    technology.  For these reasons, the AOA is supportive of programs
    aimed at improving the quality of care provided and believe that
    we have a responsibility to help the Committee and Congress craft
    such a program.  However, we do not, and will not, support programs
    whose sole goal is to reduce or curb spending on physician services.
    The goal must be improved health care for beneficiaries, which in
    the short-term likely will result in increased, not decreased,
    spending.
    The AOA recognized early on the need for quality improvement and
    the national trend toward quality improvement programs.  In response,
    we took steps to ensure that our members were educated, aware, and
    prepared for these new programs.
    In 2000, building on the hypothesis that some barriers to
    transforming evidence into practice may begin during physician
    post-graduate training and that measurement is key to identifying
    opportunities for incorporation of evidence based measures into
    practice, the AOA launched the Clinical Assessment Program (CAP).
    The CAP measures the quality of care in clinical practices in
    osteopathic residency programs.  The goal of the CAP is to improve
    patient outcomes by providing valid and reliable assessments of
    current clinical practices and process sharing of best practices
    in care delivery.  The CAP provides evidence-based measurement sets
    on eight clinical conditions including diabetes, coronary artery
    disease, hypertension, women's health screening, asthma, COPD,
    childhood immunizations, and low back pain.  Data elements collected
    by the residency training programs include both demographic and
    clinical information. CAP has been widely acknowledged as a tool
    to improve quality in ambulatory care and is beginning to provide
    data on quality improvement.
     	In December 2005, the CAP became available for physician
    offices and offers initial measurement sets on diabetes, coronary
    artery disease, and women's health screening.  The "CAP for
    Physicians" will measure current clinical practices in the physician
    office and compare the physician's outcomes measures to their peers
    and national measures.  The AOA looks forward to working with
    Congress and CMS to explore ways that the CAP may be incorporated
    into broader quality reporting and quality measurement systems.
    The AOA is convinced that the current Medicare payment methodology
    cannot support the implementation of a quality-reporting or
    pay-for-performance program.  The SGR methodology is broken and,
    in our opinion, beyond repair.  This Committee, the Medicare Payment
    Advisory Commission, and every physician organization recommends
    eliminating the formula and replacing it with a payment system that
    beneficiaries.  Steps must be taken to eliminate the year-to-year
    uncertainty that has plagued the Medicare physician payment formula
    for the past five years.  To this end, every physician participating
    in the Medicare program should receive a positive 2.8 percent update
    in 2007. This will ensure that participation in the program remains
    robust.  Additionally, this provides time for Congress to develop,
    adopt, and implement a new payment methodology.
    We recognize that Congress faces financial obstacles to accomplishing
    this goal.  However, the costs of not reforming the system may be
    greater.  Physicians cannot afford to have continued reductions in
     reimbursements.  Ultimately, they either will stop participating
    in the Medicare program or limit the number of beneficiaries they
    accept into their practices.  Either of these scenarios results in
    decreased access for our growing Medicare population.
    Additionally, we believe it is time for Congress to consider changes
    in the Medicare funding formulas that allow for spending adjustments
    based upon the financial health of the entire Medicare program.  As
    Congress and CMS establish new quality improvement programs, it is
    imperative for Medicare to reflect fairly the increased role of
    physicians and outpatient services as cost savers to the Part A
    Trust Fund.  Quality improvement programs may increase spending in
    Part B, but very well could result in savings in Part A or Part D.
    These savings should be credited to physicians through a program
    between Parts A, B, and D.
    As quality reporting and pay-for-performance programs become more
    prevalent, fundamental issues must be addressed.  Some of our top
    concerns are:
     Quality and pay-for-performance programs must be developed and
    implemented in a manner that aims to improve the quality of care
    provided by all physicians.  New formulas must provide financial
    incentives to those who meet standards and/or demonstrate
    improvements in the quality of care provided.  The system should
    not punish some physicians to reward others.
     The use of claims data as the sole basis for performance
    measurement is a concern.  Claims data does not reflect severity of
    illness, practice-mix, and patient non-compliance. These issues and
    others are important factors that must be considered.  Sole reliance
    on claims data may not indicate accurately the quality of services
    being provided.  We believe that clinical data is a much more
    accurate indicator of quality care.
     The financial and regulatory burden quality and pay-for-performance
    programs will have upon physician practices, especially those in
    rural communities, must be minimized.  Physicians, and medicine in
    general, have one of the highest paperwork burdens anywhere.  We
    want to ensure that new programs do not add to physicians' already
    excessive regulatory burden.
     Quality and pay-for-performance programs should have some degree
    of flexibility.  The practice of medicine continuously evolves.
    Today's physicians have knowledge, resources, and technology that
    didn't exist a decade ago.  This rapid discovery of new medical
    knowledge and technology will transform the "standards of care" over
    time.  It is imperative that the quality reporting and
    pay-for-performance system have the infrastructure to be modified
    as advances are made.

    Mr. Chairman, my name is Paul Martin.  I am a family physician from
    Dayton, Ohio and currently serve as the Chief Executive Officer and
    President of the Providence Medical Group, a 41-member independent
    physician owned and governed multi-specialty physician group in the
    greater Dayton metropolitan area.  I am honored to be here today on
    behalf of the American Osteopathic Association (AOA) and the
    nation's 56,000 osteopathic physicians practicing in all specialties
    and subspecialties of medicine.
    The AOA and our members wish to express our appreciation to you and
    the Committee for your continued efforts to improve the nation's
    health care system, especially your ongoing efforts to reform the
    Medicare physician payment formula and improve the quality of care
    provided by physicians.  These are goals that we share.  I want to
    acknowledge and thank Rep. Michael Burgess for introducing the
    Medicare Physician Payment Reform and Quality Improvement Act of
    2006.  This legislation is consistent with many AOA policies related
    to Medicare physician payment, quality reporting, and Medicare
    financing.  We appreciate his efforts to introduce new policy
    concepts that would eliminate the use of the sustainable growth
    rate methodology and move physicians toward a more equitable system
    based upon actual practice cost and reflective of increased quality
    in care provided.  Mr. Chairman, we also applaud your leadership and
    your willingness to work with Dr. Burgess and other Members of the
    Committee to advance achievable solutions to this ongoing policy
    issue.
    Since its inception in 1965, a central tenet of the Medicare program
    has been the physician-patient relationship.  Beneficiaries rely
    upon their physician for access to all other aspects of the Medicare
    program.  Over the past decade, this relationship has become
    compromised by dramatic reductions in reimbursements, increased
    regulatory burdens, and escalating practice costs. Given that the
    number of Medicare beneficiaries is expected to double to 72 million
    by 2030, now is the time to establish a stable, predictable, and
    accurate physician payment formula.  Such a formula must: reflect
    the cost of providing care, implement appropriate quality
    improvement programs that improve the overall health of
    beneficiaries, and reflect that a larger percentage of health care
    is being delivered in ambulatory settings versus hospital
    settings.

