[Senate Hearing 112-768]
[From the U.S. Government Publishing Office]
S. Hrg. 112-768
ROUNDTABLE DISCUSSION ON MEDICARE
PHYSICIAN PAYMENTS: UNDERSTANDING THE
PAST SO WE CAN ENVISION THE FUTURE
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MAY 10, 2012
__________
Printed for the use of the Committee on Finance
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COMMITTEE ON FINANCE
MAX BAUCUS, Montana, Chairman
JOHN D. ROCKEFELLER IV, West ORRIN G. HATCH, Utah
Virginia CHUCK GRASSLEY, Iowa
KENT CONRAD, North Dakota OLYMPIA J. SNOWE, Maine
JEFF BINGAMAN, New Mexico JON KYL, Arizona
JOHN F. KERRY, Massachusetts MIKE CRAPO, Idaho
RON WYDEN, Oregon PAT ROBERTS, Kansas
CHARLES E. SCHUMER, New York MICHAEL B. ENZI, Wyoming
DEBBIE STABENOW, Michigan JOHN CORNYN, Texas
MARIA CANTWELL, Washington TOM COBURN, Oklahoma
BILL NELSON, Florida JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware
BENJAMIN L. CARDIN, Maryland
Russell Sullivan, Staff Director
Chris Campbell, Republican Staff Director
(ii)
C O N T E N T S
__________
OPENING STATEMENT
Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah................... 1
WITNESSES
Wilensky, Hon. Gail, Ph.D., senior fellow, Project HOPE,
Bethesda, MD................................................... 3
Vladeck, Hon. Bruce, Ph.D., senior advisor, Nexera, Inc., New
York, NY....................................................... 5
Scully, Hon. Thomas, J.D., senior counsel, Alston and Bird, LLP,
Washington, DC................................................. 7
McClellan, Hon. Mark, M.D., Ph.D., senior fellow, Brookings
Institution, Washington, DC.................................... 9
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Baucus, Hon. Max:
Prepared statement........................................... 31
Hatch, Hon. Orrin G.:
Opening statement............................................ 1
Prepared statement........................................... 32
McClellan, Hon. Mark, M.D., Ph.D.:
Testimony.................................................... 9
Prepared statement........................................... 34
Scully, Hon. Thomas, J.D.:
Testimony.................................................... 7
Prepared statement........................................... 44
Vladeck, Hon. Bruce, Ph.D.:
Testimony.................................................... 5
Prepared statement........................................... 50
Wilensky, Hon. Gail, Ph.D.:
Testimony.................................................... 3
Prepared statement........................................... 60
Communications
Center for Fiscal Equity......................................... 71
National Committee for Quality Assurance (NCQA).................. 75
(iii)
ROUNDTABLE DISCUSSION ON MEDICARE PHYSICIAN PAYMENTS: UNDERSTANDING THE
PAST SO WE CAN ENVISION THE FUTURE
----------
THURSDAY, MAY 10, 2012
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:14
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max
Baucus (chairman of the committee) presiding.
Present: Senators Bingaman, Kerry, Wyden, Stabenow,
Cantwell, Carper, Cardin, Hatch, Grassley, Roberts, Coburn, and
Thune.
OPENING STATEMENT OF HON. ORRIN G. HATCH,
A U.S. SENATOR FROM UTAH
Senator Hatch. Let us get this going. Senator Baucus has
been detained down at the White House, and, as I understand it,
he has asked me to get this moving.
And let me just use some of what he would say. As is
apparent from the physical seating today, today's forum is not
a traditional hearing. Senator Baucus and I agreed to try today
as an experiment. We want to facilitate deeper discussion. If
it works, we will try it again. If it does not, we will not.
I have no doubt that my colleagues will let us know what
they think.
Now, this is Senator Baucus speaking. After the statements
of our participants, we will dive into discussion. Any Senator
may comment or ask a question, and any Senator or participant
may follow up. There is no order of questioners. If you want to
speak, signal that to the chairman or me, if I am doing it, and
he will call on you as quickly as possible. Senator Baucus and
I will do our best to make sure comments and questions come
equally from our Democratic and Republican Senators so that
everybody is given a chance.
Now, I want to thank the chairman for convening--and it is
a nice experiment here--today's roundtable on this important
issue, one that affects our Nation's caregivers and patients.
Now this is, without question, a distinguished panel. I
know each and every one of you, and we are very proud to have
all of you here today, and it means a great deal to this
committee to have you here.
It is an encouraging forum for promoting a bipartisan
solution to the critical problems posed by Medicare physician
reimbursement. And, as many of you know, Chairman Baucus and I
have both called for repeal of the flawed Sustainable Growth
Rate payment formula. No one likes the annual end-of-the-year
scramble to stop catastrophic payment cuts to physicians
serving Medicare beneficiaries. Yet, while there is broad
agreement that our current situation is not tenable, a solution
has eluded the Congress up to this particular point.
The flawed SGR policy really is a 2-part problem. The issue
that typically receives our attention is how we pay for a
repeal or temporary fix of the formula. But the problem we hope
to address today is more challenging. How do we move beyond the
SGR? If we repeal the SGR or freeze physician payments for an
extended period of time, we have only kicked the can down the
road. We have not fixed the system, we have only left it for
others to address. We need to move forward toward a permanent
solution, one that makes real advancements in how we pay for
and deliver care.
We need to provide a stable foundation for paying
physicians today and tomorrow, not 5 or 10 years from now. And
we must accept that many of these proposals advocated for today
are, at best, years away from broad implementation and, quite
possibly, will never work for many sole practitioners or small
group practices treating Medicare beneficiaries.
Now, I want to thank the chairman again for convening this
roundtable, and I personally look forward to hearing from our
witnesses. My hope is that we will not get distracted by the
budget issues with which we are all well-aware. Instead, I know
both of us look forward to a fruitful discussion about the
steps we must take to address this complex issue and encourage
practical and realistic solutions. And I hope that this is the
beginning of a meaningful discussion or set of discussions for
our committee.
[The prepared statement of Senator Hatch appears in the
appendix.]
Senator Hatch. Now, I guess Senator Baucus is still not
here.
Let me just say that I am pleased to welcome our
participants for today's roundtable. All of them are former
Administrators of CMS or its predecessor, the Health Care
Financing Administration, known as HCFA.
Today we will hear from Gail Wilensky. Gail is a senior
fellow at Project HOPE. Gail was Administrator at HCFA from
1990 to 1992. We are really pleased to have you here, Gail.
Next we will hear from Dr. Bruce Vladeck. Bruce was here
last year to testify before the committee, and I am happy that
you were willing to come back. Bruce is a senior advisor at
Nexera and served as Administrator of HCFA from 1993 to 1997.
After that, we are going to hear from Mr. Thomas Scully.
Thomas is senior counsel at Alston and Bird. He was
Administrator of CMS from 2001 to 2004.
Finally, we are going to hear from Dr. Mark McClellan. Mark
is the director of the Engelberg Center for Health Reform at
the Brookings Institution. Mark was the Administrator of CMS
from 2004 to 2006.
As a reminder, your written statements will be included in
the record. And so we will begin with you, Ms. Wilensky, and go
from there.
STATEMENT OF HON. GAIL WILENSKY, Ph.D.,
SENIOR FELLOW, PROJECT HOPE, BETHESDA, MD
Ms. Wilensky. Thank you very much, Senator Hatch and
members of the Finance Committee. Thank you for inviting me
here to participate in this roundtable on Medicare physician
payment reform.
As you have just indicated, Senator Hatch, I have had the
honor and privilege of directing the Medicare and Medicaid
programs, as have my colleagues to my left. I served as the
Administrator of what was then called the Health Care Financing
Administration from 1990 to 1992. I chaired the Physician
Payment Review Commission for 2 years after that, and I chaired
the Medicare Payment Advisory Commission from 1997 to 2001.
I am going to use my time to review a little bit the
background as to what we had before we had the Relative Value
Scale and how we have gotten to the position where we are, in
order to give some thoughts about what we need to do next.
As you know, for most services, Medicare uses a bundled
payment service now. It started in 1983 when we moved hospital
inpatient reimbursement to a prospective payment system. It has
been expanded to the capital payments, to outpatient hospitals,
to home care, and to nursing homes. When those types of bundled
payments have been used, we have updated the amount paid using
an inflation measure and made an adjustment for productivity.
Physician payments continue to be and have always been very
different from the bundled payment strategy that we use
elsewhere in Medicare. There are some 7,000 or more Current
Procedural Terminology codes that are used to bill. The updates
were done by a top-down strategy initially, after the 1989
legislation, with the Volume Performance Standard, now the SGR
and, also, adjustments for the Medicare Economic Index that is
adjusted by these expenditure targets. The initial period for
physician payment was from 1965 to 1984.
Senator Baucus, welcome.
The fees during that period were based on a historical
charge basis. And what was seen using historical charges was
that charges went up and volume of spending also went up.
We had a second period starting in 1984 through 1991, right
before the Resource-Based Relative Value Scale, or RBRVS, was
implemented, when the increase was based on the Medicare
Economic Index. Basically, we tried to measure the cost for
physicians. What we saw there was also rapid growth in fees and
rapid growth in spending.
