Medicare Spending: Preliminary Findings Regarding an Approach	 
Focusing on Physician Practice Patterns to Foster Program	 
Efficiency (06-MAR-07, GAO-07-567T).				 
                                                                 
Medicare's current system of spending targets used to moderate	 
spending growth for physician services and annually update	 
physician fees is problematic. This spending target		 
system--called the sustainable growth rate (SGR) system--adjusts 
physician fees based on the extent to which actual spending	 
aligns with specified targets. In recent years, because spending 
has exceeded the targets, the system has called for fee cuts.	 
Since 2003, the cuts have been averted through administrative or 
legislative action, thus postponing the budgetary consequences of
excess spending. Under these circumstances, policymakers are	 
seeking reforms that can help moderate spending growth while	 
ensuring that beneficiaries have appropriate access to care. For 
today's hearing, the Subcommittee on Health, House Committee on  
Energy and Commerce, which is exploring options for improving how
Medicare pays physicians, asked GAO to share the preliminary	 
results of its ongoing study related to this topic. GAO's	 
statement addresses (1) approaches taken by other health care	 
purchasers to address physicians' inefficient practice patterns, 
(2) GAO's efforts to estimate the prevalence of inefficient	 
physicians in Medicare, and (3) the methodological tools	 
available to identify inefficient practice patterns programwide. 
GAO ensured the reliability of the claims data used in this	 
report by performing appropriate electronic data checks and by	 
interviewing agency officials who were knowledgeable about the	 
data.								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-567T					        
    ACCNO:   A66486						        
  TITLE:     Medicare Spending: Preliminary Findings Regarding an     
Approach Focusing on Physician Practice Patterns to Foster	 
Program Efficiency						 
     DATE:   03/06/2007 
  SUBJECT:   Beneficiaries					 
	     Comparative analysis				 
	     Evaluation methods 				 
	     Financial analysis 				 
	     Medical economic analysis				 
	     Medical fees					 
	     Medicare						 
	     Physicians 					 
	     Statistical methods				 
	     Strategic planning 				 

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GAO-07-567T

   

     * [1]Some Health Care Purchasers Use Physician Profiling Results

          * [2]Health Care Purchasers Profiled Physicians across Several Di
          * [3]Health Care Purchasers Linked Physician Profiling Results to
          * [4]Physician Profiling Has Potential for Savings

     * [5]Through Profiling, We Found That Physicians Likely to Practi
     * [6]CMS Has Tools Available to Profile Physicians for Efficiency
     * [7]Concluding Observations
     * [8]GAO Contacts and Acknowledgments

          * [9]Order by Mail or Phone

Testimony

Before the Subcommittee on Health, Committee on Energy and Commerce, House
of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 9:30 a.m. EST

Tuesday, March 6, 2007

MEDICARE SPENDING

Preliminary Findings Regarding an Approach Focusing on Physician Practice
Patterns to Foster Program Efficiency

Statement of A. Bruce Steinwald
Director, Health Care

GAO-07-567T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today as you discuss options for improving how
Medicare pays physicians. Your task is not simple, as you seek reforms
that can help moderate spending growth while ensuring that beneficiaries
have appropriate access to high-quality physician services and physicians
receive fair compensation for providing those services. Medicare's current
system of spending targets used to moderate spending growth and annually
update physician fees is problematic.

This spending target system--called the sustainable growth rate (SGR)
system--adjusts Medicare's physician fees based on the extent to which
actual spending aligns with specified targets. If the growth in the number
of services provided per beneficiary--referred to as volume--and in the
average complexity and costliness of services--referred to as
intensity--is high enough, spending will exceed the SGR target. From
1999--the first year that the SGR system was used to update physician
fees--through 2001, physicians received fee increases annually. Since
2002, actual Medicare spending on physician services has exceeded SGR
targets, and the SGR systems has called for fee cuts to offset the excess
spending. In 2002 the SGR system reduced physician fees by nearly 5
percent. Fee declines in subsequent years were averted only by
administrative and legislative actions that modified or temporarily
overrode the SGR system.1 In the absence of additional administrative or
legislative action, the SGR system will likely reduce fees by about 5
percent a year for the next several years.

