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Soaring Medicare Payments to Physicians May Speed Pay-for-Performance System

April 1, 2005—Thursday's announcement that Medicare spending on physician care is accelerating much more rapidly than expected will intensify efforts to measure the quality and efficiency of treatment by doctors, according to a Centers for Medicare and Medicaid Services (CMS) official.

But how Medicare payment policy otherwise will be affected by the doubling of the spending growth rate in 2004 was not immediately clear.

Physicians' organizations are growing more nervous about whether Congress will act this year to erase a projected cut of 4 to 5 percent in their 2006 Medicare payments. And a House aide said news that Medicare physician spending was up 15 percent in 2004 compared to 2003 "changes the dynamic." Physicians should show greater willingness to switch to a payment system tied to quality and efficiency, he said.

CMS official Herb Kuhn said in a March 31 letter to the Medicare Payment Advisory Commission (MedPAC) that his agency backs the panel's recommendation to develop measures related to the quality and efficiency of care by individual physicians and physician groups.
"We are already engaged with the physician community in developing useful measures, and we expect to intensify these efforts given the rapid growth in spending," Kuhn said. CMS is exploring the possibility of sharing with physicians on an individual basis data showing their level of resource use and the quality of care they provide. "Such data would not be released publicly except in aggregate," he said.

Kuhn appears to be referring to "profiling," which some private insurers use to tell doctors how their use of tests and procedures compares with that of their peers. The method has proven to be effective in curbing excessive treatment, analysts say. "Some measures can be derived from claims data with little or no data collection burden," Kuhn said. As examples, he listed "information on the frequency and complexity of minor therapy procedures, imaging procedures, lab tests, and visits for their patients with chronic illnesses."

"We look forward to working with you, the medical community, and Congress on improvements in our physician payment system that lead to equitable payments to ensure access to high quality and affordable health care, without increasing overall Medicare costs," the letter said.

Kuhn added that CMS is exploring administrative changes in the "Sustainable Growth Rate" (SGR) formula that aims to restrain physician spending growth. Those changes would bring down the costs of preventing the projected payment cut, but CMS has questioned in the past whether it has the statutory authority to act on its own.

"The rapid increases in physician fee schedule spending in 2004 make these collaborative efforts even more urgent," Kuhn emphasized.

MedPAC has called not only for the development of measures, but also for tying superior performance on those measures to higher payments. Some physician organizations say "pay-for-performance" should be tested on a voluntary basis over several years before any discussion of making it mandatory, however.

But key lawmakers are likely to express greater urgency about switching to such a system, and CMS may, too. The agency's administrator, Mark B. McClellan, said in an interview last week that "we do want to be careful and to be deliberate." But physician pay-for-performance systems are "well-established" in the private sector, he said.

McClellan said an approach in which doctors all have the same financial incentives is probably needed.

Until now, analysts have viewed congressional action this year to erase a projected cut as a virtual certainty, but a physician lobbyist said that congressional leaders have given no assurances that is the case. The new spending data heighten that uncertainty, he said.

The House aide said the new data showing that doctors are providing a much greater volume of tests and services to Medicare patients mean that the cost of preventing the cut will be much higher. The Congressional Budget Office has estimated that the five-year cost of changing the cut in 2006 to an increase of 1.5 percent is $9.7 billion.

But the new data on volume mean that figure will be "dramatically" higher, he said. It also means that fundamental change to adopt efficiency incentives is essential.

Prospects for a fix were uncertain to begin with and the new data make it "a lot harder," he said. It also shows that the pattern of temporary fixes must end and be replaced with fundamental changes in payment that give doctors incentives to be efficient, he said. The current system for restraining spending is "out of control."

The 2004 figure of 15 percent compares to 8.1 percent in 2003, 7 percent in 2002, and 14.2 percent in 2001, a CMS spokesperson said. Kuhn said that 29 percent of the spending growth in 2004 stemmed from a shift toward "longer and more intensive" office visits. Greater use of "minor procedures" such as physical therapy and other "manual therapy" techniques, "eyelid dermabrasion," and "chemosurgery" accounted for 26 percent of the spending growth.

More frequent and complex imaging accounted for 18 percent. Much of that increase stemmed from greater use of magnetic resonance imaging (MRI) scans. Growth exceeded 25 percent "for advanced imaging procedures such as MRI scans," Kuhn said. More lab and other tests accounted for 11 percent of the overall spending growth, and more use of prescription drugs in doctors' offices for 11 percent.

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