[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                     OPTIONS TO IMPROVE QUALITY AND 
                  EFFICIENCY AMONG MEDICARE PHYSICIANS 

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 10, 2007

                               __________

                           Serial No. 110-39

                               __________

         Printed for the use of the Committee on Ways and Means

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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey       JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas                 DAVE CAMP, Michigan
MIKE THOMPSON, California            SAM JOHNSON, Texas
RAHM EMANUEL, Illinois               JIM RAMSTAD, Minnesota
XAVIER BECERRA, California           PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota           KENNY HULSHOF, Missouri
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also, published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
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unintentional errors or omissions. Such occurrences are inherent in the 
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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 10, 2007, announcing the hearing.................     2

                                WITNESS

A. Bruce Steinwald, Director, Health Care, government 
  Accountability Office..........................................     6
Herb Kuhn, Acting Deputy Administrator, Centers for Medicare and 
  Medicaid Services..............................................    25
Glenn M. Hackbarth, Chairman, Medicare Payment Advisory 
  Commission.....................................................    37
Robert A. Berenson, M.D., Senior Fellow, the Urban Institute.....    60
Rick Kellerman, M.D., President, American Academy of Family 
  Physicians, Shawnee Mission, KS................................    66
Anmol S. Mahal, M.D., President, California Medical Association, 
  Freemont, CA...................................................    73
John E. Mayer, Jr., M.D President, Society of Thoracic Surgeons..    79

                       SUBMISSIONS FOR THE RECORD

American Academy of Ophthalmology, statement.....................    90
American College of Physicians, statement........................    92
American College of Radiology, statement.........................    98
American Health Information Management Association, statement....   100
American Occupational Therapy Association, statement.............   102
Renal Physicians Association, statement..........................   103
University of North Carolina at Chapel Hill, statement...........   105


                     OPTIONS TO IMPROVE QUALITY AND
                  EFFICIENCY AMONG MEDICARE PHYSICIANS

                              ----------                              


                         THURSDAY, MAY 10, 2007

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

    The Subcommittee met, pursuant to notice, at 10:00 a.m., in 
room 1102, Longworth House Office Building, Hon. Fortney Pete 
Stark (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
May 10, 2007
HL-10

 Chairman Stark Announces a Hearing on Options to Improve Quality and 
                  Efficiency Among Medicare Physicians

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
options to improve quality and efficiency among Medicare physicians. 
The hearing will take place at 10:00 a.m. on Thursday, May 10, 2007, in 
Room 1100, Longworth House Office Building.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from the invited witness only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    Medicare spending for physician services will likely exceed $60 
billion in 2007, more than 14 percent of spending on program benefits. 
Spending for physician services has grown considerably in recent years, 
largely due to the 5.5 percent average annual increase in the number of 
services provided per beneficiary (volume) and the increase in the 
average complexity and costliness of services (intensity). Analyses by 
the Medicare Payment Advisory Commission (MedPAC) and the government 
Accountability Office (GAO) have suggested that some of the higher 
volume and intensity that drives spending growth may not be medically 
beneficial. In fact, the wide geographic variation in Medicare spending 
per beneficiary--unrelated to beneficiary health status or outcomes--
provides evidence that health needs alone do not determine spending. 
Furthermore, recent analyses by GAO, MedPAC and others indicate the 
growth in volume and intensity of physician services varies 
dramatically across providers and specialties. Excessive volume and 
intensity not only increase program spending, but also may represent 
unnecessary services that can put beneficiaries at greater risk.
      
    Strategies to evaluate growth in volume and intensity, and address 
unnecessary spending are currently being explored. One such strategy 
would bundle services in the physician fee schedule to create a global 
fee for patient care management. Bundled payments are used for most of 
part A through various Prospective Payment Systems that use Diagnostic 
Related Groups and other similar mechanisms. In Part B, Medicare 
bundles payments for End Stage Renal Disease and for certain surgeries. 
Bundled payments could facilitate more careful patient management, 
while reducing administrative burden for physicians.
      
    Another strategy being used to address growth in volume and 
intensity relies on providing feedback to individual physicians about 
how their practice patterns compare with their peers. This approach is 
intended to generate dialog so that Medicare physicians can learn from 
each other how to achieve the highest quality outcomes with efficient 
use of resources. Such programs have been used effectively in the 
private sector.
      
    In announcing this hearing, Chairman Stark said: ``As Medicare's 
steward, Congress needs to ensure that Medicare resources are being 
used efficiently and effectively to achieve high quality outcomes. This 
hearing will bring out some concrete actions we can take to achieve 
this important goal.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on potential methods to improve efficiency 
among physicians in Medicare. In particular, witnesses will review the 
potential of bundling services in the physician fee schedule and the 
effect of providing feedback to physicians on how their clinical 
practice patterns and resource use compare to their peers.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
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technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
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    Note: All Committee advisories and news releases are available on 
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with disabilities. If you are in need of special accommodations, please 
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noted above.

                                 

    Chairman STARK. Good morning. We'll proceed with a hearing 
that we hoped would build on our recent hearing with MedPAC, 
trying to outline the possibilities to reform or change the 
physician payments in Medicare, and we'll focus today on 
possible long-term solutions to improve efficiency among the 
Medicare physicians.
    Hoping, our goal is to move from the sustainable growth 
rate, henceforth SGR, to a more refined system that still 
contains volume control but may direct us toward improve 
quality. Physicians play a critical role in caring for us 
seniors and people with disabilities, and paying them 
appropriately is an important part of I think any delivery 
system such as Medicare.
    When I last chaired this Subcommittee, we created the 
Physician Fee Schedule to replace the cost-based reimbursement 
for physicians, and I was pleased at that time to work closely 
with the physician community to find a bipartisan consensus on 
that approach. The system was successful. Many private payers 
have adopted it since. But despite the success of the fee 
schedule, the solution to growth and volume and intensity still 
eludes us.
    Analysis by GAO, MedPAC and others have shown us that the 
growth in volume and intensity of physician services varies 
dramatically across regions, providers and specialties. Even 
worse, we find that regional variations in volume and intensity 
of physician services don't relate to higher quality care or 
better outcomes. To the contrary, beneficiaries may be put at 
greater risk when they're subjected to more and more 
complicated procedures.
    These trends should be a cause of serious concern for 
beneficiaries and taxpayers alike. Unfortunately, as MedPAC 
testified before our Committee in March, the solutions today 
won't solve all the problems for tomorrow. In 2007, tomorrow is 
here. There are several strategies to revise Medicare physician 
payment to more efficiently reward appropriate medical care, 
and that's what we're here to discuss today.
    We're pleased to be joined by experts who have spent years 
studying ways to improve physician spending in Medicare as well 
as by practicing physicians who have many years of experience 
caring for Medicare beneficiaries. Our witnesses will review 
some tangible steps we can take to improve the current 
situation. Specifically, we'll hear testimony about whether 
Medicare should implement a system to feedback to physicians on 
how their practice patterns compare with their peers. Witnesses 
will also discuss whether Medicare should develop bundled 
payments for services in the physician fee schedule, both for 
coordinated management of chronic illness, such as a medical 
home, or as well as for episodes of highly specialized care. I 
look forward to working with my colleagues, the physician 
community and other health professionals, the administration 
and patients in the coming weeks.
    I'd like to make one personal comment. We'll hear this 
morning from my friend and constituent, Dr. Mahal. He's here 
from Freemont, California to testify before us on behalf of the 
California Medical Association, and I want to take this moment 
to welcome Dr. Mahal and thank him for all the work that he's 
undertaken, along with his colleagues in the California Medical 
Association to help us come to a reasonable solution. Mr. Camp, 
would you like to comment?
    Mr. CAMP. Thank you very much, Mr. Chairman, and thank you 
for holding this hearing. The Medicare payment formula known as 
a sustainable growth rate or SGR, is scheduled to reduce 
payments to physicians by 10 percent in 2008. It will also 
cause physician payments to be reduced by approximately 5 
percent for each of the next 9 years. The SGR formula is 
obviously unsustainable. The SGR does not reward physicians for 
high quality or cost effective care. Under the SGR, physicians 
are paid more for the number of services they provide. This 
rewards physicians for the quantity but not the quality of 
their services.
    We know that under the current system that the total number 
of procedures performed and images taken have increased, but it 
cannot tell us if patients are receiving better care. We need a 
better system that creates incentives for individual physicians 
to provide comprehensive, efficient and high-quality care.
    In this hearing, we will look into two potential ideas to 
reform the physician payment system. One is the idea to provide 
resource use data to physicians and to compare their practice 
data with their peers. Private plans are already using this 
data in setting payments for physicians.
    The second idea involves the bundling of payments. CMS did 
a demonstration in 1991 on bundling payments for cardiac bypass 
surgery. The demonstration was found to save money, but it was 
discontinued after 5 years. This hearing will hopefully examine 
these and other ideas for reform. I appreciate the witnesses 
being with us today, and I'm interested to know their views on 
these and other possible payment systems. While I'm eager to 
discuss long-term changes to the SGR, I recognize that we must 
still solve the immediate problem of the impending cuts.
    From past experience, we've learned that short-term fixes 
don't always work. Sometimes they only exacerbate the problem. 
That being said, I look forward to working with the Chairman on 
an attempt to reform Medicare so that physicians are paid 
appropriately for their services and seniors get access to 
high-quality, affordable care.
    Thank you, Mr. Chairman, and I yield back the balance of my 
time.
    Chairman STARK. Thank you. Any other Members have an urgent 
statement to make? If not, I'd like to recognize our first 
panel and welcome back A. Bruce Steinwald, the Director of 
Health Care for the government Accountability Office, fondly 
known as GAO; Mr. Herb Kuhn, the Acting Deputy Administrator of 
the Centers for Medicare and Medicaid Services, CMS, and Mr. 
Glenn Hackbarth, Chairman of the Medicare Payment Advisory 
Commission, again, fondly known as MedPAC.
    I want to first of all thank all of these gentleman for the 
help you've given the Subcommittee and the Members. In addition 
to these hearings, I think spending countless hours counseling 
and advising and educating us on the problems of the matter 
before us and other problems in the Medicare arena. We deeply 
appreciate it. There's a lot of work ahead of us, and the extra 
time that you take has been invaluable to the Members.
    Why don't we start with Mr. Steinwald and run down the 
line, and you may proceed to inform us. If you care to 
summarize, we have your written testimony, which without 
objection will appear in the record. If you care to summarize 
your testimony, we will then be able to inquire for more 
information. Mr. Steinwald.

    STATEMENT OF A. BRUCE STEINWALD, DIRECTOR, HEALTH CARE, 
             GOVERNMENT ACCOUNTABILITY OFFICE (GAO)

    Mr. STEINWALD. Thank you, Chairman Stark and Mr. Camp and 
Members of the Subcommittee. Thank you for inviting me here 
today as you consider ways to encourage Medicare's physician 
payment system to be more efficient.
    The Medicare Modernization Act required us conduct a study 
of the SGR system that's used to update physician fees from 
year to year, and to also conduct a study of physician 
compensation more generally.
    Our SGR study concluded that the annual growth over the 
past several years and the volume and complexity of services 
delivered to Medicare beneficiaries has been the underlying 
reason that the SGR system has been, to put it mildly, 
problematic. This trend generates spending increases that are 
excessive under the SGR formula, which requires offsetting 
reductions in physicians fees and an annual headache for the 
Congress.
    The SGR is a blunt instrument that treats every Medicare 
doctor the same, regardless of whether the doctor is conserving 
of resources or profligate. When we were planning our second 
MMA-mandated study, we wanted to investigate approaches that 
could look at individual doctor behavior, and this led us to 
profiling. Under profiling, the health care resources provided 
or ordered by a physician and consumed by that physician's 
patients can be compared to the average for similar doctors and 
patients. The doctors who appear to be practicing an efficient 
style of medicine can be identified individually.
    We conducted an analysis of Medicare claims data pertaining 
to services provided to Medicare beneficiaries in 12 
metropolitan areas to determine whether we could identify 
doctors who appeared to be practicing medicine inefficiently. I 
won't go into the details of the study at this time. But it 
will come as no surprise to you that we found evidence of 
inefficiency in all 12 areas.
    We also concluded that if inefficient doctors' practices 
were brought into the normal range with their peer groups, 
Medicare could realize substantial savings. We also looked at 
outside of Medicare for other payers who are profiling doctors 
to see if there might be lessons for Medicare in what other 
organizations are doing to improve the efficiency of health 
care delivery.
    We reported on 10 organizations ranging from traditional 
insurers to government payers who collect data on patient's 
health care expenditures at the physician or physician group 
level, and compared those expenditures to an average for 
comparable physicians. Among other things, we found that nearly 
all of these organizations established standards for quality as 
well as efficiency. They examined total health expenditures, 
not just physician service expenditures. The educate doctors 
about their profiling programs and how their performance 
compares to standards for efficiency and quality, and they 
created financial and other incentives for doctors to change 
their behavior or for patients to seek care from the more 
efficient doctors.
    Medicare currently has the tools necessary to conduct 
physician profiling on a large scale. It has a comprehensive 
claims database that can be used to calculate individual 
doctor's patients expenditures. It has enough physicians 
participating in Medicare in most geographic areas to ensure 
statistically valid comparisons, and it has experience in using 
methods to account for differences in patient health status, 
which is a central ingredient for profiling to be meaningful.
    Medicare also faces some limitations which will need to be 
addressed. For example, in its comments on our draft report, 
CMS noted that profiling on a broad scale would be resource-
intensive. We agree that any effort likely to improve 
efficiency program-wide would have to be adequately funded.
    Second, CMS lacks the authority to use profiling results in 
some of the ways that the 10 payers that we studied to, such as 
varying patient copayments or physicians' fees, depending on 
whether quality and efficiency standards are met. Thus, to 
achieve the full potential that profiling offers to improve 
program efficiency will almost certainly require Congressional 
action.
    CMS does have the authority to provide feedback to doctors 
who care for Medicare patients on how their care compares to 
peer groups. Provided that such an effort could get underway 
soon, showing doctors evidence that their practice styles may 
be inefficient compared to a peer group is a promising step to 
encourage them to conserve Medicare's resources. Such feedback 
may, if implemented program-wide, achieve some program savings 
in its own right.
    However, to realize the full potential for profiling to 
affect physician behavior and to moderate the spending trend, 
financial incentives will almost certainly have to be imposed.
    Mr. Chairman, this concludes my remarks, and I would be 
happy to answer your questions.
    [The prepared statement of Mr. Steinwald follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman STARK. Thank you.
    Mr. Kuhn.

  STATEMENT OF HERBERT B. KUHN, ACTING DEPUTY ADMINISTRATOR, 
            CENTERS FOR MEDICARE & MEDICAID SERVICES

    Mr. KUHN. Chairman Stark, Mr. Camp, Members of the 
Subcommittee, thank you for inviting me here today to discuss 
quality and efficiency in Medicare physician payment. The fee-
for-service Medicare Program has largely been a passive payer 
of health-care services. Given the size and impact of Medicare, 
it is a top priority at the Centers for Medicare & Medicaid 
Services to transform Medicare from a passive payer to an 
active purchaser of high quality, efficient care.
    Medicare payment systems should encourage reliable, high 
quality and efficient care, rather than payment based simply on 
the quantity of services provided and resources consumed. CMS 
has taken a leadership role in a multi-pronged approach to 
addressing value-based purchasing for physician services. 
Strategies to measure and encourage quality services, to 
understand appropriate resource use, and to examine current 
value-based purchasing models are all at the heart of CMS 
efforts to help modernize the physician payment system.
    One such method would be to refine the payment system, 
including the additional use of bundled payments for physician 
services. As with other payment systems, Medicare supports 
efforts to identify opportunities for paying physicians and 
providers a single or bundled amount to take care of the 
patient for the range of services that are necessary to manage 
the patient through an episode of care. This contrasts to the 
current fee schedule and physician payment system where we 
typically pay for the individual services.
    We have limited experience in this area for physician 
services. Accordingly, it would take additional research and 
analytical work before we could make substantive changes in 
this area. However, we have had experience with bundling, and 
our results are mixed. I'd like to share with you some of those 
results.
    For example, one, we have established national definitions 
for global surgical packages so that the payment is made 
consistently for all pre-and post-operative visits. We believe 
this has promoted efficiency in the delivery of surgical 
services and fostered continuity of care by the surgeon. It has 
also led to greater payment predictability for the surgeon and 
for the Medicare beneficiary in terms of their copayments. 
However, there are issues about how accurate we are at 
estimating the number and the level of services in the bundle.
    We also would pay physicians a monthly capitated payment 
for managing the care of ESRD patients receiving dialysis 
services. At one time this was a single payment for the visits 
and services the physician performed during the month of care. 
However, based on concerns that physicians were not performing 
the visits during the month, we split the Codes, and payment 
now varies depending on the number of visits provided.
    In general, bundling works very well, but it's more 
problematic in the physician payment setting. Bundled payment 
approaches rely upon a system of averages. This can work very 
well for providers, such as hospitals or large physician groups 
or clinics, that provide a wide range of services for a diverse 
mix of patients. But bundling can be problematic for small 
physician groups that tend to specialize or treat a more 
limited set of patients.
    While there are certainly limitations to bundling for 
physician services, there are areas where additional research 
on bundling options could be considered in the physician 
payment area. One are might be to develop a more comprehensive 
office visit package. Another payment option might allow for 
bundling to eliminate incentives for physicians to furnish 
services on different days in order to avoid the current 
Medicare payment discounts for multiple services furnished on 
the same day.
    It is important, however, as we move in this area of 
payment reform, that we make sure that we provide the 
safeguards against any misalignments of payment incentives 
could diminish the level of care of Medicare beneficiaries, and 
this is important to all of us.
    A second area of payment reform deals with the extensive 
variation of physician use of resources to treat a given 
condition, particularly geographic variation. Studies show that 
greater volume of services does not appear to correlate with 
high-quality care or improved outcomes.
    Measuring physician resource use in Medicare is an 
ambitious undertaking. Nearly 700,000 physicians receive 
Medicare payments, and those physicians submit about 800 
million claims per year. As with the development of the 
Medicare payment systems, which typically are multi-year, 
multi-step processes, so too will the measurement of physician 
resource use take some time.
    A tool used in assessing resource use for an episode of 
care is the episode grouper, which organizes the different 
services furnished to the beneficiary into clinical meaningful 
episodes using the diagnosis and other information that are 
present on the physician claim. When services are grouped, the 
total cost of all services involved with treating the condition 
or illness can be compiled and then compared.
    CMS is currently evaluating two commercial and proprietary 
episode grouper software products currently on the market and 
used by other payers. Episode groupers have a great promise as 
a way to organize Medicare data to make meaningful resource use 
comparisons among physicians. However, there are multiple 
issues that we need to sort through as we look at this to make 
sure that we accurately measure physician resource use. This 
includes attribution. This includes patient characteristics, 
such as severity adjustments. Finally, it really is to make 
sure that we have appropriate comparison groups.
    We have also begun the effort to engage physicians on the 
use of these tools, including asking physician groups to share 
with us clinical scenarios that then we can pass through the 
groupers to see if we come out with the same outcome as they do 
when they do it manually; again, a validation process. Also 
we'd be taking some of the reports we've gotten from these 
groupers and sharing them with physicians and focus groups to 
make sure that they're meaningful, that they're accurate, and 
that they can be actionable for physicians as they move 
forward.
    We hope to have more information for all of you later this 
year in terms of our evaluation.
    Mr. Chairman, thank you again for this opportunity to 
testify on quality and efficiency in Medicare physician 
payment. We look forward to working with Congress, the 
physician community, MedPAC and other stakeholders as we 
continue to analyze the various appropriate to physician 
payment.
    We look forward to answering any questions the Committee 
might have.
    [The prepared statement of Mr. Kuhn follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman STARK. Thank you.
    Glenn, would you like to enlighten us?

   STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN, MEDICARE 
                  PAYMENT ADVISORY COMMISSION

    Mr. HACKBARTH. Thank you, Mr. Chairman, Mr. Camp, other 
Members of the Subcommittee. It's good to see you again. The 
medical care provided to Medicare patients, indeed, all 
Americans, is often amazing. It saves lives, reduces pain and 
disability, yet as has been alluded to already, there's growing 
evidence of uneven quality in the care provided. The care is 
often too fragmented and often more expensive than perhaps it 
needs to be. However, hard experience has taught us that the 
momentum toward more sophisticated, costly and fragmented care 
is very, very powerful and it will not be easily reversed.
    Today we're discussing a number of polices that hold some 
promise, we believe, for redirecting the system's momentum, 
thus increasing the value that Medicare beneficiaries and 
taxpayers receive for their substantial investment in the 
Medicare Program.
    In this opening statement, I want to highlight four 
policies of particular interest to MedPAC. First is profiling 
physicians, already discussed at some length by Bruce, we refer 
to it as a measuring resource use.
    In 2005, MedPAC recommended that CMS provide physicians 
with confidential feedback on their practice patterns and how 
those patterns compare with their peers. With additional study 
over the last couple of years, we're even more convinced that 
this is a doable and worthwhile effort. I might add it's one 
that's enthusiastically endorsed by all of the physician 
members of MedPAC. Like GAO, we believe confidential feedback 
is the first step. Ultimately, the information should be used 
to adjust payments for physicians based on their cost and 
quality.
    A second policy direction that I want to highlight is 
improving pricing accuracy for physician services meaning doing 
everything we can to get the price right for individual 
services. Last year MedPAC made a series of recommendations 
about how the current process for updating physician relative 
values might be improved. If payments, the prices we pay are 
too high, a service may be provided too often. On the other 
hand, if they're too low, the service may be underprovided. If 
errors persist over long periods of time, they may even begin 
to affect decisions about choice of specialty among medical 
students.
    Getting prices exactly right is impossible, and indeed 
there are some important conceptual issues about how you define 
what the right price is. Nevertheless, MedPAC sees evidence of 
some fairly large errors in the physician payment system that 
are skewing the system toward the production of costly services 
at the expense of basic services of very high value.
    A third policy direction is care management and 
coordination. Medicare patients, especially those with multiple 
chronic conditions, may see eight, ten, a dozen or more 
physicians in a given year. Without a concerted effort to 
coordinate and integrate that care, there's a great risk of 
patient confusion, unnecessary duplication and waste, important 
matters falling through the cracks, or even dangerous 
interactions among treatments. Yet Medicare does not properly 
reward physicians for taking the time and effort to manage the 
care of these complex patients. Indeed, Medicare's payment 
system is contributing, we fear, to the steady, even 
accelerating erosion of the nation's primary care workforce. In 
our June 2006 report, we discussed potential models for 
improving care coordination in Medicare.
    The final policy direction I wanted to mention is 
comparative effectiveness. As you know all too well, the U.S. 
spends a very large share of its national wealth on health 
care, yet we often know very little about how alternative 
treatments compare in their effectiveness. There's too little 
incentive for private parties to invest in such research, and 
when they do, the results may be compromised by proprietary 
interests. MedPAC believes that knowledge about what works in 
medicine is a public good that will always be underproduced by 
the private marketplace. Therefore, we believe a significant 
increase in public investment is required.
    In our June 2007 report, we recommended that Congress 
charge an entity with expanding our knowledge base while taking 
steps to assure the entity's independence as well as adequate 
and secure funding.
    In conclusion, let me state the obvious. None of these 
steps is a panacea for the problems facing the Medicare 
program. Some of the proposals are technically complex, and all 
of them are probably politically complex. There is, however, no 
silver bullet for Medicare's cost and quality problems. There's 
much work to be done on many fronts.
    CMS has many important projects underway, including several 
important demonstrations and pilots that Congress has 
specifically requested. The problem is that it currently takes 
too long to develop, implement and refine new payment policies, 
despite heroic efforts by CMS staff. Because there's so much to 
be done, and because we feel growing urgency about getting it 
done, we urge Congress to give serious consideration to a 
substantial increase in its investment in CMS's capacity for 
innovation.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Hackbarth follows:]
 Statement of Glenn M. Hackbarth, Chairman, Medicare Payment Advisory 
                               Commission
    Chairman Stark, Ranking Member Camp, distinguished Subcommittee 
members, I am Glenn Hackbarth, Chairman of the Medicare Payment 
Advisory Commission (MedPAC). I appreciate the opportunity to be here 
with you this morning to discuss ways that Medicare can improve its 
physician payment system.
    Since 2000, total Medicare spending for physician services has 
climbed more than 9 percent per year (Figure 1). Slowing the increase 
in Medicare outlays is important; indeed, it is becoming urgent. 
Medicare's rising costs, particularly when coupled with the projected 
growth in the number of beneficiaries, threaten the sustainability of 
the program. The Medicare Trustees' warn that even their 
unrealistically constrained estimate of Part B spending growth (due to 
multiple years of fee reductions mandated under current law) will still 
significantly outpace growth in the U.S. economy. Part B and total 
Medicare spending growth will continue to put pressure on the federal 
budget. That pressure puts other national priorities, such as homeland 
security and education, at risk.
   Figure 1. FFS Medicare spending for physician services, 1996--2006

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Note: FFS (fee-for-service). Dollars are Medicare spending only and 
do not include beneficiary coinsurance.
    Source: 2006 annual report of the Boards of Trustees of the 
Medicare trust funds.
      
    Rapid growth in expenditures also threatens to make the program 
unaffordable for beneficiaries. It contributes, directly and 
indirectly, to higher out-of-pocket costs through increased copayments, 
premiums for Medicare Part B, and premiums for supplemental coverage. 
As beneficiaries receive more services, they are required to make more 
copayments. Growth in copayments, in turn, pushes up the cost of 
supplemental insurance. In addition, because the monthly Part B premium 
is determined by average Part B spending for aged beneficiaries, an 
increase in expenditures affects the premium directly. From 1999 to 
2002, the premium grew by an average of 5.8 percent per year, but the 
cost-of-living increases for Social Security benefits averaged only 2.5 
percent per year. Since 2002, the Part B premium has increased even 
faster--by 13.5 percent in 2004, 17.3 percent in 2005, and 13.2 percent 
in 2006 (Figure 2).
             Figure 2. Monthly Part B premiums, 1999--2007

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Note: Beginning in 2007, monthly Part B premiums are income-
adjusted. The standard premium for 2007 is $93.50.
    Source: Congressional Research Service. 2004. Medicare: Part B 
premiums. Washington, DC: CRS; CMS press release, dated September 12, 
2006, Medicare premiums and deductibles for 2007; and CMS press 
release, dated September 16, 2005, Medicare premiums and deductibles 
for 2006.
      
