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Nancy Johnson's Doctor Payment Fix—Where Are the Dollars, And Where's Bill?

JULY 28, 2005 -- Rep. Nancy L. Johnson may have made a convincing case Thursday why Congress should permanently fix the flawed Medicare physician payment formula, but the Connecticut Republican shed little light on where the votes or the money will come from to get the job done.

At a press briefing to formally announce the introduction of her bill scrapping the existing Sustainable Growth Rate (SGR) formula and replacing it with a quality-based payment system, Johnson said the measure "will prevent a nationwide medical crisis and ensure doctors are paid fairly for the care they provide."

Without congressional intervention, the formula will generate yearly cuts of 5 percent for the next seven years, jeopardizing access to quality care for millions of seniors and disabled Americans, she said. Johnson added that the current payment system is "demeaning" to doctors and sends them "a message of disrespect."

Congress has intervened a number of times to prevent payment cuts under the formula, which reduces payments if the overall volume of Medicare spending on physician care exceeds a specified yearly growth target.

But Johnson called it "extremely important" that Congress not continue to "kick the can down the road" with yet another temporary fix. "Kick the can" proposals—by which she meant one- or two-year payment changes blocking SGR-generated cuts—cost $30 to $40 billion apiece, she said. That money would better be spent on a permanent fix, Johnson declared.

It's unclear, however, how much support Johnson, chairman of the House Ways and Means Health Subcommittee, will have for the bill, the "Medicare Value-Based Purchasing for Physician's Services Act."

Rep. Bill Thomas, R-Calif, chairman of the Ways and Means Committee, has yet to announce his support for the bill, although he recently joined in sending a letter to Medicare officials urging them to take administrative action that would sharply reduce the costs of a permanent legislative solution.

Johnson said Thursday that Thomas is "supportive" of her efforts but has been too busy with other legislation to turn to her bill. "Over the break he's going to go through it pretty seriously," she said.

The bill would base yearly payment increases on the growth in the Medical Economic Index (MEI), which tracks the costs of providing physician care. The Congressional Budget Office has estimated the 10-year cost of an MEI-based system at a whopping $155 billion.

The administrative change sought by Johnson and Thomas would reduce the 10-year cost by $114 billion, bringing it to about $41 billion. Under the change, Medicare would remove prescription drug spending from calculations of the physician payment formula, both retroactively and prospectively. Medicare officials say they may not have legal authority to make that change, however.

Where would Congress find $41 billion assuming Medicare did make the administrative change? Johnson said there are "constructive areas" she is looking at but did not elaborate. But a Johnson aide noted that the five-year cost of a bill replacing the SGR with an MEI-based system would be far lower. According to CBO, the cost would be $49.7 billion, but the administrative change would lower the cost by $46.5 billion, to a total of just $3.2 billion.

If Congress uses five-year numbers to price the legislation and Medicare makes the administrative change, a permanent fix might be within reach after all.

Johnson's briefing Thursday also filled in some of the missing details of the doctor payment proposal, which was first previewed July 13 in a meeting with lobbyists.

For example, the legislation to replace the SGR formula with a new quality-based payment system provides for a 1.5 percent increase in Medicare physician payments in 2006, scrubbing the 5 percent cut that would be made under the current payment formula. MEI-based payment increases in 2007 and 2008 would be reduced by 1 percent in each of those years if doctors failed to report data on the quality of care they provide.

Another notable change in the proposal is that it does not include "gainsharing" provisions allowing doctors and hospitals to share the savings if they develop ways to make treatment more efficient.

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