    Quality Improvement and Pay for Performance
    Today's health care consumers-including Medicare
    beneficiaries-demand the highest quality of care per health care
    dollar spent.  The AOA recognizes that quality improvement in the
    Medicare program is an important and worthy objective.  For over
    130 years osteopathic physicians have strived to provide the highest
    quality care to their millions of patients.  Through those years,
    standards of care and medical practice evolved and changed.
    Physicians changed their practice patterns to reflect new
    information, new data, and new technologies.
    As a physician organization, we are committed to ensuring that all
    patients receive the appropriate health care based upon their
    medical condition and the latest research information and
    technology.   The AOA recognized early on the need for quality
    improvement and the national trend toward quality improvement
    programs.  In response, we took steps to ensure that our members
    were educated, aware, and prepared for these new programs.
    In 2000, building on the hypothesis that some barriers to
    transforming evidence into practice may begin during physician
    post-graduate training and that measurement is key to identifying
    opportunities for incorporation of evidence based measures into
    practice, the AOA launched the web-based Clinical Assessment
    Program (CAP).  When the CAP was initially introduced six years
    ago, it measured the quality of care in clinical practice in
    osteopathic residency programs.  The goal of the CAP is to improve
    patient outcomes by providing valid and reliable assessments of
    current clinical practices and process sharing of best practices
    in care delivery.
    The CAP provides evidence-based measurement sets on eight clinical
    conditions including diabetes, coronary artery disease, hypertension,
    women's health screening, asthma, COPD, childhood immunizations, and
    low back pain.  Data elements collected by the residency training
    programs include both demographic and clinical information. CAP has
    been widely acknowledged as a tool to improve quality in ambulatory
    care and is beginning to provide data on quality improvement.  For
    example, the percent of diabetics having foot exams performed
    routinely increased 24% in programs re-measuring as of June 2006.
    Likewise, in outcome of care measures, the LDL cholesterol levels
    and diabetic HgbA1c have decreased.
    The CAP is able to collect data from multiple clinical programs and
    provide information regarding performance back to participating
    residency programs.  This allows for evaluation of care provided at
    a single practice site in comparison to other similar practice
    settings around the region, state, or nation.
     	In December 2005, the CAP became available for physician
    offices offering initial measurement sets on diabetes, coronary
    artery disease, and womens health screening.  The "CAP for
    Physicians" measures current clinical practices in the physician
    office and compares the physician's outcome measures to their peers
    and national measures.  The AOA looks forward to working with
    Congress and CMS to explore ways that the CAP may be incorporated
    into broader quality reporting and quality measurement systems.
    As the national debate on the issues of quality reporting and
    pay-for-performance began, the AOA established a set of principles
    to guide our efforts on these important issues.  These principles
    represent "achievable goals" that assist in the development of
    quality improvement systems while recognizing and rewarding the
    skill and cost benefits of physician services.
    First, the AOA believes that the current Medicare physician payment
    formula, especially the sustainable growth rate (SGR), is seriously
    flawed and should be replaced.  Additionally, we are convinced that
    that the current Medicare payment methodology cannot support the
    implementation of a quality-reporting or pay-for-performance
    program.
    The AOA strongly supports the establishment of a new payment
    methodology that ensures every physician participating in the
    Medicare program receives an annual positive update that reflects
    increases in the costs of providing care to their patients.
    Moreover, the AOA is committed to ensuring that any new physician
    payment methodology reflects the quality of care provided and
    efforts made to improve the health outcomes of patients.  As a
    result of this commitment, we support the establishment of standards
    that, once operational, will allow for the reporting and analysis
    of reliable quality data.  Additionally, we support the
    establishment of a fair and equitable evaluation process that aims
    to improve the quality of care provided to beneficiaries.
    To support this goal, the AOA adopted the following principles:
    1. Quality reporting and/or pay-for-performance systems whose
    primary goal is to improve the health care and health outcomes of
    the Medicare population must be established. Such programs should
    not be budget neutral.  Appropriate additional resources should
    support implementation and reward physicians who participate in
    the programs and demonstrate improvements.  The AOA recommends
    that additional funding be made available through the establishment
    of bonus-payments.
    2. To the extent possible, participation in quality reporting and
    pay-for-performance programs should be voluntary and phased-in.
    The AOA acknowledges that failure to participate may decrease
    eligibility for bonus or incentive-based reimbursements, but feels
    strongly that physicians must be afforded the opportunity to not
    participate.
    3. Physicians are central to the establishment and development of
    quality standards.  A single set of standards applicable to all
    physicians is not advisable.  Instead, standards should be developed
    on a specialty-by-specialty basis, applying the appropriate risk
    adjustments and taking into account patient compliance.
    Additionally, quality standards should not be established or
    unnecessarily influenced by public agencies or private special
    interest groups who could gain by the adoption of certain standards.
     However, the AOA does support the ability of appropriate outside
    groups with acknowledged expertise to endorse developed standards
    that may be used.
    4. The exclusive use of claims-based data in quality evaluation is
    not recommended.  Instead, the AOA supports the direct aggregation
    of clinical data by physicians.  Physicians or their designated
    entity would report this data to the Centers for Medicare and
    Medicaid Services (CMS) or other payers.
    5. Programs must be established that allow physicians to be
    compensated for providing chronic care management services.
    Furthermore, the AOA does not support the ability of outside
    vendors, independent of physicians, to provide such services.

    Resource Utilization and Physician Profiling
    Over the past few years, Congress, MedPAC and other health policy
    bodies have placed greater emphasis on controlling the use of
    "resources" by physicians and other health care providers.  The
    AOA supports, in concept, a systemic evaluation of resource use
    that measures overuse, misuse, and under use of services within the
    Medicare program.
    Additionally, we do not oppose programs that confidentially share
    with physicians their resource use as compared to other physicians
    in similar practice settings.  However, any effort to evaluate
    resource use in the Medicare program must not be motivated only by
    financial objectives.  Instead, the AOA believes that physician
    utilization programs must be aimed at improving the quality of care
    provided to our patients.  In measuring the performance of
    physicians the singular use of utilization measures without
    evaluation of clinical process and outcomes can lead to adverse
    impact on care delivery.  Tracking methods to determine the
    unintended consequences of reduced utilization on patient safety
    should be incorporated in any utilization reports developed.
    If the intent of the program is to improve the quality of care,
    then the validity, reliability, sensitivity, and specificity of
    information intended for private or public reporting must be very
    high.  Comparative utilization information cannot be attained
    through administrative or claims-based data alone without adequate
    granulation for risk adjustment.
    In an effort to support the establishment of quality improvement
    programs that stand to benefit the quality of care provided to
     patients, the AOA adopted the following ten principles that
    guide our policy on comparative utilization or physician profiling
    programs:
    1. Comparative utilization or physician profiling should be used
    only to show conformity with evidence-based guidelines.
    2. Comparative utilization or physician profiling data should be
    disclosed only to the physician involved.  If comparative
    utilization or physician profiling data is made public, assurances
    must be in place that promise rigorous evaluation of the measures to
    be used and that only measures deemed sensitive and specific to
    the care being delivered are used.
    3. Physicians should be compared to other physicians with similar
    practice-mix in the same geographical area.  Special consideration
    must be given to osteopathic physicians whose practices mainly focus
    on the delivery of osteopathic manipulative treatment (OMT).  These
    physicians should be compared with other osteopathic physicians that
    provide osteopathic manipulative treatment.
    4. Utilization measures within the reports should be clearly defined
    and developed with broad input to avoid adverse consequences.  Where
    possible, utilization measures should be evidenced-based and
    thoroughly examined by the relevant physician specialty or
    professional societies.
    5. Efforts to encourage efficient use of resources should not
    interfere with the delivery of appropriate, evidence-based,
    patient-centered health care.  Furthermore, the program should not
    impact adversely the physician-patient relationship or unduly
    intrude upon a physician's medical judgment.  Additionally,
    consideration must be given to the potential overuse of resources
    as a result of the litigious nature of the health care delivery
    system.
    6. Practicing physicians must be involved in the development of
    utilization measures and the reporting process.  Clear channels of
    input and feedback for physicians must be established throughout the
    process regarding the impact and potential flaws within the
    utilization measures and program.
    7. All methodologies, including those used to determine case
    identification and measure definitions, should be transparent and
    readily available to physicians.
    8. Use of appropriate case selection and exclusion criteria for
    process measures and appropriate risk adjustment for patient
    case-mix and inclusion of adjustment for patient compliance/wishes
    in outcome measures, need to be included in any physician specific
    reports.  To ensure statistically significant inferences, only
    physicians with an appropriate volume of cases should be evaluated.
     These factors influence clinical or financial outcomes.
    9. The utilization measure constructs should be evaluated on a
    timely basis to reflect validity, reliability and impact on patient
    care.  In addition, all measures should be reviewed in light of
    evolving evidence to maintain the clinical relevance of all measures.
    10. Osteopathic physicians must be represented on any committee,
    commission, or advisory panel, duly charged with developing measures
    or standards to be used in this program.

