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Reforming Medicare’s Physician Payment Strategy



December 11th, 2013

A new commentary by Gail Wilensky, released today as a web first by Health Affairs, reviews the recent history and future direction of physician payment reform. Since 1992 Medicare has reimbursed physicians on a fee-for-service basis. In 1997, as medical costs escalated, Congress began using a Sustainable Growth Rate (SGR) formula to reduce reimbursements if overall physician spending exceeded the growth in the economy.

However, in all but one year, Congress ignored its own earlier directive, postponing physician payment cuts even as costs remained out of control. With this game of “kick the can down the road” becoming increasingly tiresome to both lawmakers and physicians, Congress is now considering new legislation to do away with the current SGR formula and reimburse physicians for improving quality and lowering costs.

Wilensky is a Senior Fellow at Project HOPE, Health Affairs’ parent organization, who directed the Medicare and Medicaid programs under President George H Walker Bush. In her analysis, she observes that there seems to be growing agreement on the elements that a physician payment reform strategy should contain. Wilensky compares the provisions in several key proposals — including the discussion draft recently released by the House Ways and Means Committee and the Senate Finance Committee — that would replace the SGR with more value-oriented payment systems. She also examines several pilot programs currently being tested, including medical homes and accountable care organizations. So far, she notes, these programs have produced inconsistent results. “What they do not do is provide evidence about the effects of various ways to reimburse physicians when the payments for physicians are not part of a hospital’s bundled payment,” she says.

Wilensky considers the House-Senate discussion draft to be the most promising development but cautions: “[T]he reduced cost of eliminating the SGR…is much less than it has been for most of the past decade but still represents a sizable cost that will have to be paid for with other spending reductions or revenue sources.”

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2 Responses to “Reforming Medicare’s Physician Payment Strategy”

  1. leetocchi Says:

    The answer to your question Jeff is Yes. There is no debate about how to keep independent physician practices. They are unable to be herded into the capitation/risk model the ACA will force on all providers. Without a voice or ability to add anything to the “health reform,” physicians have been left out and should feel grateful for any scraps they get.

    There are physician-owned and -operated hospitals that are the model of efficiency and quality, yet the ACA outlawed new physician ownership in hospitals. The government is blind to the Calpers reference pricing experiment, because that is continuous work to monitor the price and quality, and it allows a true market to work. They prefer to set complex rules and spend twice as much in compliance costs as the potential savings.

  2. Jeff Goldsmith Says:

    This is an excellent and timely analysis by a policy veteran. Must read. It raises several points that Congressional policymakers should consider before rushing to replace the current Medicare RBRVS model.

    One, are we certain enough of the societal benefits of “meaningful use” and PQRI to permanently imbed them in a new physician payment scheme? Until we’ve had an impartial review of actual social benefits
    (reduced errors, improved chronic care management, etc) vs. actual costs (documentation time by caregivers, increased administrative overhead, system acquisition and maintenance costs), it seems premature to impose a costly regime of record keeping on the nation’s 700 thousand physicians and their teams. Simply to assume that a positive ratio of benefits to costs based on intuitively reasonable potential benefits is not sound policy. As Rand’s recent recantation about the economic benefits of EMR adoption should tell us, there’s a considerable gap between early economic modeling and actual experience. Likewise, is physician specific quality “profiling” by CMS based on PQRI’s measures statistically valid and meaningful. If not, why impose the considerable administrative costs on physician practices in perpetuity?

    Two, Gail’s point about the hospital centric approach in CMS bundled payment experiments is vitally important. If the only possible “general contractor” under bundled payment is the hospital, then, if adopted, bundled payment will accelerate the roll up of physician practices into hospitals, potentially vitiating any potential savings from improved care co-ordination. Physician group practices and IPA’s must be potential recipients of bundled payments. CalPERS and other experiments with bundled payments give patients multiple choices disciplined by reference pricing, where patient choice and potential savings are the driving force. Simply extending the hospital centered “administered price” model of DRG’s to a wider risk envelope will have a host of costly unintended consequences.

    Three, Gail alludes to another flaw in the existing demonstrations, particularly ACO’s: that they continue paying on a fee for service basis, and rely upon overlaid or “shadow” systems of bonuses or incentives.
    Maintaining fee for service locks both practices and CMS into continuing costly record keeping systems and high documentation time/costs for caregivers. New schemes must REPLACE, not overlay, fee for service in order for there to be sustainable savings long term. All these schemes-medical homes, ACO’s, bundled payments- are complex enough and have enough moving parts.

    Maintaining the legacy complications of fee for service billing “underneath” a new approach virtually assures that the only entities capable of executing the models are large, heavily subsidized practices attached to hospitals, health plans or corporations. Do we really, by inadvertence, want to bring independent physician practice in the US to an end by imposing administrative costs upon practices that only externally subsidized physician organizations can afford?

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