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MedPAC Members Going 'Crazy' Mulling New Ways to Control Doctor Spending

By John Reichard, CQ HealthBeat Editor

September 8, 2006 -- With Medicare physician spending rising fast while doctors face years of sharp payment cuts, Congress is vexed about how to pay doctors in the program. Lawmakers are worried that spending growth is unsustainable, but are concerned that without lots of new spending to erase payment cuts, doctors could bail out of the program.

Facing a March 1 deadline for analyzing alternative approaches to the current "Sustainable Growth Rate" (SGR) payment formula, members of the independent Medicare Payment Advisory Commission (MedPAC) seemed no less frustrated at a freewheeling discussion of the issue Friday morning. One described commission members as going "crazy" trying to assess alternatives.

Underlying the frustration was a sense of dissatisfaction about the current system, which relies on growth in the gross domestic product to help establish a yearly target for growth in Medicare payments to doctors. To the extent that overall spending exceeds the target, payments must be reduced in following years to produce savings equal to the excess amount.

Nancy-Ann DeParle, former head of the Medicare and Medicaid programs, suggested that economic growth is a poor measuring stick of whether increased Medicare outlays for physician care are justified. "I've never understood why the volume of physician services is tied to GDP growth," she said. "It may be there are things we want to increase" faster than GDP growth, such as spending on screening for colorectal cancer, she said.

Commission member William J. Scanlon similarly expressed dissatisfaction with a GDP-based target, saying MedPAC should evaluate what types of spending targets are more desirable.

Ronald D. Castellanos, a Florida-based urologist, said "a fairer index may be the MEI," or the Medicare Economic Index, which tracks the costs of delivering physician care. "Every medical society has gone on record" that the current GDP-based system is not working, he said.

Castellanos said closer scrutiny of the root causes of volume increases in Medicare-related physician services is needed to determine whether and to what extent growing outlays are warranted. "An increase in volume is not bad in some respects," he said. "I think we need to look at volume more carefully."

But Commission Vice Chairman Robert D. Reischauer defended the GDP-based method, reminding commission members that the ability of society to allocate resources relates to overall economic growth. And commission member John M. Bertko expressed concern about the volume of physician services in Medicare if targets were lifted altogether. "Taking a target off would send the wrong message," he said.

MedPAC Executive Director Mark Miller encouraged commission members to think broadly, however, about how to restrain spending on doctor care, saying a GDP-based system need not be the focus of the report and emphasizing that the question of how to set a spending target "is on the table."

Commission staffers noted that Congress ordered MedPAC to analyze a variety of approaches for controlling volume, including setting more specific spending targets rather than one overall national target.

Those approaches include targets specific to group practices, hospital medical staff, types of services, geographic regions, and "physician outliers" who prescribe unusually large volumes of services.

Commission staffers offered examples of how service-specific targets for physician spending might be set and how they might affect payment updates.

Targets for spending growth for evaluating patients and managing their conditions—so-called "E and M" services," such as imaging, lab tests, and major surgical procedures—could be based on GDP or historical averages of volume increases.

Payments would be updated depending on how spending for those services compared with GDP growth or service-specific historical rates of volume growth. Using GDP as a standard would result in an 8.8 percent cut in payments for imaging services given how much the recent growth in imaging volume exceeds GDP, according to a MedPAC staffer.

Another approach would be to compare current volume growth in imaging to recent trends in imaging growth, resulting in more modest cuts. That method would increase payments for E and M services and major surgical procedures, the staffer added.

Targets also could be set by geographic region, with parts of the country with large volumes of services and high rates of volume increases receiving lower payment increases or actual cuts.

Setting targets specific to smaller numbers of physicians would have a greater impact on individual physician behavior in controlling service volumes, but it would increase the administrative burden on Medicare, commissioners noted.

MedPAC isn't required to endorse a specific approach in its March 1 report. But its job evaluating the pros and cons of various alternatives goes beyond evaluating the five types of targets: group practice, hospital medical staff, type or service, geographic areas, and physician outlier.

Miller reminded commissioners that they should think about other approaches to controlling the volume of physician services as well, such as pay-for-performance systems, measures of resource use, improved coordination of care, and the use of clinical practice guidelines.

MedPAC Chairman Glenn M. Hackbarth suggested that an even more fundamental rethinking of the Medicare program might be in order. He expressed doubt that targets that focus narrowly on doctors are the way to go, saying what's needed are incentives to have doctors, hospitals, and other providers team up to provide better care.

"I think the elephant in the room . . . is the fee-for-service system does not work," he said. By giving doctors an incentive to order more tests and procedures, fee-for-service payment has increased access to care and boosted technology, but it does not result in consistently high-quality care, he said. What's needed are better incentives to organize care, he concluded.

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