Medicare: Providing Systematic Feedback to Physicians on their	 
Practice Patterns Is a Promising Step Toward Encouraging Program 
Efficiency (10-MAY-07, GAO-07-862T).				 
                                                                 
GAO was asked to discuss--based on Medicare: Focus on Physician  
Practice Patterns Can Lead to Greater Program Efficiency,	 
GAO-07-307 (Apr. 30, 2007)--the importance in Medicare of	 
providing feedback to physicians on how their use of health care 
resources compares with that of their peers. GAO's report	 
discusses an approach to analyzing physicians' practice patterns 
in Medicare and ways the Centers for Medicare & Medicaid Services
(CMS) could use the results. In a related matter, Medicare's	 
sustainable growth rate system of spending targets used to	 
moderate physician spending growth and annually update physician 
fees has been problematic, acting as a blunt instrument and	 
lacking in incentives for physicians individually to be attentive
to the efficient use of resources in their practices. GAO's	 
statement focuses on (1) the results of its analysis estimating  
the prevalence of inefficient physicians in Medicare and (2) the 
potential for CMS to profile physicians in traditional		 
fee-for-service Medicare for efficiency and use the results in	 
ways that are similar to other purchasers' efforts to encourage  
efficiency.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-862T					        
    ACCNO:   A69446						        
  TITLE:     Medicare: Providing Systematic Feedback to Physicians on 
their Practice Patterns Is a Promising Step Toward Encouraging	 
Program Efficiency						 
     DATE:   05/10/2007 
  SUBJECT:   Beneficiaries					 
	     Comparative analysis				 
	     Evaluation methods 				 
	     Financial analysis 				 
	     Health care personnel				 
	     Health care programs				 
	     Hospital care services				 
	     Medical economic analysis				 
	     Medical fees					 
	     Medicare						 
	     Patient care services				 
	     Physicians 					 
	     Health care services				 

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GAO-07-862T

   

     * [1]Background
     * [2]Through Profiling, We Found That Physicians Likely to Practi
     * [3]CMS Has Tools Available to Profile Physicians for Efficiency
     * [4]Concluding Observations
     * [5]GAO Contacts and Acknowledgments

          * [6]Order by Mail or Phone

Testimony

Before the Subcommittee on Health, Committee on Ways and Means, House of
Representatives

United States Government Accountability Office

GAO

For Release on Delivery
Expected at 10:00 a.m. EDT
Thursday, May 10, 2007

MEDICARE

Providing Systematic Feedback to Physicians on their Practice Patterns Is
a Promising Step Toward Encouraging Program Efficiency

Statement of A. Bruce Steinwald
Director, Health Care

GAO-07-862T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today as you discuss the importance of
physician-focused strategies to improve efficiency in Medicare. One such
strategy entails providing feedback to physicians on how their use of
health care resources compares with that of their peers. We recently
issued a report, entitled Medicare: Focus on Physician Practice Patterns
Can Lead to Greater Program Efficiency,1 which discusses an approach to
analyzing physicians' practice patterns in Medicare and ways the Centers
for Medicare & Medicaid Services (CMS)2 could use the results of such an
analysis to modify inefficient physician behavior. In the report, we used
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.

The report fulfilled a 2003 mandate that we examine aspects of physician
compensation in Medicare, pertaining only to physicians serving
beneficiaries in traditional fee-for-service (FFS) Medicare.3 This topic
has been of significant interest to the Congress, as Medicare's current
system of spending targets used to moderate physician spending growth and
annually update physician fees has been 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. In recent years, the SGR
system has called for cuts in physician fees to offset volume and
intensity increases that have exceeded spending targets. Although these
cuts have been overridden by legislative or administrative action, a
sustained period of declining fees under the SGR system is projected.
Policymakers are therefore concerned about the appropriateness of the SGR
system for updating physician fees and about physicians' continued
participation in the Medicare program. The problem, in part, 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. In addition, under the SGR system, individual physicians
have no incentive to be attentive to the efficient use of resources in
their own practices.

1 [7]GAO-07-307 (Washington, D.C.: Apr. 30, 2007).

2CMS is the agency that administers Medicare.

3See Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA), Pub. L. No. 108-173, S 953, 117 Stat. 2066, 2428.

