Physicians: Medicare Formula Is Priority in Reform


WASHINGTON — Congress should fix Medicare's payment formula before taking on any new reforms to pay physicians on the basis of quality, medical organizations testified at a hearing of the House Ways and Means health subcommittee.

If impending cuts to the fee schedule go into effect, “physicians will be hard pressed to undertake quality initiatives such as information technology,” testified Nancy H. Nielsen, M.D., trustee to the American Medical Association.

President Bush's budget request for fiscal year 2006 includes a scheduled 5.2% payment cut for physician services under Medicare. Actuaries have estimated that physician payments could decline by more than 30% through 2012, unless modifications are made to the sustainable growth rate (SGR), a component in the physician pay formula that determines each year's update.

Although the AMA has engaged in its own evidence-based, quality improvement measures, “it is critical to replace the flawed physician payment formula to allow quality initiatives to flourish,” Dr. Nielsen said. Other medical organizations offered similar pleas in testimony and in statements to the subcommittee.

Going ahead with pay-for-performance initiatives but not changing the formula to stave off the 5.2% cut “is unacceptable,” Jerome B. Connolly, senior government relations representative with the American Academy of Family Physicians, told this newspaper.

At the hearing, pay-for-performance proposals were heavily touted as a viable payment alternative by witnesses and panel members alike. “We fundamentally have to rethink how we pay our doctors,” said Subcommittee Chair Nancy L. Johnson (R-Conn.).

Some physicians perform better than others in the quality of care they deliver, Glenn M. Hackbarth, chairman of the Medicare Payment Advisory Commission (MedPAC), testified.

The SGR system “fails to create appropriate incentives to improve performance,” he said. MedPAC in its March report to Congress recommended a quality incentive payment system for physicians under Medicare, using various types of information technology to manage patients.

Such an approach would establish exclusive performance standards and award physicians accordingly, while establishing standards to improve quality, he said.

Rep. Pete Stark (D-Calif.), the panel's ranking member, countered that he was “reluctant to get into the quality issue.” As far as reforming payments, “I think it's up to the doctors to regulate themselves.”

Any type of payment system that rewards providers by improving patient care and outcomes must not be punitive or used as a control for physician volume, said William F. Gee, M.D., a urologist from Lexington, Ky., who testified on behalf of the Alliance for Specialty Medicine.

Measures should also be specialty specific, he continued. “Some measures may be appropriate for some specialties, and not others. In some areas, particularly surgery, it can be difficult to keep quality measures up to date enough to be perceived as relevant.”

In addition, the reporting of quality or efficiency indicators and health outcomes data could be administratively prohibitive to many physicians, especially those in small practices that don't have electronic health records, Dr. Gee testified.

There is some evidence that pay for performance can work, at least in the private sector. Since the implementation of three major pay-for-performance contracts with Partners Healthcare System in Boston, “we have steadily improved in targeted areas,” such as diabetes care, Thomas H. Lee, M.D., network president for the health care system, testified. The rate of rise in pharmacy spending under these contracts averaged about 5% in 2004, lower than the national average of 9%.

In addition, Partners has developed decision support to help guide physicians to more appropriate ordering of costly imaging tests. Early information indicates that the rate of rise for imaging is less than the national trend of 15%-18%, he said.

The contracts cover the care of more than 500,000 primary care patients.

Doctors Have Not Abandoned Medicare

Physicians did not run away from Medicare in 2002, despite a 5.4% cut to their payments, the Government Accountability Office reported.

In analyzing all Medicare physician claims for services provided from April 2000 to April 2002, the GAO found that the percentage of beneficiaries getting treatment actually increased—and that access increased in almost every part of the country.

For example, the percentage of beneficiaries receiving physician services during the month of April rose from 42% in 2000 to 46% in 2002.

The findings also suggest that Medicare beneficiaries were less likely to be exposed to balanced billing over time, from 1.7% of claims in 2000 to 1.3% in 2002.

Since 2002, Congress has provided some temporary fixes to prevent further cuts to the fee schedule, although a 5.2% cut is expected in 2006, unless permanent measures are taken.


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