    Spending for physician services has grown largely because of 
increased volume--the number of services furnished and the complexity, 
or intensity, of those services. Some observers have hypothesized that 
new technology, demographic changes, and shifts in site of service spur 
growth in the volume of physician services. Changes in medical 
protocols and a rise in the prevalence of certain conditions may also 
play a role. But analyses by MedPAC and others suggest that much of the 
rise in volume is unexplained. A RAND study found that technological 
advances and changes in medical protocols that are specific to 
particular illnesses do not fully account for volume growth. Other 
studies suggest that, after controlling for input prices and health 
status, differences in the volume of physician services are driven in 
large part by practice patterns and physician supply and 
specialization. As Elliott Fisher and others described in a series of 
articles, in geographic areas with more health care providers and more 
physician specialists, beneficiaries receive more services but do not 
experience better quality of care or better outcomes, nor do they 
report greater satisfaction with their care. John Wennberg identified 
some discretionary services that can be overprovided as preference-
sensitive care because they involve significant trade-offs and should 
be selected only by patients capable of making an informed decision. 
This suggests that some services may be unnecessary, exposing some 
beneficiaries to needless risk and generating unwarranted costs for 
beneficiaries and the program. At the same time, evidence shows that 
beneficiaries do not always receive the care they need, and too often 
the care they do receive is not high quality.
    To help address Medicare's growing financial crisis, MedPAC focuses 
much of its work on improving efficiency--getting more in terms of 
quality and outcomes for each Medicare dollar spent. Increasing the 
value of the program to both beneficiaries and taxpayers will require 
efforts to improve the incentives inherent in Medicare's fee-for-
service (FFS) physician payment system.
    Ideally, payment systems will give providers incentives to furnish 
better quality of care, to coordinate care (across settings, for 
chronic conditions), and to use resources judiciously. However, 
Medicare pays its providers the same regardless of the quality of their 
care, which perpetuates poor care for some beneficiaries, misspends 
program resources, and is unfair to providers who furnish high-quality 
care and use resources judiciously. Medicare's payment system does not 
reward physicians for coordinating patients' care across health care 
settings and providers, and it does little to encourage the provision 
of primary care services, even though such actions may improve the 
quality of care and reduce costs. Further, inaccurate prices may 
inappropriately affect physician decisions about whether and what 
services to furnish. And Medicare's FFS method of paying for physician 
services contributes to volume growth by giving physicians a financial 
incentive to increase volume.
    As discussed in our March 2007 report on Assessing Alternatives to 
the Sustainable Growth Rate System, Medicare needs to change the 
incentives of the payment system by ensuring that its prices are 
accurate, furnishing information to providers about how their practice 
styles compare with their peers' practice styles, encouraging 
coordination of care and provision of primary care, and bundling and 
packaging services where appropriate to reduce overuse. In addition, 
Medicare should promote quality by instituting pay for performance, 
encouraging the use of comparative-effectiveness information, and, 
where appropriate, imposing standards for providers as a condition of 
payment. If Medicare's FFS program is to function more efficiently, the 
Congress needs to provide CMS with the necessary time, financial 
resources, and administrative flexibility. CMS will need to invest in 
information systems; develop, update, and improve payment systems and 
measures of quality and resource use; and contract for specialized 
services.
Ensuring accurate prices
    Misvalued services can distort the price signals for physician 
services as well as for other health care services that physicians 
order, such as hospital services. Some overvalued services may be 
overprovided because they are more profitable than other services. 
Conversely, some providers may opt not to furnish undervalued services, 
which can threaten access to care, or they may opt to furnish other, 
more profitable services instead, which can be costly to Medicare and 
to beneficiaries.
    A service can become overvalued for a number of reasons. For 
example, when a new service is added to the physician fee schedule, it 
may be assigned a relatively high value because of the time, technical 
skill, and psychological stress that are required to perform it. Over 
time, the time, skill, and stress involved may decline as physicians 
become more familiar with the service and more efficient at providing 
it. The amount of physician work needed to furnish an existing service 
may decrease when new technologies are incorporated. Services can also 
become overvalued when practice expenses decline. This can happen when 
the costs of equipment and supplies fall, or when equipment is used 
more frequently, reducing its cost per use. Likewise, services can 
become undervalued when physician work increases or practice expenses 
rise. CMS--with the assistance of the American Medical Association/
Specialty Society Relative Value Scale Update Committee (RUC)--reviews 
the relative values assigned to some physician services every five 
years. But many services likely continue to be misvalued.
    In recent years, per capita volume for different types of services 
has grown at widely disparate rates, with volume growth in imaging and 
non-major procedures (e.g., endoscopies) outpacing that for office 
visits and major procedures. Volume growth differs across services for 
several reasons, including variability in the extent to which demand 
for services is discretionary and subject to the judgment of a 
physician or beneficiary, as well as advances in technology that expand 
access and can improve patient outcomes. The Commission and others have 
voiced concerns, however, that differential growth in volume is due in 
part to differences in the profitability of furnishing services. One 
reason that different services have varying opportunities for profit is 
their prices. In some instances, prices for services have been set too 
high relative to costs. For example, MedPAC and CMS have raised issues 
about the equipment use rate assumptions for imaging services. This 
rate may be set too low for some imaging services, meaning that 
Medicare's payment rate is set too high for these services.
    To the extent that the Medicare's sustainable growth rate (SGR) 
system limits growth in aggregate physician spending, differences in 
the rate of volume increases across services mean that certain types of 
services--such as imaging--are capturing a growing portion of Medicare 
physician spending at the expense of other services. As discussed 
below, the Commission has expressed particular concern about the 
tendency of primary care services to become undervalued relative to 
procedural services over time. This creates disincentives to furnish 
primary care services and over time can affect the willingness of 
physicians to enter the primary care specialties. (For more discussion 
of this issue, see p. 13.) Based on the
    RUC's recommendation, CMS recently increased the work relative 
values of many evaluation and management services. Because the fee 
schedule changes are implemented in a budget-neutral manner, their 
impact is partially limited.
    Given the importance of accurate payment, the Commission concluded 
in the March 2006 report to the Congress that CMS must improve its 
process for reviewing the work relative values of physician services. 
CMS looks to the RUC to make recommendations about which services 
should be revalued. But the RUC's three reviews--completed in 1996, 
2001, and 2006--recommended substantially more increases than decreases 
in the relative values of services, even though one might expect many 
services to become overvalued over time. We have noted that physician 
specialty societies have a financial stake in the process and therefore 
have little incentive to identify overvalued services. Although we 
recognize the valuable contribution the RUC makes, we concluded in our 
2006 report that CMS relies too heavily on physician specialty 
societies, which tend to identify undervalued services without 
identifying overvalued ones. We found that CMS also relies too heavily 
on the societies for supporting evidence.
    To maintain the integrity of the physician fee schedule, we 
recommended that CMS play a lead role in identifying overvalued 
services so that they are not overlooked in the process of revising the 
fee schedule's relative weights; we also recommended that CMS establish 
a group of experts, separate from the RUC, to help the agency conduct 
these and other activities. This recommendation was intended not to 
supplant the RUC but to augment it. To that end, the new group should 
include members who do not directly benefit from changes to Medicare's 
payment rates, such as physicians who are salaried, retired, or serve 
as carrier medical directors and experts in medical economics and 
technology diffusion. The Commission has also urged CMS to update the 
data and some of the assumptions it uses to estimate the practice 
expenses associated with physician services.
    In addition, we recommended that the Secretary, in consultation 
with the expert panel, initiate reviews of services that have 
experienced substantial changes in volume, length of stay, site of 
service, and other factors that may indicate changes in physician work. 
For example, when a service becomes easier, quicker, or less costly to 
perform, physicians may be able to provide more of it. Rapid growth in 
volume for a specific service may therefore signal that Medicare's 
payment for that service is too high relative to the time and effort 
needed to furnish it. The Secretary could examine services that show 
rapid volume increases per physician over a given period. Volume 
calculations would need to consider changes in the number of physicians 
furnishing the service to Medicare beneficiaries and in the hours those 
physicians work. CMS could use the results from these analyses to flag 
services for closer examination (by CMS or by the RUC) of their 
relative work values. The RUC could also conduct such volume analyses 
when making its work value recommendations to CMS, but its current 
process (every five years) may not be timely enough to capture services 
with rapid increases in volume.
    Alternatively, the Secretary could automatically correct such 
misvalued services, and the RUC would review the changes during its 
regular five-year review. In this scenario, CMS would identify specific 
service codes with volume increases exceeding a standard, such as 
average historical growth. The Secretary of Health and Human Services 
would then automatically adjust work values for these codes down. The 
RUC would consider the changes as part of their next five-year review.
    Corrections to the practice expense values may also be in order. 
MedPAC is currently studying the impact of CMS's recent changes to the 
fee schedule practice expense calculation, including the use of newer 
practice cost data from some, but not all, specialties. We are also 
analyzing equipment pricing assumptions that are used to derive the 
practice expense values, particularly for imaging services. Ensuring 
that practice expense values are accurately priced reduces market 
distortions that make some services considerably more profitable than 
others, thus creating financial incentives to provide some services 
more than others.
    Finally, revisiting the conceptual basis of the resource-based 
Relative Value Scale system may be in order. Some observers suggest 
that the pricing of individual services should account not just for 
time, complexity, and other resources but also for the value of the 
service and the price needed to ensure an adequate supply.
Measuring resource use and providing feedback
    Elliott Fisher and others have found that Medicare beneficiaries in 
regions of the country where physicians and hospitals deliver many more 
health care services do not experience better quality of care or 
outcomes, nor do they report greater satisfaction with their care. 
Thus, the nation could spend less on health care, without sacrificing 
quality, if physicians whose practice styles are more resource 
intensive reduced the intensity of their practice.
    In the March 2005 report to the Congress, the Commission 
recommended that CMS measure physicians' resource use over time and 
share the results with physicians. Physicians would then be able to 
assess their practice styles, evaluate whether they tend to use more 
resources than their peers or what evidence-based research (when 
available) recommends, and revise their practice styles as appropriate. 
Moreover, when physicians are able to use this information in tandem 
with information on their quality of care, they will have a foundation 
for improving the value of care beneficiaries receive.
    Private insurers increasingly measure physicians' resource use to 
contain costs and improve quality. Evidence on whether measuring 
resource use contains private sector costs is mixed and varies 
depending on how the results are used. Providing feedback on use 
patterns to physicians alone has been shown to have a statistically 
significant, but small, downward effect on resource use. However, John 
Eisenberg found that, when feedback is paired with additional 
incentives, the effect on physician behavior can be considerably 
larger.
    Medicare's feedback on resource use has the potential to be more 
successful than previous experience in the private sector. As Medicare 
is the single largest purchaser of health care, its reports should 
command greater attention. In addition, because Medicare's reports 
would be based on more patients than private plan reports, they might 
have greater statistical validity and acceptance from physicians. 
Confidential feedback of the results to physicians might induce some 
change. Many physicians are highly motivated individuals who strive for 
excellence and peer approval. If identified by CMS as having an 
unusually resource-intensive style of practice, some physicians may 
respond by reducing the intensity of their practice. However, 
confidential information alone may not have a sustained, large-scale 
impact on physician behavior.
    Using results for physician education would provide CMS with 
experience using the measurement tool and allow the agency to explore 
the need for refinements. Similarly, physicians could review the 
results, make changes to their practice as they deem appropriate, and 
help shape the measurement tool. Once greater experience and confidence 
were gained, Medicare could use the results for payment--for example, 
as a component of a pay-for-performance program (which rewards both 
quality and efficiency). Alternatively, Medicare could use the results 
to create other financial incentives for greater efficiency or could 
make the results public to enable beneficiaries to identify physicians 
with high-quality care and more conservative practice styles. 
Eventually, collaboration between the program and private plans could 
result in the development of a standard report card.
    MedPAC has been conducting research using episode grouping tools 
for the past two years and has found that they may be a promising tool 
for measuring resource use among physicians. We have found that the 
vast majority of Medicare claims can be assigned to an episode, and 
that most episodes can be attributed to a responsible physician. Once 
episodes are assigned to a responsible physician, each physician's 
spending for a given episode can be compared to that of his or her 
peers and the results aggregated into an overall ``score.'' Episode 
groupers also permit analysis of the reasons for higher or lower 
resource use: Each episode can be subdivided into its component costs 
(e.g., hospital inpatient admissions, diagnostic testing, physician 
visits, post-acute care).
    Additional research remains, however, to ensure that resource use 
measurement consistently groups claims into episodes and attributes 
episodes to physicians in a manner that correctly classifies physicians 
as high, average, or low users of resources. We also want to integrate 
quality measures into our comparisons of resource use. Adequate risk 
adjustment is crucial to ensure that episode grouping tools are 
measuring actual variation in resource use rather than variation in the 
health status of the beneficiaries being treated. Further, we and 
others have found significant variations in practice patterns for some 
conditions across the nation. As a first step it may be prudent to hold 
physicians to a local standard (e.g., metropolitan statistical area or 
state) rather than a national one and to compare physicians only to 
others in the same specialty. For example, in our March 1 report to the 
Congress on the SGR, we compare a selected cardiologist in Boston to 
his local peers for his treatment of a specific condition (Table 1). In 
this way, we control for some of the differences in practice patterns 
and patient health status that can drive resource use.
   Table 1. Hypertension episode resource use and scores by type of 
                                service

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Note: E&M (evaluation and management). Stage indicates the 
progression of the disease, with 1 being the mildest form. Resource use 
score is the ratio of the cardiologist's resource use to the average 
for cardiologists in Boston.
    Source: MedPAC analysis of 100 percent sample of 2001--2003 
Medicare claims using the Medstat Episode Group grouper from Thomson 
Medstat.
Encouraging coordination of care and the use of care management 
        processes
    The Commission has explored multiple strategies to provide 
incentives for high-quality, low-cost care and thus improve value in 
the Medicare program. However, even if individual providers are 
efficient, a beneficiary may still receive less-than-optimal care if 
providers do not communicate well with each other or if they do not 
monitor patient progress over time. To address this problem, we have 
considered ways to promote care coordination and care management by 
creating incentives for providers to share clinical information with 
other providers, monitor patient status between visits, and fully 
communicate with patients about how they should care for themselves 
between physician visits.
    While many patients could benefit from better coordination of care 
and care management, the patients most in need are those with multiple 
chronic conditions and other complex needs. Gerard Anderson found that, 
in 2001, 23 percent of Medicare beneficiaries had five or more chronic 
conditions and accounted for 68 percent of program spending. But 
according to researchers at RAND, beneficiaries with chronic conditions 
do not receive recommended care and may have hospitalizations that 
could have been avoided with better primary care. Studies attribute 
this problem to poor monitoring of treatment--especially between 
visits--for all beneficiaries and to a general lack of communication 
among providers. Physician offices, on their own, struggle to find time 
to provide this type of care, and few practices have invested in the 
necessary tools--namely, clinical information technology (IT) systems 
and care manager staff. At the same time, beneficiaries may not be 
educated about steps they can take to monitor and improve their 
conditions. Coordinated care may improve patients' understanding of 
their conditions and compliance with medical advice and, in turn, 
reduce the use of high-cost settings such as emergency rooms and 
inpatient care. Ideally, better care coordination and care management 
will improve communication among providers, eliminating redundancy and 
improving quality.
    Research suggests that, without the support of IT and nonphysician 
staff, physicians can only do so much to improve care coordination. 
Individual physicians may not have the time or be well suited to 
provide the necessary evaluation, education, and coordination to help 
beneficiaries, especially those with multiple chronic conditions. One 
study found that older patients with select conditions that require 
time-consuming processes, such as history taking and counseling, are at 
risk for worse quality of care. Further, physicians may lack training 
or resources that would allow them to educate patients about self-care 
or to set up systems for monitoring between visits. Physicians' use of 
basic care management tools is low, even in group practices where 
building the infrastructure for care coordination, including the use of 
clinical IT, may be more feasible.
    Care coordination is difficult to accomplish in the FFS program 
because it requires managing patients across settings and over time, 
neither of which is supported by current payment methods or 
organizational structures. Further, because patients have the freedom 
to go to any willing physician or other provider, it is difficult to 
identify the practitioner most responsible for the patient's care, 
especially if the patient chooses to see multiple providers. The 
challenge is to find ways to create incentives in the FFS system to 
better coordinate and manage care.
    In our June 2006 report to the Congress, the Commission outlined 
two illustrative care coordination models for complex patients in the 
FFS program: (1) Medicare could contract with providers in large or 
small groups that are capable of integrating the IT and care manager 
infrastructure into patient clinical care, and (2) CMS could contract 
with stand-alone care management organizations that would work with 
individual physicians. In the second model, the care management 
organization would have the IT and care manager capacity.
    In either model, payment for services to coordinate care would 
depend on negotiated levels of performance in cost savings and quality 
improvements. Given that Medicare faces long-term sustainability 
problems and needs to learn more about the most cost-effective 
interventions, the entities furnishing the care managers and 
information systems should initially be required to produce some 
savings as a condition of payment. However, demonstrating continued 
savings may not be necessary or feasible once strategies for 
coordinating care are broadly used.
    To encourage individual physicians to work with care coordination 
programs, Medicare might pay a small monthly fee to a beneficiary's 
personal physician or medical group for time spent coordinating with 
the program. As with other fee schedule services, these expenditures 
would be accommodated by reallocating dollars among all services in the 
fee schedule.
    In either model, patients would volunteer to see a specific 
physician or care provider (e.g., a medical group or other entity) for 
their care. CMS could help beneficiaries identify the physician or 
physicians who provide most of their care. Beneficiaries could then 
designate the practitioner they wanted to oversee most aspects of their 
care to be the contact with the care management program. The physician 
and the beneficiary would agree that the beneficiary would consult 
first with that physician but would not be restricted to seeing only 
that physician. The physician, or the medical group on behalf of the 
practitioner in the case of a provider-based program, would receive the 
monthly fee when the beneficiary enrolls in the care management 
program. This designated physician (which need not be a primary care 
physician, because a specialist might be the appropriate person for 
patients with certain conditions) would serve as a sort of medical 
home.
    These models do not represent the only ways care coordination might 
work in Medicare. The American College of Physicians recently advocated 
using advanced medical homes. In addition, other strategies, such as 
pay for performance, complement care coordination models by focusing on 
improving care. In addition, adjusting Medicare's compensation to 
physicians to reflect the longer time spent caring for patients with 
complex issues may be warranted if the current fees do not compensate 
for this extra time. (For example, CMS could apply a multiplier to the 
relative value of certain services for identified patients with 
multiple chronic conditions.) Medicare could also establish billing 
codes to enhance payments for chronic care patients for services such 
as case management. The Medicare Health Care Quality Demonstration, 
which tests the ability of innovative payment arrangements for 
providers in integrated delivery systems to improve quality, may 
provide further models for improving coordination of care.
    Evidence shows that care coordination programs improve quality, 
particularly as measured by the provision of necessary care. Evidence 
on cost savings is less clear and may depend on how well the target 
population is chosen. When cost savings are shown, they are often 
limited to a specific type of patient, the intervention used, or the 
time frame for the intervention. Indeed, researchers at Mathematical 
have suggested that cost and quality improvements are more likely to be 
achieved if programs are specifically targeted and the interventions 
are carefully chosen to benefit the targeted patient group. If care 
coordination programs work, annual spending may decrease, but 
beneficiaries may live longer with a better quality of life--a positive 
outcome for Medicare beneficiaries, but the Medicare program may not 
spend less than it otherwise would have. This possibility argues for 
assessing programs on the basis of whether they provide the 
interventions known to be effective or achieve certain quality 
improvements rather than on the basis of cost savings.
Promoting the use of primary care
    Research shows that geographic areas with more specialist-oriented 
patterns of care are not associated with improved access to care, 
higher quality, better outcomes, or greater patient satisfaction. 
Cross-national comparisons of primary care infrastructures and health 
status have demonstrated that nations with greater reliance on primary 
care have lower rates of premature deaths and deaths from treatable 
conditions, even after accounting for differences in demographics and 
gross domestic product. Increasing the use of primary care in the 
United States, therefore, and reducing reliance on specialty care, 
could improve the efficiency of health care delivery without 
compromising quality.
    But many observers worry that the United States is not training 
enough primary care physicians. Indeed, the growth in the supply of 
physicians in recent decades has occurred almost solely due to growth 
in the supply of specialists, while the supply of generalists--family 
physicians, general practitioners, general internists, and 
pediatricians--has remained relatively constant. A study by Perry Pugno 
and others found that the share of U.S. medical graduates choosing 
family medicine fell from 14 percent in 2000 to 8 percent in 2005. A 
2006 study by Colin West and others found that 75 percent of internal 
medicine residents become subspecialists or hospitalists. There are 
many reasons why an increasing number of physicians choose to 
specialize, but one factor may be differences in the profitability of 
services.
    Historically, Medicare's payment system has valued primary care 
services less highly than other types of services. For example, 
according to a recent Annals of Internal Medicine article by Thomas 
Bodenheimer and others, the 2005 fee for a typical 30-minute physician 
office visit in Chicago was $90 while the fee for an outpatient 
colonoscopy, also about 30 minutes, was $227. In addition, primary care 
services also may be more likely than other services to become 
undervalued over time. While other types of services become more 
productive with the development of new techniques and technology, 
primary care services do not lend themselves as easily to these gains. 
Primary care is largely composed of cognitive services that require 
that the physician spend time with the beneficiary. In addition, many 
beneficiaries have multiple chronic conditions and a compromised 
ability to communicate with and understand their physician, both of 
which increase the time required for visits. It is difficult to reduce 
the length of these visits without reducing quality. (For that reason, 
physicians also find it difficult to increase the volume of primary 
care services furnished in a work day.) Over time, the specialties that 
perform those services may become less financially attractive.
    Some Commissioners have argued that the relative value units of the 
physician fee schedule should be at least partly based on a service's 
value to Medicare. Such an approach would focus on primary care 
services as well as other valuable services. For example, if analysis 
of clinical effectiveness for a given condition were to show that one 
service were superior to an alternative service for a given condition, 
then Medicare's process of setting relative values might reflect that. 
This process would be a significant departure from the established 
method of setting relative values based only on the time, mental 
effort, technical skill and effort, psychological stress, and risk of 
performing the service.
    In the longer term, the Commission is concerned that the nation's 
medical schools and residency programs are not adequately training 
physicians to be leaders in shaping and implementing needed changes in 
the health care system. Physician training programs must emphasize a 
new set of skills and knowledge. For example, programs need to train 
residents to measure their performance against quality benchmarks, use 
patient registries and evidence-based care guidelines, work in 
multidisciplinary teams, manage the hand-off of patients, and initiate 
improvements in the process of caring for patients to reduce medication 
and other costly errors. Policymakers may want to consider tying a 
portion of the medical education subsidy to specific programs or 
curriculum characteristics that promote such educational improvements. 
In addition, policymakers may want to consider policies that promote 
the education of primary care providers and geriatricians. Bear in mind 
that physicians' motivations to enter certain specialties go beyond 
income, including lifestyle concerns and professional interests.
    Medicare's cost-sharing requirements provide no encouragement for 
beneficiaries to seek services, when appropriate, from primary care 
practitioners instead of specialists, unlike most cost sharing in the 
under-65 market, where primary care copayments are often lower than 
those for specialists. Medicare's payment policies and cost-sharing 
structure need to be aligned to encourage the use of primary care. The 
Commission's pay-for-performance and care coordination recommendations 
could also encourage the use of primary care.
Bundling to reduce overuse
    A larger unit of payment puts physicians at greater financial risk 
for the services provided and thus gives them an incentive to furnish 
and order services judiciously. Medicare already bundles preoperative 
and follow-up physician visits into global payments for surgical 
services. Candidates for further bundling include services typically 
provided during the same episode of care, particularly those episodes 
for conditions with clear guidelines but large variations in actual use 
of services, such as diabetes treatment.
    Bundled payments could lead to fewer unnecessary services, but they 
could also lead to stinting or unbundling (e.g., referring patients to 
other providers for services that should be included in a bundle). 
Medicare should explore options for increasing the size of the unit of 
payment to include bundles of services that physicians often furnish 
together or during the same episode of care, similar to the approach 
used in the hospital inpatient prospective payment system.
    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) changed the way Medicare pays for dialysis treatments and 
dialysis drugs. However, the MMA did not change the two-part structure 
of the outpatient dialysis payment system. One part is a prospective 
payment called the composite rate that covers the bundle of services 
routinely required for dialysis treatment; the other part includes 
separate payments for certain dialysis drugs, such as erythropoietin, 
iron, and vitamin D analogs that were not available when Medicare 
implemented the composite rate. Providers receive the composite rate 
for each dialysis treatment provided in dialysis facilities (in-center) 
or in patients' homes.
    The Commission has recommended that the Congress broaden the 
payment bundle to modernize this payment system. Medicare could provide 
incentives for controlling costs and promoting quality care by 
broadening the payment bundle to include drugs, laboratory services, 
and other commonly furnished items that providers currently bill 
separately and by linking payment to quality.
    A bundled rate would create incentives for providers to furnish 
services more efficiently. For example, a bundled rate would remove the 
financial incentive for facilities to overuse separately billable drugs 
under the current payment method. In addition to an expanded bundle, 
changing the unit of payment to a week or a month might give providers 
more flexibility in furnishing care and better enable Medicare to 
include services that patients do not receive during each dialysis 
treatment.
    MedPAC is examining bundling the hospital and physician payments 
for a selected set of diagnosis related groups (DRGs), which could 
increase efficiency and improve coordination of care. This approach to 
bundling could be expanded in the future to capture periods of time 
(e.g., one or two weeks) after the admission but likely to include care 
(e.g., post-acute care, physician services) strongly related to the 
admission, further boosting efficiency and coordination across sites of 
care. Bundled payments could be adjusted to provide incentives for 
hospitals and physicians to avoid unnecessary readmissions. Bundling 
services could be structured so that savings go to the providers, the 
program, or both. The Commission is also examining bundling physician 
payments with payments for other providers, such as hospital outpatient 
departments and clinical laboratories. In addition, MedPAC plans to 
examine the physician services furnished to patients before, during, 
and after inpatient hospitalizations for medical DRGs to assess whether 
a global fee should be applied to these services, as it is for surgical 
DRGs.
    Hospital readmissions are sometimes indicators of poor care or 
missed opportunities to better coordinate care. Research shows that 
specific hospital-based initiatives to improve communication with 
beneficiaries and their other caregivers, coordinate care after 
discharge, and improve the quality of care during the initial admission 
can avert many readmissions. Medicare does not reward these efforts. In 
fact, the program generally pays for readmissions, creating a 
disincentive to avoid them. To encourage hospitals to adopt strategies 
to reduce readmissions, policymakers could consider requiring public 
reporting of hospital-specific readmission rates for a subset of 
conditions and adjusting the underlying payment method to financially 
encourage lower readmission rates.
    Episode grouper software, which is used to measure physician 
resource use and was discussed earlier, could also serve as a platform 
for bundling services for selected conditions.
Linking payment to quality
    Medicare, the single largest payer in the U.S. health care system, 
pays all health care providers without differentiating on the basis of 
quality. Those providers who improve quality are not rewarded for their 
efforts. In fact, Medicare often pays more when poor care results in 
complications that require additional treatment.
    To rectify this situation, MedPAC has recommended that Medicare 
change the incentives of the system by basing a portion of provider 
payment on performance. We recommended that CMS start by collecting 
information on structural measures associated with use of IT, such as 
whether a physician's office tracks whether patients receive 
appropriate follow-up care, and claims-based process measures for a 
broad set of conditions important to Medicare beneficiaries. At the 
outset, CMS should base rewards only on the IT structural measures, 
with claims-based process measures being added to the pay-for-
performance program within two to three years. Two other structural 
measures--certification and education--could become part of a measure 
set, but the link with improved care would need to be clear. The 
program should be funded initially by setting aside a small portion of 
budgeted payments--for example, 1 percent to 2 percent. The program 
should be budget neutral; all monies set aside would be redistributed 
to those providers who perform as required.
    The Institute of Medicine (IOM) and MedPAC have stated that, 
ideally, pay-for-performance measures should be developed and used for 
all physician service providers to create incentives to provide better 
quality care. However, currently we do not have well-established 
measures for all providers of physician services. Thus, initially, 
policymakers might consider prioritizing the implementation of some 
pay-for-performance measures over others. Focusing measures on high-
cost, widespread, chronic conditions (e.g., congestive heart failure) 
might be a good short-term strategy that will maximize benefits to the 
Medicare program and to beneficiaries. Further, measures that reflect 
coordination between health sectors will encourage and reward 
communication between providers, which may improve patient outcomes and 
reduce Medicare costs. The Commission considers that pay-for-
performance initiatives would be implemented in a budget-neutral 
manner.
    IOM and MedPAC assessments of the current state of quality 
measurement are similar. The indicators that are available now could 
form a starter quality measurement set. However, the measures that are 
currently available are fragmented across different users for different 
purposes and cannot be tied explicitly to the overarching, national 
goals laid out by IOM. Composite scores that could bring together 
multiple measures of different aspects of quality into a meaningful 
summary are needed, but judging the relative value of competing goals 
that would underpin such a summary is a challenge.
    Both IOM and MedPAC have recommended that a national entity is 
needed to:

      set and prioritize the goals of the health care system;
      monitor the nation's progress toward these goals;
      ensure the implementation of data collection, validation, 
and aggregation;
      coordinate public and private efforts at local, state, 
and national levels;
      establish public reporting methods;
      identify and fund development of the measures; and
      evaluate the impact of quality improvement initiatives.
Encouraging the use of comparative-effectiveness information
    Increasing the value of the Medicare program to beneficiaries and 
taxpayers requires knowledge about the costs and health outcomes of 
services. Comparative-effectiveness information, which compares the 
outcomes associated with different therapies for the same condition, 
could help Medicare use its resources more efficiently. Comparative 
effectiveness has the potential to identify medical services that are 
more likely to improve patient outcomes and discourage the use of 
services with fewer benefits. CMS already assesses the clinical 
effectiveness of services when making decisions about national coverage 
and paying for certain services. But to date FFS Medicare has not 
routinely used comparative information on the costs of services, 
although Medicare Part D plans and other payers and providers, such as 
the Veterans Health Administration, do use comparative information 
(e.g., in drug formulary decision-making processes).
    Medicare could use comparative-effectiveness information in a 
number of ways to improve the quality of care beneficiaries receive. 
Medicare could use such information to inform providers and patients 
about the value of services, since there is some evidence that both 
might consider comparative-effectiveness information when weighing 
treatment options. Medicare might also use the information to 
prioritize pay-for-performance measures, target screening programs, or 
prioritize disease management initiatives. In addition, Medicare could 
use comparative-effectiveness information in its rate-setting process 
or in coverage decisions.
    Given the potential utility of comparative-effectiveness 
information to the Medicare program, an increased role of the Federal 
Government in sponsoring the research is warranted. In our forthcoming 
June report, MedPAC will recommend that the Congress should establish 
an independent entity whose sole mission is to produce and provide 
information about the comparative effectiveness of health care 
services. The entity should set priorities and standards for new 
clinical- and cost-effectiveness research, examine comparative 
effectiveness of interventions over time and disseminate information to 
providers, patients, and federal and private health plans. The entity 
could be funded jointly by the Federal Government and the private 
sector, with an independent board of experts overseeing the development 
of research agendas and ensuring that research is objective and 
methodologically rigorous.
Using standards to ensure quality
    CMS has set standards to ensure minimum qualifications for various 
types of providers (e.g., hospitals and skilled nursing facilities), 
but there are few examples of federal standards that apply to physician 
offices. The Commission has recommended that such standards be 
implemented for physicians who perform and interpret imaging studies. 
This recommendation was motivated by rapid growth in the volume of 
imaging. This growth was driven in part by imaging being increasingly 
provided in physician offices rather than in facility settings. (The 
growth is not fully offset with a corresponding decrease in imaging use 
in facilities.) The lack of quality standards for imaging conducted in 
physician offices raises a number of quality concerns. Therefore, the 
Commission recommended standards for physicians, facilities, and 
technicians that perform imaging studies. In the future, other types of 
services may be candidates for such standards.