Policymakers are also concerned that some of the increase in volume and
intensity that drives spending growth may not be medically necessary.
Experts agree that physicians play a central role in the generation of
health care expenditures in total.4 For example, physicians refer patients
to other physicians; they admit patients to hospitals, skilled nursing
facilities, and hospices; and they order services delivered by other
health care providers, such as imaging studies, laboratory tests, and home
health services. However, some of the spending for services provided and
ordered by physicians may not be warranted. For example, 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.5 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 them.

Against this backdrop, my remarks today will focus on (1) the results of
our analysis estimating the prevalence of inefficient physicians in
Medicare and (2) the potential for CMS to profile physicians in
traditional FFS Medicare for efficiency and use the results in ways that
are similar to other purchasers' efforts to encourage efficiency. My
remarks are based on findings in our report: Medicare: Focus on Physician
Practice Patterns Can Lead to Greater Program Efficiency.6 Having
considered the efforts of 10 private and public health care purchasers
that routinely evaluate physicians for efficiency and other factors, we
conducted our own analysis of physician practices in Medicare. We 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. Although we did not include specialists
in the analysis, our method does not preclude profiling specialists, as
long as enough data are available to make meaningful comparisons across
physicians. We based our analysis on 2003 Medicare claims data. We
conducted our work from September 2005 through May 2007 in accordance with
generally accepted government auditing standards.

4GAO, Comptroller General's Forum on Health Care: Unsustainable Trends
Necessitate Comprehensive and Fundamental Reforms to Control Spending and
Improve Value, [8]GAO-04-793SP (Washington D.C.: May 1, 2004); Laura A.
Dummit, Medicare Physician Payments and Spending, National Health Policy
Forum, Issue Brief Number 815 (Washington D.C.: Oct. 9, 2006).

5Elliot 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.

6 [9]GAO-07-307 .

In summary, we found outlier generalist physicians--physicians who treat a
disproportionate share of overly expensive patients--in all 12
metropolitan areas studied. Outlier generalists and other generalists saw
similar numbers of Medicare patients and their respective patients
averaged the same number of office visits. However, after taking health
status and location into account, we found that Medicare patients who saw
an outlier generalist--compared with those who saw other generalists--were
more likely to have been hospitalized, more likely to have been
hospitalized multiple times, and more likely to have used home health
services. By contrast, they were less likely to have been admitted to a
skilled nursing facility. We concluded that outlier generalists were
likely to practice medicine inefficiently.

CMS has tools available to evaluate physicians' practices for efficiency,
including a comprehensive repository of Medicare claims data to compute
reliable efficiency measures and substantial experience adjusting for
differences in patients' health status. The agency also has wide
experience in conducting educational outreach to physicians with respect
to improper billing practices and potential fraud--providing individual
physicians, in some cases, comparative information on how the physician
varies from other physicians in the same specialty or in other ways. A
physician education effort based on efficiency profiling results would
therefore not be a foreign concept in Medicare. For example, CMS could
provide physicians a report that compares their practice's efficiency with
that of their peers, enabling physicians to see whether their practice
style is outside the norm. As for implementing other strategies to
encourage efficiency, such as the use of certain financial incentives, CMS
would likely need additional legislative authority.

In our April 2007 report, we recommended that CMS develop a system that
identifies individual physicians with inefficient practice patterns and,
seeking legislative changes as necessary, uses the results to improve
program efficiency. CMS agreed with the need to measure physician resource
use in Medicare but raised concerns about the costs involved in reporting
the results and was silent on other strategies discussed beyond physician
education. We concur that resource use measurement and reporting
activities would require adequate funding; however, we are concerned that
efforts to achieve efficiency that rely solely on physician education
without financial or other incentives for physicians to curb
inefficiencies will be suboptimal.