The potential for a sustained period of declining fees has raised
policymakers' concerns about the appropriateness of the SGR system for
updating physician fees and about physicians' continued participation in
the Medicare program. A particular concern is that the SGR system acts as
a blunt instrument in that all physicians are subject to the consequences
of excess spending--namely, downward fee adjustments--that may stem from
the excessive use of resources by only some physicians. However, as we
have discussed in our prior work, the SGR system serves an important role
in alerting policymakers to the need for fiscal discipline.2 Specifically,
fee cuts under the SGR system signal to physicians collectively and to the
Congress that spending due to volume and intensity has increased more than
allowed.

1For example, the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) specified a minimum update of 1.5 percent
for both 2004 and 2005. Pub. L. No. 108-173, S 601(a)(1), 117 Stat. 2066,
2300.

Some of the higher volume and intensity that drives spending growth may
not be medically necessary. In fact, the wide geographic variation in
Medicare spending per beneficiary--unrelated to beneficiary health status
or outcomes--provides evidence that health needs alone do not determine
spending.3 Medicare physician payment policy does little to change this
situation; payments under the Medicare program are not designed to foster
individual physician responsibility for the most effective medical
practices. In contrast, some public and private health care purchasers
have initiated programs to identify efficient physicians and encourage
patients to obtain care from these physicians.

With these circumstances in mind, and in fulfillment of a 2003 mandate to
examine aspects of physician compensation in Medicare,4 we conducted a
study focusing on efficiency with respect to physician practices. In our
study, we use the term efficiency to mean providing and ordering a level
of services that is sufficient to meet a patient's health care needs but
not excessive, given a patient's health status. My remarks today will
address (1) physician-focused approaches taken by other health care
purchasers to address inefficient medical practices, (2) our efforts to
estimate the prevalence of inefficient physicians in Medicare, and (3) the
methodological tools available to the Centers for Medicare & Medicaid
Services (CMS) to identify inefficient physician practice patterns
programwide. My remarks today are based on our study's preliminary
findings.

2GAO, Medicare Physician Payments: Trends in Service Utilization,
Spending, and Fees Prompt Consideration of Alternative Payment Approaches,
[10]GAO-06-1008T (Washington, D.C.: July 25, 2006) and Medicare Physician
Payments: Concerns about Spending Target System Prompt Interest in
Considering Reforms, [11]GAO-05-85 (Washington, D.C.: Oct. 8, 2004).

3Elliot S. Fisher, et al., "The Implications of Regional Variations in
Medicare Spending. Part 1: The Content, Quality, and Accessibility of
Care," Annals of Internal Medicine, vol. 138, no. 4 (2003): 273-287.

4MMA, Pub. L. No. 108-173, S 953, 117 Stat. 2066, 2428.

In conducting our study, we interviewed representatives of 10 health care
purchasers,5 including 5 commercial health plans, 1 provider network, 1
trust fund jointly managed by employers and a union, and 3 government
agencies--2 in U.S. states and 1 in a Canadian province. We selected these
purchasers because their programs that examine physician practices
explicitly assess efficiency--unlike many such programs that assess
quality only. We also estimated the prevalence in Medicare of physicians
likely to practice inefficiently. To do this work, we examined 2003
Medicare claims data from 12 metropolitan areas. We ensured the
reliability of the claims data used in this report by performing
appropriate electronic data checks and by interviewing officials at CMS
who were knowledgeable about the data. In addition, we discussed the facts
contained in this statement with CMS officials. The study on which these
remarks are based has been conducted beginning September 2005 in
accordance with generally accepted government auditing standards.

In summary, the health care purchasers we studied examined the practice
patterns of physicians in their networks and used the results to promote
efficiency. They adopted a range of incentives--from steering patients
toward the most efficient providers to excluding a physician from the
network--to encourage physicians to provide care efficiently; some
reported savings as a result of these efforts. Using our own methodology
to analyze the practice patterns of physicians in Medicare, we found that
physicians who were likely to be practicing medicine inefficiently were
present in all 12 of the metropolitan areas studied. CMS also has the
tools to identify physicians in Medicare who are likely to practice
medicine inefficiently, including comprehensive claims information,
sufficient numbers of physicians in most areas to construct adequate
sample sizes, and methods to adjust for differences in beneficiary health
status.

5In our study, we use "purchaser" to mean health plans as well as agencies
that manage care purchased from health plans; one of the entities we
interviewed is a provider network that contracts with several insurance
companies to provide care to their enrollees.

