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Lawmakers Begin Heavy Lifting to Overhaul Doctor Payment

By John Reichard, CQ HealthBeat Editor

September 11, 2008 -- A House Ways and Means Health Subcommittee hearing Thursday suggested that after years of short-term patches to head off payment cuts, lawmakers at last may be taking on the heavy burden of trying to fundamentally overhaul Medicare's troubled physician payment system. Ironically, what may be driving them to finally confront the problem is the quiet recognition that they are going have to abandon the fiscal discipline involved in the system now in order to complete the overhaul of a payment formula widely viewed as no longer tenable.

Witnesses at the House Ways and Means Health Subcommittee hearing offered solutions ranging from switching to "capitated" payments—giving physician groups a fixed per-patient payment amount in advance to deliver certain services—to setting Medicare spending growth targets for individual physician practices.

Perhaps more likely than either of those approaches were other solutions offered by witnesses—such as finding ways to increase payments for primary care relative to specialty services and making single payments for a package of services involved in treating a specific medical condition.

Witnesses also agreed that moving to a system of large, multidisciplinary group practices would not only help control physician and other costs, but also improve quality. But changes envisioned by witnesses to foster closer cooperation among doctors and between doctors and hospitals are so sweeping that they may entail wrapping some elements of physician payment reform into an overhaul of the entire health care system.

As is his wont, Subcommittee Chairman Pete Stark, D-Calif., mused that doctors can't be suffering terribly under the current system given their relatively high incomes. "I don't hear of any Porsche dealers repossessing cars," he said.

Gibes aside, Stark knows that ever-deeper cuts in physician payment driven by the current formula are political poison because of threats by doctors to stop treating Medicare patients. American Medical Association President Nancy H. Nielsen warned Stark that doctor defections are a certainty with more cuts, particularly the 20 percent decrease scheduled for Jan. 1, 2010, the expiration date for the latest short-term fix to block cuts. Another witness, former Medicare and Medicaid administrator Gail Wilensky, told the panel, "I am very worried about what is going to happen to physician participation" under the current payment "SGR" system.

By setting a yearly "sustainable growth rate" for Medicare spending on doctor care, the current formula aims to keep doctors from ordering too many tests and services and scheduling unnecessary visits to the doctor. The SGR is meant to counter the incentives doctors have in the current "fee-for-service" payment system in traditional Medicare to order lots of care to boost their incomes. Stark refers to the payments as a "piecework" system that allows doctors to make good money even though their basic payment rates have lagged rising practice expenses for the past half-a-dozen years.

The SGR punishes overprescribing of care by requiring yearly Medicare physician outlays in excess of the SGR spending target to be recouped through payment cuts. Each time Congress intervenes to block a cut, the pile of money that must be recouped grows ever larger, requiring bigger and bigger cuts.

Wilensky told the subcommittee that the current system makes no sense because individual doctors who do the responsible thing and don't overprescribe can't exert enough influence on overall spending to avoid payment cuts. By setting 100,000 "individual" SGRs tailored to individual medical practices, the Medicare program would give doctors the power to influence their payment rates by ordering services judiciously, she said.

Wilensky suggested that the Centers for Medicare and Medicaid Services could handle the job with more funding. But if lawmakers don't go that route, they should turn to "bundling," Wilensky said, and laid out a specific timetable for doing so. And even with individual SGRs, a "more aggregative way" of paying for physician services is needed to reward doctors who produce high quality, efficient care, she said.

"Payments could be developed that would cover all services provided by a physician to a particular patient during a discrete period of time—presumably a one-year period—for the care of a chronic disease," Wilensky said. The idea is that doctors would be more careful about ordering those services because their payment wouldn't be any higher if they were more lax. These payments preferably would also include "all ancillary services provided by the physician as part of the treatment of the chronic disease."

Also, single payments could be developed covering all the physician services provided in the hospital by a doctor for selected high cost or high volume "DRGs"—the diagnosis-based payment categories for which Medicare pays fixed sums of money for inpatient care. "Consideration also should be given to including the cost of the hospital stay as well," Wilensky said. Using a single payment for doctor and hospital services is seen as a way of encouraging doctors and hospitals to work together to provide treatment more efficiently, because they can share what is left over if the cost of their services is less than the payment.