Background

Linking efficiency to physician payment policy has been a subject of
interest among policymakers and health policy analysts. For example, the
Institute of Medicine has recently recommended that Medicare payment
policies should be reformed to include a system for paying health care
providers differentially based on how well they meet performance standards
for quality or efficiency or both.7 In April 2005, CMS initiated a
demonstration mandated by the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA) to test this approach.8
Under the Physician Group Practice demonstration, 10 large physician group
practices, each comprising at least 200 physicians, are eligible for bonus
payments if they meet quality targets and succeed in keeping the total
expenditures of their Medicare population below annual targets.9

Several studies have found that Medicare and other purchasers could
realize substantial savings if a portion of patients switched from less
efficient to more efficient physicians. The estimates vary according to
assumptions about the proportion of beneficiaries changing physicians.10
In 2003, the Consumer-Purchaser Disclosure Project, a partnership of
consumer, labor, and purchaser organizations, asked actuaries and health
researchers to estimate the potential savings to Medicare if a small
proportion of beneficiaries started using more efficient physicians. The
Project reported that Medicare could save between 2 and 4 percent of total
costs if 1 out of 10 beneficiaries moved to more efficient physicians.
This conclusion is based on information received from one actuarial firm
and two academic researchers. One researcher concluded, based on his
simulations, that if 5 to 10 percent of Medicare enrollees switched to the
most efficient physicians, savings would be 1 to 3 percent of program
costs--which would amount to about $5 billion to $14 billion in 2007.

7Institute of Medicine, Rewarding Provider Performance: Aligning
Incentives in Medicare (Pathways to Quality Health Care Series) - Summary
(Washington, D.C.: 2007).

8Pub. L. No. 106-554, app. F, S 412(a), 114 Stat. 2763, 2763A-509-515.

9We are currently conducting a study of the demonstration, as required by
BIPA (Pub. L. No. 106-554, app. F, S 412(b), 114 Stat. 2763, 2763A-515).

10See Consumer-Purchaser Disclosure Project, More Efficient Physicians: A
Path to Significant Savings in Health Care (Washington, D.C.: July 2003).

The Congress has also recently expressed interest in approaches to
constrain the growth of physician spending. The Deficit Reduction Act of
2005 required the Medicare Payment Advisory Commission (MedPAC) to study
options for controlling the volume of physicians' services under
Medicare.11 One approach for applying volume controls that the Congress
directed MedPAC to consider is a payment system that takes into account
physician outliers.

In our report on which this statement is based, we sought information
about other purchasers' profiling efforts designed to encourage physicians
to practice efficiently. 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.12 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.13 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.

11MedPAC is an independent federal body established by the Balanced Budget
Act of 1997 to advise the Congress on payment, access, and quality issues
affecting the Medicare program.

12In our report we used the term 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.

13Generally, estimates of an individual's expected spending are based on
factors such as patient diagnoses and demographic traits.

Through Profiling, We Found That Physicians Likely to Practice Inefficiently in
Medicare Were Present in All Areas Selected for Study

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 selected areas that were diverse geographically and in terms
of Medicare spending per beneficiary.14 We focused our analysis on
generalists--physicians who described their specialty as general practice,
internal medicine, or family practice. Although we did not include
specialists in our analysis, our method does not preclude profiling
specialists, as long as enough data are available to make meaningful
comparisons across physicians.

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 areas
according to their health status, using diagnostic and demographic
information. We classified beneficiaries as overly expensive if their
total Medicare expenditures--for services provided by all health
providers, not just physicians--ranked in the top fifth of their health
status cohort for 2003 claims.15

Within each health status cohort, we observed large differences in total
Medicare spending across beneficiaries. For example, in one cohort of
beneficiaries whose health status was about average, overly expensive
beneficiaries--the top fifth ranked by expenditures--had average total
expenditures of $24,574, as compared with the cohort's bottom fifth,
averaging $1,155.16 (See fig. 1.)

14The 12 metropolitan areas were Albuquerque, N.M.; Baton Rouge, La.; Des
Moines, Iowa; Phoenix, Ariz.; Miami, Fla.; Springfield, Mass.; Cape Coral,
Fla.; Riverside, Calif.; Pittsburgh, Pa.; Columbus, Ohio; Sacramento,
Calif.; and Portland, Maine.

15Expenditures identified were for services from inpatient hospital,
outpatient, skilled nursing facility, physician, hospice, durable medical
equipment, and home health providers.

16See [10]GAO-07-307 , appendix I, for a depiction of beneficiary
expenditures at the 20th, 50th, and 80th percentile for each health status
cohort.

Figure 1: Average Medicare Expenditures, by Quintile, for Beneficiaries of
Nearly Average Health Status

Note: Beneficiaries who died during 2003 are excluded.