Looking at that period as a whole, it became clear that
controlling only fees was not a very effective way to control
spending. During the period of the 1980s, spending for
physician services grew more rapidly than spending even for
other services in Medicare.
At the very end of 1989, the Congress had passed the
Relative Value Scale. That was a very different way to try to
have this very disaggregated fee schedule used. Rather than
basing it on historically based charges, there was a
calculation of work effort, practice expense, and liability.
There was a limitation for the liability that beneficiaries
would face. There was a deliberate intention to shift some of
the reimbursement away from proceduralists and toward primary
care services, and away from urban and toward rural areas.
At the same time, a volume control strategy was introduced
to try to limit spending under this very disaggregated fee
schedule. Initially, the Volume Performance Standard looked
back 2 years and tied the increase not only to costs adjusted
for changes in statute, but also looked at actual expenditures
versus what the specified expenditures had been and made an
adjustment either up or down based on whether expenditures were
lower or higher than had been expected.
There were some problems with it. It was an unstable way to
make the adjustment, and it was replaced in the Balanced Budget
Act with the Sustainable Growth Rate. You have had a lot of
experience now with the Sustainable Growth Rate. It is
basically tied to the growth in real GDP per capita. You are
now using, since 2003, a 10-year moving average rather than a
single point in time, and it is used to update the Medicare
Economic Index.
There is good news and bad news with the change. The use of
the Relative Value Scale was an attempt to get away from some
of the biases historically that were regarded as being in the
fee schedule, and the SGR was more stable than the Volume
Performance Standard. But when you look at the incentives that
are involved, they are just awful. There is no reward for
efficiency. There is no reward for quality. There is, worst of
all, no link to how any individual physician or the physician's
practice behaves, which is a very bad set of incentives. It
makes it very hard to drive accountability or responsibility,
basically because of the use of the 7,000-plus codes, combined
with the SGR.
To my mind, there are really two strategies that you can
use in its place. One is, you could try to refine the Relative
Value Scale. A number of people have made suggestions about how
to do it to make it more accurate than it is now, using better
data. And most importantly, you could set the Sustainable
Growth Rate close to the physician's own practice so there
would be a direct link between the update and the actual
behavior of the physician and the physician's group.
What I think is a better strategy is to try to move toward
more bundled payments for physicians, as you have everywhere
else in Medicare. You can start with chronic diseases, with or
without ancillary services being provided. You can look at the
high cost/high volume interventions. There are already some
pilots that are moving in that direction, the ACE pilots.
Believe it or not, 20 years ago, when I was the
Administrator, we had the bypass demonstration that did
precisely that. Bruce also had a chance to oversee that. It
went on for 10 years. And you can begin to move to more
accountable units in that way.
The bad news is, there are no quick fixes on the horizon.
To me, removing the SGR and not making any other changes in
physician payment is simply not a solution. We know what will
happen. Expenditures for physician services will grow more
rapidly than other areas.
Unfortunately, because not enough work has been done over
the last decade or two, despite many of us commenting on the
need for it, there is no alternative ready for prime time right
now.
What we need to do is make sure the pilots get started as
quickly as possible. And for me, I do not want to only see them
bundled with hospital payment. I think it is a very serious
mistake to push all physicians or to think all physicians will
be employed by hospitals or are part of hospitals.
We need to have a better way to pay physicians directly. I
think that will continue to be an important part of the
landscape in the future.
Thank you.
[The prepared statement of Ms. Wilensky appears in the
appendix.]
The Chairman. Thanks, Gail, very much. I apologize for
being late. I was down at the White House.
Bruce, go ahead. And thanks, all of you, for coming. I
really appreciate it, Bruce, Tom, Mark, all of you.
STATEMENT OF HON. BRUCE VLADECK, Ph.D.,
SENIOR ADVISOR, NEXERA, INC., NEW YORK, NY
Mr. Vladeck. Thank you, Senator.
This is such a distinguished group of people who have been
through some similar experiences as I. I really want to make
just a few points about these issues very quickly.
I think there is a tendency, certainly, on the part of the
policy community and a lot of our former colleagues, in the
quest for something that is theoretically consistent or
something that fits with people's ideas of how the world ought
to work, to make things more complicated than they really need
to be.
In fact, it is a very diverse health care system out there.
It is a very heterogeneous system. It is very different from
one community to another.
I think we have learned in physician payment in the
Medicare program over the last 40-some years that one size
cannot possibly fit all and does not fit all. And I think
defining the future directions forward in terms of one sort of
cure-all or one particular solution or one easy and elegant
kind of fix is not going to be successful over time.
I very much agree with some of the comments that Gail has
just made and some of the comments in Mark's statement, in
particular, about the importance of experimenting with bundled
payments, of thinking about new units and different units of
paying for physician services.
We have done that, sort of in evolutionary terms, in some
parts of the medical system over the years in the way we pay
some surgeons, for example, and there are a lot of different
ways. Further experimentation in other kinds of models, I
think, is already underway.
I think some of us are being reminded, watching the
travails of our friends at the Centers for Medicare and
Medicaid Innovation, that actually doing these experiments is
often more complicated than one would hope. But there is an
awful lot of ferment and an awful lot of activity going on out
there, and I think it is really a good thing.
Just a couple of other sort of general points I would make.
The notion that expenditures on physician services in the
Medicare program are at risk of growing more quickly than other
categories of expenditures and that that should be a particular
problem, it is not clear to me that that is true.
I think there is an underlying policy direction where we
are trying to get services out of institutional settings, away
from expensive institutional control, into outpatient and
community-based settings. And, if you do that, you, over time,
should spend less money on hospitals, you should spend less
money on other kinds of health care facilities, and more money
on physician services.
So, depending on what you are getting for that increase in
dollars over time, we might be better off if the share of
physician services in the Medicare program increases. And I
think that is just another example of how the application of
uniform policies can produce undesirable sorts of results.
I do think, however, that is imperative that we fix the
RBRVS and that we address some of the problems inherent in its
construction, many of them having to do with practice expense,
and some of the problems inherent in the way it has evolved
over the years.
No matter how quickly we can move Medicare to other kinds
of bundles or other kinds of payment methods, there is going to
be an awful lot of fee-for-service payment in the American
health care system for years to come. And part of the problem
is that RBRVS not only sets relative Medicare payments, it is
used by almost everybody else in the health care system as a
way of evaluating the relative worth of physician services.
And, to the extent that it continues to over-reward
procedural, interventional, and technologically intensive
services and to under-reward basic primary care services, it
exacerbates the already serious and worsening problem we have
in our health care system of just having not enough primary
care physicians and too many specialists.
It is very difficult in many communities in the United
States today for people coming out of primary care training
programs to make enough money to pay off their student
indebtedness, and it is very difficult even for well-insured,
sophisticated consumers, like my children, who have recently
relocated to major metropolitan areas, to find capable primary
care doctors.
So there are many components to that issue, but income is
central to the problem, and the RBRVS is central to the income
problem of primary care physicians. And there are a number of
ways to address that or fix it, but I think we ought to decide,
as a matter of policy, just to do something direct, possibly
relatively arbitrary in the short-term, as part of a broader
process of resetting these relative values.
I think when we adopted the SGR as part of the Balanced
Budget Act in 1997, I think the Congress made a mistake. It was
not the only mistake we made in the Balanced Budget Act. And,
as I have been thinking about the history of these events in
preparation for today, I am reminded that, among other things,
both the CBO and OMB badly misestimated the impacts on
providers of most of the major changes in payment systems in
the Balanced Budget Act. And partially, as a result, Congress,
in 1989 and then again in 1999 and then again in 2001,
significantly amended the legislation to change many of the
payment formulas that had been authored by the Balanced Budget
Act.
One of the things that the Congress did not address at the
time was the SGR, because it had not really kicked in yet and
its effects had not yet really been seen.
But, in fact, the way in which the SGR is written and the
way it has been defined and interpreted by CBO creates this--
what I strongly believe is this largely artificial, enormously
large number that is identified with the cost of fixing it,
which is an artifact not, as far as I can tell, of any
underlying economic reality. It is an artifact of the way the
formula was written and the way the projections are made. And
so it has become a major deterrent for the Congress or for the
executive branch to fixing a mistake that was made, along with
many other mistakes in the history of legislation, about
payment systems under the Medicare program.
And I am hopeful that some combination of the need to
address overall deficit reduction strategies more generally and
a different kind of political climate in the relatively near
future will create the opportunity for people to say, ``We made
a mistake in 1997. We created a formula that produces
irrational and counterintuitive results, and we are just going
to abolish it and start all over again in terms of some kind of
cap on Part B payments.''
That is the only way we are ever going to sort of get out
of this morass. And I can tell you with some confidence that,
while it will appear as a major crisis in terms of overall
budgetary strategy, in the real world of how we pay physicians
and how the government of the United States operates, it will
have almost no visible effect whatsoever.
So that is the political and psychological hurdle that
needs to be surmounted if we are going to fix this very serious
problem.
Again, thank you very much for the opportunity to be here
today.
[The prepared statement of Mr. Vladeck appears in the
appendix.]
The Chairman. Thank you, Bruce.
Tom, let us hear your wisdom here.
STATEMENT OF HON. THOMAS SCULLY, J.D.,
SENIOR COUNSEL, ALSTON AND BIRD, LLP, WASHINGTON, DC
Mr. Scully. Thank you, Mr. Chairman. Thanks for having us.
