WASHINGTON — It won't be cheap to fix Medicare's problematic physician pay formula, but lawmakers aren't saving any money by waiting to replace it either, experts testified at a hearing of the Senate Finance Committee.

“We have been kicking this can down the road for the past 5 years. This committee, and certainly Congress, understands it's not going to get any easier,” said Dr. Cecil Wilson, board of trustees chairman for the American Medical Association.

Peter Orszag, Ph.D., director of the Congressional Budget Office, testified that “in health care, we get what we provide incentives for. We currently provide lots of incentives for advanced technologies and high-end treatment, and we get a lot of that. We provide very little incentive for preventive medicine and get very little of that.”

Early in 2006, lawmakers asked the Medicare Physician Advisory Commission (MedPAC) to examine ways to shift those incentives. Their findings were presented to the committee a few days before MedPAC members presented the commission's annual report to Congress.

Commissioners were unable to forge a consensus on what should be done to replace the sustainable growth rate (SGR) system, MedPAC Chairman Glenn Hackbarth testified. Instead, the commission offered lawmakers two alternative approaches—one that doesn't include an SGR-like spending target and one that does. (See box.)

Eliminating spending targets would require Congress to create a whole new system with incentives to physicians to provide high-quality, low-cost care, Mr. Hackbarth said. Keeping targets would simplify payment reform but still would require changes to make the system more equitable.

About spending targets, Dr. Wilson said, “No amount of tinkering can fix what is broken beyond repair.” Doctors account for a small portion of increasing premiums, but they are the only group that has spending targets imposed on them, he added.

“The AMA asks that Congress ensure that physicians are treated like hospitals and other providers by repealing the SGR and enacting a payment system that provides updates that keep pace with increases in medical practice costs. We, in turn, are committed to helping assure appropriate use of services,” he said.

No matter whose plan is embraced, fixing the SGR system is unlikely to come cheap. The Congressional Budget Office has estimated that current proposals will cost anywhere between $22 billion and $330 billion over 10 years.

“There are lots of steps, including [health information technology] and comparative effectiveness, that offer at least the potential to bend that curve over the long term, but the cost savings may not show up in the next 10 years,” Dr. Orszag testified. “Given the scale of the problems that we face, we need to be trying lots of different things and recalibrating all the time,” he said.

There are good ideas out there, Mr. Hackbarth testified, but the Centers for Medicare and Medicaid Services is the bottleneck. “We've got some very promising demonstrations under way, but it takes us forever to get them developed, in place, gather results, and translate them into policy,” he testified. The agency doesn't have the staff or information systems to move forward expeditiously.

“We're trying to run [Medicare] on the cheap. That won't work if we are trying to innovate at the same time,” Mr. Hackbarth said.

Which Path Leads To Better Care?

In testimony to the health subcommittee of the House Ways and Means Committee, Mr. Hackbarth said that the MedPAC commissioners struggled with their task of choosing an alternative to the current sustainable growth rate (SGR) system.

The commissioners couldn't agree on just one solution, he said, so they offered two proposals, deemed “Path 1” and “Path 2.”

Path 1 calls for repealing SGR and eliminating the system of expenditures targets. The MedPAC report suggests that Congress should implement new ways to improve incentives for physicians and other providers to offer quality care to their patients at lower costs. This could be done in the following ways:

▸ Giving the Centers for Medicaid and Medicare Services the authority to pay providers differently based on performance measures

▸ Ensuring accurate prices by identifying and correcting mispriced services

▸ Encouraging coordination of care and use of care management, especially for patients with chronic conditions

Path 1 also calls for collecting information on physicians' practice styles and sharing the results with other physicians across the country.

The commission proposes that Medicare use the results to adjust payments to physicians and base rewards on both quality and efficiency.

Path 2 calls for pursuing the approaches in Path 1 but also includes a new system of expenditure targets. The MedPAC report states that expenditure targets are necessary because they put “financial pressure on providers to change.”

Path 2 proposes that expenditure targets be applied to all providers in an effort to encourage different providers to work together at keeping costs as low as possible.

Medicare Pay Fix Won't Be Cheap or Easy to Achieve