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House Panel Eyes Alternatives to Medicare Physician Payment Formula

By John Reichard, CQ HealthBeat Editor

May 12, 2012 -- Witnesses at an afternoon hearing registered varying degrees of disapproval with the current Medicare fee-for-service physician payment system and urged a House subcommittee to consider such alternatives as five-year, per-patient global budgets and "capitation" under which providers get a fixed, per-patient sum over a span of time regardless of the amount of care a patient gets.

A spirit of bipartisan determination to replace the controversial "sustainable growth rate" (SGR) payment formula characterized the hearing by the House Ways and Means Health Subcommittee. A similar spirit marked a hearing last week by the House Energy and Commerce Health Subcommittee.

Fueling the discontent of lawmakers is that they've had to pass an increasingly expensive set of payment patches in recent years to block cuts under the SGR, a complicated formula under which payment cuts grow larger each year. In January, doctors are in line to receive a 30 percent decrease under the SGR.

"Republicans and Democrats alike have kicked the can down the road long enough" to postpone action on replacing the SGR, Ways and Means Health Subcommittee Chairman Wally Herger, R-Calif., said. He promised to hold a series of hearings on replacing the physician payment formula, saying "it is my hope, that by starting early, we will arrive at a payment system overhaul that can pass the House."

"Reforming the Medicare physician payment system is not a partisan issue," added Pete Stark of California, the top Democrat on the panel. Stark thanked Herger and his staff "for working corroboratively with us to put together this first hearing on SGR reform." Neither mentioned the enormous spending cuts or tax increases that would be required to offset the cost of replacing the SGR, choosing instead to pursue agreement on an alternative form of payment before tackling the issue of "pay fors."

Witnesses said they do not favor outlawing fee-for-service payments, in which doctors are paid a fee each time they see a patient or perform a test or procedure. But they said the current fee for service system of paying doctors in Medicare fails to provide proper incentives to deliver quality care and to coordinate with other providers in an efficient way.

Lisa Dulsky Watkins, a Vermont state official, said the current fee-for-service payment system has been "severely detrimental" to primary care. She said that doctors have to see large numbers of patients to generate enough income and can't spend enough time with each to properly meet their medical needs.

She said Vermont has dealt with the problem through its "Blueprint" initiative in which insurers pay for "community health teams" to provide services such as behavioral counseling, weight loss support and improved coordination of treatment. Freed of such burdens, doctors are better able to focus on other medical needs of patients, she said. The program has resulted in decreased use of emergency rooms and less use of hospital inpatient services, she said.

Dana Safran, an official with Blue Cross Blue Shield of Massachusetts, touted a form of payment called the Alternative Quality Contract (AQC). Under this approach, a physician practice negotiates a per-patient "global" payment with the insurer. The payment is global in that it covers all services received by a patient, including primary, specialty, and hospital care. The contract is for five years and provides for relatively small yearly increases close to the rate of general inflation. If the practice delivers care at a cost below the contracted figure, it gets to keep all or some of the savings. To prevent stinting on care, providers are subject to 64 quality measures, Safran said.

After the first year of the contracts, "each and every AQC organization was successful in managing the global budget and significantly improving quality and clinical outcomes," Safran testified.
Keith Wilson, an executive with the California Association of Physician Groups, urged Congress to adopt capitation, saying that nearly one-third of California residents are covered under capitated agreements. The fixed, per-patient payments are made directly to medical groups. The groups in turn might contract with other providers under "subcapitation" or even use fee for service if they want to encourage utilization of services such as childhood immunizations.

"Our member groups have been able to use the flexibility within their payment models to establish programs of care that have the effects of reducing unnecessary hospital admissions, reducing unnecessary emergency department visits, and caring for patients with chronic illnesses," Wilson said. Paying more for higher quality care guards against stinting on care, he said.

Stuart Guterman of the Commonwealth Fund testified that "we need to start paying for what we want."A new payment system must recognize a diverse array of organizational models for delivering care, he said. "The right incentives can encourage providers to work together," Guterman observed.

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