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Key Medicare Advisory Panel Stresses Need to Overhaul Doctor Payments

By John Reichard, CQ HealthBeat Editor

March 15, 2013 -- Testimony by the head of the Medicare Payment Advisory Commission (MedPAC) Friday focused attention on skilled nursing facilities and home health agencies as potential targets for cuts to offset the costs of overhauling the troublesome Medicare physician payment formula.

MedPAC Chairman Glenn Hackbarth singled out the need to overhaul the sustainable growth rate (SGR) doctor-payment mechanism among the dozens of recommendations the panel made concerning payment and delivery system changes in a 435-page report submitted to Congress on Friday.

The report was the subject of a hearing by the House Ways and Means Health Subcommittee.

“If I could just highlight one thing in our statement it would be our recommendation to repeal the sustainable growth rate system,” Hackbarth told the panel. “As you well know, the [Congressional Budget Office) recently estimated the cost of repeal is dramatically lower than it has been in recent years,” he added. “From our perspective, the SGR repeal is now on sale, and the sale price may not last.”

The Congressional Budget Office (CBO) recently lowered its estimate of the 10-year cost of replacing the SGR with a 10-year freeze on payments at $138 billion, down from roughly $300 billion two years ago.

Hackbarth noted that MedPAC, the independent expert group Congress relies on for unbiased counsel on Medicare payment and other policy, has made about $100 billion in recommended payment changes that Congress hasn’t acted on and that could serve as payment offsets.

House Republican Kevin Brady of Texas, who chairs the subcommittee, echoed Hackbarth’s sense of urgency about the need to scrap the SGR and said that sense is bipartisan. “Democrat or Republican, enough is enough,” he said, referring to the many years of frustration experienced by lawmakers about having to enact costly payment patches to block reimbursement cuts scheduled under the SGR.

Holding up a copy of MedPAC’s shiny new March report to Congress, which evaluates whether Medicare payments are too high or too low in a variety of health care sectors, Brady likened the document to the annual issue of Parade Magazine that tells how much money people earn in different occupations in the United States. He asked Hackbarth how lawmakers should use the report to redesign the SGR.

The MedPAC chief said the skilled nursing and home health sectors are two areas in which the commission has consistently found that providers make double-digit profit margins on Medicare patients. Payment levels should be lowered through “rebasing” of reimbursements to bring them more in line with the actual costs of treatment, Hackbarth said.

Hackbarth said in an interview after the hearing that a big chunk of the $100 billion in pending — but not yet enacted — payment recommendations by the commission relates to skilled nursing and home health. Rebasing skilled nursing rates would save $20 billion over 10 years while rebasing home health payments would net another $10 billion.

Republicans Tom Price of Georgia and Jim Gerlach of Pennsylvania raised questions about changing home health payments. Price wondered about the methodology used by MedPAC to calculate home health margins, and cited research showing far lower margins. He also asked Hackbarth whether the real challenges with excessive home health payments are in just 25 out of some 3,000 counties nationwide. The reference was to parts of the country analysts say are hot spots for fraudulent home health care providers.

Hackbarth replied that MedPAC relies on home health agencies’ own cost data to calculate their margins. He agreed that the 25 counties are particularly troublesome, but said that there is still a problem overall with excessive home health payments.

Gerlach asked about charging copayments to home health patients, something MedPAC has recommended to prevent excess use of the benefit. He asked whether doing that would harm low-income patients. Hackbarth said that MedPAC does not recommend charging the co-payments to the poorest Medicare beneficiaries, those who are also eligible for Medicaid.

Brady said in an interview after the hearing that his most important takeaway from the session was the need to move this year on the SGR. MedPAC has also noted that CBO projections of the cost of an SGR overhaul have been “volatile,” suggesting the price tag could sharply rise again if lawmakers don’t act.

But Brady said he’d prefer to offset the costs of an SGR overhaul, not by looking first at the $100 billion in recommended cuts, but at more fundamental changes in the design of the Medicare program. But in the end an offset package could contain elements of both, he added.

John Reichard can be reached at [email protected].

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