Such payments "could be developed by CMS to begin by July 1, 2010, to cover all of the services provided for the most important chronic diseases, singly or for multiple diseases, provided to a patient over the course of a year."

At the same time, CMS should pursue other, more ambitious forms of bundling payment by issuing a request for proposals on how to do so, Wilensky advised. "A selection of one or two of these proposals should be selected for further development, with a final report due no later than June 30, 2011. Implementation of the new system could be set for Jan. 1, 2013. I don't think a new system could be implemented faster than this," Wilensky said.

Donald Crane, CEO of the California Association of Physician Groups, made a strong pitch for paying doctors under a capitated system. "Capitation incents frugality," he said. "That is its chief virtue." Crane said medical groups paid that way place a strong emphasis on prevention and early treatment to keep a lid on their costs. He said the payment approach is associated with organized systems of care, observing that "systems are more efficient than non-systems." Medical groups paid on a capitated basis invest in information technology to manage care and treatment costs, he said. Health IT has been adopted more widely in California because of the prevalence of capitated payment, he said.

The fee for service system on the other hand induces "churning"—too many doctor visits, for example—to boost incomes and keeps doctors operating in fragmented "silos" rather than together in systems, he said. Capitated groups provide "more affordable, really higher quality care," he said.

Bruce Vladeck, who served as head of the Medicare and Medicaid programs in the Clinton Administration, emphasized steps to strengthen primary care as a strategy for controlling Medicare physician spending. Stronger primary care means more attention to the overall health of a patient, better preventive care, and better coordination of services, advocates say.

"It has long been established that most of the countries that outperform the United States in health care quality and costs have higher ratios of primary care to total physicians than we do," testified Vladeck, now a senior health policy advisor with Ernst & Young. "Yet over the last decade, the proportion of American medical graduates pursuing primary care careers has fallen alarmingly," he said.

Vladeck called for measures such as financial assistance to medical students choosing primary care and higher Medicare payments for primary care services, including heavier payment "weights" for "evaluation and management" billing codes and add-on payments "to increase the fees of physicians who are really providing primary care." Higher payments for primary care would lead to savings because patients would stay healthier and have less need for costly specialty care, he suggested.

Vladeck also defended the current fee-for-service payment system. He said that "most of the other nations that provide high-quality medical care to their citizens at lower cost than we do, in part by relying more heavily on primary care services, continue to employ some variant of fee-for-service in their methods for most physician payments." U.S. insurers including HMOs have increasingly moved away from capitation, he said. "They've learned, at a minimum, that capitation-based systems have their own limitations and shortcomings, especially in an environment in which most of the physician community is still organized around relatively small, single-specialty practices."

Vladeck joined other witnesses in urging a move to multi-specialty group practices. Over time, "we will never develop adequately satisfactory alternatives to our current payment methods until a far larger proportion of American physicians are organized in multi-specialty group practices, whether free-standing or hospital-based," he said. Data "confirm that such practices outperform other models of physician organization in cost, quality, and care coordination."

Witnesses and lawmakers didn't spend much time addressing the elephant in the room—how on earth the subcommittee will come up with the tens if not hundreds of billions of dollars needed under current scoring rules to scrap the current payment system and replace it with modest yearly payment updates. Wilensky did address it however, saying that "rebasing"—changing projections of physician spending in a way that doesn't trigger requirements for enormous offsetting savings under current budget rules—is inevitable. A committee aide didn't dispute that assessment after the hearing.

Wilensky said, however, that any rebasing would have to be tied to fundamental changes in physician payment. While rebasing gets Congress off the hook for big offsetting cuts elsewhere in Medicare, it would be no simple matter because big increases in Medicare spending on physicians would add to the growing federal deficit. But without rebasing big changes in physician payment may be virtually impossible, Wilensky and other analysts suggest.

Stark didn't say much about where he wants to head on the issue, but it's clear he wants to get an early start with 20 percent cuts looming just 16 months from now.

The panel's top Republican, Rep. Dave Camp of Michigan, made a pitch for private health plans in Medicare, complaining that the most recent doctor payment patch led to changes that will trim enrollment growth in the private plan Medicare Advantage program by two million. Camp elicited testimony by Crane that the Medicare Advantage program is key in coping with the costs of an influx of baby boomers into Medicare. "We have a platform in Medicare Advantage that could be built on and improved" to cope with that influx, Crane said.

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