[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 


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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 [email protected] 
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 ([email protected] 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. 
1 Borger C, Smith S, Truffer C, et al.  Health spending projections 
through 2015: changes on the horizon.  Health Affairs (Millwood) 
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2 Lucas FL, DeLorenzo MA, Siewers AE, Wennberg DE.  Temporal trends 
in the utilization of diagnostic testing and treatments for 
cardiovascular disease in the United States, 2993-2001.  Circulation 
2006; 113:374-9. 
3 Association AH.  Heart Disease and Stroke Statistics - 2005 
Update.  Dallas, TX: American Heart Association, 2005. 
4 Donabedian, A.  A founder of quality assessment encounters a 
troubled system firsthand.  Interview by Fitzhugh Mullan.  Health 
Affairs (Millwood) 2001; 20:137-41. 
5 Williams, S.  C., Schmaltz, S.  P., Morton, D.  J., Koss, R.  
G., Loeb, J.  M., Quality of care in U.S.  hospitals as reflected 
by standardized measures, 2002-2004, N Eng J Med 2005; 
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6 Dudley RA.  Pay-for-performance research: how to learn what 
clinicians and policy makers need to know.  JAMA 2005;294:1821-3. 
7 Med-Vantage.  Pay for Performance.  2006. 
8 The Leapfrog Group for Patient Safety.  Incentive and Reward 
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9 Rosenthal MB, Frank RG, Li Z, Epstein AM.  Early experience with 
pay for performance: from concept to practice.  
JAMA 2005;294:1788-93. 
10 Kouides RW, Bennett NM, Lewis B, Cappuccio JD, Barker WH, LaForce 
FM.  Performance-based physician reimbursement and influenza 
immunization rates in the elderly.  The Primary Care Physicians of 
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11 Fairbrother G, Hanson KL, Friedman S, Butts GC.  The impact of 
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12 Amundson G, Solberg LI, Reed M, Martini EM, Carlson R.  Paying 
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13 Roski J, Jeddeloh R, An L, et al.  The impact of financial 
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14 Eagle, et al.  J Am Coll Cardiol 2005;46:1242-8. 
15 Koelling, Todd.  Presented at the AHA Scientific Sessions, 2005 
16 Lappe JM, et al.  Improvements in one-year cardiovascular 
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