                                 

    Chairman STARK. Thank you all. If I can divide this 
discussion into two parts. We have the question of the payment 
per procedure and then volume. Glenn, you suggested that if we 
had the wrong payment for a procedure we can influence volume 
up or down, depending on where it is. Mr. Steinwald talks about 
whether we have enough information to really identify 
individual physician's behavior relative to volume. Is that 
what you told us?
    Mr. STEINWALD. Yes, sir. Primarily through the 800 million 
claims that Herb Kuhn referred to earlier.
    Chairman STARK. Now, Mr. Kuhn, are those 800 million 
claims--that's a year?
    Mr. KUHN. That is correct. Every year.
    Chairman STARK. Are they all digitized? I mean, can you 
slice and dice those on your laptop so you could give me all 
kinds of information in specifics, down to specific physicians 
in specific neighborhoods? Is it a pretty comprehensive 
database?
    Mr. KUHN. It is that comprehensive, and we hope to be able 
to do exactly what you said, be able to get it down by 
physician and area.
    Chairman STARK. Then let me make a suggestion and see 
whether you agree or disagree. I think we're a lot closer to 
identifying or being able to accept both by the providers and 
us and CMS and the taxpayers the individual procedure payments, 
recognizing that we may get it wrong. But there's been a lot 
more agreement--what disagreement comes, and we can let 
physicians fight that out among themselves. Certainly we're not 
capable of deciding that. That the bigger problem that has 
occurred me is how do we control what's referred to as volume?
    So, I guess I'd start with Mr. Steinwald. Do we have enough 
information and do we have the mechanical or computer ability 
to actually adjust volume on a basis of individual 
practitioners? Can we get down that fine?
    Mr. STEINWALD. My first response is yes, I think we have 
sufficient information certainly to begin a process of 
providing feedback to physicians. And----
    Chairman STARK. I didn't say the feedback. How about money?
    Mr. STEINWALD. Well, the first question is, will the 
feedback in itself create a behavioral response that will 
achieve program savings? I'd like to think that if the program 
were rolled out in large scope and conducted properly that it 
would. But I think the other shoe that has to drop is that if 
you want to get the full benefit, there need to be incentives 
that go with the profiling.
    Chairman STARK. Okay. Let me just say it a little bit 
different way. We could probably go back to the old volume 
performance, and let's assume that we're about close enough for 
government work to the procedural payment, per procedure. So, 
that if volume is our big--and particularly in things like 
diagnostic imaging, things like that, which seem to go off the 
charts, we could take groups, physicians in a state--let's take 
radiologists, across the country. We could narrow it, I 
suppose, to statistical areas. Or we could drill down to the 
individual radiologist. My guess is that we're not quite ready 
to do that in the next few months for us to legislate.
    But would it make sense to--are we at a place where we 
could start that? Get out immediately the information to groups 
of physicians such as peers are doing in terms of volume, and 
then begin to refine that to see whether we could get a more 
sophisticated method than just every radiologist in the 
country, if they go above a certain amount, cutting the fees by 
a certain amount, perhaps adjusting that so that those who 
are--become outliers get a large reduction than those who 
perhaps are judicious in their utilization? Is that--do we have 
the data and the technical ability to approach that?
    Mr. STEINWALD. I believe we do. There are those who will 
argue that our system for adjusting for patient health status 
is imperfect and needs to be improved. But our position is that 
there is sufficient data and tools there to begin the process.
    Chairman STARK. Mr. Kuhn, can--are you ready to do that for 
us next week?
    Mr. KUHN. We've been doing a lot of work in this area and 
on evaluation, and I would like to think that, with the proper 
authority and resources, we could be in a position sometime 
mid-'08 to begin putting that kind of information----
    Chairman STARK. You're kidding?
    Mr. KUHN. Yeah. I don't want to have a sense of bravado 
here that, you know, we can perform miracles, but I think----
    Chairman STARK. What kind of resources would you need from 
us----
    Mr. KUHN. I'm not sure----
    Chairman Stark [continuing]. Or legislation even?
    Mr. KUHN. I'm not sure of the resources. I think that's 
something we'd like to talk to the Committee, about but to give 
you a sense here, I mean, to churn the data is probably the 
smallest part. Really, we've got to clean the data and make 
sure it's good. It's the old issue of "garbage in, garbage out. 
So, we've got to make sure" it's good, clean data and it works.
    The fact that we've got 700,000 physicians, depending on 
how fast and how frequently we want to give reports--is it 
monthly, is it quarterly? That cost to get the resources out to 
them, and then, ultimately, get it in the hands of physicians. 
You just don't want to drop it at their doorstep. There's got 
to be some kind of educational program around that.
    It's what Bruce--and I think, Glenn--have both talked 
about--How do they compare to their peers, and what kind of 
program. Are there educational tools we can provide? Are there 
educational tools that will help facilitate data exchange and 
physician specialists can provide? Do we engage the QIOs, for 
example, to come in and work with physicians so they can 
understand it so that it's actionable once they are able to 
receive it?
    So, I think we're talking a package like that, and that's 
something we'd like to talk further with you and the Committee 
about.
    Chairman STARK. Glenn, I know you're not in as much--in 
terms of volume containment, but how does this strike you?
    Mr. HACKBARTH. Well, we did recommend a couple of years ago 
now that Medicare move down this path of using tools that are 
widely used in the private sector to assess physician practice 
patterns. We think they can be an effective tool for altering 
those patterns, both initial information feedback, but 
ultimately through changes in payment. So I largely agree with 
what Bruce and Herb have said on that.
    The other point that I would like to raise, Mr. Chairman is 
that looking at price adjustments can be an important tool in 
addressing the volume issue. Let me take the area of imaging. 
As you well know, as the Committee well knows, a lot of the 
growth in imaging is great stuff. It's improving care for 
patients, and for sure we don't want to stop that. On the other 
hand, there is some reason for concern that some of the growth 
is not very high value care.
    There are ways that we might approach the pricing of 
imaging services that would automatically result in some price 
reductions on rapidly growing services and create a rebuttal 
presumption, if you will, that the costs of providing those 
services are falling with the rapid growth. That's what happens 
in most parts of the economy. What happens now in Medicare is 
prices are set at a given level for new stuff, and they often 
stay at a high level and they're never adjusted downward.
    So, building some mechanisms into the program that would 
facilitate price adjustment, and there is a rapid growth and 
rapid dispersion of new technology, we think would be the 
fairer system in relative prices and help address volume.
    Chairman STARK. Do you have the resources at MedPAC to 
monitor this as--enough to create a system. I know you can 
study it from time to time, but do you have the resources to 
continuously monitor that and adjust for what I would call 
productivity gains in areas where we should be getting a lower 
price because it takes less time or it's done?
    Mr. HACKBARTH. Well, ultimately, we think that the 
responsibility for ongoing monitoring needs to reside in CMS.
    Chairman STARK. Yes.
    Mr. Hackbarth. We've made some proposals, in fact, on how 
to augment their resources and their process, bring in some 
experts to help them do that.
    Chairman STARK. I thank you. I thank all of you. Mr. Camp?
    Mr. CAMP. Well, thank you, Mr. Chairman. Again, thank you 
all for coming. Obviously, Mr. Steinwald, you've said that 
health needs alone haven't been determining spending, and 
clearly with Medicare spending on physicians increasing at 9 
percent per year and certain distortions based upon the value 
of services occurring in the market, you're suggesting that an 
analyzation of claims data will help address this issue.
    I guess my question for all of you is if you look at claims 
data alone, that can tell us the volume of services provided 
certainly, but how do we address the issue of medical 
necessity? If you each want to answer that.
    Mr. STEINWALD. It's essential in a profiling system to 
recognize variations in patient needs. But the point that we 
made in our report and the testimony to you is that there are 
tools that enable one to do that. In a study that we conducted, 
for example, we divided patients into 30 cohorts based on their 
health status. Their health status was measured in terms of 
their diagnoses, their chronic diseases and some demographic 
characteristics.
    So, when we examine--we identified physicians who appear to 
be practicing medicine inefficiently, we were attempting to 
hold health status constant. Health status is our measure of 
the degree of patient need. So, we think that the tools are 
there and sufficient to at least go forward with a feedback 
program, and then during the time that the feedback program is 
in effect, these tools can be refined.
    Mr. CAMP. All right. Mr. Kuhn.
    Mr. Kuhn. I agree with Bruce. I think the necessity issue 
is there in terms of the Codes that we use, the Codes that we 
have, and the way we have to go back and look at the claims 
that come through the system.
    Obviously, we have opportunities with both the QIOs and 
with our contractors to go back and follow up with providers to 
make sure that the care that is given appropriate and 
necessary. But I agree with him. The fact that once you begin 
to put together these episodes and begin to look at them, I 
think that it gets to the core function of--Are we having a lot 
of overuse of services here, and do we have people who are 
operating outside the norm? I think that would give us 
additional tools to be able to look at that.
    Mr. CAMP. You're really thinking of practice patterns here, 
I think, is what I hear you saying?
    Mr. KUHN. I think, it's kind of a two-part. One would be on 
evidence-based guidelines and certainly practice patterns based 
on good evidence. But at the same time, you don't want to be so 
restrictive that you eliminate the art of medicine and don't 
allow physicians to deal with different patients who have 
different characteristics. So, finding that fine line is going 
to be key for us here, but I think we could do that.
    Mr. CAMP. All right. Mr. Hackbarth.
    Mr. HACKBARTH. Yeah. I have a couple of points, Mr. Camp. 
One is that what MedPAC envisions, recommends is that the 
system look not just at the cost of the care provided, but also 
integrate into the system quality measures. So, what we want to 
do ultimately is to award physicians who are truly efficient; 
namely, providing high quality care at a lower cost. So, we 
need to have both cost and quality in the analysis.
    Second, as an initial step, what we envision is that the 
comparison could be to peers by specialty within their 
geographic area to increase the comfort level among physicians 
that they're being compared to a reasonable target. So, it 
would be a cardiologist in Boston compared to other 
cardiologists in Boston. Here's how you fare. We've actually 
provided some examples of how those data look in some of our 
reports.
    The third point I make is that we do need to, for the long 
run, find research on what works so we can better evaluate 
practice patterns so we know what's good and what's bad. That's 
a long-term project, and that's why we think it's important to 
increase funding for that effort as soon as possible.
    Mr. CAMP. All right. Thank you. Mr. Kuhn, where is the CMS 
physician quality reporting initiative implementation going? 
How is that going?
    Mr. KUHN. We're moving along very well on that. As I think 
people know, it begins in July and will allow physicians to 
report quality measures. We have 74 measures that we've posted 
on the website already, with good descriptors on each, and 
we're ahead of the timeline on that. Physicians will be 
reporting in July for the 6 months till the end of the year, 
and then with a payment differential of up to 1.5 percent in 
the next year.
    So far, I think development of the measures, the good 
collaboration of the physicians has gone well. Where we're 
spending most of our time right now is in developing good 
educational information and outreach to the physician 
community. We don't want anybody to be left behind or to not 
understand how to participate in this program. So we think with 
our ten regional offices, good support from the AMA and the 
other physician specialty groups out there, we've done some 
extensive outreach. So I feel pretty good about where we are at 
this stage. As the issues come up, we try to address them. I 
think the real test will probably be in September or October 
when we start to get the initial reports back and see how many 
physicians are reporting and whether we have any glitches in 
system. But for right now, we feel very secure about where we 
are in the development and implementation.
    Mr. CAMP. Thank you. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman STARK. Ms. Tubbs Jones, would you like to inquire?
    Ms. TUBBS JONES. Mr. Chairman, yes I would. Thank you very 
much. Good morning, gentlemen. This is my first service on the 
Subcommittee on Health, and I'm reading through one of the 
reports. It, for some reason, some of this stuff seems to make 
it out like it's rocket scientist. We all understand that 
primary care to a senior is what will make them hopefully live 
longer and the coordination of their benefits will hopefully 
make the dollar go through--stretch out or have greater value. 
Is this rocket scientist you're putting forth in this report or 
is it something that we've always known but we've not been able 
to reach it in the Medicare Program?
    Mr. Hackbarth, I think this is your report I'm referring 
to.
    Mr. HACKBARTH. Yeah. Well, I suppose sometimes we do try to 
make things complicated, but we try to be precise and analytic. 
There is a lot of evidence that good primary care improves 
results to patients and perhaps even saves money. I think the 
real challenge is how to operationalize that.
    Ms. TUBBS JONES. Would you say, then, that in the United 
States where we have the greatest health care in the world, is 
it the delivery of the health care that we're not able to put 
our arms around to provide the kind of health care that people 
need in the United States?
    Mr. HACKBARTH. Yeah. American health care is wonderful in 
its sophistication, the technology that's used to provide it. 
But there are large-scale problems in the delivery of services, 
problems in getting the right services to the right patients at 
the right time, large problems with equity and access and the 
like. So, yeah, our problems are delivery problems. The 
financing system often shapes delivery.
    Ms. TUBBS JONES. Obviously. My next question is, there is a 
discussion of a lot of friends that are physicians, a lot of 
friends that are dentists, and on and on and on, who are saying 
that the undervaluation of their services is driving them away 
from rendering care to Medicare beneficiaries. What are we 
doing to address that particular area? Anybody can answer that 
question. Mr. Kuhn, I didn't mean that leave you all out.
    Mr. KUHN. No, not a problem. You're right. The 
undervaluation of services also creates a real severe problem 
in terms of making sure physicians get the correct resources 
they need and beneficiaries have access to those services.
    What happened was----
    Ms. TUBBS JONES. Say that again?
    Mr. KUHN.One of the things we did last year is that every 5 
years by statute, we're supposed to go back and look at the 
physician payment system to make sure that the relative values 
are set appropriately. It's called the 5-year review. It's 
managed by the AMA's Relative Value Update Committee, also 
known as the RUC.
    The good thing and the exciting thing that happened last 
year is they came back with a set of recommendations that we 
had never seen before to actually reward what we call E&M codes 
or evaluation and management codes--basically, those used 
predominately by primary care physicians, people who are doing 
family medicine and others. We increased those substantially, 
basically saying "let's pay physicians more for spending time 
with the patients, talking with the patients, meeting with 
them." And we accepted 100 percent of those recommendations as 
we went forward.
    So, I hope that we'll see this year and next year--we'll 
move forward the results of that charge because it was probably 
one of the most significant changes out there in terms of 
payment in the last decade. It represented real realignment. 
So, we're making those changes. They're probably not as 
aggressive as some probably thought they were or should be. But 
that was a good, significant move and one we were happy to 
adopt and implement last year.
    Ms. TUBBS JONES. Mr. Steinwald, I don't want to leave you. 
I have one little other area I want to go real quick so we've 
got probably seconds. So, go ahead.
    Mr. STEINWALD. Yes ma'am. In general, the number of 
services performed for Medicare beneficiaries is up in almost 
every specialty area and in every part of the country. The 
trend over this decade has been for more beneficiaries to 
receive services and each beneficiary getting more services in 
a period of time.
    I won't dispute what Glenn said about the relative 
valuation of primary care versus specialty care. But the data 
generally shows that Medicare beneficiaries are receiving 
services and there are very few places where you can identify 
what you would regard as an access problem.
    Ms. TUBBS JONES. But the real problem, however, may well be 
the coordination of the services. You've got seniors and 
doctors who are not talking to one another, and delivery of 
service is a real problem. I'm probably out of time, but I 
think--my biggest concern is that we do all this research and 
all these studies, which are real important to me, and my 
seniors are not getting the services that they need. So, 
somehow I'm asking you to do both. Study but deliver.
    Chairman STARK. Mr. Ramstad, would you like to inquire?
    Mr. RAMSTAD. Thank you, Mr. Chairman. Chairman Hackbarth, 
both in your written testimony and in your colloquy today with 
Mr. Camp, you mentioned--discussed what I think is the obvious, 
that Medicare does not pay providers based on quality or 
efficiency of care.
    I'd like to ask you to elaborate or the other two 
distinguished panelists, this is nowhere better exemplified 
than in my home state of Minnesota where physicians provide 
some of the highest quality and lowest priced, lowest cost care 
in the country, and instead of being rewarded for providing 
high quality and low cost care, they're penalized consistently 
through inequitable payments pursuant to the archaic, arcane, 
outrageous and unfair AAPCC formula for managed care, and also 
the geographic adjustments in traditional fee-for-service 
Medicare.
    In my judgment, this--well, both payment systems are 
perverse, because they perversely reward high cost and 
inefficiency. Isn't it time--and, again, I welcome your input, 
Chairman Hackbarth, and you, Mr. Kuhn, and you, Mr. Steinwald--
isn't it time to scrap this arcane payment system? Isn't it 
time for Congress, working with experts like you, to develop a 
system where we finally are able to reward providers for high 
quality and lower cost care?
    Mr. HACKBARTH. Absolutely. We've over the years proposed a 
lot of different ways that you might go about doing that. We 
talked about several of them this morning.
    I would say, Mr. Ramstad, though, that given Medicare's 
long-term financing issues, what we need to do is not bring the 
low cost, high quality areas up in terms of their expenditure, 
but rather bring the high cost areas down to where they are. 
It's an understandable reaction for people to say, well, we're 
being efficient with the low cost and high quality and those 
other guys are getting all the money, and we should be getting 
that money. But a terrible long-term financing problem requires 
that we move down and not go up.
    Mr. RAMSTAD. Recognizing that--pardon my interruption. 
Recognizing that fact, on that point, there isn't enough 
money--God doesn't have enough money to do it that way. 
Certainly Medicare doesn't. So, my fundamental question, the 
only way we're going to resolve this, isn't it true to say, 
isn't it fair to say, is by scrapping the present system? We 
can't do it pursuant to the current system.
    Mr. HACKBARTH. Which system?
    Mr. RAMSTAD. The AAPCC formula for managed care and the 
geographic adjustments in traditional fee-for-care.
    Mr. HACKBARTH. Well, the Medicare Advantage issue is a 
separate topic that we've discussed a lot. Again, the basic 
point that MedPAC made, for example, in our report on the SGR 
in March, is that if we've got geographic disparities in 
aggregate expenditures, what we need to do is squeeze the high-
cost states down, not bring the low-cost states up. That's what 
the long-term financing does.
    Mr. RAMSTAD. But how do we do that short of scrapping the 
present formula? How do we do that? That's what I've heard for 
12 years here, and then I've heard we can't scrap the present 
formula because there are more Members, more votes from Florida 
and New York and California than there are from Minnesota and 
Iowa and North Dakota and Wyoming, the states that are 
penalized. So, how we do that short of scrapping the formula?
    Mr. HACKBARTH. Well, it would involve scrapping the formula 
and making significant changes, yes, absolutely.
    Mr. RAMSTAD. That's the answer I was looking for, and I 
appreciate your candor and your recognition of that fact. Do 
either of you have anything to add?
    Mr. KUHN. Just one thing I'd add to that, Mr. Ramstad, is 
you're absolutely right. The judicious use of resources is 
absolutely essential to the Medicare Program and how we can put 
together payment systems that drive us in that direction is 
key. The issue of the wage index that you raised, one of the 
things for this Committee to look forward to which will be 
arriving soon, is that part of the tax relief bill was passed 
last year was a mandate for a report to Congress on how we 
develop other alternatives to the wage index.
    MedPAC has taken the lead on that. They're going to produce 
a report I think in June that will be handed off to us, and 
then we will take that work that they've done and subsequently 
give a report to Congress. So, the opportunity for further 
dialog on that issue with some options coming forward is near.
    Mr. RAMSTAD. Thank you. Briefly.
    Mr. STEINWALD. Back to fee-for-service Medicare. The blunt 
instrument I referred to earlier that the SGR system poses. If 
we were able to replace that with programs that recognize 
individual doctor's adherence to the practice standards, those 
doctors who do adhere to practice standards will be better off 
than those that are costing us these big payment increases.
    Mr. RAMSTAD. Well, thank you for your expertise, and thank 
you for your candor. Thank you, Mr. Chairman.
    Chairman STARK. Mr. Becerra, I think we'll have time for 
two more Members to inquire before we have to go vote. Would 
you like to inquire?
    Mr. BECERRA. Yes, Mr. Chairman. Thank you. Gentlemen, thank 
you for your testimony. Let me step back a second ask you to 
help me compare what we do in this country with other countries 
that offer their seniors a universal system of health care.
    Tell me what you see as the differences between our system 
from its initial starting point versus another system that's 
perhaps comparable. I'm not sure what country would have a 
system comparable in terms of its population profiles and it's 
way of administering services and its level of sophistication 
in services.
    So, let's say whether it's Great Britain or Canada, are 
there any countries that you can use as a base model to compare 
both our population and our system for providing health care to 
our seniors? I'd ask you to be as brief as possible so I can 
then follow up.
    Mr. HACKBARTH. Yeah. I'd hesitate to choose any one 
particular country. I can make some general statements. As is 
well known, we tend to spend significantly more per capita than 
even other wealthy countries. The growth in expenditures, 
though, tend to be about the same. So, it's not like we're 
growing dramatically faster than others. They're pretty 
similar.
    There has been some research that shows the major reason 
for the difference in cost in the U.S. versus other countries 
is the prices paid for services, prices paid for physician 
services and hospitals and drugs and the like, tend to be 
significantly higher, and those translate into a higher income 
for physicians and all health care professionals in the U.S. 
than in foreign countries.
    Mr. BECERRA. Utilization rates, are they similar?
    Mr. HACKBARTH. You know, they vary somewhat. The research I 
was just referring to about price differences says that, you 
know, on most important issues of utilization, access to the 
care and the like, lower-cost countries compare favorably to 
the U.S. They get access to new technology, et cetera. The big 
difference is price differentials.
    Mr. BECERRA. Mr. Hackbarth, my understanding is, it's sort 
of what you've just said, is that we typically start our 
baseline at a higher level than other advanced countries do 
when it comes to what they're paying for a service. We seem to 
have a higher utilization rate in some cases of some of the 
more expensive services that are provided than do other 
countries. So, we start off already, before the first dollar is 
out the door, paying more than other advanced countries do for 
health care for seniors, and we seem to find that the more 
expensive services are used more often in this country.
    Mr. HACKBARTH. Yeah. Perhaps----
    Mr. BECERRA. Perhaps our seniors are no better off, in some 
cases worse off, than the population of seniors in those other 
countries.
    Mr. HACKBARTH. Yeah. We're really generalizing here, and 
there's always risks in doing that. But often, the U.S., there 
will be faster access to the new technology, lower thresholds 
on who qualifies for an expensive new technology, and in many 
cases, that's a difference and it increases costs in the 
Medicare system.
    Mr. BECERRA. I thank you for that. I hope we explore more 
what other countries are doing, because other countries have 
had long-term experience in the ways we have to some degree, in 
providing universal health care to our seniors. But they 
certainly seem to do it for a lot less and in many cases, 
they're outcomes seem to be as good if not better than ours. 
So, they're getting far more bang for the buck for our seniors.
    The other question is, this whole description of the 
primary physician, gatekeeper, or what's the other term, home?
    Mr. HACKBARTH. Medical home.
    Mr. BECERRA. The medical home. I know when you talk to some 
physicians, especially the specialists and they hear the word 
"gatekeeper,'' they get somewhat concerned about what--or how 
we describe that primary care physician, and they tend to think 
more in terms of a gatekeeper versus a medical home.
    Can you give us a sense of how you get the physician 
community to feel comfortable that we may move more toward a 
system of a medical home or gatekeeper?
    Mr. KUHN. I'm not sure. You know, this is going to be a 
maturation process for all of us as we go forward here. We are 
trying to put together a demonstration on a medical home model 
right now, and we've been meeting with a lot of the physician 
groups to help them help us describe what a medical home is. 
I'll tell you, every physician group you talk to has a 
different idea. As some people describe it, it almost sounds 
like a medical lean-to. On the other side of the spectrum, it's 
almost a medical mansion. But what is a "medical home"? It's 
somewhere in the middle. How can you get a good description of 
that so that you have the coordination of care that you're 
after?
    Mr. BECERRA. Let me ask one last question. My time has 
expired. Do any of you believe that we can move forward in a 
productive way with Medicare without coming up with some 
definition of a "medical home" or a gatekeeper system?
    Mr. KUHN. I think the "medical home" as Glenn laid out 
through, in his opening remarks, about four different 
initiatives. It's going to be one of many things we're going to 
need to explore. I don't think there's a silver bullet here 
anywhere. But it's one of many things that I think will be 
helpful to us.
    Mr. BECERRA. Thank you very much. Thank you, Mr. Chairman.
    Chairman STARK. Ron, do you want to ask a question?
    Mr. KIND. Yes. Thank you, Mr. Chairman. We just have a few 
minutes before we have to run to vote, but we appreciate your 
testimony today. I personally kind of went through medical home 
type of process myself, having walked through with my older 
sister, breast cancer treatment in my hometown in La Crosse. 
They called it the integrated team approach, but it sounds very 
comparable where the patient is taken and then instead of just 
being handed off to physician to physician, there was that team 
that was formed around her so there was no slipping through the 
cracks. Let me tell you, for her confidence and reassurance and 
the whole family, it worked marvelously. Of course the quality 
of care standards have improved dramatically as well. It's been 
a real model that they're trying to help other providers 
throughout the country.
    But I just echo and ditto what my friend from Minnesota 
said earlier in regards to the high quality, low reimbursed 
areas and the frustration many of our providers have over that. 
I assume you're all looking at states to see what type of 
innovative practices they're making to improve quality and 
reporting requirements. In Wisconsin, for instance, we have 
since 2004, hospital quality reporting program called 
Checkpoint. It's a voluntary consortium of providers throughout 
the state and 128 hospitals are participating. This reflects 99 
percent of the hospital admissions, and it's getting 
information out to the public, and they're holding themselves 
to some very high standards of care.
    Then a year earlier in 2003, Wisconsin formed for the 
Collaborative for Health Care Quality, which again is another 
voluntary consortium on establishing quality standards and then 
a self-reporting mechanism that's available to the public. It 
seems to be helping drive competition but increasing quality of 
care. So, I'm hoping that we're paying very close attention to 
what states are doing innovatively and creatively to come up 
with some of the solutions themselves.
    The question I have for you, however, and taking a step 
back from this conversation, something a little more 
fundamental, because, again, a lot of my providers back home 
are doing it, is they're instituting lean programs in their 
hospitals to increase efficiency. Because as I visited a lot of 
them, and as they tell me, there's a lot of low-lying fruit out 
there just to increase the way service is being provided and 
getting doctors to think more efficiently in how they're 
handling their own practice areas.
    Are we looking at that? Or perhaps the better question is, 
what can we do to incentivize that so more providers are 
implementing or instituting programs like lean, which seems to 
be easier to do than Six Sigma, which requires a few more 
hurdles to do?
    Mr. HACKBARTH. Yeah. Actually, we had panel on that very 
topic I guess a year or so ago and heard from some people 
actively involved in trying to streamline their system, and 
heard a couple of things. They think is a potential for both 
improving quality and patient satisfaction while reducing cost 
is very large. A significant barrier that they run into, 
however, is the payment system, not just the one used by 
Medicare, payment systems used by private payers as well.
    Often if you change, you make the system more efficient 
over here, you may increase costs somewhat over there, and the 
payment systems don't really properly adjust. So what you end 
up with is you don't reap rewards of your efforts to improve 
efficiency.
    A generic approach, a generic way of thinking about how to 
create stronger incentives, is increase the size of the 
bundles. The larger the bundle the provider has responsibility 
for, the more flexibility they have to change the mix of 
inputs, change their processes and still benefit from 
improvements in efficiencies. If you have narrow bundles, then 
there's a lot of leakage, and they're not rewarded for their 
efforts.
    Mr. KIND. Well, I'd like to--given the time, we've got to 
run and go to vote--just follow up with you on that. I'm very 
interested in trying to pursue it. So, the problem with the 
reimbursement system that creates disincentives for them to 
increase their own efficiency, we've got to address that as 
well. Because the feedback we're getting from our providers who 
do institute these programs is they are efficient, more 
efficient. It frees up physician time. They're able to spend 
more time with their patients, see more patients. The quality 
of care is being increased, because medical errors are also 
being reduced at the same time.
    So, I think there's a lot of win-win-win as to why we 
should be doing this. But if there is a disincentive in the 
reimbursement system, we need to be taking a look at that, too. 
So, I'd like to just follow up with you at some point, probing 
this conversation.
    Thank you again for being here. Thank you, Mr. Chairman.
    Chairman STARK. I want to thank the panel. I'm sorry to 
rush off. I wish we could--well, I know we'll be back talking 
with each of you and all of you some more as we try to resolve 
this. We will recess, subject to the call of the chair, it will 
be another 20 minutes I guess, and then we'll, for the benefit 
of the second panel, we'll reconvene.
    Thank you very much, gentlemen. We're in recess
    [Recess until 12:20 p.m.]

                       AFTERNOON SESSION

    Chairman STARK. Thank the panel for their patience as we 
proceed to salvage small business from bankruptcy. We'll 
proceed. We're pleased to have you here. Bob Berenson, Dr. Bob 
Berenson from the Urban Institute. Dr. Rick Kellerman from the 
American Association of Family Physicians. Dr. John--you got 
out of order there, didn't you? Dr. John Mayer, and Dr. Anmol 
Mahal, my constituent and neighbor in Freemont, California, who 
is President of the California Medical Association and the 
Society of Thoracic Surgeons represented by Dr. John Mayer.
    If you gentleman would like to proceed to, starting with 
Dr. Berenson, summarize your printed testimony, I'd ask 
unanimous consent that your entire testimony will appear in the 
record. If you'd summarize it in any way you care, and my 
colleagues will try and weasel more information out of you in 
the questioning period.
    Bob.