    Medicare Payments to Physician
    Reform of the Medicare physician payment formula, specifically, the
    repeal of the sustainable growth rate (SGR) formula, is one of the
    AOA's top priorities.  The SGR formula is unpredictable,
    inequitable, and fails to account accurately for physician practice
    costs.  We continue to advocate for the establishment of a more
    equitable, rational, and predictable payment formula that reflects
    physician cost of providing care.
    In 2002, physician payments were cut by 5.4 percent.  Thanks to the
    leadership of this Committee, Congress acted to avert payment cuts in
    2003, 2004, 2005, and 2006 replacing projected cuts of approximately
    5 percent per year with increases of 1.6 percent in 2003, 1.5 percent
    in 2004 and 2005, and a freeze at 2005 levels for 2006.
    The AOA and our members are appreciative of actions taken over the
    past four years to avert additional cuts.  However, even with these
    increases physician payments have fallen further behind medical
    practice costs.  Practice costs increases from 2002 through 2006
    were about two times the amount of payment increases.
    According to the 2006 Medicare Trustees Report, physicians are
    projected to experience a reimbursement cut of 4.6 percent in 2007
    with additional cuts predicted in years 2007 through 2015.
    Without Congressional intervention, physicians will face a 34
    percent reduction in Medicare reimbursements over the next eight
    years.  During this same period, physicians will continue to face
    increases in their practice costs.  If the 2007 cut is realized,
    Medicare physician payment rates will fall 20 percent below the
    governments measure of inflation in medical practice costs over the
    past six years.  Since many health care programs, such as TRICARE,
    Medicaid, and private insurers link their payments to Medicare
    \rates, cuts in other systems will compound the impact of the
    projected Medicare cuts.
    Physicians should be reimbursed in a more predictable and equitable
    manner, similar to other Medicare providers.  Physicians are the
    only Medicare providers subjected to the flawed SGR formula.  Since
    the SGR is tied to flawed methodologies, it routinely produces
    negative updates based upon economic factors, not the health care
    needs of beneficiaries.  And, it has never demonstrated the ability
    to reflect increases in physicians' costs of providing care.  Every
    Medicare provider, except physicians, receives annual positive
    updates based upon increases in practice costs.  Hospitals and other
    Medicare providers do not face the possibility
    of "real dollar" cuts-only adjustments in their rates of increase.
    It is important to recognize that, in 2007, substantial changes to
    other components of the Medicare payment formula will shift
    billions of dollars which will lead to cuts of up to 10 to 12
    percent for certain physician services.  It is imperative that
    Congress acts to stabilize the update to the conversion factor in
    order to bring stability to this volatile system and dampen the
    impact of payment cuts caused by unrelated policy changes.  The
    non-SGR related changes to physician payment in 2007 include:

    Geographic Practice Cost Index (GPCI)
    The Medicare Prescription Drug, Modernization and Improvement Act
    (MMA) (P.L. 108-173) included a three-year floor of 1.0 on all work
    GPCI adjustments.  This provision is set to expire on
    December 31, 2006.  Nationwide, 58 of the 89 physician payment
    areas have benefited from this provision.  If this provision is
    not extended many physicians, especially those in rural areas,
    will experience additional cuts.  The AOA supports the "Medicare
    Rural Health Providers Payment Extension Act." (H.R. 5118)
    introduced by Rep. Greg Walden.  We urge the Committee to include
    the provisions of H.R. 5118 in any legislative package considered
    this year.

    Five-Year Review
    Every five years, CMS is required by law to review all work relative
    value units (RVU) and make needed adjustments.  These adjustments
    must be made in a budget neutral manner.  Changes related to the
    third five-year review will be implemented on January 1, 2007.
    In total, more than $4 billion will be shifted to evaluation and
    management (E&M) codes, which will be increased by upwards of 35
    percent in some instances.  The AOA is very supportive of the
    changes in values for E&M codes.  We believe E&M codes have been
    undervalued historically.  The proposed changes are fair and should
    be implemented.
    We do recognize that increases in E&M codes will require decreases
    in other codes.  CMS has proposed a 10 percent decrease in the work
    RVU's of other codes in the physician fee schedule or an additional
    five percent cut to the conversion factor as a means of achieving
    budget neutrality.

    Practice Expense
    CMS also has announced significant changes to the formulas used to
    determine the practice expense RVU.  These changes also are budget
    neutral and will shift approximately $4 billion. Again, these
    increases will require cuts in other areas of the physician fee
    schedule.
    This dramatic shift in the allocation of funding will have a
    significant impact on many physicians across the country.  The
    AOA is concerned about the impact a reduction in the SGR, along
    with cuts resulting in the reallocation of funding required by
    other policy changes, might have upon physicians.  While the total
    impact of the changes will vary by specialty, geographic location,
    and practice composition; it is clear that physicians specializing
    in certain specialties may see significant cuts prior to any
    adjustments to the conversion factor are made as a result of the
    SGR formula.  For these reasons we call upon Congress to ensure
    that all physicians participating in the Medicare program receive
    a positive payment update in 2007.
    In its 2006 March Report to Congress, MedPAC stated that payments
    for physicians in 2007 should be increased 2.8 percent.  We strongly
    support this recommendation.  Additionally, since 2001, MedPAC has
    recommended that the flawed SGR formula be replaced.  Again, the
    AOA strongly supports MedPAC's recommendation.
    Steps must be taken to eliminate the year-to-year uncertainty that
    has plagued the Medicare physician payment formula for the past
    five years.  To this end, every physician participating in the
    Medicare program should receive a positive 2.8 percent update in
    2007 as recommended by MedPAC.  This will ensure that participation
    in the program remains robust.  Additionally, this provides time for
    Congress to develop, adopt, and implement a new payment methodology.

