[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
PHYSICIAN PAYMENTS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 28, 2002
__________
Serial No. 107-70
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
80-217 WASHINGTON : 2002
________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
NANCY L. JOHNSON, Connecticut, Chairman
JIM McCRERY, Louisiana FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas JOHN LEWIS, Georgia
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota KAREN L. THURMAN, Florida
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2, 4
WITNESSES
Congressional Budget Office, Dan L. Crippen, Director............ 6
Medicare Payment Advisory Commission, Glenn M. Hackbarth,
Chairman....................................................... 16
______
American Association for Thoracic Surgery, Society of Thoracic
Surgeons, Children's Hospital Boston, and Harvard Medical
School, John E. Mayer, Jr., M.D................................ 43
American Medical Association, Donald J. Palmisano, M.D........... 49
American Physical Therapy Association, and Spine and Sports
Rehabilitation Center, Stephen M. Levine....................... 57
Center for Studying Health System Change, Paul B. Ginsburg....... 35
SUBMISSIONS FOR THE RECORD
American Academy of Family Physicians, statement................. 71
American College of Obstetricians and Gynecologists, statement... 72
American College of Physicians--American Society of Internal
Medicine, statement............................................ 73
Association of American Medical Colleges, statement.............. 77
Association of Maternal and Child Health Programs, Deborah F.
Dietrich, letter............................................... 79
College of American Pathologists, statement...................... 80
Colorado Otolaryngology Associates, Colorado Springs, CO, Judy
Boesen; J. Lewis Romett, M.D.; Neiland Olson, M.D.; Joel
Ernster, M.D.; Barton Knox, M.D.; J. Christopher Pruitt, M.D.;
John Hohengarten, M.D.; and Edgar B Galloway, M.D.; letter..... 82
Hayworth, Hon. J.D., a Representative in Congress from the State
of Arizona, statement.......................................... 82
Knollenburg, Hon. Joe, a Representative in Congress from the
State of Michigan, statement................................... 83
Professional Radiology, Inc., Cincinnati, OH, Frank E.
McWilliams, letter and attachment.............................. 84
Sun Health, Sun City, AZ, Leland W. Peterson, letter............. 86
PHYSICIAN PAYMENTS
----------
THURSDAY, FEBRUARY 28, 2002
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:41 a.m., in
room 1100 Longworth House Office Building, Hon. Nancy L.
Johnson (Chairman of the Subcommittee) presiding.
[The advisory and revised advisory announcing the hearing
follow:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
February 20, 2002
No. HL-12
Johnson Announces Hearing on Physician Payments
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the Medicare administrative pricing
formula for physicians, which has resulted in a negative 5.4 percent
update in 2002. The hearing will take place on Thursday, February 28,
2002, in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:00 a.m. The hearing will conclude by 1:30
p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include Dr. Glenn Hackbarth, Chairman, Medicare Payment
Advisory Commission (MedPAC); Dan Crippen, Director, Congressional
Budget Office; Dr. Paul Ginsburg, President, Center for Studying Health
System Change; and representatives of physician organizations. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
Driven by high growth in payments for physician services in the
1980s, the Medicare Volume Performance Standard (MVPS) was enacted in
the Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) to give
physicians an incentive to control volume and to limit the growth in
Medicare expenditures for physician services. Based on the
recommendations of MedPAC and with the support of physician groups, the
Sustainable Growth Rate (SGR) replaced the MVPS in 1997. The SGR
formula is linked, in part, to projected Gross Domestic Product, so
when the economy slows the update is reduced accordingly. It is also
tied to the difference between actual expenditures and target
expenditures. The SGR is used in combination with the Medicare Economic
Index (MEI), a measure of the increase in physician office and salary
costs. Therefore, the SGR is not a direct limit on expenditures--
payments are not withheld if the target is exceeded--but the update is
increased or decreased.
Under the SGR formula, a ``saw-tooth'' pattern of funding has
emerged. For example, the update increased 5.2 percent in 2000 and 4.8
percent in 2001--more than twice the rate of physician cost inflation.
Then in 2002, the update decreased to a negative 5.4 percent, resulting
in more than a 10 percent swing in just one year. The SGR formula is
inflexible in its administration. For example, the SGR is dependent on
economists accurately predicting economic trends; otherwise, the target
is missed. Moreover, past errors in setting the target carryover and
must be absorbed in future years, making it difficult to correct for
the missed target in one year. Consequently, the Office of the Actuary
is predicting negative payment updates through 2006.
MedPAC has recommended replacing the SGR with a simple model based
on the MEI. Because successive and negative changes are projected,
however, a change to the formula that produces moderate payment
increases results in significant budgetary costs and increased
beneficiary cost-sharing.
In announcing the hearing, Chairman Johnson stated, ``Medicare's
formula for paying physicians is completely irrational and must be
reformed this year. These cuts are unjustifiable. They result from
factors in a formula that has nothing to do with the cost of providing
health care. Inadequate payment of health professionals will discourage
the top quality candidates that medicine has traditionally attracted
and harm patient access to care.''
FOCUS OF THE HEARING:
This hearing will focus on the Medicare physician fee schedule
formula. It will discuss the effect of the formula on physician
payments and beneficiary access to care. The hearing will also analyze
reforms to the current sustainable growth rate and the impact of any
change on access and Medicare outlays.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business, Thursday, March 14, 2002.
Those filing written statements who wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the Subcommittee on Health in room 1136
Longworth House Office Building, in an open and searchable package 48
hours before the hearing. The U.S. Capitol Police will refuse unopened
and unsearchable deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
mailto:[email protected], along with a fax copy to (202)
225-2610, in Word Perfect or MS Word format and MUST NOT exceed a total
of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov/.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call (202) 225-1721 or (202) 226-3411 TTD/TTY in advance of the event
(four business days notice is requested). Questions with regard to
special accommodation needs in general (including availability of
Committee materials in alternative formats) may be directed to the
Committee as noted above.
***NOTICE--CHANGE IN TIME***
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
February 20, 2002
No. HL-12 Revised
Change in Time for Subcommittee Hearing on Physician Payments
Congresswoman Nancy L. Johnson (R-CT), Chairman of the Subcommittee
on Health of the Committee on Ways and Means, today announced that the
Subcommittee hearing on physician payments, scheduled for Thursday,
February 28, 2002, at 10:00 a.m., in the main Committee hearing room,
1100 Longworth House Office Building, will now be held at 9:30 a.m. The
hearing will conclude by 12:30 p.m.
All other details for the hearing remain the same. (See
Subcommittee Advisory No. HL-12, dated February 20, 2002.)
Chairman JOHNSON. Good morning, everyone, and welcome to
our witnesses and the panels that will follow. We appreciate
your input on what we consider to be a very important hearing.
Last year we held over a dozen hearings on why Medicare
must be reformed and modernized. We unanimously reported and
passed a bill to reduce the regulatory burden on our providers
and to modernize Medicare's contracting system. Yet, the Senate
has failed to even hold a hearing on that issue.
Medicare's erratic and unpredictable payments to physicians
clearly epitomize just one more reason why we cannot wait any
longer to fundamentally modernize Medicare. When payments
oscillate from 4.8 percent in 2001 to a negative 5.4 percent in
2002 and actuaries project additional payment cuts in the
future, something is wrong.
The cost of practicing medicine will not get cheaper, it
will get more expensive. If we do not reform the so-called
sustainable growth rate payment formula, I fear our seniors may
suffer access problems and our physicians will only become more
demoralized in dealing with Medicare. I am committed to fixing
this irrational payment formula as part of a larger Medicare
modernization and prescription drug bill this year.
Driven by high growth in payments for physician services in
the eighties, the Medicare Volume Performance Standard (MVPS)
was developed to give physicians an incentive to control volume
and to limit the growth in Medicare expenditures for physician
services. In 1997, the Sustainable Growth Rate (SGR) replaced
the MVPS, based on the recommendations of Medicare Payment
Advisory Commission (MedPAC) and with the support of physician
groups. The SGR formula is linked to projected Gross Domestic
Product (GDP), so when the economy slows, the update is reduced
accordingly. It is also tied to the difference between actual
expenditures and target expenditures. The SGR is used in
combination with the Medical Economic Index (MEI), a measure of
the increase in physician office and salary costs. Therefore,
the SGR is not a direct limit on expenditures. Payments are not
withheld if the target is exceeded, but if the update is
increased or decreased accordingly.
Today we will hear from MedPAC, who has recommended
scrapping the SGR and linking payments to the Medicare Economic
Index. Second, the Congressional Budget Office (CBO) will
testify why payments to physicians and related providers are
projected to be cut in the future and the fiscal implications
of reforming the SGR. Finally, we will hear from an academic
and several physician and provider groups about their ideas on
reforming Medicare's payments to physicians and providers.
We look forward to your input during this hearing. I
personally am extremely concerned about the volatility of our
payment formula and its interaction with Medicaid
reimbursements, particularly out there in the urban
communities. So, it is important that we understand not only
the problems in our payment formula, but also what is happening
to reimbursements to physicians out there in different types of
communities. Because only then can we assure that there will be
doctors there to provide the quality care that seniors need and
deserve throughout the cities and hamlets of our Nation.
So I welcome our witnesses and would yield to my Ranking
Member and colleague, Mr. Stark.
[The opening statement of Chairman Johnson follows:]
Opening Statement of the Hon. Nancy L. Johnson, a Representative in
Congress from the State of Connecticut, and Chairman,
Subcommittee on Health
Last year, we held over one dozen hearings on why Medicare must be
reformed and modernized. We unanimously reported and passed a bill to
reduce the regulatory burden on our providers and to modernize
Medicare's contracting system. Yet the Senate has failed to even hold a
hearing on that issue.
Medicare's erratic and unpredictable payments to physicians,
clearly epitomizes just one more reason why we cannot wait any longer
to fundamentally modernize Medicare. When payments oscillate from 4.8
percent in 2001 to negative 5.4 percent in 2002, and actuaries project
additional payment cuts in the future, something is wrong.
The cost of practicing medicine will not get cheaper; it will get
more expensive. If we do not reform the so-called ``sustainable growth
rate'' payment formula, I fear our seniors may suffer access problems
and our physicians will only become more demoralized in dealing with
Medicare. I am committed to fixing this irrational payment formula as
part of a larger Medicare modernization and prescription drug bill this
year.
Driven by high growth in payments for physician services in the
1980s, the Medicare Volume Performance Standard (MVPS) was developed to
give physicians an incentive to control volume and to limit the growth
in Medicare expenditures for physician services. In 1997, the
Sustainable Growth Rate (SGR) replaced the MVPS, based on the
recommendations of MedPAC and with the support of physician groups. The
SGR formula is linked to projected Gross Domestic Product so when the
economy slows the update is reduced accordingly. It is also tied to the
difference between actual expenditures and target expenditures. The SGR
is used in combination with the Medicare Economic Index, a measure of
the increase in physician office and salary costs. Therefore, the SGR
is not a direct limit on expenditures--payments are not withheld if the
target is exceeded--but the update is increased or decreased.
Today we will hear from MedPAC, who has recommended scrapping the
SGR and liking payments to the Medicare Economic Index. Secondly, the
Congressional Budget Office will testify why payments to physicians and
related providers are projected to be cut in the future, and the fiscal
implications of reforming the SGR. Finally, we will hear from an
academic and several physician and provider groups about their ideas on
reforming Medicare's payments to physicians and providers.
Mr. STARK. Thank you, Madam Chair, and thank you for
holding this important hearing. I agree in part with MedPAC
that we should revisit the formula of the system under which we
reimburse physicians. I think it is important to note, however,
that while it is proper to be concerned about cost containment
or fair reimbursement for services that we take this in context
of what this Committee has to do.
We have had 2 years of record increases in payments to
physicians. In 2000, surgeons' median income in this country
was well over $200,000. Even the poor GPs, general
practitioners, and pediatricians were making about between
$100,000 and $120,000 median, which means that half of them
were making a lot more. The tax cuts that we have so generously
bestowed on the richest Americans, which would include these
physicians, further increases their take-home pay and we have
done nothing to help the lowest income seniors in the program,
so that I would like to see us perhaps, as we think about fair
reimbursement for people making $2, $3, $4, $600,000--we have
given them huge tax cuts. I hope we will be as quick and as
concerned about the 70 percent of the 40 million Medicare
beneficiaries whose incomes are below $40,000 and who have no
access to pharmaceutical benefits and to the 12 million
children in this country who have no health insurance at all
and therefore no health care. And so let us take care of the
top and hope that we set a standard for helping the less
fortunate in this country.
Chairman JOHNSON. Thank you. It is my privilege and
pleasure to welcome our first panel. Mr. Crippen.
STATEMENT OF DAN L. CRIPPEN, DIRECTOR, CONGRESSIONAL BUDGET
OFFICE
Mr. CRIPPEN. Thank you, Madam Chairwoman and----
Mr. STARK. Use the microphone.
Mr. CRIPPEN. Does that work?
Mr. STARK. Yes. Pull it up, swallow it. There you go.
Mr. CRIPPEN. The issue before us today, as I understand it,
is the adequacy of recent and future updates for physician
payments under Medicare and ultimately the acceptability of the
formula that produces those updates. More pointedly, we are
here to discuss the price taxpayers and Medicare patients pay
each year to physicians. But this discussion, this question,
cannot, I would argue, be addressed in isolation. Physician
fees, or prices, are only one part of the equation. We need to
examine payments and payment policy in the context of both the
history and the future of this program.
With the indulgence of the Committee, I would therefore
like to take a little temporal jig and try to address how we
got here, address where we go from here, and then, ultimately,
get to here and see if that enlightens us any.
As the Committee is painfully aware, price controls or
administered prices are difficult to establish and seemingly
impossible to enforce. History is replete with the failure of
price controls, in this case, on physician services to manage
or control spending. That failure has a unique aspect in this
case because physicians are able to adjust the volume of
services they provide.
This chart shows the perpetual, if you will, increase since
the beginning of the program in total spending for physicians.
There is a discontinuity because the physician services
definition has changed, but nevertheless it is almost a
straight line up. Throughout the eighties, despite fee
schedules and regulation, Medicare spending for physicians per
beneficiary, per beneficiary, rose at an average annual rate of
12 percent.
Virtually no matter what price controls have been employed,
spending for physician services has almost always gone up. Even
in those years after enactment of the Balanced Budget Act (BBA)
1997 when hospital and total spending declined, physician
payments went up. Total spending was targeted, beginning in
1992, as you all know, and that approach was revised in 1997
along with fee schedules to rein in what appeared to be an
ever-increasing amount that taxpayers were contributing to this
aspect of Medicare.
I will return to that point in time--the near past--in a
moment, but against this backdrop of apparently inexorable
increases in spending for physician fees, I want to turn to the
period that is our near future. The Committee has seen me
present this chart in many and varied circumstances, but I
think it is always important to establish a backdrop when we
are considering these programs.
As we see, current spending on Medicare, Medicaid, Social
Security, much of which spending for retirees, is running at
about 7 percent of GDP. When my generation retires, we will
literally double the number of recipients from something like
39 million today to about 80 million, come 2030. So it is not
surprising that this chart suggests we will at least double and
probably more than double the amount of the economy consumed by
these programs.
Of course, the single biggest increases that the chart
shows--just graphically, let alone numerically--are for
Medicare--which, again, is not surprising. The Congressional
Budget Office assumes that Medicare costs are going to rise
even faster than the economy in this projection, and that is
probably a conservative estimate given the program's spending
history.
The point here is that we have a future before us--that is
a good redundant statement--we have a future that suggests that
the total Federal budget itself, which is now only about 18
percent of GDP, is going to be consumed largely by these three
programs or else we are going to have to increase taxes
dramatically or increase government debt dramatically. Anything
we tend to add to these payments, whether it is higher fees for
physicians or whether it is pharmaceutical benefits, will only
exacerbate that outcome.
This is not to say--and I certainly don't want to say--that
there is any crisis here that needs to be addressed today; or
maybe the Congress this year and in the future will not
consider this to be a problem, in which case one would go about
fixing up the program's finances to accommodate a physician
payment increase. But I want to remind the Committee, as I have
in the past, that the fiscal pressures of this demographic
bulge are almost upon us, and anything we do to add to Medicare
spending will certainly make them worse.
Returning to the present, the Committee is faced with the
prospect of a reduction in the prices for physician services
for last year, this year, and possibly several more years. The
reasons for that are several. As we see from this rather
complicated, or apparently complicated, chart, the single
largest reason is an error that was made a few years ago and
that resulted in price increases--large price increases--that
it turned out were not warranted under the formula.
So a large piece of your current dilemma--the volatility of
the increases and the fact that we have negative updates--is
that physicians were overpaid according to the formula in 2000
and 2001. In fact, if the correct data had been used, the
updates would have been much less volatile, with a 2.1 percent
reduction in 2002, a 4.9-percent reduction next year, and
positive updates thereafter. Of course, the updates of more
than 5 percent that were paid in 2001 and 2002 would have been
smaller, but positive nonetheless.
Some of the rest of the adjustment is due to volume
increases, which put total spending somewhat above the target,
and the slowing economy. There are at least two other pieces of
information of which I think the Committee should be aware. Not
all physicians have been hit equally over the past several
years, primarily because of other changes taking place in the
Medicare fee schedule. For example, in the past 4 years, family
practice physicians experienced a 3 percent reduction in fees
this year but an overall increase 19 percent in the prior 3
years.
Volatility, Madam Chairwoman, while undesirable, certainly
has characterized the structure of this program virtually from
the beginning, and a big piece of the current volatility is due
to the data error, or correction, that needed to be made. The
current sustainable growth mechanism rate I suggest, can
probably be modified to further reduce volatility.
What are we to make of all this? First, physicians'
revenues from Medicare are not declining. Spending for
physicians' services will go up even with the past and
projected reductions we have in physician fees. Indeed, CBO
projects--as we say in our written statement, Madam
Chairwoman--that total spending for physicians will go up by
5.9 percent in fiscal year 2002, despite the fact that the fee
schedule will be reduced. By the way, some of you may have a
copy of the testimony that has the increase occurring in 2003.
The first paragraph should read ``2002.'' I just note that
correction.
Second, even if the Congress does not change current law
and does not increase physician compensation or anything else,
even holding total physician spending to per capita growth in
GDP will still ultimately lead to what are probably
unsustainable costs for taxpayers, mostly our children.
Third, the lion's share of the negative updates is
attributable to unjustifiably large increases in total spending
for physicians' services in 2000 and 2001.
Fourth, not all physicians' fees have been reduced by even
as much as the updates.
In closing, I want to reiterate that it is the
responsibility of the Medicare Payment Advisory Commission and
my colleague on this panel to give you their best advice about
appropriate payment of providers. However, it is the
responsibility of this Committee and the rest of government to
balance the various competing interests of present and future
providers, beneficiaries, and taxpayers. Eliminating spending
targets will only increase the burden on other providers, other
government programs, and, ultimately, on our kids.
Thank you.
[The prepared statement of Mr. Crippen follows:]
Statement of Dan L. Crippen, Director, Congressional Budget Office
Chairwoman Johnson, Congressman Stark, and Members of the
Committee, I am pleased to be here today to discuss Medicare payments
to physicians. As you know, the fees that Medicare pays per physician
service have fallen by 5.4 percent this year. What you might not know
is that the Congressional Budget Office (CBO) projects that total
Medicare payments to physicians will rise by 5.9 percent in fiscal year
2002. Although the average fee per service will continue to fall for
the next several years, total Medicare payments to physicians will
continue to increase.
The pattern of seemingly inexorable increases in Medicare spending
for physicians' services spurred the creation of the sustainable growth
rate (SGR) method to automatically link increases in Medicare physician
spending per beneficiary to growth in the national economy. CBO
estimates that the recent recommendation by the Medicare Payment
Advisory Commission (MedPAC) would increase Medicare spending by $126
billion over 10 years as a result of repealing the SGR system. Before
discussing the reasons for that estimate, my testimony will review the
relationship between Medicare payments to physicians, program spending,
and the budget, as well as summarize the history of efforts to control
Medicare spending for physicians' services.
PHYSICIAN FEES AND PHYSICIAN SPENDING
Allow me to begin by reviewing the relationship between the fees
Medicare pays to physicians, overall Medicare spending for physicians'
services, total Medicare spending, and the economy. Fees are paid for
each medical service. But the amount paid per service is only one of
the components driving Medicare physician spending. One other factor is
obvious: Medicare spending for physicians' services increases with the
number of beneficiaries. In testimony before this Committee, I have
highlighted the massive changes associated with the impending
retirement of my generation. According to last year's report by the
Medicare trustees, the number of Medicare beneficiaries will virtually
double between 2000 and 2030. During the same period, the number of
workers paying for Social Security and Medicare will increase by about
15 percent (see Figure 1).
IMPACT OF CHANGING DEMOGRAPHICS
ON MEDICARE SPENDING
The aging of the baby boomers has dramatic fiscal implications for
Medicare (see Figure 2). If we spent the same fraction of gross
domestic product (GDP) on each Medicare beneficiary in 2030 that we
spend today--a proposition reflecting only the increased number of
beneficiaries--Medicare spending would grow from today's 2.3 percent of
GDP to 4.5 percent in 2030. The fiscal implications of the boomers'
aging are compounded by the fact that health care costs measured per
beneficiary routinely grow significantly faster than does the economy
measured on a per capita basis. As a result, if current law remains
unchanged, Medicare spending will climb to 5.4 percent of GDP by 2030.
Also projected to climb is spending for the ``big three'' programs
for the elderly--Social Security, Medicare, and Medicaid--taken as a
whole: between now and 2030, such spending as a share of GDP will
virtually double. Transfers to the elderly will grow from 7.8 percent
of GDP to 14.7 percent in 2030 (see Figure 3).
Let me underscore that that increase in spending of almost 7
percentage points of GDP will occur under current law. Proposals to
increase payments to Medicare providers (such as MedPAC's
recommendation to increase payments to physicians) or to expand
Medicare benefits (such as proposals to create a Medicare prescription
drug benefit) will exacerbate the long-term budgetary pressures
projected for the next several decades. As this Committee knows, paying
for those increased costs will require either dramatic reductions in
spending, sizable tax increases, or large-scale borrowing.
MEDICARE SPENDING ON PHYSICIANS
In addition to fees and growth in the number of beneficiaries, the
number and type (or ``intensity'') of the services provided by
physicians determine total Medicare physician spending. Taken together,
the number and type of physicians' services constitute their
``volume.'' Medicare physician spending measured per beneficiary equals
fees times volume of services. Each year, Medicare sets fees for
physicians' services using formulas in the Medicare Fee Schedule (MFS)
and the SGR mechanism. However, because Medicare does not control the
volume of services that physicians provide, its physician spending per
beneficiary can grow even if fees are reduced.
Medicare spending for physicians' services grew faster than
Medicare spending for all other services throughout the 1980s; in the
1990s, that trend reversed. From 1981 through 1990, spending for
physicians' services grew at an annual rate of 13.7 percent; spending
for all other services grew at a rate of 11.1 percent per year. By
1990, Medicare's total payments to physicians were more than three-and-
a-half times greater than they had been 10 years earlier, and the
average physician was receiving more than two-and-a-half times as much
in Medicare payments. Indeed, Medicare payments per physician increased
almost twice as fast as did the nation's economy during the 1980s. That
rapid growth led policymakers to add expenditure targets to the
formulas used to set the overall level of physician fees in order to
control total spending for physicians' services. In the 1990s, growth
in the volume of physicians' services moderated. To the extent that
there have been surges in that growth, the system has lowered the
update--the annual adjustment to physicians' fees--to offset the higher
spending.
A BRIEF HISTORY OF MEDICARE'S EFFORTS
TO CONTROL PAYMENTS TO PHYSICIANS
The chronology of payments to physicians under Medicare can be
divided into three periods. The first, shortly after the program began
in 1965, was characterized by a rapid rise in spending as physicians
increased both their charges and the volume of services that they
provided. Even when the Congress limited the growth of fees for
physicians' services by pegging the annual fee update to the Medicare
economic index, or MEI, spending continued to climb rapidly.\1\ That
experience led to the second period of physician payments, when the
Congress froze fees and limited increases in them to less than the rise
in the MEI.
---------------------------------------------------------------------------
\1\ The Medicare economic index measures changes in the costs of
physicians' time and operating expenses; it is a weighted sum of the
prices of inputs in those two categories. The components of the index
come from the Bureau of Labor Statistics. Changes in physicians' time
are measured through changes in nonfarm labor costs. Labor productivity
is also factored into the index.
---------------------------------------------------------------------------
Despite those actions, spending for physicians' services continued
to grow throughout the 1980s, and the Congress realized that
limitations on the growth of fees alone--without regard to the volume
of services that physicians provided--was not enough to control
spending. That realization led to what is now the third period in
Medicare's payments to physicians (beginning in 1992), a span
distinguished by restraints on the uncontrolled growth in expenditures
for physicians' services that Medicare experienced in the past.
Abandoning the Charge-Based System
When Medicare was created in 1965, the program paid physicians fees
that were based on their charges, the method of payment then used by
private insurers. In addition, Medicare permitted physicians to bill
beneficiaries for the amount of their charges that exceeded the fee
that Medicare paid, a practice known as ``balance billing.'' The
charge-based reimbursement system gave physicians the incentive to
increase their charges from year to year to boost their revenues, and
those increases led to the spiraling expenditures of the first period
of Medicare physician payments.
As concerns grew about the program's rising costs, policymakers
focused on restraining those fees. In 1972, the Congress mandated that
the annual update to physicians' fees be limited to the increase in the
MEI, a provision that was implemented in 1975. Tying increases in fees
to growth in the MEI was not sufficient to keep total payments from
rising, however, and the Congress took further steps to limit spending
through legislation enacted from 1984 through 1991, during the second
period of physician payments. The Congress froze fees from 1984 through
1986; from 1987 through 1991, it updated them by amounts specified in
legislation.
Limiting Beneficiary Liability
Balance billing was another issue that prompted Congressional
action during the 1980s. On average, liability for balance billing per
beneficiary grew from $56 in 1980 to a high of $94 in 1986.\2\
Subsequently, the Congress responded by imposing limits on such
billing, which prevented physicians from raising their charges;
beneficiaries thus in effect made up for the constraints on Medicare
physician fees. Balance billing is currently restricted to 109.25
percent of Medicare's fees for participating physicians.\3\
---------------------------------------------------------------------------
\2\ Physician Payment Review Commission, Annual Report to Congress
(March1988).
\3\ Under Medicare's rules, the program pays 80 percent of the fee
schedule, and beneficiaries or their supplemental insurer pays 20
percent. Balance billing occurs when beneficiaries pay more than 20
percent of the fee. A physician elects either to ``participate'' (that
is, take Medicare fees as payment in full for all services) or to
receive Medicare payments as a ``nonparticipating'' physician allowed
to balance-bill patients up to the statutory limit. Fees for
nonparticipating physicians are set at 95 percent of the fees for
participating physicians. Nonparticipating physicians are permitted to
bill up to 115 percent of their fees.
---------------------------------------------------------------------------
The program's limits on balance billing protect beneficiaries'
liability for physicians' charges. However, those limits reduce the
potential usefulness of balance billing either as a safety valve or
signal that Medicare's fees are below the level necessary to attract a
sufficient number of doctors to serve Medicare enrollees.