This variation may reflect differences in the number and type of services
provided and ordered by these patients' physicians as well as factors not
under the physicians' direct control, such as a patient's response to and
compliance with treatment protocols. Holding health status constant,
overly expensive beneficiaries accounted for nearly one-half of total
Medicare expenditures even though they represented only 20 percent of
beneficiaries in our sample.

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. Notably, all
physicians had some overly expensive patients in their Medicare practice,
but outlier physicians had a much higher percentage of such patients. We
concluded that these outlier physicians were likely to be practicing
medicine inefficiently.17

Based on 2003 Medicare claims data, our analysis found outlier generalist
physicians in all 12 metropolitan areas we studied. The Miami area had the
highest percentage--almost 21 percent--of outlier generalists, followed by
the Baton Rouge area at about 11 percent. (See table 1.) Across the other
areas, the percentage of outliers ranged from 2 percent to about 6
percent.

Table 1: Percentage of Outlier Physicians in 12 Metropolitan Areas, 2003

Metropolitan area    Percentage of outlier physicians 
Miami, Fla.                                      20.9 
Baton Rouge, La.                                 11.2 
Cape Coral, Fla.                                  6.3 
Portland, Maine                                   5.8 
Riverside, Calif.                                 5.8 
Phoenix, Ariz.                                    5.2 
Sacramento, Calif.                                5.2 
Des Moines, Iowa                                  4.8 
Columbus, Ohio                                    4.6 
Pittsburgh, Pa.                                   3.8 
Springfield, Mass.                                2.9 
Albuquerque, N. Mex.                              2.0 

Source: GAO analysis of 2003 CMS claims and enrollment data.

Note: Outlier percentages greater than 1 percent indicate that an area has
an excessive number of outlier physicians.

In 2003, outlier generalists' Medicare practices were similar to those of
other generalists, but the beneficiaries they treated tended to experience
higher utilization of certain services. Outlier generalists and other
generalists saw similar average numbers of Medicare patients (219 compared
with 235) and their patients averaged the same number of office visits
(3.7 compared with 3.5). However, after taking into account beneficiary
health status and geographic location, we found that beneficiaries who saw
an outlier generalist, compared with those who saw other generalists, were
15 percent more likely to have been hospitalized, 57 percent more likely
to have been hospitalized multiple times, and 51 percent more likely to
have used home health services. By contrast, they were 10 percent less
likely to have been admitted to a skilled nursing facility.18

17Our approach to estimating outlier physicians was conservative in that
it captured only the most extreme practice patterns; therefore, our
analysis does not mean that all nonoutlier physicians were practicing
efficiently.

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
           FFS 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.
			  
18These findings were derived from logistic regressions in which health
status, geographic area, and beneficiary contact with an outlier
generalist were the explanatory variables used to predict whether a
beneficiary was hospitalized, used home health services, or was admitted
to a skilled nursing facility.

           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, a methodological tool that assigns individuals a
           health status score based on their diagnoses and demographic
           characteristics. For example, CMS has used increasingly
           sophisticated risk adjustment methodologies over the past decade
           to set payment rates for beneficiaries enrolled in managed care
           plans. On the related topic of measuring resource use, CMS noted
           in comments on a draft of our report that emerging "episode
           grouper" technology was a promising approach to measuring resource
           use associated with a given episode of care. We agree, but we also
           consider our measurement of resource use on a per capita basis,
           capturing total health care expenditures for a given period of
           time, equally promising.

           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 define
           inefficient practice patterns.

           As for ways CMS could use profiling results, actions taken by
           other health care purchasers we interviewed may be instructive in
           suggesting future directions for Medicare. For example, all
           purchasers in our study used physician education as part of their
           strategy to change behavior. Educational outreach to physicians
           has been a long-standing and widespread activity in Medicare as a
           means to change physician behavior based on profiling efforts to
           identify improper billing practices and potential fraud. Outreach
           includes letters sent to physicians alerting them to billing
           practices that are inappropriate.19 In some cases, physicians are
           given comparative information on how the physician varies from
           other physicians in the same specialty or locality with respect to
           use of a certain service.
			  
19Other forms of physician education include face-to-face meetings,
telephone conferences, seminars, and workshops.