    Problems with the Sustainable Growth Rate (SGR) Formula
    Concerned that the 1992 fee schedule failed to control Medicare
    spending, five years later Congress again examined physician
    payments.  As a result, the Balanced Budget Act of 1997 (BBA 97)
    (Public Law 105-33) established a new mechanism, the sustainable
    growth rate, to cap payments when utilization increases relative
    to the growth of gross domestic product (Congressional Budget
    Office, "Impact of the BBA," June 10, 1999).
    This explanation of the SGR not only highlights the objectives of
    the formula, but also demonstrates the serious flaws that have
    resulted.  The AOA would like to highlight three central problems
    associated with the current formula-physician administered drugs,
    the addition of new benefits and coverage decisions, and the
    economic volatility of the formula.
    Utilization of Physician Services-The SGR penalizes physicians with
    lower payments when utilization exceeds the SGR spending target.
    However, utilization is often beyond the control of the individual
    physician or physicians as a whole.
    Over the past twenty years, public and private payers successfully
    moved the delivery of health care away from the hospital into
    physicians' offices.  They did so through a shift in payment
    policies, coverage decisions, and a move away from acute based
    care to a more ambulatory based delivery system.  This trend
    continues today.  As a result, fewer patients receive care in an
    inpatient hospital setting.  Instead, they rely upon their
    physicians for more health care services, leading to greater
    utilization of physician services.
    For the past several years, the Centers for Medicare and Medicaid
    Services (CMS) have failed to account for the numerous policy
    changes and coverage decisions in the SGR spending targets.  With
    numerous new beneficiary services included in the Medicare
    Modernization Act (MMA) (P.L. 108-173) and an expected growth in
    the number of national coverage decisions, utilization is certain
    to increase over the next decade.  The Congressional Budget Office
    (CBO) cites legislative and administrative program expansions as
    major contributors to the recent increases in Medicare utilization.
     The other major contributors were increased enrollment and
    advances in medical technology.
    Physician Administered Drugs-The other major contributor to increased
    utilization of physician services is the inclusion of the costs of
    physician-administered drugs in the SGR.  Because of the rapidly
    increasing costs of these drugs, their inclusion greatly affects the
    amount of actual expenditures and reduces payments for physician
    services.
    Over the past few years, you and the Committee have encouraged the
    Administration to remove the cost of physician-administered drugs
    from the formula.  The AOA encourages the Committee to continue
    pressing the Administration on this issue.  We do not believe the
    definition of physician services included in Section 1848 of Title
    XVIII includes prescription drugs or biological products.  Removal
    of these costs would ease the economic constraints that face
    Congress and make reform of the physician payment formula more
    feasible.
    Gross Domestic Product-The use of the GDP as a factor in the
    physician payment formula subjects physicians to the fluctuating
    national economy.  We recognize the important provisions included
    in the MMA that altered the use of the GDP to a 10-year rolling
    average versus an annual factor.  Again, we appreciate your
    leadership and insistence that that provision be included in the
    final legislation.
    However, we continue to be concerned that a downturn in the economy
    will have an adverse impact on the formula.  We argue that the
    health care needs of beneficiaries do not change based upon the
    economic environment.  Physician reimbursements should be based upon
    the costs of providing health care services to seniors and the
    disabled, not the ups and downs of the economy.

    A New Payment Methodology for Physicians
    Several bills aimed at providing both short and long-term solutions
    to the Medicare physician payment issue have been introduced during
    the 109th Congress.  The AOA supports many of these bills and
    appreciates the continued efforts of Members of Congress to find
    achievable solutions to these ongoing policy issues.
    The AOA has worked with the American College of Surgeons to develop
    a new payment methodology that would provide positive annual updates
    to physicians based upon increases in practice costs, while being
    conducive to quality improvement and pay-for-performance programs.
    The AOA proposes a new payment system that would replace the
    universal volume target of the current sustainable growth rate
    (SGR) with a new system, known as the service category growth rate
    (SCGR), that recognizes the unique nature of different physician
    services by setting targets for six distinct service categories of
    physician services. The service categories, which are based on the
    Berenson-Eggers type-of-service definitions already used by CMS,
    are: evaluation and management (E&M) services; major procedures
    (includes those with 10 or 90 day global service periods) and
    related anesthesia services; minor procedures and all other
    services, including anesthesia services not paid under physician
    fee schedule; imaging services and diagnostic tests; diagnostic
    laboratory tests; and physician-administered Part B drugs,
    biologicals, and radiopharmaceuticals.
    The SCGR target would be based on the current SGR factors (trends
    in physician spending, beneficiary enrollment, law and regulations),
    except that GDP would be eliminated from the formula and be
    replaced with a statutorily set percentage point growth allowance
    for each service category.  To accommodate already anticipated
    growth in chronic and preventive services, we estimate that E&M
    services would require a growth allowance about twice as large as
    the other service categories (between 4-5 percent for E&M as
    opposed to 2-3 percent for other services).  Like the SGR, spending
    calculations under the SCGR system would be cumulative.  However,
    the Secretary would be allowed to make adjustments to any of the
    targets as needed to reflect the impact of major technological
    changes.
    Like the current SGR system, the annual update for a service
    category would be the Medicare medical economic index (MEI) plus
    the adjustment factor.  But, in no case could the final update vary
    from the MEI by more or less than 3 percentage points; nor could the
    update in any year be less than zero.  The formula allows for up
    to one percentage point of the conversion factor for any service
    category to be set aside for pay-for-performance incentive
    payments.
    Like the SGR, the SCGR would retain a mechanism for restraining
    growth in spending for physician services.  It recognizes the wide
    range of services that physicians provide to their patients.
    Unlike the current universal target in the SGR, which penalizes
    those services with low volume growth at the expense of high
    volume growth services, the SCGR would provide greater
    accountability within the Medicare physician payment system by
    basing reimbursement calculations on targets that are based on a
    comparison of like services and providing a mechanism to examine
    those services with high rates of growth while reimbursement for
    low growth services would not be forced to subsidize these higher
    growth services.  By recognizing the unique nature of different
    physician services, the SCGR enables Medicare to more easily
    study the volume growth in different physician services and
    determine whether or not volume growth is appropriate.
    Additionally, the AOA believes the SCGR provides a sound framework
    for starting a basic value-based purchasing system.  Given the
    diversity of physician services provided to patients, it is
    difficult to find a set of common performance measures applicable
    to all physicians.  However, development of common performance
    measures is much easier when comparing similar services.

    Beneficiary Access to Care
    The continued use of the flawed and unstable sustainable growth rate
    methodology will result in a loss of physician services for millions
    of Medicare beneficiaries.  Osteopathic physicians from across the
    country have told the AOA that future cuts will hamper their ability
    to continue providing services to Medicare beneficiaries.
    The AOA surveyed its members on July 14-16, 2006 to analyze
    their reactions to previous and future payment policies.  The AOA
    asked its members what actions they or their practice would take
    if the projected cuts in Medicare physician payments were
    implemented.  The results are concerning.  Twenty-one percent said
    they would stop providing services to Medicare beneficiaries.
    Twenty-six percent said they would stop accepting new Medicare
    beneficiaries in their practice and thirty-eight percent said they
    would limit the number of Medicare beneficiaries accepted in their
    practice.
    Many experts concur with these findings.  According to a 2005 survey
    conducted by MedPAC, 25 percent of Medicare beneficiaries reported
    that they had some problem finding a primary care physician.  MedPAC
    concluded that Medicare beneficiaries "may be experiencing more
    difficulty accessing primary care physicians in recent years and
    to a greater degree than privately insured individuals."
    While there are some steps that can be taken by physicians to
    streamline their business operations, they simply cannot afford
    to have the gap between costs and reimbursements continue to grow
    at the current dramatic rate.  Many osteopathic physicians practice
    in solo or small group settings.  These small businesses have a
    difficult time absorbing losses.  Eventually, the deficit between
    costs and reimbursements will be too great and physicians will be
    forced to limit, if not eliminate, services to Medicare
    beneficiaries.
    Additionally, continued cuts limit the ability of physicians to
    adopt new technologies, such as electronic health records, into
    their practices.