Redistributing Income Among Physicians' Services
Policymakers also took steps to redistribute payments among
physicians. In the 1980s, many analysts believed that Medicare's
reimbursement for physicians' services was distorted by factors that
tended to overcompensate so-called procedural services at the expense
of what were termed cognitive services. Before the MFS was adopted,
fees varied widely, with physicians in different specialties and in
different geographic regions receiving different payments for
comparable services.
The response to those concerns was the implementation in 1992 of
the Medicare Fee Schedule, which based payments for individual services
on measures of the relative resources used to provide them. There are
two parts of the formula for fees. One part is a set of weights that
indicates the resource costs of each service relative to all others.
(For example, a CAT scan has a higher relative value than an
intermediate office visit with an established patient.) The other part
is a fixed dollar amount, called the conversion factor, which is
multiplied by each relative weight to calculate the fee to be paid for
each service. The fee schedule was intended to promote equity and to be
budget neutral--in 1992, the conversion factor was set so that
estimated expenditures under the MFS equaled estimates of what
expenditures would have been under the earlier payment system. One
thing the MFS was not designed to do, however, was control costs.
Controlling Volume
In an attempt to control total spending for physicians' services
driven by volume, the Congress also enacted a mechanism that tied the
annual update to fees under the MFS to the trend in total spending for
physicians' services relative to a target. Under that approach, the
conversion factor was to be updated annually to reflect increases in
physicians' costs for providing care, as measured by the MEI, and
adjusted by a factor to counteract changes in the volume of services
provided per beneficiary. The introduction of expenditure targets to
the update formula initiated the third period in physician payments.
Known as the volume performance standard (VPS), the approach provided a
mechanism for adjusting fees to try to keep total physician spending on
target.
The method for applying the VPS was fairly straightforward, but it
led to updates that were unstable. Under the VPS approach, the
expenditure target was based on the historical trend in volume. Any
excess spending relative to the target triggered a reduction in the
update two years later. But the VPS system depended heavily on the
historical volume trend, and the decline in that trend in the mid-1990s
led to large increases in Medicare's fees for physicians' services. The
Congress attempted to offset the budgetary effects of those increases
by making successively larger cuts in fees, which further destabilized
the update mechanism. Indeed, between 1992 and 1998 (the years that the
VPS was in effect), the MEI varied from 2.0 percent to 3.2 percent, but
the annual update to physician fees varied much more widely, from a low
of 0.6 percent to a high of 7.5 percent (see Figure 4).
That volatility led the Congress to modify the VPS in the Balanced
Budget Act of 1997 (BBA), replacing it with the sustainable growth rate
mechanism, the method in place today.
The SGR Approach
Like the VPS, the SGR method uses a target to adjust future payment
rates and to control growth in Medicare's total expenditures for
physicians' services. In contrast to the VPS, however, the target under
the SGR mechanism is tied to growth in real (inflation-adjusted) GDP
per capita--a measure of growth in the resources that society has
available per person. The update under this approach is equal to the
MEI adjusted by a factor that reflects cumulative spending relative to
the target (the VPS did not use cumulative spending).
Policymakers saw the SGR approach as having the advantages of
objectivity and stability in comparison with the VPS. From a budgetary
standpoint, the SGR method, like the VPS, is effective in limiting
total payments to physicians over time. GDP growth provides an
objective benchmark; moreover, changes in GDP from year to year have
been considerably more stable (and generally smaller) than changes in
the volume of physicians' services.
PROBLEMS WITH THE CURRENT APPROACH
A key argument for switching from the VPS approach to the SGR
mechanism was that over time, the VPS would produce inherently volatile
updates. But updates under the SGR method have proven to be volatile as
well. Until 2002, that volatility has tended to be to the benefit of
physicians. Overall, the update in the first three years during which
the SGR method was in place was almost twice as high as the MEI over
the same period. It is the reduction for 2002 that has raised concerns
among physicians.
In 2002, for the first time since the MFS method was implemented in
1992, physicians' fees have been reduced, drawing objections from
physicians and raising concerns about assertions that beneficiaries'
access to physicians' services will be impaired. Several factors
contributed to the fee reductions:
*As of November 2001, the cumulative spending target (that
is, the allowed spending from April 1996 through December 2001)
that was used to set the physician fee update for 2002 was
$302.7 billion. That target was $1.5 billion lower than the
amount expected a year earlier. The reduction was driven
largely by slower growth of GDP than had been estimated
previously; also contributing, however, were revisions in some
of the other factors that determine the spending targets.\4, 5\
---------------------------------------------------------------------------
\4\ Centers for Medicare and Medicaid Services, ``Medicare Program;
Revisions to Payment Policies and Five-Year Review of and Adjustments
to the Relative Value Units Under the Physician Fee Schedule for
Calendar Year 2002; Final Rule,'' Federal Register, vol. 66, no. 212
(November 1, 2001), pp. 55312-55321.
\5\ Centers for Medicare and Medicaid Services, Office of the
Actuary, ``Estimated Sustainable Growth Rate and Final Conversion
Factor for Medicare Payments to Physicians in 2002'' (February 4,
2002), available at www.hcfa.gov/pubforms/actuary/sgr/sgr2002f.pdf,
compared with previous versions dated March 19, 2001, and November 21,
2000.
---------------------------------------------------------------------------
*In addition, cumulative spending for physicians' services
far exceeded the spending target. The estimate of actual
spending through 2001 that was made in November of that year
and used to set the update for 2002 was $311.6 billion--or $8.9
billion (2.9 percent) above the corresponding target.
*A large part of that discrepancy, however, resulted from the
omission previously of a portion of actual expenditures related
to certain service codes, which by mistake were not counted
(including, for example, chiropractic services). In March 2001,
the Centers for Medicare and Medicaid Services (CMS) estimated
that actual cumulative expenditures through 2001 would be
$303.9 billion--or $7.7 billion less than the November 2001
estimate. Although part of that difference is attributable to
the availability of more recent data on physician spending than
those used for the initial estimate, the size of the
discrepancy indicates that the effect of the previously omitted
services was substantial.
Therefore, much of the reason for the large decline in Medicare
physician fees this year may be related to a counting error. That error
was a major factor in the large positive updates in fees for 2000 and
2001, which otherwise would not have occurred. The effects of that
oversight should not be confused with basic problems associated with
the update mechanism.
The BBA limited the maximum annual offset to the MEI to -7
percentage points, so the update for 2002 was -5.4 percent. Because
actual spending exceeded the expenditure target by more than 7
percentage points for 2002, a portion of the past excess will lower the
update for 2003. Currently, CMS projects negative updates through 2005
(see Figure 4).
Because of changes to the relative payment amounts, or weights, for
individual services for 2002, the -5.4 percent reduction in the
conversion factor does not change all fees by the same amount. Indeed,
payments for some services will increase in 2002, and payments for
others will drop by more than 5.4 percent below last year's. Those
varying effects occur because 2002 is the final transition year in the
reform of the ``practice expense'' portion of the fee schedule, which
redistributed income among physician specialties. Starting in 2003,
little redistribution of physician payments is anticipated.
There are four general courses of action the Congress can take to
address these issues. One possibility is to eliminate spending targets
and determine the updates to fees without linking them to overall
spending for physicians' services--that plan represents MedPAC's
proposed approach. A second is to modify the SGR to reduce volatility.
A third option is to legislate temporary relief from the reductions in
fees generated by the current system. A fourth option is to make no
changes to the current mechanism.
MEDPAC'S PROPOSAL
In March 2001 and again this year, MedPAC recommended that the
Congress discontinue using the SGR method for computing the update and
replace it with a framework similar to that used for updating the fees
of other types of providers. CBO estimates that implementing the MedPAC
proposal would cost $126 billion over 10 years. That estimate is
virtually the same as the estimate of the CMS actuary.
Not only would the MedPAC recommendation lock in place the
overstated payments and fees set in earlier years, but it would also
increase annually the fees paid to physicians. For 2003 through 2005,
the MedPAC recommendation would substitute positive updates for the
reductions expected under current law. Total spending for physicians'
services in the subsequent year would also be above the spending that
would occur under current law.
The new framework that MedPAC is proposing would end the use of
expenditure targets, opening the door to large spending increases
driven by volume. MedPAC's proposal would base the update on the
forecast for the MEI and on changes in productivity--without any limits
on volume or total spending.
WHY PHYSICIANS ARE DIFFERENT FROM
MEDICARE'S OTHER SERVICE PROVIDERS
Physicians are unique among Medicare providers in being subject to
an overall spending adjustment. By contrast, Medicare pays for most
other services now through prospective payment systems that set a price
for a bundle of services. Under those systems, the provider is free to
make decisions about the volume of services provided to the patient,
but the payment for the bundle is fixed.
Physicians are unique as well in their ability to determine the
volume of services they can provide. They are the gatekeepers and
managers of the health care system; they direct and influence the type
and amount of care their patients receive. (Physicians, for example,
can order laboratory tests, radiological procedures, and surgery.)
Moreover, the units of service for which physicians are paid under
the MFS are frequently very small. The physician may therefore receive
one payment for an office visit and a separate payment for individual
services such as administering and interpreting x-rays--all of which
can be provided in a single visit. That contrasts with the policy for
hospitals, which receive payment for each discharge and no extra
payment for additional services or days (except in extremely costly
cases).
Further, once a physician's practice is established, the marginal
costs of providing more services are primarily those associated with
the physician's time. The current method of physician payment takes
that unique role into account by explicitly linking the update in fees
to the level of spending, which--as I said before--is determined by
both fees and volume.
CONCLUSION
In considering whether to change the current system for setting
Medicare physician payments, the Congress confronts the prospect of
reductions in the fees paid per service for the next several years.
MedPAC's recommendation would increase the federal government's
spending for physicians' services under Medicare by $126 billion over
the next 10 years. In contrast, other approaches might have the
potential to lessen the volatility in the update without dismantling
the mechanism for linking physician fees to total spending for
physicians' services or growth in the economy.
Maintaining access to care for Medicare beneficiaries is a key
consideration in assessing Medicare's fee structure. MedPAC reports
that the most recent systematic data currently available about access
to care are from 1999. In evaluating that information, MedPAC reports
that it found no evidence of problems in beneficiaries' and physicians'
views about access. However, the lack of timely data makes it hard to
know whether and to what extent problems exist in access to care. More
timely data on that issue would be an important improvement over the
current situation and could assist the Congress in its deliberations.
Changes that increase Medicare payments to physicians will increase
federal spending. Incorporating higher fees for physicians' services
into Medicare spending as currently projected would add to the already
substantial long-range costs of the program and to the fiscal challenge
to the nation posed by the aging of the baby boomers. Raising fees
would also increase the premium that beneficiaries must pay for Part B
of Medicare (the Supplementary Medical Insurance program). Inevitably,
over the long run, higher spending by Medicare for physicians' services
will require reduced spending elsewhere in the budget, higher taxes, or
larger deficits.
__________
FIGURE 1. PERCENTAGE INCREASE IN BENEFICIARIES AND WORKERS, 2000-2030
[GRAPHIC] [TIFF OMITTED] T0217W.001
SOURCE: 2001 Annual Report of the Board of Trustees of the Federal
Hospital Insurance Trust Fund.
__________
FIGURE 2. PROJECTED MEDICARE SPENDING UNDER ALTERNATIVE ASSUMPTIONS,
2001-2030
[GRAPHIC] [TIFF OMITTED] T0217X.001
SOURCE: Congressional Budget Office.
__________
FIGURE 3. SPENDING FOR SOCIAL SECURITY, MEDICARE, AND MEDICAID, 2000-
2030
[GRAPHIC] [TIFF OMITTED] T0217Y.001
SOURCE: Congressional Budget Office based on its midrange
assumptions about growth in gross domestic product and program
spending. For further details, see Congressional Budget Office, The
Budget and Economic Outlook: Fiscal Years 2003-2012 (January 2002), Ch.
6.
__________
FIGURE 4. COMPARISON OF ANNUAL PHYSICIAN UPDATES AND CHANGE IN
MEDICAREPHYSICIAN SPENDING, 1992-2005
[GRAPHIC] [TIFF OMITTED] T0217Z.001
SOURCES: Centers for Medicare and Medicaid Services for updates and
historical spending and Congressional Budget Office for projection of
spending from 2001 through 2005.
NOTE: The actual increase in the conversion factor, which is a
fixed dollar amount that is multiplied by relative weights to calculate
Medicare physician fees, is also affected by a budget-neutrality
adjustment.
Chairman JOHNSON. Thank you very much, Mr. Crippen.
Mr. Hackbarth of the MedPAC, very glad to have you.
STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN, MEDICARE
PAYMENT ADVISORY COMMISSION
Mr. HACKBARTH. Thank you.
As you know, MedPAC recommends that we repeal SGR and
replace it with a system under which the Secretary would update
fees annually based on estimated change in the prices that
physicians need to pay for their inputs minus an adjustment for
improved productivity.
This is not a recommendation that we arrive at lightly.
Controlling spending is obviously an important issue for the
Medicare Program for all of the reasons that Mr. Crippen has
outlined. Controlling spending, however, is not the only goal
that we need to keep in mind. Here are some of the other goals
that we at MedPAC think are important for the Medicare Program.
One of course is to assure access to quality care for
seniors. This is the overriding purpose of the Medicare
Program. At MedPAC we believe that the best way to do that is
to try to match payments for individual provider groups,
including physicians, to the cost of efficient providers of
those services, and that is what our recommendation would do.
So that is another goal.
A third goal is fairness to providers, and one type of
fairness is rewarding good behavior and reserving punishment,
if you will, for poor performers, and this is a critical area
where we believe the current system, the SGR system, fails. If
spending increases above the target, the punishment is
distributed across all providers without regard to who
contributed to the excess spending.
A fourth goal, from our perspective, is to assure that
clinical considerations, not payment policy, guides decisions
about where particular services should be provided. Here again
the current system falls short because SGR only applies to
certain services. It could influence where to provide a
particular service. If it is provided in the physician's
office, it is subject to the constraint. If it is moved to an
ambulatory surgical center or hospital outpatient department,
it is not.
Finally, we think that it is important for the Medicare
Program, for the government to be a reliable and trustworthy
partner to people who serve the Medicare population, and here
again we think the current system falls short. The
unpredictable and highly variable increases undermine
confidence in the program. Yes, SGR controls spending, but only
by compromising each of these other five important goals that
we think should be included in the Medicare Program, and in our
judgment that is a very high price to pay.
The CBO and Centers for Medicare and Medicaid Services
(CMS) estimate that the cost of repealing SGR will be quite
large. We have not had the opportunity to review those
estimates in detail, the underlying assumptions, so I have no
specific comment on the estimate. But we think it is important
to keep in mind why the projected cost is large. The projected
cost is large because the underlying baseline is so low.
The underlying baseline is based on the assumption that we
will cut physician fees over the next several years by 17
percent. The underlying baseline assumes that the conversion
factor for physicians, basically the price per unit of service,
will be lower in the year 2005 than in 1993. It is because of
this unrealistically low baseline that there is a large price
tag for the policy that MedPAC recommends.
That cannot be a reason to avoid doing the right thing. The
issue of volume in the Medicare Program is a critical issue. We
think it is very important for the Committee to understand that
the SGR system does not constrain volume per se.
The Sustained Growth Rate system controls total spending,
but it fails to provide appropriate incentives at the level of
the individual physician. Fees again are cut across the board
as spending targets are exceeded. The individual physician is
not rewarded in any way for exercising restraint in decisions
about what to prescribe. The individual physician is not
rewarded for being a conservative practitioner. That
conservative practitioner of medicine is punished under the
system just the same as the person that increases volume
inappropriately. That is a fundamental flaw in the system.
What will happen if SGR is not fixed? We think the initial
signs may of trouble may be subtle. Initially we may see
shorter, more rushed office visits for our seniors. Perhaps
there will be an incentive to increase return visits or
prescribe more procedures or tests. Eventually we might see a
move to relocate certain services out of the physician office
to other locations. If fees continue to remain very low or fall
even further, we could begin to see access problems for
Medicare beneficiaries. In the long run if Medicare fees stay
out of whack, we could begin to see a fewer number of
applicants to medical school, certainly fewer from our best or
brightest young people or a shift away from specialties that
are heavily dependent on Medicare.
All of these problems are serious problems and if they
occur they will be difficult and costly to reverse in the
future.
[The prepared statement of Mr. Hackbarth follows:]
Statement of Glenn M. Hackbarth, J.D., Chairman,
Medicare Payment Advisory Commission
Chairman Johnson, Mr. Stark, Members of the Subcommittee. I am
Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission
(MedPAC). I am pleased to be here this morning to discuss MedPAC's
recommendations concerning payment for physician services in the
Medicare program.
The current formula for updating physician payments, known as the
sustainable growth rate system (SGR), should be repealed. We made this
recommendation last year in our March report to Congress because the
conceptual basis of the system is flawed and in June we warned of
potentially large negative updates for 2002 and in the future. That
future has arrived, and CMS now projects four years of negative
updates. The basic problem is that in seeking to control spending, the
SGR causes large swings in updates from year to year that are unrelated
to changes in the cost of providing physician services. Although input
price increases for physician services have been in the 2-3 percent
range for the last few years, the SGR has produced payment updates of
+5.4, +4.5, and -5.4 percent over the 2000-2002 period.
We recommend treating payment updates for physician services as we
do payment updates for other services. Accordingly, we recommend that
the Congress repeal the SGR and instead require that the Secretary
update payments for physician services based on the estimated change in
input prices for the coming year, less an adjustment for growth in
multifactor productivity. We also recommend that the Secretary revise
the productivity adjustment currently used for physician services to
make it a multifactor instead of a labor-only adjustment. Taking into
account current estimates for input prices and productivity, we thus
recommend that the Congress update payments for physician services by
2.5 percent for 2003.
Current estimates of updates using the SGR formula show three more
years of negative updates for a total decrease of about 17 percent over
the 2002-2005 period, a situation that is unsustainable (Figure 1). In
addition, updates under the SGR will remain below estimated increases
in the cost of providing physician services thereafter. Because the SGR
is the current law, our recommendation--or any other action that
corrects this problem--will show major budgetary costs. Nonetheless,
maintaining access for Medicare beneficiaries and keeping physicians
participating in the program and accepting new patients, will require
that action be taken.
[GRAPHIC] [TIFF OMITTED] T0217A.001
The problem with the current update system
Setting prices correctly in Medicare's payment systems is essential
to maintain access to services for Medicare beneficiaries. The
underlying problem with the current SGR system is that it attempts both
to set individual prices accurately and to control total spending on
physician services delivered to Medicare beneficiaries. These two goals
can seldom be achieved simultaneously. The SGR attempted to achieve
both goals and failed, as did the Volume Performance Standard system
before it.
The SGR system causes payments to diverge from costs because,
although the system accounts for inflation in input prices,
productivity growth, and other factors affecting costs, it overrides
these factors to achieve an expenditure target based on growth in real
gross domestic product (GDP) per capita. If actual spending for
physician services differs from the expenditure target, updates under
the SGR system will diverge from costs. When this occurs, payments will
be either too low, potentially jeopardizing beneficiaries' access to
care, or too high, making spending higher than necessary. This is a
particular concern given that the SGR system only applies to services
paid for under the physician fee schedule. Services provided in
physicians' offices are paid for entirely under the fee schedule,
whereas when services are provided in other settings such as hospitals
or ambulatory surgical centers, part of the payment is outside the fee
schedule. Updates based on an expenditure target that fully applies to
only one setting could create financial incentives that inappropriately
influence clinical decisions about where services are provided.
An expenditure target approach, such as the SGR, assumes that
increasing updates if overall volume is controlled, and decreasing
updates if overall volume is not controlled, provides physicians a
collective incentive to control the volume of services. However, this
assumption is incorrect because people do not respond to collective
incentives but individual incentives. An individual physician reducing
volume does not realize a proportional increase in payments. Instead,
the increase in payments is distributed among all physicians providing
services to Medicare beneficiaries. If anything, in the short run an
individual physician has an incentive to increase volume under such a
system and the sum of those individual incentives will result in an
increase in volume overall. In fact, CMS makes exactly that assumption
when it estimates the so-called behavioral response of physicians to
lower payments--which is an increase in volume of services provided.
Over a longer period, if payments were clearly less than
physicians' marginal cost of providing a service, we might see
physicians cut back their Medicare practice and concentrate on other
patients, devote more time to other professional or leisure activities,
or leave practice altogether. Ultimately, we could see fewer applicants
to medical school or a shift in residency preferences away from those
specialties most heavily dependent on Medicare. The result eventually
would be decreased access for Medicare beneficiaries which would be
very difficult to reverse.
Compounding the problem with the conceptual basis of the system,
the SGR system produces volatile updates. Updates went from large
increases in 2000 and 2001 of 5.4 percent and 4.5 percent,
respectively, to an unexpected large reduction in 2002 of 5.4 percent.
The recent volatility illustrates the problem of trying to control
spending with an update formula. To control spending the update formula
compares actual spending to an expenditure target. That target changed
abruptly last year because of two corrections. First, the Department of
Commerce re-estimated historical GDP, which made prior physician
spending growth too high by lowering the historical spending targets.
Second, both actual and projected GDP went down since last spring,
bringing down estimates of allowed future spending growth. In addition
to corrections in the expenditure target, CMS found it had not counted
some physician spending, correcting for that error increased actual
expenditures and thus further increased the difference between actual
and target expenditures. As a result of these corrections, CMS's
estimates for the update in 2002 changed from -0.1 last March to -5.4
percent in November.
To address such problems, in our March 2002 report we recommend
that the Congress replace the SGR system with an annual update based on
factors influencing the unit costs of efficiently providing physician
services (MedPAC 2002). The Commission's recommendation is based on a
belief that getting the price right is important when making update
decisions. If total spending for physician services needs to be
controlled, it may be better to look outside the payment update
mechanism, achieving appropriate use of services through outcomes and
effectiveness research for example, as we suggested in our March 2001
report to the Congress (MedPAC 2001). If controlling total Medicare
spending is the goal, then an approach that targets all of Medicare
spending, not just physician spending, would be more appropriate. Below
we describe how the Congress should replace the SGR system.
What should be done?
Replacing the SGR system would solve the fundamental problems of
the current system and would allow updates to account more fully for
factors affecting costs. The change also would uncouple payment updates
from spending control and make updates for physician services similar
to the updates for other services. This change would promote the goal
of achieving consistent payment policies across ambulatory care
settings, including physician offices, hospital outpatient departments,
and ambulatory surgical centers. Accordingly, the Commission recommends
that:
The Congress should repeal the sustainable growth rate system
and instead require that the Secretary update payments for
physician services based on the estimated change in input
prices for the coming year, less an adjustment for growth in
multifactor productivity.
To replace the SGR system, the Congress could repeal provisions in
current law and replace them with language similar to that for other
services. For example, the Social Security Act requires updates for
inpatient hospital care to equal the increase in the hospital market
basket index, except when the Congress chooses to make the update
smaller or larger. The Congress generally makes these choices after
considering advice from MedPAC and the Secretary. With a similar update
method for physician services, the Commission intends to base its
advice to the Congress on assessments of payment adequacy such as the
one discussed later in this testimony.
Payment updates should take into account productivity improvements
that enable physicians to provide care more efficiently. Revising the
productivity adjustment to account for labor and nonlabor factors is
consistent with the way physician services are produced. Labor accounts
for most of the cost of providing physician services, but capital
inputs are also important, including office space, medical materials
and supplies, and equipment. The production of physician services, like
the production of most other goods and services, is a joint effort that
requires both labor and non-labor inputs.\1\ Therefore the Commission
recommends that:
---------------------------------------------------------------------------
\1\ The labor-only adjustment may simply be an artifact. It has
been part of the MEI since the index was first used in paying for
physician services in 1975, which was before the Bureau of Labor
Statistics (BLS) began publishing measures of multifactor productivity
in 1983.
The Secretary should revise the productivity adjustment for
physician services and make it a multifactor instead of labor-
---------------------------------------------------------------------------
only adjustment.
Productivity gains are certainly possible in physician services and
should be taken into account. For example, research suggests that
doubling the size of a physician practice (from the current average of
about 2.5 physicians to 5 physicians) increases productivity by 9
percent with no increase in practice expense per physician (Pope and
Burge 1996). Physicians apparently perceive the advantages of group
practice: in 1990, 52 percent of self employed physicians were in solo
practice, but by 1998, that percentage had dropped to 42 percent. Other
gains might come from new technology, economies of scale, managerial
skill, and changes in how production is organized.
In other health care delivery settings such as hospitals, MedPAC
assumes that cost savings from improved productivity are usually offset
by cost increasing factors such as scientific and technological
advances or complexity changes within service categories. However,
Medicare's payment system for physician services accounts for those
cost increasing factors by either, creating new billing codes or
revising existing codes in the physician fee schedule, or by
recalibrating the fee schedule's relative weights every five years.
Thus, those cost increases do not offset cost decreases from
productivity and productivity must be accounted for separately.
Productivity growth is the ratio of growth in outputs to growth in
inputs. Measuring productivity growth requires detailed information on
the personnel, facilities, and other inputs used and on the quantity,
quality, and mix of services (outputs) produced. Because such data are
generally not available, MedPAC has adopted a policy standard, 0.5
percent, for achievable productivity growth that is based on growth in
multifactor productivity in the national economy. Such a measure should
be used in the physician update as well.
In making its update for physician services in 2003 MedPAC
considered three things: the adequacy of Medicare physician payment in
2002, the inflation in input prices projected for 2003, and an
adjustment for multifactor productivity. Although payments for
physician services have not kept pace with the change in input prices
since 1999, MedPAC recommends no adjustment for payment adequacy at
this time, pending collection of further data. The other components of
the update are the estimate of the change in input prices for 2003,
which is 3.0 percent, and MedPAC's adjustment for growth in multifactor
productivity, which is 0.5 percent. Therefore:
The Congress should update payments for physician services by
2.5 percent for 2003.
Our assessment of the first two components of our update, payment
adequacy and inflation in input prices, is discussed briefly in the
following sections.
Assessing payment adequacy
Is the current level of Medicare's payments for physician services
adequate? The information available to answer this question is limited
and better measures of payment adequacy are needed. We lack information
on the cost of physician services, so we cannot compare Medicare's
payments and costs the way we can for other services, such as hospital
care. However, we do have information about several other factors that
allow us to judge the adequacy of payments. This information includes
data on the number of physicians furnishing services to Medicare
beneficiaries, physicians' perceptions of the Medicare program and
their willingness to furnish services to beneficiaries, and information
from surveys of beneficiaries on their ability to obtain care and their
satisfaction with the care received. However, because it takes some
time for providers to respond to changes in payment, these indicators
may lag behind payment changes and must be interpreted carefully.
Additional measures of payment adequacy are needed that are sensitive
to possible short-term effects of inadequate payments, such as the
duration of office visits and changes in the volume of services.
Available information suggests that, as of 1999, payments were not
too low. From 1999 onward, we have very limited data; we do know,
however, that payments did not keep up with increases in input prices.
This suggests that payments for 2002 could be too low, raising concerns
about beneficiaries' access to care. We will not know if payments are
too low until we have further information on payment adequacy. One
source of that information will be MedPAC's newest survey of physicians
which will be fielded this spring.