Some Health Care Purchasers Use Physician Profiling Results to Encourage
Efficient Medical Practice

Consistent with the premise that physicians play a central role in the
generation of most health care expenditures, some health care purchasers
employ physician profiling to promote efficiency. We selected 10 health
care purchasers that profiled physicians in their networks--that is,
compared physicians' performance to an efficiency standard to identify
those who practiced inefficiently. To measure efficiency, the purchasers
we spoke with generally compared actual spending for physicians' patients
to the expected spending for those same patients, given their clinical and
demographic characteristics.6 Most purchasers said they also evaluated
physicians on quality. The purchasers linked their efficiency profiling
results and other measures to a range of physician-focused strategies to
encourage the efficient provision of care. Some of the purchasers said
their profiling efforts produced savings.

Health Care Purchasers Profiled Physicians across Several Dimensions to Evaluate
Physician Performance

The 10 health care purchasers we examined used two basic profiling
approaches to identify physicians whose medical practices were
inefficient. One approach focused on the costs associated with treating a
specific episode of illness--such as a stroke or heart attack. The other
approach focused on costs, within a specific period, associated with the
patients in a physician's practice. Both approaches used information from
medical claims data to measure resource use and account for differences in
patients' health status. In addition, both approaches assessed physicians
(or physician groups) based on the costs associated with services that
they may not have provided directly, such as costs associated with a
hospitalization or services provided by a different physician.

Although the methods used by purchasers to predict patient spending
varied, all used patient demographics and diagnoses. The methods they used
generally computed efficiency measures as the ratio of actual to expected
spending for patients of similar health status. In addition, all of the
purchasers we interviewed profiled specialists and all but one also
profiled primary care physicians. Several purchasers said they would only
profile physicians who treated an adequate number of cases, since such
analyses typically require a minimum sample size to be valid.

6Generally, estimates of an individual's expected spending are based on
factors such as patient diagnoses and demographic traits.

Health Care Purchasers Linked Physician Profiling Results to a Range of
Incentives Encouraging Efficiency

The health care purchasers we examined directly tied the results of their
profiling methods to incentives that encourage physicians in their
networks to practice efficiently. The incentives varied widely in design,
application, and severity of consequences. Purchasers used incentives that
included

           o educating physicians to encourage more efficient care,

           o designating in their physician directories those physicians who
           met efficiency and quality standards,

           o dividing physicians into tiers based on efficiency and giving
           enrollees financial incentives to see physicians in particular
           tiers,

           o providing bonuses or imposing penalties based on efficiency and
           quality standards, and

           o excluding inefficient physicians from the network.
			  
			  Physician Profiling Has Potential for Savings

           Evidence from our interviews with the health care purchasers
           suggests that physician profiling programs may have the potential
           to generate savings for health care purchasers. Three of the 10
           purchasers reported that the profiling programs produced savings
           and provided us with estimates of savings attributable to their
           physician-focused efficiency efforts. For example, 1 of those
           purchasers reported that growth in spending fell from 12 percent
           to about 1 percent in the first year after it restructured its
           network as part of its efficiency program, and an actuarial firm
           hired by the purchaser estimated that about three quarters of the
           reduction in expenditure growth was most likely a result of the
           efficiency program. Three other purchasers suggested their
           programs might have achieved savings but did not provide savings
           estimates, while four said they had not attempted to measure
           savings at the time of our interviews.
			  
			  Through Profiling, We Found That Physicians Likely to Practice
			  Inefficiently in Medicare Were Present in All Selected Areas

           Having considered the efforts of other health care purchasers in
           profiling physicians for efficiency, we conducted our own
           profiling analysis of physician practices in Medicare and found
           individual physicians who were likely to practice medicine
           inefficiently in each of 12 metropolitan areas studied. We focused
           our analysis on generalists--physicians who described their
           specialty as general practice, internal medicine, or family
           practice. We did not include specialists in our analysis. We
           selected areas that were diverse geographically and in terms of
           Medicare spending per beneficiary.