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

    Dr. BERENSON. Thank you, Mr. Stark, Mr. Camp and Members--
well, no other Members of the Committee.
    [Laughter.]
    Dr. BERENSON. I appreciate the opportunity to provide 
testimony to the Subcommittee on Health on a subject I have 
been deeply involved with through most of my professional 
career as a practicing internist, medical director of a PPO, a 
senior official at TMS, and now as a researcher and policy 
analyst.
    I believe that this is an important hearing because the 
focus of the hearing is not on how to use marginal dollars, 1 
to 2 percent, to try to influence physician performance, or on 
paying third-party disease management organizations that are 
separate from the physicians actually providing the medical 
care to beneficiaries with chronic conditions, but rather 
explores how the program might better spend 100 percent base of 
physician spending to include quality and efficiency.
    Many policymakers still use the--or commonly use the term 
"fee-for-service Medicare'' to designate the original Medicare 
Program and to distinguish it from the various kinds of 
Medicare Advantage products. However, this convenient shorthand 
actually mischaracterizes how the traditional Medicare Program 
pays providers. In fact, the physician fee schedule is one of 
the last payment approaches in Medicare that remains truly fee-
for-service. Accumulated evidence documents that prospective 
payments based on episodes of care have moderated cost 
increases in the traditional Medicare Program.
    In contrast, the physician payment system remains fee-for-
service, although even the fee schedule, there are significant 
examples of bundled or packaged payments, as Herb Kuhn 
discussed in his testimony earlier. These longstanding 
approaches to bundling can be looked to for guidance on how to 
expand episode-based payments to physicians.
    The program is now experiencing an explosion of volume and 
intensity growth in some clinical areas. For the first decade 
or so of the Medicare fee schedule, the evolving expenditure 
target approach has actually worked reasonably well to 
constrain spending growth. The situation has clearly changed in 
the last 6 years, and Congress, with the exception of 2002, has 
acted to override the across-the-board fee reductions called 
for under the SGR mechanism.
    Because of the volume growth of services that are 
inherently discretionary in nature and increasingly where 
physicians have a financial interest, in my opinion there is 
little question that bundling payments for episodes of care 
needs to be a primary objective of physician payment reform, 
just as it has been successful when applied to other providers 
in Medicare.
    I will provide one important example of why moving to 
bundled payments for physicians, in contrast to fee-for-
service, makes good policy sense. The work of Dr. Edward Wagner 
at the MacColl Institute in Seattle makes this clear. He 
describes a chronic care model in which the proper management 
of patients with one or more severe chronic conditions, such as 
diabetes and congestive heart failure, involves lots of 
communication with patients outside of standard office visits 
by phone, and possibly e-mail, care by multidisciplinary 
professional teams, active use of patient registries and 
enhanced coordination among professionals and providers 
practicing in many locations.
    In my view, for reasons that are in my written statement, 
it would be foolhardy to try to pay for most of these 
additional services on an a la carte basis as fee-for-service 
does. Episode-based payment not only for primary care 
physicians but specialists caring for a variety of acute and 
chronic health care medical problems has an inherent appeal. 
There will be important in implementation issues that will need 
be worked through.
    I think it is time to recognize that a one-size-fits-all 
physician payment system may no longer work properly to support 
the increasing diversity of physician activity that has 
resulted from subspecialization. Medicare should develop and 
maintain different payment approaches for real and virtual 
multi-specialty groups able and willing to believe accountable 
for cost and quality, rather than pay them on the lowest common 
denominator approach that would apply to a solo practitioner.
    At the same time, fee-for-service will be with us a long 
time, for those physicians unable or unwilling to accept 
bundled places that places them at significant financial risk 
and for physicians outside of large groups who provide 
specialized, one-time services.
    Therefore, I would like to make a couple of comments about 
Medicare physician fee schedule. The Resource-Based Relative 
Value Scale approach first implemented in 1992 and still a work 
in progress, is a marked improvement over the charge-based use 
schedule that preceded it in Medicare. For all of RBRVS's 
complexity, the right institutions are in place to make 
important and overdue improvements to the fee schedule 
refinement process. To use a sports metaphor, attempting to get 
the prices right is the blocking and tackling of a fee 
schedule. Yet in recent years, fee schedule prices have become 
distorted, but without much notice. These pricing distortions 
have occurred in Medicare but even more so in most commercial 
health plan fee schedules which are based on Medicare's. Prices 
have been allowed increasingly to deviate from the underlying 
costs of production, producing unfortunate behavioral responses 
by physicians, contributing to the explosion in volume of 
services in areas such as imaging.
    In my view, it would be relatively straightforward 
technically to correct many of these distorted prices, if there 
were the political will and support to do so. Correcting 
distorted prices would help control the utilization of services 
that are leading to the expenditure problems and the need for 
an SGR fix.
    With that, I will pass it on to the next witness. Thank 
you.
    [The prepared statement of Dr. Berenson follows:]
    Statement of Robert A. Berenson, M.D., Senior Fellow, the Urban 
                               Institute
    Chairman Stark, Mr. Camp, and members of the Committee:
    I appreciate the opportunity to provide testimony to the Health 
Subcommittee on a subject I have been deeply involved with through most 
of my professional career. I practiced internal medicine for over 
twenty years, twelve of which were in a group practice just a few 
blocks from here. I was the first representative of the American 
College of Physicians to the American Medical Association's Resource-
Based Relative Value Scale (RBRVS) Update Committee (RUC). In the last 
part of the Clinton Administration, I had operational responsibility 
for the Medicare Physician Fee Schedule at the Centers for Medicare and 
Medicaid Services (CMS). Finally, in recent years as a Senior Fellow at 
the Urban Institute, I have had a chance to study how well the Medicare 
Physician Fee Schedule has worked and what might be done to improve it.
    I believe that this is an important hearing--because the focus of 
the hearing is not on how to use marginal dollars--1-2 percent--to try 
to influence physician performance or on paying third-party disease 
management organizations that are separated from the physicians 
actually providing the medical care to beneficiaries with chronic 
conditions--but rather explores how the program might better spend the 
100 percent base of physician spending, which is now approaching $60 
billion. It is important to explore the likely effects of these newer 
approaches to improving quality and efficiency on beneficiaries, 
physicians, and the Medicare program overall.
    The hearing is also important because it signifies that the 
budgetary pressure of finding a solution to the shortfall created by 
the cumulative deficit produced by the sustainable growth rate (SGR) 
formula should not occupy all of the time and attention of health 
policy makers. Indeed, as I will try to make clear, I believe that 
greater attention to how we spend the base of $60 billion can provide 
both short-term and long-term improvement to the financial bottom-line 
and ease off some of the SGR pressure that currently exists. In recent 
months, very constructive ideas, including some presented at today's 
hearing, have been raised. I hope to contribute to that discussion in 
my remarks today.
    Many policy makers use the term ``fee-for-service Medicare'' to 
designate the original Medicare program and to distinguish it from the 
various kinds of Medicare Advantage products. However, this convenient 
short-hand actually mischaracterizes how the traditional Medicare 
program pays providers. Indeed, in a book on Medicare prospective 
payment that I co-authored with Rick Mayes last year, I emphasize that 
the Medicare Fee Schedule (MFS) is one the last payment approaches in 
Medicare that remains truly fee-for-service (FFS).\1\ Initially, with 
the Hospital Inpatient Prospective Payment System and then subsequently 
with a series of prospective payment systems created in the Balanced 
Budget Act of 1997 and later legislation, providers typically receive 
bundled payments for an episode of care, appropriately case-mix 
adjusted to take into account patient severity. Under these bundled 
payment approaches, providers have an incentive to provide services 
more efficiently, for less than the average costs on which payment 
amounts are based. Accumulated evidence documents that prospective 
payments based on episodes of care have moderated cost increases in the 
traditional Medicare program.
---------------------------------------------------------------------------
    \1\ Rick Mayes and Robert A. Berenson, Prospective Payment and the 
Shaping of U.S. Health Care, (Baltimore: Johns Hopkins University 
Press, 2006)
---------------------------------------------------------------------------
    In contrast, the physician payment system remains FFS, although 
even in the fee schedule there are significant examples of bundled or 
packaged payments, most notably the 90-day global fees for surgical 
procedures under which routine pre- and post-operative services are 
included into the global payment amount, and the monthly payment to 
renal physicians overseeing renal dialysis for patients with End Stage 
Renal Disease. These long-standing approaches to bundling can be looked 
to for guidance on how to expand episode-based payments to physicians.
    Because the physician payment system is almost purely FFS, it was 
understandable that Congress, in OBRA 1989, placed a volume expenditure 
target--then called the Volume Performance Standard--as an admittedly 
crude approach to containing spending growth under the MFS that began 
in 1992. It is interesting to note that the 1989 Physician Payment 
Review Commission Report thought that the expenditure target mechanism 
could work only for a few years and that organized medicine needed to 
actively develop clinical practice guidelines, with accompanying 
physician education efforts, as a needed long-term solution to 
constrain volume growth. Unfortunately, efforts to find alternatives to 
the top-down expenditure target approach were not sustained. And the 
program is now experiencing an explosion of volume and intensity growth 
in some clinical areas.
    Yet, for the first decade or so of the MFS, the evolving 
expenditure target approaches actually worked reasonably well to 
constrain spending growth. The situation has clearly changed in the 
past 6 years, and Congress, with the exception of 2002, has acted to 
override the across-the-board fee reductions called for under the SGR 
mechanism. In the absence of broad-based clinical practice guidelines 
and because of the volume growth of services that are inherently 
discretionary in nature and, increasingly, under physicians direct 
control, in my opinion there is little question that bundling payments 
for episodes of care needs to be a primary objective of physician 
payment reform, just as it has been successful when applied to other 
providers in Medicare.
Examples of Bundled Services
    I will provide one important example of why moving to bundled 
payments for physicians, in contrast to fee-for-service, makes good 
policy sense. The work of Dr. Edward Wagner, at the MacColl Institute 
for Healthcare Innovation in Seattle, Washington, on what he calls the 
Chronic Care Model makes clear that the proper management of patients 
with one or more severe chronic conditions, such as diabetes and 
congestive heart failure, involves lots of communication with patients 
outside of standard office visits by phone and, possibly, email; care 
by multi-disciplinary professional teams; active use of patient 
registries; and enhanced coordination among professionals and providers 
practicing in many locations. In my view, it would be foolhardy to try 
to pay for most of these additional services on an a la carte basis, as 
FFS does.
    Consider, as an example, phone calls. The transaction costs of 
billing and collecting would be more than the reimbursement for most of 
the individual services; program integrity concerns would abound; and 
the inevitable explosion of volume on easily provided and well-
appreciated phone calls would become financially prohibitive. The 
alternative that MedPAC and others have discussed is a chronic care 
management fee for primary and principal care physicians who would 
agree to be accountable for providing the array of services in the 
Chronic Care Model, much as the American Academy of Family Practice, 
the American College of Physicians and others have envisioned in the 
patient-centered medical home. My own preference would be to provide a 
``per beneficiary per month'' fee not only for care coordination but 
also for some or all of the actual medical services provided by the 
same practice.\2\ The right approach, which should be tested in multi-
payer demonstrations, might actually be a mixture of reduced fee-for-
services combined with monthly fees for specified bundles of services.
---------------------------------------------------------------------------
    \2\ Goroll, HA, Berenson RA, Schoenbaum SC, Gardner, LB. 
Fundamental Reform of Payment for Adult Primary Care: Comprehensive 
Payment for Comprehensive Care. Journal of General Internal Medicine, 
22(3):410-415, 2007.
---------------------------------------------------------------------------
    The medical home concept presents a number of specific operational 
challenges, which I am prepared to discuss, but the main point to make 
is that it is the conceptually right thing to do. The approach not only 
should improve the care provided to beneficiaries with chronic health 
problems, but importantly, would provided involved practices with 
improved incentives to avoid unnecessary downstream utilization by 
other providers. In this context, pay-for-performance to reward 
efficiency and to protect against under-provision of important primary 
and secondary preventive services might play a useful, supportive role.
    Episode-based payment not only for primary care physicians but also 
for specialists caring for a variety of acute and chronic health care 
medical problems has inherent appeal. There, are, however, important 
implementation issues regarding specialist bundling as well. In 
particular, given the documented problem of inappropriate procedures 
producing unjustifiable and costly practice variations, any episode-
based payment system should not incorporate an inherent bias for 
performance of procedures, as already exists in the RBRVS-based fee 
schedule. Although the costs of an episode need to recognize that there 
are direct physician expenses associated with the procedure provision 
itself, the valuation of condition-specific episodes should minimize 
payment differentials that reward clinical decisions to provide the 
procedural intervention.
    Further, as with all episode or period of time based payment 
approaches, clinically sophisticated case-mix adjustment is needed to 
prevent perverse effects, such as physicians giving preference to less 
severe patients within a cohort with a particular condition or over-
diagnosing relatively minor complaints to generate compensable 
episodes. All payment systems offer ``gaming'' opportunities. The work 
on developing payment bundles and episodes needs to protect against 
such behavior. Fortuitously, in recent years, we now have much more 
sophisticated approaches to case-mix adjustment such that payment 
approaches, such as capitation, that often foundered when used by 
private health plans in the past, now might be much more successful.
One size no longer fits all
    It is time to recognize that a ``one size fits all'' physician 
payment system may no longer work properly to support the increasing 
diversity of physician activity that has resulted from sub-
specialization. Primary care physicians and particular sub-specialists 
typically care for patients over many years, and much of their value 
derives from continuity and consistency. As already noted, an immediate 
Medicare challenge is to develop a payment approach to support robust 
chronic care coordination and management. At the other end of the 
physician spectrum, some physicians, including radiologists, 
pathologists, anesthesiologists, and emergency room physicians, mostly 
provide one-time, discrete services and typically do not have ongoing 
responsibilities regarding individual patients. For these physicians, 
FFS would seem to be an appropriate reimbursement mechanism for a 
third-party payer, such as Medicare, which does not employ physicians 
and thus are unable to pay a salary. In the middle of the spectrum, 
many physicians provide both discrete, one-time services and have 
ongoing care responsibilities.
    Ideally, all specialties would work together, either in real multi-
specialty group practices or in virtual multi-specialty collaborations, 
with payment made to the organization on a per beneficiary per month 
basis for ``medical home'' services, with payment adjustments for 
episodes of illness that require highly specialized services. The 
current physician group practice demonstration is a very important one 
in recognizing the opportunity to compensate large real and virtual 
groups differently from the payment approaches that apply to individual 
physicians or single specialty groups. Further, physician pay-for-
performance, generally should attempt to measure group-level, rather 
than individual, physician performance.
    In sum, Medicare should develop and maintain different payment 
approaches for multi-specialty groups and collaboratives able and 
willing to be accountable for costs and quality, rather than pay them 
on the lowest common denominator approach that would apply to a solo 
practitioner. At the same time, FFS will be with us for a long time--
for those physicians unable or unwilling to accept bundled payments 
that places them at significant financial risk and for physicians 
outside of large groups who provide specialized, one-time services.
Improving the RBRVS System to Promote Efficiency
    I have recently co-authored medical journal articles critiquing 
recent implementation of the MFS, especially the RBRVS component.\3\ 
But I do not want these published comments and concerns to be 
misunderstood. The RBRVS approach, first implemented in 1992 and still 
a work in progress, was a marked improvement over the charge-based fee 
schedule that preceded it in Medicare. And for all of RBRVS's 
complexity, the right institutions are in place to make important and 
overdue improvements to the fee schedule refinement process. 
Unfortunately, the MFS, I believe, has suffered from a relative lack of 
attention in recent years by Federal policy makers--at CMS, at MedPAC, 
and in Congress, as policy interest has focused elsewhere. As a result, 
the program has spent unnecessarily because of a failure to anticipate 
and guard against highly inflationary increases in the volume and 
intensity of many physician services.
---------------------------------------------------------------------------
    \3\ Bodenheimer T, Berenson RA, and Rudolf P. The Primary Care-
Specialty Income Gap: Why It Matters, Annals of Internal Medicine 
146(4):301-306, 2007; Ginsburg PB and Berenson RA. Revising Medicare's 
Physician Fess Schedule--Much Activity, Little Change. New England 
Journal of Medicine 356(12):1201-1203, 2007; Maxwell S, Zuckerman, S, 
and Berenson RA. Use of Physicians' Services Under Medicare's Resource-
Based Payments, New England Journal of Medicine 356(18):1853-1861, 
2007.
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    To use a sports metaphor, attempting to get the prices right is the 
blocking and tackling of a fee schedule. Yet, in recent years, fee 
schedule prices have become distorted, but without much notice. These 
pricing distortions have occurred in Medicare but even more so in most 
commercial health plan fee schedules, which are based on Medicare's. 
Prices have been allowed, increasingly, to deviate from the underlying 
costs of production, producing unfortunate behavior responses by 
physician, which I will detail in a moment. Yet, in my view, it would 
be relatively straight-forward technically to correct the distorted 
prices, if there were the political will and support to do so.
    In the recent articles, colleagues and I have attempted to explain 
some of the technical reasons why the prices became distorted. I will 
emphasize two issues here. Keeping the relative values accurate 
requires an effective process that reflects changes in medical practice 
and trends in physician productivity. But, for the most part, relative 
values have defied gravity--going up or staying the same but rarely 
coming down.\4\ Because physician time spent is a crucial element in 
estimating both the work and practice expense components that make up 
the RBRVS approach, it is time to base time elements for high frequency 
services on objective time data, rather than on surveys of self-
interested specialty groups. In that way, time estimates can be kept 
more current and accurate than under the five-year review process that 
is now used.
---------------------------------------------------------------------------
    \4\ Ginsburg and Berenson
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    Second, problems with accurate estimation of relative values for 
practice expenses have worsened as physicians in some specialties have 
billed for more ancillary services associated with high equipment 
expenses. CMS has used unrealistically low assumptions about rates of 
use if equipment and unrealistically high assumptions about 
amortization rates for large equipment purchases. Furthermore, the 
payment of average costs for services whose variable costs are low 
encourages physicians to order more services and to view the services 
as profit centers. These services include imaging and clinical tests, 
which are among the fastest growing services in Medicare. In short, 
because of the failure to consider that the cost of providing a service 
such as an MRI scan is reduced with every scan performed, Medicare's 
reimbursements overpay and create an incentive for ordering and 
providing too many such scans.
    During site visits to twelve nationally representative metropolitan 
areas through work conducted by the Center for Studying Health System 
Change, my colleagues and I have observed increasing numbers of 
physicians building capacity to compete with hospital outpatient 
departments by offering these lucrative services.\5\ Indeed, such 
market-based developments provide a direct signal to policy-makers of 
distorted payment levels, pointing to priority targets for price error 
corrections.
---------------------------------------------------------------------------
    \5\ Berenson RA, Bodenheimer T and Pham, HH. Specialty-Service 
Lines: Salvos in the New Medical Arms Race, Health Affairs 25:w337-
w343, 2006.
---------------------------------------------------------------------------
    It is not by simple chance that CMS and MedPAC find the volume and 
intensity of imaging, tests, and minor procedures--all discretionary 
services which ostensibly produce little or no patient harm--are 
growing much faster than the categories of major surgical procedures 
and evaluation and management services. The latter services provide 
much less opportunity for physician-induced demand.
    We now see that single specialty groups are merging to have the 
size and scope to purchase or lease imaging equipment, such as MRI and 
PET scans. This behavior suggests that the prices for advanced imaging 
services, such as MRI and PET scans are too high and can be safely 
reduced without compromising patient access to these important 
services. (Conversely, other imaging services, such as screening 
mammograms and DEXA scans for osteoporosis, where access problems 
appear to exist are likely under-priced.)
    There are many technical reasons for why the RBRVS system has 
gotten off track. The Congress can play an important role in assuring 
that the technical experts within organized medicine, at MedPAC, and at 
CMS make the needed corrections to currently distorted prices. And 
while work proceeds to adopt bundled-based payments for physician 
services, in my opinion there remains a strong policy rationale for 
expenditure targets, but specifically targeted to discretionary 
services that are growing rapidly. In sum, in the long-term we need 
fundamental reform of how physicians are paid in traditional Medicare. 
In the short-term, greater attention to correcting incorrect prices and 
more carefully targeting expenditure targets can produce savings and 
produce the climate needed to accomplish the needed fundamental reforms 
that the witnesses have discussed at this hearing.

                                 
    Chairman STARK. Thank you.
    Dr. Kellerman.

STATEMENT OF RICK KELLERMAN, M.D., PRESIDENT, AMERICAN ACADEMY 
                      OF FAMILY PHYSICIANS

    Dr. KELLERMAN. Chairman Stark and Mr. Camp, I'm Dr. Rick 
Kellerman of Wichita, Kansas, and I am president of the 
American Academy of Family Physicians representing 93,800 
members nationwide. On behalf of the Academy, thank you for 
this opportunity to discuss proposals that we believe are 
important elements of physician payment reform under Medicare.
    The Academy appreciates the work that the Subcommittee has 
undertaken to examine how Medicare pays for the services 
physicians deliver to Medicare beneficiaries, and we share the 
Subcommittee's concerns that the current system is inefficient, 
inaccurate and outdated. For those reasons, the Academy 
supports the restructuring of Medicare payments to reward 
coordination of health care and quality improvement.
    Medicare should focus attention on how a coordinated 
physician can integrate the health care patients receive from 
different providers in different settings with the goal of 
preventing duplication of tests and procedures and assuring 
comprehensive patient care, not unlike a network administrator 
keeps a computer system functioning efficiently.
    More than 20 years of evidence shows that having a health 
care system based on primary care reduces costs and benefits 
the patient's health. By using a system of health care that is 
not predicated on primary care physicians coordinating 
patients' care, the U.S. health care system pays a steep 
economic price, and our Medicare beneficiaries pay a steeper 
price in terms of their quality of care.
    Currently, 82 percent of the Medicare population has at 
least one chronic condition, and two-thirds have more than one 
chronic condition. Moreover, 20 percent of beneficiaries have 
five or more chronic conditions and account for two-thirds of 
all Medicare spending.
    There is strong evidence that adopting the chronic care 
model that Dr. Berenson referred to would improve health care 
quality and cost effectiveness, integrate patient care and 
increase patient satisfaction. This well known model is based 
on the fact that most health care for the chronically ill takes 
place in primary care settings such as the offices of family 
physicians.
    The chronic care model focuses on several essential 
components:

      Enhanced self-management by patients of their disease;
      An organized and sophisticated delivery system;
      Evidence-based support for clinical decisions;
      Information systems; and
      Links to community support organizations.

    This model with its emphasis on care coordination, has been 
tested in dozens of studies and has repeatedly shown its value. 
Because of the prevalence of chronic disease among the elderly, 
applying the chronic care model to Medicare is appropriate. 
Thus the

Academy proposes a new Medicare physician payment system that 
includes:

       Application of the chronic care model through adoption
       of the patient-centered medical home;
       Provision of a monthly care management stipend for 
recognized physician practices designated by beneficiaries as 
their medical home;
       Continued use of the resource-based relative value scale 
using a conversion factor updated annually by the MEI; and
       Creation of an oversight entity to make recommendations 
to the Secretary about the appropriate value of services.

    Medicare should compensate physicians for coordinating 
care, a concept supported by both the Institute of Medicine and 
MedPAC. In addition, this concept is supported by ample 
literature and is being advanced jointly by the AAFP, the 
American Academy of Pediatrics; the American College of 
Physicians; and the American Osteopathic Association.
    In order to be recognized as a medical home, practices 
would submit to a voluntary recognition process by an 
appropriate nongovernmental entity to demonstrate that they 
have the capability to provide patient-centered services 
consistent with the model. Currently, the Academy and other 
primary care specialty societies are in discussion with the 
National Committee for Quality Assurance on creating such a 
recognition program for the patient-centered medical home.
    Herb Kuhn characterized in his testimony, testimony that 
the medical home has been defined. I want the Subcommittee to 
know that the four medical societies that I mentioned have 
agreed on the principles of a patient-centered medical home. 
Payment of a monthly stipend to the medical home for care 
coordination and other designated activities would reflect the 
value of work that falls outside of face-to-face visits, such 
as ongoing coordination of care within a given practice, as 
well as with consultants, ancillary providers and community 
resources.
    In conclusion, the Academy believes it is time to stabilize 
and modernize Medicare by recognizing the importance of 
appropriately valuing primary care, and by embracing the 
patient-centered medical home model as an integral part of the 
Medicare program.
    [The prepared statement of Dr. Kellerman follows:]
   Statement of Rick Kellerman, M.D., President, American Academy of 
                 Family Physicians, Shawnee Mission, KS
    Chairman Stark, and members of the subcommittee, I am Dr. Rick 
Kellerman of Wichita, Kansas, and I am president of the American 
Academy of Family Physicians representing 93,800 members nationwide. On 
behalf of the Academy, thank you for this opportunity to share with the 
subcommittee the proposals that AAFP believes to be important elements 
of physician payment reform under Medicare.
    The AAFP appreciates the work this subcommittee has undertaken to 
examine how Medicare pays for services physicians deliver to Medicare 
beneficiaries and we share the subcommittee's concerns that the current 
system is inefficient, inaccurate and outdated. Finding a more 
efficient and effective method of reimbursing physicians for services 
delivered to Medicare beneficiaries with a large variety of health 
conditions is a necessary but difficult endeavor, and one that has 
tremendous implications for millions of patients and for the Medicare 
program itself.
    We particularly appreciate your asking us to discuss what we are 
calling the Patient-Centered Medical Home as a component of a Medicare 
program that offers better health care more efficiently. Family 
physicians believe that the restructuring of Medicare payment should be 
done with the needs of Medicare patients foremost in mind. Since most 
of these patients have two or more chronic conditions that call for 
continuous management and that depend on differing pharmaceutical 
treatments, Medicare should focus on how physicians integrate the 
health care these patients receive from different providers and 
settings, with the goal of preventing duplicative tests and procedures 
and assuring the availability to each provider of the most accurate and 
complete information regarding each patient. We do not believe that the 
Patient Centered Medical Home is business as usual, but rather a 
significant step toward added value for the patient, for the complex 
array of health care providers and for the Medicare program.
Current Payment Environment
    The environment in which U.S. physicians practice and are paid is 
challenging at best. Medicare has a history of making 
disproportionately low payments to family physicians, largely because 
its payment formula is based on a reimbursement scheme that rewards 
procedural volume and fails to foster comprehensive, coordinated 
management of patients. This formula has produced payment rates that 
have declined, except for Congressional intervention, by 5-7 percent 
annually for the last five years. As a result, the Medicare payment 
rate for physicians has fallen to the 2001 level. These steep annual 
cuts resulting from the flawed payment formula serve to undermine 
confidence in the Medicare program. In this current environment, 
physicians know that, without annual Congressional action, they will 
face a 10-percent cut in the Medicare payment rate for 2008 and cuts in 
the 5-percent range annually thereafter. Clearly, the Sustainable 
Growth Rate (SGR) formula belies its name and simply is not 
sustainable.
Primary Care Physicians in the U.S.
    This persistent payment imbalance has led to a decline in the 
numbers of graduates from U.S. medical schools choosing primary care 
medicine. As a result, while other developed countries have a better 
balance of primary care doctors and subspecialists, primary care 
physicians make up less than one-third of the U.S. physician workforce. 
Compared to those in other developed countries, Americans spend the 
highest amount per capita on healthcare but have some of the worst 
healthcare outcomes.
    However, more than 20 years of evidence shows that having a health 
care system based on primary care benefits the economy and the 
patients' health. Three years ago, a study comparing the health and 
economic outcomes of the physician workforce in the U.S. reached this 
conclusion (Health Affairs, April 2004). By using a system of health 
care that is not predicated on primary care physicians coordinating 
patients' care, we the U.S. health care system pays a steep economic 
price and our Medicare beneficiaries pay a steeper one in terms of 
their quality of life.
    The businesses that purchase health insurance for their employees 
are recognizing the value of a health care system based on primary 
care. For example, Martin-Jose Sep veda, MD, who is the Vice President 
for Global Well-being Services and Health Benefits for IMB, Corp., 
recently wrote ``Why should major companies support patient-centered 
primary care? Because research shows that patient-centered primary care 
results in better health care, lower costs, greater satisfaction with 
the health-care system and more equal access to health care for all 
citizens.''
A Chronic Care Model in Medicare
    If we do not change the Medicare payment system, the aging 
population and the rising incidence of chronic disease will overwhelm 
Medicare's ability to provide health care. Currently, 82 percent of the 
Medicare population has at least one chronic condition and two-thirds 
have more than one illness. However, the 20 percent of beneficiaries 
with five or more chronic conditions account for two-thirds of all 
Medicare spending.
    There is strong evidence the Chronic Care Model (Ed Wagner, Robert 
Wood Johnson Foundation) would improve health care quality and cost-
effectiveness, integrate patient care, and increase patient 
satisfaction. This well-known model is based on the fact that most 
health care for the chronically ill takes place in primary care 
settings, such as the offices of family physicians. The model focuses 
on six components:

      self-management by patients of their disease
      an organized and sophisticated delivery system
      strong support by the sponsoring organization
      evidence-based support for clinical decisions
      information systems; and
      links to community organizations.

    This model, with its emphasis on care-coordination, has been tested 
in some 39 studies and has repeatedly shown its value. While we believe 
reimbursement should be provided to any physician who agrees to 
coordinate a patient's care (and serve as a medical home), generally 
this will be provided by a primary care doctor, such as a family 
physician. According to the Institute of Medicine, primary care is 
``the provision of integrated, accessible health care services by 
clinicians who are accountable for addressing a large majority of 
personal health care needs, developing a sustained partnership with 
patients, and practicing in the context of family and community.'' 
Family physicians are trained specifically to provide exactly this sort 
of coordinated health care to their patients.
    The AAFP advocates for a new Medicare physician payment system that 
embraces the following:

      Adoption of the ``Medical Home'' model which would 
provide a per month care management fee for physicians whom 
beneficiaries designate as their ``Patient-centered Medical Home;''
      Continued use of the resource-based relative value scale 
(RBRVS) using a conversion factor updated annually by the Medicare 
Economic Index (MEI);
      No geographic adjustment in Medicare allowances except as 
it relates to identified shortage areas;
      A phased-in voluntary pay-for-reporting, then pay-for-
performance system consistent with the IOM recommendations.

    Care Coordination and a Patient-Centered Medical From the outset, 
the Medicare program has based physician payment on a fee-for-service 
system. As a result, Medicare currently is a system of misaligned 
incentives which rewards individual physicians for ordering more tests 
and performing more procedures. The system provides no incentive for 
physicians to coordinate the tests, procedures, or patient health care 
generally and it puts very little emphasis on preventive services and 
health maintenance. This payment method has produced an expensive, 
fragmented Medicare program.
    To correct these inverted incentives, the AAFP recommends that 
beginning in 2008, Medicare compensate physicians for care coordination 
services The Institute of Medicine (IOM) has repeatedly praised the 
value of, and cited the need for, care coordination as has the Medicare 
Payment Advisory Commission (MedPAC). And while there are a number of 
possible methods to build this into the Medicare program, AAFP 
recommends a blended model that combines fee-for-service with a per-
beneficiary, per-month stipend for care coordination in addition to 
meaningful incentives for delivery of high-quality and effective 
services in the Patient-Centered Medical Home.
    The patient-centered, physician-guided medical home is being 
advanced jointly by the AAAFP, the American Academy of Pediatrics 
(AAP), the American College of Physicians (ACP) and the American 
Osteopathic Association (AOA). This model would include the following 
elements:

      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; and end of life care.
      Care is coordinated and/or integrated across all 
providers and settings of the health care system (e.g., subspecialty 
care, hospitals, home health agencies, nursing homes) and the patient's 
community (e.g., family, public and private community-based services) 
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 in a culturally and linguistically 
appropriate manner.
      Quality and safety are hallmarks of the patient-centered 
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. To this end, the AAFP, AAFP, ACP and AOA are in 
discussions with the National Committee for Quality Assurance (NCQA) on 
creating such a recognition program for the Patient-Centered Medical 
Home.