Entry and exit of providers
Data on provider entry and exit yield information regarding the
adequacy of current payments. Rapid growth in the number of providers
furnishing services to beneficiaries may indicate that Medicare's
payment rates are too high. Conversely, widespread provider withdrawals
from Medicare could suggest that the rates are too low.
Counts of physicians billing Medicare show that the number of
physicians furnishing services to beneficiaries has kept pace with
growth in the number of beneficiaries. From 1995 to 1999, the number of
physicians per 1,000 beneficiaries grew slightly, from 12.9 to 13.1.
Physician willingness and ability to serve Medicare beneficiaries
MedPAC's 1999 survey of physicians suggests that physicians were
willing and able to serve beneficiaries.
LOnly about 10 percent of physicians reported any
change between 1997 and 1999 in the priority given to Medicare
patients seeking an appointment. Of those changing their
appointment priorities, the percentage that reported giving
Medicare patients a higher priority was almost the same as the
percentage that assigned Medicare patients a lower priority.
LOnly 4 percent of physicians said that it was very
difficult to find suitable referrals for their fee-for-service
Medicare patients, a finding comparable to the percent who
reported problems referring their privately insured fee-for-
service patients.
One of the most important findings of the survey was that, among
physicians accepting all or some new patients, more than 95 percent
said they were accepting new Medicare fee-for-service patients--a
finding consistent with the results of another recent survey.
While these findings are positive, many doctors participating in
MedPAC's survey expressed concerns about payment levels. About 45
percent said that reimbursement levels for their Medicare fee-for-
service patients were a very serious problem although, even more, about
66 percent, said that HMO reimbursements were a very serious problem.
Beneficiaries' access to care
Another way to assess the adequacy of payment rates is to evaluate
beneficiaries' access to and quality of care. Evidence of widespread
access or quality problems for beneficiaries may indicate that
Medicare's payment rates are too low. Access and quality measures are
often difficult to interpret, however, because they are influenced by
many factors. Access to care for specific services, for example, may be
influenced by beneficiaries' incomes, secondary (medigap) insurance
coverage, preferences, local population changes, or transportation
barriers, all of which are unrelated to Medicare's payment policies.
Access to care was not a problem in 1999, according to data from
the Medicare Current Beneficiary Survey. The percentage of
beneficiaries reporting trouble getting care (4 percent) was low and
essentially unchanged from previous years. The data also show that
beneficiaries were overwhelmingly satisfied with the care they
received. We will continue to track these indicators as newer data
become available.
Accounting for cost changes in the coming year
Given the information about the adequacy of the current level of
payments, the next step in determining payment updates is to ask how
much costs will change in the coming year. Several factors will affect
the cost of physician services, but the most important one is inflation
in input prices. The available measure--the MEI--has two problems, but
the Secretary can correct them. Other factors that may increase costs
include scientific and technological advances and the regulatory burden
of the Medicare program, including the burden of compliance with
requirements of the Health Insurance Portability and Accountability Act
of 1996. These other factors are likely to have small or unmeasurable
effects on costs. The remaining factor--productivity growth--will
reduce costs. Using appropriate measures of inflation and productivity
growth, it appears that the cost of physician services will increase by
2.5 percent during the coming year.
Measuring inflation in input prices The MEI is the SGR system's
measure of input price inflation. It is calculated by CMS as a weighted
average of price changes for inputs used to provide physician services.
Those inputs include physician time and effort, or work, and practice
expense. Physician work, which accounts for the time, effort, skill and
stress associated with providing the service, has a weight of 54.5
percent; the remaining 45.5 percent is allocated among categories of
practice expense. Practice expense includes support staff wages and
benefits, office expense, medical materials and supplies, professional
liability insurance, medical equipment, and other professional
expenses, such as private transportation.
Although the MEI is analogous to the market basket indexes used to
update payments for inpatient hospital care, it currently differs from
those indexes in that it includes an adjustment for productivity
growth. Productivity growth is an important factor and MedPAC believes
that it should be considered separately in update decisions. This would
allow input price indexes to account only for changes in prices, not
other changes in cost.
As used in the SGR system, the MEI also differs from the market
basket indexes in that it is not a forecast of the change in input
prices for a given year, but a measure of input price inflation for the
previous year. To allow payment updates to anticipate changes in costs
during the coming year CMS should use a forecast of the MEI when making
payment updates for physician services.
By removing the productivity adjustment and making it a forecast,
the MEI would become a better measure of input price inflation. So
modified, the index shows that input prices for physician services are
expected to increase by 3.0 percent in 2003.
Other cost-increasing factors
The cost of physician services may increase because of factors
other than changes in input prices. The overall effect of these factors
is likely to be small, however. As noted the costs of scientific and
technological advances are already accounted for in the physician fee
schedule when new billing codes are created or existing codes are
revised.
Other factors increasing costs are difficult to measure. For
example, the regulatory burden of the Medicare program is an important
concern of physicians. Nevertheless, estimates of the cost of this
burden are not available. One way to account for any measurable
increases in cost due to these factors is to assess payment adequacy,
as described earlier, and adjust payments accordingly in future
updates.
Chairman JOHNSON. Thank you very much, Mr. Hackbarth. That
was a very thorough explanation, I think, of the multiple goals
that we have in our effort to reimburse physicians and of the
depth of concern that we ought to have about the SGR formula
and the impact it is having.
There are a couple of things I would like to bring up. The
first one is a very brief question to Mr. Crippen. You say that
spending on entitlement services Social Security, Medicare, and
Medicaid will increase from 7 to 14 percent of the GDP. Do you
have any idea what percentage of expected revenues that will
be?
Mr. CRIPPEN. At the moment, we believe revenues will
average about 19 percent of GDP during this decade and in the
foreseeable future, given the way the Tax Code is constructed.
Revenues can creep up over time, as they did in the recent
past, to a little over 20 percent of GDP. The reduction in
taxes that you all enacted last year will reduce that share to
19 percent over the current decade. So revenues will fluctuate
somewhere between 19 percent and 20 percent of GDP for the very
long term.
Chairman JOHNSON. So if this goes from 7 percent to 14
percent of GDP, what percentage of the expected revenues do you
imagine that would be?
Mr. CRIPPEN. It would take 14 or 15 percentage points 19
percent. So it would be taking the lion's share, or three-
quarters.
Chairman JOHNSON. So it would be taking 15 percent of the
19 percent of expected revenues?
Mr. CRIPPEN. Yes. About three-quarters.
Chairman JOHNSON. Leaving less than 25 percent for all
other functions by the year 2030?
Mr. CRIPPEN. Right, if taxes were not raised or debt did
not go up dramatically.
Chairman JOHNSON. Thank you.
Second, I wanted to ask whoever cares to comment on the
following question. First of all, we do see that this formula
has very different impacts on different physician groups, that
some are receiving quite generous increases over time and some
are receiving very steep reductions. The second thing that I
see eclectically out there, and I wonder if you can look at
this in your data, is that I see a very disparate impact on
senior access to service, depending on how Medicare
reimbursements interact with Medicaid policy and State
decisions about whether or not to replace the 20 percent
copayment, which is now a voluntary choice that States are
making.
Let me be a little clearer. In some of the urban areas of
Connecticut where the State is not replacing the 20 percent,
urban physicians have large patient load being paid at the
Medicaid rate, which is low, and then they have an unusually
large number of Medicare patients now associated with a 5
percent cut in reimbursement rate and next year an additional
cut. Most of these same physicians also have a suburban office.
In their suburban office they are not seeing nearly as many
Medicare patients and not nearly as many Medicaid patients.
So I am literally seeing before my very eyes public
reimbursement policy driving care out of our inner cities, and
I wonder whether any of your research into the impact of
reimbursement rates is beginning to pick up this kind of data.
I consider it probably the most serious impact of our
reimbursement formulas on access to care for seniors and poor
people, and yet I don't see it emerging from the materials that
I am reading. Mr. Hackbarth.
Mr. HACKBARTH. None of the data I have seen is that refined
that it would detect the sort of problem you have identified.
The access data that we have reviewed at the Commission is at a
higher level and shows in general good access to care for
Medicare beneficiaries as 1999.
Those are the most recent data we have available. We will
shortly be getting more up-to-date information, but in general
access has been good.
Chairman JOHNSON. My understanding of that data that you
have from 1999 is that there is a factor in it that shows that
45 percent of the physicians in 1999 are not happy with
Medicare. Now, on average it is good but when you have 45
percent 2 years ago, unhappy, and now we are cutting their
reimbursements in an environment in which their malpractice
premiums are soaring, their nursing costs are going up and
other factors affecting practice costs, including the need to
invest in new technology for just office management, never mind
for diagnosis. Do we have any way of getting at more current
data about the real impact of the 5 percent cost on physicians
and particularly on the physician decision as to where to
practice?
Mr. HACKBARTH. Well, dissatisfaction among physicians about
Medicare is certainly widespread, in particular in certain
specialties. As you indicated, the impact of moving to the
Resource Based Relative Value Scale (RBRVS) system has been
differential across specialties. That was intentional, and
certain specialties have experienced significant economic
losses.
By the same token, though, many physicians are also
dissatisfied with other payers. So Medicare is not unique in
this regard by any stretch. The decision not to participate,
not to see Medicare patients or not to accept new patients is
different, though, from a decision whether to be dissatisfied
or not. So there is not necessarily a direct correlation
between that 45 percent or even an increase in dissatisfaction
levels with an immediate decision not to see Medicare patients.
There are two separate issues.
Chairman JOHNSON. Does your data allow us to look at the
physician situation in those specialties that are most likely
to serve elderly because it is not even across the specialties
and of course there is going to be less dissatisfaction? If you
are in a specialty that has a relatively modest Medicare load,
it is going to be different in not only a specialty that has a
high Medicare load but for an older physician whose patient
base has probably aged with him? Do we have the ability to look
at the variable impact from those points of view?
Mr. HACKBARTH. We can look at it more specifically by
specialty, and I would be happy to work with our staff on that.
I think that is a legitimate and important question, but one of
the dilemmas that you face if you are a physician practicing in
a specialty dependent on Medicare is, well, where do I go if I
don't see Medicare patients? If in fact it is a specialty that
disproportionately cares for elements of the elderly, it is not
like they can start seeing children as their alternative.
And so they are in a bit of a box in that sense, and that
is a reason why we don't necessarily think the first order
effect of these constraints will be for physicians to say,
well, I am not going to see a Medicare patient. The first
response might be in fact to say, well, to make up for lost
income, I am going to have them come back more frequently or I
am going to do an extra procedure or test, and again that is
one of the critical failings of the SGR system.
All of the constraints are in the aggregate, not for the
individual physician, and so perversely we could see that one
of the indications that this series of cuts is doing real harm
is an increase in volume for return visits, more procedures,
more tests. The proponents of SGR will say, look, we told you
so, we need this volume constraint, but in fact the increasing
volume is a sign of distress.
Chairman JOHNSON. Thank you. I think that is a very
important point. I think also we do need to pursue this issue
of more detailed data because increasingly physicians are
choosing to go to some other specialty or leave medicine at a
remarkably young age, and while the data is small yet,
depending on the specialty, that could have an enormous impact
on senior access to critical physician services.
So we need to know a lot more about this because it is
beginning to invade, in my estimation, senior access, and we
are right on a point where we are going to see the interaction
of the payment systems, the two publicly funded payment
systems, really affect senior access. But I will not pursue
this because my time has expired. Mr. Stark.
Mr. STARK. Dan, CBO estimated that the MedPAC
recommendation would cost us $126 billion over 10 years, and
did that include spending increases driven by volume? In other
words, can you elaborate on that? When you did the $126
billion, did you just take the suggested increase and put it
out or did you make any estimate as to change in aggregate
spending?
Mr. CRIPPEN. I think we included volume increases. Let me
consult my colleague. Yes, we did.
Mr. STARK. OK. Any idea of how much of that $126 billion
would be due to volume and intensity as opposed to . . .?
Mr. CRIPPEN. It looks like what we added was about 1
percentage point-of-increase for each year, on average, as a
result of volume and intensity.
Mr. STARK. And how much through----
Mr. CRIPPEN. The price increase?
Mr. STARK. The price increase?
Mr. CRIPPEN. Well, the total increase would have been the
MEI. So we took the MEI plus 1 percent.
Mr. STARK. What is MEI averaging?
Mr. CRIPPEN. I am going to defer to my colleague here.
Mr. STARK. That is all right.
Mr. CRIPPEN. You have MEI data on
Mr. HACKBARTH. For what period?
Mr. CRIPPEN. The next 10 years. It has got to be 2.5
percent or 3----
Mr. HACKBARTH. Two to three percent.
Mr. STARK. Two to three percent. So you are talking maybe
two for MEI and maybe another point on top for volume, and
really isn't that what we have averaged over the last 10 years
or so? Albeit we had a chart here somewhere, but it seems to me
over the last 10 years we have paid 33 percent in increases, so
the average annual in physician updates from 1992 up has been
2.6 percent. So I guess you guys are both talking, Mr.
Hackbarth and Mr. Crippen, the same amount whether we pay it as
we are currently doing it or whether we change it. Is that a
fair assumption, that we are really not talking about great
changes, although you suggest, Mr. Crippen, that it would be
$126 billion more; so when you are dealing in these small
percentages, a 10th of a percent here or there makes a major
difference at least in your----
Mr. CRIPPEN. And part of the dilemma is that the current
system--the SGR mechanism--would reduce payments for the next 2
or 3 years to catch up for the overpayments in 2000 and 2001.
So if you just removed that effect of the current system and
went back to roughly the increase in the MEI, then of course
you would have something similar, but you would not recoup
those payments that were made earlier.
Mr. STARK. Now, the President has proposed making these
payment changes, whatever payment changes we make, on a budget
neutral basis, so what I would call a zero sum game, as it
were, and each year you give us savings options. Have you
analyzed the options that we could use to provide this extra
$126 billion? Quickly what are the--where would you tell us to
go?
Mr. CRIPPEN. The physicians' fees are a component of
Medicare part B Supplementary Medical Insurance, and there
aren't many places to go here unless you change the underlying
differential fee structure. In part B, 25 percent of costs will
be paid by beneficiaries and 75 percent by general revenues,
which leaves you part A if you are going to glean savings
inside Medicare. You could in theory, cut hospital payments,
but that hasn't been very successful either, so then you have
to go outside of Medicare, into other entitlement programs.
Presumably, under the current pay-as-you-go rules, you would go
to other entitlement programs or raise taxes.
Mr. STARK. Just one question. I noticed in your testimony,
Mr. Hackbarth, you got into the idea of incentives and not
wanting a fee schedule to encourage one to use a procedure or
not use a procedure. Now, I presume you practiced law at some
point and shouldn't a lawyer, it may not always happen this way
but at least according to the theory that you learned in law
school, who takes a pro bono case, say, for the environment or
criminal defense do just as good a job as somebody who is
getting a hundred bucks an hour for that same type of work?
Mr. HACKBARTH. Yes, sir.
Mr. STARK. And I have always felt it cuts both ways, that
for a long time we tried to hold down overutilization. Now we
have got managed care plans and we are sort of trying to
prevent underutilization, where the pendulum swings. Don't you
think that whatever we do, and I am taking issue with this idea
of incentivizing, and I will just finish my question and then
shut up, Madam Chair, that we ought to be sure there is no
incentive one way or the other for a physician to make clinical
decisions based on reimbursement, that that ought to be our
goal, that the reimbursement ought to try to be as separated as
possible from the clinical decisions the physician makes
relative to his or her patients?
Mr. HACKBARTH. Yes, that should be the goal and it is one
of the failures of SGR as we see it because it only applies to
part of the system.
Mr. STARK. It is also a failure of the fee-for-service
system in general, isn't it?
Chairman JOHNSON. Very important point.
Mr. HACKBARTH. It is an elusive goal.
Chairman JOHNSON. Mr. McCrery.
Mr. McCRERY. Thank you. Mr. Crippen, in your data
concerning the amount of GDP that we will consume with
Medicare, Medicaid, and Social Security in 2030, you don't
mention what percentage of GDP will be consumed by interest on
the debt. Do you have some idea what that would be in 2030?
Mr. CRIPPEN. In our 10-year baseline, it would be pretty
small because we don't increase debt by much; we have the
current level of debt and then come 2005 or 2006, we start
paying it down. So by 2010--again, in our baseline--we would
have virtually no debt outstanding, so there would be no
interest at that point and no interest payments.
Mr. McCRERY. You have no debt outstanding in 2030?
Mr. CRIPPEN. Our baseline only goes for 10 years and as you
well know, the precision of even that is questionable. But over
that 10-year period, we return in the baseline to an era of
surpluses, unified-budget surpluses, that will pay down debt
held by the public. So sometime not long after 2010 in our
baseline most of the debt held by the public will be redeemed.
Mr. McCRERY. And you told Mrs. Johnson that we are spending
about 19 percent of GDP. Actually that is down probably now to
closer to 18 percent, isn't it, with the recession and----
Mr. CRIPPEN. It could well be. My guess is that we are
going to end up collecting revenues and outlays equaling about
18.5 percent to 19 percent of GDP this year. It is going to be
very close to balance, as you know. So the revenues are going
to about equal what we are spending.
Mr. McCRERY. And historically spending has been around 18
percent of GDP, hasn't it?
Mr. CRIPPEN. Revenues have been, since World War II, about
18 percent of GDP. Spending has fluctuated around that level in
the past few years--sometimes up above it but then, in our most
recent history of surpluses, slightly below revenues. But
revenue collections since World War II have averaged about 18
percent of GDP.
Mr. McCRERY. So in 2030 we will have precious little left
to spend on national defense, on roads, highways,
transportation, environmental protection, justice, courts?
Mr. CRIPPEN. Exactly.
Mr. McCRERY. Can you foresee a time when Congress would
allow that to happen?
Mr. CRIPPEN. I don't know, Mr. McCrery.
Mr. McCRERY. Can you foresee the Congress only spending
about 3 or 4 percent of GDP on all the other priorities of the
Federal Government?
Mr. CRIPPEN. No.
Mr. McCRERY. No, of course not. So something is going to
have to give.
Mr. CRIPPEN. Exactly.
Mr. McCRERY. As you pointed out, we will either have to
raise taxes or go into debt or I think more likely we will
ration health care to control spending. I think that is where
we are headed, is explicit rationing of health care, and it
won't be just Medicare by the way. We will have a payroll tax
for everybody's health care. Everybody will be on Medicare, I
think, and we will limit explicitly the health care that people
can receive. I think that that is where we are headed clearly
and your numbers underscore that. Therefore, I am somewhat
troubled by your statement that you don't mean to say there is
a crisis and nothing that needs to be addressed today. Isn't it
a fact that the sooner we impose some kind of solution to the
ever growing increases for Medicare, the better off or the
better chance we will have to control those costs over the long
term?
Mr. CRIPPEN. Absolutely. What I was trying to do was not
characterize this picture as in any way my opinion, but rather
as a view of the facts as we understand them at this point. I
also want to make sure that it is understood, and I know you
understand--the Committee does, that there is no peril here for
Medicare recipients in your consideration of changes to current
benefits. Benefits of current beneficiaries--my parents'
benefits--are not what we are talking about. We are talking
about my benefits, paid by my children, so I don't want to
leave anyone with the impression that there is a pending crisis
that we need to solve today. Certainly, any action we take now
will help much more than action we delay.
Mr. McCRERY. Exactly. I mean I would hope we would look
beyond the ends of our noses and consider the burden that our
children will bear for us and their children for them if we
don't do something today. So I think there is a crisis. I
believe that we are fiddling while Rome is burning not only for
Medicare but for Medicaid and for Social Security. We know it
and shame on us for not proceeding with a solution that will
give us some hope for controlling these costs in the future and
continuing to provide the array of services the Federal
Government always has and always will provide.
Chairman JOHNSON. Thank you, Mr. McCrery. Mr. Kleczka.
Mr. KLECZKA. Thank you, Madam Chairman. Madam Chair, I have
a series of questions for Chairman Hackbarth and some are
specific, coming from physicians from Wisconsin, the district I
represent. So if it is possible, what I would like to do is
submit these in writing to you
Mr. HACKBARTH. Sure.
Mr. KLECZKA. And if you could review them and send back a
response. Thank you very much. Thank you, Madam Chair.
Chairman JOHNSON. Would you like that response shared with
the Committee?
Mr. KLECZKA. I will share it.
[The information follows:]
Medicare Payment Advisory Commission
Washington, DC 20006
March 18, 2002
Honorable Jerry Kleczka
U.S. House of Representatives
2301 Rayburn House Office Building
Washington, DC 20515-4572
Dear Congressman Kleczka:
Thank you for your letter concerning Medicare's payments for
physician services. You asked us about payments for practice expense
and professional liability insurance under the physician fee schedule.
You also asked us about expenditure targets, the frequency of physician
encounters, and the productivity adjustment in payment updates.
Question:
Medicare reimbursement for practice expense and malpractice
insurance may be below the real costs physicians incur. For example, at
St. Luke's Hospital in Wisconsin, heart surgeons often employ staff who
assist them in the hospital. These local surgeons have told me that
most of these costs are not reimbursed. Are you concerned that the
reductions in practice expense payment will hurt quality as surgeons
cut back on staff they can no longer afford? Why aren't hospitals
providing this staff? Is this included in the hospital reimbursement
rate? Or, is it reimbursed separately to the surgeon?
Your practice expense questions address the issue of whether
payments for practice expense should account for the cost of support
staff that surgeons bring to the hospital. These staff prepare patients
for surgery, assist during procedures, and provide post-operative care.
The position of the Centers for Medicare and Medicaid Services
(CMS) is that Medicare should not pay for the cost of these staff under
the physician fee schedule because:
LPayments for the cost of these staff are included
in payments to hospitals under the inpatient prospective
payment system, and Medicare should not pay twice for these
costs.
LIt is not typical for most physicians to use their
own staff in facility settings.
LPayment for these costs is inconsistent with the
Medicare statute and regulations.
As you know, cardiothoracic and other surgeons contend that
practice expense payments should cover the cost of support staff, when
used in a facility, because hospitals are perceived as no longer
providing the staff that are necessary.
It appears that this issue will be resolved soon. CMS has asked the
Office of the Inspector General (OIG) to assess the staffing
arrangements between cardiothoracic surgeons and hospitals, and the OIG
is finishing its report now. We anticipate that CMS will use the
report's findings to change current policy, if necessary.
Question:
Is MedPAC tracking the changes in costs of liability insurance that
appear to be escalating this year (for at least some specialties)? How
do you think the fee schedule should be adjusted in light of these
changes in total costs and relative costs among specialties?
MedPAC agrees that the physician fee schedule should account for
changes in input prices, including increases in professional liability
insurance (PLI) premiums. That does not occur under the current method
for updating payment rates, however. Instead, the sustainable growth
rate (SGR) system overrides changes in input prices to achieve an
expenditure target. To solve this problem, the Commission recommends
that the Congress repeal the SGR system. In its place, we recommend an
update method based on the estimated change in input prices for the
coming year, less an adjustment for growth in multifactor productivity
Question:
In the past, there has been a presumption that expenditure targets
would somehow influence individual physician behavior, and therefore,
outlays. Does MedPAC believe that individual physician decisions can be
affected by total expenditure targets?
Your question about expenditure targets and physician behavior
addresses one reason why MedPAC recommends that the Congress replace
the SGR system. The Commission believes that expenditure targets can
influence the behavior of individual physicians but not in the way that
those designing the targets intended. It was hoped that the targets
would give physicians an incentive to control the volume of services.
Instead, we believe that the reverse occurs. With expenditure targets,
physicians have an incentive to increase volume, in the short run, to
make up for lost income when payment rates are reduced. In fact, CMS
makes exactly that assumption when it estimates the so-called
behavioral response of physicians to lower payments--which is an
increase in the volume of services provided. Over a longer period,
expenditure targets can have other undesirable consequences. If
payments fall below costs, we might see physicians cut back on their
Medicare practice and focus on other patients. Alternatively, they
could devote more time to other professional or leisure activities, or
leave practice altogether.
Question:
Does MedPAC intend to analyze changes in frequency of physician
encounters between specialties? Would these trends be important?
On your question about whether MedPAC intends to analyze changes in
the frequency of physician encounters among physician specialties, we
will continue to assess the adequacy of Medicare's payment rates for
physician services with whatever data are available. Analyzing changes
in the volume of services, including changes in volume by physician
specialty, is one way to assess payment adequacy. In our March 2002
report to the Congress, we considered other factors--beneficiaries'
access to care, physician willingness to furnish services to
beneficiaries, and entry or exit of physicians from participation in
the Medicare Program.
Question:
In regards to productivity, does the MedPAC recommendation assume
that productivity changes are the same, or close to it, among all types
of physicians, including surgeons, medical specialists, and primary
care physicians?
You are correct that the productivity adjustment in payment updates
applies to all services uniformly and, therefore, to all physician
specialties. This is true of the current productivity adjustment for
physician services and the adjustment that MedPAC recommends. The
question is whether payment rates can account for any changes in
productivity that are unique to specific specialties. We believe the
answer to this question is yes because payment updates are not the only
way that payment rates change. Payment rates also change when the fee
schedule's relative weights are recalibrated. This occurs every year,
if billing codes are revised, and every 5 years, when CMS reviews the
accuracy of the relative weights. As long as recalibration is sensitive
to changes in cost due to productivity growth, it accounts for changes
in productivity that are unique to specific specialties. It is likely
that recalibration is this sensitive because, by law, the process
considers changes in medical practice, coding changes, new data, and
the addition of new procedures.
If we can be of further assistance, please do not hesitate to
contact us.
Sincerely,
Glenn M. Hackbarth, J.D.
Chairman
Chairman JOHNSON. Thank you. Mr. Crane.
Mr. CRANE. Thank you, Madam Chairman.
Mr. Crippen, the CBO projects nearly 20 percent in payment
cuts over 4 years, a number that is greater if you count
inflation, and I am sure I am not alone when I say that I have
been hearing from numerous providers in my district who are
upset about the recent payment cuts in the physician fee
schedule. I am hearing that many of them can no longer afford
to participate in the program and are considering leaving if
something isn't done. In fact, I just saw a recent survey
released by the North American Spine Society that says 48
percent of physicians will be accepting fewer new Medicare
patients, 35 percent will see fewer Medicare patients, and 6
percent will leave the Medicare Program altogether.
Does the CBO model cited in your prepared statement make
any adjustments for the possibility that, as with Medicaid,
many physicians will not continue to accept Medicare patients?
Mr. CRIPPEN. I think the answer, Mr. Crane, is no, or not
to any great extent. Let me refer to Appendix D in your
Committee's Green Book which has a lot of information on
Medicare; as I recall it is Table D-121. The only reason I have
a sense of which table it is because I looked at it over the
last day or two. It shows assignment rates--both the number of
physicians or percentage of physicians accepting assignment but
also equally important, the number of dollars spent by Medicare
part B under assignment. And those numbers, of course, as my
colleague said earlier, were quite high in 1999, and one would
expect they might go down.
But the point that this table makes is that we had much
lower levels of assignment and participation even as recently
as 5 years ago, or a few years ago, when payment rates were
being cut. I don't know what to make of all of this other than
to say that we had 99 percent assignment and in 1999 or
thereabouts--or rather, 98 percent--and we have had 80 percent
participation in the recent past.