           A physician education effort based on efficiency profiling would
           therefore not be a foreign concept in Medicare. For example, CMS
           could provide physicians a report that compares their practice's
           efficiency with that of their peers. This would enable physicians
           to see whether their practice style is outside the norm. In its
           March 2005 report to the Congress,20 MedPAC recommended that CMS
           measure resource use by physicians and share the results with them
           on a confidential basis. MedPAC suggested that such an approach
           would enable CMS to gain experience in examining resource use
           measures and identifying ways to refine them while affording
           physicians the opportunity to change inefficient practices.21 In
           commenting on a draft of our report, CMS noted that the agency
           would incur significant recurring costs in developing reports on
           physician resource use and disseminating them nationwide. We agree
           that any such undertaking would need to be adequately funded.

           Another application of profiling results used by the purchasers we
           spoke with entailed sharing comparative information with
           enrollees. CMS has considerable experience comparing certain
           providers on quality measures and posting the results to a Web
           site. Currently, Medicare Web sites with comparative information
           exist for hospitals, nursing homes, home health care agencies,
           dialysis facilities, and managed care plans. In its March 2005
           report to the Congress, MedPAC noted that CMS could share results
           of physician performance measurement with beneficiaries once the
           agency gained sufficient experience with its physician measurement
           tools.

           Several structural features of the Medicare program would appear
           to pose challenges to the use of other strategies designed to
           encourage efficiency. These features include a beneficiary's
           freedom to choose any licensed physician permitted to be paid by
           Medicare; the lack of authority to exclude physicians from
           participating in Medicare unless they engage in unlawful, abusive,
           or unprofessional practices; and a physician payment system that
           does not take into account the efficiency of the care provided.
           Under these provisions, CMS would not likely be able--in the
           absence of additional legislative authority--to assign physicians
           to tiers associated with varying beneficiary copayments, tie fee
           updates of individual physicians to meeting performance standards,
           or exclude physicians who do not meet practice efficiency and
           quality criteria. In commenting on our draft report, CMS was
           silent with regard to the need for legislative authority. The
           agency noted that it is studying and implementing initiatives that
           link assessment of physician performance to financial and other
           incentives, such as public reporting.

20MedPAC, Report to the Congress: Medicare Payment Policy (Washington,
D.C.: March 2005).

21In several testimonies before the Congress in the last half of 2005, CMS
officials said that they were taking steps to implement this
recommendation. See Value-Based Purchasing for Physicians Under Medicare:
Hearing Before the House Subcommittee on Health, Committee on Ways and
Means, 109th Cong. (2005) (statement of Mark B. McClellan, MD, Ph.D.,
Administrator of CMS).			  

           Regardless of the use made of physician profiling results, the
           involvement of, and acceptance by, the physician community and
           other stakeholders of any actions taken is critical. Several
           purchasers described how they had worked to get physician buy-in.
           They explained their methods to physicians and shared data with
           them to increase physicians' familiarity with and confidence in
           the purchasers' profiling. CMS has several avenues for obtaining
           the input of the physician community. Among them is the federal
           rule-making process, which generally provides a comment period for
           all parties affected by prospective policy changes. In addition,
           CMS forms federal advisory committees--including ones composed of
           physicians and other health care practitioners--that regularly
           provide it with advice and recommendations concerning regulatory
           and other policy decisions.

           Having considered the tools CMS has available and the structural
           challenges the agency would likely face in seeking to implement
           certain incentives used by other purchasers, we recommended in our
           April 2007 report that the Administrator of CMS develop a
           profiling system--seeking legislative authority, as
           necessary--that includes the following elements:

           o total Medicare expenditures as the basis for measuring
           efficiency,

           o adjustments for differences in patients' health status,

           o empirically based standards that set the parameters of
           efficiency,

           o a physician education program that explains to physicians how
           the profiling system works and how their efficiency measures
           compare with those of their peers,

           o financial or other incentives for individual physicians to
           improve the efficiency of the care they provide, and

           o methods for measuring the impact of physician profiling on
           program spending and physician behavior.
			  
			  Concluding Observations

           Policymakers have expressed interest in linking physician
           performance to Medicare payment so that incentives under FFS for
           physicians to practice inefficiently can be reversed. In our view,
           Medicare should adopt an approach that relies not only on
           physician education but also financial or other incentives--such
           as discouraging patients from obtaining care from physicians who
           are determined to be inefficient. 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 any 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.