    Health Information Technology
    A viable interoperable health information system is key to the
    implementation and success of quality improvement and
    performance-based payment methodologies.  For these reasons, we
    support the "Health Information Technology Promotion Act"
    (H.R. 4157).  An interoperable health information system will
    improve the quality and efficiency of health care.
    Our main focus is ensuring that software and hardware used
    throughout the healthcare system are interoperable.  There is no
    benefit to be found in the utilization of systems unable to
    communicate with others.  Additionally, the AOA believes strongly
    that systems developed and implemented must not compromise the
    essential patient-physician relationship.  Medical decisions must
    remain in the hands of physicians and their patients, independent
    of third-party intrusion.
    The AOA remains concerned about the costs of health information
    systems for individual physicians, especially those in rural
    communities.  According to a 2005 study published in Health Affairs,
    the average costs of implementing electronic health records was
    $44,000 per full-time equivalent provider, with ongoing costs of
    $8,500 per provider per year for maintenance of the system.  This
    is not an insignificant investment.  With physicians already facing
    deep reductions in reimbursements, without financial assistance,
    many physicians will be prohibited from adopting and implementing
    new technologies.  A July 2006 survey conducted by the AOA
    demonstrates this concern.  According to the survey, 90 percent of
    osteopathic physicians responding agreed that "decreased
    reimbursements will hinder their ability to purchase and implement
    new health information technologies in their practice."  While we
    continue to advocate for financial assistance for these physicians,
     we appreciate inclusion of provisions in H.R. 4157 that provide
    safe harbors allowing hospitals and other health care entities to
    provide health information hardware, software, and training to
    physicians.  This would, in our opinion, facilitate rapid
    development of health information systems in many communities.
    I appreciate the opportunity to testify before the Energy and
    Commerce Committee Subcommittee on Health.  Again, I applaud your
    continued efforts to assist physicians and their patients.  The
    AOA and our members stand ready to work with you to develop a
    payment methodology that secures patient access, improves the
    quality of care provided, and appropriately reimburses physicians
    for their services.  Additionally, we stand ready to assist in the
    development of new programs that improve quality, streamline the
    practice of medicine, and make the delivery of health care more
    efficient and affordable.

    Paul A. Martin, D.O.
    Paul A. Martin, D.O., a board certified family physician from
    Dayton, Ohio, is a recognized leader within the medical profession
    in Ohio and across the nation.  He currently serves as the Chief
    Executive Officer and President of the Providence Medical Group,
    a 41-member independent physician owned and governed multi-specialty
    physician group in the greater Dayton metropolitan area.  Dr. Martin
    oversees the operations of one of the largest multi-physician
    organizations in southwest Ohio serving urban, suburban, and rural
    demographic areas.  He is deeply knowledgeable about health care
    financing, including the Medicare and Medicaid programs.  He also
    possesses a strong understanding of the health care delivery system
    as a whole.
    Dr. Martin received his undergraduate degree, Cum Laude, in Biology
    from the University of Dayton in 1970 and a Masters in Microbiology
    from the University of Dayton in 1972.  He earned his medical
    degree, Cum Laude, from the Chicago College of Osteopathic Medicine
    in 1977.  He completed his post-graduate training at
    Grandview/Southview Medical Center in Dayton.  Dr. Martin obtained
    his board certification in family medicine in 1986 from the
    American Osteopathic Board of Family Physicians and was recertified
    in 2004.  Additionally, he became a Fellow in the American College
    of Osteopathic Family Physicians in 1997.
    Dr. Martin has served in numerous leadership positions throughout
    his career.  He currently serves as a Governor on the American
    College of Osteopathic Family Physicians Board of Trustees.  He is
    a Past-President of the Ohio Osteopathic Association and the Ohio
    Chapter of the American College of Osteopathic Family Physicians.
    He is a former Chief-of-Staff and Chairman of the
    Physician-Hospital Steering Committee at Grandview/Southview
    Medical Center in Dayton.  Additionally, he is a past member of the
    Board of Governors for the Chicago College of Osteopathic Medicine,
    the Board of Trustees for Midwestern University in Chicago, IL, and
    the Board of Trustees at Grandview/Southview Medical Center in
    Dayton.
    Dr. Martin remains closely tied to academic medicine.  He serves as
    a Clinical Professor at the Ohio University College of Osteopathic
    Medicine and is a member of the Adjunct Faculty at the University
    of Dayton.

    	MR. FERGUSON.  Thank you, Dr. Martin.
    	In case any of you are wondering why Mr. Allen and I look so
    lonely up here, the Health IT bill, which some of you have referenced,
    and you are certainly familiar with, is being debated on the floor as
    we speak.  Mr. Allen and I are keeping tabs on it with this little
    TV right here, so that is why some of the other members of the
    subcommittee are not here listening to you all.  But, I am certain
    that some of them will be making their way back here as they finish
    speaking on the Health IT bill, which is being debated on the floor
    as we are here in this hearing.  We appreciate your understanding of
    that as well.
    	I am going to recognize myself for 5 minutes for questions.
    I want to go right down the line, and we will start with Dr. Martin
    since you had to wait so patiently to go last, you can now go first,
    but I am looking for a one word answer.  I am looking for a yes or a
    no.  If it as at all possible, I want to go right down the line,
    because I have several other questions I want to get to.
    	My question is, would you support a pay-for-reporting for
    2007?
    	DR. MARTIN.  Yes.
    	DR. BRUSH.  Across the board?
    	MR. FERGUSON.  Yes.
    	DR. BRUSH.  Yes.
    	DR. SCHRAG.  Yes.
    	DR. KIRK.  Yes, we would.
    	DR. OPELKA.  Yes.
    	DR. RICH.  Yes, using clinical data.
    	DR. HEINE.  It depends on the data.
    	MR. FERGUSON.  Would you just turn your mic on?  I am sorry.
    	DR. HEINE.  I am sorry.  Yes, it depends on the data.  There
    are too many factors to give a yes or no.  I am sorry.
    	DR. WILSON.  Yes.
    	MR. FERGUSON.  Okay.  Thank you.  I appreciate that almost
    everybody answered with one word.  That was pretty good.  You would
    never get that from up here.
    	Dr. Wilson, would you support, and I recognize you are
    speaking for the folks that you represent.  Dr. Wilson, would you
    support a pay-for-reporting without a permanent physician fix?  What
    about a year or two of positive updates, without a complete overhaul
    of the SGR?
    	DR. WILSON.  Thank you, Mr. Chairman, and I assume you are
    still looking for a yes or no, but--
    	MR. FERGUSON.  No.  No, I would like you to elaborate on
    that.
    	DR. WILSON.  Okay.
    	MR. FERGUSON.  You can expound on that.
    	DR. WILSON.  As I indicated in my testimony, we believe that
    the increased costs related to reporting are incompatible with the
    SGR.  We believe that continued provision of care for patients is
    incompatible with continued use of the SGR.  There is 37 percent
    reduction in the last, the coming 9 years, an additional 22 percent
    cost of living, you are talking about 59 percent.  Nine years from
    now, the dollar I get today, I will get $0.41 on that dollar.  It is
    just not compatible.
    	So, we believe that these, in a way, are separate issues.  We
    need to revise and reform the payment system.  We need to and we will
    continue, certainly, from the organized medicine standpoint, continue
    down the road for improved quality.  Actually, as you know, we
    started the Physician Consortium on Quality Improvement in 2000
    before a lot of this came on the scene.
    	MR. FERGUSON.  Thank you.  As you all know, we don't always
    get to operate in the world of what we would like to do.  Sometimes,
    we have to operate in the world of what we can do.  So, it is
    interesting for us, and important for us to hear your thoughts, as
    we try and navigate some of these options, and some of these
    negotiations that we are involved with.
    	Dr. Heine, I have a question.  We have been talking about
    pay-for-performance, and we have been talking about
    pay-for-reporting.  Can you, and you specifically talked about
    this in your testimony, can you explain to me just, as you see it,
    what is the difference between the two, and can you talk about the
    terminology a little bit, and essentially, the value that would be
    associated with pay-for-performance versus a pay-for-reporting?
    	DR. HEINE.  Well, pay-for-reporting, actually, is what the
    hospitals are engaged in currently.  They actually have to report
    on certain measures that are set up for them.  With regard to
    pay-for-performance, it is actually performing additional
    services.  So, one is the action, and one is reporting on it.
    So, that is somewhat of the difference there.
    	For example, in the hospital, and it is an emergency
    physician, we have to note whether we give an aspirin for a person
    who comes in with a heart attack.  So, the reporting on that, you
    are paying for the reporting aspect.  The other, you are paying for
    the act of administering or ordering that aspirin.  So, it is a
    slightly different situation.
    	The concern that we have, in terms of actually what
    Dr. Wilson had mentioned, is covering the costs of administering
    those additional services, and the fact that if you have the SGR
    currently as it is in place, and you are trying to engage this
    pay-for-performance or pay-for-reporting.  Either one is going
    to incur additional costs, whether it is just data abstraction or
    reporting, or it is actual additional services, and then abstraction
    of that data and reporting.  It is on a collision course, so you
    can have increased volume of services as a result of the initiative
    for either pay-for-reporting or pay-for-performance, and you are
    going to have this expenditure cap with the SGR.  It just doesn't
    work.  You have to be able to amplify the additional funds that
    could be present to enable the program to be successful.
    	MR. FERGUSON.  Okay.  Rather than go over my time, I am
    going to recognize Mr. Allen for 5 minutes for questions.
    	MR. ALLEN.  Thank you, Mr. Chairman.  I want to second the
    Chairman's remarks about our colleagues being on the House floor.
    That IT bill is very important today, and people are there.
    	Mr. Chairman, if I could just begin and ask you for
    unanimous consent to put a statement in the record from the Advanced
    Medical Technology Association.
    	MR. FERGUSON.  Without objection.
    	[The statement follows:]