I don't know what the right standard is. Do we want to
shoot for 99 percent participation? That may be a little high,
frankly, if you have to resort to the highest common
denominator to pay for these services.
But I am not here to suggest what the right standard is.
Rather, I am suggesting that these data and recent history say
that at least for the next few years, we wouldn't anticipate
that a fall-off in physician participation would change
Medicare spending by much. That is, we don't think that
patients, or beneficiaries, are going to be denied care because
of the lack of physician participation. That is a long answer
to your question.
The short answer is that CBO assumes that a sufficient
number of physicians for all Medicare recipients will
participate over the 10-year budget period and our projections
will be based on that.
Mr. CRANE. Thank you. I yield back the balance of my time.
Chairman JOHNSON. Thank you, Mr. Crane. Congresswoman
Thurman.
Mrs. THURMAN. Thank you, Madam Chairwoman. Let me follow up
on his question, because that would generally be across the
country and not necessarily State specific.
Mr. CRIPPEN. Right. As I recall, your tables also have
State-by-State numbers on assignment rates and on assigned
costs.
Mrs. THURMAN. But access.
Mr. CRIPPEN. Sure; it varies.
Mrs. THURMAN. That is one of the areas that, being from
Florida, that I am getting very, very concerned about. And I
had an opportunity similar to other Members who have talked to
physicians as to what is going to happen in States like
Florida. We are already understanding that we have got problems
with even bringing people into Florida.
Their first question to a practice might be what is your
percentage of Medicare? Because if they say it is high, then
they are concerned that with these failing numbers for them,
that what good is it to go there? We would rather go someplace,
compete in Georgia or someplace else on the Sun Coast. What is
the question to them? What do you say to them? What am I going
to say to these constituents?
Many of us are on the bill that Mr. Dingell and Mr. Tauzin
and others have put out there, but we are seeing long waits. We
can't get people to come into Florida.
And then the second question that I would ask really has to
do with the Medicare+Choice issue, too, because Dr. Ginsburg is
going to testify, and he actually mentions now that doctors
have an opportunity to negotiate with some of these
Medicare+Choice programs, and in fact are getting higher or
being able to get more dollars out of there. Are we then
putting an imbalance into our Medicare program where some may
just gravitate to those programs and may leave more other areas
uncovered in some of our rural areas or areas where there are
no Medicare+Choice programs? Either one of you.
Mr. CRIPPEN. I can start with the second one. At least by
our lights and looking at future payments for Medicare+Choice,
CBO anticipates, frankly, that there is going to be a fall-off
in enrollment in those plans. Payment rates are going to be
quite limited in most areas for the foreseeable future. So our
projections certainly don't anticipate that we will have a
migration from the fee-for-service program to Medicare+Choice.
In fact, we assume quite the opposite.
Mr. HACKBARTH. On that particular issue, it is our belief
that Medicare+Choice is not going to be a large and important
part of the program in rural areas. The efforts to make it so
through floor payments and the like have not succeeded and in
our view will not succeed. In fact, managed care is not
prevalent in rural areas in the non-Medicare population, and so
there is little we can do in Medicare to alter that basic
reality.
As for the overall Medicare+Choice program, whether it
grows or not, certainly the recent trend, as Dan said, is down.
Whether that reverses, in my view, will depend a lot on whether
managed care organizations change how they do business. One of
the reasons, in my view, that they are struggling is that they
have stripped away a lot of their cost controls, expanded
choice, and reduced the utilization controls to become more
like fee-for-service. It is not surprising that they can't
compete with Medicare.
Mrs. THURMAN. So let me just say this, then. If the $126
billion is what you said would bring us up to the right rates
or at least bring us into line so we can actually take the
dollars that we have put into the Medicare+Choice programs over
the last couple of years to prop them up and move them over
into the system, that would actually make us somewhat neutral
in this budget, at least for this first year.
Mr. CRIPPEN. I think that we are still paying--and I say
``think'' because we have to look at the current formulations--
but I think we are still paying Medicare+Choice less than we
would pay under the equivalent fee-for-service program in a lot
of areas in the country. So it may be a net cost from actually
moving people from managed care
Mrs. THURMAN. Not necessarily moving them, but obviously
that number has decreased. It went from 15 to 12 percent. We
gave an additional amount of dollars over the last couple of
years. I think there is some idea that we might do some more
again this year. It just seems to me that we might be better
off to keep physicians who are in Medicare fee-for-service at a
level that they can continue to do their practices, not cutting
off services, not have waiting lines for 3 months being able to
bring people in, as versus putting it into Medicare+Choice.
Mr. CRIPPEN. One of the ways in which you and the country
have tried to grapple with this incentive question for
physicians on payment versus volume--how you get the incentives
right--has been capitation, or something like the approach that
you see inside some managed care systems, in which the decision
to treat or not to treat is not based on physician income, or
at least not on the price of that particular service; rather,
the payment is for a year of ``unlimited'' service. So by
raising more fee-for-service payments, you may exacerbate the
dilemma that you are facing in the overall question here.
Chairman JOHNSON. Thank you, Congressman Camp?
Congresswoman Dunn.
Ms. DUNN. Thank you very much, Madam Chairman. Gentlemen, I
bring to the table the same complaints that I bring in all of
these hearings that we have, and it is about the incentives in
this program that result in a State like my State, Washington
State, which is very efficient in the delivery of health care
being penalized because of its strong history. So I have
physicians at home not only worried about the 5.4-percent
reduction in their reimbursements but in the reimbursement
system as a whole.
So my question to both of you is, as we develop a new
system, a new SGR, whatever we are going to call it, how are we
going to begin to balance States like Washington, with States
like New York?
Mr. HACKBARTH. Well, the reasons for different levels of
spending in different parts of the country are quite
complicated and, frankly, not all that well understood. Some
are obvious. Some have to do with a different standard of
living, different wage levels. And in the Medicare Program, as
you know, we adjust using a wage index for all the different
services to varying degrees. So if you happen to be in a State
where wage levels tend to be lower than, say, New York, the
Medicare payment formulas result in lower spending. But that is
only part of the issue.
Perhaps an even bigger part of the problem might be
differences in utilization patterns, which could be because of
greater efficiency or could be because of differences in the
underlying health status of the population, differences in
tastes about medical care, different attitudes toward risk, and
the like. It is a really complicated problem that has not been
disentangled to this point.
If our goal were to equalize spending across States, across
cities, whatever geographic unit you describe, we would need a
very different health care system to produce that uniformity.
One of the virtues of our system, at least in the eyes of many
people, is the degree of freedom that gives both patients and
providers, the autonomy it gives them. Such a system is very
unlikely to produce uniform results. So if you want uniform
results, you need a much more controlled, centrally controlled
system than we have, and that brings with it its own potential
problems.
Mr. CRIPPEN. I think, Congresswoman, you are absolutely
right that there are some States that historically have had
lower per capita costs--for example, in the Northwest, in
Minnesota, and in others that in some sense early on had
managed care. And so because we have no better basis, we have
established payments based on historical expenditures. And
those historical expenditures were lower in some States than in
others.
Until we switch from a system that pays for inputs, based
obviously on historical costs, to something that might pay for
outcomes, or results, it is going to be hard and--and this is
not a political matter--hard to figure out a system that would
pay more to those States that have already established a more
efficient delivery system without cracking down considerably on
other States.
So all I can suggest is that because you were efficient in
the past, you are being penalized now, as my colleague just
said, because your cost structure is lower. So there is some
basis for the sense of unfairness. It may not be ``fair,'' but
until we start paying for services differently--don't update
payments inputs but rather on the basis of outputs or some
other method--I don't see any magic in these formulas that will
help.
Ms. DUNN. I will be waiting for such a system, hoping to
take part in the development of such a system, and I appreciate
your expressing the reality. Thanks.
Chairman JOHNSON. Just to conclude, I think your answer on
those issues is inadequate. No offense. It is just that the
historic base on which some of the States' payment systems were
based and we have this problem in Iowa and a number of other
States was very low. But those physicians are still having to
buy the new technology and pay the higher malpractice cost. So,
the disparity is declining, and the old differential is no
longer as relevant.
And I am very concerned about their ability to attract
physicians out of residency, because now our physicians coming
out of residency have much higher debt loads. So it is a very
hard decision to go to a State with lower reimbursement rates,
because the cost of living isn't necessarily that much lower
anymore. The original cost basis that was the foundation of
this system is now not as relevant, because we have much more
of a national system.
You talked to the hospitals. They are buying through
national combines. So this whole issue, and I know Mr.
Hackbarth and I talked about trying to review this. This
Committee will be holding hearings on the whole wage area
issue. But we have to evaluate these past fundamentals because
they are no longer as relevant as they once were and they are
going to create very disparate access to care in a decade or so
if we don't do something about it.
It is like the baseline issue. The fact that you estimate
your baseline to us on the basis of law will not prevail. Means
that we have to raise lots more money just to stay where we
are. So there are some things about the way that Congress has
functioned in the past that make it hard to function in the
future. This issue of the low paid States, I think, is going to
be a much more significant problem for us as we go forward.
And in closing, I wanted to just remind you, and I know
some of the next panel might help us on this issue of the
differential impact of the 5 percent cut according to specialty
and also place of care, which I think actually nobody has very
good data on. And on your five goals, Mr. Hackbarth, one of the
ones you didn't mention is how do we meet a future in which we
need to encourage physicians to participate in disease
management programs? Our whole reimbursement system doesn't
look at care coordination. It looks at isolated care decisions.
And that is not going to serve us as a nation as we move into
an era where there are going to be people living much longer
with multiple illnesses to manage. So our payment system is not
only inadequate to next year and the year after, it is
inadequate to the future of medicine. Mr. Stark.
Mr. STARK. Could I ask one brief question of Mr. Hackbarth,
who may or may not have looked at this, but there has developed
recently a phenomenon that I would refer to as boutique clinics
or practices, wherein a primary care physician will charge
somebody $1,500. There are some of us who are concerned that
that may be extra billing or classified as that. Have you
looked into that issue?
Mr. HACKBARTH. We have not, sir.
Mr. STARK. But you can understand how that might. When you
charge a Medicare beneficiary an annual fee, do you spread that
over some of the Medicare charges that that physician would
collect from that patient? And if so, does that constitute
extra billing? And you might--I would urge you to look into it
because it is a question that will come up.
Mr. HACKBARTH. Thank you.
Mr. STARK. Thank you, Madam Chair.
Chairman JOHNSON. I thank the panel for their input and
call forward the second panel. I welcome the panel. And I also
want to acknowledge the presence of my colleague, Ben Cardin, a
Member of the Committee on Ways and Means, one very, very
interested in health. He often does join us, although not a
Member of the Health Subcommittee, and works with us closely on
much of the health care legislation that comes out of the
Committee.
Dr. Ginsburg.
STATEMENT OF PAUL B. GINSBURG, PH.D., PRESIDENT, CENTER FOR
STUDYING HEALTH SYSTEM CHANGE
Dr. GINSBURG. It is really a privilege to be invited to
talk on this topic. The Center for Studying Health System
Change is an independent nonpartisan research organization
funded by the Robert Wood Johnson Foundation. It conducts
research on how the health system is changing and the impact of
those changes on people. Our research includes surveys and site
visits that provide unique perspectives on health care in
communities. We seek to inform policy with timely and objective
analysis, but the Center does not advocate particular policy
positions.
When the issue of the Medicare physician payment update
developed late last year, I recognized that trend data from our
surveys and data from our site visits could contribute to the
debates.
We have information from household survey respondents about
their experience in obtaining care in a timely fashion. We have
information from physician respondents about their acceptance
of new patients and the time spent in patient care. And we have
information from site interviews with health plan executives
about how much they pay physicians in relation to Medicare
payment rates.
My testimony contains a lot of charts with data, but I
would like to take you right to the bottom line. Many of the
trends in the testimony point to a tightening of physician
capacity in relation to demand that is leading to declines in
peoples' ability to access care without delay. We see that more
people are reporting delays in getting care. The time to get an
appointment with a physician is increasing. Doctors are
spending more hours per week in patient care and fewer doctors
are accepting all new patients. A likely factor behind these
trends is the recent growth in demand associated with the
loosening of restrictions of managed care throughout the
medical care system.
These trends are affecting Medicare beneficiaries, but they
are also affecting those with private insurance. The relative
financial attractiveness between Medicare and private insurance
has probably not changed much in the last few years. Physician
willingness to accept all Medicare patients is declining, but
so is physician willingness to accept all new privately insured
patients.
But this parallelism in trends could change over the next
few years. The current law formula is expected to reduce
Medicare payment rates a lot more. Also, physicians,
particularly specialists, have been exerting greater leverage
with managed care plans and are likely to get higher payment
rates. The bottom line is that there are greater risks of
deterioration and access to care from sharp cuts in Medicare
physician payment rates today than in the past because of the
stresses on physician capacity.
Thank you.
[The prepared statement of Dr. Ginsburg follows:]
Statement of Paul B. Ginsburg, Ph.D., President,
Center for Studying Health System Change
Thank you Madam Chairman, Congressman Stark, and members of the
committee for inviting me to testify about Medicare physician payment.
I am Paul Ginsburg, President of the Center for Studying Health System
Change (HSC). HSC is an independent nonpartisan policy research
organization funded solely by the Robert Wood Johnson Foundation. Our
longitudinal surveys of households and physicians and site visits to 12
communities provide a unique perspective on the private health care
market.\1\ Although we seek to inform policy with timely and objective
analyses, we do not lobby or advocate for any particular policy
position.
---------------------------------------------------------------------------
\1\ ``An Update on the Community Tracking Study: A Focus on the
Changing Health System,'' HSC Issue Brief No. 18, February 1999.
---------------------------------------------------------------------------
Access for Medicare Beneficiaries
The goal of Medicare physician payment policy is to assure
beneficiaries' access to high quality care while meeting federal budget
objectives. Problems with the Medicare physician payment update formula
and the recent 5.4 percent fee cut have raised questions about the
likely impact on access to care for Medicare beneficiaries. Our
research suggests that Medicare beneficiaries' access to care over time
may depend on physician capacity and local market conditions, factors
that are difficult to capture within a budget-driven payment formula.
By physician capacity, I mean the ability of physicians to provide
services relative to the demand for those services. Capacity depends on
a range of factors, including physician supply, the amount of time
physicians are willing to devote to patient care, the mix of types of
physicians and patients' demand for physician services.
The good news is that, overall, Medicare beneficiaries currently
experience fewer problems of access than the near elderly covered by
private insurance. In 2001, 11 percent of Medicare beneficiaries said
they delayed or did not receive needed care compared with 18 percent of
the privately insured who are 50-64 years of age. We have, however,
recently seen slight declines in access to care for both groups.
Declines in access to care over time may reflect tightening of
physician capacity in relation to demand. When asked the reasons for
delaying or not obtaining care, respondents are increasingly reporting
problems obtaining appointments. These problems are experienced by the
privately insured near elderly as well as by Medicare beneficiaries.
For example, in 1998-9, 16.3 percent of the Medicare beneficiaries who
reported delaying or not obtaining care said they could not get an
appointment soon enough compared with 20.9 percent of the privately-
insured near elderly. By 2001, this had grown to 23.7 percent for
Medicare beneficiaries and 25.0 percent of the privately insured near
elderly (Exhibit 2).
Exhibit 1: Percent Reporting Delaying or Not Receiving Needed Care in
Past Year, Comparison of Medicare Beneficiaries and Privately-Insured
Near Elderly
[GRAPHIC] [TIFF OMITTED] T0217B.001
Note: Data from the Community Tracking Study (CTS) Household
Surveys, 1996-7, 1998-9 and 2000-1.
Exhibit 2: Percent of People Who Had Problems Obtaining Care, by Reason
------------------------------------------------------------------------
------------------------------------------------------------------------
Reasons for Delaying/Not 1996-7 1998-9 2000-1
Obtaining Care
------------------------------------------------------------------------
Couldn't get appointment soon
enough
------------------------------------------------------------------------
Age 50-64, privately insured 21.9 20.9 25.0
------------------------------------------------------------------------
Age 65+ 13.6 16.3 23.7
------------------------------------------------------------------------
Couldn't get through on phone
------------------------------------------------------------------------
Age 50-64, privately insured 7.1 7.5 9.0
------------------------------------------------------------------------
Age 65+ 7.3 5.4 11.2
------------------------------------------------------------------------
Couldn't be at office when open
------------------------------------------------------------------------
Age 50-64, privately insured 15.0 13.5 16.6
------------------------------------------------------------------------
Age 65+ 13.0 15.1 15.6
------------------------------------------------------------------------
Note: Data from the Community Tracking Study (CTS) Household Surveys,
1996-7, 1998-9 and 2000-1.
A second indication of tightening capacity is that both the elderly
and near elderly are facing longer waits for appointments with their
physicians. Over a third of people aged 50 and older must wait more
than three weeks for a checkup, while roughly 40 percent must wait for
more than a week for an appointment for a specific illness. These
increases in waiting times are occurring across all age groups.
Exhibit 3: Percent Reporting Long Waits for Medical Check-ups,
Comparison of Medicare Beneficiaries and Privately-Insured Near Elderly
[GRAPHIC] [TIFF OMITTED] T0217C.001
Note: Data from the Community Tracking Study (CTS) Household
Surveys, 1996-7, 1998-9 and 2000-1.
Exhibit 4: Percent Reporting Long Waits for Doctor Appointments
When Ill, Comparison of Medicare Beneficiaries and Privately-Insured
Near Elderly
[GRAPHIC] [TIFF OMITTED] T0217D.001
Note: Data from the Community Tracking Study (CTS) Household
Surveys, 1996-7, 1998-9 and 2000-1.
A third indication of tightening physician capacity is the increase
in time that physicians are spending in patient care. Average hours per
week increased sharply over the last two years. This may reflect a
sharper increase in demand for services due in part the loosening
restrictions in managed care. The increase in hours spent in patient
care is also consistent with anecdotal reports that physicians are
working harder to make up for lower fees--either meeting higher demand
or creating it.
Exhibit 5: Average Hours Per Week Physicians Spend in Patient Care
[GRAPHIC] [TIFF OMITTED] T0217E.001
Note: Data from the Community Tracking Study (CTS) Physician
Surveys, 1996-7, 1998-9 and 2000-1, unweighted.
While there is considerable debate about the extent of a physician
supply shortage, we do know that physicians have begun to exert
increasing leverage with health plans to obtain higher payment
rates.\2\ As managed care plans have broadened their provider networks
in response to demands for more choice and physicians are less eager to
be included in all networks, physician leverage with managed care plans
has increased. Physicians in some specialties have won substantial
increases in payment rates.\3\ If Medicare payment rates are falling,
differentials between what physicians receive from Medicare and what
they receive from private insurers would grow, putting beneficiaries'
access to care at risk.
---------------------------------------------------------------------------
\2\ Cooper, Richard A. and Thomas E. Getzen, Heather J. McKee and
Prakash Laud, ``Economic and Demographic Trends Signal an Impending
Physician Shortage,'' Health Affairs, 21(1): 140-154, January/February
2002; Grumbach, Kevin, ``The Ramifications of Specialty-Dominated
Medicine,'' Health Affairs 21(1):155-157; and Mullan, Fitzhugh, ``Some
Thoughts on the White-Follows-Green Law,'' Health Affairs 21(1): 158-
159.
\3\ Strunk, Bradley C., Kelly Devers and Robert E. Hurley, ``Health
Plan-Provider Showdowns on the Rise, HSC Issue Brief No. 40, June 2001
and Short, Ashley C., Glen P. Mays and Timothy K. Lake, ``Provider
Network Instability: Implications for Choice, Costs and Continuity of
Care, HSC Issue Brief No. 39, June 2001.
---------------------------------------------------------------------------
Physicians' Acceptance of New Medicare Patients
A key indicator of Medicare beneficiaries' access to care is the
proportion of physicians who are accepting new Medicare patients into
their practices. As part of our longitudinal physician survey, we ask
physicians whether they are accepting new Medicare patients. Over the
past 4 years, there has been a 4 percentage point drop in physicians'
willingness to accept all new Medicare patients from 72 percent to 68
percent (Exhibit 6). The sharpest decline occurred for surgical
specialists, while there was a modest increase for medical specialists.
(For this analysis, pediatricians and physicians not accepting new
privately insured patients are excluded.)
Exhibit 6: Percent of Physicians Accepting ALL New Medicare
Patients, by Specialty
[GRAPHIC] [TIFF OMITTED] T0217F.001
Note: Data from the Community Tracking Study (CTS) Physician
Surveys, 1996-7, 1998-9 and 2000-1, unweighted.
The decline in accepting all new Medicare patients was the sharpest
for physicians with the weakest connections to Medicare. That is, for
physicians where Medicare revenues represent less than 10 percent of
their practice revenue, acceptance of all new Medicare patients fell
from 59 percent to 46 percent (Exhibit 7). In contrast, for physicians
where Medicare revenues are over a half of their practice revenue,
acceptance of new Medicare patients fell from 77 percent to 72 percent.
Exhibit 7: Percent of Physicians Accepting ALL New Medicare Patients by
Medicare Revenue
------------------------------------------------------------------------
------------------------------------------------------------------------
Medicare revenue as percent of 1996-7 1998-9 2000-1
practice revenue
------------------------------------------------------------------------
Medicare revenue under 10 percent 59.1 55.8 45.9
------------------------------------------------------------------------
Medicare revenue of 11 to 29 71.4 69.1 64.8
percent
------------------------------------------------------------------------
Medicare revenue of 30 to 49 75.3 74.1 71.5
percent
------------------------------------------------------------------------
Medicare revenue of 50 or more 76.6 73.2 71.9
percent
------------------------------------------------------------------------
Note: Data from the Community Tracking Study (CTS) Physician Surveys,
1996-7, 1998-9 and 2000-1, unweighted.
Similarly, physicians with the lowest revenue from Medicare were
the most likely to report accepting no new Medicare patients. Among
physicians who get less than 10 percent of their practice revenue from
Medicare the number who now refuse to accept Medicare patients climbed
from 12 percent to 21 percent in four years (Exhibit 8). In comparison,
negligible changes occurred for physicians with higher Medicare
revenues as a percent of their total practice revenue.
Exhibit 8: Percent of Physicians Accepting NO New Medicare Patients by
Medicare Revenue
------------------------------------------------------------------------
------------------------------------------------------------------------
Medicare revenue as percent of 1996-7 1998-9 2000-1
practice revenue
------------------------------------------------------------------------
Medicare revenue under 10 percent 11.9 14.1 21.1
------------------------------------------------------------------------
Medicare revenue of 11 to 29 2.8 2.7 3.4
percent
------------------------------------------------------------------------
Medicare revenue of 30 to 49 1.7 1.6 1.2
percent
------------------------------------------------------------------------
Medicare revenue of 50 or more 0.0 0.0 0.0
percent
------------------------------------------------------------------------
Note: Data from the Community Tracking Study (CTS) Physician Surveys,
1996-7, 1998-9 and 2000-1, unweighted.
Medicare Physician Payments Relative to Private Payers
The extent to which Medicare patients' access to care is
compromised by Medicare physician payment cuts will depend on the
community where beneficiaries live. This is because the relationship
between Medicare payment rates and the rates paid by private insurers
vary widely across communities. As part of our site visits to 12
communities, we conduct interviews with health plans and physician
groups. From those interviews, we have found an extensive use of the
Medicare relative value scale by private health plans and have also
found that Medicare payment methods have had a large influence on the
private sector. In fact, many health plans explicitly set their
payments as a percentage of what Medicare pays.
There is considerable geographic variation in relative payments
across the 12 communities we track. In Miami, Northern New Jersey and
Orange County, California, private insurers' physician payment rates
relative to Medicare are relatively low compared with other
communities. For example, in Miami, private payments range from 80 to
108 percent of Medicare physician payments. In Northern New Jersey,
private rates ranged from 95 to 105 percent of Medicare payments. In
contrast, Boston, Cleveland, Greenville, Little Rock and Seattle have
private rates that are much higher than Medicare. For example, private
payments in Little Rock range from 120 to 180 percent of Medicare
physician payments and from 100 to 150 percent in Boston.
This pattern of relative differences across markets has remained
stable over time. Those markets that are typically more generous than
Medicare have maintained these higher rates over the last 6 years of
our study. Similarly, the communities with the lowest rates have
consistently paid lower rates than other communities.
As a result of this variation in communities, a substantial decline
in Medicare payments would pose the greatest risk to beneficiaries'
access in those communities, such as Boston and Little Rock, where
Medicare payment rates are the lowest relative to private rates. With
the potential of ``hot spots'' of poor access developing in certain
communities, new approaches for monitoring access in Medicare may be
needed.
Implications
Since the Medicare program's inception in 1966, access to care for
the elderly has not been a significant issue. This included the
transition to the Medicare Fee Schedule that began in 1992.\4\ But our
research raises concerns about access in the near future. Physician
capacity to meet the demands of patients appears to be tightening and
could tighten even further in the future. At the same time, payment
rates in private insurance have been increasing, particularly for
specialists.
---------------------------------------------------------------------------
\4\ Trude, Sally and David Colby, ``Monitoring the Impact of the
Medicare Fee Schedule on Access for Vulnerable Populations,'' Journal
of Health Politics, Policy and Law, 22(1):49-71, 1997.
---------------------------------------------------------------------------
Current policy established Medicare physician payment rates within
the constraints of the federal budget. It also linked updates to the
rate of growth of program spending and the growth of the economy. But
attention also needs to be paid to Medicare beneficiaries' ability to
command services in an environment of tightening capacity. MedPAC's
recommendation of pegging updates in payment rates to trends in input
prices would avoid cuts in the short term. However, given trends in the
private markets, even under the MedPAC recommendation we would expect
to see a widening gap between Medicare and private payment rates over
the next few years. For this reason, just fixing the formula may not be
enough to protect access to care for Medicare beneficiaries. At a
minimum, more explicit attention to trends in Medicare beneficiaries'
access nationally and within communities is advisable.
Chairman JOHNSON. Thank you very much, Dr. Ginsburg. Dr.
Mayer.
STATEMENT OF JOHN E. MAYER, JR., M.D., PROFESSOR OF SURGERY,
HARVARD MEDICAL SCHOOL, BOSTON, MASSACHUSETTS; PEDIATRIC HEART
SURGEON, CHILDREN'S HOSPITAL BOSTON, BOSTON, MASSACHUSETTS;
CHAIRMAN, COUNCIL ON HEALTH POLICY, SOCIETY OF THORACIC
SURGEONS, CHICAGO, ILLINOIS; ON BEHALF OF THE AMERICAN
ASSOCIATION FOR THORACIC SURGERY, MANCHESTER, MASSACHUSETTS
Dr. MAYER. Thank you, Madam Chairwoman. I am Dr. John
Mayer. I am a Pediatric Heart Surgeon at the Children's
Hospital in Boston and a Professor of Surgery at Harvard
Medical School. I am also Chairman of the Council on Health
Policy for the Society of Thoracic Surgeons (STS), and I
represent both the STS and the American Association for
Thoracic Surgery. We are among the Charter Members of the
Coalition for Fair Medicare Payment and we support, as does
this coalition, H.R. 3351 which would moderate the 2002
reductions in the physician fee schedule, as you have heard
about previously.