I would just note, first, for the four of us, believe it or
not, even though we disagree on the policy, we are all pretty
good friends and have talked among each other for years, along
with Nancy-Ann Min DeParle, who was Administrator, and Bill
Roper and Leonard Schaeffer and the other, I guess, confirmed
CMS or HCFA Administrators. And we have a very civil, friendly
discourse regularly and keep up regularly, and it is a very
nice thing. And I appreciate you having us here today.
I have been very involved with this. As I noted in my
testimony, I was one of the White House guys and the staff
person, along with Bill Roper, in 1989 who got to push this
thing through. So, sorry, but at the time, it seemed like a
good idea. And I still think it was a lot better than we had in
1988, and it was well-intentioned.
It caused a lot of chaos. I think it, obviously, needs to
be fixed. It was then called the RBRVS system. It was invented,
at least conceptually, by Dr. Hsiao, a professor at Harvard.
And what needs to be fixed is the SGR, and I went through
some of the history of that, about why that happened in 1997.
It was a swap. We needed to save money in 1997, and the
physicians volunteered that as their saver. The hospitals took
big hits, though, and the health guys took big hits, the
skilled nursing facilities took big hits, and the physicians
came in and said, instead of taking big cuts, let us just swap
a formula change, and it was a big score from CBO, and that is
why it was done.
So, obviously, it did not work and needs to be fixed. But
the intention and what happened with RBRVS was to basically
come up with something, as Bruce said, a global system of
figuring out, when you will go from 6,000 codes to 7,000 codes,
as we have in the last 10 years--you have to add some--somehow
it has to come out and be paid for, even if you do not have the
SGR. So keeping some sense of budget discipline in this is very
important.
I think, in the long run, as Gail mentioned, the move to
capitation is where the world is going, and I think the ACE
program is a great example of that. I think the Accountable
Care Organizations, while there are some flaws--and I agree
with Gail's concern about pushing people too quickly to a
hospital-based system--but the concept is it is basically a
physician-based concept, and it is the right direction to go.
When I got to HCFA--I guess I am the only one who was both
HCFA and CMS Administrator--we had 4 percent of people with
Medicare Advantage. It is now 25 percent. I think that trend
will continue to grow. But you still have 75 percent of people
on Medicare fee-for-service, and we need to make sure that
system works.
So, regardless of how we drop the SGR, I think you need to
make the continuing RBRVS/SGR system work. And one of the
things I mention in my testimony is, I think one of the biggest
mistakes we made was--it is not their fault, as I mentioned--we
took the RUC, which was a big system of the U.N. for health
care back in 1992, and gave it to the AMA.
So when you sit around and decide who gets paid what, a
surgeon versus a primary care doc, it is a system that is run
through the AMA. It is not their fault, but it is very, very
politicized. I think that was a big mistake, and I have said
that in my testimony.
I think that, when you go back to restructuring this, you
should try to make it less political and more independent,
because it is $75 billion a year or more at this point that
gets redistributed, and it is very, very intense between
physicians, and it is something that most people are not aware
of. But it is very sensitive and I think we made a big mistake
in the way it was done in 1992, and others may opine on that.
The final thing I would say is, it may not be popular, but
CMS is a great institution. There are a lot of great people. It
spends
$1 trillion a year. It is bigger than the Defense Department by
quite a bit.
Some of the staff may remember, the first thing I did when
I became CMS Administrator is I took the entire Finance
Committee on a bus to Baltimore to see CMS. And I know that
Senator Cardin, who is not here, has been there a bunch,
because it is his State.
But it is a great place. They are doing a great job. They
spend an awful lot of taxpayer dollars. And I think
understanding how these systems work, including the RUC,
including how the physician payment system works and the
details, is extremely important, and Congress spends not a lot
of time on it.
So I am thrilled that you are spending time on it today,
and we are all happy to be here, and we will have input in
helping you as you reshape it. But there is no doubt SGR is not
working. There is no doubt it has to be fixed. But there is
also, I think, no doubt in my mind, the sense of budget
discipline--that was not there before 1989--needs to be
retained.
Thank you.
[The prepared statement of Mr. Scully appears in the
appendix.]
The Chairman. Your last sentence again.
Mr. Scully. Before 1989, there was no discipline at all in
Part B, and, while the SGR system is flawed, some semblance of
budgetary control, which RBRVS was, obviously, needs to be
retained.
Thank you, Mr. Chairman.
The Chairman. Thanks, Tom.
Mark?
STATEMENT OF HON. MARK McCLELLAN, M.D., Ph.D.,
SENIOR FELLOW, BROOKINGS INSTITUTION, WASHINGTON, DC
Dr. McClellan. Mr. Chairman, Senator Hatch, all of you,
thanks for the opportunity to join you.
The Chairman. I want to remind everybody here, we are going
to try a different approach, kind of like the Supreme Court. We
have 12 on this court. So when you finish, then we are just
going to all ask questions and each respect each other. All of
you respect all of us, we will respect you, nobody monopolize
and anybody jump in, each speaks for himself or herself, in
every sense of the term.
Go ahead, Mark.
Dr. McClellan. Thank you. I would like to get right to that
discussion, but I did also want to highlight how important this
issue is for health care reform.
It is the physicians and the health professionals who work
with them that are the linchpin of our health care system. They
are the ones who make the decisions that influence how all the
dollars are spent, make the decisions that influence what
happens to patients, and how they are paid has a big impact on
what they are able to do and the kind of care that they are
able to support.
You already heard from the rest of this distinguished panel
about a lot of the details on where the RBRVS and SGR came
from. So I am not going to recap that either.
I do want to note just how much legislative effort ends up
being devoted year after year to stopgap measures to plug or
patch the SGR. And, as a result, both physician organizations
and Congress have a lot less opportunity than they would
otherwise to focus on real physician-led improvements in care
that could reduce long-term costs. And this gets harder and
harder as the SGR target gets farther and farther away from
where we are.
By the time I got to be Administrator in 2004, in fact, we
were all having hearings about how to reform the SGR and how to
address these changes in payment that appear to be getting
unsustainable. And you all may remember that we had a lot of
discussions then about some of the ideas that you have already
heard on this panel: moving away from fee-for-service payments
toward more bundled payments or other efforts that would try to
provide better support for improving care and lowering health
care costs.
What has happened since then is that both the opportunities
for doing that have become clearer and the pressures for doing
it have become clearer, as well. And, while Bruce is right that
there is no easy, one-size-fits-all solution, I think it is
very clear at this point that we cannot just do another patch
or we should not just do another patch.
And I want to thank you again for your leadership in making
this year different, maybe the year when some real alternatives
to the SGR actually emerge and can be sustained. In my written
statement, I talked about what I think is the most important
factor for that to actually happen, and that is some real
leadership from the physician community.
I think the good news there is that a lot of physician
groups around the country--in their own practices and working
with private payers and working through communities and working
with Medicare on not just pilot programs, but now integral
parts of Medicare, like the accountable care organization
program--are asking the key question, which is, where are the
best opportunities to improve care and avoid unnecessary costs
for Medicare beneficiaries, and then how do we actually get the
support we need, the financial support we need, which is not
necessarily there in fee-for-service payments, to make it
happen?
These include ideas like relying more on nurse
practitioners to help with managing care for chronically ill
patients and for identifying patients who could benefit from
preventive services who are not getting them, to spending more
time being available for consultations with patients and
reviewing with them what their treatment options are, what the
evidence says, and being available if they are having
complications, maybe heading off a visit to the emergency room,
maybe heading off some unnecessary treatments and procedures.
But it is very hard to do that with current fee-for-service
payments, because a lot of those kinds of services that I just
described either are not reimbursed at all or are reimbursed in
a very limited way.
So what these actual reforms are doing is not just hoping
we can make things better, but shifting the way that the
physicians receive payments from traditional fee-for-service
and RBRVS towards either a bundle around caring for a patient
overall within their specialty or coordinating care with other
specialties.
In my testimony, I give you a lot of examples of how that
is happening in oncology, in cardiology, nephrology, surgery,
radiology, pathology. Lots of specialties are moving in this
direction, and there is also a lot of leadership taking place
in primary care, where you can see the move towards medical
home payments--which are for coordinating care for a patient,
managing their overall care--and away from fee-for-service
payments is making a difference already for primary care
physicians and giving them more opportunities to lead in these
real reforms in health care delivery.
In fact, in an ACO learning network that we support at
Brookings, along with Dartmouth, there are many organizations
in the private sector that have added accountability for
overall costs and for overall health improvements to the
medical home payments that they are giving to primary care
physicians.
As Tom was saying a minute ago, that is kind of the
physician-oriented version of accountable care organizations,
which is really expanding right now, not only in the private
sector, but also now in the Medicare program as well.
So I think this is a very important time for physician
leadership. That needs to be matched by the kind of attention
that you all are providing today by starting earlier, not
waiting until the last minute, despite everything else that is
going on, despite the presidential election, to turn these good
ideas and positive steps that are taking place in the private
sector and, to some extent, in Medicare already, into at least
the start of a systematic change away from the SGR.
So thank you again for the opportunity to help you address
these issues and, hopefully, to help make these needed reforms
happen.
The Chairman. Thanks, Mark.