           Under our methodology, we computed the percentage of overly
           expensive patients in each physician's Medicare practice. To
           identify overly expensive patients, we grouped the Medicare
           beneficiaries in the 12 locations according to their health
           status, using diagnosis and demographic information. Patients
           whose total Medicare expenditures--for services provided by all
           health providers, not just physicians--far exceeded those of other
           patients in their same health status grouping were classified as
           overly expensive. Once these patients were identified and linked
           to the physicians who treated them, we were able to determine
           which physicians treated a disproportionate share of these
           patients compared with their generalist peers in the same
           location. We classified these physicians as outliers--that is,
           physicians whose proportions of overly expensive patients would
           occur by chance less than 1 time in 100. We concluded that these
           outlier physicians were likely to be practicing medicine
           inefficiently.7

           Based on 2003 Medicare claims data, our analysis found outlier
           generalist physicians in all 12 metropolitan areas we studied. In
           two of the areas, outlier generalists accounted for more than 10
           percent of the area's generalist physician population. In the
           remaining areas, the proportion of outlier generalists ranged from
           2 percent to about 6 percent of the area's generalist population.
			  
			  CMS Has Tools Available to Profile Physicians for Efficiency

           Medicare's data-rich environment is conducive to identifying
           physicians who are likely to practice medicine inefficiently.
           Fundamental to this effort is the ability to make statistical
           comparisons that enable health care purchasers to identify
           physicians practicing outside of established standards. CMS has
           the tools to make statistically valid comparisons, including
           comprehensive medical claims information, sufficient numbers of
           physicians in most areas to construct adequate sample sizes, and
           methods to adjust for differences in patient health status.

           Among the resources available to CMS are the following:

           o Comprehensive source of medical claims information. CMS
           maintains a centralized repository, or database, of all Medicare
           claims that provides a comprehensive source of information on
           patients' Medicare-covered medical encounters. Using claims from
           the central database, each of which includes the beneficiary's
           unique identification number, CMS can identify and link patients
           to the various types of services they received and to the
           physicians who treated them.

           o Data samples large enough to ensure meaningful comparisons
           across physicians. The feasibility of using efficiency measures to
           compare physicians' performance depends, in part, on two factors:
           the availability of enough data on each physician to compute an
           efficiency measure and numbers of physicians large enough to
           provide meaningful comparisons. In 2005, Medicare's 33.6 million
           fee-for-service enrollees were served by about 618,800 physicians.
           These figures suggest that CMS has enough clinical and expenditure
           data to compute efficiency measures for most physicians billing
           Medicare.

           o Methods to account for differences in patient health status.
           Because sicker patients are expected to use more health care
           resources than healthier patients, the health status of patients
           must be taken into account to make meaningful comparisons among
           physicians. Medicare has significant experience with risk
           adjustment. Specifically, CMS has used increasingly sophisticated
           risk adjustment methodologies over the past decade to set payment
           rates for beneficiaries enrolled in managed care plans.

           To conduct profiling analyses, CMS would likely make
           methodological decisions similar to those made by the health care
           purchasers we interviewed. For example, the health care purchasers
           we spoke with made choices about whether to profile individual
           physicians or group practices; which risk adjustment tool was best
           suited for a purchaser's physician and enrollee population;
           whether to measure costs associated with episodes of care or the
           costs, within a specific time period, associated with the patients
           in a physician's practice; and what criteria to use to identify
           inefficient practice patterns.
			  
			  Concluding Observations

           Our experience in examining what health care purchasers other than
           Medicare are doing to improve physician efficiency and in
           analyzing Medicare claims has enabled us to gain some insights
           into the potential of physician profiling to improve Medicare
           program efficiency. A primary virtue of profiling is that, coupled
           with incentives to encourage efficiency, it can create a system
           that operates at the individual physician level. In this way,
           profiling can address a principal criticism of the SGR system,
           which only operates at the aggregate physician level. Although
           savings from physician profiling alone would clearly not be
           sufficient to correct Medicare's long-term fiscal imbalance, it
           could be an important part of a package of reforms aimed at future
           program sustainability.
			  
7Our approach to estimating outlier physicians was conservative in that it
captures only the most extreme practice patterns; therefore, our analysis
does not mean that all nonoutlier physicians were practicing efficiently.			  

           Mr. Chairman, this concludes my prepared remarks. I will be
           pleased to answer any questions you or the subcommittee members
           may have.
			  