We want to leave you with three basic points. First, we
think this bill, H.R. 3551, has to come to the floor and that
the SGR formula has to be revised along the lines recommended
by MedPAC. Second we would also want you to recognize that the
RBRVS system, the relative value system, is in our opinion on
the verge of breaking down, and that will have an inevitable
impact on the quality of the care that Medicare beneficiaries
receive.
In announcing these hearings, Chairman Johnson said that
Medicare's formula for paying physicians is completely
irrational and must be reformed this year, and we 100 percent
agree. This Congress should recognize that the 5.4 reduction
this year in physician fee schedule across the board has been
compounded for many specialties by inequities in reimbursement
for practice expenses. More specifically in our case and other
surgical subspecialties, CMS has refused to recognize the cost
that cardio-thoracic surgeons incur for staff who are on their
payroll and who are essential to patient care in the hospital.
I really want to focus on some of the ways that this arcane
system that has been devised for practice expense in particular
has worked or not worked, and let me give you a few examples.
I also represent the Society of Thoracic Surgeons on the
Relative Value Update Committee of the American Medical
Association (AMA) which recommends physician work values but
also reviews all the practice expense relative values. I
believe we have gotten ourselves into an absurd reductionist
approach trying to estimate the resources needed for each phase
of each physician service. As a committee, we actually had to
make a recommendation on whether 21 minutes or 23 minutes of
clinical staff time were typical for a standard mid-level
office visit. We were told that our decision would shift $100
million in the Medicare fee schedule. That is almost half as
much as Medicare spends for the most common coronary artery
bypass procedure that is done.
I have personally and perhaps this is as a scientist
relatively little confidence in the ability of a Committee of
physicians sitting in a room to reliably distinguish between 21
minutes and 23 minutes. As I said, the reductions in allowed
charges for cardiac surgery are not 5.4 percent but, on
average, are 10 percent; and for some of the procedures they
are as high as 15 percent.
Since 1994, for cardiac surgery, reductions in practice
expense component of the fee schedule have been 47 percent.
There are in the written materials submitted to you graphs that
demonstrate the overall impact of this system over the last 10
to 15 years and I think they are self-explanatory.
Congress in 1997 instructed Health Care Financing
Administration (HCFA) in revising the practice expense system
to recognize all staff, equipment, supplies and expenses. And
subsequently under section 212 of the BBRA, Congress instructed
the U.S. Department of Health and Human Services (HHS) to
utilize valid data from outside organizations in addition to
HHS itself. We have submitted that data, but HCFA has
nonetheless deleted from practice expense all costs our Members
incur for clinical staff who actually help provide services in
the hospital.
In some States, some of these costs can be partially
offset, but only for certain kinds of staff and only for
certain kinds of activities. There is no reimbursement for any
of the clinical staff for their services in intensive care
units or on the wards postoperatively.
You may ask, why it is that cardiothoracic surgeons employ
these staff? Very simply, cardiothoracic surgeons have, at
their local community levels found that these staff are
essential to improving quality. The Institute of Medicine, IOM,
report very clearly noted that in complicated situations like
cardiac surgery, that a well-functioning consistent team is
essential to quality. Our overall mortality rates for coronary
surgery in the United States are down 40 percent in the last 10
years and we think that these teams are essential to that
improvement.
I actually gave a talk last week in Florida to a group of
75 cardiothoracic surgeons, and I asked them how many of them
employed clinical staff that they took with them to the
hospital. Essentially everyone raised their hand. We don't want
to go backward. And I think that the current course that we are
on is one that will progressively deteriorate the quality of
care that cardiac patients will receive in this country.
I can tell you that for the last several years we have
failed to fill cardiothoracic surgery training positions in
this country with American medical school graduates, and this
year we did not fill the positions at all. That is, there were
positions that were left unfilled. I think this bodes poorly
for the future, and if the baby boomers don't have some other
health catastrophe befall them, we are going to need more and
more cardiac surgical procedures in the future. And if the
shortages continue in applicants, it will take years to turn
this around.
The decisions that are made this year will have an impact,
and the impact is going to be felt not only tomorrow but in the
future. We hope that we are looking ahead.
Thank you.
Chairman JOHNSON. Thank you very much for your excellent
testimony. Anyone speaking out there with thoracic surgeons
knows that this has been a specialty that has not been able to
survive the automatic formula that governs reimbursement.
Dr. Palmisano.
[The prepared statement of Dr. Mayer follows:]
Statement of John E. Mayer, Jr., M.D., Professor of Surgery, Harvard
Medical School, Boston, Massachusetts; Pediatric Heart Surgeon,
Children's Hospital Boston, Boston, Massachusetts; Chairman, Council on
Health Policy, Society of Thoracic Surgeons, Chicago, Illinois; on
behalf of the American Association for Thoracic Surgery, Manchester,
Massachusetts
Madam Chairwoman, I am John Mayer, M.D., chairman of the Council on
Health Policy of the Society of Thoracic Surgeons. In practice I am a
pediatric heart surgeon at Children's Hospital in Boston and Professor
of Surgery at Harvard Medical School. I am here to represent both the
Society of Thoracic Surgeons and the American Association for Thoracic
Surgery; together these organizations represent essentially all of the
surgeons providing heart, lung, esophageal, and other thoracic surgery
in the United States. These two organizations are among the charter
members of the Coalition for Fair Medicare Payment, formed last year in
response to the crisis created by the across the board reduction of 5.4
percent in the Medicare conversion factor. The effects of this across
the board reduction are compounded for our specialty and many others by
continued reductions in the practice expense component of the Medicare
fee schedule.
We support, as does the coalition, H.R. 3351, which would moderate
these 2002 reductions. It is essential that this bill, which has over
300 co-sponsors, be brought to the House floor in time to limit the
damage that is being done.
In announcing these hearings, Chairwoman Johnson said that
``Medicare's formula for paying physicians is completely irrational and
must be reformed this year.'' We fully agree. The ``Resource-Based
Relative Value System (RBRVS)'' and the related ``Sustainable Growth
Rate'' formula amount to a very complicated administered price control
system. Administered price control systems sometimes work in the short
run, but the lesson of history is that they end by breaking down. The
RBRVS is now breaking down, and this will have an inevitable impact on
the quality of care that Medicare beneficiaries receive.
The first sentence of the Institute of Medicine's 2001 report,
``Crossing the Quality Chasm: A New Health System for the
21st Century,'' reads: ``The American health care delivery
system is in need of fundamental change.'' One of the IOM's principle
recommendations is:
``Private and public purchasers should examine their current
payment methods to remove barriers that currently impede quality
improvement, and to build in stronger incentives for quality
enhancement.''
Our discussions of a rational reimbursement system should bear this
closely in mind.
Let me explain why a surgeon from a children's hospital is here to
talk about Medicare. For the last six years, I have represented the
Society of Thoracic Surgeons on the Relative Value Update Committee of
the American Medical Association. This committee has been charged by
CMS to advise it on changes in the fee schedule--originally, the work
values, more recently on some aspects of the practice expense values. I
do need to emphasize that all of the basic payment policy decisions on
practice expense reimbursement were made by the CMS (formerly HCFA)
staff. The Practice Expense Advisory Committee has only been asked to
advise on some details, but the entire process for determining the
components of practice expense is fundamentally flawed.
Let me give you an example The PEAC was asked to give its opinion
on the amount of clinical staff time (nurses, nurse assistants)
involved in a typical mid-level office visit (99213). The committee
considered 21 vs. 23 minutes of clinical staff time, and we were told
that this two-minute difference would shift over $100 million in the
Medicare fee schedule. This is over half as much as Medicare paid for
the most common open heart procedure. I have no confidence that the
committee could make any reliable distinction between 21 and 23
minutes, yet this is the process that is being used to determine the
practice expense component of the Medicare Fee Schedule.
This is not the way to set fee schedules that are either 1)
equitable to physicians or 2) in the best interests of patients. One
fact this story illustrates is this: the ``relative value'' system is
not about value--certainly not about value to the nation or to the
patient. There is no attempt to base reimbursement on benefit--value--
to the patient. The name RBRVS is a misnomer. It is a relative cost
system, not a relative value system. It does not reward experience, it
does not reward quality, and it does not even (despite the original
recommendation of Professor Hsiao) recognize the ``opportunity cost''
of extended training (seven to eight years after medical school for
cardiothoracic surgeons).
You have heard in detail about how the SGR system has evolved and
the relationship between the fee schedule and the conversion factor. A
system tied to gross domestic product is inherently unstable; even more
important, the need for physician services is not dependent on the rate
of growth of the economy. An economic downturn may even increase the
need for some services. The issue of growth in volume and intensity of
physician services is more complex, but I am uncomfortable with the
proposition that there must be an absolute cap on growth. Any arbitrary
formula will fail to recognize the growth of medical technology and our
ability to offer life saving interventions to a greater proportion of
the population. As a consequence, there is the potential for denying
Medicare patients treatments that will prolong life and reduce
disability.
The steadily lengthening American life spans and the clear evidence
that rates of disability in old age are diminishing should show that we
should encourage, not penalize growth in medical services--so long as
these services are indeed contributing to the health of our citizens. I
suggest that the Administration and Congress look closely at where the
growth in medical services has occurred in recent years. It is not in
heart surgery. The recent report of John Wennberg and his associates
from Dartmouth on ``supply/sensitive services'' is relevant. His
suggestions for creation of centers of health care that will encourage
necessary but discourage unnecessary services deserve consideration.
In the short run, pending major system reforms, we basically
support the draft recommendations of the Medicare Payment Advisory
Committee. This would eliminate the SGR and base updates primarily on a
revised Medical Economic Index. The productivity factor used in setting
the MEI should be examined carefully; it probably does not
realistically measure changes in physician productivity (for example,
the learning curve in adopting new technologies) and certainly does not
accommodate the current escalation in malpractice insurance costs.
MedPAC also suggests that it be asked to make annual recommendations on
the update formula, so that the system would not be on automatic pilot;
Congress therefore would have the option of adopting higher or lower
updates. There should be a default formula, to set the update if
Congress does not act; for example, the default update could be the
revised MEI with a productivity adjustment of -0.5 percent.
Let's turn back to the RBRVS. The reductions in allowed charges for
cardiac surgery this year are not 5.4 percent but, on average, ten
percent. For some procedures it's as high as 15 percent. Since 1994,
for cardiac surgery, the reductions in the practice expense component
of the fee schedule alone have been 47 percent (see attached chart).
How this has happened, and the consequences, will illustrate the
problems with this administrative pricing system.
Congress in 1997, under the leadership of this committee,
instructed HCFA, in revising practice expense RVUs, ``to recognize all
staff, equipment, supplies, and expenses.'' Congress said all expenses,
not ``some expenses.'' Two years later, under Section 212 of the
Balanced Budget Revisions Act, Congress instructed HHS, in computing
practice expense, to utilize statistically valid data from outside
organizations in addition to data from HHS itself.
In recognition of the need for better data, the Society of Thoracic
Surgeons contracted with the American Medical Association to conduct an
enlarged sample of thoracic surgeons in its annual socioeconomic
survey. The work was done by the AMA, through its own subcontractor,
not by the STS. HCFA agreed that the survey met its very rigid
standards for statistical validity and used some of this data in its
1999 revisions of the practice expense RVUs. But that same year,
despite the clear evidence in this survey that cardiac surgeons are
incurring major costs for staff who assist in both operative and post-
operative care in the hospital, HCFA deleted from its practice expense
equation all costs our members incur for clinical staff who help them
in the hospital. This payment policy decision deleted more than 80
percent of our clinical staff costs from the practice expense equation.
We have subsequently done yet another survey, which showed that 74
percent of cardiothoracic surgeons incur these costs for staff who
assist in the hospital. In some states, these costs may be partially--
but only partially--compensated for by limited billing for some--but
not all--of these staff when they assist at surgery. There is no
reimbursement for any of the clinical staff on our members' payrolls
for their services in the ICU or the wards post-surgery, and
reimbursement even for assistance at surgery is inconsistent.
Why do cardiothoracic surgeons employ this staff? Very simply, the
cardiothoracic surgeons working at the grassroots level have made
decisions that these staff are essential to quality outcomes. Only in
the largest, mostly academic hospitals, is the hospital staff
adequately specialized and trained to assist at heart surgery and care
properly for these patients in the hospital post-surgery. Heart surgery
is very complex. As the IOM has noted in regard to complicated
procedures, quality outcomes require a team that works together
consistently, both in the operating room and in post-operative care.
Cardiothoracic surgeons have stepped up and incurred these costs as the
practice of heart surgery has evolved over the last ten years. Risk-
adjusted mortality has dropped 40 percent in the last ten years. The
team approach is one of the reasons for this quality improvement. That
is what cardiac surgeons have done by incurring these costs themselves.
I gave a talk to a statewide meeting of cardiothoracic surgeons in
Florida last weekend, and I asked for a show of hands for how many of
them employed clinical staff that helped them to care for patients in
the hospital. Every one of them raised their hand.
We do not want to go backwards. But if the RBRVS ignores these
costs, cardiothoracic surgeons are no longer going to be able to
maintain staff of the same quality.
Also at the direction of Congress, the General Accounting Office is
studying HCFA/CMS implementation of practice expense and its effects on
all specialties. A preliminary report was submitted last year, entitled
``Practice Expense Payments to Oncologists Indicate Need for Overall
Refinements.'' The GAO in this study concluded that on average,
practice expense reimbursement under the RBRVS meets only 70 percent of
average physician costs. For cardiothoracic surgery, reimbursement was
only 53 percent. That was under the 2001 fee schedule; adjusting the
GAO study to 2002, the PE reimbursement for cardiac surgery would be
less than 50 percent of costs.
I noted at the beginning that the reimbursement system is broken.
Physician morale is poor. In our own specialty, applications from
graduates of U.S. medical schools for the 144 residency training
positions offered annually in cardiothoracic surgery have dropped well
below the positions available: this year, there were only 112
applications from graduates of U.S. medical schools for these 144
positions (chart attached). The total training period for a
cardiothoracic surgeon, post medical school, is seven years. Most are
in their mid-thirties before they begin practice. This drop off in
applications does not bode well for the medical care the baby boomer
generation will need as this large group enters the age in which
cardiac disease is prevalent. If major shortages of cardiothoracic
surgeons, or a decline in quality appears five or ten years from now,
there will be no way to turn the situation around on a dime. The
decisions Congress and CMS make this year will have their impact, and
the impact will be felt much more in the future than the day after
tomorrow. I hope we are looking ahead.
______
Cumulative Reductions in Medicare ``Allowed Charges'' for Coronary
Artery Bypass Surgery, 1986-2001 (with & without CPI adjustment)
[GRAPHIC] [TIFF OMITTED] T0217G.001
LCurrent Dollars
{time} LAdjusted to 1986 Dollars to reflect changes in the
Consumer Price Index (buying power)
______
Positions Filled and Applications To Thoracic Surgery Resident Programs
1993-2002
[GRAPHIC] [TIFF OMITTED] T0217H.001
STATEMENT OF DONALD J. PALMISANO, M.D., J.D., SECRETARY-
TREASURER, AMERICAN MEDICAL ASSOCIATION
Dr. PALMISANO. My name is Dr. Donald Palmisano. I serve as
Secretary-Treasurer of the American Medical Association and am
a Member of the AMA Board of trustees. I am a practicing
General and Vascular Surgeon from New Orleans.
We thank Madam Chairman Johnson and the Subcommittee for
your leadership efforts in the commitment to providing a remedy
for the 5.4 percent Medicare payments to physicians and other
health care professionals. This deep cut is threatening access
for all Medicare beneficiaries. We urge this Subcommittee and
Congress to immediately halt this cut and replace the Medicare
payment update system.
Last June, MedPAC warned that a significant cut in the
payment update could raise concerns about beneficiary access to
care. Clearly, 5.4 percent is significant and it comes on top
of sharp increases in professional liability premiums as well
as a host of costly regulatory burdens. Many physicians as a
result are being forced to make difficult choices, such as stop
accepting new Medicare patients, discontinue the provision of
some medical services, limit or discontinue investments in new
technology, lay off staff or leave the practice of medicine.
These are not choices that physicians want to make. In each
case, our patients lose.
In response to these access concerns, MedPAC recommended a
new framework for Medicare physician updates. We support the
MedPAC general framework and look forward to working with the
Committee on the specific details of a new update system.
The current system does not work for several reasons.
First, the sustainable growth rate, SGR, requires the use of
estimates that are nearly impossible to predict accurately.
Chart 2 shows that inaccurate SGR predictions have shortchanged
physicians and other health professionals by over $20 billion
since fiscal 1998. Inaccurate enrollment projections mean that
every year physicians care for nearly 1 million Medicare
patients whose costs are not counted in the update. Under the
formula, these errors are compounded annually.
Further, physician updates, unlike any other category of
providers, are linked to changes in the GDP, even though the
medical needs of Medicare patients do not wane when the
American economy falls into a recession.
Chart No. 1 clearly illustrates the growing gap between the
Medicare Economic Index and annual physician updates. Since
1991, physicians have received an average annual increase of
1.1 percent, as shown in the red line, versus the 2.4 percent
increase in practice costs, as shown in the blue line. This
trend cannot be sustained. Finally, the SGR is highly
unpredictable and allows severe payment cuts to be imposed
without any warning or opportunity for action by Congress.
In March 2001, CMS predicted a 1.8-percent increase in the
2002 payment update, and 10 days later predicted that the
update would be a negative 0.1 percent. Not until November,
with only a few weeks left in the congressional session, did
CMS announce the 5.4 percent cut in the update. Like any small
business, medical practices need to plan their expenses in
order to remain financially sound. If practices continue to
lose money due to low Medicare payments, patient access is
threatened.
In conclusion, we strongly urge Congress to enact an
immediate halt to the 5.4 percent cut and repeal the SGR
system. We also ask the full Committee to ensure that its views
and estimates submitted to the House Budget Committee include
necessary funds to implement the MedPAC recommendations. Again,
we thank the Subcommittee for your strong efforts on this
important matter, and I am happy to answer any questions.
Chairman JOHNSON. Thank you. I am going to have to suspend
a hearing while we complete the vote. I will run over and be
back quick as we can. I will suspend for 5 minutes.
[The prepared statement of Dr. Palmisano follows:]
Statement of Donald J. Palmisano, M.D., J.D.,
Secretary-Treasurer, American Medical Association
Madam Chairman, Ranking Member Stark and Member of the
Subcommittee, my name is Donald J. Palmisano, MD, JD, and I serve as
the Secretary-Treasurer of the American Medical Association (AMA). I am
a practicing surgeon in New Orleans. The AMA is grateful to you and the
Subcommittee for the opportunity to provide our views concerning the
Medicare physician payment update formula, as well as the 2002 Medicare
payment cut of 5.4 percent. This steep payment cut is alarming. It is
critical that Congress take steps to immediately halt this cut before
it further jeopardizes the success of the Medicare program and patient
access to care.
We thank Chairman Johnson for your leadership efforts and
commitment to providing a remedy for the 5.4 percent cut that became
effective on January 1, 2002. We especially appreciate your leadership
on H.R. 3511. The AMA is eager to work on legislation with you and
Representative Stark to address this important matter and appreciates
the various efforts of several Subcommittee Members on both sides of
the aisle to assist America's physicians in this regard.
CONGRESSIONAL ACTION NEEDED TO REMEDY ACCESS PROBLEMS
As of January 1, 2002, Medicare implemented a 5.4 percent payment
cut that applies to Medicare services provided by physicians and other
health professionals, including, but not limited to, physical
therapists, speech pathologists, optometrists, advanced practice nurses
and podiatrists.
This is the largest payment cut since the Medicare physician fee
schedule was developed more than a decade ago, and is the fourth cut
over the last eleven years. Since 1991, Medicare payments to physicians
averaged only a 1.1 percent annual increase, or 13 percent less than
the annual increase in practice costs, as measured by the Medicare
Economic Index (MEI). (See attached Chart 1, Medicare Payments vs. MEI,
which compares Medicare physician payment updates to increases in
inflation.)
The Administration argues that total spending for physicians'
services by the Medicare program is increasing. This assertion misses
the more important point--spending per physician service is being cut
significantly. Increases in total Medicare spending are due in large
part to such factors as the increasing Medicare population, greater
longevity in lifespan, expensive technological innovations and greater
demand for medical services. All of these factors contribute to
spending, and all are beyond physicians' control. Increased spending
resulting from these factors cannot be curbed simply by cutting
payments to physicians. A global cap on physician payments cannot
successfully control the health care utilization of individual
patients.
The current 5.4 percent cut is forcing many doctors to make
difficult choices about their ability to continue accepting new
Medicare patients, or even whether to retire or change to a career that
does not involve patient care. If the pay cut is not immediately
halted, it could soon become difficult to prevent serious access
problems for elderly and disabled Medicare patients.
For example, the National Committee to Preserve Social Security and
Medicare has stated that their members are having difficulty finding a
physician who accepts Medicare because physicians cannot afford to keep
their offices open. A family practitioner in an underserved part of
Kentucky says she now cannot take any new Medicare patients and, if the
situation does not improve, she will have to close her practice in a
couple years. A cardiology group in Colorado is being forced to lay off
employees and, in Texas, spine surgeons at Baylor University plan to
stop taking Medicare patients.
The American College of Nurse Practitioners warns that the pay cut
is also forcing physicians and nurse practitioners to restrict their
Medicare patient loads and cut back on the services they provide. One
nurse practitioner in New York described a couple for whom she provides
care (the husband is 91 and the wife is 82), and she stated that the
cut ``will devastate the care received by the neediest segments of our
society.''
Because of these growing access problems, immediate action is
needed. We appreciate the Subcommittee's bipartisan commitment to
addressing in a timely manner the significant problems resulting from
the 5.4 percent cut and the payment update formula. We urge the full
Committee to report, and the Congress to enact, legislation that
would--
LImmediately halt the 5.4 percent Medicare payment
cut;
LRepeal the sustainable growth rate (SGR) system;
and
LReplace the flawed Medicare payment update formula
with a new system that appropriately reflects increases in
practice costs, including changes in patient need for medical
services, changes in technology, and other relevant information
and factors.
It is critical that Congress not defer legislative action to halt
the current payment cut or repeal the SGR. The Centers for Medicare and
Medicaid Services (CMS) is projecting that the SGR system will continue
to produce additional steep payment cuts in 2003, 2004, and 2005.
We ask the Committee to ensure that its ``views and estimates''
letter on budgetary and legislative matters, to be submitted to the
House Budget Committee, includes a request that appropriate funds be
set aside in the budget resolution to replace the Medicare physician
payment update formula beginning in calendar year 2003.
MEDPAC'S RECOMMENDATIONS TO REPLACE THE FLAWED
MEDICARE PHYSICIAN UPDATE FORMULA
The Medicare Payment Advisory Commission (MedPAC) warned in June
2001 that if the 2002 update was lower than the CMS estimate, which at
that time was--0.1 percent, it ``could raise concerns about the
adequacy of payments and beneficiary access to care.'' MedPAC adopted a
recommendation that Congress replace the current Medicare payment
formula with one that more fully accounts for increases in practice
costs. Specifically, MedPAC advised Congress to repeal the SGR system
because an expenditure target system, like the SGR, does not
appropriately reflect increases in practice costs. MedPAC further
recommended that future updates be based on inflation in physicians'
practice costs, less an adjustment for multi-factor productivity.
We strongly agree with MedPAC's assessment and support the general
framework of MedPAC's recommendations. We look forward to working with
the Subcommittee and the Full Committee on the specific details of a
new update system consistent with the MedPAC's framework.
MEDICARE PAYMENT CUTS SERIOUSLY THREATEN
MEDICARE PATIENT ACCESS
The current 5.4 percent Medicare cut for physicians' services has a
broad impact well beyond the physician community and Medicare program.
Since Medicare payments for numerous health professionals are directly
tied to the physician payment schedule, these practitioners also are
experiencing large payment cuts. In fact, nearly one million physicians
and other health care professionals are immediately affected by the
cut. In addition, many private health insurance plans base their rates
and updates on Medicare payment rates, which mean an additional loss of
revenue from non-Medicare sources.
Most significantly, the payment cut jeopardizes access for elderly
and disabled patients. Two-thirds of all physician offices are small
businesses. If a business, especially a small business, continues to
lose revenue and operate at a loss, the business cannot be sustained.
Thus, when medical practices experience a Medicare cut of the magnitude
being incurred in 2002, as small businesses, they may not survive. This
means that physicians and non-physician practitioners and their staff
are left with very few alternatives for maintaining a financially sound
medical practice. These alternatives include:
LDiscontinue seeing new Medicare patients;
LOpt out of the Medicare program;
LMove from being a participating to a non-
participating Medicare provider;
LBalance bill patients (subject to Medicare charge
limits);
LLay off administrative staff;
LRelocate to an area with a smaller Medicare patient
population;
LDiscontinue certain low-payment/high-cost Medicare
services;
LShift services into the hospital outpatient
setting, which increases costs to Medicare and to patients;
LLimit or discontinue charity care;
LRetire early;
LReduce hours of practice Change career;
LShift into a position which involves reduced or no
patient care responsibilities; and
LPostpone or discontinue necessary investments in
new technology.
It is clear from the foregoing that the current Medicare payment
cut likely will result in patients having difficulty finding a
physician. Indeed, concerns about patient access, due to payment cuts
and excessive rate fluctuations, were raised by the General Accounting
Office in testimony recently presented to Congress.
Further, recent press reports in many states have documented the
access problems resulting from the Medicare payment cut. Excerpts from
these reports are as follows:
L``As a result (of the 5.4% cut), doctors around the
country are finding themselves pinched. If you continue to lose
and lose, there may be a time when we will have to limit
services or close one of our sites,' says Susan Turney, medical
director of reimbursement at Marshfield Clinic, of Marshfield,
Wis., which operates about 40 sites with 600 physicians. In
some areas of Wisconsin, we're the only provider,' she adds.''
The Wall Street Journal, Jan. 20, 2002 (Some Doctors Say They
May Stop Seeing Medicare Patients After Cuts);
L``Washington's health-care system is in serious
decline, and the prognosis is guarded. Tests show the severity
of the problem,' said Tom Curry, executive director of the
Washington State Medical Association, which released a gloomy
report in Olympia. Responding to an informal poll of members in
November, 57 percent of physicians said they are limiting the
number or dropping all Medicare patients from their practices.
. . . The report says that for many years the state's health-
care delivery system has been in decline, characterized by a
slow erosion of funding for public health, growing
administrative expenses for practitioners and mounting
frustrations of physicians trying to cope with myriad
regulations. A growing number of patients, even those with
private insurance, are having trouble finding a physician
because increasing numbers of doctors have been leaving the
state or retiring early since the late 1990s, the report
says.'' Seattle Times, Jan. 30, 2002;
L``Medicare reimbursement to doctors was cut 5.4
percent the first of the month, worsening an already tight
financial situation for rural hospitals. . . . One result
likely will be a harder time recruiting doctors to rural areas.
. . . Medical equipment purchases can suffer, staff cuts are
more likely and doctors sometimes will leave for better
conditions elsewhere, Bruning said (Dr. Gary Bruning of the
Flandreau, South Dakota Medical Clinic),'' Associated Press,
Jan. 22, 2002 (Medicare Cuts Strain Rural Health);
L``Other West Virginia doctors fear their peers will
stop treating patients who have Medicare . . . And some wonder
how they will recruit doctors to a medical environment marred
by the recent struggles over malpractice insurance. . . . At
Madison Medical PLLC in Boone County, three doctors treat at
least 80 patients a day. About 65 percent of them have
Medicare, said office management Phyllis Huffman. The cut in
Medicare reimbursement does not come at a good time, she said.