    	MR. ALLEN.  I think what I would like to do is begin with
    Dr. Rich.
    	I wanted to focus on two different things, process measures
    and outcome measures, and basically my understanding is that process
    measures are things like checking blood pressure, washing your hands,
    giving the right medication.  Outcomes measures measure what happens
    to a patient--mortality, infections, and conditions, and how the
    condition progresses or doesn't.
    	My understanding is many physicians' groups are concerned
    that by only measuring processes, we will increase costs, but not
    improve patient care or save money.  And I wondered if you could
    address that particular topic, and the impact of how we design
    these different measures, the impact of that on spending of the
    Medicare program.
    	DR. RICH.  Sure.  I think that there are some process
    measures that have good links to quality and are demonstrated to
    have such, and that would be, for instance, using an artery for
    coronary artery bypass grafting.  There is clear improvement in
    mortality.  But most of the process measures that are being proposed
    out there really represent an expansion of physician services, an
    expansion of testing that do not have direct links to quality
    improvement, and therefore, can lead to expansion of volume of
    physician services.
    	Outcomes measures, on the other hand, really pull together
    not only process and the measurement, but acting on the measurement
    to improve the eventual outcome for the patient.  Reflecting on it
    from a cardiac surgical standpoint, an outcome measure requires an
    entire team to impact and change, and it is much like the comment
    Dr. Opelka had about the teams working together and improved
    outcomes.
    	Process measures, you can individualize to a physician, so
    he has control, but you will race past the most important level in
    the healthcare system, and that is the system of care, where you
    can gain improvements in quality and costs.
    	MR. ALLEN.  While we have you all here, I would like to
    know if there is any divergence of opinion on that point among
    anyone on the panel.  Yes, Dr. Brush.
    	DR. BRUSH.  Well, process measures and outcomes measures
    have advantages and disadvantages.  The process measures is an
    action that a physician can take, and it is immediately actionable.
     It is within the physician's grasp and control, and it is
    appealing as a measure to track.  Generally, the ones that are
    considered valid are the ones that are associated, through
    research, with specific outcomes.  We have processes in cardiology,
    such as beta blocker use, or use of drugs called ACE inhibitors
    in certain subgroups that are shown to reduce mortality over the
    long run.  So, those process measures are very important, and they
    are very nice, because they are actionable.  Case mix and case
    severity and type of thing doesn't enter into it.
    	On the other hand, outcomes measures are very appealing,
    because they are a composite of a lot of things that go into care.
    They are very appealing, but they can be potentially affected by
    severity of the case.  We need to have risk adjustment, and risk
    adjustment sometimes is a very tricky thing.  Both of them have
    advantages and disadvantages.
    	MR. ALLEN.  Thank you.  Dr. Schrag.
    	DR. SCHRAG.  Yeah, I think the field of cancer medicine
    provides a great example of how outcomes measures can be tricky and
    slippery.  So, they work quite well in thoracic surgery, where you
    can look at what a patient's mortality is after they undergo a high
    risk operation.  We have to be careful.  If in cancer medicine we
    choose mortality as an outcome, when there are chronic, complex
    diseases that play out over a long period of time, we all know that
    it is not just how long a patient lives.  But how well a patient
    lives, how they want to live, and what sorts of disabilities and
    compromises; what sort of choices people want to make.
    	So, not that outcome measures aren't important, but they
    have to be carefully vetted.  They have to be complemented with
    process measures and structural measures, and we haven't talked
    about structural measures.  Those are really measures of the
    infrastructure available to a practice.  So, we really need all of
    the above.
    	MR. ALLEN.  Fine.  Yes, Dr. Heine.
    	DR. HEINE.  Just one quick thing and that is with regard,
    for example, the case that I presented.  When you talk about
    outcomes  measures, you are always subject to the compliance of
    the patient, and that is one thing that you don't have control
    over.
    	MR. ALLEN.  Good.  Thank you.  Well, Mr. Chairman, I notice
    my time has expired, too, and so why don't I yield back for the
    moment, anyway.
    	MR. FERGUSON.  Fair enough.  Dr. Burgess is here.
    Dr. Burgess, it is nice to have you here.  We know you were on the
    floor with the Health IT bill.  Your name has been used many times
    in your absence, I can assure you only in the most positive way.
    	MR. BURGESS.  I will need to see a copy of the record.
    	MR. FERGUSON.  Yes.  Well, we will be sure to provide that
    for you.  But Dr. Burgess, you are recognized for 5 minutes for
    questions.
    	MR. BURGESS.  Thank you, Mr. Chairman, and thank you for
    understanding about my absence.  I am going to assume that you are
    talking about the bill that was recently introduced, H.R. 5866.
    Dr. Heine, are you familiar with, at least a first read-through or
    look at that bill?
    	DR. HEINE.  Well, we understand that it is an important and
    positive step forward, but we have to get into the details.  The
    Alliance is carefully reviewing the piece of legislation, but we
    are grateful to your leadership on that.
    	MR. BURGESS.  Do you have an opinion as to what direction, I
     mean, obviously, a piece of legislation is written, and then, it
    has got to go through the subcommittee process, the committee
    process, probably massaged several times before it actually gets
    to a state where it is at the floor.
    	Are you aware of any changes that you would like to see
    made in the language of the bill, and recognizing that it is just a
    starting point, a framework that we can build around, hopefully this
    year, to get something done?
    	DR. HEINE.  We, unfortunately, have not come to that
    progression of events yet.  We will certainly be in touch with your
    office when we come to those opinions, and we appreciate the
    opportunity to comment.
    	MR. BURGESS.  Let me just ask a general question of the
    panel, anyone who wishes to answer it.  If no one feels that they
    can comment, that is okay, as well.  But the bill is introduced,
    H.R. 5866, and I am actually submitting this question to
    Dr. McClellan in writing.  The bill is designed to pay doctors in
    Medicare with a more stable and predictable system than currently
    exists.  One of the problems, of course, with the SGR is every
    year, you come up against that angst, am I going to get cut this
    year, and then, looking out over the horizon, am I going to get
    26.9 percent over the next 5 years if Congress doesn't do
    something.
    	So, in order to provide a more stable and predictable
    system, is it possible to balance value to the taxpayer and to the
    beneficiary within the Medicare program, while ensuring doctors are
    paid fairly?  Is it even doable?  Is this something that you think,
    in your opinion, has an option of ever succeeding, or will we just
    constantly be left with a series of last minute fixes to make
    certain that everyone doesn't walk off the job?  And anyone who
    feels--yes.  Please, Dr. Kirk.
    	DR. KIRK.  Yes.  We certainly strongly support what you are
    talking about, in terms of having some sort of mechanism to replace
    the SGR that is reliable and consistently gives positive updates,
    whatever those are.  I think it is very hard for a physician, and
    the majority of the physicians we represent are in small group
    practices or solo practices, to plan ahead to buy HIT or commit
    to that without even knowing what their reimbursement is going to
     be the next year, or knowing there is a very high risk for it.
    	We don't know the exact solution to that.  We would like
    to see a commitment this year to phase out or do away with SGR
    over as long as 5 years, to replace it by something that at least
    guarantees positive updates.  I know MedPAC has been charged, in
    March of 2007, to coming up with options that might replace that.
    I don't know exactly what they are, but we strongly believe that
    we need something that consistently can help physicians to plan
    ahead for caring for these patients.
    	MR. BURGESS.  Thank you.  Yes, sir.
    	DR. OPELKA.  Congressman, from the College of Surgeons, our
    viewpoint is to bring forward these six service categories for
    growth rate, to try and use these as instruments to recognize where
    we need growth, where we need to stay flat, where we need to
    suppress utilization in terms of our volume, and to link that into
    our quality initiatives as well.
    	MR. BURGESS.  And that is an admirable goal, but it does
    become a little more complicated, and I hope you have been able to
    see here in your time this morning, we don't do complicated all that
    well.  We are simple and straight and to the point, some days.
    	DR. WILSON.  Dr. Burgess.
    	MR. BURGESS.  Yes, sir.
    	DR. WILSON.  Right here to your right.
    	MR. BURGESS.  Yes, sir.
    	DR. WILSON.  I would, again, say what we have all said when
    you were out of the room, and that is we appreciate your bill.  We
    appreciate particularly the fact that you moved from SGR, which we
    think is not sustainable, to the Medical Economic Index.  We look
    forward to working with you on that.  I think we would hope it is
    the Medical Economic Index, period, and we want to talk about that.
    	MR. BURGESS.  Sure.
    	DR. WILSON.  We also feel that the quality reporting, there
    are administrative costs associated with that and that it would be
    important for physicians to be able to receive those.  The balanced
    billing, we are in support of.  And I guess--
    	MR. BURGESS.  I am glad you brought up the cost of the
    administrative costs, because we just absolutely blow past that
    almost every time we have a chance to think about it, and the Health
    IT bill that we are doing on the floor today, one of the flaws is
    the cost associated with a small office going out and getting that
    type of equipment.  I am trying to get some relaxation of the
    Stark laws, where if a hospital or another healthcare facility is
    willing to partner with a small office, to bring them into the
    computer age, that that would be permissible.
    	Mr. Chairman, just before I finish up, I want to ask just a