[The prepared statement of Dr. McClellan appears in the
appendix.]
The Chairman. I will just ask the first question.
First of all, the current SGR drives us all crazy. I think
it especially drives this committee crazy. We have to figure
out a way to pay for it every year. As you have said, it takes
way too much time that could be devoted to other more
important, longer-term issues.
The drift I am picking up is this: let us get rid of this
thing, but let us move sensitively and reasonably,
appropriately, to a different sort of either bundled payment or
ACO, medical home, or some kind of pilot project.
I assume that is the drift among most, although, Bruce, you
wonder about that a little bit. So we have a heterogeneous
system. Maybe we should go that way a little bit.
Anyway, my question is, which of these different areas
tends to be most promising? How do we prioritize? How do we
transition to whatever it is we are transitioning to?
Sometimes the grass is always greener. We have to be
careful where we are going. But whether it is the
cardiologists--are they doing some of this? And orthopedists
are doing some of this too, I guess.
Why are some areas doing better than others, and where do
we go? Anybody, just jump into it. Anybody. Anybody jump in
here.
Gail?
Ms. Wilensky. I would start where the money is. I would
pick the procedures that are the high cost/high volume, and get
those bundled.
As I have said, we started when I was Administrator with a
bypass demonstration, where all of the physicians who are
involved in providing a bypass with the hospital came in, had a
combined payment, were monitored for quality and clinical
outcomes--as best we were doing it in the 1990s--and patient
satisfaction.
The areas are chronic disease and the high cost/high volume
procedures. And trying pilots right away that are--some that
are wrapped with the hospital, which would match what the
innovation center is trying to pilot. I would strongly urge
some that do not include the hospital in an attempt to try to
promote multi-specialty surgeon practices and more physician
leadership.
I agree very much with Mark's statement: they drive the
health care system.
The Chairman. Bruce or anybody else, jump in anytime you
want.
Go ahead, Bruce.
Mr. Vladeck. I would suggest that there are possible
approaches that are less directive on the part of the
government, and I would push to find more ways to open
alternative paths so that different physician groups or
different other kinds of provider groups could come up with
their own ideas.
And I would just suggest, for example, that if you take any
sets of codes in the RBRVS that now have individual prices to
them and you had a bunch of physicians in some community say,
``We'll provide services for the following 38 codes''--which is
not dissimilar from what Mark was talking about--``and we have
a formula that I think you could do that says, pay us 95
percent of what you would pay for the existing kinds of cases
that you see,'' whether they are high volume/high cost cases or
they are just those that are particularly appropriate for new
kinds of approaches or new kinds of incentives, you would get
all kinds of interesting things.
I think what we need to do is, rather than doing one
experiment at a time, try to find formulas by which Medicare
says to the physician community, ``You can get paid item-by-
item or we will encourage the bundling of different kinds of
items, and here is a general methodology or formula for doing
so, and, if you can put together a package, we will try it.''
The Chairman. That would be similar to, for example, dual-
eligibles. CMS is trying to figure out pilot projects designed
to manage duals. But they have two basic approaches as they try
to coordinate it, instead of just, everybody comes up with his
own way.
Should that happen here too, as we move, and say to
providers, docs, here are two or three basic approaches, or
not?
Mr. Vladeck. I think that would be definitely worth
exploring. I think that is what we should do. You can get paid
on a shared savings basis, or you can get paid an upfront 95
percent of what this set of codes would ordinarily pay in your
geographic area, or then you could get paid fee-for-service.
I think that is doable, and I think--to get to a separate
digressive hobbyhorse of mine, you probably would have to
increase the contractor budgets a bit out of appropriated funds
in order to manage that.
But I think with existing--I think private payers that have
better computer capability than the Medicare contractors are
playing around with this kind of stuff already. So I do not see
any sort of technical or logical objection to doing it.
It would take you a while to figure out what the formulas
ought to be, but you could do that.
The Chairman. Just jump in. Anybody, just jump in.
Senator Stabenow. Mr. Chairman, can I just follow-up?
Because we are talking about alternatives and creative
approaches. And we appreciate all of you being here.
In health reform, we passed a number of options. I wonder
if you could speak to that. We now have the pioneer accountable
care organizations. They just announced a number of those. I am
very pleased that Michigan was designated on three of those,
and one is physician control and others. And then there has
also been the multi-payer plan, multi-payer demonstration that
is being put forward that is with private sector and hospitals
and so on.
We have bundled payments. We have a number of different
things that we have done. So we are moving. The accountable
care organizations right now are moving. There are
demonstration projects.
I am wondering how each of you would see these ramping up.
What needs to happen at CMS to be able to really move forward
with those in the process? And how could we do more of the
multi-payer opportunities? Because it seems like we gave the
structure. They are now designating hospitals and provider
groups to do these things.
So, is it not more of just doing the things that we have
already put in place structurally and trying to get them up and
going and getting the results as quickly as we could?
Mr. Scully. I think everything that is going on in the ACOs
is great. As Gail alluded to, you have to be able to be a
little careful--and I had this debate with Don Berwick in the
Wall Street Journal.
But the goal of ACOs was to drive doctors' control of
behavior, as Dr. Coburn knows. Doctors take care of patients,
and the goal of ACOs was to empower doctors, to give them risk
to keep people out of hospitals.
And I used to run a big hospital association. I love
hospitals. But the goal was to keep people out of hospitals and
to pay the physicians for behavior to keep hospital beds empty.
What has happened, which is a little dangerous, in the last
5 years is that more and more of the ACOs are hospital-based.
The number of physicians who were working independently and now
work for hospitals has gone from 40 percent of physicians to 60
percent in the last couple of years.
So I love hospitals and I love the ACO movement and I love
the capitation movement, and all this is a move in the right
direction. You have to be a little careful that you do not make
it so hospital facility-based, because the reality is, every
hospital in the country has a crane in front of it, and they
are very expensive. And the more you get into the hospital-
based system, the costs go up, not down.
And I love physicians, but this is all about financial
incentives and----
Dr. McClellan. I do think this is why you need to make
changes in the SGR. It is much harder for physicians to lead in
these efforts when they are spending so much of their time
lobbying about a short-term SGR patch and trying to make ends
meet with this kind of reform care. That is what we would like
to see. But they are not getting paid in a way that supports it
in their foundational payment system.
So I am all for the pilots that move toward bundles and
things like that, but when you have an underlying base system
that is the core of physician reimbursement which does not
support that kind of leadership, we are in the wrong place.
Senator Stabenow. And if I could just quickly follow up on
that, and I know that Tom wants to speak.
I could not agree more about SGR and that we have to look
at multiple things. I guess what I wanted to emphasize is that
it seems like, through the Affordable Care Act, we have laid
out some options, and it sounds like you guys are all talking
about those kinds of options.
And I know at least with the Detroit Medical Center, it is
physician-based. It is one of the new ACOs. And so, Tom, if you
are saying we need to do more that is physician-based, does
that mean we need to be doing more around the ACOs to be able
to model that or to be able to show that as pilots? Because it
seems like we have put in place some steps right now that
address what you are talking about.
So is it a question of ramping it up or how fast we could
do multiple models?
Mr. Vladeck. Let me respond to that, if I may, very
quickly. I think it is this committee that is responsible for
the existence of the Medicare and Medicaid Innovation Center in
the Affordable Care Act, and I think it is one of the most
productive and important things in the law, and I think they
are doing a wonderful job.--
But they are still, by and large--even with all the efforts
you made in the statute to streamline it--constrained by the
definition of what they are doing as demonstrations, which
means they have to have open public competition, which means
they have to have a very elaborate system for evaluating
competing applications, which means that OMB gets into
everybody's underwear throughout the entire process, and so on
and so forth.
And I think we are going to get wonderful results from
that, but at the same time, I really think there ought to be a
way to say, within the existing program structure, let us come
up with some formulas or some templates for different payment
models for physician services that are not demonstrators, that
are just alternative ways to operate under the existing
program.
And you are in a different organizational and legal process
that is much more accessible, much less formal, much less
difficult to get people to participate in, and that is what I
think is the next step or a supplemental step.
Senator Coburn. Let me jump in here, if I may.
CBO just published a review of 15 years of demonstration
projects that showed not $1 was saved as a result----
The Chairman. I just want to ask, are those----
Senator Coburn [continuing]. Of the demonstration projects.
The Chairman. Of the demonstrations in?
Senator Coburn. Run by CMS.
The Chairman. Run by CMS.
Senator Coburn. Over the last 15 years. We have a system,
and we are not going to fix that system where we, in our
country, we think somebody is paying the bill.
So, rather than use the stick approach, which was what the
SGR did, why don't we use the carrot approach? Why don't we
evaluate physicians?
First of all, every insurance company knows how either
efficient or inefficient I am in my practice. They have the
numbers on me. They know. And I will just tell you a little
about an experience we had as a group of physicians.
A new insurer came to town, and we refused to take them
because their prices were too low. And so they bought from Blue
Cross/Blue Shield our numbers, and they came back and offered
us more than they did everybody else in town, because they
wanted us to be in there, because it actually costs less for us
to give the same care.
Why could we not have a system that incentivizes the
physicians positively rather than negatively? Because, if you
think about the SGR program, the first year that we did a cut
is when you got this, wow, you cannot do this ever again. But
the point is that we blinked, because, if physicians really
knew that if they were inefficient with the spending of dollars
for their patients and that they were going to get a cut the
next year, that incentive would have worked.