In the last two years, for example, the physician group's
malpractice insurance doubled. Huffman said she fears that in
the long run, the practice will not be able to afford to
replace a departing employee. Or they may have to stop offering
services for which they get little or no reimbursement from
Medicare.'' The Charleston Gazette, Jan. 23, 2002.
LPatients are reporting having great difficulty
finding a physician that takes new Medicare patients in North
Carolina, where many physician practices have had to stop
accepting new Medicare patients due to low Medicare payments.
Dr. Conrad Flick, a vice president of the North Carolina
Academy of Family Physicians, stated that ``until [Medicare]
payments improve, medical practices will continue to cap the
number of Medicare patients they see, causing many practices to
refuse new patients.'' News & Observer, by Jean P. Fisher, on
website of American Association of Retired Persons (AARP).
In order to ensure that the 85 percent of Medicare patients
enrolled in the fee-for-service program will maintain access to
physicians and health care services, this payment crisis must be
addressed immediately.
VARIABLES COMPOUNDING MEDICARE PAYMENT CUTS
Several variables compound the current 5.4 percent Medicare payment
cut. First, this cut occurs at a time when premiums for physicians'
professional liability insurance (PLI) are increasing at an alarming
rate. For example, the Las Vegas Sun recently reported that a Minnesota
company's decision to get out of the PLI business could force nearly 40
percent of Nevada's physicians to pay painfully high premiums for new
coverage or close their office doors. This trend is occurring across
the country. The Miami Herald reported that South Florida physicians'
will see PLI premium increases between 25 and 350 percent this year, if
any insurance is available at all. In Pennsylvania, rising PLI premiums
threaten to close trauma centers and emergency rooms.
The effects of the payment cut also are compounded by requirements
under the Medicare and Medicaid programs that physicians take on
expensive new responsibilities without any additional compensation. For
example, program integrity activities have led to demands for reams of
documentation, expensive new compliance programs and the proliferation
of time-consuming certificates of medical necessity that force
physicians to police other providers, such as home health agencies and
medical suppliers. Patient safety, quality improvement, privacy
protection, interpreters for non-English-speaking patients and a host
of other well-intentioned requirements also are pushing medical
practice costs ever upward.
The magnitude of regulatory burdens on physician is not lost on
this Committee. Last year you passed legislation to assist us in this
regard. We thank you and look forward to working with you to ensure
that it passes the Senate.
Finally, the costs associated with PLI insurance premiums and the
continually increasing amount of government-imposed regulatory
requirements are not properly reflected in the Medicare payment update
for physicians' services.
MEDICARE PHYSICIAN PAYMENT UPDATE FORMULA
Medicare payments to physicians are annually adjusted through the
use of a legislated ``payment update formula'' that is based on the SGR
and the MEI, which measures increases in practice costs. These costs
include, among others, such factors as payroll, physician time, office
equipment, supplies and expenses.
This update formula originally was intended to cap increases in
practice costs. It has several flaws that create inequitable and
inappropriate payment updates that do not reflect the actual costs of
providing medical services to Medicare patients.
The Sustainable Growth Rate System
Under the SGR system, CMS annually establishes an expenditure
target for physicians' services based on a number of factors set forth
in the law. CMS then compares actual expenditures to the target. If
actual expenditures exceed the target, the Medicare payment update may
be as much as 7 percent below the MEI. Conversely, if allowed
expenditures are less than actual expenditures, the update may be up to
3 percent above the MEI.
The target is based on changes in expenditures for physicians'
services due to changes in (i) inflation, (ii) fee-for-service
enrollment, (iii) gross domestic product (GDP), and (iv) laws and
regulations. It is a highly unpredictable and unstable system that has
a number of critical flaws:
GDP Does Not Measure Health Care Needs: The SGR system permits
beneficiary Medicare spending for physicians' services to increase by
only as much as real per capita GDP growth--a measure of the economy
that bears little relationship to the health needs of Medicare
beneficiaries. Incidence of disease did not lessen with recent
downturns in the economy.
Specifically, GDP does not take into account health status, the
aging of the Medicare population or the costs of technological
innovations. Thus, the artificial link between medical care spending
and GDP growth under the SGR system creates a system that is seriously
deficient. Unlike any other segment of the health care industry,
physicians are being penalized with a steep Medicare cut this year
largely because the economy has slowed. Yet, the health needs of
patients continue, the number of beneficiaries continues to grow and
the use of new medical services approved by Medicare increases.
SGR Requires Unreliable Economic Forecasts: To calculate the SGR,
CMS must make projections of GDP, enrollment and other factors. It is
nearly impossible to make accurate predictions about these factors and
thus it is equally impossible to predict future payment updates. When
the resource-based physician payment system was first enacted in 1989,
it was intended to provide predictability over time. Yet, the current
update formula has created payment updates that are unpredictable and
subject to sharp swings as economic circumstances, beyond physicians'
control, change.
Further, because the update system is unpredictable, severe payment
cuts may be imposed without any warning or opportunity for action by
Congress. In March 2001, for example, CMS predicted that the Medicare
payment update for 2002 would be a 1.8 percent increase. Ten days
later, CMS recanted and stated that the 2002 update would likely be a
0.1 percent decrease. Finally, not until November, only eight weeks
before the effective date of the 2002 update and with only a few weeks
left in the Congressional session, CMS announced that the 2002
physician payment update would be a 5.4 percent cut. Like any small
business, medical practices need to plan their expenses in order to
remain financially sound. Small businesses are the engine of the U.S.
economy.
For these reasons, as MedPAC has recognized, the current physician
payment update system should be replaced.
Problems with SGR Projections: In annually calculating the SGR, CMS
estimates of GDP growth and enrollment changes in 1998 and 1999 have
shortchanged funding for physicians' services by $20 billion to date.
(See attached Chart 2, CMS Errors in SGR: Impact on Funding for
Physician Services.) CMS projected that Medicare+Choice enrollment
would rise by 29 percent in 1999, even though many HMOs were abandoning
Medicare. In fact, as accurate data later showed, managed care
enrollment increased only 11 percent in 1999, a difference of about 1
million beneficiaries. This means that when CMS determined the fee-for-
service spending target for 1999, it did not include in the costs of
treating about 1 million beneficiaries. Nevertheless, these patients
were and will continue to be treated, and since the SGR is a cumulative
system, each year since 1999, the costs of treating these 1 million
patients have been and will continue to be included in actual Medicare
program expenditures, but not in the SGR target. Clearly, this
disparity should be remedied.
CMS acknowledged its mistakes in calculating the 1998 and 1999 SGR
estimates at that time, but concluded it did not have the authority
under the law to correct its mistakes. We disagreed then, and were
further shocked by CMS' announcement in the 2002 final physician fee
schedule rule that not only do they have the legal authority, but the
legal imperative, to change 1998 and 1999 SGR projections relating to
spending for certain CPT codes overlooked by the agency. CMS'
interpretation of the law is perplexing and seems to allow the agency
to make SGR changes only when they result in Medicare payment cuts, but
not when the same changes would increase payments.
The full magnitude of this problem has only recently become
apparent. Information supplied by CMS suggests that the total amount of
this latest ``missing code'' error was nearly $5 billion. Recent
predictions by CMS of continued payment cuts for several more years
show that its decision to continue using bad data in the target while
correcting the errors in actual spending will ultimately have a
devastating impact on payments for physician services.
Flawed Productivity Adjustment under the Medicare Economic Index
In the early 1970s, pursuant to congressional directive, CMS
developed the MEI to measure increases in physician practice costs. A
key component of the MEI has been a ``productivity adjustment,'' which
offsets practice cost increases. Over the last eleven years, CMS
estimates of productivity gains have reduced annual increases in the
MEI by 27 percent. Such estimates contrast with MedPAC estimates of the
degree to which productivity gains offset hospitals' cost increases. In
fact, in 2001, MedPAC's estimate for hospitals was -0.5 percent, while
CMS' estimate for physicians was -1.4 percent. It is highly improbable
that physician practices could achieve such substantial productivity
gains in comparison to hospitals, which arguably have a much greater
opportunity to utilize economies of scale.
We continue to believe that the productivity adjustment in the MEI
is overstated. First, it is widely recognized that productivity growth
in service industries is typically lower than that in other types of
industries. Indeed, productivity data from the Bureau of Labor
Statistics show productivity growth in the general non-farm economy of
2 percent per year from 1991 to 2000, compared to 4 percent annual
productivity growth for manufacturing.
Second, we believe that productivity growth in physician practices
is likely to be low in comparison to other service industries due to
the previously-mentioned massive regulatory burden imposed on
physicians. The cost of these requirements is absorbed by physicians
with no offset paid by the Medicare program. In establishing the annual
update for hospitals, however, MedPAC includes a category for these
costs, and in its recommended update for 2000, for example, the
Commission included a 0.2 percent increase to help cover hospitals' Y2K
conversion costs. None of these government-mandated costs are presently
captured in the MEI.
In recommending a framework for future payment updates, MedPAC is
advising that the MEI should simply measure inflation in practice costs
and that productivity should be separately reported. MedPAC further
recommends that the productivity adjustment be based on multi-factor
productivity instead of labor productivity, and estimates that this
would significantly reduce the productivity adjustment that CMS
currently uses in updating the Medicare fee schedule.
Cost of New Technology Not Taken Into Account
Unlike most other Medicare payment methodologies, the Medicare
physician update system does not make appropriate adjustments to
accommodate new technology, and thus physicians essentially are
required to absorb much of the cost of technological innovations.
Congress has demonstrated its interest in fostering advances in
medical technology and making these advances available to Medicare
beneficiaries through FDA modernization, increases in the National
Institutes of Health budget, and efforts to improve Medicare's coverage
policy decision process. The benefits of these efforts could be
seriously undermined if physicians continue to face disincentives to
invest in important medical technologies as a result of reliance on a
defective expenditure target system. New technologies, including ever-
improving diagnostic tools such as magnetic resonance imaging, new
surgical techniques including laparoscopy and other minimally-invasive
approaches, have significantly contributed to quality of life for
Medicare beneficiaries. For example, a paper published by the National
Academy of Sciences indicated that from 1982-1994 the rates of chronic
disability among the elderly declined 1.5 percent annually.
Technological change in medicine shows no sign of abating, and the
physician payment update system should take technology into account to
assure Medicare beneficiaries continued access to mainstream, quality
medical care.
All of the foregoing factors contribute to a payment update system
that does not adequately reflect increases in the costs of caring for
Medicare patients and is already undermining Medicare patients' access
to necessary medical services provided by physicians and other health
professionals.
Again, we thank the Subcommittee for its continued support and
commitment towards mitigating the ongoing problems resulting from the
Medicare physician payment update formula.
We urge the full Committee and Congress to (i) immediately halt the
5.4 percent Medicare payment cut; and (ii) replace the Medicare payment
update formula with a new system that appropriately reflects increases
in practice costs.
We further ask the full Committee to include in its ``views and
estimates'' letter of budgetary and legislative matters submitted to
the House Budget Committee that appropriate funds be set aside to
replace the Medicare physician payment update formula beginning in
calendar year 2003.
We appreciate the opportunity to provide our views about Medicare's
physician payment update formula, and we look forward to working with
the Subcommittee to quickly reach a satisfactory resolution to this
critical problem.
______
[GRAPHIC] [TIFF OMITTED] T0217I.001
----------
[GRAPHIC] [TIFF OMITTED] T0217J.001
[Recess.]
Chairman JOHNSON. We will resume with the presentations.
Mr. Levine.
STATEMENT OF STEPHEN M. LEVINE, CO-OWNER AND ADMINISTRATOR,
SPINE AND SPORTS REHABILITATION CENTER, TIMONIUM, MARYLAND, ON
BEHALF OF THE AMERICAN PHYSICAL THERAPY ASSOCIATION
Mr. LEVINE. Thank you, Madam Chairwoman and the Members of
the Subcommittee on Health. The American Physical Therapy
Association (ATPA) is grateful for the opportunity to provide
testimony today concerning the need to reform the update
formula of the resource based relative value fee schedule. This
issue is of great significance to physical therapists who bill
their services to the Medicare program under part B.
My name is Steve Levine and I am a practicing Physical
Therapist and owner of Spine and Sports Rehabilitation Center
in Timonium and Falston, Maryland. My practice specializes in
the evaluation and management of the musculoskeletal
dysfunction involving the spine. Physical therapists provide
services to patients who have impairments, functional
limitations, disabilities, or changes in health status
resulting from injury, disease, or other causes. As clinicians,
physical therapists are involved in the evaluation, diagnosis,
prognosis, intervention, and prevention of musculoskeletal and
neuromuscular disorders in the acute chronic and rehabilitative
settings.
Please allow me to express my appreciation for the
commitment of the Members of the Committee and Madam Chairwoman
to address the problems that exist in the update formula for
the part B fee schedule. The APTA is hopeful that Congress can
work to ensure the fee schedule is modified appropriately
before the end of this year.
Many health professionals, including physical therapists,
utilize the RBRVS fee schedule to bill for their services. By
inviting APTA to testify today, you are helping to dispel the
myth that this is solely a physician concern. The APTA urges
the Committee to consider the following immediate actions to
address the problem.
First, immediately stop implementation of the 5.4 percent
cut to the Medicare fee schedule; and second, adopt MedPAC's
recommendations which would eliminate the SGR and replace it
with a system that would more appropriately account for the
changes in the cost of providing services. It is important that
Congress acts this year, as CMS has projected that the formula
will produce further significant negative fee schedule updates
in the aggregate 19.6 percent by 2005. Should Congress fail to
act, physical therapists and other health care professionals
will experience Draconian cuts in reimbursement over the next 4
years. We are concerned that this downward projection will
hinder the ability of physical therapists to care for Medicare
beneficiaries needing rehabilitative services.
Because the SGR system is flawed, updates under the system
do not reflect the cost of providing services. Our
recommendation is to eliminate the SGR methodology.
Furthermore, the MEI, which accounts only for growth in labor
productivity, overstates productivity gains in services and
should be revised.
The APTA takes issue with the administration's assertion
that reform of the update formula must happen in a budget-
neutral environment. Clearly, additional financial resources
are necessary to address this fundamental problem. APTA feels
strongly that to correctly remedy this situation, the Committee
should seek appropriate resources through the Budget Committee
to meet this and other challenges. A short-term fix is nothing
more than simply moving the furniture around on the deck of a
ship that continues to speed toward an iceberg. The ship must
change its course to avoid certain disaster. The impact of the
Medicare cuts needs to be viewed in the context of significant
legislative and regulatory changes affecting physical
therapists.
As you know, the BBA also imposed a $1,500 cap on
outpatient therapy services in all settings except for
hospitals. In 1999, and again in 2000, due to concerns raced by
beneficiaries, Congress placed a moratorium on enforcement of
the $1,500 cap. The present moratorium will expire at the end
of this year unless Congress acts. If the cap goes back into
effect, it will compound the Medicare payment cuts.
In addition to the cap, physical therapists continue to
deal with increased documentation requirements, conflicting
Medicare rules, nonuniform application of Medicare requirements
among its contractors and impending privacy requirements under
the Health Insurance Portability and Accountability Act of 1996
or HIPAA. These issues further compound an already alarming
problem.
During the past few months, The APTA has heard numerous
reports from its Members concerned about the impact of the 2002
cut and future CMS projections. As an illustration, this year,
for a typical 45- to 60-minute skilled visit with a physical
therapist, Medicare will allow approximately $85.78. Currently
my cost to provide this visit is $79.57. Next year for the same
visit and using the current formula, Medicare's allowable rate
will drop to $80.89. Considering a cost-of-living adjustment to
both salaries and expenses, my cost to provide this visit is
projected to increase to $81.95 in 2003. Therefore, next year
if Congress does not act to change this formula, my practice
will lose over a dollar on each physical therapy visit under
Medicare. The only choice for survival is to reduce my cost,
which will ultimately reduce the quality of services that can
be provided to Medicare beneficiaries.
In conclusion, as the older adult population continues to
rapidly grow, prompt and coordinated quality health care
services will be necessary to avoid hospitalization, decrease
the length of institutional stay, reduce the amount of care
required after discharge, prevent complications, and improve
the individual's level of function. The health of older
Americans will be at risk if access to and appropriate payment
for health care services does not keep pace with the growing
number of Medicare beneficiaries.
Madam Chairwoman, I would like to thank you for submitting
this testimony before the Subcommittee.
[The prepared statement of Mr. Levine follows:]
Statement of Stephen M. Levine, Co-Owner and Administrator,
Spine and Sports Rehabilitation Center, Timonium, Maryland,
on behalf of the American Physical Therapy Association
Medicare Part B Fee Schedule Payment Update Formula
Madam Chairwoman and members of the Subcommittee on Health, the
American Physical Therapy Association (APTA) is grateful for the
opportunity to provide testimony today concerning the need to reform
the update formula of the Resource-Based Relative Value Fee Schedule
(RBRVS). This issue is of great significance to health professionals
who bill their services to the Medicare program under Part B, including
physical therapists.
It is an honor to testify today on behalf of the APTA's 64,000
member physical therapists, physical therapist assistants, and students
of physical therapy. My name is Stephen Levine, PT, MSHA. I am
presently co-owner and administrator of the Spine and Sports
Rehabilitation Center, with offices in Timonium and Fallston, Maryland.
My practice specializes in the evaluation and management of
musculoskeletal dysfunction involving the spine.
I have also served nationally within the APTA as a former member of
the Board of Directors and Vice Speaker of APTA's House of Delegates.
From 1992 to 1999, I was APTA's appointee to the American Medical
Association's (AMA) Health Care Professional's Advisory Committee of
the Relative Value Update Committee, a multi-specialty committee which
advises the AMA and the Centers for Medicare and Medicaid Services
(CMS) on appropriate relative values of medical services provided by a
broad range of licensed providers.
First, I would like to thank you for holding this hearing today and
for the commitment of Committee members to address the outstanding
problems that exist in the update formula for the Part B fee schedule.
Many health professionals, including physical therapists, utilize the
RBRVS fee schedule to bill for services. By inviting APTA to testify
today, you are helping to dispel the myth that this is solely a
physician concern.
Physical therapists provide services to patients who have
impairments, functional limitations, disabilities, or changes in health
status resulting from injury, disease or other causes. As clinicians,
physical therapists are involved in the evaluation, diagnosis,
prognosis, intervention, and prevention of musculoskeletal and
neuromuscular disorders. On a daily basis, physical therapists provide
care for Medicare patients with acute, chronic, and rehabilitative
conditions. Physical therapy is a dynamic profession whose goal is to
preserve, develop, and restore optimal physical function.
APTA was pleased with the strong support members of the House gave
to legislation last year that would have forestalled a 5.4 percent cut
in payments that took effect January 1st. Some 316 members of the House
cosponsored H.R. 3351, a bill to promote payment fairness under the
RBRVS fee schedule. Unfortunately, Congress failed to act last year.
APTA is hopeful the Congress can work to ensure the fee schedule is
modified appropriately before the end of this year.
Congressional Action Necessary
APTA urges the Committee to consider the following immediate
actions to address the problem:
LImmediately stop implementation of the 5.4% cut to
the Medicare fee schedule;
LAdopt MedPAC's framework for updating the Part B
provider fee schedule, which includes eliminating the
sustainable growth rate (SGR) and replacing it with a factor
which will more appropriately account for changes in the cost
of providing services. MedPAC's framework was highlighted in
its March 2001 report to Congress and will be part of its March
2002 report.
It is important that Congress act this year as CMS has projected
that the formula will produce significant negative payment updates of
5.7% in 2003, 5.7% in 2004, and 2.8% in 2005. Should Congress fail to
act, physical therapists and other health care professionals will
experience draconian cuts in reimbursement over the next four years.
APTA takes issue with the Administration's assertion that reform of
the RBRVS update formula must happen in a budget neutral environment.
Clearly, additional resources are necessary to address this fundamental
problem. Moving the furniture around on the deck of the ship will not
slow it from sinking. APTA feels strongly that remedying this issue
must not be a budget neutral exercise. We recommend the Committee seek
appropriate resources through the Budget Committee to meet this
challenge and other necessary Medicare reforms.
Patient Access Problems Will Result from Flawed Update Formula
APTA is concerned that the negative payment updates to the RBRVS
fee schedule will hinder the ability of physical therapists to care for
Medicare beneficiaries needing rehabilitation services. It is important
that these individuals continue to receive the rehabilitation and other
services that they need in order to achieve their maximum level of
functional independence. Because rehabilitation enables beneficiaries
to function more independently, rehabilitation will save the Medicare
program dollars in the long run.
The impact of the Medicare cuts needs to be viewed in the context
of significant legislative and regulatory changes affecting physical
therapists that have occurred over the past few years. Since 1992,
physical therapists in private practice have been reimbursed under the
RBRVS fee schedule. Prior to 1999, all other outpatient therapy
settings were reimbursed under a cost-based system. The 1997 Balanced
Budget Act (BBA) required that outpatient therapy services in all
settings be reimbursed under the RBRVS fee schedule, beginning in
January 1999. Thus, in addition to impacting physical therapists who
own and operate private physical therapy practices, the 5.4% cut in
payment and the flawed update methodology also impacts the provision of
outpatient therapy services in outpatient hospitals departments,
skilled nursing facilities (Part B), home health agencies (Part B),
rehabilitation agencies, and comprehensive outpatient rehabilitation
facilities (CORF).
The BBA also imposed a $1500 cap on outpatient therapy services in
all settings except for hospitals. In 1999 and again in 2000, due to
concerns raised by beneficiaries, Congress placed a moratorium on
enforcement of the $1500 cap. The present moratorium will expire at the
end of this year unless Congress acts. If the cap goes back into
effect, it will compound the Medicare payment cuts.
In addition to the cap, physical therapists continue to deal with
increased documentation requirements, conflicting Medicare rules, non-
uniform application of Medicare requirements among Medicare
contractors, and impending privacy requirements under HIPAA. When
combined with the current and impending cuts you can begin to
understand how difficult it is and will be for health professionals to
continue providing services within the Medicare program.
The majority of physical therapists in private practice are small
businesses. As small business, their ability to operate is in jeopardy
when they lose necessary revenue or cannot forecast revenue accurately
from year to year. As a result, maintaining access to providers like
these, that play such an important role in health care delivery, cannot
be sustained without immediate reform of the payment update formula.
During the past few months, APTA has heard numerous reports from
its members regarding the impact of the 2002 cut. Speaking from my own
experience, the Medicare allowable amount per visit, as projected over
the next two years, will cause Medicare reimbursement to fall below my
actual cost to provide physical therapy services (in 2002 dollars),
particularly as costs increase due to inflation. As a result, we may be
forced to become non-participating providers in the Medicare program,
which will result in a decreased ability for patients to access skilled
physical therapy services from our office.
Flawed Medicare Payment Update Formula
Medicare payments are updated annually based on the SGR system.
Because the SGR system is flawed, updates under the system do not
reflect the cost of providing services. The flaw in the system is
apparent in 2002 as the SGR resulted in a 5.4 percent reduction in
payment rates, despite an estimated 2.6 percent increase in the costs
of inputs used to provide services.
The SGR system sets spending targets for services reimbursed under
the RBRVS fee schedule and adjust payment rates to ensure that spending
remains in line with those targets. If spending equals the targeted
amount, payment rates are updated in accordance with the percentage
change in input prices, which is determined by the MEI. If the spending
for that year exceeds the target, the increase in payment rates is
smaller than the increase in input prices (MEI). If spending for that
year is less than the target rate, payment rates are allowed to be
increased by a greater amount than the rise in input prices.
The annual target is a function of projected changes in four
factors: input costs, enrollment in traditional Medicare, real gross
domestic product (GDP) per capita, and spending attributable to changes
in law and regulations. Revisions to any of these four factors or to
estimates of prior spending can change the spending estimate
significantly.
One of the problems with this methodology is the use of changes in
GDP as a factor. Linking annual changes in the targets to annual
changes in GDP ties the target to the business cycle. During times of
prosperity, GDP growth rates would be higher; yet, during periods of
downturn, such as the past year, the GDP rates are lower. Health care
needs of Medicare beneficiaries do not follow the same cycle.
Beneficiaries do not need fewer services and the cost of providing care
to these beneficiaries does not lessen when the economy is in a
downturn.
Another problem with the methodology is that the SGR is highly
volatile. In March 1, 2001 rule, CMS estimated that that the 2002
update would be around negative 0.1 percent. However, in November 1,
2001, just 7 months later, the SGR was at negative 0.7 percent, which
caused the fee schedule update to be reduced by 5.4 percent. This was
due, in part, to a predicted slower economy, and changes in spending
estimates. These excessive and unpredictable rate fluctuations make it
very difficult for providers to continue to participate in the Medicare
program.
Still another problem relates to errors in estimating beneficiary
enrollment. According to CMS, Medicare+Choice enrollment would rise 29
percent in 1999. In actuality, the projection was off by 10 percent and
nearly 1 million enrollees. The corresponding projected drop in fee for
service enrollment was erroneous and has negatively influenced the SGR
ever since.
Changes Needed in the Medicare Economic Index (MEI)
In addition to eliminating the SGR, the MEI, which is calculated by
CMS and used to measure practice cost inflation, also needs to be
improved. The MEI is a weighted average of price changes for inputs,
which include physician time and effort (work, non-physician employees,
and office expenses) used to provide care. The MEI, which was developed
in 1972, also includes an adjustment for productivity growth, which
affects the cost of providing services. Currently, the MEI, which only
accounts for growth in labor productivity, overstates productivity
gains in services.
In its framework, MedPAC recommends that the MEI measure inflation
in practice costs and that productivity be separate from the MEI. In
addition, MedPAC recommends that the productivity adjustment be based
on multi-factor productivity (which would include both labor and
capital inputs), instead of labor productivity. Making this change
would ensure that it would account for changes in productivity for all
relevant inputs used to provide services. According to MedPAC, this
would significantly reduce the productivity adjustment that CMS uses
currently in updating the Medicare fee schedule. APTA urges Congress to
adopt MedPAC's recommendation regarding MEI.
Conclusion
As the older adult segment of our population continues to rapidly
grow, it will be paramount that they have access to qualified health
care professionals who are able to serve their health care needs.
Prompt and coordinated services provided by health professionals can
help to avoid hospitalization, decrease the length of institutional
stay, reduce the amount of care required after discharge, prevent
complications, and improve the individual's level of function. The
health of older Americans will be at risk if access to and payment of
health care providers does not keep pace with the growing number of
Medicare beneficiaries.
Thank you for the opportunity to submit this testimony before the
Subcommittee.
Chairman JOHNSON. I thank you very much for your testimony.
It was very interesting.
I wonder if any of the practicing physicians at the table
have seen any effect on their practices of payment issues
driving access? In other words, have you seen any referrals
from people that normally would have provided care but for the
payment structures, and are there any ways in which you are
seeing any impact on access of the payment system. Dr. Mayer?
