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MedPAC Intrigued by Dartmouth Prof's Idea for Controlling Medicare Spending

By John Reichard, CQ HealthBeat Editor

November 9, 2006 -- Members of the Medicare Payment Advisory Commission (MedPAC) questioned Dartmouth Medical School professor Elliott S. Fisher Thursday with all the rapt attention and intensity of a consumer in a TV showroom who knows he's going to buy the megabuck, high-def, big-screen, but hasn't quite told the salesmen he'll take it. Fisher wasn't pitching plasma TVs, of course, but a payment approach that commissioners seemed to view as potentially a big advance in reducing inefficient Medicare spending.

Fisher's research excites Medicare analysts because it suggests that tens if not hundreds of billions of dollars can be saved annually in coming years without sacrificing the quality of care provided to the nation's seniors and disabled.

It shows there are sharp geographical variations in Medicare spending that have nothing to do with regional differences in beneficiary health status and that the areas with higher per capita spending do not have higher quality of care—in fact, their quality of care is lower.

Fisher's work suggests that by creating a reimbursement system that pays doctors more for providing efficient care, these variations can be flattened out over time with gains in quality and big savings to a Medicare program desperate for ways to accommodate an influx of baby boomers without busting the federal budget.

But how to flatten out those variations? Fisher argues that "organizational accountability" for long-term costs and quality is key to improving efficiency. In a presentation Thursday to MedPAC, Fisher unveiled new findings that suggest hospitals and physicians can be tied together under a payment system that would reward them if they work well together to provide quality care without performing unnecessary tests and procedures.

Fisher proposed use of the "extended hospital medical staff" as an organizational structure to hold hospitals and local physicians accountable for the quality and cost of care they provide.

Under the system, a Medicare patient would be assigned to the doctor who provides most of his or her care. Doctors in turn would be assigned to an extended hospital medical staff (EHMS) as follows: doctors who provide inpatient care would be assigned to the hospital where they deliver treatment to the greatest number of Medicare beneficiaries. Doctors who do not provide inpatient care would be assigned to the hospital where the largest number of patients for whom they bill Medicare are admitted when they need hospital treatment.

Under this approach, all but 2 percent of doctors in practices treating 500 or more Medicare patients could be assessed as a member of an "EHMS," Fisher told MedPAC.

Growth in the volume of services provided by an EHMS could be tracked by counting all services provided to the Medicare patients assigned to a doctor under the system. Those services would include care provided outside the hospital under Part B of Medicare and inside the hospital under Part A of the program.

Rather than track the efficiency and quality of 500,000 doctors individually under such a payment system, Medicare would only have to do so for 5,000 EHMS. Services provided in excess of a regional target set to limit volume increases would lead to lower payments.

The system aims to create a financial incentive for doctors to consult carefully with their peers and the affiliated hospital to avoid ordering unnecessary tests and procedures. The EHMS also would be assessed for payment purposes on measures of quality of care, which could include mammography and colon cancer screening rates, or eye exams and glucose management for diabetic patients, for example.

Hospitals "have the capacity to intervene to improve quality," Fisher noted, including the capacity to link physicians to information technology.

The system would get at two key factors that account for geographical variations in spending, Fisher suggested. One is "capacity"—the fact that some areas have more specialists and internists and hospital beds, which lead to more hospital stays, visits to the doctor, and tests and surgical procedures.

Another is that different health care settings have different "clinical cultures," according to Fisher, that affect how efficient they are in the use of medical resources.

MedPAC commissioners, to whom Congress is looking for answers to Medicare's costly-to-fix and badly flawed physician payment system, were all ears at the meeting.

MedPAC Chairman Glenn Hackbarth said he is "intrigued" by the idea of introducing geography as a factor in setting targets for service volume growth. If Medicare were to have such a system, it also would make sense to tie it to both the use of care inside and outside of the hospital, he said. And the EHMS approach would allow cost and quality assessment simultaneously, he added.

"I find your suggestion very attractive," commissioner Ralph W. Muller, an executive with the University of Pennsylvania Health System, told Fisher. "I think taking organizational structures that have been there a long time is the right way to go." Muller was referring to using local hospitals as the focal point for organizing a system of accountability.

"I really think there's a lot of potential here," enthused commissioner Ronald D. Castellanos, a Florida urologist. "I think it's absolutely the right direction," said another MedPAC member, Nicholas Wolter, a physician with the Billings Clinic in Billings, Montana.

But commissioners raised a variety of concerns, with Fisher freely acknowledging there are many questions left to address about the approach, which he described as merely having "nominated."

Among them were: adjusting for differences in the scope of services provided by doctors, fear of exacerbating existing tensions between local physicians and hospitals, and a lack of any kind of existing organizational coherence binding local doctors and hospitals in many communities.

MedPAC Vice Chairman Robert Reischauer, sensing how taken his peers seemed with the new payment approach, voiced caution. He told Fisher that he was "making me nervous because you make it sound so doable." One can draw a line around a group, "but there has to be an organization" for the approach to really foster cooperation among doctors and hospitals, he said. Reischauer also wondered how local labs, surgery centers, and nursing homes would fit into such a scheme.

"There are going to be challenges," Fisher acknowledged.

Commissioners noted that it would take a number of years for efficiencies to be realized. "This is about charting a 10- to 15-year course," Wolter said.

But MedPAC is under the gun from Congress to guide it on new approaches to dealing with physician spending and payments. It must file a report with Congress by March on the issue, and congressional health aides attended Thursday's meeting to hear MedPAC's deliberations on the issue.

Hackbarth cautioned, however, that the commission won't be able to recommend some "snap solution" for the problems with the current physician payment formula. Its report instead is likely to assess the pros and cons of various alternatives, he said.

Commissioners expressed little enthusiasm for another approach, the idea of setting volume targets on a specialty-by-specialty basis. While they expressed support for tracking volume increases in individual specialties and for an analysis of why those increases occur, specialty-specific targets wouldn't foster the kind of cooperation among providers commissioners see as needed to lessen inefficient treatment of Medicare patients.

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