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AMA Proposes Total Overhaul of Medicare Doctor Payments

By Emily Ethridge, CQ Staff

April 29, 2011 -- The American Medical Association is proposing a complete overhaul of the formula used to determine reimbursements to physicians who see Medicare patients, responding to what observers say is a serious bipartisan effort to deal with the persistent problem.

The AMA's proposal came in response to a letter that House Energy and Commerce Chairman Fred Upton and ranking member Henry A. Waxman sent to 51 medical specialty groups asking how Congress should address changing the formula.

Representatives from several of the groups are expected to testify at a May 5 hearing by the Energy and Commerce Subcommittee on Health to discuss replacing the current formula, known as the sustainable growth rate (SGR).

Observers say the groups, who have long called for scrapping the SGR formula, appeared surprised and heartened to receive the request. "This has never happened before," said Julius Hobson, a former AMA lobbyist who is now a senior analyst at the law firm Polsinelli Shugart. "I looked at the signatures on that letter, saying, 'Wow, this is a big deal,' . . . this may be the big bipartisan thing."

Along with Upton, R-Mich., and Waxman, D-Calif., Republicans Joe Barton of Texas, Joe Pitts of Pennsylvania and Michael C. Burgess of Texas signed the letter, as did Democrats John D. Dingell of Michigan and Frank Pallone Jr. of New Jersey.

"The House Energy and Commerce Committee is determined to achieve a permanent, sustainable solution to the Medicare physician payment problem this year," the lawmakers said in the March 28 letter.

Provider groups say the severe cuts mandated by the SGR formula will prompt physicians to refuse to see new Medicare patients and even to drop some already on their rolls.

Typically, they have called for longer "patches" to stave off the scheduled cuts, rather than proposing more detailed plans to overhaul it, as AMA does in its letter.

Congress acted five times last year to stop the cuts to the reimbursement rates, ultimately blocking a 25 percent cut in payment rates in December. However, that patch lasts only through Jan. 1, 2012, at which time Medicare officials say payments will drop by 29.5 percent.

The AMA's proposal would repeal the current SGR formula and enact a period of "stable payments" from 2012 to 2016, including annual payment updates that keep pace with the growth of medical practice costs.

That time would allow Congress to work on legislation creating a new payment formula, the AMA said in its letter.

Hobson, currently an outside consultant for the American Academy of Family Physicians (AAFP), said several organizations also requested the five-year transition period in their responses to the committee.

AAFP, for instance, called for paying a higher reimbursement rate to physicians who deliver primary care and preventive health services during that transition period to reflect their role coordinating care and helping patients manage chronic diseases—factors associated with better health outcomes and lower costs.

"The only problem with five years is you're going beyond where everybody else has been willing to go for the temporary time," Hobson said.

Both the AMA and the family physicians group wants to use that time to test new payment models put forth as ways to improve coordination and quality of care, as well as lower costs. The group said that Congress should look at different payment models already being tested in Medicare and the private sector, including pay-for-performance, bundled payments, and accountable care organizations.

The AMA also recommended that Medicare test transitional models, including accountable medical home models and warranties for inpatient care.

"We believe this proposed framework, and timeline, are critical to developing the evidence base necessary to ensure a reformed Medicare physician payment system meets our mutual goal of improving the Medicare program, while ensuring beneficiaries' continued access to care," said the letter signed by Michael D. Maves, the AMA's chief executive and executive vice president.

Hobson said the AMA's proposal reflected the committee's request that the ideas translate into legislation, and acknowledged that any fix is going to require bipartisan support and 60 votes in the Senate.

"Republicans and Democrats are looking at two things that go with [a payment fix]," he said. "One is keeping the growth in costs down, and the second one is quality. And they want to blend those two things into a permanent payment."

The proposals and the hearing are just the beginning of what could be a months-long congressional debate over how to revamp the SGR. In October, the Medicare Payment Advisory Commission is planning to recommend to Congress how best to change the reimbursement formula.

President Obama frequently has said he is committed to permanently fixing the formula, but his fiscal 2012 budget proposal included a way to avoid the payment cuts for two years. His budget document put the cost of a 10-year fix, including continuing to review the SGR through 2021, at $315 billion.

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