Dr. MAYER. Well, you know, I don't spend any time taking
care of Medicare patients, since I am a pediatric heart
surgeon. But I can tell you that similar sorts of things that
are affecting Medicare are also affecting both private insurers
who are now using the Medicare fee schedule to a large extent,
and also affects Medicaid. I can certainly tell you that there
have been patients covered under Medicaid programs and referred
to our center who have essentially been told that they can't
come to a center like ours and that they have to stay locally.
So these are children with complicated forms of congenital
heart disease who are basically being told they have to stay
closer to home and perhaps be cared for in centers that don't
have as much experience as we do. So it is having an effect
even in a non-Medicare population.
Chairman JOHNSON. Thank you. Do any of you have any comment
or information about Dr. Ginsburg, I think there was a chart in
your testimony that really went to the heart of the matter of
the impact of our reimbursement policies on different types of
practices. Would you go through that a little bit more?
Dr. GINSBURG. Yes, certainly. There was a chart in my
testimony on trends of the proportion of physicians who accept
all Medicare patients by specialty. Whereas for all physicians,
the percent that are accepting all the new Medicare patients
declined from 71.8 percent to 67.5 percent over this 4-year
period, the decline was steepest among surgeons, from 81.3
percent to 73.4 percent. In contrast, medical specialists
actually slightly increased the proportion that are accepting
all new Medicare patients over this period. The differences in
these trends probably are related to Medicare payment policy;
in going to a common conversion factor, it reduced payments to
surgeons, and increased payments to medical specialists.
Chairman JOHNSON. Thank you very much. Dr. Palmisano?
Dr. PALMISANO. Thank you, Madam Chairperson. If I may, I
would like to respond to your first question. We have gathered
information from around the country in the area where I am of
New Orleans. I will give you an example. A group of clinic-
based colon and rectal surgeons in New Orleans, Louisiana,
first reduced from four to one the number of days each month
that they would test and treat elderly women with fecal
incontinence. Later they scaled back these services to once
every 3 months. Now they have reached the point where they will
no longer accept new patients who need these services.
Colon and rectal surgery is a very small specialty. There
are only about 1,250 who are board-certified and in active
practice nationwide. It makes a difference to a community when
one of them ceases to provide a service. There are few others
to meet that need.
And we have other examples around the country that we will
be glad to submit to you, again, from New Orleans and Pine
Bluff, Arkansas, Pensacola, Florida. Physicians report to us
they are having a difficult time identifying primary care
physicians to provide follow-up care for elderly surgical
patients who do not have a regular doctor. They are hearing
that these practices simply are not accepting new Medicare
patients.
We have other stories that we can put into evidence. Thank
you.
Chairman JOHNSON. Thank you. I hope you will all of you who
have any access to contemporary data that reflects the
difficulty of access for seniors to care, share that
information with us, because anecdotally I am seeing that in a
way that I have never seen it, being out there in the real
world, and I don't know to what degree it is driven by the
Medicare reimbursement problems, both administrative and cuts,
and to what degree it is an interactive consequence of the
problems in Medicaid.
And if you could begin also to help us identify where these
problems are the most acute, we can begin to look at those
interactions.
The other thing that we need to know is how are these cuts
affecting physicians of different ages? And are we going--do we
see an increase in early retirement amongst physicians because
of the complexity of the reimbursement problems and this
erratic cut. Dr. Mayer?
Dr. MAYER. I would like to speak, I think, to two points.
One is I think it is important to recognize that the access
problem is not just a straight numeric one. It also has
embedded in it quality. Certainly what we are hearing, and I
don't mean to beat this practice expense issue to death, but
what is happening is that surgeons are laying off the clinical
staff that are part of their teams that are taking care of
these cardio patients. I think that is inevitably going to have
an impact on quality. So I would expand the access issue, and I
would say it is an access to quality care issue, not just
fundamental access to get in the door.
Chairman JOHNSON. The other thing I would be interested in
hearing is, more and more physicians are actually involved in
care management. They are using their nurses. We don't give any
reimbursement for that. How do we get physicians into disease
management protocols and using them with the reimbursement
structure we have, or what reimbursement structure--what
adjustments need to be made to the reimbursement structure so
we can help physicians through their practices actually follow
patients? Because it is having a very significant impact on the
reuse of appointments and reuse use of hospital facilities. And
while we had hoped that the Medicare+Choice plans would lead us
in this direction more rapidly, clearly if it is going to lead
in this direction, it is going to be slowly, so we cannot have
a physician reimbursement that is blind to the need for disease
management.
Dr. GINSBURG. Yes, I agree very strongly with you, Madam
Chair, about the importance of changing our payment system so
that it can be supportive rather than discouraging toward
physicians engaging in disease management. I believe you are
right that we realize that the fee-for-service Medicare Program
is going to be responsible for the overwhelming majority of
beneficiaries for some time.
It was very encouraging that in the past week the CMS
announced a large demonstration of to encourage disease
management. We need a lot more initiatives to experiment with
this within our fee-for-service system.
In Medicare, we have a fee-for-service system. It has some
strengths, but it has limitations as far as ability to control
volume. A key weakness is that when the services of
professionals other than physicians are very important to
disease management, we need to quickly find a way where the
system can through payment, if not encourage disease
management, at least avoid discouraging it.
Dr. MAYER. We actually have a group in the State of
Virginia, all of the cardiothoracic surgeons and all the
hospitals that provide cardiac surgical care in the State of
Virginia, and they have actually given to CMS a proposal in
which all of them would get together, globally contract, and
there would be global pricing. So one would include hospital
services as well as physician, surgeon, anesthesiologist,
cardiologist as well as cardiac surgeon fees all together. The
CMS has said they can't do it somehow, which we found
particularly disappointing, because one of the things that our
sort of an approach allows is an alignment of incentives. It
then becomes to everyone's advantage to make the care both more
cost effective and efficient.
Chairman JOHNSON. I would like to have copies of that
information, if I may. I do think that at this time when we are
clearly going to rewrite the way we pay physicians, we can
simply ill afford to be blind to the most promising approach to
reducing overuse of extensive services and at the same time
improving quality of care. So I look forward to working with
you on that.
That was my amendment in the last bill on the disease
management, and I am pleased to see it going forward. But as is
often the case, the real world is far ahead of us, and a
demonstration at this point is almost pathetic. We can't afford
this opportunity to think about it either.
Let me recognize my colleague, Mr. McCrery.
Mr. McCRERY. Go ahead, Dr. Palmisano. You had a comment?
Dr. PALMISANO. Thank you, Representative McCrery. I just
wanted to make one point. Thank you very much for that
courtesy. Two things I also wanted to add on the record. the
physician's ethical obligation to do the very best for the
patient. Last week my partner, Jim Brown, and I operated on a
patient who had a very difficult problem with his thyroid. He
had a mass. He previously had hyperthyroidism. The operation
took 5 hours using magnification to make sure we didn't cut the
nerves of the voice box, to make sure we kept the parathyroid
gland so he wouldn't go into tetani at the operation. And we
weren't thinking of whether or not we were going to stop the
operation after 3 hours because we weren't paid beyond 3 hours
or whatever. We are going to do the very best for the patient.
But as my partner tells me repeatedly, and told me again
this morning, when I called to check on the practice, he said,
just remember you can't make it up on volume if everything else
escalates and the fees for your services continue to decrease.
And I think going back to the disease management question,
there is the old Louisiana saying about it is hard to remember
you came here to drain the swamp when you had so many different
alligators, and the different alligators biting at you are the
unfunded mandates or the decreasing payment for your services
and just the increased burdens of the Emergency Medical
Treatment and Active Labor Act, EMTALA, and all of these things
I know you are working on and have done a wonderful job to get
that out of the House to ease the burden.
There are so many factors here that this really is the
perfect storm, to use that analogy, and we are going to act
like the weather person and say there will be an access problem
if we don't fix these things. Regardless of how we do the long-
term fix, right now we have to stop the 5.4-percent cut.
Mr. McCRERY. One of the other elements of your perfect
storm that you mention in your testimony was medical
malpractice premiums going up. You know what causes those
premiums to go up?
Dr. PALMISANO. Well, yes, sir. I am quite familiar with how
premiums go up. In an ideal world, it is based on severity and
frequency; frequency of claims and severity. And it is
outrageous awards that have no relationship to the damages.
And before you ask me the next question, is that in your
State, my State, beloved State of Louisiana, we have one of the
best tort reform laws in the Nation. And we think it is equal
to California and Indiana and New Mexico. We think ours is
really perhaps a little better. The AMA has the California
model. So those are increases, and yet we are seeing physicians
retiring early in New Orleans even though we have a very
effective tort reform compared to West Virginia, Florida,
Pennsylvania, and Nevada and all of these places that are in
severe distress.
Mr. McCRERY. We do have a good tort reform or medical
malpractice reform in Louisiana and have had for a number of
years. Do you think it would be helpful to the Nation's health
care system if we had a nationwide medical malpractice reform
that would model, or that would go after the model in
Louisiana?
Dr. PALMISANO. The AMA's position for many years has been
that we need effective tort reform. The particular model that
we picked was the model in California, which is the micromodel,
and it is a cap of $250,000, periodic payments, collateral
source and those types of issues.
So we do definitely believe that it would be good to have
that nationwide, at the same time protecting States like
Louisiana and Indiana, who might have substantially similar
laws but slightly different so as not to upset their
jurisprudence that has accumulated over the years. Our act has
been upheld by the Louisiana Supreme Court, and the U.S.
Supreme Court says there is no Federal question on it.
Mr. McCRERY. So the AMA supports nationwide medical
malpractice?
Dr. PALMISANO. Yes, sir. The AMA supports, and in our
December meeting, the AMA said this is a top priority for the
Association to get nationwide tort reform and help States if we
are not able to get it effectively because that is another
access problem, physicians going out of practice.
Mr. McCRERY. So you would now support having medical
malpractice reform passed as a part of the Patients' Bill of
Rights?
Dr. PALMISANO. Well, that question comes up all the time
but we have said, we will always look. We certainly want to sit
down and reason and would love to be at the table on the
Patients' Bill of Rights issue and the tort reform issue. AMA's
position in the past, we think these are both an effective
Patients' Bill of Rights is an important issue. Tort reform is
an important issue. And we think that they can stand alone. If
you want to put them together in a bill, let us look at it
together. But what we don't want to do is have everything get
killed based on those two being put together. We would like to
get one thing out that is effective and then continue to work
on the other than get nothing.
Mr. McCRERY. Perhaps if you would help us underscore the
importance of medical malpractice reform, we could attach it to
some vehicle like the Patient's Bill of Rights that is popular
in the element that doesn't like medical malpractice reform,
and we might get them both done. I would submit that the AMA
ought to----
Dr. PALMISANO. Mr. McCrery, I am sorry. Just repeat that a
little bit. I lost one of my hearing aids coming up here and I
am having a little trouble with it, I am sorry.
Mr. McCRERY. My point is that we may never pass medical
malpractice reform if the AMA doesn't stand squarely behind it
on any vehicle that we might get through the Congress, and if
we could get solid support from the AMA for what to many of us
seems to be a commonsense reform for the benefit of our society
and for the preservation our private health care system, we
could maybe get it done. But if we get mixed signals like don't
put it on this vehicle or that vehicle, it is not that
important, go ahead and pass this, then it is going to be
impossible to pass medical malpractice reform.
Dr. PALMISANO. Sure. And if I might respond to that for the
record, the AMA would like to see any language in any bill that
would give us nationwide tort reform because it is a top
priority of the American Medical Association.
Mr. McCRERY. Thank you. The only other thing I would add to
the list that Mrs. Johnson asked you to provide some evidence
for is medical school applications. Is there any evidence that
medical school applications are going down because of the best
and the brightest changing their minds as to what career path
to pursue because of all these problems?
Chairman JOHNSON. Dr. Mayer, did you want to respond?
Dr. MAYER. Yes. I think there are data now that the number
of applicants is going down. The applications are still in
excess of the number of positions available. I would only
reemphasize when you weren't here to point out, though, that in
cardiothoracic surgery we had fewer applicants than we had
available positions. It has never happened in our specialty
before. It was sort of the creme de la creme who made it
through general surgery and then went on to cardiothoracic
surgery. For the last 3 or 4 years, we have not filled with
American medical school graduates. Those applicant positions
are going to overseas folks, and many of them are high-quality
people, but I think it is symptomatic of the problem. And this
year, even with the non-U.S. medical school graduates, we
didn't fill the programs.
So, you know, I think these things are all having an
impact, and, you know, as I said in my formal comments, I think
once this train goes off the edge of the cliff, it is going to
take 10 years to turn it around, because that is how long it
takes, post medical school, to mint a new cardiothoracic
surgeon.
Chairman JOHNSON. Mr. Levine.
Mr. LEVINE. Madam Chair, if I may just regress for one
minute and go back to your comment on disease management and
access, I think that is a very significant concern. Physical
therapists focus on functional restoration with patients, and
prevention is a key to disease management. One of the other
things that I hope the Committee will look at is not only the
impact of the fee schedule cuts but the other regulatory
restrictions that limit Medicare beneficiaries' access to those
health care providers that do impact disease management.
In my practice in the State of Maryland, physical
therapists have had direct access for physical therapy services
since 1979. However, the Medicare beneficiary does not have
that ability to seek physical therapists and oftentimes it is
the physician who is not familiar with the fact that the
physical therapist can be an integral component of the disease
management process.
So I would only urge the Committee to look at the other
regulatory issues in combination as you look to navigate this.
Chairman JOHNSON. I would just like to add to Mr. McCrery's
comments that it is truly bizarre for Congress to consider
capping the liability of plans without capping the liability,
at least at those same levels, of physicians. So I consider it
imperative to have some malpractice reform in the Patient's
Bill of Rights in order to simply have a level playingfield,
and was very disappointed with the lukewarm support we got on
that issue. And I recently sat down with insurance companies in
my district, physician-owned insurance companies, where the
issues of utilization and quality have been rigorously
addressed, and they had a 20-percent cost increase last year,
they will have a 25-percent cost increase this year. It is not
because there are more cases being brought. It is specifically
because the awards have gone absolutely through the ceiling. So
this is a very big issue, and you can't talk about cost control
in Medicare or anywhere else unless you are willing to confront
it. Congresswoman Thurman.
Mrs. THURMAN. Thank you, Madam Chairman. Although, Madam
Chairman, I would also say that in some of the instances with
the insurance and I don't want us to get too caught up in all
of this it is also the interest payments that they are
receiving on their investments which is also not helping them.
And for some of those doctors who are doing their own
insurance, and through the reinsurance because of September 11,
they are also having an increase in their reinsurance which is
also creating a part of the problem.
Chairman JOHNSON. If the gentlelady will yield, I asked
those questions of this particular company. They do not use
reinsurance and they are invested in ways that are not affected
by Wall Street. So we need to get into this in a way that
demonstrates, because here is kind of a creme de la creme plan
and it is strictly award size.
Mrs. THURMAN. And I have talked to others that say
differently. So I would agree with you that we probably need to
sit down and talk about that overall, so that we have a better
idea of what is going on here.
I just want to tell you all thank you very much for being
here. I am sorry I missed your testimony, and so at this time I
don't have any questions, but we certainly appreciate it and
hopefully we will be able to help our constituents by making
sure they have access to physicians without long waits and
without the loss of physicians in areas that are underserved
today. So we thank you for being here.
Chairman JOHNSON. Mr. McDermott.
Mr. McDERMOTT. Thank you, Madam Chair. I am sorry that the
Congress is trying to do everything in 2 days a week, so that
some of us are running between committees. I was just up
listening to Secretary Thompson talk about all of this, and I
had to kind of decide whether I would go there or stay here.
What he is saying up there isn't going to make you folks very
happy, I am sure.
But let me ask you a question, first of all. I think, Dr.
Ginsburg, you were here when we put in the RBRVS system?
Dr. GINSBURG. Yes.
Mr. McDERMOTT. And I had just come to the Congress. That
was in 1989, so I wasn't on this Committee yet. And I thought
there was a lot of discussion at the time that one of the goals
of putting in the RBRVS system was to increase payments to
primary care people and to make additional access, to actually
increase the volume of things; is that correct?
Dr. GINSBURG. Certainly we felt, and many people felt at
that time, that Medicare had an imbalance, that we were paying
too little for primary care and really were concerned that this
would discourage the use of primary care in the Medicare
program--and encourage too much specialty care. When this fee
schedule, RBRVS, was put in, there also were concerns about the
total volume and about the trends in total volume of Medicare
physician services; although recognizing that this is a fee-
for-service payment system, the incentives to the individual
physicians are to increase volume, and this is what led to the
Volume Performance Standards. This mechanism was attempting to
engage the medical profession as a whole in professional
attempts to limit volume through better information about
effectiveness of care.
Mr. McDERMOTT. How did that fail? I mean, we have gotten
better payments for primary care physicians. And why is it that
we can't control volume? I mean, we knew it. There was all this
discussion about it. It should be no big surprise to anybody
around here that the volume has gone up.
Dr. GINSBURG. I don't know that we should say we failed,
because actually----
Mr. McDERMOTT. I don't think we did. We hit the goal.
Dr. GINSBURG. Volume trends in the nineties were far more
benign than they were in the eighties, although I am not sure
that it was Medicare policy that was driving this, you know.
Throughout the nineties we had a dramatic change in our system
toward managed care. Most people in private insurance went from
traditional plans to managed care plans. The managed care plans
I suspect did have some effects on volume, and I believe that
the effects of managed care on physician behavior, such as from
requiring authorizations for admission to a hospital or
referral to a specialist, probably spilled over into the fee-
for-service Medicare Program. When physicians learn how to
treat some of their patients differently, it is going to spill
over to how they treat other patients.
So it is really hard to say whether the mechanism to
control volume succeeded or failed, but the nineties were a
period of low cost trends both for privately insured patients
and for Medicare patients; but you know, I wouldn't--attribute
it to the policy that the Congress passed in 1989.
Mr. McDERMOTT. Now, I know you can't make recommendations,
but I would like to ask you an option. We are not going to pass
a bill for $126 billion, like MedPAC suggests, but how about
letting the Secretary make a volume adjustment each year in the
fee update, maybe 1 or 2 percent, and just give them a little
flexibility? How would you feel about that as a public policy?
Dr. GINSBURG. Yes. Drawing on the research, my biggest
concern is with a formula that locks us into a very large
decrease in rates over time. So to the degree to which people
would make better judgments making annual decisions as opposed
to having a lockstep formula, I would say that would be a
positive. Policymakers would be in a better position to respond
to the various data on physicians' costs and access to care for
Medicare beneficiaries.
Mr. McDERMOTT. I have one final question for the panel and
I am sorry I also didn't hear all the testimony. We decided we
are going to save a lot of money by turning the U.S. Department
of Justice (DOJ) loose on medical providers, and I would like
to know how many places you know about, or if you can provide a
list to me after the hearing or whatever of those places where
the DOJ has gone in on criminal charges on doctors and
hospitals for their forums.
Where is that happening? I happen to know it is going on in
Seattle, and I don't know where else it is going on, but what I
know about it there; makes me really concerned about what you
are doing to the health care and the practice of medicine. So I
would like to know where else; so I have got to figure out
which of my colleagues is having this same thing that is going
on in Seattle.
Does anybody know the answer to that or have a list?
Dr. MAYER. Well, I think the University of Pennsylvania
certainly was affected. The University of Pennsylvania
hospitals took a significant financial hit based on a
Department of Justice investigation. I know in Boston there was
the threat of a Department of Justice inquiry at the Beth
Israel Medical Center.
Mr. McDERMOTT. How did they abort it?
Dr. MAYER. I am not sure that I know the answer to that.
But it may be that the Beth Israel is sort of teetering
financially, and maybe they didn't want to to be honest with
you, I just don't know, but I do know that this threat existed.
Mr. McDERMOTT. Were those both criminal? Pennsylvania was
criminal and Beth Israel was criminal?
Dr. MAYER. I don't know the answer to whether it was
criminal or civil. I know that the University of Pennsylvania
had to pay $30 million and, you know, the method they used is
actually quite interesting. You know, they will take 200 charts
and find some percentage rate of failure to comply or
something, and then they will extrapolate it to the entire
volume at that institution and then come up with a number times
3, because it is treble damages sort of thing, and it can add
up to a lot of money in a big hurry. And I think that is
exactly what is going on in Seattle, too, at least from what I
read on my e-mail.
Mr. McDERMOTT. Is there anybody else that has any
information about this? My colleague say the University of
Florida has been going through is there anybody else?
Chairman JOHNSON. If the gentleman would yield, this is a
very big issue. We have worked on this a little bit in the
regulatory reform bill to deal with some of the extrapolation
problems. But one of the big problems in the Pennsylvania
situation was that originally the Inspector General was
completely ignoring HCFA's own directives to that institution
about how to pay, and they were ignoring the portion of the law
that allowed indirect supervision of residents, and a number of
us got into that and suspended that whole process for a number
of months, but when the Secretary allowed it to go ahead, there
was not clarity on those issues.
Since that time we have had some better compliance by the
Inspector General's Office, with the fundamental principle of
recognizing the law and the directives that these organizations
must comply with under other provisions of the law, because too
often the Inspector General was not acknowledging the orders
from HCFA themselves but was interpreting the law according to
their own judgment and leaving the providers in a terrible
bind. So we do have work to do on that issue, and I appreciate
the gentleman from Washington bringing up, as he always does,
very difficult but extremely important issues.
Mr. McDERMOTT. Madam Chair, just for a second, I would hope
that we could have a hearing on this issue so that we could
understand what actually is going on because what I know about
the Seattle situation is that they are crushing either the
number one or number two neurosurgery program in the United
States by this criminal investigation, and I think there is a
real question about whether or not what is happening there is
what we intended. And it has happened to me first, but I think
other people are going to get the same treatment.
Chairman JOHNSON. I will be very happy to explore this with
you, because I thought after the Pennsylvania thing that we had
brought some greater rationality to the process. But we have
seen in many parts of the Medicare system a total lack of
respect for the law and justice, in my estimation, and we will,
Mr. McDermott, look into this and see if we can put it into our
schedule.
We do have a very tight schedule on some portions of our
work, but there will be lots of opportunity to fold in things
learned, perhaps even after floor action, so we will look into
this.
Thank you very much. I thank the panel for their input, and
I thank the Members for their attendance. The hearing is
adjourned.
[Whereupon, at 11:46 a.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the American Academy of Family Physicians
Congress Must Fix the Medicare Physician Fee Schedule
Physicians and other health practitioners have experienced a sharp
(5.4 percent) across-the-board reduction in their Medicare payments
beginning January 1st. These cuts apply to all services and to more
than one million health professionals. The Medicare Payment Advisory
Commission (MedPAC) has called for the elimination of the current
update formula and warned that cuts of the magnitude expected under
this formula could raise concerns about the adequacy of payments and
beneficiary access to care. AAFP agrees with that assessment and joins
in urging Congress to take immediate steps to ``freeze and revise'';
that is, freeze the conversion factor (payment rate) at the 2001 level
and work to revise the update formula as recommended by MedPAC.
Currently, Medicare officials are required to use a seriously
flawed [because it's tied to business cycle not patient need],
statutory formula to calculate physician conversion factor updates
which take effect each January 1 and which apply to chiropractors,
optometrists, nurse practitioners, therapists and many other
practitioners in addition to doctors of medicine and osteopathy. This
formula known as the sustainable growth rate (SGR) restrains aggregate
Part B spending and ties this spending target to the business cycle
rather than patient need. Despite 1999 legislation that attempted to
stem volatility, large and unpredictable payment swings with potential
cuts of more than 5 percent a year are still occurring.
The cut experienced this year makes the fourth time in 11 years
that Medicare physician payment rates have been reduced. During that
time, physicians and other practitioners have been inundated with
expensive new government regulations requiring physicians to provide
interpreters, dedicate staff to documenting and overseeing compliance
plans and supply unnecessary and duplicative documentation. Yet,
Medicare payments during the same 11 years have risen by an average of
just 1.1 percent a year or 13 percent less than the government's own
estimate of practice cost inflation.
The gap between cost inflation and Medicare's payment updates is
already starting to take its toll and a negative update could greatly
exacerbate the situation. In the last year or so, access problems have
been reported in Atlanta, Phoenix, Albuquerque, Annapolis, Denver,
Austin, Spokane, northern California and Idaho. AAFP data reveals that
17 percent of family physicians are not taking new Medicare fee-for-
service patients.
Perhaps the most striking example of the payment rate cut can be
illustrated by the experience of Dr. Baretta Casey:
Dr. Casey has done what the government wants many physicians to do:
set up practice in an underserved area, taking care of many patients on
Medicare and Medicaid. She came to medicine later in life than many do,
as a wife with two children--three by the time she graduated. She
wanted to become a family doctor and practice in her Appalachian
hometown of Pikeville, Ky.
Her business background stood her in good stead. She bought an
office building at an auction, rented out the top floor to offset the
cost of her first-floor office, computerized her practice from the
start and opened her doors as a solo practitioner eight years ago.
Thanks to the booming practice and conservative living, Casey
significantly paid down her $145,000 in student loans her first full
year. But that was as good as it got. Ensuing years didn't get better.
In fact, they got worse.
On her computer Dr. Casey watched while medical expenses continued
to grow but payment rates failed to keep pace. Dr. Casey says: ``As a
solo practitioner, I pay for everything. And the increase in expenses
hasn't been the measly little percentage you hear forecasted by the
government. I've tracked it on my computer. It has gone up 10 to 15
percent every year.''
``It took about six years, but at the six-year mark, expenses and
income literally met in the middle,'' she says. ``This past year, they
crossed over. And now, I have to dip into my savings to cover the extra
expense. I'm basically subsidizing my own practice out of a savings
account.''
And now, in 2002, the worst blow of all--the 5.4 percent cut in the
Medicare conversion factor. ``I've had to make some decisions,'' Dr.
Casey says. ``I won't take any new Medicare patients or any new
patients with any insurance company that follows suit and drops
payment.'' And ultimately, she says, ``If things don't change, I
probably couldn't stay in practice any more than two more years.''
Dr. Casey has a message for Washington:
``If our reimbursement rates continue to go down and our expenses
continue to go up,'' she says, ``you will see an exodus of physicians
out of rural areas like Moses out of Egypt. It's not because doctors
don't care about their patients. They do, tremendously.''
``It's because nobody is going to continue in a field or in a
business when they're losing 10 to 15 percent per year. The practice of
medicine is like any other business: If you can't pay your bills, you
can't survive.''
Experience has already shown the danger of unrealistic payment
rates in Medicaid, where twenty years of studies have consistently
concluded that fee levels affect both access and outcomes. Medicare is
not immune from similar problems as has been made abundantly clear by
the continued exodus of Medicare+Choice plans from the program despite
a guaranteed pay increase of at least 2 percent a year. Some 85 percent
of elderly and disabled Americans rely on fee-for-service Medicare and
for an ever-increasing number, there is no other option available.
The American Academy of Family Physicians and its 93,500 members
urge Congress to act now to freeze the conversion factor at last year's
rate as we all work to revise the flawed formula that causes volatile
swings and insufficient reimbursement for physicians. Your action will
ensure that Medicare patients can continue to receive the care they
depend on and deserve.
