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Report: No Easy Way Out of Chamber of SGR Policy Horrors

By John Reichard, CQ HealthBeat Editor

March 1, 2007 -- A long-awaited report released Wednesday by the Medicare Payment Advisory Commission (MedPAC)offered lawmakers no quick way out of the chamber of policy horrors they find themselves in regarding Medicare physician payments, but the report's silver lining may be the added pressure it creates on top policy makers to get moving on rethinking the U.S. health care system from the ground up.

Those pressures are many and have been ignored for many years, but it was obvious at a Senate Finance Committee hearing Wednesday that lawmakers are getting really sick of the annually recurring and ever intensifying nightmare they face blocking physician payment cuts.

The way out of that nightmare, MedPAC advised in its report, is to get moving on renovating much of the structure of U.S. health care. The advisory group also released separate recommendations on updating Medicare payments in other health care sectors.

Senate Finance Committee Chairman Max Baucus, D-Mont., was in a receptive mood, even though it doesn't help him solve the immediate problem he faces with doctors scheduled to take a 10 percent payment cut next year. Rather than faulting MedPAC for offering no quick policy fix for the doctor payment dilemma—that the current "SGR," or sustainable growth rate, payment formula forces sharp cuts every year unless Congress pays for increasingly costly yearly fixes to erase the cuts—Baucus spent much of the hearing probing for answers on how to bring down underlying health cost growth.

The SGR Dilemma
Medicare's formula for paying doctors involves setting a yearly rate by which spending on doctor care in the program can grow. The spending target calculated using the SGR triggers automatic payment cuts in following years if outlays exceed the target—as they chronically do.

But rather than restrain the number of tests and procedures ordered by doctors, the target creates an incentive for them to order even more as they try to recover from cuts by ordering a higher volume of services, analysts say. Also, Congress usually intervenes to block the cuts, with the money it spends to do so adding to the sums above the target that must be recovered in subsequent cuts.

The Way Out?
The new report on alternatives to the current system urges promoting efficiency in a different way—through fundamental payment and organizational changes to promote efficiency. Those changes would inevitably extend to the care doctors give to patients generally, not just those in Medicare.

The report urges fundamental revisions such as payment systems that pay more for higher quality and greater efficiency, measurements of resource use to guide doctors on whether they overuse services, and more accurate calculation of prices to eliminate incentives for overuse of unneeded types of care.

Other steps include creating incentives for doctors to work together with hospitals to streamline treatment, by paying a set fee for "bundled" services that combine both types of care, for example. Medicare should encourage doctors and hospitals to organize into groups that can be measured on the quality and efficiency of their care, MedPAC also advised. And incentives should be created to bring more doctors into primary care that allows better preventive care and coordination of care, it said. To provide the most effective types of treatment, much more research should be conducted comparing how well various approaches work for treating a given condition.

The commission divided on the subject of whether expenditure targets should be maintained, but said if they are, one target should apply to Medicare as a whole, not just to doctors. That would increase incentives to coordinate care, the advisory panel said.

Hill Reaction
Baucus did not enter the hearing expecting any magic bullets from MedPAC—the commission has clarified for months that it wouldn't provide any—and Baucus said the evening before "I don't think MedPAC has enough fleshed-out ideas on how to do that."

Further, Baucus indicated Wednesday that he wouldn't be overhauling the SGR this year. "I think we're still at the point where we have to deal with this on a yearly basis," he said regarding erasing payment cuts. "I think we're going to get there, but I don't think this year. It's premature."

Also pushing Baucus in the direction of a more fundamental inquiry was Peter Orszag, the new director of the Congressional Budget Office. The answers to unsustainable health spending growth in Medicare and Medicaid require a broader focus, he testified.

Noting evidence that cost growth can be constrained without adverse health consequences, Orszag said that "moving the nation toward capturing this opportunity is essential to putting the country on a sound long-term fiscal path. It is the central long-term fiscal problem facing the United States."

Orszag's estimates of the costs of eliminating the SGR underscored why Congress should broaden its focus to address health system costs generally. Scrapping the formula and replacing it with yearly Medicare doctor payment increases based on a Medicare Economic Index measuring the rising yearly cost of doctor care would cost Congress $262 billion over 10 years, he said.

As spending grows on Medicare Part B—the part of Medicare that pays for doctor care—the monthly premiums beneficiaries must pay for Part B also rise, Orszag noted. To keep the $262 billion from elevating the premium over that period, Congress would have to shell out another $70 billion, he said. Thus, the overall cost of a fix that doesn't also create new costs for beneficiaries would be $332 billion, he said.

Even a simple patch that keeps the SGR in place and merely prevents cuts from occurring in 2008—while not blocking them in future years—would cost $34 billion over 10 years, he said.

"We've got to get at the underlying reasons health costs are going up," Baucus said after Orszag was finished. "What do we do?" he asked witnesses.

The crux of the problem is payment incentives in the fee-for-service system, said MedPAC Chairman Glenn Hackbarth, who urged differential payments with doctors getting more or less depending on the quality and efficiency of their care.

Orszag offered two starting steps that seemed to intrigue Baucus—creating an entity along the lines of Britain's National Institute for Clinical Excellence to carry out research comparing types of care to determine best practices and creating a health information technology "backbone" to push that type of information back to providers to guide how they provide care. Those steps would create the type of infrastructure that would allow the hard choices to be made on revising health care, he said.

Hackbarth emphasized that the steps he was urging would require large new "investments" in the Centers for Medicare and Medicaid Services.

In other words, the message to Baucus was: To save money you've got to spend money. That led him to plead with Orszag to "score" the cost of legislation making those types of investments by subtracting the many long-term savings they would create. "The budget scoring laws are what they are and even God can't change them," Orszag replied.

The report on physician payments overshadowed MedPAC's separate set of recommendations on how Congress and Medicare should revise payments to providers generally next year. Those recommendations were consistent with language approved by the commission at its meeting in January.

Grabbing the attention of Democratic lawmakers is language in the report governing payments to managed care and other private health plans in the Medicare Advantage program in Medicare. Payments to those plans are 112 percent of what they are in traditional fee-for-service Medicare to provide the same benefits, MedPAC Executive Director Mark Miller said at a morning briefing.

Rep. Frank Pallone Jr., D-N.J., the chairman of the House Energy and Commerce Health Subcommittee, agreed with MedPAC that payments should be equal. "There's no reason there should be this differential for Medicare Advantage or HMOs," he said Thursday. Pallone said he "always felt from the very beginning that this was only done by the Republican majority because these are their friends and these are the ones that help pay for their campaigns, and this is just a special interest thing they were doing for people that were helping them keep their majority."

"I think that report is absolutely right and that differential should be eliminated, we should pump it back into Medicare and possibly use it for SCHIP or for the physicians payments—use it for something other than the HMOs. So we'll look at it as a possible source for SCHIP" or some other part of the Medicare program, Pallone said.

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