What was intended by SGR was a good idea, but we blinked,
because we did not change behaviors in terms of physicians. So
what I would throw out to think about is, how do we design
something that positively incentivizes physicians to be more
efficient, to do things positively, so you can compare them in
their region by what they do?
It is nothing but a computer program, and you could say, at
the end of the year, ``My goodness, your average patient with
diabetes had fewer complications in terms of the codes
associated with that. You saved Medicare this compared to the
standard in your area. We are going to give you a bonus. And,
everybody else, next year, if you do not, we are actually going
to cut you.''
So where you could say in my region--Oklahoma, Texas,
Kansas, Arkansas, and Louisiana--you can say, ``Well, here is
what the standard cost for this should be and, by the way, this
group of physicians was well below that,'' not based on
geographic cost difference, but actual physician practices, and
let us reward it.
We tried the stick, and we do not have the guts to hold a
stick. Why don't we try an incentive?
Ms. Wilensky. Well, if you had the Sustainable Growth Rate
or any kind of desired spending at the physician practice
level, as the Blues plan did for you, that is fine. The problem
that exists now is that you are penalized because you are a
physician, and, collectively, physicians spent more than was
desired under the Sustainable Growth Rate.
It is similar as long as what it is you are being judged by
has nothing to do with either your individual behavior or your
practice's behavior. If you want to have the judgment of your
practice's behavior, where you, as a practice, can control what
you do, that is fine. When you start doing it at a metropolitan
level, at a State level, all orthopedic surgeons, no individual
group can influence what happens, and that is both unfair and
leads to bad behavior.
So that is definitely one of the options, which is to have
the tradeoff be at the physician's practice level. That would
be much fairer and would have at least good incentives.
Senator Wyden. On that point, I think Dr. Coburn raises an
important point, because he is touching on this question of
regional variation. And the fact is, out of the gate,
regardless of value, you see--I am looking at my friend from
Iowa, Senator Grassley, Senator Hatch, myself, Senator
Cantwell, four States that are low-cost States, consistently
have done exactly the kind of stuff you all are talking about,
integrating health services. And again and again, we have been
penalized for it.
I have sat here for an hour listening to four people I
admire very much and am still kind of baffled about what do we
do around the proposition that not all States are created
equal.
The fact is that in some high-cost States, when the senior
shows up, they get a higher payment, and this is baked into the
SGR as of now. As of now, it is baked in to have these
penalties for low-cost States that are giving value, that are
doing what Dr. Coburn is talking about.
What do you all think? Since we are talking about the
future of health care providers, what can we do to start moving
away from this kind of built-in disadvantage for people to hold
costs down and deliver value? Because even after health reform,
I had the hospitals of Oregon come in yesterday, and they were
scratching their heads, and they said, ``We all were working on
this during health reform. We were all talking about trying to
pay for value, get the incentives right, lift the penalties for
low-cost States.'' They said, ``We haven't seen much happen as
of now.''
So now we have a chance to get this right with doctors. And
what do you all recommend to change the baked-in penalty for
Senator Hatch's constituents, Senator Grassley's constituents,
Senator Cantwell's constituents, mine, others who are from
these low-cost States and want to support exactly what you are
talking about, these incentives for quality, incentives for
value?
But right now we are already taking a shellacking, and it
looks to us like we are going to get clobbered once more.
Senator Roberts. On that point, could I just add something
to pile on here in regard to your questions, since you left me
out? [Laughter.]
Senator Wyden. You are a low-cost State. You are in.
Senator Roberts. I am in.
Senator Wyden. And Mike is in, too.
Senator Roberts. I have the privilege of representing 83
critical access hospitals. Montana is in the same boat. And the
chairman and I feel very strongly that the original cut that we
did to providers to provide--it used to be called PPACA. What
do we call it now? Well, whatever. Anyway, the health care
plan. I know what I call it, but we are not going to go there.
But my main concern is that the rural health care delivery
system, when I go out and have health care summits in Hays, KS
or Dodge City or Abilene or, for that matter, Topeka, it is all
the same. And here you have the SGR. You have three RVUs--I
love these acronyms--Relative Value Units, that really
represent 7,000 codes--7,000 codes. I have the top 20 right
here.
I went to the doctor this morning and found out I have a
cracked kneecap. I wonder what code I am under? I have no idea.
Dr. Coburn would say, put ice on it, put your leg up, and
just forget about it, and I would not even have to go to a
doctor.
At any rate, something has to be done, it seems to me,
because you have--the physician work and practice expense
contribute to most of the determination of the ultimate
payment. The physician work is 52 percent. Practice expense
contributes 44 percent. Now, that is the administrative cost.
That is all the nurses, and that is all the people who have
gone through CMS Regs. 101, 102, and that is all they have so
far in the universities to have people who will understand the
codes with CMS.
I have no confidence in CMS. I have no confidence in IPAB
when they finally get organized. Something has to be done with
the SGR. I know we tried.
I really credit the chairman for holding this roundtable.
We need something where we can come together in a bipartisan
way and get traction, because we all know that this thing is
not working. It tanked when the economy tanked.
And so I wonder if some model could be worked out that
would at least consider the regulations. In my last visit to
the Dodge City Medical Center, which has expanded, we have
people running the ACOs who are private contractors, and they
come in and they try to find where there is a Medicare
reimbursement that basically does not fit the criteria over 3
years.
We lost two doctors, we gained one. I mean, the doctors are
not even there yet. We have a new hospital administrator. We
have an addition to the hospital.
Now they want to do it for 10 years. I asked the hospital
administrator, ``How much does this cost?'' He said $50,000 a
month.
Now we have something called face-to-face. That means when
Mildred in Cimarron, KS, 32 miles away, wants her prescription,
and the nurse clinician cannot fulfill it with the local
pharmacist, who is about to go out of business, but that is
beside the point, then this doctor has to take 1 day off and go
out to Cimarron and see Mildred.
``Hi, Mildred.'' ``Hi, Doc.'' ``Are you still using your
prescriptions?'' ``Yes.'' ``Are you following what you should
do?'' ``Yes.'' That is a whole day. What the hell is that? I
just do not understand it.
Now they want to even go back 10 years, and that is just
two of--I could list you regulation after regulation after
regulation. We sent 34 of them to Kathleen at HHS and then
boiled it down to seven later on and still have not had much of
a response.
Something has to be done to figure out this number, 44
percent, in regards to practice expense, because it is just not
right. And then I am really worried about whatever SGR we come
up with or whatever--I do not know if it is in the SGR. We
ought to rename it and call it something else. But at any rate,
will it take into consideration rural areas, critical access,
unique kinds of circumstances?
There is a great thing here about medical home
demonstrations that CMS is now trying to implement, and
physicians who manage patients with chronic disease would
receive a payment to compensate them coordinating and
communicating among specialists, social workers, case managers,
patients, so on and so forth.
We do not have those in rural areas. We have the hospital,
we have a specialty hospital, and we have nurse clinicians.
I know a lady who just went through this who apparently had
a stroke, but the person who gives her exercise once every few
days was called because she could not get in the emergency
room, and a few days later she died.
Now, I do not know if she got into the emergency room or if
they had accepted her in the emergency room, but one of the
situations was they did not think that she would fit under the
circumstances. And she died.
Now, I am rambling, Mr. Chairman, but I really think
whatever we come up with--I worry about this global thing, and
it is a numbers game in regard to CMS. We must be aware of
different States, different regions, and, more especially, the
rural health care system. And you know that. You have been a
champion of the rural health care system for a long time.
I am sorry for the rant. I did not get into oxygen tanks. I
am learning. [Laughter.]
The Chairman. You are saving that one.
Mr. Scully. Unfortunately, Mr. Chairman, regionally, it is
very different. So I think in Oregon you are probably up to 35
percent of people on Medicare Advantage. Change happens slowly.
I will bet there is probably less than 5 percent in Kansas.
So every geographical--every part of the country is
different. But I think the thing that we roughly all agree on
is that we still have 75 percent of people on Medicare fee-for-
service. So you are still going to be dealing with--the fact
is, one of the seminal problems in Medicare, in my view, is the
Federal Government, through CMS, pays every doctor the same
thing.
So, if you are first in your class at Harvard or whatever,
or last in your class at University of Western Guatemala, you
get paid the same thing. And changing that variation over the
years is important, and that is one of the reasons I am a fan
of Medicare Advantage.
But short of the world going from 4 percent on
Medicare+Choice to 25 percent on Medicare Advantage, which I
think is a good development, we still have this massive program
that is still on fee-for-service. And, if you are going to deal
with those docs on fee-for-service, you have to find the right
incentives.
And incentivizing doctors is the key, and I think we all
agree on that. How do you provide--to say it is not the money
is wrong. It is the money. Physicians are trying to do the
right thing, but they follow financial incentives, and finding
the right way to generate ACOs that are physician-driven, not
necessarily hospital-driven, is key.