          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.

    A reimbursement system with appropriate incentives for the patient 
and the physician recognizes the time and effort involved in ongoing 
care management.
    The AAFP commends the Congress for incorporating the medical home 
demonstration into the Medicare physician payment provisions of the Tax 
Reform and Health Act. However, the statutory composition of the 
provision including the requirement of the development of a procedural 
code and establishing a value for same, will unduly delay the 
implementation of the medical home. Code development and valuation 
alone can take two plus years. Thus the results from a three-year 
demonstration will not be available until well beyond 2011. Because of 
the strength of the existing literature describing the effectiveness 
(both health and economic) of the medical home, AAFP would urge the 
committee to authorize the Centers for Medicare and Medicaid Services 
(CMS) to adopt the Patient-centered Medical Home as an interim 
component of physician payment while awaiting the implementation of and 
results from the demonstration project.
    Payment of the care management fee for the medical home would 
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, and it would pay for services associated with coordination 
of care both within a given practice and between consultants, ancillary 
providers, and community resources.
Patient-Centered Medical Home: A Gateway, not a ``Gatekeepter''
    It is important to note that the patient-centered Medical Home 
differs from the so-called "gatekeeper'' model employed in the ?80s and 
?90s. The PC-MH model expands access rather than decreases it as a 
capitated gatekeeper model could. The PC-MH model does not interfere 
with patient choice or patient self-referral but it offers appropriate 
incentives for physicians and patients to use resources more 
appropriately. The Academy believes this is what patients want and need 
and the mechanism that can improve quality of care and quality of life 
for beneficiaries and increase cost-effectiveness for the Medicare 
program.
    In fact, patients and payers alike want a medical ``network 
administrator'' for their employees, beneficiaries and patients. AAFP, 
AAP, ACP and AOA have also conferred with major employers, like IBM, in 
determining what these employers envision as an appropriate medical 
home for their employees. The primary care physician organizations have 
been working with IBM in Austin, Texas, to create a demonstration 
project for their employees that will examine the characteristics of a 
successful patient-centered medical home. And AAFP, ACP, AOA and the 
National Association of Community Health Centers have joined with the 
ERISA Industry Committee, the National Business Group on Health and 
several major employers to form the Patient Centered Primary Care 
Collaborative to advance the medical home as a way to improve the 
health care system generally.
The Cost-Effectiveness of the Medical Home
    We understand the very difficult budget constraints that Congress 
faces as you try to determine how to improve Medicare. The 
restructuring of payment that we are suggesting will include an 
additional investment in the short term. But there is ample evidence 
already that the potential savings are large and near-term. Community 
Care of North Carolina (CCNC) is a state-wide health care delivery 
program developed by Allan Dobson, MD, Assistant Secretary for the 
North Carolina Department of Health and Human Services. The program 
provides a primary care medical home for all the Medicaid recipients in 
the state. It joins health care providers, like hospitals and nursing 
homes, and necessary social service providers, like substance abuse and 
mental health services, with the local physicians. The system pays the 
physician practice an additional per-patient, per-month fee to 
coordinate the care of the Medicaid patients, while also paying a 
regional network administrator, who makes sure the necessary technical 
and ancillary services (like transportation, health education 
counselors and trained translators) are available within the region.
    The state legislature has received a report from an independent 
audit by Mercer that showed from July 1, 2003 to June 30, 2004 the 
state spent $10.2 million on the CCNC program, but saved $124 million 
compared to the previous fiscal year and $225 million if the same 
population was served by the fee-for-service only system. The 
conclusion is that for every Medicaid dollar spent on the medical home 
in North Carolina, the state is saving $8. We realize that the 
Congressional Budget Office is reluctant to include savings in how it 
calculates the cost of a program, but a realistic view of what Medicare 
patients need shows that a medical home will provide them their health 
care at less cost to them and to the system. Somehow, CBO should take 
that into account.
Information Technology in the Medical Office Setting
    An effective system emphasizing coordinated care is predicated on 
the presence of health information technology, i.e., the electronic 
health record (EHR) in the physician's office. Using advances in health 
information technology (HIT) also aids in reducing errors and allows 
for ongoing care assessment and quality improvement in the practice 
setting--two additional goals of recent IOM reports,. We have learned 
from the experience of the Integrated Healthcare Association (IHA) in 
California that when physicians and practices invested in EHRs and 
other electronic tools to automate data reporting, they were both more 
efficient and more effective, achieving improved quality results at a 
more rapid pace than those that lacked advanced HIT capacity.
    Family physicians are leading the transition to EHR systems in 
large part due to the efforts of AAFP's Center for Health Information 
Technology (CHiT). The AAFP created the CHiT in 2003 to increase the 
availability and use of low-cost, standards-based information 
technology among family physicians with the goal of improving the 
quality and safety of medical care and increasing the efficiency of 
medical practice. Since 2003, the rate of EHR adoption among AAFP 
members has more than doubled, with over 30 percent of our family 
physician members now utilizing these systems in their practices.
    In an HHS-supported EHR Pilot Project conducted by the AAFP, we 
learned that practices with a well-defined implementation plan and 
analysis of workflow and processes had greater success in implementing 
an EHR. CHiT used this information to develop a practice assessment 
tool on its Web site, allowing physicians to assess their readiness for 
EHRs.
    In any discussion of increasing utilization of an EHR system, there 
are a number of barriers, and cost is a top concern for family 
physicians. The AAFP has worked aggressively with the vendor community 
through our Partners for Patients Program to lower the prices of 
appropriate information technology. The AAFP's Executive Vice President 
serves on the American Health Information Community (AHIC), which is 
working to increase confidence in these systems by developing 
recommendations on interoperability. The AAFP sponsored the development 
of the Continuity of Care Record (CCR) standard, now successfully 
balloted through the American Society for Testing and Materials (ASTM). 
We initiated the Physician EHR Coalition, now jointly chaired by ACP 
and AAFP, to engage a broad base of medical specialties to advance EHR 
adoption in small and medium size ambulatory care practices. In 
preparation for greater adoption of EHR systems, every family medicine 
residency will implement EHRs by the end of this year.
    To facilitate accelerate care coordination, the AAFP joins the IOM 
in encouraging federal funding for health care providers to purchase 
HIT systems. According to the U.S. Department of Health & Human 
Services, billions of dollars will be saved each year with the wide-
spread adoption of HIT systems. While the Federal Government has 
already made a financial commitment to this technology, only a few 
dollars trickle down to where the funding, unfortunately, is not 
directed to these systems that will truly have the most impact and 
where ultimately all health care is practiced--at the individual 
patient level. We encourage you to include funding in the form of 
grants, low interest loans or tax credits for those physicians 
committed to integrating an HIT system in their practice.
    Measures of quality and efficiency should include a mix of outcome, 
process and structural measures. Clinical care measures must be 
evidence-based. Physicians should be directly involved in determining 
the measures used for assessing their performance.
Aligning Incentives
    In replacing the outdated and dysfunctional SGR formula, Congress 
should look to a method of determining physician reimbursement that is 
sensitive to the costs of providing care, creates a stable and 
predictable economic environment, and aligns the incentives to 
encourage evidence-based practice and foster the delivery of services 
that are known to be more effective and result in better health 
outcomes for patients. Just as importantly, the reformed system should 
facilitate efficient use of Medicare resources by paying for 
appropriate utilization of effective services and not paying for 
services that are unnecessary, redundant or known to be ineffective. 
Such an approach is endorsed by the IOM in its 2001 publication 
Crossing the Quality Chasm.
    Another IOM report released in autumn of 2006 entitled Rewarding 
Provider Performance: Aligning Incentives in Medicare states that 
aligning payment incentives with quality improvement goals represents a 
promising opportunity to encourage higher levels of quality and provide 
better value for all Americans. The objective of aligning incentives 
through pay-for-performance is to create payment incentives that will: 
(1) encourage the most rapidly feasible performance improvement by all 
providers; (2) support innovation and constructive change throughout 
the health care system; and (3) promote better outcomes of care, 
especially through coordination of care across provider settings and 
time. The Academy concurs with the IOM recommendations that state:

      Measures should allow for shared accountability and more 
coordinated care across provider settings.
      P4P programs should reward care that is patient-centered 
and efficient. And they should reward providers who improve performance 
as well as those who achieve high performance.
      Providers should be offered (adequate) incentives to 
report performance measures.
      Because electronic health information technology will 
increase the probability of a successful pay-for-performance program, 
the Secretary should explore ways to assist providers in implementing 
electronic data collection and reporting to strengthen the use of 
consistent performance measures.

    Aligning the incentives requires collecting and reporting data 
through the use of meaningful quality measures. AAFP is supportive of 
collecting and reporting quality measures and has demonstrated 
leadership in the physician community in the development of such 
measures. It is the Academy's belief that measures of quality and 
efficiency should include a mix of outcome, process and structural 
measures. Clinical care measures must be evidence-based and physicians 
should be directly involved in determining the measures used for 
assessing their performance.
Quality Reporting
    AAFP is supportive of collecting and reporting quality measures and 
has led the physician community in the development of meaningful 
measures. Consistent with the philosophy of aligning incentives, the 
reward for collecting and reporting data must be commensurate with the 
effort and processes necessary to comply and must be sufficient to 
obtain the desired response from providers. The Academy is skeptical 
that the incentive of 1.5 percent of a physician's covered charges for 
collecting and reporting quality measurement data will be sufficient to 
cover the actual cost of operationalizing such a program. However, we 
are generally and conceptually supportive of the policy and will 
monitor its implementation closely.
A Framework for Pay-for-performance
        The following is a proposed framework for phasing in a Medicare 
        pay-for-performance program for physicians that is designed to 
        improve the quality and safety of medical care for patients and 
        to increase the efficiency of medical practice.

      Phase 1

         All physicians would receive a positive update in 2008, 
        consistent with recommendations of MedPAC. Congress should 
        establish a floor for such updates in subsequent years.

      Phase 2

         Following the implementation of the Physician Quality 
        Reporting Initiative, Medicare would encourage structural and 
        system changes in practice, such as electronic health records 
        and registries, through a ``pay for reporting'' incentive 
        system such that physicians could improve their capacity to 
        deliver quality care. The update floor would apply to all 
        physicians.

      Phase 3

         Pay-for-reporting transitions to pay-for performance and 
        particular effort is made to ensure that the quality bonus is 
        sufficient to cover the costs of administration as well as 
        providing sufficient incentive to participate. Medicare 
        continues to encourage reporting of data on evidence-based 
        performance measures that have been appropriately vetted 
        through mechanisms such as the National Quality Forum and the 
        Ambulatory Care Quality Alliance. The update floor would apply 
        to all physicians.

      Phase 4

         Contingent on repeal of the SGR formula and development of a 
        long term solution allowing for annual payment updates linked 
        to inflation, Medicare would encourage continuous improvement 
        in the quality of care through incentive payments to physicians 
        for demonstrated improvements in outcomes and processes, using 
        evidence-based measures.

    This type of phased-in approach is crucial for appropriate 
implementation. While there is general agreement that initial 
incentives should foster structural and system improvements in 
practice, decisions about such structural measures, their reporting, 
patient registries, threshold for rewards, etc., remain to be 
determined.
    The program must provide incentives--not punishment--to encourage 
continuous quality improvement. For example, physicians are being asked 
to bear the costs of acquiring, using and maintaining health 
information technology in their offices, with benefits accruing across 
the health care system--to patients, payers and insurance plans. 
Appropriate incentives must be explicitly integrated into a Medicare 
pay-for-performance program if we are to achieve the level of 
infrastructure at the medical practice to support collection and 
reporting of data.
Conculsion
    It is time to stabilize and modernize Medicare by recognizing the 
importance of, and appropriately valuing, primary care and by embracing 
the patient-centered medical home model as an integral part of the 
Medicare program.
    Specifically, the AAFP encourages Congressional action to reform 
the Medicare physician reimbursement system in the following manner:

      Repeal the Sustainable Growth Rate formula at a date 
certain and replace it with a stable and predictable annual update 
based on changes in the costs of providing care as calculated by the 
Medicare Economic Index.
      Adopt the patient-centered medical home by giving 
patients incentives to use this model and compensate physicians who 
provide this function. The physician designated by the beneficiary as 
the patient-centered medical home shall receive a per-member, per-month 
stipend in addition to payment under the fee schedule for services 
delivered.
      Phase in value-based purchasing by starting with the 
Physician Quality Reporting Initiative. Analyze compensation for 
reporting and ensure that it is sufficient to cover costs associated 
with the program and provide a sufficient incentive to report the 
required data.
      Ultimately, payment should be linked to health care 
quality and efficiency and should reward the most effective patient and 
physician behavior.

    The Academy commends the Subcommittee for its commitment to 
identify a more accurate and contemporary Medicare payment methodology 
for physician services. Moreover, the AAFP is eager to work with 
Congress toward the needed system changes that will improve not only 
the efficiency of the program but also the effectiveness of the 
services delivered to our nation's elderly.

                                 

    Chairman STARK. Thank you.
    Dr. Mahal.

   STATEMENT OF ANMOL S. MAHAL, M.D., PRESIDENT, CALIFORNIA 
                      MEDICAL ASSOCIATION

    Dr. MAHAL. Chairman Stark, Mr. Camp, I am Anmol Mahal, the 
president of the 150-year-old California Medical Association, 
representing 35,000 physicians dedicated to the health of 
Californians.
    Thank you for this opportunity to testify on this most 
important issue, the issue of having a viable health care 
system for the most treasured part of our society, our elderly. 
The Chairman and his staff and I have had the privilege of 
engaging in discussions, as Mr. Stark is my congressman, and he 
has requested me to comment on a profiling system that is used 
in my community that I participate in in Northern California 
that compares my practice pattern to that of my peers in my 
community.
    Providing for the purposes of comparative effectiveness is 
a program that I participate in in my community. This is a 
rather comprehensive program that has multi--or elements, and 
is a multi-pronged program. Very briefly, sir, there are six 
elements to the program.
    There is a utilization profile that the program uses that 
not only looks at professional services, but I have to stress 
also importantly looks at ancillary services and pharmacy costs 
and also looks at facility costs and hospital services as an 
overall cost of care.
    It looks at clinical profiles, mostly using HEDA's 
criteria. For example, breast cancer screening, diabetic and 
cholesterol screening.
    It uses the participation profile criteria, which includes 
regular participation in educational sessions held by the 
group. It looks at prescribing, et cetera.
    There is a satisfaction profile that is added on to the 
profiling criteria that looks at results from a patient survey 
that is very well crafted to meet some minimum thresholds.
    It looks at patient risk adjustment, so that physicians are 
not averse to taking care of the sickest and the most elderly 
folks with the most chronic conditions.
    Finally, a very important aspect of this program is a stop 
loss adjustment so that a physician who desires to take care of 
patients with HIV/AIDS, oncology patients, patients on dialysis 
and expensive procedures like colonoscopy are all bundled in 
and spread the risk in the entire group rather than the risk 
being adjusted to the individual physicians.
    In summary, the physicians in my community, Mr. Chairman, 
I'm certain in California and indeed in the entire United 
States, do what they think is right in their hearts and in 
their experience and training as to what is required for their 
given patients.
    Physicians are constantly enhancing their education, and I 
feel that education based on profiling and peer comparison 
provided in a confidential way would be received well by 
physicians. It would result, in my case, in my personal case, 
perhaps even increased utilization in some areas where I may 
not be doing appropriate studies compared to my peers, and in 
other areas, more modulation of utilization where I'm out of 
the bell curve when compared to my peers for similar patient 
mix.
    But the key, sir, is to have risk adjustment and to have 
stop loss adjustment to have the total cost of care looked at. 
Because a majority of the cost of care, while it's ordered by 
physicians, it's really not in the physician's hands. It's on 
pharmaceutical, it's on hospitals, it's on devices, and all of 
that should be taken into consideration as we put a profiling 
educational program together.
    Done in the way that I have mentioned, we have to be 
careful that we craft this program so that we do not 
incentivize physicians to withhold care, but rather to do 
what's right for their patients. We do not want to take the art 
form of medicine, at least the way I practice medicine, Mr. 
Chairman, today, I think it's as much of art as delivery of 
technology and science to my patients. We need to maintain that 
element. Physicians in my community will look positively at 
peer data provided for educational purposes, provided in a 
confidential way, and we look forward to working with you on 
such a program.
    Thank you.
    [The prepared statement of Dr. Mahal follows:]
   Statement of Anmol S. Mahal, M.D., President, California Medical 
                       Association, Freemont, CA
    Mr. Chairman and Members of the Committee, on behalf of the 
California Medical Association, I want to thank you for inviting me to 
testify before the Committee on the important Medicare issues facing 
our nation. I hope to provide some insights about our California 
experiences to help the Committee in its deliberations.
    I also want to extend a special greeting to my Congressman, Mr. 
Stark. Mr. Chairman, we sincerely appreciate your efforts to work with 
us to design a Medicare physician payment system that will 
appropriately reimburse physicians and ensure the highest quality 
medical care for our Medicare patients.
I. Introduction
    Mr. Chairman and Members of the Committee, California physicians 
are keenly aware that Medicare is in precarious financial condition and 
we are extremely concerned about the program's ability to continue 
fulfilling its mission. We understand that Congress faces competing 
goals for the Medicare program. The government must rein-in Medicare 
spending at a time when the baby boomers will begin enrolling in the 
program--thereby increasing the volume of services. But Congress must 
also fix the physician payment system to ensure those same baby boomers 
have access to doctors in the future.
    Physicians face similar challenges on an individual level. Eighty-
three percent of Medicare patients have chronic conditions and the 
numbers are growing. In ten years, physicians will spend nearly half 
their time treating Medicare patients with multiple chronic conditions. 
Physicians are concerned about their capacity to appropriately treat 
these increasingly sick patients with diminishing resources and 
reimbursement.
    As California physicians, we agree we must do our part to provide 
the highest quality care in the most efficient possible manner. We must 
join Congress in being responsible stewards of the Medicare program, 
just as we are stewards and advocates for our patients. We at the CMA 
are committed to working with Congress to improve the Medicare program 
by sharing our knowledge of evidence-based medicine and our experience 
with programs that attempt to manage costs and care--such as the 
physician peer comparison programs in California.
II. California Medical Association SGR Overhaul Plan
    To that end, the California Medical Association recently unveiled a 
long-term plan to overhaul the SGR system. Included in the plan are 
recommendations for Congress to establish a series of demonstration 
projects that would test different systems for appropriately managing 
costs, incenting the efficient use of resources, and better 
coordinating patient care. Ultimately, the successful programs would 
replace the SGR as the volume control mechanism. We fully understand 
that the Committee is searching for better tools to control the growth 
in the volume of physician services, such as the physician peer 
comparison programs.
    The Chairman has asked me to comment on a program in which I 
participate in Northern California, which compares my practice patterns 
to my peers. The program is educational in nature and physician 
performance on utilization, quality and patient satisfaction are 
rewarded through bonus payments. Many safeguards would be necessary 
before such a complex program could be considered in the Medicare fee-
for-service system.
    I also should make clear at this point that the California Medical 
Association has not yet taken a position regarding physician peer 
comparison programs. We are currently in the process of thoroughly 
evaluating the peer comparison programs operating in California. We 
certainly believe that peer comparison information provided to 
physicians on a confidential basis for educational purposes would be 
beneficial to physicians and the Medicare program in general. However, 
peer comparison programs that tie reimbursement to utilization 
performance should be examined through Medicare demonstration projects 
because of their complexity and potential impact on patient care.
III. A California Physician Peer Comparison Program
    As a primary care physician, I participate in a physician peer 
comparison program through a large Independent Practice Association 
(IPA) in northern California. The IPA provides confidential comparative 
information to individual doctors on how their quality, utilization, 
and patient satisfaction compare to their peers. The IPA's program is 
called the Primary Care Management Program.
    Many California medical groups and IPAs who run sophisticated 
managed care systems employ utilization profiling methods, but the vast 
majority of these groups use them only for educational purposes. The 
educational aspect of comparative information is vital to the success 
of these programs. Such information has helped physicians better 
understand their practice patterns compared to their peers and allowed 
many physicians to improve their practice.
    Overall, the group in which I practice employs two tools to manage 
the care of its patients. The first tool is a physician peer comparison 
tool that fosters self-improvement. The second tool is a financial 
reward for meeting quality measures and utilizing services consistent 
with one's peers. Such financial incentives have proven crucial to 
maintaining access to primary care physicians in my community and in 
helping physicians begin to invest in health information technology.
    Compensation--Primary care physicians (PCPs) affiliated with the 
group receive compensation in two distinct ways. They receive fees for 
the services they provide to patients (fee-for-service payments), and 
also receive a quarterly fee that rewards the effective management of 
their patient population. As for the fee-for-service payments, PCPs are 
paid for the services they actually provide, so there is no incentive 
to underutilize, and they also receive a per member payment that is 
based on their performance on specific metrics.
    The quarterly fee for effective management is called the Primary 
Care Management Fee (PMF), and is based on many different metrics 
specific to the physician's practice. These metrics reside in one of 
four profiles: The Utilization Profile, the Clinical Profile, the 
Participation Profile, and the Satisfaction Profile. I will describe 
each of the four.
    Utilization Profile--The Utilization Profile measures the cost of 
all health care services used by the group's physician members. Its 
components include physician professional services, pharmacy and 
facility costs. PCPs with fewer than 200 adjusted members are not 
considered statistically relevant and are excluded from the 
calculation.
    The Pharmacy component of the Utilization Profile includes a 
synopsis of the PCP's prescribing patterns and resulting PMPM costs. 
The cost reported here represents 50 percent of the actual total 
pharmacy costs. By contrast, facility costs are reported at the group 
level due to statistical unreliability at the individual level. The 
facility costs assigned to each physician represent 50 percent of the 
total facility cost. Admission rates and lengths of stay are included 
in the calculation. The total cost figure is the sum of professional, 
pharmacy and facility costs, and the final calculation shows where the 
physician's utilization costs stand relative to the panel average.
    Clinical Profile--The second profile--the Clinical Profile--
measures the group's clinical initiatives. These metrics report 
individual performance against that of the physician's panel, region 
and system, and holds the physician to the system average. There are 
currently eight clinical measures included in the profile. They are 
designed to maintain a high standard of care and to improve patient 
outcomes. The eight measures include: Breast Cancer Screening, Cervical 
Cancer Screening, Diabetes HbA1c, Use of Appropriate Asthma Medication, 
Childhood Immunizations, Comvax and Pediatric Use, Cholesterol 
Screening, and Chlamydia Screening.
    Participation Profile--With respect to the Participation Profile, 
physicians earn points for participating in the group's activities.
    Satisfaction Profile--The fourth and final profile is the 
Satisfaction Profile. As its name suggests, the Satisfaction Profile is 
based on a Patient Assessment Survey in which physicians are rated by 
their patients. Patients are randomly selected to participate in the 
survey. In order for a physician's scores to be counted, at least 20 
surveys must be returned. The most heavily weighted question asks the 
patient if he or she would recommend the doctor to family or friends.
    Patient Calculations--Because the costs associated with treating 
patients in a given practice are calculated on a per-member basis, it 
is essential to acknowledge that not all members are the same. 
Accordingly, the program makes adjustments based upon the demographics 
of the physician's patient population, including an adjustment based 
upon the number of Medicare patients the physician is treating. On this 
last point I think it is important to note that Medicare patients are 
weighted as four commercial private patients. Adjustments for age and 
sex are computed based on system wide data.
    Stop Loss Adjustment--There are some costs that are shared among an 
entire region rather than assigning them at the physician level. 
Maternity, HIV/AIDS, wellness (i.e., screenings and immunizations) 
dialysis, oncology, colonoscopy, and ophthalmology costs are allocated 
to all PCPs equally. This Stop Loss Adjustment was created to prevent a 
few very costly patients from inappropriately overstating the total 
cost in a PCP's profile.
IV. Recommendations for Physician Peer Comparison Programs
    Based on California physician experiences, I would like to offer 
the Committee a few recommendations to consider when implementing a 
Physician Peer Comparison Program.
    I would also like to differentiate between a physician peer 
comparison program that provides confidential, educational feedback to 
physicians as a tool for self-improvement and a comparison program that 
ties reimbursement to efficiency. CMA physicians are interested in 
self-improvement and we believe that the educational aspects of peer 
comparison can be extremely helpful to physicians and effective in 
improving practice patterns. We would support such programs.
    However, as you can see from the background we provided to the 
Committee, comparison programs are extremely complex if implemented 
appropriately. Therefore, we would prefer to see any comparison 
programs that are tied to performance payments to be examined in a 
Demonstration Project environment before being adopted by Medicare.
    The CMA recommendations for Peer Comparison Programs are set forth 
below:

     1.  Overall, Physician Peer Comparison Programs are not a panacea 
for Medicare's financial problems. However, they could be an effective 
tool for identifying outliers and encouraging the efficient use of 
resources. These programs can also produce accountability at the 
individual physician level, which has been a source of criticism for 
the SGR. Some California programs have produced a savings and allowed 
physicians to further invest in meeting quality measures and adopting 
health information technology.
          The Medicare program should not focus myopically on whether 
physicians are doing too much. Instead, it should assess whether they 
are doing enough of the right things, such as providing evidence-based 
care and preventive care. If physicians are providing preventive care, 
hospitalizations will be reduced, patient outcomes will improve, and 
Medicare will gain significant savings.
     2.  Physician education must be the focus of the program. 
Comparative information is a strong tool to foster self-improvement. 
California peer comparison programs have been effective in educating 
physicians and helping them to improve.
     3.  Programs that provide positive incentives are the most 
effective. Medicare's goal should be to encourage all physicians to 
participate. In many communities, Medicare cannot afford to lose 
primary care physicians.
     4.  Paramount to a successful program is reliable data that can be 
verified.
          The data must also be statistically valid based on the number 
of patients per physicians.
     5.  The program must couple utilization and clinical/quality 
criteria.
          An extremely important and positive component of the 
California program is that it combines utilization criteria with 
clinical/quality measures. Physicians should not be inappropriately 
incented to withhold preventive care merely because it would drive up 
their utilization scores. Physicians providing more preventive services 
will have higher utilization, but their overall hospital costs will be 
less. This is a major point on which we disagree with the GAO. 
Utilization and efficiency cannot be viewed independent of clinical 
quality. It is important to note that in California, preventive quality 
measures are the general focus of all physician profiling programs and 
their associated bonus payments.
     6.  The program must examine the total cost of care provided to a 
patient--facility costs, pharmacy costs and physician services--for 
both primary care and specialty care.
          An important component of the California program in which I 
participate is that it calculates the total cost of care for each 
patient. Lower physician utilization is not necessarily better for the 
patient and--ultimately--may not save money. For instance, patients 
with asthma should see a doctor often to manage their disease. As 
physician office visit utilization goes up, the total cost of care goes 
down by reducing unnecessary ER visits and hospitalizations.
          On the other hand, many physicians have criticized the 
profiling program in which I participate because it is difficult to 
hold a primary care physician responsible for the services provided by 
a specialist to whom they referred a patient, or a hospitalist caring 
for a patient upon admission to the hospital or during home health 
visits. Primary care physicians cannot control patient care beyond 
their practice and, therefore, it is not appropriate to hold them 
accountable for such utilization.
          The utilization to which a physician is held accountable 
requires precise and complex evaluation tools. Nonetheless, the 
educational aspects of such information is extremely beneficial.
     7.  All data must be risk-adjusted for age, sex and health status.
          However, it is important to note that risk adjustment methods 
are still inadequate to fully capture differences in patient health 
status. Patient compliance issues must also be considered. Most 
sophisticated managed care groups in California only do risk adjustment 
for age and sex. It is important to note that my IPA attributes four 
commercial patients to one Medicare patient.
     8.  There must be a ``stop-loss'' type of adjustment for HIV/AIDS, 
oncology, maternity, screenings and immunizations, dialysis, 
colonoscopy so the costs are spread out across the entire system. It 
would be truly perverse to penalize individual physicians for treating 
seriously ill patients.
     9.  Patient Satisfaction Surveys are an important component of any 
program.
    10.  Specialty Referral Issues Must Be Carefully Considered
          The Specialty Referral tracking system in my group is 
controversial. The group tracks referrals to specialists and accounts 
for those referrals in a physician's overall score. Some specialty 
referrals are more ``costly'' to the primary care physician than 
others. In some instances, referrals to specialists are appropriate and 
result in lower costs. In other instances, they may be unnecessary. But 
some physicians and patients have questioned whether the specialty 
referral incentive system has inappropriately denied patient access to 
specialists. One positive aspect of the program is that primary care 
physicians receive credit for referring patients to specialists to 
receive treatments included in the set of clinical/quality measures. 
This sort of primary care gatekeeper approach would be extremely 
difficult to replicate in the Medicare Fee-for-Service program, where 
patients can directly access specialists.
    11.  Physician-Designed and Directed
          Programs that involve clinical utilization and quality 
information must be designed and directed by physicians to ensure that 
the highest quality care is provided.
    12.  Demonstration Programs To Protect Patients
          For all of the reasons I have discussed, CMA would support 
programs that soley focus on confidential education. However, programs 
that financially reward certain practice patterns must include 
safeguards against incentives that would reward physicians for 
withholding care to the detriment of their patients. Therefore, 
efficiency programs tied to payment should be tried on a Demonstration 
basis first.
V. Geographic Variation
    One further note, the CMA recommends that the Committee not only 
examine practice variations between individual physicians, but also 
variations in care between geographic regions. There are dramatic and 
costly variations in care across the country. We need to better 
understand why this occurs through careful demonstration programs, and 
work together to reduce inappropriate differences.
VI. Conclusion
    Physician Peer Comparison Programs can work if the emphasis is on 
confidential physician education and self improvement. Such programs 
must couple both utilization and clinical/quality criteria. They must 
also examine the total costs of providing care to patients--physician, 
hospital and pharmacy--and should be risk-adjusted.
    While the CMA has not officially endorsed peer comparison programs 
that tie payment to efficiency, we support the educational aspects of 
such programs. If Congress is interested in going one step further by 
adopting pay-for-performance based on utilization, we would recommend 
demonstration programs. Because of the sophisticated quality and 
clinical issues, it is essential that physicians are involved in the 
design and implementation. Many safeguards must be included to protect 
appropriate patient care.
    Mr. Chairman and Members of the Committee, I hope this California 
information will prove helpful to the Committee. On behalf of the 
California Medical Association, I thank you for your time. We look 
forward to working with you. Thank you.

