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A Rough Day on the Hill for MedPAC's Physician Payment Report

By Drew Armstrong, CQ Staff

March 6, 2007 – Lawmakers on a House health subcommittee heard suggestions on overhauling Medicare's physician payment system Tuesday, but some seemed unimpressed by the panel's advice.

Frustrations aside, House Energy and Commerce Health Subcommittee Chairman Frank Pallone Jr., D-N.J., made clear that an overhaul of the formula was a priority in the 110th Congress, and the sooner the better.

"The goal is to try and do some kind of permanent fix and not continue with these annual end-of-the-year changes," Pallone said. "We want to make an effort to do something, if possible, this year, certainly within this session of Congress."

None of the potential solutions are likely to be simple, however. Because MedPAC's members could not reach consensus, their March report instead lays out two avenues lawmakers could follow.

The first would discard the formula entirely and have Congress develop a new system to pay doctors based on the quality and value of the care they give. Doctors would be encouraged to work together to achieve better outcomes for patients and might be paid more for preventive care that stops costly health problems before they start.

The second option would use a modified version of the current formula but make it more sensitive to regional variations. A formula with spending targets based on small regions of the country or even individual groups of physicians and hospitals would reward those who keep costs down and try to control costs for higher spenders.

Lawmakers in the House and Senate are also concerned about the cost of any solution they choose. Preliminary estimates from the Congressional Budget Office suggest that a full overhaul of the formula might cost several hundred billion dollars over a decade, money Congress could be hard-pressed to find.

Medicare Payment Advisory Commission (MedPAC) Chairman Glenn M. Hackbarth attempted to highlight one area of his group's report that suggest privately run Medicare Advantage plans could be a major source of savings. According to Hackbarth, equalizing the private plans' payments with those of traditional Medicare could save the government around $160 billion over 10 years, a good start toward paying to overhaul the payment formula. MedPAC also has recommended a number of other payment revisions for fiscal 2008 that would generate tens of billions of dollars in savings that lawmakers might partly tap to pay to block scheduled physician payment cuts.

Pallone said he felt using the private plans as a funding source is "a major way to save money that should be looked at."

The insurance industry has criticized the MedPAC report for suggesting the private Medicare plans as potential cost savers, but Democrats have long eyed the larger relative payments they receive per beneficiary.

House Ways and Means Health Subcommittee members at an afternoon hearing on physician payment also expressed frustration with the MedPAC report, but that panel's chairman, Democrat Pete Stark of California, told colleagues they were as likely to be divided on the issue as the commission. "I think we have to look at MedPAC as a good example of what we face," Stark said.

With the lack of a ready-made solution, a few members of the subcommittee unloaded on Hackbarth and his commission.

"I have to tell you that looking at this is, well, I think it's one of the skimpiest things I've ever seen anybody come in here with," Rep. Anna G. Eshoo, D-Calif., said regarding Hackbarth's presentation.

"When you're here, you need to summarize it, but when you summarize you need to have some meat on the bones. I really have trouble understanding what you have recommended to us," Eshoo continued.

Rep. Diana DeGette, D-Colo., jumped on Hackbarth as well, giving somewhat louder voice to the frustrations many lawmakers expressed with the report.

"I think that we should either disband this commission and get a new one that will give us clear recommendations, or we should send the existing commission back to come up with a clear choice for us," DeGette said, calling the report "unfinished."

Pallone offered some comfort speaking to Hackbarth, acknowledging that as for the lack of one clear solution, "a lot has to do with what you were tasked to do." In 2006, Congress asked MedPAC to study alternatives to the physician payment system, known as the "Sustainable Growth Rate," but did not stipulate that the group come up with only one solution.

House Ways and Means Chairman Charles B. Rangel, D-N.Y., said a one-year fix this year to block scheduled physician payment cuts is possible, citing budgetary pressures and paying for legislation to lessen the impact of the alternative minimum tax. Rangel stopped short of saying a fix would be for one year only, however. "We're just going to have to establish our priorities," he said.

John Reichard contributed to this story.

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