           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 Phyllis
           Thorburn, Assistant Director; Todd Anderson; Hannah Fein; Richard
           Lipinski; and Eric Wedum.
			  
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Highlights of [18]GAO-07-862T , a testimony before the Subcommittee on
Health, Committee on Ways and Means, House of Representatives

May 10, 2007

MEDICARE

Providing Systematic Feedback to Physicians on their Practice Patterns Is
a Promising Step Toward Encouraging Program Efficiency

GAO was asked to discuss--based on Medicare: Focus on Physician Practice
Patterns Can Lead to Greater Program Efficiency, GAO-07-307 (Apr. 30,
2007)--the importance in Medicare of providing feedback to physicians on
how their use of health care resources compares with that of their peers.
GAO's report discusses an approach to analyzing physicians' practice
patterns in Medicare and ways the Centers for Medicare & Medicaid Services
(CMS) could use the results. In a related matter, Medicare's sustainable
growth rate system of spending targets used to moderate physician spending
growth and annually update physician fees has been problematic, acting as
a blunt instrument and lacking in incentives for physicians individually
to be attentive to the efficient use of resources in their practices.
GAO's statement focuses on (1) the results of its analysis estimating the
prevalence of inefficient physicians in Medicare and (2) the potential for
CMS to profile physicians in traditional fee-for-service Medicare for
efficiency and use the results in ways that are similar to other
purchasers' efforts to encourage efficiency.

[19]What GAO Recommends

In its report, GAO recommended that CMS develop a system that identifies
individual physicians with inefficient practice patterns and, seeking
legislative authority as necessary, uses the results to improve program
efficiency.

Having considered efforts of 10 private and public health care purchasers
that routinely evaluate physicians for efficiency and other factors, GAO
conducted its own analysis of physician practices in Medicare. 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. Although GAO did not include
specialists in its analysis, its method does not preclude profiling
specialists, as long as enough data are available to make meaningful
comparisons across physicians. Based on 2003 Medicare claims data, GAO's
analysis found outlier generalist physicians--physicians who treat a
disproportionate share of overly expensive patients--in all 12
metropolitan areas studied. Outlier generalists and other generalists saw
similar numbers of Medicare patients and their respective patients
averaged the same number of office visits. However, after taking health
status and location into account, GAO found that Medicare patients who saw
an outlier generalist--compared with those who saw other generalists--were
more likely to have been hospitalized, more likely to have been
hospitalized multiple times, and more likely to have used home health
services. By contrast, they were less likely to have been admitted to a
skilled nursing facility. GAO concluded that outlier generalists were
likely to practice medicine inefficiently.

CMS has tools available to evaluate physicians' practices for efficiency,
including a comprehensive repository of Medicare claims data to compute
reliable efficiency measures and substantial experience adjusting for
differences in patients' health status. The agency also has wide
experience in conducting educational outreach to physicians with respect
to improper billing practices and potential fraud--providing individual
physicians, in some cases, comparative information on how the physician
varies from other physicians in the same specialty or in other ways. A
physician education effort based on efficiency profiling would therefore
not be a foreign concept in Medicare. For example, CMS could provide
physicians a report that compares their practice's efficiency with that of
their peers, enabling physicians to see whether their practice style is
outside the norm. As for implementing other strategies to encourage
efficiency, such as the use of certain financial incentives, CMS would
likely need additional legislative authority.

CMS agreed with the need to measure physician resource use in Medicare but
raised concerns about the costs involved in reporting the results and was
silent on other strategies discussed beyond physician education. GAO
concurs that resource use measurement and reporting activities would
require adequate funding; however, GAO is concerned that efforts to
achieve efficiency that rely solely on physician education without
financial or other incentives for physicians to curb inefficiencies will
be suboptimal.

References

Visible links
7. http://www.gao.gov/cgi-bin/getrpt?GAO-07-307
8. http://www.gao.gov/cgi-bin/getrpt?GAO-04-793SP
9. http://www.gao.gov/cgi-bin/getrpt?GAO-07-307
  10. http://www.gao.gov/cgi-bin/getrpt?GAO-07-307
  18. http://www.gao.gov/cgi-bin/getrpt?GAO-07-862T
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