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MedPAC Report Themes: Equitable Pay—and SGR Overhaul Map

By John Reichard, CQ HealthBeat Editor

March 15, 2012 -- Medicare Payment Advisory Commission (MedPAC) Executive Director Mark Miller recapped the group’s annual report to Congress on Thursday, focusing on what to do with the Medicare physician payment formula, equalizing payments for specific services, and how to pay skilled nursing facilities.

It’s tempting to ignore the annual March 15 report since so many of its recommendations are publicized at the start of the year. But looking at the report as a whole is a reminder of the major themes in the work of the influential commission. It’s also a reminder of overlooked findings that remain highly relevant to the work of Congress—not the least of which is that these Medicare experts have laid out a detailed, relatively low-cost plan to accomplish the seemingly impossible task of overhauling the “sustainable growth rate” (SGR) physician payment formula.

Miller said payment recommendations in the report would generate savings of $60 billion to $65 billion over 10 years if adopted.

The commission also specified cuts totaling $219 billion that could be made to offset the costs of overhauling the SGR. These included not only the MedPAC recommendations but also potential cuts identified by such entities as the Office of the Inspector General at the Department of Health and Human Services and the Congressional Budget Office (CBO).

The SGR proposal by MedPAC brings down the $300 billion price tag cited by the CBO as the cost of an SGR overhaul by cutting payments to some physicians, arguably for better-paid doctors who can more easily afford them.

Thus, in the first three years of the 10-year plan, specialists would take annual cuts of 5 to 6 percent. Payment rates to primary-care doctors would remain the same over the whole 10 years. That gets the price tag down to a still huge, but more manageable, $200 billion.

Miller said he’s not aware of any legislative proposal in Congress that incorporates the MedPAC plan. It’s “hard medicine,” he acknowledged. On the other hand, many lawmakers have balked at other potential payment offsets, such as savings from winding down the wars in Afghanistan and Iraq.

Miller also spoke of aligning payment rates across health care settings. Because Medicare fee-for-service payment systems were developed independently, “the program can pay very different amounts for similar services,” notes a MedPAC news release on the March report. “For example, Medicare pays about 80 percent more for a 15-minute evaluation and management office visit provided in a hospital outpatient department than in a freestanding physician’s office.”

One of the reasons so many hospitals are buying physician practices is that they can generate more revenue because of these higher rates, some analysts say. The doctor’s office can charge more for the very same service if it is hospital-owned.

MedPAC recommends equalizing payments over three years while limiting reductions for hospital outpatient departments that serve a large number of low-income patients.

In the case of skilled nursing facilities (SNFs), MedPAC recommends no increase in payments in fiscal 2013. It calls for “rebasing” of payments in 2014 that would lower payment rates by 4 percent that year.

The panel wants rates rebased because it says Medicare previously overpaid SNFs as a result of changes in industry bill-coding behavior. Because of these behavior changes, SNF profit margins on Medicare patients rose from 18.5 percent in 2010 to 24.2 percent in 2011, MedPAC says.

But the rates were too high to begin with before the coding changes, which is why MedPAC wants the rebasing, Miller said. SNF operators argue that Medicare rates should not be cut because they are underpaid by Medicaid. But overall profit margins taking all payers into account averaged 3.6 percent in 2010, according to the MedPAC report, up from 3.5 percent in 2009.

John Rother, president of the National Coalition on Health Care, called several ideas in the report “particularly promising” for controlling costs and improving quality. They include “provider payment reforms that would repeal the SGR formula, encourage accountable care organizations, and reward the primary care providers who will be crucial for lower costs and better care.”

In addition, he praised recommendations he said would discourage unnecessary hospitalizations of skilled nursing facility patients, change the design of Medicare benefits to encourage the use of quality generics, and financially reward outpatient surgical centers that provide high quality care. The coalition represents some 80 organizations, including medical societies, businesses, and unions.

John Reichard can be reached at

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