AAMC Reporter: June 2007

MedPAC, Congress Seek Physician Payment Remedies

The Medicare system's Sustainable Growth Rate (SGR)—a formula that calculates physician payment updates based largely on the nation's health care costs and gross domestic product—is flawed and in need of major adjustment, according to the Medicare Payment Advisory Commission (MedPAC) and leaders in academic medicine.

"Treating Medicare patients is vitally important for academic medical centers from a teaching point of view, and because they are major referral centers," said Jane T. Schumaker, M.A., CEO of the University of Florida Physicians group. "Every year we end up with a negative update from the SGR, and I don't think it can continue without eroding the willingness of physicians to see as many Medicare patients as they are currently, and that's not something we want to do."

In its March Report to the Congress, titled "Assessing Alternatives to the Sustainable Growth Rate System," MedPAC detailed several long-term solution options. One of these was to adjust SGR fee update amounts based on the physician's geographic region or participation in group practices.MedPAC also explored abandoning the traditional fee-for-service structure in favor of new methods that compare Medicare data among physician peers, with the eventual goal of payments based more on efficiency and quality of care, rather than simply the number of procedures performed. Ultimately, MedPAC made two recommendations: either the SGR be repealed in favor of quality and payfor- performance measures, or that a new system of expenditure targets be created.

"Expenditures for physician services have grown substantially, suggesting the SGR does not provide a strong check on spending," the report stated. "It does little to counter the inflationary nature of fee-for-service payment. In addition, the SGR is inequitable, treating all providers—regardless of their behavior—and all regions of the country alike."

The need to change the SGR method as a means of controlling costs grew more urgent this spring, when the Centers for Medicare and Medicaid Services' (CMS) 2007 Medicare Trustees Report activated for the first time the so-called Medicare funding warning. Established in 2003, the warning goes into effect when two consecutive trustees reports indicate that general revenue will make up more than 45 percent of total Medicare financing within a seven-year period. As a result of the warning, the Bush administration is required to propose legislation within 15 days of the next federal budget proposal—due in February 2008—to bring the funding level below 45 percent. Congress is required to consider those proposals, but not required to take action.

According to federal estimates, CMS will cut calendar year (CY) 2008 Medicare physician payments by 10 percent, with additional annual cuts of 5 percent projected for CY 2009 through CY 2016. "The current Medicare payment system for physicians is extremely problematic because of its year-to-year volatility and its inability to adequately account for growth in physician costs," said Christiane Mitchell, senior legislative analyst in the AAMC's Office of Governmental Relations.

In the short term, physician groups including the AAMC are advocating for a two-year positive update through CY 2009, with the understanding that Congress would repeal the SGR methodology starting in CY 2010. A 1 percent update in CYs 2008 and 2009 would cost $34.9 billion over five years. A decision in Congress could come before its August recess.

"Congress genuinely wants to take action on this, but there is uncertainty over how to pay for these changes," Mitchell said.

While many share the sentiment that the SGR must change, opinions vary on what the specific changes should be.

Tom M. Heckler, M.B.A., chief executive officer of the Oregon Health and Science University School of Medicine, said that adjusting for geographic diversity was not quite as enticing in practice as in theory. "It's very appealing intellectually," he said. "We're in a very low-cost Medicare region here in Oregon. Would I like to see our region boosted? Of course. But at the same time, the regional variation really happens on a much smaller scale, at the level of hospital service areas. So if you want to make a difference, the geographic regions aren't small enough to be meaningful."

Heckler said that tying payments to quality and efficiency standards could hold significant promise.

"While difficult to implement, [quality and efficiency measures] hold the most promise for addressing the Medicare program—and our growing federal deficits," Heckler said.

"…The idea of paying for quality really floats a physician's boat, because it shows they are not being treated or viewed as a kind of assembly line worker. Efforts at rewarding efficiency in the Medicare fee-forservice program have been nonexistent to date. Indeed, it can be argued that the Medicare program strongly discourages a physician from dedicating his or her time or expensive office staff resources to managing and coordinating the care of complex patients throughout the rest of the medical system…well-organized care delivery systems really can make a difference in the cost of care," Heckler said.

According to David A. Spahlinger, M.D., University of Michigan Medical School's senior associate dean for clinical affairs and executive medical director of its faculty group practice, the notion that Medicare's focus should begin and end exclusively with the physician—or the hospital—is outmoded. Spahlinger cited rising outpatient services and more physicians and health care teams treating a single patient for a variety of chronic conditions.

"With our length of hospital stay having gone down by several days, more now has to be done on the outpatient side," Spahlinger said. "And when patients are seeing multiple physicians, you need to start looking at groups of physicians and systems of care."

Before a quality-based payment system can take root, Spahlinger said, greater standardization among benefit plans may help pave the way for the data comparison that would provide the foundation of such a system.

"Say someone has an uncomplicated clot in the leg. We can teach them to medicate themselves, and that saves everybody a lot of money. But Medicare Part D won't cover that particular drug, so you have to admit them to the hospital," Spahlinger said.

"How can I consistently treat somebody in the most efficient way if there are so many pathways in terms of insurance plans and benefits? Once you standardize some of the benefits, you can really begin to compare some things."

—By Scott Harris

Contact Us    © 1995-2008 AAMC    Terms and Conditions    Privacy Statement