| February
10, 2005
Madame Chair, Members of the Subcommittee,
I am Dr. William Gee from Lexington, KY. In addition to serving
as the managing partner of a 17 member private urological
practice, I am the Chair of the American Urological Association’s
Health Policy Council and a member of the AMA Relative-Value
Update Committee since 1995. I am here today representing
the Alliance of Specialty Medicine – a coalition of
12 physician specialty societies representing over 200,000
specialty physicians. I am pleased to have this opportunity
to testify before the Subcommittee on the issue of Medicare
payment to physicians, and in particular on the issue of the
flawed Sustainable Growth Rate (SGR) formula and possible
solutions.
As advocates for patients and physicians, the
Alliance of Specialty Medicine supports modifications to the
current Medicare physician payment formula to ensure continued
beneficiary access to timely, quality healthcare. The current
SGR formula has significant flaws; however, causing steep
reductions in physician reimbursement and prompting an increasing
number of specialty physicians to reconsider their participation
in the Medicare program, limit services to Medicare beneficiaries,
or restrict the number of Medicare patients they will treat.
The sad reality of the current situation is
that the only way that physicians can avert negative updates
is to somehow limit care to the population that needs quality
health care the most, our nation’s elderly and disabled.
No doctor wants to turn away patients or leave a practice
and the patients she or he have been serving for years. No
doctor wants to end a career earlier than he or she intended.
To take such actions goes against the very reasons we became
doctors.
Why the SGR
Formula is Flawed
Flaws in the complex Medicare physician reimbursement update
formula include, but are not limited to:
- Including the costs of Medicare-covered
outpatient drugs and biologicals in setting the expenditure
target for physicians’ services, even though these
items are not physicians’ services and therefore,
under the formula, lead to decreases in the annual payment
update;
- Linking Medicare physician fees to the
Gross Domestic Product (GDP) – which does not accurately
reflect changes in the cost of caring for Medicare patients;
- Inadequately accounting for changes in
the volume of services provided to Medicare patients due
to new preventative screening benefits, national coverage
decisions that increase the demand for services, a greater
reliance upon drugs to treat illnesses, and a greater awareness
of covered health benefits and practices due to educational
outreach efforts; and
- Improperly accounting for costs and savings
associated with new technologies.
Recent Congressional
Action
While the problems with the SGR were in some respects anticipated
when the law was passed in 1997, the first detrimental effects
were not experienced until 2002, when physicians received
a 5.4 percent reduction to the conversion factor. Since then,
the flaws with the SGR formula have been so pronounced that
Congress has been forced to pass two temporary measures to
keep the system from falling apart completely.
In 2003, after the Centers for Medicare and
Medicaid Services delayed a second payment reduction for three
months, Congress passed the first law, which required CMS
to fix accounting mistakes that were made during 1998 and
1999. Fixing these errors restored $54 billion to the Medicare
physician payment system and prevented another year of reductions
in reimbursement, but the legislation did nothing
to fix the overall problems that plague the formula.
With physicians anticipating a 4.4 percent reduction in 2004,
Congress again acted and included a provision in the Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(MMA) that mandated an increase of at least 1.5% in both 2004
and 2005. While we appreciate the leadership of this committee
in preventing the reductions and the eventual intervention
of Congress, the statutory increase did nothing to change
the underlying formula. In fact, while the statutory update
in the MMA prevented the additional reductions for 2004 and
2005, no additional funds were provided to pay for this temporary
fix, therefore exacerbating the problem. As a result, the
money used to fund the increase in these updates must be paid
back to the Medicare program, with interest, over the next
ten years.
Reimbursement
Rates in 2006 and Beyond
Again, if the SGR formula is not fixed this year, physicians
will receive negative updates of approximately 5 percent each
year from 2006 until 2012 and rates will not return to their
2002 level until well after 2013. In other words, physicians
will receive less reimbursement in 2013 than they did in 2002
for the exact same procedure, regardless of inflation and
increased practice costs. While reimbursement will likely
be cut by over 30 percent under the current formula during
that time period, it is estimated that costs for providing
services will rise by close to 20 percent. Such cuts will
further inhibit each physician’s ability to provide
services to Medicare beneficiaries, as many physicians will
simply be unable to afford to treat Medicare patients.