    philosophical question, and anyone who wants to respond in writing,
    you heard me ask Dr. McClellan or say to Dr. McClellan we have not
    been able to get from CMS or from MedPAC any sense of what the
    savings would be if we put some sense into our medical justice
    system.  And I would just ask if the panel, if anyone on the panel
    wishes to respond to the committee in writing about that, I would
    be very anxious to hear your views on that as well.
    	Thank you.  I will yield back.
    	MR. FERGUSON.  Thank you, Dr. Burgess.  The distinguished
    gentleman from Illinois, Mr. Shimkus, is recognized for 5 minutes
    for questions.
    	MR. SHIMKUS.  Thank you, Mr. Chairman.
    	The question I asked to Dr. McClellan, and you are all
    probably even better prepared to answer, based upon your
    professional associations and memberships and stuff.  What do you
    hear out there from the physicians on the problem with getting to
    a point, and how are they coping with their operating budget
    shortfall, because of the lower payments, and the struggle of
    deciding to continue to provide care, and anyone.  Is that
    Dr. Martin, do you want to start?
    	DR. MARTIN.  Yeah, let me start.  Whether you are a group
    physician, a solo practitioner, or you are a rural physician, you
    have always got to look at the bottom line.  Margins are getting
    thinner and thinner, whether you look at the hospital level or you
    look at the physician level, margins are thin.  As physicians
    predicted into the future, they have to look at what is going to
    be their income or their revenue stream when they look into that
    future.
    	Physicians know that they need to move into an electronic
    medical record.  The health information technology is the way to
    go.  As President of a medical group in the Ohio area, one of the
    things we had to look at is are we going to participate without an
    electronic medical record.  The idea that was brought forward from
    our Board of Trustees was the fact that we want that electronic
    medical record, so that the aggregation of data for these
    payment-for-performance systems is much easier.  The actual dollar
    value that will bring to our group we don't know yet.  As
    Dr. Burgess was, or Congressman Burgess was bringing up, we don't
    know the value of that.
    	We know it will be there, so what we have done as a group is
    we have contacted our Ohio QIO group.  We are working with the QIO
    group to evaluate our 21 practice sites.  Once we evaluate our
    practice sites for health information technology, we will go forward
    in 2007, and implement this.  We are very concerned if we face a
    4.6 percent decrease in our payments, because not only does that
    affect our Medicare payments, but that will also affect other third
    party carriers whose payments are based on the Medicare system.
    	So, all of these things are essentially a set of dominos
    that are starting to fall, but we in fact want to look for that
    particular area of getting into health technology, and once we have
    got that, we feel we can sail.  It will be a lot easier to aggregate
    that data that is needed for those payment-for-performance systems,
    and we would look for a thank you or a pat on the back for being
    involved with those payment-for-performance systems.
    	Thank you.
    	MR. SHIMKUS.  Yeah, and Dr. Burgess just leaned over, and
    Dr. Burgess, do you want to--I will yield you some time.
    	MR. BURGESS.  Oh, just the point that we also forget up here,
    all too often, is we cut your reimbursement rate on January 1, and
    many of the private insurers have already got those new fee
    schedules already drawn up the previous November, and are ready to
    enact them when your doors open on January 3.
    	MR. SHIMKUS.  Anyone--well, we will go right down.
    	DR. BRUSH.  Yes, Congressman.
    	Your question is, what is happening out in the real world,
    at the ground level, between doctors and patients as the payments
    decrease.  I think that already, we are seeing patients that can't
    get primary care physicians.  Primary care physicians are shunning
    complicated elderly patients.  They take more time.
    	Like any business, a practice is going to try to cut their
    costs as their revenues and their operating margins decrease, and
    what are the costs?  The costs for a doctor is time, so you cut
    back on time.  You may cut back on the time it takes to make a
    good decision, or spend time with compassionate care of patients.
    I really fear that further cuts will really affect the way that
    care is delivered on a one on one basis in this country.
    	What is happening with the sustainable growth rate is
    really, really going to have a true effect on every doctor and
    patient.  I think on the ground level, at the grassroots level,
    you are already starting to see very, very serious alterations in
    the way patients receive their care.
    	MR. SHIMKUS.  Yeah, and my time is running out.  Has
    everybody from the panel, is there any disagreement with what has
    been said, or anything in addition that you want to add?  All right,
    well, if the Chairman--I am going to run out of time, but if the
    Chairman will allow me to finish the panel, then I will just run
    out my time with the answers to the question.  And we will start
    from left to the right, whoever wants to go.  Is that--
    	DR. SCHRAG.  An example specific to cancer.  One of the
    things that happen when small community practices start to choke
    under declining reimbursement is that patients migrate towards
    larger centers, such as the one I practice at, Memorial
    Sloan-Kettering Cancer Center.  Where just because we are
    larger, we are better able to absorb the costs, and we don't
    suffer as much short term.
    	But that means that we end up seeing patients, often
    elderly, who live in New Jersey, who travel a long distance into
    Manhattan, fighting traffic.  We should be busy developing the next
    generation of treatments, and engaged in research, not treating
    people who really could be well cared for by their community
    oncologists in New Jersey.  Those providers are choking.
    	That is just the kind of domino series of steps that occur
    that we are seeing.
    	MR. SHIMKUS.  And let me just add to that, as a Member who
    represents 30 counties in Southern Illinois, access to care, and
    the having to travel is really a challenge for a lot of especially
    the elderly.  And if they are going to get a son or a daughter,
    that is usually a day away from the work, and it just compounds
    the problems.
    	Dr. Kirk.
    	DR. KIRK.  I think one thing to add to everything that has
    been said.  At least in primary care general internal medicine,
    like I do, or family practice, we find that there is nobody going
    into those odd disciplines at this point in time, and reimbursement
    is one of the issues.  Students now are graduating from medical
    school with over $150,000 in debt.  It is like having a mortgage
    without having a home.  They know what people make, and it can't
    help but figure in, even the most altruistic, into what they decide
    to do.
    	We are really worried about the pipeline.  People my age,
    who are 10 to 15 years out of their training, 20 percent of them are
    no longer practicing general internal medicine, because they haven't
    been able to make it.  So, we do worry about who is going to take
    care of us as we get older.
    	DR. OPELKA.  In the area of surgery, just a couple examples;
    one is the emergency trauma call situation.  It is becoming
    increasingly more challenged across the country to get proper call
    coverage in our various emergency rooms and surgical areas.  Another
    area that is becoming increasingly more concerning is breast disease
    and breast care, where the reimbursements that had covered for
    radiologists to perform mammography, and for breast surgeons to
    uniquely specialize in the care of these women's diseases.  It has
    actually gotten to the point where it is almost unsustainable to get
    proper, timely screening, mammography, and then proper referral to
    an expert in breast disease.  In many communities, it is just not
    available.
    	DR. RICH.  Speaking from our professional society, the
    punitive declines in reimbursements that we have seen have really
    put our specialty in a crisis, and in a crisis from the standpoint
    of the workforce.  Our current workforce is aging, and our attrition
    rate is accelerating.  Many people are leaving early, retiring
    early, and finding other professions, because the business model
    no longer works for cardiac surgery often.
    	Even more frightening, this is the third year in a row where
    we have not been able to fill our training positions with general
    surgery residents who want to be cardiac surgeons.  Fifty percent
    of our positions are left unfilled.  You put the two together, you
    have an expanding elderly population, an expanding Medicare
    beneficiary base, and no place to go for cardiac surgical care.
    You will have severe access problems in the next 5 to 7 years.
    	DR. HEINE.  On the access problems, speaking as an
    emergency physician really, I mean, this is where we see it.  We
    have patients coming in who are far more senior, more complex,
    chronic illness, patients who have to board in the emergency
    departments, stay overnight in the emergency department, because
    there are no beds upstairs, since the patients who are already
    admitted are so sick that they need to stay in the hospital.
    	There is no access that way, so even though patients may
    not be able to see their physicians in the community, because they
    are leaving the community practices that they have, that ultimately
    translates into exacerbation of ED crowding, and that is one of the
    things we are really, we are very concerned about with regard to
    access.
    	DR. WILSON.  As you hear, we all have anecdotes that we can
    share with you, and I think the observation would be that 10 years
    ago, we would not be telling you these stories.  Now, the GAO
    report, which you have looked at recently, suggests maybe there is
    a 7 to 10 percent challenge, in terms of finding physicians.  If
    you are in the 7 to 10 percent, it is your whole world, but that
    allows me just to say that what we have not had the big crunch
    yet.  That is the 5 percent cuts as far as the eye can see, and we
    have great concerns that things will get remarkably worse, unless
    those are corrected.  Thank you.
    	MR. FERGUSON.  Thank all of you for being here today.  We
    appreciate your insights as we work through these issues, and we
    will certainly look forward to turning to you for your expertise
    in the future.
    	This hearing is now adjourned.
    	[Whereupon, at 2:05 p.m., the subcommittee was adjourned.]