One of the problems that I think Gail was alluding to is--
and I love a lot of the hospital-based ACOs--physicians do not
have the $20 million in a region, in Portland, to go out and
start an ACO. Finding a way to create the capital pools for
physicians, to cover physician-run groups, not hospital-run
groups, that are going to go out and drive this----
Senator Wyden. But, Tom, the reason they are going out and
creating ACOs in Medicare Advantage is because a lot of seniors
cannot see a doctor in the fee-for-service system in Oregon.
They go out and make 6 to 10 calls, they have a heart
condition, they have high blood pressure, nobody will see them,
and then all of a sudden you get what you characterize in your
testimony--and I think it is appropriate--the ultimate bundle.
But even in a place like Oregon, we are now at 41 percent
Medicare Advantage, and it is good Medicare Advantage, the
Medicare Advantage of high quality, guaranteed issue, community
rating, that sort of thing, but we still have well over half in
traditional Medicare.
And, if you all could just tell us what you think ought to
be done to deal with the fact--and I was glad that the chairman
piped in that his is a low-cost State, too, because a big chunk
of us on this committee have what amounts to millions of
seniors going to see doctors, and there is a baked-in
disadvantage under the reimbursement system for treating those
people.
And we thought it was going to get taken care of in the
Affordable Care Act, and, as of yesterday, a big group of
providers came in and said, ``We sure haven't seen much
happen.''
So what would you tell us to advocate for to try to get the
incentives that you correctly identify? Every one of the
incentives, and the paying for value that you have talked
about, I am for.
It is just, as of today, for a lot of us--those three up
there at the top of the dais, and Senator Cantwell and myself--
it sure does not look very good, because it just looks like we
are getting another hit from what already is a system that
discriminates against us.
So let us start with you, Mark, and just tell us what you
would do to make sure that all States can get the fruits of
this new approach that rewards incentives and value.
Dr. McClellan. Well, so long as Medicare fee-for-service is
paying doctors on the basis of volume and intensity, which the
current SGR program does, your physicians are not going to get
ahead.
And I would say for Senator Roberts, too, I have been to
some of his critical access hospitals in Kansas, and the way
that they want to deliver care, the way that they need to
deliver care, involves things like tele-health, it involves
relying on nurse clinicians and other health providers instead
of physicians.
And those things, as you heard from him, are not covered
under--even though we have 10,000 codes, they do not squarely
fit within any of them.
What will help is a move away from fee-for-service towards
the payments that are more tied to what each patient really
needs. And so that is what I talked about in my testimony, what
Bruce and others on the panel have referred to as different
kinds of bundling, but focusing specifically on physician
services, and done, I think, not as a pilot--I think we are
past that stage--but building this into the Medicare program
systematically.
Maybe it could be done as an option so that people could
stay in the traditional fee-for-service system or opt into this
more bundled approach. But I think we are at the stage now
where there are enough good ideas out there--and you have seen
them in Oregon. Your State is trying to do this. The State has
made a real effort to move away from fee-for-service, and it is
Medicaid and employee plans and the like, and that can be
reinforced in Medicare and can be reinforced in every single
specialty and primary care.
The ideas are out there among the physician groups. I think
it is up to this committee and leaders in Congress to give the
physicians an opportunity to say how they would make those
moves now.
Senator Wyden. They are good ideas. I am just not sure they
work for those three States and mine unless we take away this
baked-in disadvantage.
Dr. McClellan. That is what you would do. You would be
taking some of the payments that are baked in, the fee-for-
service volume and intensity, and shift them to something else.
If what is working in Oregon is things like a primary care
physician or a cardiologist spending more time working together
to track what a patient's medication needs are, making sure
they are on the latest evidence-based treatments, and spending
time with them to prevent complications, the way to do that is
to take what is currently in their fee-for-service payments
that does not support that--maybe extra payments for the
additional imaging procedures or lab tests or things like
that--and convert some of those to a payment that would go to
keeping the patient's needs met.
And there are good measures for that. That is what Dr.
Coburn was talking about. It is not easy to do in many cases,
especially in small practices, especially in practices that are
treating vulnerable patients, but we do not have to make a
wholesale change right now overnight to make this much easier
for the doctors in your States. We can start getting that.
The Chairman. I think what the Senator is getting at is, he
is a little concerned that discrimination, if you will, will be
baked in, and I think that that is his concern. If you go to
bundling, that discrimination is going to still be baked in for
low-cost areas. We are not dealing with the disparities in
different parts of the country.
Bruce?
Mr. Vladeck. As a New Yorker, I probably ought to be the
one to respond to this issue, and Senator Wyden and I have
talked about it in the past. And Mark hit on one piece of this
issue that is very critical if we are going to address these
issues appropriately, and that is, until we can adjust
adequately in the data about utilization patterns and outcomes
for the characteristics and the differences in the
characteristics of the patients being served from one community
to another, we cannot fairly say that one place is more
efficient than another.
And, in fact, if you contrast some of the 3- and 4- and 5-
year-old Dartmouth rankings of relative metropolitan areas on
their relative efficiency, with some of the more recent work
done by MedPAC or by CMS, which has the appropriate data
adjustments, you get very different rankings, and you find out
that most of the difference in per capita Medicare expenditures
from one region of the United States to the other is, in fact,
associated with home care and durable medical equipment, not
with differences in utilization patterns, because, when you
adjust for the characteristics of the patients, the differences
are not as dramatic as has long been described.
Now, I think we have two sets of problems here. One
problem, which is very real and which Senator Roberts talked
about and Senator Coburn talked about, is I am increasingly
convinced that, when it comes to physician payment and
physician incentives, we probably just need to have a separate
system for rural communities than we use for urban communities,
because all of these new bundles and systems of care people are
talking about require a degree of infrastructure and a critical
mass that, as Senator Roberts said, is not realistic in smaller
communities.
The Chairman. Kind of like accountable care organizations.
Like critical access hospitals, for example, just reimburse
differently than----
Mr. Vladeck. And I think we have a model, and we sort of
gave up in the hospital sector. We said for hospitals below a
certain size serving certain kinds of communities, the
Prospective Payment System is never going to work equitably for
them, because the numbers just do not work. And so we created a
critical access category, and I think there is no logical
reason why we should not apply the same logic to paying
physicians in rural communities and figure out what it takes.
The most important variable with the physician in a rural
community is not how high quality he is or how efficient he is,
but whether he is there or not in the first place. So that is
less of a problem on the Island of Manhattan. So we should not
try to develop a 1-size-fits-all formula for these very
different issues.
On the other hand, I think we know less than we believe we
do about the causes of variations in Medicare expenditures
between the high-cost States and the low-cost States, as is
evidenced by the fact, again, that the most recent data shows
very different rankings of high-cost and low-cost than the
Dartmouth atlas has been showing. And the IOM is in the middle
of a study which you commissioned to try to look at these
issues and disentangle them.
I think we need to get some better information about these
issues, and it is in the process of being developed.
The Chairman. Could you explain to everybody what IOM is?
Mr. Scully. The Institute of Medicine. I will not pick on
the New York guys.
Dr. McClellan. I am actually on that panel--as is Gail--and
it is going to develop some better information. I am not sure
it is going to completely resolve all the issues.
Mr. Scully. But there are huge differences, and, if you
carved out Dade County and Louisiana and pushed them out in the
Atlantic Ocean, you would save a hell of a lot of money.
[Laughter.]
Can I give you two ideas that are a little different? And I
agree with what Bruce is saying.
In rural areas--Oregon is different than Kansas, and you
are probably not going to have Medicare Advantage plans at 41
percent ever in Kansas. It is just not going to happen.
But there are a couple of old programs that have been
floating around. I know it is still on the books, Medicare
Select, which I think may only exist in parts of Alabama, but
it is basically a Part B capitation, where the doctors get
capitated, they can take full capitation. All the Part A costs
are passed through.
It is kind of half a loaf of Medicare Advantage. And, in a
rural area where you only have hospitals and you are trying to
give the docs the ability to go together and organize
themselves--it actually started to take off. For a lot of
reasons, it blew up under the 1997 bill, which I can get into,
if you like. But there are ways where you can create the right
incentives for doctors to do more.
One of the reasons I was such a big fan of creating
Medicare Advantage--I think I made that name up one day--was
because I hated Medigap plans, as Senator Wyden knows. We
worked on that 25-30 years ago when he was in the House. He was
the original Medigap reformer.
One of the worst incentives in the program is Medigap,
which is private insurance, first-dollar coverage, which has
60-percent medical loss ratios; it is horrible insurance. You
could go out in the rural areas, and, if somebody agrees to
sign up to Medigap with a $250 deductible----
The Chairman. I worked on that with Senator Pepper.
Mr. Scully. Yes.
The Chairman. Senator Pepper.
Mr. Scully. It is horrible. It is terrible.
The Chairman. The medical loss ratios were just outrageous.
Mr. Scully. And, if you gave people higher deductibles and
said, if I were in rural Montana and you agreed to do Medigap
with a higher deductible, then you get the good one. The ACO
gets paid more.
There is money in the system to create the right incentives
for doctors, and there are existing programs around to do that,
and I think we just need to find places to push more money for
doctors to be incented to do the right thing.
Ms. Wilensky. It has come up a couple of times. The
alternative to the current RBRVS fee-for-service system is not
necessarily Medicare Advantage. That is an alternative. That is
the ultimate in a bundle.
