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Medicare Change Not So Simple

By Emily Ethridge, CQ Staff

August 5, 2013 -- It’s a rare day on Capitol Hill when lawmakers from both parties and both chambers cut a deal on a significant policy matter that has long been embroiled in controversy. But just such a compromise has been reached to make the biggest change to the Medicare physician payment system in more than a decade.

If the plan becomes law later this year, it would do away with the long-despised sustainable growth rate formula for doctor reimbursements—and, lawmakers hope, the annual threats and hand-wringing and temporary patches that accompany it.

Repealing the current formula would transform the way Medicare pays doctors and give provider groups relief they have sought for years. Over the past decade, Congress has acted more than 15 times to stop payment cuts called for under the formula, often waiting right up to the deadline—or beyond—requiring a retroactive adjustment. Physicians complain that perpetual uncertainty makes it difficult to manage. And, as a result, they insist they may stop accepting Medicare patients.

Yet, the repeal proposal that has moved furthest, a House bill approved in committee, would replace the current formula with something that is both familiar and unlikely to save money — at least in the near term. Most doctors would probably remain in an enhanced version of Medicare’s fee-for-service system, in which they are paid a specific amount for each service provided, even though the repeal proposal advocates alternative methods of reimbursement. The worry is that, in the end, Medicare might look much as it does now, operating under a system much maligned by economists for rewarding the volume of medical services rather than quality.

“We must change the financial incentives of fee-for-service payment if we are going to bend Medicare’s cost curve,” Joseph Antos, a scholar in health care policy at the American Enterprise Institute, told the Senate Budget Committee at a July 30 hearing.

Change in the Medicare system is far from easy. For the past two years, lawmakers working to replace the payment system have solicited ideas from physicians, provider groups and other stakeholders.

Deadline Pressure
The Senate Finance Committee and the House Energy and Commerce and Ways and Means panels have held a series of hearings and roundtable conversations seeking input on the problems with the current model, and what doctors would prefer instead. The work has continued as a new formula deadline approaches. If Congress doesn’t act to avert cuts scheduled for this year, payments to physicians will be reduced by almost 25 percent on Jan. 1.

A bill produced last month by the Energy and Commerce Committee is intended to give providers more choices and control over their payments—and encourage alternatives to the fee-for-service model. Doctors who want to leave the fee-for-service system could participate in approved alternative payment models, or submit their own alternative payment system for approval by the Centers for Medicare and Medicaid Services.

“During this process, we have had unprecedented engagement with the medical community across the board,” said committee Chairman Fred Upton, a Michigan Republican, during deliberations on the bill.

“Physicians across the country have been actively involved, and we welcome their continued contributions to this process.”

In addition, providers will influence the payments made under the bill’s enhanced fee-for-service system, which would begin in 2019. It would adjust physicians’ payments based on their quality performance under a new incentive program. Performance would be assessed based on quality measures and clinical-practice improvement activities, which doctors and professional organizations such as the American Board of Medical Specialties or the American Osteopathic Association would help develop.

Doctors would be assessed alongside others providing similar services, and the best-performing would be awarded a 1 percent bonus. Low-performing doctors would get a 1 percent reduction in payments.
This system gives providers more input and more influence over their reimbursements. But critics of fee-for-service say that it still encourages providers to provide more services, not necessarily the most appropriate care.

Rep. Allyson Y. Schwartz, a Pennsylvania Democrat who has sponsored an alternative bill to replace the current payment formula, says she is “concerned” the Energy and Commerce measure will maintain fee-for-service as Medicare’s standard policy, although she praises the committee’s repeal efforts.

“While the bill includes exceptions for alternative payment models, Congress should not miss this opportunity to fundamentally transform the current health care delivery system so that it rewards high-quality, high-value, team-based care,” Schwartz says.

Schwartz’s bill, sponsored with Nevada Republican Joe Heck, would maintain fee-for-service as an option but eventually reduce payment rates to physicians who stay in that model. Physicians who move into new payment models would get higher payments on top of their base rates for gains in quality, effectiveness and cost savings.

Alternatives Under Review
Even the alternative payment models contemplated by the Energy and Commerce bill might not result in major changes in Medicare. The Center for Medicare and Medicaid Innovation already runs programs to test new payment and delivery models, several of which might be approved and used under the bill’s system.

The agency currently runs three alternative payment programs for accountable care organizations, groups of physicians that work together to coordinate patient care, plus other initiatives, including one for comprehensive primary care.

Although the House bill would allow physicians to submit ideas for other alternative payment models, it is unclear how many providers would take that route, or whether any of the models would be approved for long-term use.

Jonathan Blum, deputy administrator and director of Medicare at the Centers for Medicare and Medicaid Services, asked the Senate Finance Committee not to backtrack on work the agency has already done to develop new payment systems.

“We have to be mindful that we send consistent signals to the physician community not to start fresh, but to build upon the important work that has already been underway,” Blum said. “We shouldn’t step back; we should step forward.”

Senate Finance members have said they will release a bill to repeal the sustainable growth rate formula sometime this fall, after Congress returns from its August recess.

“Obviously, fixing the SGR [sustainable growth rate formula] is the main objective here,” says South Dakota Republican John Thune. “But we also want to look at what we can do in terms of policy to create a new system that actually works better and rewards value. And so how far we can get into that remains to be seen. And then, you know, the question of how do you pay for it.”

The House bill is silent on the question of how to offset the cost of repeal. The Congressional Budget Office estimates the costs at more than $139 billion over 10 years, although Congress isn’t likely to allow the payment reductions called for under current law to take effect under any circumstance.

The Ways and Means panel, which shares jurisdiction over Medicare, may take up the Energy and Commerce bill in the fall and add provisions to cover the cost of repeal.

Still Seeking Quality
Provider groups seem agreeable to legislation that would continue fee-for-service so long as it repeals the current payment formula and allows physicians to move gradually toward alternative models. In voicing support for the House committee bill, several provider groups highlighted those aspects of the measure.

“By providing a period of stability with positive payment updates to all physicians, as well as incentives to move health care toward a system that rewards quality instead of volume, this legislation has the potential to ensure access to high-quality care for Medicare beneficiaries in the years to come,” said Norman Vinn, president of the American Osteopathic Association, in a statement.

In a letter to Energy and Commerce committee leaders, American Medical Association Executive Vice President James Madera praised the bill for repealing the current formula. And he said it would take “significant steps toward allowing physicians and other health care providers to design systems of care that best serve their patient populations through new and innovative care delivery models.”

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