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MedPAC Eyes Single Payment for Doctor and Hospital Care

By John Reichard, CQ HealthBeat Editor

March 5, 2008 -- At a standing room only session Wednesday morning, the Medicare Payment Advisory Commission kicked around the idea of issuing single payments for episodes of treatment that would be shared by both the hospital and the doctors involved in delivering the treatment. While acknowledging that such a scheme could be complex to administer and could backfire, commissioners said such "bundled payment" has potential to root out inefficiencies in care and deliver major savings.

MedPAC Chairman Glenn Hackbarth emphasized at the start of the meeting that the commission may or may not move forward on adopting a final recommendation at its April meeting urging Congress to enact legislation bundling payment in Medicare. But commissioners, who are under heavy pressure to find ways to make spending more efficient in Medicare, were clearly drawn to the idea and repeatedly praised the staff work that went into preparing a draft recommendation on the subject.

"I think in the end this is one of the more important things we're going to do this year," commented commissioner Francis J. Crosson, an executive with Oakland, Calif.-based Kaiser Permanente. Commissioners also reviewed options for how policy makers might structure an entity to oversee an extensive ongoing program of research into how various drugs, surgical treatments, and medical devices compare in treating the same medical condition. "I'm a big advocate for moving in this direction," Vice Chairman Robert Reischauer said of the comparative effectiveness approach to getting better value for Medicare spending.

Longtime MedPAC observers expressed surprise at the long line to get in to Wednesday's session that seemed more appropriate for a smash movie or a hot band than a midweek gathering of policy analysts. But what might have been missing in glamour as an attraction was made up for in money. Issuing a single check for treating a heart attack, for example, throws into doubt how much doctors and hospitals who are now paid separately for their services would receive, how that compares to current reimbursement, and how they would divvy up their respective shares.

If, as MedPAC hopes, it leads to more efficient care as hospitals and doctors work together to figure out new processes of care that are less costly—thereby leaving them more money to share from their bundled payment once treatment is completed—it also creates uncertainty about how long-held routines for delivering treatment might have to change. The prospect of having to team up with a local hospital also means having to overcome tensions that often occur between doctors and local hospitals and between doctors and other doctors over how to deliver care.

After staffer Anne Mutti laid out a potential "glide path" to bundled payment, commissioner Nicholas Wolter, a physician with the Billings Clinic in Billings Montana, said "I love the phrase 'glide path' for something that's going to be like landing on the eastern slope of the Rockies during a Chinook."

But commissioners warmly praised the staff work that went into preparing draft recommendations on the subject, which would first try to educate doctors about how efficiently they provide treatment relative to their peers as a goad to avoid wasteful tests and other procedures.

One draft recommendation states that "Congress should require CMS [the Centers for Medicare and Medicaid Services] to confidentially report resource use around hospitalizations. After two years, Congress should implement 'virtual bundling,' which reduces payments to hospitals and inpatient physicians with relatively high resource use across episodes of care for select conditions. The payment penalty can be used to finance additional payments to high quality fee-for-service providers with relatively low average resource use."

A second draft recommendation states that "Congress should require CMS to create a voluntary pilot program to explore issues related to actual bundled payments for services around a hospitalization."

The distinction between virtual and actual bundled payment is that in the case of the latter, providers would get a flat fixed payment whatever the level of services they provided. Virtual bundling would retain the current fee for service system, in which doctors and hospitals get paid per service they perform and in general can make more money by ordering more services. The virtual approach would begin weaning providers away from inefficient ordering of tests and procedures, however, by penalizing them for above average resource use.

Commissioners expressed concern about the resource drain on CMS of administering such a system but described it as promising if hospitals and doctors truly team up to make care more efficient. "I think there is a huge possibility for process improvements," said commissioner Nancy M. Kane of the Harvard School of Public Health. "I think we're headed very much in the right direction here," added Reischauer.

Staffers also laid out options for fleshing out MedPAC's recommendation in its June 2007 report to Congress that it charge an independent entity to sponsor and disseminate research on comparative effectiveness. Commissioners weighed in on such issues as the makeup of an independent board to oversee the research and how the program would be funded, but did not consider any draft recommendations on the subject.

Staffers Nancy Ray and Hannah Neprash noted that a federal role in this area need not result in a large expansion of the government but could entail having a public-private entity with an advisory board that oversees existing research in the private sector and at such entities as the Agency for Healthcare Research and Quality and the National Institutes of Health.

The commissioners who spoke up about the issue supported the idea of having full-time board members to lessen conflict-of-interest problems and of having mandatory contributions to fund the research by both the private and public sectors. But they expressed concern about Congress having too large a role in funding, saying it could lead to sharp funding reductions if an industry interest offended by some research finding applied heavy pressure on lawmakers.

They reiterated their strong support for a comparative research program. The potential savings involved "swamp everything discussed today," said commissioner John M. Bertko, a visiting scholar at the Brookings Institution who recently retired from his position as chief actuary for the insurer Humana.

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