Medicare Physician Payment: We Get What We Pay For—How Can We Get What We Want?

May 12, 2011

Authors: Stuart Guterman
Contact: Stuart Guterman, Vice President, Payment and System Reform, and Executive Director, Commission on a High Performance Health System, The Commonwealth Fund, sxg@cmwf.org

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"In our very large and mostly privately owned and operated health care delivery system, changing payment incentives is one of the few tools available for inducing higher performance."

Introduction

Thank you, Chairman Herger, Congressman Stark, and members of the subcommittee, for this invitation to testify on Medicare physician payment. I am Stuart Guterman, vice president for Payment and System Reform at The Commonwealth Fund. The Commonwealth Fund is a private foundation that aims to promote a high-performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society’s most vulnerable, including low-income people, the uninsured, minority Americans, young children, and elderly adults. The Fund carries out this mission by supporting independent research on health care issues and making grants to improve health care practice and policy.

Congress faces a challenging dilemma in considering Medicare physician payments. On the one hand, Medicare spending is rising at a rate that threatens the program’s continued ability to fulfill its mission. On the other, the sustainable growth rate (SGR) mechanism, which is intended to address that problem, produces annual reductions in physician fees that are equally difficult to accept. This dilemma arises from the underlying mismatch between the primary cause of rising spending, which is the volume and intensity of services provided by physicians, and the focus of the SGR, which is to set the fees that physicians receive for each service they provide. The SGR does not control the volume and intensity provided by an individual physician—and, in fact, may create an incentive to increase volume and intensity to offset reductions in fees or fails to adjust. Nor does it adjust fees selectively where volume growth is of concern. As a result, it does not address the underlying cause of physician or total spending growth. It is also important to remember that, although physician services account for only about 20 percent of total Medicare spending, physicians are instrumental in ordering tests, medications, referrals to other providers, and admissions to hospitals and other facilities. Therefore, any discussion of physician spending also must take into account the effect on the system as a whole.

Determining how much to pay physicians certainly is an important issue, but of at least equal importance is determining how to pay physicians so that the Medicare program gets the best care possible for its beneficiaries. While the payment amount may have an effect on beneficiaries’ access to physician services, the payment mechanism (as well as other tools) can be used to make sure that the quality and appropriateness of medical care is maximized to enhance beneficiaries’ health status and ensure the Medicare program gets the most for the money it spends. In fact, there is evidence that, given the current state of the health care system, improved quality and reduced cost may both be achievable. We can have our cake and eat it, too.

In this testimony, I will first discuss Medicare physician payment and some issues related to the SGR mechanism and the problems associated with it. I then will discuss the imperative for Medicare to become a better purchaser of health care, rather than remaining merely a payer for health services, and suggest some areas on which initiatives in this direction should focus. Finally, I will briefly discuss some of the promising initiatives that currently are under way in both the public and private sectors, and offer some opinions as to how they might be used to improve the Medicare program and the health care system in general.

Citation

S. Guterman, Medicare Physician Payment: We Get What We Pay For—How Can We Get What We Want?, Invited Testimony, Ways and Means Committee, Subcommittee on Health, U.S. House of Representatives Hearing on "Reforming Medicare Physician Payments," May 12, 2011.