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MedPAC Says Medicare Should Stop Rewarding 'Volume Instead of Value'

By Jane Norman, CQ HealthBeat Associate Editor

June 15, 2009 -- The Medicare Payment Advisory Commission (MedPAC) said Monday that the Medicare program's spiraling and unsustainable costs must be tamed, but for now stayed away from specific recommendations to toss into the debate in Congress over the health care overhaul.

"To achieve better care coordination and efficiency, Medicare must change the way it pays health care providers," said a statement from Glenn Hackbarth, chairman of the closely watched commission, which must produce two reports annually for Congress. "Current incentives reward volume instead of value and costly care instead of efficient, effective care. When providers don't work together, quality suffers and costs increase—which benefits neither the patient nor the Medicare program."

The 275-page report adds that if current spending and use trends continue, the Medicare program is "fiscally unsustainable" over the long term. Care coordination is rare, specialist care is often favored over primary care and the quality of care is often poor, it says. The fee-for-service system rewards additional care regardless of its quality and payments are separated into categories, or "silos," that don't encourage coordination.

Mark E. Miller, executive director of the commission, said at a reporters' event four issues explored in the June MedPAC report likely will be of particular interest to lawmakers immersed in the health overhaul and trying to figure out how to meet twin goals of curbing costs and enhancing quality. Those issues are graduate medical education (GME), accountable care organizations (ACOs), physician resource use measurement and the impact of physician self-referral on use of imaging services.

"This particular report does not have recommendations but it does have comments and analyses that are informing ongoing debates right now on the Hill," said Miller, adding that the cycle of deliberations among commissioners means that sometimes recommendations emerge, and sometimes they don't, but might later.

Medicare is such a big payer and driver of health spending that changes in its makeup would deeply influence other health care spending.

MedPAC did state in its report that a process to approve so-called follow-on biologics—the term for lower cost versions of existing biotech drugs—is needed both to increase price competition and help control costs for Medicare, which spent $13 billion on biologics in 2007. While the Food and Drug Administration would have jurisdiction over whatever regulatory process is set up, Medicare has a "strong incentive" to make sure it gets better value, the report says. It's possible, for example, that a drug's payment could be linked to beneficiaries' outcomes. In March, though, several commission members expressed concerns that they needed more information before making recommendations on Medicare payment structures for follow-on biologics.

On the question of ACOs, MedPAC says they have the potential to promote better care coordination among providers, a perpetual problem for Medicare and its fee-for-service systems that too often lead to high volume. While ACOs could be voluntary or mandatory, an ACO in general would be held responsible for the health of its Medicare patient population. In the model studied by MedPAC, an ACO would be made up of primary care physicians, specialists and at least one hospital.

An ACO would have to be fairly large, with at least 5,000 patients, to be able to determine whether actual improvements are occurring, says the report. If it manages to achieve both quality and cost targets, the members of the ACO would receive a bonus; if it fails, payments from the government would be lower. "These financial incentives may lead to slower growth in Medicare spending," the report says.

Each ACO should have a spending target set in advance, perhaps based on past experience plus a national allowance for spending growth per capita, the report says. It's possible that could eventually compress regional variations in spending.

Medicare spent $9 billion subsidizing graduate medical education in 2008 and didn't get enough bang for its buck, MedPAC says. "Our medical schools and residency programs need to emphasize a set of skills and knowledge that will equip students and residents to practice and lead in reformed delivery systems that work under restructured payment incentives," the report says.

Specifically, residency programs don't offer enough formal instruction and experience in multidisciplinary teamwork, cost awareness in clinical decision-making, comprehensive health information technology and patient care outside hospital settings, the report says. For example, residents spend large amounts of time caring for acutely ill hospital patients, which is good but which also means they don't spend time outside the institution at doctors' offices, nursing facilities or in patients' homes, says the report.

On physician resource use management, the report notes that MedPAC in 2005 recommended that Medicare measure doctors' use of the resources that provide patient care. That has begun under legislation approved by Congress, the Medicare Improvements for Patients and Providers Act of 2008. MedPAC says that the methodology used should be transparent to all participating physicians and ensure they can change their behavior on the basis of feedback.

Physicians' fast-growing use of diagnostic imaging tools in their offices also is tackled. MedPAC says that although the rate of growth slowed in 2007, there continue to be concerns that some of the increased use in imaging is not warranted, and there's evidence that imaging services are mispriced under the physician fee schedule, thus creating more of a financial incentive to order more imaging. Controlling for all other factors, physicians who use imaging in their own offices order it more often than those who refer patients outside their offices, MedPAC says.

MedPAC is an independent congressional agency established by the Balanced Budget Act of 1997 to advise Congress on issues surrounding Medicare, with public meetings in which commissioners, who have backgrounds in health, debate complex technical aspects of the program.

Under legislation introduced by Sen. John D. Rockefeller IV, D-W.Va., (S 1110) the agency would gain more power to order changes in Medicare, and the president is said to be interested in making MedPAC recommendations mandatory unless changed by Congress. Miller said he would not comment on those "MedPAC on steroids" proposals.

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