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MedPAC Debates Pay Changes for Doctors, Dialysis, Home Health

By John Reichard, CQ HealthBeat Editor

December 7, 2007 -- The Medicare Payment Advisory Commission (MedPAC) wrapped up its two-day meeting Friday morning by debating draft recommendations to Congress to boost payments in 2009 to physicians by 1.2 percent, to dialysis facilities by one percent, and to keep home health payments that year at 2008 levels.

The morning's discussions included one unusual twist: self-described "rookie commissioner" Jack Ebeler urging that payments to home health agencies be sliced by five percent because of the industry's fat Medicare profit margins. A "zero payment update" is usually as tough as MedPAC gets on the health care industry.

The commission is in the final stages of developing payment recommendations it will submit next March to Congress for 2009. The draft language is subject to change before the commission votes on final recommendations at its Jan. 10–11 meeting.

In reviewing the adequacy of payments to physicians, staffers examined such indicators as the willingness of doctors to treat Medicare patients, the volume of services they provide to those patients and the quality of care they deliver. The staff analysis also examined data on the rising costs to physicians of providing treatment.

Most beneficiaries are able to find new physicians, the analysis said. An August–September MedPAC survey of beneficiaries found that 70 percent reported that finding a new doctor was no problem. That figure is down a bit from 2006, when the percentage was 76 percent. In addition, "most physicians in 2006 were accepting all or most Medicare patients," the analysis said.

One of the commissioners, William Scanlon, pointed out that those statistics refer to the percentage of beneficiaries who are actually looking for a new doctor. Thus it would inaccurate to say that 30 percent of all Medicare beneficiaries are having trouble finding a new doctor, he said. Scanlon estimated that based on the findings, it is really about 3 percent of all Medicare beneficiaries who are having a problem finding a new doctor.

Meanwhile, growth continues in the use per beneficiary of physician services. The volume of doctor services per beneficiary in 2006 grew by 3.6 percent. The highest rates of growth in 2006 were for "tests"—6.9 percent—and for medical imaging, 6.2 percent.

Most quality of care indicators were "stable" or showed improvements, the analysis found. Meanwhile, Medicare's preliminary estimate of 2009 "input prices," a measure of what it costs doctors to deliver care, shows an increase in those costs of 2.7 percent. Adjusting that figure for "productivity growth" in the economy—estimated at 1.5 percent—adds up to a recommended increase of 1.2 percent in physician payments in 2009 if that is the increase MedPAC finally recommends and if Congress were to accept it.

The panel also is considering a draft recommendation that Congress enact legislation to require the Centers for Medicare and Medicaid Services to establish a process for measuring and reporting, on a confidential basis, the health care resources consumed by doctors in delivering care. The aim would be to prod doctors who order too many tests and services to conform the way they practice to that of their efficient peers. But some commissioners said that after a couple of years, tougher steps should be taken to discourage inefficient care, such as penalizing it by paying less or by publicizing which doctors are less efficient.

With respect to dialysis facilities, the commission's analysis found that profit margins on Medicare patients in 2006 averaged 5.9 percent. It projected profit margins in 2008 averaging 2.6 percent. The draft recommendation called for increasing the payment rate to the facilities in 2009 by one percent on average while establishing a quality incentive program that might mean payments above or below that figure depending on the quality of care delivered by a facility.

Regarding home health, the commission estimated that industry profits on Medicare patients averaged 15.4 percent in 2006 and that in 2008 they would average 11.4 percent. It unveiled a draft recommendation that would freeze 2009 payments at 2008 levels.

The level of profit combined with a lack of clarity about what care is actually provided to Medicare patients led Scanlon to strongly challenge the current payment system. "We have to take fundamental issue with this payment system," he said. The commission should explore how the Medicare dollars represented by those 15 percent margins could better be allocated to other services provided to Medicare beneficiaries, he said.

First-year commissioner Jack Ebeler went even farther, saying "we should be discussing a five percent reduction" in payments to home health agencies. Scanlon replied a five percent across-the-board cut would be unfair to agencies that are delivering home care properly. But Ebeler said "there's a point where you simply have to say, 'Stop.'"

MedPAC Commissioner Glenn Hackbarth even called into question whether home health payments should be broken out separately, suggesting that they might be better bundled with payments for other types of services.

But Bill Dombi, vice president for law at the National Association for Home Care and Hospice, said MedPAC calculations are for freestanding home health agencies and do not take into account the many home care agencies he said are affiliated with hospitals and have higher costs and lower profit margins. He added that the MedPAC margin calculations do not include such costs as those associated with the use of dietitians, respiratory therapy, and telehealth services. Nor do they include certain business operating costs such as marketing, he said. When all types of payments are taken into account, the profits of home health agencies average just three percent, he said. He added that agencies face a number of payment cuts in the next few years because of CMS regulatory changes.

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