Everyplace else in Medicare, you have directed the agency
to move to a more bundled payment. So rather than focus on all
of the little items that used to go on in the hospital,
Medicare pays on the basis of a discharge, the diagnosis at
discharge. And what happens during that whole experience is not
Medicare's problem, it is the hospital's problem.
My argument is that, if you want to have that same kind of
refocus, you have to get away from billing 7,000-8,000
different codes, taking care of people, and get to a type of a
bundle that is appropriate for physicians.
If we see capitated systems growing, if we see premium
support, if we see a very different world, that is fine. That
is the ultimate bundle. You get around a lot of issues that you
have to face otherwise.
You still worry about volume with prospective payment. That
is why you have a readmission penalty now being imposed. It
does not necessarily pay for quality, but it could pay
differentially for quality.
But even in the rural areas, physicians who are taking care
of people with single or multiple chronic diseases--congestive
heart failure, congestive heart failure and diabetes,
congestive heart failure, diabetes, and hypertension--all of
those tend to go together, but are not always together.
Paying somebody, a physician, an amount to take care of a
person with one or more chronic diseases for a year would be a
very different mentality than billing them for every single
service every time they walk into the hospital, and would allow
them to focus in a different way.
Those are the kind of adjustments you actually can do in
terms of how you pay physicians so that you just get away from
this very micro-level mentality that has had so much
distraction in terms of the gaming that people do and the fact
that they do not have a good reward when they are practicing
conservatively and getting good clinical outcomes.
It is just a question of how many times they bill and
whether they bill for the expensive stuff or not.
The Chairman. I do not know. Tom has been trying to----
Senator Carper. Thanks, Mr. Chairman. Thank you all for
coming and for your continued service to our country.
Sometimes when people ask me what I think we ought to do in
tax reform, I talk a fair amount about Bowles-Simpson, and I
think they have a pretty good roadmap there. But I also talk
about the underlying principles that I think we should adhere
to as we follow tax reform.
I use this as an example to lead to my question. I say tax
reform, among the things it ought to do, should simplify the
tax code, not make it more complex. It should stimulate
economic growth, not diminish it. It should help us reduce the
deficit, not increase it. It should make the tax code,
arguably, fair, maybe more fair than before.
Those are really underlying principles. We have talked
about a lot of different directions for government
specifically, and so forth.
What would be most helpful for me is to hear each of you
just share maybe one underlying principle; that is, where you
try to fix this problem, address this problem, to make sure we
get better health care outcomes for less money, or the same
amount of money.
Just give us a takeaway, an underlying principle that we,
when we work toward solving this problem at the end of this
year, should try to adhere to. For each of you, just one
underlying principle we ought to adhere to, that would be
helpful for me and maybe for my colleagues.
Ms. Wilensky. For me, rewarding the kind of behavior we
want to see.
The Chairman. Which is?
Ms. Wilensky. Producing good outcomes, focusing on the
outcomes, and then, on all the inputs on what you do, shifting
that focus. And, by the way, I would not mind extending that to
the patient as well.
Senator Carper. What do you mean by ``extending''?
Ms. Wilensky. Rewarding the kind of behavior we would like
to see, engaging in good health practices, encouraging that,
discouraging or penalizing some who do not.
Senator Carper. We actually try to do that in our bill by
allowing employers to provide premium discounts of as much as
30 percent for folks who take better care of themselves.
Ms. Wilensky. Exactly. That is exactly what I was thinking.
Senator Carper. Thank you. Just one principle from each
person, if you do not mind.
Mr. Vladeck. I am going to be the outlier in this group and
the deviant, which will not be the first time. I think the
basic underlying principle that the principal goal of the
payment system is to pay providers and to try to change the
world through fine-tuning payment systems makes life more
complicated and more difficult.
So I think there are real issues of quality in the health
care system that need to be addressed, but you can address them
without dealing with how you pay people.
There are real issues of creating incentives for more
efficient care. Every time you write a check to a physician
group, you do not have to have that incentive contained in it.
The sort of ``keep it simple, stupid'' principle, I think,
especially applies to both the tax code and to the Medicare
program, because everybody from every interest, every
stakeholder and every member, has some particular refinement
that they want to put on it to move a particular agenda.
So I would say, do not expect too much out of a payment
system. Make sure that it is auditable, it is reliable, it is
understandable by the providers and the beneficiaries, as well
as by the government, and that you are clear about what you are
paying for and what you are not paying for.
You start from that and then you can adjust around the
edges. If you are paying too much, you reduce the payments, et
cetera.
Senator Carper. Thank you.
Tom?
Mr. Scully. Since I do not have to run for anything, I am
an unabashed fan of the Healthy Americans Act. So I will not
get into that. But if you could reinvent the world, that is
what I would do, but I will not get into that with Senator
Wyden.
But if you had one thing to do this year, and I think
Senator Baucus tried to start it, which was incredibly
admirable--I am a huge fan of a tax cap--I would say, if you
are really trying to change behavior, limit tax deductible
excludability of health care to a very basic standard option
and Blue Cross benefit, because you tried to do that a little
bit in the ACA, and there was a lot of opposition to it.
The tax policy drives a lot of behavior, and there are a
lot of places to go, but if you put in a tough tax cap, you
change behavior, you raise revenue for other things, you close
the deficit, and that is absolutely the right thing to do, and
I admire you for trying.
Senator Carper. Thank you.
Mark?
Dr. McClellan. I agree with the points about engaging
consumers and helping people be healthier. I think that is
probably the biggest, most important way to get to better
health and lower costs.
With respect to physician payment reform and trying to
apply a pretty simple principle or, I would say, a pretty
simple test, I think at the end of this process, if you can ask
providers, and each specialty tells you that these reforms will
improve care, that is a good first part of the test.
The second part on accountability is, is there a way to
show that competently, to measure that this is getting the
better care, it is getting to lower costs, as Dr. Coburn
suggested. And I think, while that does mean we need to move
away from our already complex system--I guess Bruce was saying
the expectations for payment systems do not need to be that
high, certainly not that high for improving quality in current
fee-for-service--I think we can do better than that.
I think these two principles, asking the providers
themselves, the physicians themselves, are these changes that
we have adopted going to improve quality, and, if they are
confident about it, is there a measurable way to show it, would
get us into a better place, and I think we can get there this
year.
Senator Carper. Thank you all.
Senator Hatch. Let me get into this to a degree, too. Some
have suggested that the fee schedule will never separately work
as long as the relative value of services is largely dictated
by the AMA.
What do they call it, the RUC? Historically, as I
understand it, CMS has accepted about 90 percent of their
recommendations, except this last year, when it was about 60
percent. I think that is about right.
Now, I have three questions. One is this. Do you think this
is a sea change in how CMS views the physician community
recommendations, and do you view this as a positive or negative
outcome to achieve greater stability in the fee schedule? That
is number one.
Number two is, I am having a rough time figuring out how
you really effectively bundle, which a number of you have
mentioned in your remarks in various ways.
And, number three, what effect does--as a former medical
liability defense lawyer, although it was a long time ago, I
remember we used to tell them once they did away with the
standard of practice in the community and opted for an open
process that would take every case to the jury, we used to tell
them, the doctors, ``Look, you better make sure of your
history. You can no longer rely on the standard of practice in
the community. You better make sure your history has every
possible consideration of their medical condition,'' even
though a number of those tests really are not necessary. In
other words, it led to unnecessary defensive medicine, which,
from my standpoint, knowing what I did, about 95 percent of the
cases that we saw coming through the office were frivolous
cases brought to get the defense costs, which were
considerable.
So those three things I am a little bit concerned about.
Can we ever address the costs without addressing unnecessary
defensive medicine and the terrible situation we have with the
medical liability litigation in our society today?
So number one is, should we rely on the AMA or on this RUC,
and is that 60 percent a valid thing compared to the 90-95
percent in the past? And then the other two questions as well.
Ms. Wilensky. The adoption by the agency started between
our two periods. It happened innocently enough. Once you had
the Relative Value Scale in place, you needed to have a way to
update relative values and to allow for a change.
The AMA, as best we can tell--Bruce and I have had this
conversation, trying to piece together exactly what happened.
Sometime after I left to go to the White House, before he was
sworn in, when there was a lot going on, it was implemented.
But, in its first year, the AMA approached the agency about
whether it would allow it or like to have the AMA be the
convener that would include all physician groups and make some
recommendations, which initially were very minor adjustments
that hardly affected the RBRVS at all. The agency accepted the
offer.
It is important, and you have really indicated this by your
mention of 90 to 60, the agency does not have to accept the
recommendations by the RUC. It needs to have an outside
convener. The question has been raised about whether the AMA is
necessarily the best, although it is a big umbrella
organization.
You want to include physicians, but the agency has the
right to reject any of the recommendations it feels inclined to
and occasionally has done so, and apparently used to do so in a
bigger way. I do not know what caused the difference.
So it has the ability to take this on, but it would be very
difficult for the agency internally to do this. It would want
to contract with someone, and the question can be if this is
the best group.
I would like to do one quick response to your liability
question. I have been trying to encourage people to think about
a quid pro quo for physicians. I do think that it is
unreasonable to ask clinicians and institutions to practice in
conservative ways, try to push them that way financially
without giving them some protection if they are, in fact,
providing good evidence-based care, and that is really the key.