                                 

    Chairman STARK. Thank you very much.
    Dr. Mayer.

 STATEMENT OF JOHN E. MAYER, JR., M.D., PRESIDENT, SOCIETY OF 
                       THORACIC SURGEONS

    Dr. MAYER. Chairman. Stark, Mr. Camp, thank you for 
inviting me to testify. My name is John Mayer. I'm a heart 
surgeon at the Children's Hospital in Boston and Professor of 
Surgery at Harvard Medical School, and the current president of 
The Society of Thoracic Surgeons.
    I wish to begin with the fundamental concept that if we are 
to succeed in addressing our health care cost and quality 
problems, physicians must be engaged not just with economic 
incentives, but for the first time, as a profession. From this 
perspective, I want to emphasize four main points:
    First, measurement and feedback of performance to 
physicians is the most effective way of improving physician 
performance;
    Second. feedback and profiling are really two very 
different concepts, with differing goals and effects;
    Third, bundling of payments is a critical step toward 
aligning incentives for better quality and more appropriate 
care; and
    Fourth, if we measure both patient outcomes and the cost of 
care in the right way, we can rapidly improve quality while 
simultaneously reducing cost.
    We base these recommendations on our specialty's experience 
with the use of outcomes data to drive improvements in quality. 
We've been willing to invest our volunteer time and resources 
in these efforts as part of our professional responsibility to 
our patients. However, you should recognize that physicians are 
being pulled in opposite directions by their professional 
responsibilities on the one hand, and the perverse incentives 
in the current reimbursement system on the other. You have 
already heard how Medicare still pays more if we perform more 
services but does little to support quality improvement.
    The two mechanisms you're investigating today, information 
feedback to physicians and bundling payments to align 
incentives with patient needs, can help resolve these 
conflicts. Collection and analysis of data on the quality of 
care, patient outcomes, is what should drive the health care 
system.
    There are many examples of how this works from our cardiac 
surgical experience, including programs in the veterans 
hospitals in Northern New England, Virginia, as well as 
Michigan, and at the national level using the STS database. In 
each case, collection of outcomes data, risk adjustment and 
feedback to the local level has resulted in lower mortality 
rates, less variation and fewer complications. The American 
College of Cardiology has developed a heart cath outcomes 
registry, and we are working with them to link our databases to 
measure the quality and long-term effectiveness of 
interventions in patients with coronary disease. We think this 
is the way of the future.
    However, there is a critical distinction between feedback 
and profiling. Feedback is the use of data by the profession to 
improve physician performance. Profiling uses data to steer 
patients, assuming that economic carrots and sticks can best 
change physician behavior. We believe that professional 
feedback, not profiling, will be most likely to improve care on 
a systemwide basis.
    Bundling of payments is a critical step toward aligning 
incentives for better quality and more appropriate care. 
Surgeons have always been paid this way, which includes both 
the surgical procedure and the post-operative care. As noted 
earlier, major procedures accounted for only a very small 
percentage of Medicare physician spending growth.
    I agree with Dr. Berenson that bundled payments reward more 
effective care, not just more care. Any system that pays a la 
carte for each service or test only encourages more to be 
performed. A single payment for the care of a patient's 
condition for a defined period of time would free physicians to 
practice their profession in the most efficient and effective 
way. It would provide incentives to keep patients more involved 
in their own care; would allow physicians to use e-mail, 
telephone or home monitoring, physician extenders or whatever 
other methods resulted in better outcomes. In high-cost 
conditions, this approach should be the norm.
    You have heard a little bit about the concerns about under-
utilization. We think that if you couple bundled payments with 
outcome measurement, we can help prevent under-utilization and 
encourage efficiency and innovation.
    Finally, combining information on quality and cost can save 
money. Our Virginia cardiac surgeons merged their STS clinical 
outcomes data with hospital cost data, worked together to 
identify and adopt best practices and reduced complications 
that save literally millions of dollars in Virginia every year.
    We are currently trying to combine our outcomes and quality 
data with cost data from private health insurers and with 
Medicare, and if we can do this, we'll have a more powerful 
tool to improve quality and reduce costs for treating heart 
disease, which is still the number one killer in the United 
States.
    In conclusion, I wish to recommend four steps that Congress 
could take to allow and encourage the medical profession to 
fulfill our responsibilities to patients and our responsibility 
to self-regulate:
    First, recognize that the medical profession must be an 
integral part of any solution;
    Second, provide Medicare support for the development of 
specialty or condition-based clinical electronic databases 
which are focused on patient outcomes;
    Third, provide bonuses for measuring and analyzing patient 
outcomes to improve quality; and
    Fourth, realign the reimbursement system to focus on 
integrated care based on specific patient needs by bundling 
payment for treatment of the conditions.
    If these options are implemented carefully, they could be a 
major step toward improving quality and reducing costs in 
Medicare, and in health care nationwide.
    Thank you for the opportunity to share my views with you.
    [The prepared statement of Dr. Mayer follows:]
  Statement of John E. Mayer, Jr., M.D President, Society of Thoracic 
                                Surgeons
    Chairman Stark, Ranking Member Camp, members of the Subcommittee, 
thank you for inviting me to testify before you today regarding methods 
to improve both quality and efficiency among physicians treating 
Medicare beneficiaries. I am a heart surgeon at Children's Hospital in 
Boston and Professor of Surgery at Harvard Medical School, and I 
currently serve as the President of the Society of Thoracic Surgeons.
    I'd like to make four main points for you here today which have a 
unifying theme of engaging medicine as a profession in addressing our 
healthcare cost and quality problems:

         Measurement and Feedback of performance to physicians is the 
        most effective way of improving physician performance, and we 
        have many examples. Feedback and profiling are two very 
        different concepts, with differing goals which must be 
        understood to achieve desired results. Bundling of payments is 
        a critical step toward aligning incentives for better quality 
        and more appropriate care. The ultimate goal is to measure both 
        patient outcomes and cost of care, which will rapidly improve 
        quality while simultaneously reducing cost.
Feedback as the most effective way to change how physicians make 
        decisions
    Cardiothoracic surgeons have an extensive history and culture of 
focusing on and improving the clinical outcomes of our patients, and 
based on our 3 million patient cardiac surgical database, we believe 
that we can legitimately claim to have prolonged millions of lives. We 
have done this because we believe that this is part of our professional 
responsibility without resorting to profiling, public reporting, or 
monetary incentives. We also have data indicating that improvements in 
clinical outcomes, such as reducing complications, result in cost 
reductions as well. However, as I will outline for you in a moment, 
physicians are now being pulled in opposite directions by our 
professional responsibilities to our patients and to society on the one 
hand and by the perverse incentives in the current reimbursement system 
in the other. We believe that the two main mechanisms you are 
investigating today--information feedback to physicians and bundling to 
align payment incentives with patient need, can help to address these 
conflicts. These two changes, if implemented correctly and executed 
carefully, can realign the incentives to enlist the medical profession 
in a rapid and continuous quality improvement cycle that can drive down 
costs while treating patients better. We believe our experience can 
serve as a guide for the Medicare program and physicians to get there.
    To date, physician payment in Medicare has been set based on budget 
targets. Whether it is the ``Sustainable'' Growth Rate (SGR), or the 
Volume Performance Standards (VPS) before it, budget targets can look 
good to CBO or on a balance sheet. But budgetary targets don't help 
patient care. What's worse, the looming SGR-mandated payment reductions 
do not affect individual physician decision-making. And perhaps most 
tragic, budget driven reductions put off the more important work of 
replacing poor care with high quality care, avoiding unnecessary 
treatments, and preventing expensive complications.
    What does help patients is clinical expertise, technical skill, and 
physician responsibility--and these are the province of the Profession 
of Medicine. The incentives in the Medicare program today are perverse, 
and are contrary to our professional responsibility as doctors. 
Medicare currently pays more if you perform more services, order more 
images, schedule more office visits. Hospitals are paid more if 
patients have more complications, and more ER visits. The primary care 
physician who does the best at keeping his or her patients healthy 
struggles because prevention is not rewarded at all. So in a sense, the 
Medicare reimbursement system encourages worse outcomes for patients. 
Our professional responsibility to society as physicians dictates 
otherwise.
    We believe the changes in policy you are examining have been 
successful because they align with one very powerful motivator for all 
physicians: their responsibility as a profession to provide societal 
benefit in treating patients and responsibly shepherding scarce 
resources. I strongly believe changes in policy must be made to re-
engage medicine as a profession in helping to solve some of the major 
quality and financial issues facing healthcare in the U.S., in general, 
and the Medicare program, in particular.
    You may be thinking that we are simply saying ``Trust us, leave it 
to the professional responsibility of physicians and all will be 
well,'' but what we are really suggesting is a ``trust, but verify'' 
scenario. Collection of data on quality of care--patient outcomes--is 
what should drive the healthcare system. We believe that a system of 
bundled payments coupled to feedback of outcomes information to 
physicians will help to do so. So trust physicians, but we also need to 
collect the data.
    In surgery, we have historically focused primarily on quality 
improvement because our professional responsibility is foremost to 
improve patient care. However, we now recognize that this focus on 
quality can also reduce costs and that our professional responsibility 
to society requires that we wisely use societal resources.
    The impact of feedback to physicians--of both the quality of their 
outcomes and their resource use--will be helpful. It has been said 
that, ``You will improve that which you measure.'' We have found this 
to be true. If we measure process compliance, process compliance 
improves. If we measure patient results--or outcomes--that is what will 
improve. We should avoid measuring only cost, for the cheapest care is 
no care, and the least costly outcome may be death. Though feedback of 
data on resource utilization is likely to improve those utilization 
rates, we must be very careful in doing so. We believe that cost is 
most appropriately measured only in conjunction with outcomes so that 
we can provide care that is of value to the patient.
    The STS experience with 18 years of quality measurement in cardiac 
surgery shows that feedback to physicians on both quality and 
efficiency may well be the most effective means of changing physician 
behavior to improve patient care and increase efficiency.
    Perhaps the earliest example of feedback improving quality and 
reducing variation was the Northern New England Cardiovascular Study 
Group project in the late 1980's--using variation in outcomes as a tool 
for improvement, not as a means to profile. The surgeons in those 
states met to discuss results and implement the best practices. The 
mortality rate in cardiac surgery became the lowest in the country in 
those states, and variation among institutions disappeared. This is the 
goal of feedback.
    In the VA system, cardiothoracic surgeons have been using an 
outcomes measurement/feedback system and have evaluated the observed-
to-expected mortality rates in open heart surgery for two decades. 
While patients have been arriving older and much more ill, the results 
have steadily improved. Thus the ratio of the observed mortality rate 
to the expected mortality rate has declined continuously. The American 
College of Surgeons has adopted the VA methodology for their National 
Surgical Quality Improvement Program (NSQIP). These exemplify the type 
of Continuous Quality Improvement we could expect in Medicare if all of 
medicine could measure results and feed the data back to physicians.

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    It was an STS leader who performed the landmark clinical trial 
based upon the STS database with a grant from AHRQ. This was the 
largest Continuous Quality Improvement (CQI) trial in medicine where 
Dr. Bruce Ferguson was able to document that intervention in the form 
of education and formal CQI led to changes in physician practice that 
produced rapid improvements in care. Within 18 months of receiving 
feedback and education on two practices that improved outcomes in heart 
surgery patients, we saw a dramatic improvement.
    The recently completed second part of this study focused on how 
surgeons can prevent further heart disease following bypass surgery 
(CABG). Basically answering ``Can the STS influence our surgeons to use 
the "teachable moment" of hospitalization to get patients on correct 
medications following CABG?'' And once again, there were no incentives 
other than the knowledge that it is probably the right thing to do.
    This was a huge trial with 234 Control Sites, and 224 Treatment 
sites across the country. They measured the rates at which four 
separate medications were prescribed at discharge after coronary 
surgery. Every treatment site showed a significant increase in the rate 
these medicines were prescribed vs control groups in 18 months. They 
even created a patient web site created with "steerage" of patients at 
discharge to the Web site for additional information. This is an 
example of physicians taking responsibility for managing patient care 
beyond the treatment period.
    This national RCT demonstrated that a professional society CQI 
program could speed adoption of these prevention therapies. Patients as 
well as physicians were successfully engaged in the CQI process and the 
results will improve the long-term patient outcomes following 
contemporary CABG.
Feedback and Profiling are two distinct concepts and will achieve 
        vastly different results
    This distinction is one that will be critical for all to 
understand. Feedback is the use of data to improve physician behavior, 
while profiling is use of data to discriminate among physicians and 
steer patients--without affecting the behavior of the provider. 
Physicians who may have had patients steered away from them by managed 
care, but have not improved their performance through feedback will 
continue to treat patients in the same way, and that benefits neither 
patients nor Medicare. The quality improvement driven by data 
collection and feedback promotes system-wide quality improvement and is 
not focused at the care of a single patient.
    To take it one step further, and really achieve costs savings, we 
must bring costs of care into the equation with quality, and determine 
the ``value'' of care provided. In Virginia, cardiothoracic surgeons 
matched their STS quality data with Medicare's cost data, and 
calculated the value that each hospital and practice was delivering. 
But rather than using this information for profiling and competition, 
they shared the data, shared the methods for improving complication 
rates, and saved millions of dollars each year by producing better 
outcomes for patients statewide. This is the best way to save money in 
Medicare--through higher quality results. The most recent results here 
show that doctors in Virginia reduced the incidence of sternal wound 
infections by 67 percent below the historically expected rates. Each 
prevented infection of this type saves $73,000.00. Rates of heart 
arrhythmia (each occurrence costing over $3,000) have been reduced 
statewide by 5 percent. Together these two improvements save millions 
of dollars each year, not to mention saving hundreds of lives.
    In Michigan, all cardiothoracic surgeons in the state and all 31 
hospitals (that perform cardiac surgery) voluntarily submit data to the 
STS database for analysis. Blue Cross/Blue Shield of Michigan has 
agreed to fund this data collection for not only their covered 
patients, but for all Medicare, Medicaid, and uninsured patients. The 
data are audited and fed back to the surgeons. The surgeons have shared 
results, and discuss with the top performers how they achieved their 
results. This Michigan QI project has reduced variation between sites 
in the most critical outcomes including mortality, atrial fibrillation, 
and kidney failure. Participants know that it has improved quality of 
care for the patients, and are confident that it will also save money. 
Moreover, focus on outcomes accelerates improvement well beyond what 
you would achieve from rewarding static process measures. In fact, the 
focus on measurement and improvement in outcomes has caused them to 
seek out and find new innovative processes worldwide that improve 
quality and reduce complications. By focusing on outcomes, they found 
discrete new methods in use in Australia that they are now implementing 
in Michigan. If they had focused solely on compliance with static 
process measures, these innovations may not have been sought nor found.
    STS believes that similar approaches in other specialties will work 
in most areas of medicine and will help improve the quality and 
appropriateness of care and thereby reduce costs. STS is now teaming up 
with the American College of Cardiology (ACC) who have built their own 
database of 5 million patients undergoing heart catheterization. By 
doing so, we will measure the quality of care in patients with 
cardiovascular disease over the patient's entire history of the 
disease. We are beginning to work with health plans and payers, 
including United, Wellpoint, Blue Cross, and Aetna to combine the 
robust STS-ACC quality data with the plans' cost data including 
treatments, drug costs, and hospital costs. These efforts are not for 
the primary purpose of profiling, and steering patients, but to 
actually improve the care provided while reducing costs. We are asking 
Medicare to work with us to combine Medicare's claims data with our 
clinical data. If we can do this, we will have the total picture of 
what quality delivered at what cost in the treatment of heart disease--
the number one killer of Americans, and by far the major cost center 
for Medicare.
    All physicians believe they are giving the highest quality, most 
efficient care--until they are shown otherwise. The critical issues are 
high quality clinical data, a statistically valid method for risk-
adjustment, and feedback of data to the local institution or practice 
level. We are all trained in science, and data doesn't just talk, it 
speaks very loudly. Once professionals know the truth, behavior shifts 
easily.
Bundling of payment is a critical step toward aligning incentives for 
        better quality and more appropriate care.
    The second focus of this hearing is on how bundled payments in 
Medicare might realign incentives from rewarding ``more care'' to 
rewarding ``more effective care''. To align payment with quality and 
efficiency, care delivery must be focused on patient need. Which is to 
say, payment should be organized around the disease or condition of the 
patient.
    In my field of pediatric heart surgery, interdisciplinary teams of 
specialists come together for the benefit of children with congenital 
heart disease. This needs to be the norm in medicine, particularly in 
the high intensity, high risk areas of medical care.
    Care delivery teams should be organized around major conditions, as 
well as around wellness and prevention. In the future, I believe we 
will have teams of providers who are expert in caring for specific 
conditions, as well as experts in keeping patients healthy. The 
question is, when will that future be realized?
    Payment for treatment of Medicare beneficiaries ultimately should 
be made on the basis of a period or episode for treating each 
condition. Most in medicine are far from that point today, but there 
are areas of Medicare where it is working well to control spending 
growth and encourage only the most appropriate care. In cardiothoracic 
surgery, as well as nearly all major surgical procedures under 
Medicare, physicians are paid one fixed fee (in a bundle) for the care 
they provide. If I perform open heart surgery for a Medicare 
beneficiary, Medicare pays me one fee for the procedure, patient 
visits, intensive care, and recovery care for 90 days regardless of 
what additional needs arise. If the patient requires me to spend more 
time with them, if I need to speak with the family and meet with the 
patient, or if the procedure requires more time in the operating room 
or more time in the intensive care unit, and there are other costs 
involved in the treatment of that specified condition, so be it. 
Medicare only pays one fixed fee. This may well be the reason why, in 
2003, office visits in Medicare accounted for 29 percent of increased 
physician spending, minor procedures that are not paid in a bundle 
accounted for 26 percent of growth, and imaging (also not paid in a 
bundle) accounted for 18 percent of spending growth. Major procedures, 
frequently paid under bundled (or global) payments, were the smallest 
contributor to growth, accounting for only 3 percent of Medicare 
physician spending growth.
    A bundled payment for treatment of many medical conditions under 
Medicare would shift the incentives from the current system that pays 
``a la carte'' for each service or test, thus encouraging ever more to 
be performed; to an incentive to keep the patient healthy while 
performing only the most appropriate and helpful tests or procedures. 
Medicare should seriously consider a bundled payment model for the care 
of beneficiaries with the most costly diseases--especially chronic 
conditions.
    The current incentive under a la carte Medicare fee for service 
payment urges professionals to perform as many services on each patient 
as possible, when instead, we should have a system that enables 
professionals to regulate themselves based upon what is most effective 
and most appropriate for the patient.
    Exercise caution however, as a bundled payment without a measure of 
patient outcomes (or results), could reward underutilization. The 
coupling of outcome measures with bundled payment would align 
incentives, prevent underutilization, and encourage efficiency and 
innovation.
Conclusion
    If we are able to successfully implement a system of measurement of 
results, outcome data feedback loops to physicians, and aligned 
incentives through bundled payment, we will have made major strides 
toward a system that will improve care continuously, and drive dramatic 
costs reductions.
    So, how can such a system be operationalized? What can the Congress 
do now to allow and encourage the medical profession to help solve the 
current healthcare problems? We recommend four steps:

    1.  Recognize that the medical profession must be an integral part 
of any solution.
    2.  Provide Medicare support for the development of specialty or 
condition-based electronic clinical databases focused on patient 
outcomes, building on the efforts of groups such as the STS, the ACS, 
and the ACC.
    3.  Provide bonuses for the very difficult work of measuring the 
actual patient outcomes. This will become a critical check against 
underprovision of services in a bundled payment environment.
    4.  Realign the reimbursement system to focus on integrated care 
based on specific patient needs by bundling payment for treatment of 
the condition.

    The options you are exploring today are important pieces of 
realigning incentives in Medicare. If they are implemented carefully, 
they could be a major step toward improving quality for patients while 
reducing costs in not only Medicare, but in our health care system 
nationwide.
    Thank you for the opportunity to share my views and experience with 
you today.

                                 

    Chairman STARK. I want to thank you. We have about 15 
minutes till our rent expires on the room at one o'clock. I've 
talked with Mr. Camp, and if we are not able to let you expand 
in the time remaining, we might meet informally with any of you 
who have some time who aren't starving to death to talk a 
little more.
    But I wanted to just cover a couple of points here. Dr. 
Berenson, you point out that 80 percent of what we spend in 
Medicare is on chronically ill, and by that I assume you mean 
they've got a couple of diseases and they are much sicker than 
average.
    To the extent that, as Dr. Mayer said, you can quantify 
some research for cost, we have a problem in that if there's 
evidence--we have a problem getting the Congressional Budget 
Office often to score savings for us, prospective savings, and 
particularly in new programs.
    To the extent that you can help us, any of you, in 
providing empirical data that would help us convince the 
Congressional Budget Office where we talk about plans that 
save, that would be helpful to what we have to do in this pay-
as-you-go problem in planning reimbursement for physicians.
    But another comment is that it seems to me, and for those 
of you who are primary care docs, a primary care doc gets paid 
for basically face-to-face encounters. It would seem to me that 
at some point it's just simpler for the primary care doc to 
refer me off to a bunch of specialists than get involved with 
having to do research and get back to me and get me back again 
for another $65 encounter when you've got a waiting room full 
of people who've got flu and my incipient heart attacks. We're 
just not set up to reimburse the family care physicians.
    I was importuned recently by a group that shall remain 
nameless who said they've got a business that will take care of 
managing care, or individual care, disease management. They are 
in an ancillary business. They said that the real reason they 
wanted to be identified as somebody providing disease 
management is that their stock would go from 10 times earnings 
to 20 times earnings by the New York analyst because they find 
that disease management is far sexier than providing home 
health care, which I think was their underlying business.
    I would be leery of sort of putting this idea of bundling 
or management or the medical home out into the marketplace with 
people with less than the training that you gentlemen have had. 
But--and I get to a question--on the other hand, I wonder how 
many of you, particularly those of you in primary care, have 
the training in management programs and information technology, 
kind of business management, if you will.
    It isn't necessarily--I mean, once you've determined that 
you want to check my weight and am I taking my Zocor and am I 
exercising, then the question becomes more like bill 
collectors. Do you call me at home during dinnertime to make 
sure, just before I'm about to have that second dessert? Or do 
you--once a month, do you check to make sure I've filled by 
Zocor prescription? Also it seemed to me to be unique to 
medical schools, that's the question, is do they train you in 
medical schools today, those of you who would go into family 
practice or internal medicine, to manage through the use of 
nurses and other practitioners, are you guys ready to do this?
    Dr. KELLERMAN. Well, I think that's part of the medical 
home concept. For example, with our medical school, we have a 
rotation in ambulatory care geriatrics to try to teach some of 
those principles. But I think you're making a good point that 
right now we're paid fee-for-service to see somebody face-to-
face, and the idea of the medical home is to look at 
information and better manage the patient.
    Let me give you an example of something that we could do 
with health information technology. If I have an electronic 
health record in my office, some people think, well, that's a 
paperless office. The real value is a registry where I can see 
who my hundred patients are with diabetes. I've got these fifty 
over here that are under good control. I don't need to worry 
about them as much. But what about these twenty-five over here 
that under poor control, and maybe I do want to call them at 
lunchtime and see if they're having the extra dessert? Or work 
with my team, which could be my nurses, potentially a social 
worker with community support organizations. So that's the 
thing that we need to get to with the medical home. Right now 
we don't have a reimbursement system that incentivizes me to do 
that.
    Chairman STARK. Bob.
    Dr. BERENSON. You've asked a very good question. Dr. 
Wagner, who I referred to, wrote one of the best articles I've 
ever read about 10 years ago in Millbank why primary care 
physicians don't do these activities now, and describes things 
like the tyranny of the urgent, when you've got a waiting room 
full of people who are sick, dealing with an elderly person 
with chronic problems, none of which seem to be urgent today, 
is pushed to the side. He does refer to the problems in medical 
education which focuses on solving problems rather than 
managing problems. So, there is an education element here to 
physicians to want to take this on. So, that is a challenge.
    The other challenge I guess I would make is if a typical 
small practice, I was in a practice at the time of four 
internists. We had maybe 20 or 25 percent of our patients were 
Medicare patients, and let's say we picked 10 or 15 percent of 
those patients were in this category of needing chronic care 
management, you're now down to 2 or 3 percent of a patient 
population for whom this special care management would be 
needed, and are doctors going to redesign how they patient for 
that subpopulation? Which is why I'm persuaded we need to maybe 
consider a new payment model for that Medicare and private 
payers do for medical homes, that don't just focus on the small 
percentage of patients but large percentage of dollars 
represented by the Medicare population.
    I actually think in this area if we had new payment models, 
you could--this isn't rocket science for physicians. They 
understand if they were in an environment that paid for these 
activities, the role of teams, I think primary care physicians 
are pretty accustomed to working in teams if that becomes the 
norm. So I think while there would be an education process, 
it's something that has to be taken on.
    Chairman STARK. Are we just in effect trying to make each 
of you as primary care docs a little bit of a staff model 
managed care plan? In other words, are you going to be a one 
doc or a small group managed care plan with the same kinds of 
resources let's say in our are, Dr. Mahal, that Kaiser has with 
hundreds of thousands of people in our county, they had teams 
of people to call and get people back into see whomever they 
should see. But for a small office to do that takes, I would 
think, some kind of a----
    Dr. BERENSON. Let me--could I take the first shot at that 
one?
    Chairman STARK. Yeah.
    Dr. BERENSON. I think it would be desirable if more 
physicians did go into multi-specialty group practices, and I 
think it's reasonable to try to figure out a tilt in payment 
policy to encourage that. But most physicians won't be in those 
practices. So, one of the interesting models in the physician 
group practice demonstration that Medicare is--CMS is 
sponsoring right now in it's either Middlesex or Middletown, 
Connecticut. I keep for getting the name. The physicians are in 
ones and twos practices, but the care coordination is done in 
the local level by what used to be a physician hospital 
organization that was formed for managed care contracting. It 
is now the entity that provides the nurse support, the computer 
support, a lot of the activities. Case finding is in the 
hospital. There's a referral. In some cases, the nurse goes 
with the patient to the doctor's office.
    So, the infrastructure is not in the doctor's office. It's 
a different model. But it's also not with some third-party 
disease management company two states over. It is community-
based. I actually think that is a model that has some potential 
for what's--for small practices that really don't have the 
scale to take this on themselves.
    Dr. MAHAL. Congressman, I'm a solo practitioner, and I have 
been coordinating the care of my patients for the 30 years that 
I've been in practice in our community in Freemont. It is 
possible to coordinate care. It is a question of the priorities 
that we set for ourselves. I totally agree with my two 
colleagues who have spoken earlier that advancing information 
technology for which a practicing doctor needs assistance in 
would advance the care coordination.
    I think a vast majority of care should be coordinated 
through a primary care physician. There are some exceptions to 
that. As a gastroenterologist as well, I feel that I do a lot 
better at coordinating the care of the patient with active 
ulcerative colitis. For example, I have developed intuitions 
over the years by doing so much work with these patients that I 
catch their problems, if you may, with that sixth sense, the 
art form that I referred to earlier, Congressman, to keep them 
out of the hospital. I can really take care of my ulcerative 
colitis patients, seeing them very frequently, their emotional 
needs, their medical needs, their social needs, and reduce the 
hospitalization.
    Another example would be a patient who is going through an 
oncological treatment. They're going through a six to 8 month 
chemotherapy period. Their best medical home, their best family 
care source at that time, is the oncologist that they are 
seeing, not me, who referred them to the oncologist.
    So, there are several permutations of this process. Kaiser 
does a wonderful job of coordinating care, but from time to 
time, I see Kaiser patients who come over to get a second 
opinion because they are not getting what they think. So, you 
know, Americans will have their special needs, that--some of 
them are medical, some of them are emotional. But I think a 
multi-pronged approach to finding a mental home for patients is 
a good idea.
    Dr. KELLERMAN. I just wanted to mention that what you're 
talking about also applies in the rural areas where resources 
are somewhat limited, but--and we have a lot of elderly 
patients in rural areas, but with the physician working with 
the hospital, with the home health agency, and, again, working 
as a team, we can better provide that than the current system.
    Chairman STARK. With modern technology, you can really scan 
images 100 miles away over the Internet. But I want to let Mr. 
Camp have a chance. I want to talk to Mayer about what the 
thoracic surgeons are doing, but Dave?
    Mr. CAMP. Thank you, Mr. Chairman. Thank you all for your 
testimony. Dr. Mayer, there was a bundled payment demonstration 
in the early 'nineties, and can you tell me the reaction of 
thoracic surgeons to that demonstration?
    Dr. MAYER. Well, there were obviously a number of centers 
that did apply and did find some advantages of being involved 
in that sort of thing, in that sort of program. There were the 
concerns that if you got better that you might actually be 
penalized for it because the reimbursement came down. I think 
if there was any complaint about the program it was probably 
that.I think all of us would like to get a reward on 
expenditure of intellectual capital, and I think in most of 
those situations, those were surgeon-led efforts, with the help 
of the hospital administration and the nursing, et cetera.
    So, I think it was a reasonable notion to do that. We've 
recently proposed to do something similar in Virginia, again. 
It's the same group that I mentioned earlier where they 
actually looked at and they were proposing what was termed 
quality sharing, so that if the surgeons and everyone else 
involved in the care of post-coronary bypass patients could 
reduce complications and acquire savings for the institution, 
some of that ought to be shared with the surgeons who were 
leading that effort. That actually got hung up in CMS with 
worries about problems with Stark violations and other issues 
and that initiative has died.
    Mr. CAMP. The Society actually has worked hard to encourage 
surgeons to improve quality and health outcomes, but the 
Society also has its national adult cardiac surgery database. 
Are surgeons participating in that?
    Dr. MAYER. Yes. There are over 800 cardiac surgical units 
in the country that are participating. We estimate that that's 
over 75 percent of the cardiac surgical programs in the 
country. I think this has been embraced not only--primarily as 
a quality improvement tool. There is nothing more powerful than 
having your data fed back to you and see how you compare with 
everyone else.
    We're a pretty competitive lot, and we certainly work 
pretty hard when we're not doing as well as our peers.
    Mr. CAMP. Right. Thank you. I just have one last question. 
I appreciate all of your testimony. Dr. Berenson, obviously 
we're here to try to make sure that services are appropriately 
compensated. Several physician services are overvalued, but 
they're only reevaluated on an every 5-year period, and rarely 
are they decreased in price. So, what can we do to make sure 
that services are appropriately valued and reimbursed?
    Dr. BERENSON. Yeah. Well, first go more than every 5 years. 
But this current process still basically requires specialty 
societies to survey members to estimate the time, and then the 
associated sort of difficulty associated with time, to 
determine the relative values. I think we've a major stake at 
this point in getting objective data. There's I think plenty of 
evidence that many of those prime estimates are overestimates. 
I was talking to Dr. Mayer earlier. The STS actually came 
forward in that process with actual objective data and 
recommended some devaluation of services.
    I think either the AMA's ROC or the CMS should have the 
ability to actually for the top 50 or 100 procedures, that's 
where I would start, to actually get objective data, to get 
other sources of input from the NIH, from VA doctors, from 
others, so that we actually identify overpriced procedures.
    Overpricing can happen because, as I've said in some of my 
articles, because CMS has some unrealistic values for how to--
for practice expenses, and I can get into those details, 
because specialty societies don't come forward to identify 
their overpriced--the work value in their procedures. It would 
be a new approach, but I think it's one that is doable if there 
were some prodding from the Congress to make it happen.
    Mr. CAMP. All right. Thank you. Thank you all for your 
testimony. Thank you, Mr. Chairman.
    Dr. MAYER. Well, I would just say it's one of those other 
spinoff things from having this 3 million patient record 
database. We actually use data on operative time, how long 
patients were in the hospital, how long they were in the ICU, 
how long they were on the ventilator. That was the basis for 
our submission. We submitted all the cardiac surgical codes to 
the five-year review. As Bob described, most went up but 
actually some went down. We think that's the way it ought to 
work. But it's based on objective data. It's not a subjective 
opinion sort of thing. I think there's a great opportunity for 
trying to use that kind of approach throughout the rest of the 
Codes.
    Chairman STARK. Well, I want to thank all of you. I'm sorry 
again that we didn't have more time, but I know we'll be seeing 
a lot of you again as we wind through this and try and come, 
one, to basically a short-term solution to a problem facing 
physicians, and build into that a longer term program that may 
be a better solution than just the 1-year fixes we've been 
doing in the past.
    Thank you all very much, and the Committee will adjourn.
    [Whereupon, at 1:00 p.m., the hearing was adjourned.]
    [Submissions for the Record follow:]
             Statement of American Academy of Ophthalmology
Introduction
    Recent studies by the Government Accountability Office (GAO) and 
MedPAC raised valid issues about how to reform Medicare as an 
alternative to the sustainable growth rate (SGR) used in fee for 
service Medicare. Our statement focuses on two major recommendations 
they discussed at the May 10 hearing--that Medicare should move to 
profile physicians and to bundle or group services to beneficiaries. 
Policy leaders say that to make these tools effective, they must be 
tied to physician payment under Medicare.
Profiling
    The GAO report released this month called for a link of Medicare 
physician pay to efficiency--defined as providing and ordering a level 
of services that meets the patient's health care needs, but is not 
excessive, given the patient's health status. The document claims the 
Centers for Medicare and Medicaid Services (CMS) has the tools 
available today to profile physician practices for efficiency.
    Profiling is the collection of data to compare doctors on their 
costs of providing services and to rate them on the basis of the ratio 
of their actual costs to the expected costs for delivering a specified 
service or the care of a patient's condition over a defined period of 
time. Private purchasers have had recent experience with profiling.
    Key problems with profiling are: 1) who defines the ``expected'' 
costs 2) how is the patient population risk adjusted and 3) what is the 
appropriate number of episodes of care required to evaluate efficiency
    GAO says that if CMS had additional authority, it could pay 
physicians similarly to private sector plans which use profiling. A 
recent report conducted for the Massachusetts Medical Society on a 
recent private sector experience, gives us concern about the real value 
of linking Medicare payment to profiling. The Massachusetts study found 
questions about the accuracy of the data particularly related to 
patient diagnosis which is critical to determining patient risk or 
severity of illness. In addition, the report found that physician 
profiling at the individual level caused increased administrative 
burdens for insurers and unintended consequences for both physicians 
and their patients that affected quality of care.
      Profiles must differentiate between sub-specialists and 
patients severity of illness
    While we acknowledge the increased demand by consumers and payers 
for more transparency in order to enable them to value the delivered 
services, the use of billing profiling by CMS is today unable to 
differentiate sub-specialists from generalists and among patients with 
differing co-morbidities. Grouper software often used in profiling, 
which purports to be able to compare doctors on the basis of cost on 
similar patient populations, makes assumptions of risk adjustment on 
the basis of administrative claims data which have never been validated 
because they are proprietary.
    In particular, there needs to be adjustments for age, case mix and 
levels of chronic or acute conditions within the practice's patient 
population. Many ophthalmologists treat a high percentage of elderly 
patients with diabetes and the eye conditions associated with the 
disease. The number of years with the disease should be taken into 
account when formulating any profile. Furthermore, within the specialty 
of ophthalmology, those who are further trained within a subspecialty 
will likely see more severe or chronic patients.
    In December 2006, CMS provided the first confidential feedback 
reports containing reporting and performance rates to the physicians 
who submitted reports on measures in early 2006. CMS also intends to 
give physicians who participate in its new Physicians Quality Reporting 
Initiative (PQRI), a larger bonus reporting program, confidential 
feedback on their performance on quality measures. This early attempt 
at profiling will be received by the individual physicians in mid 2008. 
At that time, the Academy and other medical groups will work with CMS 
to analyze the usefulness of the data.
      CMS data will need significant refinement and validation 
before linking payment to profile
    Strategies to measure and encourage quality services and understand 
resource use must be crafted carefully to avoid serious unintended 
consequences. We applaud CMS's goal of encouraging physicians to 
provide the right care at the right time and in the right setting. 
Demonstrations that are underway through CMS will give us much of the 
analysis we need in order to proceed correctly. Congress should keep in 
mind that CMS is in the very early stages of an effort to properly 
measure physician resource use.
      Even as a feedback mechanism, after data issues have been 
addressed, impact and value should be evaluated.
    Data used as part of a quality improvement program for educational 
purposes or feedback on review of medical record documentation should 
be presented to physicians in a user-friendly manner. The methods for 
collecting and analyzing the profile data must be fully disclosed to 
both the physician and the consumer. The methodology for determining 
the profiles must be explained to both providers and consumers in 
easily understandable language, because complex statistical analysis is 
the methodology often used.
    Any established norms should be based on valid data collection and 
profiling methodologies, and must use a sample size that is of 
sufficient statistical power. Interpreting results that are based on 
insufficient sample size may lead to erroneous conclusions and 
inappropriate actions.
    Data sources used to develop profiles of physicians have many 
limitations. This is especially true of surveys, medical records, and 
claims data because of their limited ability to assess patients' health 
status and wellness. These limitations must be clearly identified and 
acknowledged by Medicare or any other payer and other reviewers to 
itself, its patients, and its enrollees. Additionally, standards, 
guidelines, or practice parameters used for any physician profiling 
must be derived from the evidence-based publications that are developed 
and approved by the specialty organization that is the primary 
specialty of that physician.
 Bundling to Reduce Overuse
    MedPAC proposes payment reform that puts physicians at greater 
financial risk for services--giving physicians incentives to furnish 
and order services more efficiently. Medicare already bundles 
preoperative and follow-up physician visits into global payments for 
surgical services. Specifically, MedPAC suggests a bundled rate that 
includes separately billable drugs and laboratory services under the 
current payment method. In fact, MedPAC is in the process of examining 
bundling the hospital and physician payments for a selected set of 
diagnostic related groups (DRGs) to increase efficiency and 
coordination of care. For example, they plan to examine the physician 
services furnished to patients before, during and after inpatient 
hospitalizations for medical DRGs to assess whether a global fee should 
be applied, similar to surgical DRGs.
    The Academy, as a surgical specialty, has a lot of experience with 
bundling payment for surgical services and the disincentives under this 
approach for over utilization of ancillary services and visits related 
to a surgery. Bundling an episode of care for medical diagnoses can be 
done if the tools are there--Ophthalmologists have done that for 
diabetic retinopathy laser surgery with a global fee.
    The Academy, however, has concerns about linking physician payments 
to hospital services because of adverse experience physicians have with 
the way hospitals allocate costs for the provision of services. 
Furthermore, it is unclear about how such a payment would work and 
whether or not it would place physicians at financial risk when it 
comes to allocation of payments.
Conclusion
    We do not believe Medicare should move at this time to tie payment 
to physician profiles and efficiency measures. Data issues and the lack 
of adequate severity of illness adjustment currently threaten the 
relevance and the accuracy of a physician profile under Medicare. 
Because of this, we suggest pilot testing before proceeding on linking 
payment to profiles and measures. Even as a feed back mechanism, the 
impact and unintended consequences need to be studied before devoting 
significant resources to this endeavor.
    For more information go to the Academy's Web site at www.aao.org

