MedPAC’s Sweeping Agenda on Payment Reduction

John Wasik/Medicare NewsGroup

How Medicare pays providers is akin to a Russian Matryoshka doll in which progressively smaller dolls are nested within one large doll. If you can eliminate one or more of them—or reduce their size—the overall weight will be lower.

And so it goes with Medicare payments. In an effort to reduce overall payments, the Medicare Payment Advisory Commission (MedPAC), which is charged with advising Congress on how to improve the program, has suggested a number of new approaches.

While MedPAC’s 17-member panel hasn’t come to the conclusion that there’s a one-size-fits-all solution to reduce Medicare expenses, it has put some interesting proposals on the table that, if implemented by the Centers for Medicare and Medicare Services (CMS), promise to innovate the way in which providers get paid.

The latest MedPAC report contains some 435 pages, organized in 15 chapters. For policy wonks, it’s compelling reading and offers a template of things to come as Congress eyes reforming Medicare without the politically toxic alternatives of cutting benefits, raising taxes, or increasing the age of eligibility.

Kill the Sustainable Growth Rate

An independent body, MedPAC is also taking aim at some earlier reform measures such as repealing the sustainable growth rate (SGR), which sets a fixed amount of payment reductions for doctors. The SGR, universally despised by physicians and their powerful lobbies, has never been implemented.

MedPAC proposes repealing the SGR in Appendix B of this year’s report, and which endorses its 2011 position to Congress. What would replace the SGR? They suggest employing “legislated updates that would no longer be based on an expenditure-control formula.” In other words, Congress would no longer tell doctors how much they could charge, but instead would provide incentives for them to charge less. Instead of determining how much a treatment should cost, Congress would explore ways to ensure that doctors coordinate care for lower overall costs. This approach is less stick and more carrot.

Calling the SGR “fundamentally flawed,” MedPAC states that yearly stop-gap “fix” to the SGR—that is, delaying it—is “undermining the credibility of Medicare because they engender anger and uncertainty among physicians and other health-care professionals.”

MedPAC’s proposed payment updates, however, are complicated, in that they replace a flat percentage model with conversion factors tied to growth in services. An emphasis is made on access to “protected” primary care, which wouldn’t be subject to as many fee reductions as other services. Instead, these doctors would be hit with a 5.9 percent cut over the first three years. After that initial period, all payments would be frozen for the next seven years. That means, that on a per beneficiary basis, payments would rise only about 2.2 percent annually, from $64 billion in the first year to $121 billion in the last.

By scrapping the SGR, MedPAC hopes to offer a fairer payment model for doctors while ensuring that primary care remains accessible. One of the major complaints that doctors’ groups have is that the SGR, if enacted, actually would penalize primary care physicians, and thus would jeopardize health care access for beneficiaries. The threat of thousands of doctors refusing to accept Medicare patients because of payment issues constantly hung over the political debate.

While the SGR repeal only offers a small vessel of hope in the larger debate, it’s a step in the right direction in resolving the larger cost-shifting argument.

Getting Accurate Information

Another theme that MedPAC tackled is the question of how much time physicians spend on particular services. Many activities, such as administering flu shots, take minutes, while others, like consultations, take much longer. In Medicare parlance, MedPAC wants to get a better picture of Relative Value Units (RVUs), or the amount of work required to provide a service. MedPAC stated in its report that it doesn’t have “current, objective data” on RVUs.

The bottom line is that Medicare may not know how much doctors should be paid if they don’t have accurate information on the time spent on each service. Are some doctors overstating the time devoted to certain procedures? That may be the case, as illuminated by a recent piece in The New York Times on colonoscopy payments. According to the article, prices for the standard procedure vary widely: from $740 to $8,500.

Where is the Care Provided?

Where care is administered and who provides it also dominated the MedPAC report. Employing a raft of specialists in a hospital is the most expensive way to provide care. Is there a way to provide quality care outside of a large institution? MedPAC thinks so.

For example, take the cost of a standard echocardiogram. Medicare pays 140 percent more for this procedure in a hospital than in a free-standing doctor’s office. Is there any difference in the quality of service? Probably not, although hospital groups have increasingly hired doctors as employees so as to direct more services into their higher-priced facilities.

MedPAC identified 66 different treatments that could be provided at a lower cost in doctors’ offices. Medicare could save $1.5 billion annually by shifting these procedures from hospitals and surgical centers.

Hospital administrators oppose this idea, claming that it would force them to cut back services. According to another New York…

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