And for me, it would be physicians who adopt the clinical
guidelines of their own medical specialties--or you could
convene special groups if you do not think they are always well
enough developed--and follow a set of patient safety measures,
which the Institute of Medicine has already developed. But,
again, it could be reviewed to see if these are the best, but
unless there is a case of criminal negligence, which
occasionally can happen, these institutions and clinicians
should be protected against liability.
There is a lot of debate among policy analysts about how
much this drives cost and how much it drives defensive
medicine. But, until you take it off the table in a way that
seems fair, giving something in exchange for the patient, which
is better reliance on evidence-based medicine and patient
safety in return for protecting the institutions and
clinicians, it will be there hanging over their head and be
very unhelpful.
So, those would be the two things, I think.
Mr. Scully. Senator, in my testimony, I congratulated--I
think the reason is Jon Blum who is a former staffer for
Senator Baucus and the Finance Committee, runs Medicare, and it
is voluntary. CMS has a very small staff. The lead doc who did
this for 10 years at CMS left last year, and, traditionally,
they took 95 percent of the recommendations because they do not
have a lot of information.
I talked to Jon about it. I congratulate him. He has pushed
back more in the past year than anybody else has, and I think
that is very healthy.
So that does not mean the AMA is not doing the right thing.
I just think it is--I have watched the RUC for years. It is
incredibly political, and it just human nature. When you get
the U.N. of docs together, of specialists who spend more money
and more time and have a bigger impact, and they sit around a
table--I have been to the RUC a couple times when I was the
Administrator in Chicago. I can tell you war stories, if you
all want to hear them, about trying to get pediatricians paid
more. Magically, there are not any pediatricians on the RUC.
I had problems with them with immunizations years ago. So
really it is all about political representation, and the AMA
does a good job given where they are, but they are a political
body of specialty groups, and they are just not, in my opinion,
objective enough.
So, when you look at the history of it, CMS is starting to
push back more, which is a good thing. I think it would be much
better to have an arm's-length transaction where the physician
groups have a little more of an objective approach to it. And
that is the infrastructure of $80 billion a year in spending.
It is not a small matter. It is huge.
Senator Hatch. Bruce?
Mr. Vladeck. Gail and I were talking about this issue of
the RUC and the AMA a little bit before the session began, and
we agreed that there needs to be some body outside of CMS to
deal with these issues and look at the issues of changing the
codes and technical updates and so forth.
The AMA is probably--even if they did the most objective
professional job in the world, the appearance of conflict
associated with it would over time, I think, be a problem.
I suggested to Gail that we contract it to Project HOPE,
and she demurred. So I think we ought to give it to the
Engelberg Center at Brookings to do. I think they could
probably do a very good job of it.
But it is one of the pieces. We have to fix the RBRVS
mechanism, and having a better way of updating it that is more
transparent is a very important part of that subject.
On your other two issues, I, again, find myself in the
uncomfortable position of largely agreeing with Gail on both
the importance of liability reform and----
Senator Hatch. See how good we are for you?
Mr. Vladeck [continuing]. Its relationship to the
development of quality standards and the development of safety
standards and so forth. And there definitely ought to be a
tradeoff. If we have professionally accepted standards and
people meet them, that ought to be a defense against liability.
I do also want to respond to your third point very quickly,
and, again, it is back to the suggestion I made about not
prescribing bundles, but prescribing a generic methodology by
which you could take a subset of the 7,000 codes, if you are a
physician or a physician group, and say, ``Okay, we are going
to do management of knee sprains; we are going take a single
price for the following 14 codes or 16 codes or 18 codes.''
And the more sophisticated practices already have in their
computers the bundles of codes they give for particular
diagnoses. They know what it costs them to produce. They know
what they get paid for it.
If you had some general formulas and templates, they could
go to their Medicare contractor and say, ``Instead of paying us
under the existing system for sprained knees, how about a fee
of $714. That is 95 percent of what you are now paying, and we
can make money at that.''
That is, I think, the kind of bundling we are talking
about, and I think you can leave it up to the individual
physician practices. Again, it is very hard for a solo
practitioner to do this, but once you have four or five or six
guys or gals together, you can really do all sorts of neat
stuff. And I would just say, let us have a formula by which you
can do it and see what happens.
The Chairman. We are going to have to wrap up pretty soon
here.
Anybody else?
Dr. McClellan. I was just going to add a couple more
comments on Senator Hatch's questions. The point about bundling
is right. You do not want to create yet another bureaucratic
system for physicians. You want a system that will help
physicians do what they think is the right thing for their
patients. And Bruce and I think the rest of the panel have
suggested some ways to do that.
And I want to commend you, Senator, and your staff for
engaging the physician groups themselves, both at the national
level and those in actual practice, including in Utah, for
thinking about how to do this.
Small practitioners do not have a whole lot of technical
infrastructure. There are some pretty clear ways, if you look
closely at each specialty, in which they could get paid better
through steps like what we have talked about today, and I think
we will certainly hope to continue to work closely with you all
to find the best way to do that.
I would add too that, to the extent that you do that, you
take some of the pressure and power out of the RUC structure.
And the RUC has taken a lot of criticisms for being too
political, but let us face it: anytime you have a fixed pie and
you are dividing it up between a bunch of different medical
specialties, it is going to get political.
I think the nice thing about some of these reforms is that
it moves the status away from being a fight among medical
specialties to rather a unified effort across physician groups,
different specialties, to get overall costs down through
improvements in quality.
Now, all these debates are really focused on this 12
percent of Medicare spending that goes to physicians, when, if
you would improve the way that physicians get financial
support, you could do something about the 80 percent of health
care spending that they influence. And even a small effect on
those overall health care costs could do a lot to take the
political pressure off this RBRVS process.
And I also agree with the points about liability reforms.
It seems like there is unanimity here that that should be
addressed too, to help physicians deliver care better.
The Chairman. John?
Senator Thune. Thank you, Mr. Chairman.
I am just curious about how, since the 1997 SGR was
created, there has been sort of the advent of physician-owned
hospitals. You have also seen in some areas of the country more
systems where you have physicians who are sort of working at
hospitals, and how that has influenced utilization, those two
different types of models.
And in a system-type approach, could you come up with a way
in which you would sort of integrate the hospital and physician
so you are not treating them differently in terms of
reimbursement, so there is sort of an equality incentive for
the entire system?
I realize that is probably a hard thing to answer because
you have different ways in which these models are constructed
out there, but, clearly, there is a question about--there is
always a question, I think, about utilization and how that is
shaped by various incentives that might be achieved in
different types of models.
This is a sort of broad question. I know it is not an easy
one to answer. But is there a way where you could get in a
system-based approach where you would have sort of an
integrated payment that would be incentivized based upon
quality outcome, et cetera, where you would not have these sort
of competing interests between hospitals and doctors?
Mr. Vladeck. We have, Senator, 12 hospitals in New Jersey
at this minute operating under a system where, for all their
Medicare cases, there is a permitted gain-sharing incentive
with their physicians that essentially bundles the payment for
in-hospital services for the physicians with that for the
hospital, and the so-called Model 1 under the bundled payment
demonstration that CMMI is conducting follows on that model.
Gail described earlier the cardiac bypass demonstration
which began during her tenure, which was enormously successful,
and we have been working on these ever since.
What happened was, we were ready to go with the next
generation of them in the early 1990s, and then the Stark law
was passed and the anti-kickback law became more aggressive. So
the Inspector General got a seat at the table and decided they
did not like this kind of common incentive, and it took 10
years to figure out how to put together projects that addressed
their concerns, and so forth.
And the interesting thing is that the critical step in
resolving the concerns of the program integrity people about
having common incentives for physicians and hospitals was
having robust quality measures and insisting on meeting the
robust quality standards before anybody could get any incentive
payments.
And so as I say, there are experiments in this regard going
on at the moment. The preliminary results are extremely
encouraging, and I hope we are going to see a lot more of them
very soon.
Ms. Wilensky. It is, of course, the purpose of the
accountable care organizations to allow physicians and
hospitals who have not been formally integrated to work
together, show quality metrics, have auditable results, so that
they can demonstrate savings, so that they would not then be
subject to the Stark regulations.
So it has been an attempt--starting with the gain-sharing
that Bruce talked about that has taken a long time, and now the
accountable care organizations--to allow that.
The Chairman. This has been very helpful, more helpful than
I think many other gatherings/hearings, and I deeply appreciate
it.
I think the four of you should come up with some
suggestions, short-term and long-term. That is, what do we do
about physician payment reimbursement for this year, because we
are going to be facing it, because the SGR is going to come up
for a pay-for at the end of the year; and then, also, longer-
term, how do we reform the physician payment system over the
next several years?
If you could maybe let us know within a month. And I have
not figured out yet in what form you are going to let us know,
but let us keep that open for the time being.
But you have a lot of expertise. You have a lot of smarts
and experience, a lot, and know a lot more about all of this
than we do.
So I know that is a bit of an imposition. I sprung that on
you and did not give you advanced notice, but I am doing it
anyway. It would be great if, within about a month from now, we
get together one way or another and see what you come up with.
We will work with you. We really want to work with you. This is
teamwork.
A lot of points came up here, and I know you will take them
all into consideration and handle them in the appropriate way.
Thank you very much. The hearing is adjourned.
[Whereupon, at 11:48 a.m., the hearing was concluded.]
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