                                 

              Statement of American College of Physicians
    ACP strongly believes that Medicare and other health plans should 
be reformed to advance the patient-centered medical home, a model of 
health-care delivery that has been proven to result in better quality, 
more efficient use of resources, reduced utilization, and higher 
patient satisfaction. The College greatly appreciates Subcommittee 
Chairman Stark and Ranking Member Camp convening today's hearing which 
will provide an opportunity to focus on key advantages of the patient-
centered medical home.
    In March, 2007, ACP, the American Academy of Family Physicians, 
American Academy of Pediatrics, and the American Osteopathic 
Association released a joint statement of principles that defines the 
characteristics of a patient-centered medical home. These four 
organizations represent 333,000 physicians and medical students. The 
joint principles are attached to this statement.
    As described in the joint principles, a patient-centered health 
care medical home is a physician practice that has gone through a 
voluntary qualification process to demonstrate that it:

      Provides continuous access to a personal primary or 
principal care physician who accepts responsibility for treating and 
managing care for the whole patient through an a patient-centered 
medical home, rather than limiting practice to a single disease 
condition, organ system, or procedure,
      Supports the specific characteristics of care that the 
evidence shows result in the best possible outcomes for patients.
      Recognizes the importance of implementing systems-based 
approaches that will enable physicians and other clinicians to manage 
care, in partnership with their patients, and to engage in continuous 
quality improvement,
      Introduces transparency in consumer decision-making and 
accountability for getting better results by reporting on evidence-
based quality, cost and patient experience measures of care.

    The patient-centered medical home has the support of a broad 
collaborative of physician organizations, employers and other 
stakeholders. The Patient-Centered Primary Care Collaborative, of which 
ACP is a founding member, has submitted a statement to the record of 
this hearing that endorses the patient-centered medical home. The 
Collaborative includes employers that collectively employ more than 50 
million Americans and primary care organizations that represent the 
physicians that provide primary care to the vast majority of Americans. 
Representatives of consumer organizations have been participating in 
the Collaborative's ongoing discussions and are expected to endorse and 
join the Collaborative in the near future. The Collaborative's joint 
statement of support for the patient-centered medical home has been 
submitted separately for the record of this hearing.
Evidence that a Patient-Centered Medical Home Will Improve Quality and 
        Lower Costs
    There is substantial and growing evidence that a health care system 
built upon a foundation of patient-centered medical home will improve 
outcomes, result in more efficient use of resources, and accelerate 
systems-based improvements in physician practices.
    According to an analysis by the Center for Evaluative Clinical 
Sciences at Dartmouth, States that relied more on primary care:

      have lower Medicare spending (inpatient reimbursements 
and Part B payments),
      lower resource inputs (hospital beds, ICU beds, total 
physician labor, primary care labor, and medical specialist labor)
      lower utilization rates (physician visits, days in ICUs, 
days in the hospital, and fewer patients seeing 10 or more physicians), 
and
      better quality of care (fewer ICU deaths and a higher 
composite quality score).\1\
---------------------------------------------------------------------------
    \1\ Dartmouth Atlas of Health Care, Variation among States in the 
Management of Severe Chronic Illness, 2006

    Starfield's review of dozens of studies on primary-care oriented 
health systems found that primary care is consistently associated with 
---------------------------------------------------------------------------
better health outcomes, lower costs, and greater equity in care.

      Primary care oriented countries, such as Australia, 
Canada, New Zealand, and the United Kingdom are rated higher than the 
United States on many aspects of care, including the public's view of 
the health care system not needing complete rebuilding, finding that 
the regular physicians' advice is helpful, and coordination of care. 
``The United States rates the poorest on all aspects of experienced 
care, including access, person-focused care over time, unnecessary 
tests, polypharmacy, adverse effects, and rating of medical care 
received.'' An orientation to primary care reduces sociodemographic and 
socioeconomic disparities.
      Overall, primary care-oriented countries have better care 
at lower cost.
      Within the United States, adults with a primary care 
physician rather than a specialist had 33 percent lower cost of care 
and were 19 percent less likely to die, after adjusting for demographic 
and health characteristics.
      Primary care physician supply is consistently associated 
with improved health outcomes for conditions like cancer, heart 
disease, stroke, infant mortality, low birth weight, life expectancy, 
and self-rated care.
      In both England and the United States, each additional 
primary care physician per 10,000 population is associated with a 
decrease in mortality rates of 3 to 10 percent.
      In the United States, an increase of one primary care 
physician is associated with 1.44 fewer deaths per 10,000 population.
      The association of primary care with decreased mortality 
is greater in the African-American population than in the white 
population.\2\
---------------------------------------------------------------------------
    \2\ Starfield, presentation to The Commonwealth Fund, Primary Care 
Roundtable: Strengthening Adult Primary Care: Models and Policy 
Options, October 3, 2006

    Another analysis found that when care is managed effectively in the 
ambulatory setting by primary care physicians, patients with chronic 
diseases like diabetes, congestive heart failure, and adult asthma have 
fewer complications, leading to fewer avoidable hospitalizations.\3\
---------------------------------------------------------------------------
    \3\ Commonwealth Fund, Chartbook on Medicare, 2006
---------------------------------------------------------------------------
    Patient-centered primary care will also accelerate the 
transformation of physician practices by making the business case for 
physicians, including those in small practice settings, to acquire and 
implement health information technologies and other systems-based 
improvements that contribute to better outcomes.
    ``Patient-centeredness, shared decision-making, teaming, group 
visits, open access, outcome responsibility, the chronic care model, 
and disease management are among the proposals intended to transform 
medical practice. The electronic health record's greatest promise 
arguably lies in the support of these initiatives. . .'' \4\
---------------------------------------------------------------------------
    \4\ Sidorov, Health Affairs, Volume 25, Number 4, 2006
---------------------------------------------------------------------------
Reform of Medicare Payment Policies to Support a Patient-Centered 
        Medical Home
    Many physicians would like to redesign their own practices to 
become a patient-centered medical home, but are discouraged by doing so 
by Medicare payment policies that reward physicians for the volume of 
services rendered on an episodic basis, rather than for comprehensive, 
longitudinal, preventive, multi-disciplinary and coordinated care for 
the whole person. The authors of a recent survey found that ``a gap 
exists between knowledge and practice--between physicians' endorsement 
of patient-centered care and their adoption of practices to promote it. 
Physicians reported several barriers to their adoption of patient-
centered care practices, including lack of training and knowledge (63 
percent) and costs (84 percent). Education, professional and technical 
assistance, and financial incentives might facilitate broader adoption 
of patient-centered care practices. With the right knowledge, tools, 
and practice environment, and in partnership with their patients, 
physicians should be well positioned to provide the services and care 
that their patients want and have the right to expect.'' \5\
---------------------------------------------------------------------------
    \5\ Commonwealth Fund study, ``Adoption of Patient-Centered Care 
Practices by Physicians: Results from a National Survey'' (Archives of 
Internal Medicine, Apr. 10, 2006)
---------------------------------------------------------------------------
    Congress should enact legislation that leads to a fundamental 
redesign of Medicare payment policies to support a patient-centered 
medical home. Such redesign should include the following five key 
elements:

    1.  Eliminate the SGR and provide stable, positive and predictable 
updates combined with performance-based additional payments for 
reporting on quality measures relating to care coordination and 
patient-centered care.

    The sustainable growth rate (SGR) formula must be eliminated. 
Unless Congress acts, the SGR will cause a cut of almost 10 percent in 
physician services in 2008, and a cut of almost 40 percent over the 
next several years. Cuts of this magnitude will make it impossible for 
physicians to invest in the systems and technologies needed to become a 
patient-centered medical home, will accelerate the trend of physicians 
turning away from primary care medicine, and create access problems as 
primary care physicians leave medicine in increasing numbers and fewer 
young physicians go into primary care.
    Specifically, Congress should enact legislation that would lead to 
elimination of the SGR and replace it with an alternative update 
framework that will:

      Assure stable, positive and predictable baseline updates 
for all physicians.
      Set aside funds for a separate physicians' quality 
improvement pool that would allocate dollars to support voluntary, 
physician-initiated programs that have the greatest potential impact on 
improving quality and reducing costs, and allow for a portion of 
savings in other parts of Medicare (such as reduced hospital expenses 
under Part A) that are attributable to programs funded out of this pool 
to be allocated back to the physicians' quality improvement pool. 
Congress should direct that priority be given to those applications for 
funding under the quality pool that are most likely to improve care 
quality and efficiency by accelerating and supporting the ability of 
physicians to organize care processes to deliver patient-centered 
services through a medical home. Priority would also be given to 
programs that address regional variations in quality and cost of care. 
Our specific recommendations for revamping Medicare's Physician Quality 
Reporting Initiative are presented below. Revamp the Physicians Quality 
Reporting Initiative to focus on clinical and structural measures 
related to coordination of chronic diseases and other ``high impact'' 
interventions.

    2.  Revamp the Physicians Quality Reporting Initiative to focus on 
clinical and structural measures related to coordination of chronic 
diseases and other ``high impact'' interventions.

    The PQRI pays physicians a ``performance bonus'' of up to 1.5 
percent for reporting on measures of care that are applicable to their 
specialty and practice. Physicians will receive the same reporting 
bonus without regard to the impact of the measures on quality or cost 
of care, the costs to the practice associated with reporting on the 
measures, or the number of measures that apply to their specialty or 
practice. ACP believes that Congress should redesign the PQRI to:

      Assure that funding for the program is sufficient to 
offset the costs to physicians for reporting on the measures.
      Focus on structural (health information technologies) 
measures associated with patient-centered care through a medical home.
      Place priority on clinical measures for chronic diseases.
      Pay physicians on a ``weighted basis'' for reporting on 
structural and clinical measures that will have the greatest potential 
impact on quality and cost, so that physicians who are reporting on 
measure that will have a greater impact, or that require a greater 
investment in health information technologies, will receive a 
proportionately higher payment than physicians who report on lower 
impact measures that do not require a substantial investment in HIT.

    3.  Create incentives for physicians to acquire the health 
information technologies and systems to support patient-centered care 
in a medical home.

    Medicare should create payment incentives to encourage physicians 
to acquire specific structural enhancements and tools that are directly 
related to care management in the ambulatory setting, such as patient 
registry systems, secure email, and evidence based clinical decision 
support, which can be measured and reported on. (That is, paying 
doctors for acquiring the systems needed to become medical homes). This 
recommendation would be implemented by the National Health Information 
Incentive Act of 2007, H.R. 1952, introduced on April 19, 2007 by 
Representatives Charles Gonzalez and Phil Gingrey. The bill has been 
referred to the Ways and Means Committee. ACP urges the Health 
Subcommittee and full Committee to report the bill favorably. This 
legislation is based on the Bridges to Excellence program, which uses a 
scoring system that provides higher payments for having a fully 
functional EMR system than having a very basic registry system, and a 
similar scoring model, with tiered payments, could be used for 
Medicare:

      Tier 1--the reporting on evidence-based standards of 
care; the maintenance of patient registries for the purpose of 
identifying and following up with at-risk patients and provision of 
educational resources to patients;
      Tier 2--the use of electronic systems to maintain patient 
records (EHRs); the use of clinical-decision support tools; the use of 
electronic orders for prescriptions and lab tests (e-prescribing), the 
use of patient reminders; use of e-consults (communication between 
patient/physician or other provider) when an identifiable medical 
service is provided; and managing patients with multiple chronic 
illnesses; [Practices can qualify that utilize three or more 
incentives].
      Tier 3--whether a practice's electronic systems 
interconnect and whether they are ``interoperable'' with other systems; 
whether it uses nationally accepted medical code sets and whether it 
can automatically send, receive and integrate data such as lab results 
and medical histories from other organizations' systems.

    Such tiered payments for systems improvements could either be in 
the form of a tiered ``add on'' to the Medicare office visit payment 
that would increase as the practice achieves a higher tier, or in the 
form of a la carte coding and payment mechanisms to allow physicians to 
report when they use individual elements inherent to patient-centered 
care, such as use of a registry and use of clinical decision support. 
Congress should allocate funding to pay physicians when they 
appropriately use and report these tools and/or direct HHS to exempt 
the expenditures associated with these tools from the budget neutrality 
requirement pertaining to payments for Medicare Part B services.

    4.  Provide oversight of the Medicare Demonstration Project on 
Patient Centered Medical Homes

    The Tax Relief and Health Care Act of 2006 mandates that CMS 
implement a demonstration project of a Medicare medical home in up to 
eight states nationwide. ACP supports and appreciates Congress's 
support for the Medicare Medical Home demonstration project but urges 
this Subcommittee to exercise oversight to assure that CMS implements 
it in a timely manner and provides sufficient funding for physician 
practices that choose to participate.

    5.  Require that CMS develop and implement additional changes in 
Medicare payment methodologies to support patient-centered primary and 
principal care for (a) practices that qualify as patient-centered 
medical homes and (b) practices that are not fully qualified as PC-MHs 
but are able to provide defined services, supported by systems 
improvements, associated with patient-centered care.

    Physicians in practices that qualify as a patient-centered medical 
home should be given the option (based on standards to be established 
in statute) of being paid under an alternative to traditional Medicare 
fee-for-service. This alternative model would consist of the following:

      Bundled, severity-adjusted care coordination fee paid on 
a monthly basis for the physician and non-physician clinical staff work 
required to manage care outside a face-to-face visit and the health 
information technology and system redesign incurred by the practice.
      This bundled payment would be combined with per visit FFS 
payment for office visits and performance based bonus payments based on 
evidence based measures of care

    Yesterday, Representative Gene Green and Senator Blanche Lincoln 
introduced the Geriatric Care Improvement Act of 2007, which will 
create a new Medicare benefit for geriatric assessments of patients 
with multiple chronic disease and/or dementia and monthly care 
management fees to physicians who enter into an agreement with HHS to 
provide ongoing care coordination services to such patients. ACP 
strongly supports this bill and urges that it be reported out favorably 
by the Subcommittee.
    For physicians who are not practicing in a qualified patient-
centered medical home, Medicare should be directed to pay separately 
for the following CPT/HCPCS codes that involve coordinating patient 
care for which Medicare currently does not make separate payment.

      Physician supervision of nurse-provided patient self-
management education
      Physician review of data stored and transmitted 
electronically, e.g. data from remote monitoring devices
      Care plan oversight of patient outside the home health, 
hospice, and nursing facility setting--this is reported through CPT 
99340, which is described in item #3, ``Create a specific, new 
alternative and optional patient centered medical home benefit. . .''
      Anticoagulant therapy management
      New physician team conference codes
      New telephone service codes (scheduled to appear in CPT 
in 2008)
Conclusion
    The 110th Congress has an historic opportunity to join with ACP, 
other physician organizations, employers, and health plans to redesign 
the American health care system to deliver the care that patients need 
and want, to recognize the value of care that is managed by a patient's 
personal physician, to support the value of primary care medicine in 
improving outcomes, and to create the systems needed to help physicians 
deliver the best possible care to patients. The College's policy 
recommendations and implementation road map are offered today as a 
comprehensive plan for Medicare to realign payment policies to support 
comprehensive, coordinated, and longitudinal care for beneficiaries 
through a physician-directed, patient-centered medical home.

American Academy of Family Physicians (AAFP)
American Academy of Pediatrics (AAP)
American College of Physicians (ACP)
American Osteopathic Association (AOA)
Joint Principles of the Patient-Centered Medical Home
March 2007
Introduction
    The Patient-Centered Medical Home (PC-MH) is an approach to 
providing comprehensive primary care for children, youth and adults. 
The PC-MH is a health care setting that facilitates partnerships 
between individual patients, and their personal physicians, and when 
appropriate, the patient's family.The AAP, AFFP, ACCP, and AOA, 
representing approximately 333,000 physicians, have developed the 
following joint principles to describew the characteristics of the PC-
MH.
Principles
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; and end of 
        life care.
Care is coordinated and/or integrated across all elements of the 
        complex health care system (e.g., subspecialty care, hospitals, 
        home health agencies, nursing homes) and the patient's 
        community (e.g., family, public and private community-based 
        services). Care is 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 in a culturally and linguistically appropriate 
        manner.
Quality and safety are hallmarks of the medical home:
      Practices advocate for their patients to support the 
attainment of optimal, patient-centered outcomes that are defined by a 
care planning process driven by a compassionate, robust partnership 
between physicians, patients, and the patient's family.
      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.
      Patients and families participate in quality improvement 
activities at the practice level.
Enhanced access to care is available through systems such as open 
        scheduling, expanded hours and new options for communication 
        between patients, their personal physician, and practice 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 patient-centered care management work that falls 
outside of the face-to-face visit.
      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.
Background of the Medical Home Concept
    The American Academy of Pediatrics (AAP) introduced the medical 
home concept in 1967, initially referring to a central location for 
archiving a child's medical record. In its 2002 policy statement, the 
AAP expanded the medical home concept to include these operational 
characteristics: accessible, continuous, comprehensive, family-
centered, coordinated, compassionate, and culturally effective care.
    The American Academy of Family Physicians (AAFP) and the American 
College of Physicians (ACP) have since developed their own models for 
improving patient care called the ``medical home'' (AAFP, 2004) or 
``advanced medical home'' (ACP, 2006).
For More Information:
    American Academy of Family Physicians
    http://www.futurefamilymed.org
    American Academy of Pediatrics: http://
aappolicy.aappublications.org/policy_statement/index.dtl#M
    American College of Physicians
    http://www.acponline.org/advocacy/?hp
    American Osteopathic Association

                                 

               Statement of American College of Radiology
    The American College of Radiology (ACR) representing more than 
32,000 radiologists, radiation oncologists, and medical physicist 
members is pleased to submit this statement for the record regarding 
the hearing on options to improve quality and efficiency among Medicare 
physicians.
Fundamental First Steps
    There are fundamental steps that need to be taken as Medicare 
strives to achieve the level of efficiency needed in order to maintain 
solvency into the future. First, the Federal Government must encourage 
and provide incentives for physicians to acquire the necessary health 
information technology systems in order to deliver integrated care 
across multiple provider settings. The upfront expense for many 
physician practices to purchase, integrate, and operate these systems 
is often too great an undertaking, resulting in little or no financial 
benefit for the physician compared to the benefit realized by Medicare 
and other insurers. In addition, while Medicare takes steps toward 
greater efficiency in the delivery of physician services, it must move 
away from the current methodology for reimbursing physicians under the 
Sustainable Growth Rate (SGR) formula. However, we caution Congress not 
make major changes to the payment system without solid evidence-based 
solutions that have been proven to resolve the existing problems. Only 
with stable and predictable payments can doctors begin to invest 
resources in the technology and processes that lead to greater 
efficiency.
Growth in Volume of Imaging Services
    The ACR believes that as the stewards of the Medicare program, 
Congress must ensure that beneficiaries continue to have access to the 
highest quality physician care and that this care is delivered in an 
efficient and safe manner. In the case of diagnostic imaging and image-
guided therapy, increased volume and intensity has been shown, in 
specific clinical circumstances, to lower overall cost by reducing 
unnecessary hospital admission and surgery. Overall growth in volume 
and intensity of imaging in the 21st century is appropriate, and may be 
appropriate at a higher level as compared to the average growth of all 
medical services, because that growth represents a natural evolution of 
health care delivery in which diagnosis and treatment is made more 
rapidly and more accurately. (See Attachment A)
Accreditation Requirement and Standards for Physicians Performing 
        Imaging
    There is no doubt that inappropriate growth of imaging exists and 
we share Congress's desire to make certain that the Medicare dollar is 
spent wisely. The Medicare Payment Advisory Commission (MedPAC) has put 
forth numerous recommendations over the years on ways to improve 
quality and efficiency in the delivery of medical imaging services. In 
2005 the Commission recommended that standards be implemented for 
physicians who perform and interpret imaging studies. MedPAC mentions 
how much of the recent growth in imaging has taken place in physician 
offices where there is less quality oversight than in the hospital or 
Independent Diagnostic Testing Facility (IDTF) setting. The ACR 
believes that in order to ensure that imaging services provided outside 
the hospital are appropriate, safe and cost effective, Medicare should 
require that complex procedures such as those in nuclear cardiology, 
MRI, CT, and PET are performed by experienced and qualified physician 
specialists working with well trained technical staff in an accredited 
facility or physician office. Private insurers requiring accreditation 
for facilities providing advanced diagnostic imaging have witnessed an 
increase in quality of care and patient safety, as well as a reduction 
in repeat tests that have led to cost savings for their programs. In 
fact, UnitedHealthcare has recently announced that beginning in March 
of 2008 all beneficiaries receiving advanced medical imaging (MRI, CT, 
PET, nuclear medicine, and nuclear cardiology) must go to an accredited 
facility for those services.
Use of Appropriateness Criteria and Feedback for Physicians Ordering 
        Imaging
    Beyond patient safety and quality measures such as accreditation, 
Medicare should implement programs to ensure that seniors are receiving 
appropriate imaging--the right test, at the right time, for the right 
reason. Private insurers have found that a disproportionate number of 
imaging studies are being ordered by a relatively small number of 
physicians. To that end, the ACR encourages the consultation of 
Appropriateness Criteria when determining if and when a patient should 
receive an imaging study. Over the years, the ACR has developed 
Appropriateness Criteria for use by primary care physicians as well as 
specialists consisting of evidence-based, expert criteria for selecting 
the most appropriate imaging for patients depending on the symptoms 
they present and their medical history. Programs developed by Medicare 
should include a reporting and feedback component where referring 
physicians can see how their ordering patterns compare to their 
colleagues. When using Appropriateness Criteria within a program such 
as a Radiology Order Entry system (ROE), the ordering patterns of 
referring physicians can be successfully shifted through educational 
feedback reports, with the potential to result in savings for the 
payer. In the end, timely and appropriate imaging can produce better 
patient outcomes, through more precise treatment and lowered morbidity 
and mortality.
Bundled Payments
    In its mandated report to Congress on alternatives to the SGR, 
MedPAC presented the option of bundling physician payments in order to 
reduce overuse of services. The Commission's logic is that a larger 
unit of payment puts physicians at a greater financial risk and 
provides the incentive to order services judiciously. However, the ACR 
believes the strategy of bundling payments to physicians has the 
potential to lead to more problems than it would solve as was witnessed 
when the private sector experimented with capitation in the 1990s. 
Questions remain as to how services rendered by a physician in a 
consulting role, such as is the case with diagnostic radiology, would 
fit into the concept of bundling. It is not clear that the incentive 
for a physician to judiciously order images is provided under this 
option, and in fact it may have the opposite effect. Furthermore, to 
extend the concept of bundled payments beyond a single episode of care 
and fully integrate it into the general population of outpatients, in 
the multitude of complex patient care situations occurring over 
variable time courses, at multiple locations and involving multiple and 
often independent provider decision makers would require a system 
design so complex that it would likely be administratively 
unmanageable. The ACR asks that the Health Subcommittee explore this 
alternative only after careful evidence-based deliberation and in 
consultation with all provider stakeholders. It is our belief that 
improving health care efficiencies must be approached from the 
standpoint of quality with a focus on utilization controls based on 
appropriateness of care and physician collaboration, with the ultimate 
goal of improving outcomes, rather than having the primary focus on 
achieving savings.
    The ACR looks forward to working with Congress this year towards 
the shared goals of improving quality and efficiency through ensuring 
that Medicare pays for the safest, highest quality, appropriate imaging 
services for beneficiaries.
Attachment A
        1.  Rao PM, Rhea JT, Novelline RA, Mostafavi AA, McCabe CJ. 
        Effect of computed tomography of the appendix on treatment of 
        patients and use of hospital resources. NEJM. 1998;338(3):141-
        146. 