The Solution
As I have previously stated – Congressional action has
delayed the imminent meltdown of the Medicare program and
has allowed some breathing space to evaluate approaches to
fixing the payment update formula. It is now time, however,
to put an end to these stop-gap measures and fix the formula
and the Alliance of Specialty Medicine looks forward to working
with this committee and Congress to develop a solution. Physician
payments must be stabilized and further cuts must be prevented,
and to this end, the Alliance of Specialty Medicine believes
the following issues need to be addressed:
- Medicare-covered outpatient drugs
and other incident-to services that are included in the
expenditure target need to be removed retroactively back
to the base period.
CMS must exercise its statutory authority and remove Medicare
covered drugs, from the physician payment pool retroactively.
We thank you, Madame Chair, as well as, Mr. Thomas and the
other members of this committee who have supported the removal
of these drugs. As you know, physicians do not control the
costs of these products and services and each year these
costs represent a greater proportion of actual costs incurred
by the Medicare program. And, as the agency has acknowledged
in the past, physician-administered drugs are not a “true
physician service.” Yet the costs of these drugs continue
to have a negative impact on reimbursement for real physician
services.
The Congressional Budget Office (CBO) has predicted that
spending for outpatient drugs and other incident-to-services
will grow faster, on a per-beneficiary basis, than allowed
by the expenditure target. Each year these services will
consume a greater portion of the expenditure target, rising
from $12 billion (20 percent of the $62 billion expenditure
target) in 2004 to $28 billion (23 percent of the $121 billion
expenditure target) in 2012. These services must be removed
from the expenditure target retroactively, back to the base
period, so that it accurately reflects what it is supposed
to represent – payment for physician services. Recent
estimates show that this will have an immediate substantial
impact on the predicted cuts by bringing up the baseline
and, therefore, filling in much of the “hole”
that has been created.
Only Congress can replace the flawed SGR formula. However,
without assurance from CMS that it will remove drugs from
the physician payment pool, we understand that Congress
will be left with few options for replacing the flawed formula.
- Replace the SGR Formula With
a System that Adequately Accounts For the True Costs of
Delivering Healthcare Services. – The Medicare Economic
Index (MEI)
The Alliance believes that the current SGR formula needs
to be repealed and replaced with a system that is more predictable
and recognizes the true costs of providing physician services
to Medicare beneficiaries. The current MEI is a fairly accurate
measure of these costs. Other providers, such as hospitals
and skilled nursing facilities, are reimbursed based upon
changes in the costs of providing services and the physician
reimbursement formula should be based on this, as well.
Pay for Performance
The Alliance’s member specialty physician organizations
are continually striving to offer the highest specialized
quality care to all Medicare beneficiaries. However, with
our physicians facing over 30% reductions in Medicare reimbursement
from 2006 through 2013 compounded by exorbitant liability
premium increases, many of these specialty physicians are
reconsidering their Medicare participation status.
Therefore, the Alliance believes that if Congress
is to begin to explore alternative payment requirements –
such as pay for performance – then the current unsustainable
Medicare physician payment system needs to be fixed. The Alliance
represents 12 physician specialties, which are all at varying
stages of sophistication regarding pay for performance initiatives;
therefore, we believe that the following points need to be
considered:
- Any type of system that rewards providers
by improving patient care and outcomes should not be subject
to budget neutrality or be used as a physician volume control.
- The reporting of quality or efficiency
indicators and health outcomes data could be administratively
prohibitive to many physicians, especially those in small
practices that do not have electronic medical records. It
could be difficult to link payment to performance without
an interoperable health information technology infrastructure.
- Pay for performance programs must
not be punitive.
- Measures will need to be specialty
specific. 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.
- Any measures would have to be developed
by the physician community.
- Given the limitations on the current
status of specialty performance measures, the Alliance believes
that incentives should be placed on optimizing quality of
care and physician participation, not on performance of
specific quality measurements.
- If a pay for performance requirement
is implemented, it should be phased-in and pilot tested
on a voluntary basis first.
Conclusion
Congress must find a solution to implement a rational Medicare
physician payment system, and the Alliance of Specialty Medicine
looks forward to working with you to develop a system that
is more predictable, insures fair reimbursement for physicians,
and continued beneficiary access to quality specialty healthcare.
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