    RESPONSE FOR THE RECORD OF MARK MILLER, EXECUTIVE DIRECTOR, MEDICARE
    PAYMENT ADVISORY COMMISSION

    SUBMISSION FOR THE RECORD OF ORIN F. GUIDRY, M.D., PRESIDENT,
    AMERICAN SOCIETY OF ANESTHESIOLOGISTS

    1  Social Security Administration, OASDI Monthly Statistics,
    June 2006, accessed through
    www.ssa.gov/policy/docs/statcomps/oasdi_monthly.
    2  See W. Novelli, Statement by AARP CEO Bill Novelli on the 2006
    Social Security COLA, accessed through www.aarp.org/reserach/press-
    center/presscurrentnews/2006_social_security_cola.html.
    3  Beginning in 2007, the premium will be higher for beneficiaries
    with incomes above a certain threshold.
    4 Medicare Payment Advisory Commission, Report to the Congress:
    Medicare Payment Policy (Washington, DC: MedPAC, March 2006),
    p. 91.
    5  Ibid., p. 90.
    6  Ibid., p. 99.
    7  Ibid., p. 99.
    8  S. Heffler, S. Smith, S. Keehan, C. Borger, M.K. Clemens, and
    C. Truffer, "U.S. Health Spending Projections for 2004-2014" Health
    Affairs Web Exclusive, February 23, 2005, p. W5-74-W5-85.
    9  G.F. Anderson, B.K. Frogner, R.A. Johns, and U.E. Reinhardt,
    "Health Care Spending and Use of Information Technology in OECD
    Countries" Health Affairs (25,3) May/June 2006, p. 819-831.
    10  Partnership for Solutions, "Medicare: Cost and Prevalence of
    Chronic Conditions", Fact Sheet, July 2002.
    11  See S. Guterman, "U.S. and German Case Studies in Chronic Care
    Management: An Overview" Health Care Financing Review (27,1) Fall
    2005, p. 1-8.
    12  Ibid.
    13  See Board of Trustees, Federal HI and Federal SMI Trust Funds,
    2006 Annual Report.
    14  See K. Fonkych and R. Taylor, The State and Pattern of Health
    Information Technology Adoption (Santa Monica, CA: RAND, 2005).
    15 See R. Miller, C. West, T.M. Brown, I. Sim, and C. Ganchoff,
    "The Value of Electronic Health Records in Solo or Small Group
    Practices" Health Affairs (24,5) September/October 2005, p.
    1127-1137.
    16  See The Leapfrog Group Compendium at
    ir.leapfroggroup.org/compendium/.
    17  IHA News Release, "Continued Quality Improvement in California
    Healthcare Announced by Integrated Healthcare
    Association" July 13, 2006.
    18  M.B. Rosenthal, R.G. Frank, Z. Li, and A.M. Epstein, "Early
    Experience with Pay-for-Performance: From Concept to Practice"
    Journal of the American Medical Association (294, 14)
    October 12, 2005, p. 1788-1793.
    19  See www.ncqa.org/dprp.
    20 Centers for Medicare & Medicaid Services Press Release,
    "Medicare Demonstration Shows Hospital Quality of Care Improves
    with Payments Tied to Quality" November 14, 2005.
    21  Medicare Payment Advisory Commission, Report to the Congress:
    Medicare Payment Policy March 2005.
    22  See J.H. Hibbard, J. Stockard, and M. Tusler, "Does Publicizing
    Hospital Performance Stimulate Quality Improvement Efforts?" Health
    Affairs (22,2) March/April 2003, p. 84-94.
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