			  GAO Contacts and Acknowledgments

           For future contacts regarding this testimony, please contact A.
           Bruce Steinwald at (202) 512-7101 or at [email protected] .
           Contact points for our Offices of Congressional Relations and
           Public Affairs may be found on the last page of this statement.
           Other individuals who made key contributions include James
           Cosgrove and Phyllis Thorburn, Assistant Directors; Todd Anderson;
           Alex Dworkowitz; Hannah Fein; Gregory Giusto; Richard Lipinski;
           and Eric Wedum.
			  
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www.gao.gov/cgi-bin/getrpt?GAO-07-567T .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact A. Bruce Steinwald at (202) 512-7101 or
[email protected].

Highlights of [20]GAO-07-567T , a testimony before the Subcommittee on
Health, Committee on Energy and Commerce, House of Representatives

March 6, 2007

MEDICARE SPENDING

Preliminary Findings Regarding an Approach Focusing on Physician Practice
Patterns to Foster Program Efficiency

Medicare's current system of spending targets used to moderate spending
growth for physician services and annually update physician fees is
problematic. This spending target system--called the sustainable growth
rate (SGR) system--adjusts physician fees based on the extent to which
actual spending aligns with specified targets. In recent years, because
spending has exceeded the targets, the system has called for fee cuts.
Since 2003, the cuts have been averted through administrative or
legislative action, thus postponing the budgetary consequences of excess
spending. Under these circumstances, policymakers are seeking reforms that
can help moderate spending growth while ensuring that beneficiaries have
appropriate access to care. For today's hearing, this subcommittee, which
is exploring options for improving how Medicare pays physicians, asked GAO
to share the preliminary results of its ongoing study related to this
topic. GAO's statement addresses (1) approaches taken by other health care
purchasers to address physicians' inefficient practice patterns, (2) GAO's
efforts to estimate the prevalence of inefficient physicians in Medicare,
and (3) the methodological tools available to identify inefficient
practice patterns programwide. GAO ensured the reliability of the claims
data used in this report by performing appropriate electronic data checks
and by interviewing agency officials who were knowledgeable about the
data.

Consistent with the premise that physicians play a central role in the
generation of health care expenditures, some health care purchasers
examine the practice patterns of physicians in their network to promote
efficiency. GAO selected 10 health care purchasers for review because they
assess physicians' performance against an efficiency standard. To measure
efficiency, the purchasers we spoke with generally compared actual
spending for physicians' patients to the expected spending for those same
patients, given their clinical and demographic characteristics. Most
purchasers said they also evaluated physicians on quality. The purchasers
linked their efficiency analysis results and other measures to a range of
strategies--from steering patients toward the most efficient providers to
excluding a physician from the purchaser's provider network because of
poor performance. Some of the purchasers said these efforts produced
savings.

Having considered the efforts of other health care purchasers in
evaluating physicians for efficiency, GAO conducted its own analysis of
physician practices in Medicare. GAO used the term efficiency to mean
providing and ordering a level of services that is sufficient to meet
patients' health care needs but not excessive, given a patient's health
status. GAO focused the analysis on generalists--physicians who described
their specialty as general practice, internal medicine, or family
practice--and selected metropolitan areas that were diverse geographically
and in terms of Medicare spending per beneficiary. GAO found that
individual physicians who were likely to practice medicine inefficiently
were present in each of 12 metropolitan areas studied.

The Centers for Medicare & Medicaid Services (CMS), the agency that
administers Medicare, also has the tools to identify physicians who are
likely to practice medicine inefficiently. Specifically, CMS has at its
disposal comprehensive medical claims information, sufficient numbers of
physicians in most areas to construct adequate sample sizes, and methods
to adjust for differences in beneficiary health status.

A primary virtue of examining physician practices for efficiency is that
the information can be coupled with incentives that operate at the
individual physician level, in contrast with the SGR system, which
operates at the aggregate physician level. Efforts to improve physician
efficiency would not, by themselves, be sufficient to correct Medicare's
long-term fiscal imbalance, but such efforts could be an important part of
a package of reforms aimed at future program sustainability.

References

Visible links
  10. http://www.gao.gov/cgi-bin/getrpt?GAO-06-1008T
  11. http://www.gao.gov/cgi-bin/getrpt?GAO-05-85
  20. http://www.gao.gov/cgi-bin/getrpt?GAO-07-567T
*** End of document. ***