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McClellan Shows Little Interest in Short-Term 'Fix' for Medicare Physician Payments

By Elizabeth B. Crowley, CQ Staff

August 7, 2006 -- The Medicare system for physician payments needs an overhaul and not just a patch, the head of the Centers for Medicare and Medicaid Services told reporters Monday morning.

"We have got to get to a better system," said CMS Administrator Mark B. McClellan, adding that the current system is "not sustainable."

Medicare's physician payment formula presumes nine years of annual cuts in the amount physicians are paid. Congress has made several one-year increases to eliminate the cuts, but under the payment formula, that requires a deeper cut the next year, absent further congressional action.

"I don't think it'll just be extended out another year," McClellan said, noting the estimated cost of a one-year "fix" for fiscal 2007 would be $13 billion over five years and that the problem would have to be addressed again next year. "Every year, it keeps getting more expensive," he said.

It was unclear whether McClellan was referring to a multi-year payment fix or to a one-year fix coupled with a requirement that doctors begin reporting data on the quality of care they provide.
Rewriting the formula to provide a 2 percent to 3 percent yearly payment increase that reflects the rising expenses of treating patients would cost the federal government $218 billion over 10 years, according to the Congressional Budget Office.

Further complicating the process are plans to overhaul the existing system.

There is bipartisan agreement that a formula cutting payments to doctors each year must be scrapped, but there has been no agreement on how to pay for doing so.

"I think there's a good chance this will be the year that we'll really move away" from the physician payment formula, McClellan said, adding that he has discussed the issue with key players in Congress—including Rep. Bill Thomas, R-Calif.; House Energy and Commerce Chairman Joe L. Barton, R-Texas; and Senate Finance Chairman Charles E. Grassley, R-Iowa—and believes there is considerable support for changing the system.

CMS is working on rules for a new pay-for-performance system, with Medicare tying physician payments to the quality of care they deliver.

The idea is that payment ultimately will be based on whether a physician meets quality performance standards, or at least shows improvement on those standards. But Medicare first needs to find a way to encourage doctors to report their performance.

McClellan said Congress had talked about creating, then withholding, a bonus—or payment increase—for doctors who don't report results.

McClellan also suggested a system requiring physicians to document quality improvements and a trend of reduced costs, so they could be rewarded with a percentage of the savings.

McClellan also said Monday that CMS would make several announcements in the coming weeks, including:

  • A release of information in "coming weeks" about the 2007 bidding process for Medicare Part D that would show a "more robust availability of benefits" and more plans that offer "doughnut hole" coverage.
  • An increasingly personalized approach to dealing with beneficiaries. According to McClellan, CMS would soon be able to provide beneficiaries with eligibility information on preventive medicines.
  • The expansion of Medical Savings Accounts. "Most Medicare beneficiaries, if not all, will have some access" to the accounts before long, he said.

McClellan said to watch for CMS to focus on prevention in September the same way it educated consumers about Part D last year, and mentioned plans for more than 10,000 partner groups and 50,000 meetings. "We're going to do it again," he said.

"Health care today should not primarily be about getting taken care of when you're sick," McClellan said. "It should be about getting involved in your own care.

"When you get beneficiaries involved in their own care, you get much better results at a lower cost."

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