    The authors evaluated 100 patients who had CT for suspected 
appendicitis. Fifty-three had appendicitis; 47 did not. After the cost 
of CT, overall savings was $447 per patient ($44,731).

        2.  Jordan JE, Donaldson SS, Enzmann DR. Cost effectiveness and 
        outcome assessment of magnetic resonance imaging in diagnosing 
        cord compression. Cancer. 1998;75(10):2579-2586.

    This article is both a retrospective review and literature review. 
The authors found that with the use of MR in imaging patients with 
diagnosed cord compression, costs were reduced by 65 percent. Imaging 
studies utilized prior to MRI for diagnosis included myelography, CT, 
plain film and nuclear medicine. The average cost for diagnosis in 
these groups dropped from $3664/patient to $2283/patient. The lack of 
hospitalization costs with myelography contributed significantly to the 
reduced cost with MRI diagnosis.

        3.  Garcia Pena BM, Taylor GA, Lund DP, Mandl KD. Effect of 
        computed tomography on patient management and costs in children 
        with suspected appendicitis. Pediatrics. 1999:104:440-446.

    CT was obtained with three strategies: 1) obtain on all patients 
and discharge if nl, 2) obtain on all pts and admit all, 3) selectively 
obtain CT if wbc>10,000.
    All strategies decreased the number of hospital days, negative 
laparotomies and the per patient cost. Savings for strategy 1 was 
$2018/patient, for strategy 2 $554/patient, and for strategy 3 $691/
patient.

        4.  Rhea JT, Rao PM, Novelline RA, McCabe CJ. A focused 
        appendiceal CT technique to reduce the cost of caring for 
        patients with clinically suspected appendicitis. AJR. 
        1997;169:113-118.

    Use of focused CT reduced both variable and total cost by $23,030 
and $ 45,556 respectively per 100 patients. Costs were reduced through 
decreased number of negative laparotomies and decreased number of 
hospital days (cost of one negative appendectomy equals the cost of 18 
appendiceal CT scans).

        5.  Rosen MP, Sands DZ, Longmaid HE 3rd, Reynolds KF, Wagner M, 
        Raptopoulos V. Impact of abdominal CT on the management of 
        patients presenting to the emergency department with acute 
        abdominal pain. AJR. 2000;174:1391-1396.

    This is a review of fifty-seven patients who presented to the 
emergency room with acute abdominal pain of a nontraumatic origin. CT 
added significantly to the confidence level of the emergency room 
physician's diagnosis evaluated subjectively. The use of CT averted the 
admission of ten of 42 of these patients, approximately 24 percent. 
Furthermore, patient management was altered in 60 percent of patients.

        6.  Rosen MP, Siewert B, Sands DZ, Bromberg R, Edlow J, 
        Raptopoulos V. Value of abdominal CT in the emergency 
        department for patients with abdominal pain. Eur Radiol. 
        2003;13:418-424.

    Patients with abdominal pain who presented to a teaching facility 
were evaluated with CT when appropriate. This article demonstrated that 
17 percent of hospitals admissions and 62 percent of surgeries were 
avoided based on the CT findings. There was also a significant benefit 
derived by the treating physician markedly improving their confidence 
level with their diagnoses.

                                 

    Statement of American Health Information Management Association
    Chairman Stark and Members of the Ways and Means Subcommittee on 
Health, thank you for holding a hearing on ``Options to Improve Quality 
and Efficiency Among Medicare Physicians.'' This is a critical issue 
and the American Health Information Management Association (AHIMA) is 
honored to provide the subcommittee with information that we believe 
directly impacts the questions noted in your hearing announcement.
    As you know, the emergence of health information technology as a 
key policy issue has helped move the healthcare quality issue to the 
forefront of healthcare policy discussions. To obtain more information 
for quality monitoring, healthcare claims forms have been changed to 
collect more information on the care provided to individuals. This has 
been done to improve the delivery of quality healthcare and to insure 
fair and equitable reimbursement for services provided.
    As the Subcommittee considers the hearing testimony, we urge you to 
consider how upgrading the ICD-9-CM classification system to ICD-10-CM 
and ICD-10-PCS could improve the information and knowledge contained in 
the Medicare system, improve the efficiency of data collection and 
therefore reduce the cost of obtaining the information needed for 
Medicare processes. This will also reduce the costs incurred by the 
providers who must supply data to various contractors of the Centers 
for Medicare and Medicaid Services (CMS) for healthcare claims and 
other healthcare reporting requirements.
    In 2005, AHIMA testified before the Ways and Means Health 
Subcommittee on the need for and advantages of U.S. adoption and 
implementation of the ICD-10-CM (diagnoses) and ICD-10-PCS (inpatient 
procedures) classification systems. These systems were designed and 
produced by the Department of Health and Human Services (HHS) in the 
mid 1990's and are still awaiting formal adoption and implementation. 
To date, neither the Congress nor the Secretary has taken action that 
would result in the actual implementation and use of these 
classification systems. Yet, in the case of physicians and in contrast 
to ICD-9-CM, ICD-10-CM adoption would provide the government with more 
accurate information to determine quality, severity, and payment. In 
addition, if quickly adopted, ICD-10-CM would allow physicians to 
implement new health information technology without the threat of 
having to make retroactive changes (much more expensive) to their HIT 
systems at some undetermined time in the future.
    Briefly, adoption of ICD-10-CM now would improve the situation for 
Medicare and its physicians by:

      Providing the detail related to diagnoses that would 
allow CMS to judge the severity of the patient, which in turn would 
better identify the proper Evaluation/Management (E/M) level of care 
reported on the Medicare claim.
      Providing the detail related to diagnoses that would 
point to the necessary medical services not easily identified in the 
very vague and incomplete descriptions provided by ICD-9-CM, due to the 
rationing of ICD-9-CM codes that has had to occur in recent years 
because of the limited number of codes remaining. If CMS accepted all 
diagnoses codes that can be submitted electronically, then in many 
complicated situations--generally higher cost encounters and 
admissions--complications and co-morbidities could be identified 
without the need to request additional information from the provider 
(usually in paper form)This would also alleviate the need to review 
such data manually.
      Providing the detail necessary to identify not only 
complications, co-morbidities, or present on admission diagnoses, but 
also enough detail to permit more automated processing. The additional 
detail provided in ICD-10-CM will actually make it easier to identify 
fraud and abuse than currently because coders will not have to guess on 
what codes to enter and the additional detail will more clearly support 
or not support other codes and items on the claim form.
      Providing more detail in the claim so that physicians 
will incur less costs by not having to provide additional information, 
either with the claim or in response for more information from the 
Medicare contractor.

    As members of the Health Subcommittee recognize, the detail behind 
the ICD-9-CM upgrade and the need to implement the ICD-10-CM and ICD-
10-PCS, is significant. Had ICD-10-CM and ICD-10-PCS been implemented, 
the changes now being made to the Medicare inpatient prospective 
payment system would have been significantly easier for Medicare and 
the provider community to adopt. Costs will continue to increase for 
the Medicare program each year the implementation of ICD-10-CM and ICD-
10-PCS is delayed. In 2002, CMS testified to the National Committee on 
Vital and Health Statistics (NCVHS) that it desired to move to ICD-10 
as soon as possible. The NCVHS in turn recommended adoption at the end 
of its hearing review of the Rand study on the issue in 2003. The 
subcommittee needs to consider that our nation has dedicated funding to 
maintain ICD-10-PCS and ICD-10-CM since the mid 1990's--CMS maintains 
ICD-10-PCS while the CDC has responsibility for ICD-10-CM--and yet we 
have received no benefit from the detail because of the implementation 
delays.
    The ICD-10 codes possess many additional and beneficial uses beyond 
the subcommittee's current discussion. AHIMA would be happy to respond 
to questions on these uses as well as address any questions or concerns 
the subcommittee members might have with our comments. We urge the 
subcommittee to consider recommending the adoption and implementation 
of the ICD-10 classifications either as a stand alone legislation, or 
as a part of any health information technology or Medicare legislation 
Congress may consider. It is also important that the subcommittee 
ensure the adoption and implementation of the upgraded versions of the 
HIPAA transactions necessary to insure that such data can be carried in 
the claims system. Again, additional detail can be provided if the 
committee needs it.
    Action by the subcommittee and the Congress before the fall recess 
will allow the U.S. to make the conversion to ICD-10 classifications by 
October 1, 2011. Moving to ICD-10-CM and ICD-10-PCS is already long 
overdue. Please take the necessary steps to ensure this date is not 
delayed any further.

                                 

         Statement of American Occupational Therapy Association
    The American Occupational Therapy Association (AOTA) submits this 
statement for the record of the May 9, 2007 hearing. While the hearing 
is focused on potential methods to improve efficiency among physicians 
in Medicare, AOTA appreciates the opportunity to provide comment on 
what AOTA is doing in order to improve efficiency among occupational 
therapists in Medicare. As the Committee looks at alternatives within 
the physician fee schedule, AOTA would also like to highlight some 
areas in Medicare where the Committee should focus, particularly in 
regard to AOTA's efforts relating to the physician quality reporting 
initiative (PQRI) and the Medicare Part B outpatient therapy caps.
    The Balanced Budget Act of 1997 [Public Law 105-33] moved 
outpatient rehabilitation services, including occupational therapy, to 
the physician fee schedule. Occupational therapists and occupational 
therapy assistants are subject to yearly proposed cuts to the physician 
fee schedule. AOTA applauds past congressional action to avoid the 
proposed cuts to the physician fee schedule and is committed to working 
with Congress to avoid the proposed 10 percent cut for 2008. 
Simultaneously, therapists must also confront the uncertainty of the 
arbitrary therapy cap which literally prohibits care for high cost 
patients.
Physician Quality Reporting Initiative (PQRI)
    The Tax Relief and Health Care Act (TRHCA) of 2006 included a 
provision that directed the Secretary of Health and Human Services to 
implement a system for the reporting by ?eligible professionals' of 
data on quality measures. CMS has recognized occupational therapists as 
professionals eligible to participate in the system, and AOTA is 
working diligently to address new quality and payment options for 
Medicare Part B outpatient therapy, which take effect July 1, 2007.
    AOTA is positioned to begin participation in the deliberations of 
the Ambulatory Care Quality Alliance (AQA), the National Quality Forum 
(NQF), and the Physician Consortium. These three consensus 
organizations recognized by Congress in the TRHCA inform the physician 
quality reporting initiative at CMS.
    AOTA is also developing outcomes measures for occupational therapy 
as part of its Centennial Vision and Strategic Plan. A committee of 
distinguished occupational therapy practitioners with experience in 
outcomes measures has been formed and is in the process of examining 
existing outcomes measurement tools and determining the most 
appropriate measures for occupational therapy.
    AOTA continues to rely on the work done as part of its Evidence-
Based Literature Review Project. AOTA offers a series of Evidence 
Briefs to inform the practice of occupational therapy. These summaries 
of articles selected from scientific literature cover a wide variety of 
areas of occupational therapy practice including: attention deficit/
hyperactivity disorder, brain injury, cerebral palsy, children with 
behavioral and psychosocial needs, chronic pain, developmental delay in 
young children, multiple sclerosis, older adults, Parkinson's disease, 
school-based interventions, stroke, and substance use disorders.
    These documents offer a bridge between scientific research and 
clinical practice to aide occupational therapy practitioners in 
providing therapy that is based on evidence in order to provide 
efficient and effective care and to improve patient outcomes.
Therapy Caps
    The annual cap on outpatient rehabilitation, commonly referred to 
as the ``$1,500'' cap, imposed by the Balanced Budget Act of 1997 and 
currently under an exceptions process through Congressional action, 
would, if implemented, limit access to occupational therapy that would 
enable an individual to fully recover from a stroke, to overcome 
limitations resulting from severe burns, or to achieve independence in 
self-care to enable living at home among other illnesses or injuries. 
AOTA has worked for many years to repeal this cap and appreciates 
Congress' willingness to stop implementation. Most recently, a 1-year 
extension of the exceptions process was included in the Tax Relief and 
Health Care Act of 2006 [P.L. 109-432], however, that will expire on 
December 31, 2007 unless Congress takes action this year.
    MedPAC has expressed concerns with the therapy caps because they do 
not discriminate between necessary care and unnecessary utilization. 
AOTA remains committed to working with Congress and CMS to deter 
unnecessary care or overutilization. AOTA has held discussions with 
Congress, CMS, and other provider and consumer groups to determine ways 
to refine the exceptions process to ensure that patients continue to 
receive appropriate care. Efficient and effective delivery of therapy 
services is also about ensuring access to services that have a proven 
impact on lifestyle choices, healthy living, and avoiding illness and 
injury (such as those resulting from falling, poor driving, or limits 
in self-care).
    AOTA strongly supports the Medicare Access to Rehabilitation 
Services Act of 2007 (S. 450/H.R. 748). AOTA supports passage of 
legislation that would repeal the caps, and is dedicated to working 
with CMS, Congress, and other provider and consumer groups to find an 
appropriate long-term solution. Financial limitations to proper therapy 
services impede the therapists' ability to care for their patients 
appropriately and use professional judgment effectively, and ultimately 
hinder the ability of a therapist to provide high-quality, efficient 
care to Medicare beneficiaries.
    AOTA is the nationally recognized professional association of 
36,000 occupational therapists, occupational therapy assistants, and 
students of occupational therapy. Occupational therapy is a health, 
wellness, and rehabilitation profession working with people 
experiencing stroke, spinal cord injuries, cancer, congenital 
conditions, developmental delay, mental illness, and other conditions. 
It helps people regain, develop, and build skills that are essential 
for independent functioning, health, and well-being. Occupational 
therapy is provided in a wide range of settings including day care, 
schools, hospitals, skilled nursing facilities, home health, outpatient 
rehabilitation clinics, psychiatric facilities, and community programs.
    Occupational therapy professionals assist those with traumatic 
injuries--young and old alike--to return to active, satisfying lives by 
showing survivors new ways to perform activities of daily living, 
including how to dress, eat, bathe, cook, do laundry, drive, and work. 
It helps older people with common problems like stroke, arthritis, hip 
fractures and replacements, and cognitive problems like dementia. In 
addition, occupational therapists work with individuals with chronic 
disabilities including mental retardation, cerebral palsy, and mental 
illness to assist them to live productive lives. Occupational therapy 
practitioners also provide care to Veterans who suffer from traumatic 
brain injuries, post-traumatic stress disorder, spinal cord injuries, 
and other conditions. By providing strategies for doing work and home 
tasks, maintaining mobility, and continuing self-care, occupational 
therapy professionals can improve quality of life, speed healing, 
reduce the chance of further injury, and promote productivity and 
community participation for Veterans.

                                 

             Statement of the Renal Physicians Association
    The Renal Physicians Association (RPA) is the professional 
organization of nephrologists whose goals are to ensure optimal care 
under the highest standards of medical practice for patients with renal 
disease and related disorders. RPA acts as the national representative 
for physicians engaged in the study and management of patients with 
renal disease. RPA greatly appreciates the interest of Ways and Means 
Health Subcommittee Chair Pete Stark and Ranking Minority Member Dave 
Camp in exploring new methodological options for enhancing the quality 
and efficiency of care delivered by Medicare physicians. Further, we 
appreciate the Subcommittee's efforts to exercise its oversight 
authority as the Centers for Medicare and Medicaid Services carries out 
its fiduciary responsibility to maximize the effectiveness of Medicare 
program spending.
    RPA believes it has a unique perspective to offer on the issues 
being considered by the Subcommittee, as nephrologists have been 
reimbursed through the use of a monthly capitated payment (MCP) system 
for the bundle of physicians' services associated with the care 
provided to patients with end stage renal disease (ESRD) for over 
thirty years. Further, nephrologists have been involved in the 
gathering and reporting of clinical performance measure (CPM) data 
since 1994 through the CMS Core Indicators Project. As a result, 
provision of care to chronically ill patients under bundling and 
quality measurement structures that are just now being proposed broadly 
across all specialties has been a way of life for nephrologists for 
many years, and thus RPA believes our insights would be of use to the 
Subcommittee.
    In this collaborative spirit, we offer the following 
recommendations for consideration in the development of new 
methodologies to improve the quality and efficiency of the care 
provided by Medicare physicians. These recommendations are organized 
into two sections, the first addressing quality related issues and the 
second relating to the reimbursement structure issues involved in the 
development of bundled payment systems and similar models.
Quality Issues
      RPA believes that in order to develop an effective and 
workable payment methodology linking reimbursement to quality, 
Congress, CMS, MedPAC and other policymakers must actively involve and 
draw on the intellectual resources and experience of the physician 
community throughout the process. This will help to ensure that the 
development and final products emphasize the expected benefits of a 
modified payment methodology and minimize negative unintended 
consequences.
      RPA supports the development of performance-based payment 
system that considers and separately rewards both high quality patient 
care and measurable improved performance.
      RPA believes that for such a revised payment methodology 
to be effective longitudinally, the system must not disrupt the 
resource-based relative value scale (RBRVS) system, and must for the 
purposes of the incentive payments have budget neutrality waived. 
Incentive payments should not be derived by decreasing usual payments 
or establishing a withhold from the usual payments.
      RPA believes that to effectively implement a payment 
methodology linking reimbursement to quality, Congress must consider 
fundamental change to the policy structure underlying the Medicare 
program, specifically assessing the desegregation of the Medicare Part 
A and Part B funding pools. RPA believes that the artificial separation 
of inpatient and outpatient reimbursement does not allow for enhanced 
Medicare program cost efficiency through the investment of Part A 
savings in outpatient care services.. Physician activities that improve 
quality and produce savings by decreasing hospitalizations ought to be 
accounted for in the adjudication of the funds available for physician 
incentive reimbursement.
      RPA believes that Congress must support substantial 
research in both the pertinent basic science and health services 
arenas, especially related to outcomes research, in order to strengthen 
the essential and necessary scientific evidence supporting a transition 
to a performance-based payment system.
Reimbursement Structure Issues
      RPA supports the use of bundled payment systems to 
provide medically appropriate care to specific patient sub-populations, 
and to promote efficient use of Medicare program resources. RPA 
believes that the reimbursement for bundled payment systems must not 
only cover the services included in the bundle but also be sufficient 
to promote the use of electronic medical records, integration of 
emerging technologies, and other innovations in medical practice. 
Further, RPA believes that a mechanism for periodic review of the 
bundle must be included when the bundle is developed, with review of 
the reimbursement for the bundle being required if and when services 
are added to or removed from the bundle.
      RPA believes that physician reimbursement system 
revisions should include assurance of reasonable payment that 
encourages the medically appropriate site of care to be utilized, 
including payment at all sites of care where services are provided. 
Such a policy revision would address situations where the patient is 
admitted to the hospital for services that are medically appropriate to 
be provided in the outpatient setting but are often provided in the 
inpatient setting due to the absence of a payment mechanism in the 
outpatient setting. For example, in renal care, patients with acute 
kidney failure who are expected to regain their renal function often 
cannot be dialyzed in the outpatient setting because of the difficulty 
that dialysis facilities and outpatient hospital departments experience 
in being reimbursed for the facility services related to dialysis. 
Review and revision of such seemingly arbitrary reimbursement 
guidelines would facilitate more efficient use of Medicare program 
resources.
      RPA believes that expanded coverage for medically 
appropriate utilization of services to maintain and improve quality of 
care should be provided. While the expansion of covered preventive 
services in the Medicare program in areas such as diabetes treatment 
represents a significant step forward, the potential for achieving 
greater cost-efficiency in this area is profound. For example, in 
kidney care there are a variety of interventions and treatment 
modalities specific to the ESRD patient population that would enhance 
the quality of care provided but for which there currently is either no 
Medicare reimbursement or such reimbursement is extremely difficult to 
obtain. Examples of these services include certain procedures related 
to monitoring and maintaining the patient's vascular access, use of 
essential oral medications including phosphate binders and 
multivitamins, and provision of nutritional supplements. Coverage of 
these services over time will likely lead to decreased per-patient 
costs over time.
      RPA believes that reimbursement for effort and practice 
costs associated with required quality improvement and patient safety 
services should be accounted for as payment system revisions are 
developed. Recognizing that programs such as the Physicians Quality 
Reporting Initiative (PQRI) and other CMS managed demonstration 
projects are currently only voluntary, before these programs are made 
mandatory, there should be corresponding consideration of the expenses 
to the physician's practice of providing these services. In renal care, 
while it is appropriate that nephrologists should be expected to lead 
continuous quality improvement (CQI) processes in dialysis facilities 
and their own practices, assuming responsibility for the full cost of 
these services should not be part of that expectation.
Conclusion
    RPA supports Congress' efforts to seek improvement in the quality 
and efficiency of the care provided by Medicare physicians to program 
beneficiaries. We urge Congress to approach these issues thoughtfully 
and deliberately in order to minimize the impact of any unforeseen 
negative consequences. In the area of quality improvement, we urge 
Congress to (1) continue its efforts to include physicians in the 
development of such a system; (2) direct CMS to develop a performance-
based system that rewards both high performance and measurable improved 
performance; (3) ensure that such a system does not disrupt the RBRVS 
system and identifies separate funding for incentive payments; (4) 
assess desegregation of the Medicare Part A and Part B funding pools; 
and (5) support the basic research and health services research 
necessary to make such change evidence-based. With regard to 
reimbursement structures, Congress should (1) require periodic review 
of any bundled payment, and the bundle of services itself; (2) provide 
reasonable payment that encourages the medically appropriate site of 
care to be utilized; (3) expand coverage for medically appropriate 
preventive services, especially in the treatment of chronic diseases; 
and (4) account for the effort and practice costs associated with 
enhanced quality improvement and patient safety services. Once again, 
RPA appreciates the opportunity to provide our perspective on these 
issues to the Committee, and we make ourselves available as a resource 
to the Committee in its future efforts to ensure the best possible 
health outcomes and quality of life for all Medicare beneficiaries, and 
especially those with kidney disease.

                                 

        Statement of University of North Carolina at Chapel Hill
    In 1999, the state of North Carolina enacted landmark legislation, 
which licensed Clinical Pharmacist Practitioners as mid-level 
pharmacist practitioners with the North Carolina Medical Board. The 
Medical Practice Act (G.S. 90-18.4) states (a) any pharmacist who is 
approved under the provision of G.S. 90-18(c) 3a to perform medical 
acts, tasks, and functions may use the title ``Clinical Pharmacist 
Practitioner.'' It further states that a CPP may implement drug therapy 
and order laboratory tests pursuant to a drug therapy agreement. The NC 
Pharmacy Practice Act 90-85.3 defines CPP's as having the authority to 
collaborate with physicians in determining the appropriate health care 
for a patient.
    In order to qualify as a CPP, a pharmacist is required to complete 
advanced training and certification and be approved by both the NC 
Board of Pharmacy and Board of Medicine. This expands the scope of 
practice of a clinical pharmacist to allow for prescriptive authority 
and complex medical decision-making. This legislative action in the 
North Carolina General Assembly, allowed CPP's to establish their own 
practices, often within a physician's office or clinic, focusing only 
on the provision of clinical services in collaboration with physicians. 
CPP's deliver care and function as mid-level providers in a manner 
equivalent to nurse practitioners and physician assistants. In all 
cases, CPP's provide very detailed evaluation and management of 
extremely high risk patients with multiple co-morbidities who are at 
risk for bad outcomes (i.e. hospitalization, ER visits, etc.) unless 
their clinical status for diabetes, CHF, COPD, anticoagulation, etc. is 
closely monitored. The attending physician provides direct oversight as 
required by the incident-to guidelines.
    Clinical Pharmacist Practitioners (CPPs) are North Carolina 
registered pharmacists who have an advanced scope of practice, similar 
to Nurse Practitioners, who via collaborative practice agreements with 
supervising physicians, provide direct patient care under the 
supervision of a physician. Accordingly, CPPs are considered mid-level 
providers, however, pharmacists, at any practice level, are the only 
health care practitioners who are not recognized under Part B of the 
Social Security Act. Why is that the case? Consequently, CPPs are not 
allowed to bill for seeing Medicare-eligible patients for provision of 
clinical care. Thousands of high-risk patients (i.e., hypertension, 
diabetes, CHF, anticoagulation, chronic pain) in North Carolina (and 
beyond) risk a critical interruption in care when they are not allowed 
access to the entire spectrum of health care providers.
    In 2004, HR 4724, which was intended to cover a higher level of a 
collaborating pharmacy practitioner which largely exists only in North 
Carolina and New Mexico at present. This piece of legislation, 
submitted in 2004 by then-Representative Richard Burr as a stand-alone 
bill, went nowhere, even though it was supported by all of the national 
pharmacy organizations and the American Medical Association. Such 
legislation, had it passed, would not have enabled all pharmacists, 
such as dispensing pharmacists, to receive reimbursement for Part D-
related activities, but only for those advanced practice pharmacists 
who provide patient care activities under Part B, such as through a 
collaborative agreement with a physician. At present, there are at 
least 41 states that have state legislation approved for expanded 
clinical roles for pharmacists, such as noted above. The only barrier 
is our Federal government.
    In reading your e-mail message, we noticed that Rep. Stark 
suggested that a review of the payment systems for fee-for-service 
providers, and that the majority of Medicare beneficiaries and payments 
are under the fee-for-service system. If you are looking for efficient 
and appropriate health care provision, then we would submit that you 
also take a look at the use of advanced practice pharmacists, to 
provide health care, decrease medication costs through application of 
pharmacotherapy, and monitor for and reduce the risk of adverse drug 
events. The attached document outlines the benefits of clinical 
pharmacists in managing care and it attendant costs, and while it is 
several years old, it delineates the value, both in patient outcomes, 
and in cost savings (e.g., $14 to $17 saved for each dollar spent) in 
the Medicare population.
    We have also noticed that the Chair of the Medicare Payment 
Advisory Commission testified at your hearing. We would respectfully 
suggest that you review the MedPAC report on Clinical Pharmacists, 
produced in 2002.
    We would love to talk to anyone who is interested in improving 
health care for our nation's seniors, with a potential cost savings to 
the system. The Medicare recipients in our state, and all others for 
that matter, depend upon your support of this request to consider 
including advanced practice pharmacists as approved health care 
providers under Medicare Part B. Just ask yourself one question: If the 
Federal government will not let pharmacists take care of America's 
prescription drug use problem, then who will? Physicians are too 
overloaded to work on this issue, and there is a national shortage of 
nurses. Imagine how you could start to fix the Medicare Part D problems 
if you truly let pharmacists come to the table and do it. Most often, 
your best solutions are not related to more technology or regulations, 
but actually are right in front of you, in the communities across the 
country, where problems can be dealt with face-to-face. Please support 
advanced practice pharmacists, the most accessible health care provider 
in the community.
    Please enter these comments into the record, but more importantly, 
please call upon us to continue the conversation.

            Sincerely,
                 Timothy J. Ives, Pharm.D., M.P.H., BCPS, FCCP, CPP
                                    Robb Malone, Pharm.D., CDE, CPP
                         Betsy Bryant Shilliday, Pharm.D., CDE, CPP

                                  
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