Statement of the American College of Obstetricians and Gynecologists
The American College of Obstetricians and Gynecologists (ACOG), an
organization representing nearly 45,000 physicians dedicated to
improving women's health, strongly urges Congress to repeal the 5.4%
cut in Medicare payment and to replace the current, flawed Medicare
payment formula.
The Medicare Physician Payment Fairness Act of 2001 (S 1707 and HR
3351) enjoys a supermajority in both Houses, with over 300 co-sponsors
in the House and 69 in the Senate pledging their support. Yet, in 2001,
no floor action occurred to prevent the 5.4% cut from going into effect
January 1, 2002. This legislation is the critical first step in solving
the inherent problems in the annual Medicare Physician Payment updates.
The 5.4% cut implemented by the Centers for Medicare and Medicaid
Services (CMS) stems from a fatally-flawed formula that penalizes
physicians for economic downturns and from CMS data errors that have
short-changed physicians by $15 billion since 1998 and 1999. Services
provided by physicians are subject to an aggregate Medicare spending
limit that does not include any adjustment for new technology and that
is tied to the gross domestic product.
This cut is the fourth broad-scale reduction in physicians' fees
since 1992, bringing the average increase in Medicare fees between 1991
and 2002 to just 1.1% a year--13% less than the government's estimate
of practice cost inflation. This cut is especially hard on ob-gyns,
whose professional liability premiums have skyrocketed in the last six
months. Ob-gyns face these increases, combined with decreases in
federal payments and expanding regulatory burdens.
Medicaid and private payers often base their payments on the
Medicare payment update as well. Medicare beneficiaries make up 13% of
ACOG Fellows' patients. Twenty percent of their patients are Medicaid
beneficiaries. Already, compromises in access to care have been
reported in Atlanta, Phoenix, Albuquerque, Annapolis, Denver, Austin,
Spokane, northern California, and Idaho. We cannot allow this to
continue.
The Medicare Physician Payment Fairness Act would provide an
immediate legislative halt to the 5.4% Medicare Payment cut, and give
Congress the opportunity to make systemic changes in the physician
update system next year. In addition, it would direct the Medicare
Payment Advisory Commission (MedPAC) to recommend ways to eliminate or
fix the expenditure target or Sustainable Growth Rate (SGR), which now
helps determine annual Medicare Physician Payment updates.
ACOG urges Congress to act today to restore fair payments to
physicians and ensure patients' access to quality care.
Statement of the American College of Physicians-
American Society of Internal Medicine
The American College of Physicians-American Society of Internal
Medicine (ACP-ASIM)--representing 115,000 physicians and medical
students--is the largest medical specialty society and the second
largest medical organization in the United States. Internists provide
care for more Medicare patients than any other medical specialty. We
congratulate the Subcommittee on Health for holding this important
hearing. Of the College's top priorities for 2002, addressing the
inadequacies of physician payment by the Medicare program is the most
critical to our members. ACP-ASIM thanks Congresswoman Nancy Johnson,
chair of the Subcommittee, Congressman Pete Stark, ranking member of
the Subcommittee, and other members, for convening this important
hearing. We also want to extend special appreciation to Chairwoman
Johnson for her extensive efforts to seek stability in the physician
payment system.
Background
Beginning January 1, 2002, Medicare reimbursement payments to
physicians and other health care professionals fell an average 5.4
percent. Despite serious concerns raised by ACP-ASIM and other medical
associations, and warnings from the Medicare Payment Advisory
Commission (MedPAC), medicine is having to endure the fourth physician
payment cut in ten years. Because of flaws in the formula used by
Medicare to determine annual updates, the CMS is projecting that
Medicare payments will continue to decline over the next four years--by
a grand total of 18.3 percent from 2002-2005. This is an absolute
reduction in payments; it does not take into account the impact of
inflation in the costs of providing services. Using a very conservative
inflation assumption of 3 percent per year, Medicare payments per
service in constant dollars will be cut by 28.1% over the 2002-2005
period.
This is not a problem that was created overnight. Congress adopted
the current physician payment methodology (known as the Sustainable
Growth Rate or SGR) in the Balanced Budget Act of 1997. Even then, ACP-
ASIM recognized the serious flaws inherent in the SGR payment system
and voiced our concern. Congress attempted to make corrections to the
payment formula in 1999 with the Balanced Budget Refinement Act,
however, it was not sufficient enough to correct the intrinsic
problems. The recent economic downturn the country is now facing has
only exacerbated the problem.
Recognizing the unfairness of the SGR methodology and the
tremendous hardship it has placed on physicians across the country, a
super-majority of members of Congress cosponsored legislation that
would stymie the magnitude of the 5.4 percent cut. Introduced in the
waning days of the first session of the 107th Congress,
``the Medicare Physician Payment Fairness Act of 2001,'' (H.R. 3351 and
S. 1707) would have cut the SGR reduction to physicians to 0.9 percent,
rather than the current 5.4 percent cut. ACP-ASIM continues to strongly
support this legislation. Unfortunately, Congress failed to act prior
to adjournment and physicians are consequently now beginning to feel
the effects of an across-the-board reduction in their medical
practices.
Flawed Data Used in Formula
The 5.4 percent across-the-board reduction in Medicare payment is
primarily due to the flawed SGR system that governs the annual payment
for physician services. The SGR system errantly ties physician payment
to the Gross Domestic Product (GDP). There is no other segment of the
health care industry that uses such a methodology to update payment.
What is most unfortunate is that this method of tying physician payment
to the health of the overall economy bears absolutely no relation to
the cost of providing actual physician services. In the years where the
economy is facing a downturn, such as has been the case in the recent
past, a reduction in physician payment is significant.
In its March 2002 report to the Congress, MedPAC expresses grave
concern about the underlying problem of tying the SGR to the economy.
MedPAC reports that the current SGR system may even cause payments to
deviate from physician costs because it does not fully account for
factors affecting the actual cost of providing services. Specifically,
while the current SGR payment system accounts for input price inflation
and productivity growth, it provides no opportunity to account for
other factors, such as an increase in the regulatory burden of the
Medicare program.
In addition to the flawed SGR payment system, physicians have
repeatedly been penalized for inaccurate estimates in the past. Since
the SGR payment formula was first utilized in 1998 and 1999, Medicare
officials have consistently relied upon flawed data for the annual
update. Because the SGR formula is cumulative (i.e., it relies on
previous years' estimates), these errors that were never corrected are
compounded, further exacerbating the problem year after year. Due to
these successive errors, the spending target is about $15 billion lower
than it actually should be.
Effect on Physicians and Their Patients
A physician payment cut of this proportion is a tremendous blow to
physicians, particularly internists. According to a 2001 Medical Group
Management Association study, Medicare payments account for nearly 50
percent more of the average internists revenue than the average primary
care physician. The 5.4 percent physician payment cut comes at a time
when malpractice premiums are at their highest levels, the amount of
regulatory burden it at its peak (such as costs associated with
complying with HIPAA), and the cost of other overhead expenses is
dramatically increasing. This culmination of events may force
physicians to make difficult choices in order to continue to operate.
Physicians have a strong sense of commitment to their Medicare
patients. They will do everything within reason to continue to provide
their Medicare patients with high quality, accessible health care, even
in the face of rising costs and declining reimbursement. However, there
is a point where the economics of running a practice will force
physicians to institute changes to limit the damage from continued
Medicare payment cuts. Like any small business, revenue must exceed the
costs of providing services in order for a practice to remain
financially viable. For practices that are heavily dependent on
Medicare revenue, such as a typical internal medicine practice, an
after-inflation payment reduction of 28.1 percent over the 2002-2005
period will dictate that they take preventive steps to cut their losses
from seeing large numbers of Medicare patients.
Physicians will have essentially only four options available to
them to offset the losses from declining Medicare payments and rising
costs. They can reduce their reliance on Medicare revenue, by
restructuring their practices to decrease the share of their practice
revenue that comes from Medicare while increasing the share that comes
from more reliable (non-Medicare) payers. This would be accomplished by
putting limits on how many Medicare patients will be seen while
marketing the practice to non-Medicare populations. They can cut
costs--eliminating beneficial services and technology. They can do
both: cut beneficial services and reduce their reliance on Medicare. Or
they can go out of business, by closing their practices entirely.
We believe that it is extremely probable physicians will be forced
to limit the number of Medicare patients in their practice; lay off
staff that help Medicare patients with appointments or medications;
relocate to areas with a younger, non-Medicare eligible patients; spend
less time with Medicare patients; discontinue participation in the
Medicare program; limit or discontinue investment in new technology;
limit or discontinue charitable care; or in some cases, retire or close
their practices. Physicians will make such changes reluctantly, but the
laws of economics will leave them no choice but to do so.
The effects of the most recent and projected cuts in reimbursement
will most likely be hardest felt in rural and other areas that are
already underserved. The problems that we see today will certainly only
get worse unless the severely flawed methodology utilized by Medicare
to compute physician payments is immediately addressed.
Physicians' efforts to reduce their reliance on an unstable and
unreliable Medicare payment system will make it even more difficult for
patients to gain access to an increasingly under-funded health care
system, particularly as the number of Medicare patients increases from
34 million today, to 40 million in 2010, to 60 million in 2030. More
Medicare beneficiaries will be seeking care, yet fewer and fewer
physicians may be able and willing to provide care to Medicare
patients. As Medicare is increasingly viewed as an unreliable payer
whose reimbursement does not cover the costs of providing services,
young physicians will be disinclined to go into specialties that are
viewed as being heavily dependent on Medicare--particularly internal
medicine and geriatrics--at the time when those specialties should be
most in demand to provide care to an aging population.
A recent American Academy of Family Physicians study confirmed that
physicians are already making tough decisions, citing that nearly 30
percent of family physicians are not taking new Medicare patients.
Other recent studies confirm doctor frustration with inadequate
reimbursement from all areas of physician payment. In Washington State,
for example, a Washington State Medical Association poll of members in
November 2001 revealed that 57 percent of physicians said that they are
limiting the number of or dropping all Medicare patients from their
practices. The report blames the many years of decline of the state's
health care delivery system, characterized by a slow erosion of funding
for public health, growing administrative expenses for practitioners
and mounting frustrations of physicians trying to cope with myriad of
regulations.
The subcommittee will be hearing testimony today from Dr. Paul
Ginsburg, Director, Center for Studying Health System Changes, which
provides further evidence to support the view that the availability of
care for Medicare patients has already deteriorated over the past four
years. He reports that the percentage of Medicare patients who did not
receive or delayed needed care increased from 9.27 percent in 1997 to
11.1 percent in 2001. The percentage of primary care physicians
accepting all new Medicare patients declined steadily over the 1997-
2001 period. These changes were occurring even before the impact of the
5.4 cut went into effect, and before most physicians have become fully
aware that they will have to cope with an after-inflation cut of 28.1%
over the 2002-2005 calendar period.
In December 2001, the American Medical Association conducted a
state-by-state analysis of the impact of the 5.4% Medicare cut, which
revealed a tremendous blow to the states. In Connecticut, for example,
physicians' Medicare losses will total $33.8 million. In California,
physicians are expected to lose more than $205 million. New York
physicians stand to lose more than $207 million, the highest physician
payment reduction total of any state.
MedPAC Recommendations to Congress
In its March 2001 report to the Congress, MedPAC recommended that
the Congress replace the SGR system with an annual update methodology
based on factors influencing the unit costs of efficiently providing
physician services. According to MedPAC, getting the price right is
more important than controlling spending through the payment mechanism.
The Commission noted that the main problems with the SGR were that it
failed to account for all relevant factors that affect the cost of
providing services, and the system exacerbates Medicare's problem of
paying different amounts for the same service depending on where it is
provided (physician's office, hospital outpatient department,
ambulatory surgical center). The Commission added that other inherent
problems with the SGR system stem from its volatility and
unpredictability. These problems are as true today as ever.
In MedPAC's March 2002 Report to Congress, the Commission will once
again recommend that Congress repeal the SGR system due to these same
concerns. This time, however, MedPAC offers more concrete
recommendations for Congress to direct the Secretary of HHS to
implement for the year 2003 and beyond.
MedPAC's proposed payment method would make updates to physician
services similar to the updates for other services and promote the goal
of ``achieving consistent payment polices'' across ambulatory care
settings, including physician offices, hospital outpatient departments,
and ambulatory surgical centers. MedPAC's recommendations are as
follows:
1. LThe Congress Should Repeal the Sustainable Growth Rate
System and Instead Require that the Secretary Update Payments
for Physician Services Based on the Estimated Change in Input
Prices for the Coming Year, Less an Adjustment for Growth in
Multifactor Productivity;
2. LThe Secretary Should Revise the Productivity Adjustment
for Physician Services and Make it a Multifactor Instead of a
Labor-Only Adjustment; and
3. LThe Congress Should Update Payments for Physician
Services by 2.5 Percent for 2003.
The Congress Should Require the Secretary to Update Payments for
Physician Services Based on the Estimated Change in Input Prices, Less
an Adjustment for Growth in Multifactor Productivity
In MedPAC's first recommendation to repeal the SGR system, the
Commission states, ``Replacing the SGR system in this way would solve
the fundamental problems of the SGR system.'' The adjustment the
Commission recommends would change the current measure of input price
inflation for physician services--the Medicare Economic Index (MEI)--to
make it a forecast of input price growth for the coming year. Further,
the productivity adjustment from the MEI would also be removed so the
MEI would only be a price measure. Productivity would be considered
separately in update decisions.
The Secretary Should Revise the Productivity Adjustment for Physician
Services and Make it a Multifactor Instead of a Labor Only Adjustment
MedPAC's second recommendation to revise the productivity
adjustment to account for labor and nonlabor factors is consistent with
the way physician services are produced. While labor accounts for the
majority of the costs for providing physician services, other inputs,
such as office space, medical materials and supplies, and equipment,
are also important to consider. This adjustment would more accurately
measure growth in productivity by considering all inputs. However, ACP-
ASIM cautions that factoring in physician productivity in order to
lower the physician payment update may be problematic. Increased
compliance with federal regulations, such as Medicare paperwork and
HIPAA mandates, may be what is contributing to the lower productivity,
and may therefore skew the update. MedPAC acknowledges this problem,
but admits that it has little or no data to support compensating for
this issue.
The first two recommendations in physician payment methodology
would allow the updates to more fully and accurately account for
factors affecting costs, and it would decouple payment updates from
spending control. Further, the revision to the productivity adjustment
will make payment of physician services consistent with modern methods
of measuring productivity, and make payments stable and predictable
from year to year.
Congress Should Update Payments for Physician Services by 2.5 Percent
for 2003
MedPAC's third recommendation to update physician services by 2.5
percent for January 2003 is the application of the first two
recommendations. Since input prices are expected to rise 3 percent in
2003, when combined with a 0.5 percent productivity adjustment, the
result yields a 2.5 percent payment increase.
Solution
ACP-ASIM strongly supports the MedPAC's goal of ``achieving
consistent payment polices'' for physicians and their practices.
Therefore, ACP-ASIM supports the Commission's recommendation to replace
the SGR system and to require Medicare to update payments for physician
services based on the estimated change in input prices for the coming
year as measured by the Medicare Economic Index (MEI). We agree that
any productivity adjustment for physician services should be based on
several factors instead of being based on labor costs alone, and that
this should be applied as a separate adjustment to the update, rather
than being included in the MEI itself. Further, ACP-ASIM supports the
Commission's recommendation to update the physician fee schedule by 2.5
percent for 2003.
We are recommending one addition to the MedPAC's recommendations,
however. Legislation to eliminate the SGR formula and replace it with
the MedPAC update framework should specify that if Congress declines in
any given year to enact legislation to establish the physician fee
schedule update based upon recommendations of the MedPAC a default
update equal to the modified MEI, i.e., the MEI excluding the
productivity factor, MINUS a separate .5% productivity adjustment,
shall apply. This adjustment would, at the very least, assure some
predictability and stability in the update in the coming years,
notwithstanding our reservations about applying an automatic
productivity adjustment to the update.
Finally, ACP-ASIM continues to seek a halt to the 5.4% cut that
went into effect in January 2002 and calls on Congress to enact
immediate relief. Correcting the problem in 2003, by replacing the SGR
formula with the MedPAC framework, will not be sufficient to undo the
harm created by the 5.4% cut. We are concerned that Congress may delay
action on halting the 5.4% cut by bundling this relief into other
Medicare reforms that may not be acted upon until late in the
congressional session.
We urge the Committee to report legislation to (1) put an immediate
halt to the 5.4% reduction (2) replace the SGR formula with the MedPAC
framework, with the addition of the above default mechanism recommended
by ACP-ASIM and (3) establish the 2003 update at 2.5% and (4) urge the
House Budget Committee to include money in the budget resolution to
accomplish these changes. Such measures should be reported and acted
upon by Congress prior to, and independent of, other needed Medicare
reforms.
Conclusion
ACP-ASIM is pleased that the Subcommittee is addressing the serious
problems associated with the current SGR based physician payment
system. Our organization stands ready to assist the Subcommittee in
resolving this pressing issue in any way we can.
Statement of the Association of American Medical Colleges
The Association of American Medical Colleges (AAMC) is pleased to
submit for the record testimony to the House Ways and Means
Subcommittee on Health on the need to replace the Sustainable Growth
Rate (SGR) methodology used to calculate the update for Medicare
payments under the Physician Fee Schedule (``physician payment
update''). The AAMC appreciates the Subcommittee's interest in this
issue of great importance to both Medicare providers and Medicare
beneficiaries. The AAMC supports replacement of the SGR with a
methodology that assures adequate payments and stable updates for
physicians who participate in Medicare. Appropriate and stable
physician payments will ensure that Medicare beneficiaries have access
to the complex and specialized care provided by academic physicians.
The AAMC represents the country's 125 accredited medical schools
and nearly 400 major teaching hospitals and health systems, 90
academic/professional societies representing approximately 100,000
faculty members (``academic physicians''), and the nation's medical
students and residents.
The Role of Academic Physicians
Academic physicians play a unique, multifaceted role within the
physician community, as well as within the larger healthcare system. As
experts in their particular fields of medicine, academic physicians
provide patients and referring physicians with cutting-edge clinical
expertise. Academic physicians also educate and train the medical
students, residents, and other health professionals who will become the
next generation of caregivers. In addition, many academic physicians
conduct clinical research that generates more effective, efficient, and
compassionate healthcare for all Americans--including aging Americans.
Because of their clinical expertise, access to innovative
technologies within teaching hospitals, and participation in clinical
research, academic physicians frequently provide inpatient and
outpatient care for patients--including Medicare beneficiaries--with
complex, multiple, or acute health problems that can not be managed
elsewhere in the community.
Working together with their teaching hospital partners, academic
physicians are vital to the delivery of essential medical services.
Over three-quarters of AAMC's teaching hospital members (which account
for just 6 percent of the nation's hospitals) deliver geriatric care
(e.g., treatment for Parkinson's or Alzheimer's disease) and operate
certified trauma centers in conjunction with academic physician
partners.
In addition, faculty practices partner with AAMC's teaching
hospital members to provide nearly 45 percent of the nation's hospital-
based charity care. By comprising a significant segment of America's
healthcare safety net, academic physicians and their teaching hospital
partners assure healthcare access for the poor and underserved--
including Medicare beneficiaries who are dually eligible for Medicaid
or who are unable to pay for their care. In 1999, faculty practices
provided an average of $12 million in charity care. According to Agency
for Health Research and Quality (AHRQ) and AAMC analyses (using survey
data collected by the Center for Studying Health System Change's
Community Tracking Study Physician Survey), academic physicians spend
more time providing charity care than physicians in all other settings.
This is true both when time is measured in hours per month and as a
percentage of total patient care time and medically related time.
Update Methodology (SGR)
The Balanced Budget Act of 1997 (BBA) established a formula to
calculate the SGR--the ``target growth rate'' for Medicare spending on
physician services--that would control overall Medicare spending while
simultaneously accounting for changes in the cost of providing care.
The AAMC is concerned that the SGR has not achieved an equitable
balance between fiscal management of the Medicare program and the
actual cost of caring for Medicare patients, including the cost of
medical inflation. Various analyses have shown that, since
implementation of the SGR, updates in physician payments have failed to
rise in proportion with increases in input prices.
Additionally, as was the case this year, the SGR's link to the
country's gross domestic product (GDP) is problematic and volatile.
While payment updates in 2000 and 2001 were relatively large (5.4
percent and 4.5 percent respectively), the 2002 payment update of
negative 5.4 percent is not only a dramatic decline, but also contrasts
sharply with the previous two years.
In its March 2001 report, the Medicare Payment Advisory Commission
(MedPAC) identified similar concerns with the SGR and unanimously
called to replace the methodology, stating that it ``neither adequately
accounts for changes in cost nor controls total spending.'' MedPAC
members reiterated their concerns at their January 2002 meeting and
announced in their January 16-17 Meeting Brief that their March 2002
report will recommend ``replacing the SGR system, updating payments for
2003, accounting for productivity growth outside the MEI, and revising
the productivity adjustment. . . .'' The AAMC strongly supports
MedPAC's conclusion regarding the need to develop a new update
methodology that produces stable and adequate payments for physicians.
LThe Impact of Stable and Adequate Physician Payments on Medicare
Beneficiaries' Access to Care
Stable and adequate Medicare physician payments are critical to
ensure that seniors have continued access to the professional services
provided by academic physicians. Nearly one-sixth of all physicians
providing Medicare services are academic physicians. Medicare
reimbursements to academic physicians total about $2.5 billion each
year and represent up to one-third of faculty practice revenues. In
light of the fact that faculty practice revenues, on average, represent
about 35 percent of a medical school's total revenue, unstable Medicare
payments could jeopardize beneficiary access to faculty professional
services, as well as academic medicine's core missions of medical
education, research, clinical services, and providing charity care.
A sample analysis of the impact of the 2002 Medicare fee schedule
on faculty practice plans identified that a vast majority of faculty
practices will lose more than minus 5.4 percent of Medicare revenue. In
fact, Medicare revenue for some plans will decline by as much as 7.5
percent. Because faculty practices provide multispecialty and complex
care for Medicare patients, the negative payment update, when combined
with recent changes in Relative Value Units (RVUs)\1\, will drive
payment reductions that exceed minus 5.4 percent in many Medicare-
related clinical specialties (as illustrated in the table below). It is
important to note that while some specialties included in the analysis
will experience less than 5.4 percent decline, no specialties will
experience an increase in Medicare revenue under the 2002 payment
schedule.
---------------------------------------------------------------------------
\1\ Currently, payment for services determined under the Medicare
Physician Fee Schedule is the result of several factors. One of these
is a nationally uniform ``relative value'' for each service that
includes weights for physician work, practice expenses, and
professional liability insurance components.
Medicare Payment Forecast Analysis Impact of Change in 2002 Conversion
Factor and RVU Values Across Faculty Practice Plans
------------------------------------------------------------------------
------------------------------------------------------------------------
Specialty Percent Change
------------------------------------------------------------------------
Cardiology: Invasive -13.21%
------------------------------------------------------------------------
Cardiology: Noninvasive -9.7%
------------------------------------------------------------------------
Critical Care -5.6%
------------------------------------------------------------------------
Emergency Medicine -7.7%
------------------------------------------------------------------------
Gastroenterology -7.3%
------------------------------------------------------------------------
Neurosurgery -8.4%
------------------------------------------------------------------------
Ophthalmology -6.9%
------------------------------------------------------------------------
Physical Medicine -5.9%
------------------------------------------------------------------------
Psychiatry -6.2%
------------------------------------------------------------------------
Pulmonary -6.3%
------------------------------------------------------------------------
Radiology: Interventional -7.1%
------------------------------------------------------------------------
Radiology: Nuclear Medicine -8.5%
------------------------------------------------------------------------
Surgery: Cardiovascular -10.1%
------------------------------------------------------------------------
Urology -7.3%
------------------------------------------------------------------------
Source: University HealthSystem Consortium (UHC)/AAMC Faculty Practice
Solutions Center
Since private payers often tie their reimbursement rates to those
set by Medicare, reductions in Medicare payments will further increase
the disparity between the costs of care and the rates at which payers
reimburse for those costs. For example, one large faculty practice
(nearly 900 physicians) anticipates a loss of $4.8 million in managed
care reimbursement because the contracts are linked to the Medicare fee
schedule. Note that this does not include Medicaid and Tricare, which
would also be affected by cuts in the Medicare fee schedule.
The growing disparity between costs and reimbursement will make it
increasingly difficult for medical schools and teaching hospitals to
maintain their patient care, education, research, and community service
missions. Because of their revenue losses, the practice described above
is implementing a policy to limit its appointments for indigent
patients to no more than 10 percent of patient visits.
A Legislative Solution to the SGR Problem
Last fall, bipartisan, bicameral legislation, ``The Medicare
Physician Payment Fairness Act of 2001'' (H.R. 3351/S. 1707), was
introduced to provide short- and long-term relief from unstable
Medicare physician payment updates. The bills provide short-term relief
by reducing the cut to the Medicare physician payment update from minus
5.4 percent to minus 0.9 percent and long-term relief by directing
MedPAC to develop a replacement for the SGR.
The AAMC strongly endorses these bills, and is pleased that a
majority of Representatives and Senators have cosponsored the bill. The
AAMC urges the Subcommittee to support this legislation and ensure that
the losses currently experienced by physicians are mitigated as quickly
as possible.
In conclusion, Medicare beneficiaries rely on academic physicians
and academic medical centers to provide high quality, innovative, and
accessible healthcare. They also rely on academic physicians to develop
the clinical advances and train the new generation of physicians that
will assure a high quality of life for all American seniors. Passage of
H.R.3351/S. 1707 is a vital first step toward mitigating the losses
currently experienced by all physicians. The AAMC looks forward to
working with Subcommittee members in accomplishing the second step--
devising a long-term solution to replace the current SGR methodology
and assure adequate and stable Medicare physician payment updates.
Association of Maternal and Child Health Programs
Washington, DC 20036
February 27, 2002
The Honorable Nancy Johnson
Subcommittee on Health of the Committee on Ways and Means
United States House of Representative
Washington, DC 20515
Re: Committee Hearing on Medicare Physician Payments
Dear Representative Johnson:
The Association of Maternal and Child Health Programs (AMCHP)
represents state public health leaders and others working to improve
the health and well being of women, children and youth, including those
with special health care needs, and families. We are very concerned
about the Centers for Medicare & Medicaid Services' (CMS) decision to
publish only the practice and physician liability expense values for
the two vaccine administration codes (90471 and 90472), without
publishing any values for the physician work involved in the
administration of vaccines. As a result of this under-valuation, we
fear that many Medicaid programs and other insurers that base payments
on the Medicare fee schedule will reduce reimbursement for this service
to levels well below the actual costs incurred by providers. Under-
compensating private physicians for vaccine administration, thereby
discouraging them from providing this valuable service in their
offices, could have a significant detrimental impact on the viability
of our nation's immunization efforts.
State health programs across the nation alongside federal partners
CDC, HRSA, and CMS, and the private medical community have worked hard
to reach the current high rate of immunization and low rate of vaccine-
preventable diseases in the United States. The Vaccines for Children
(VFC) program has been remarkably effective in moving vaccine delivery
for low-income families into the setting of a medical home, where
children receive the benefit of comprehensive health services as well
as immunizations. This effort to increase vaccine availability and
utilization by increasing family awareness and encouraging families to
seek primary, preventive care supports national health status goals
reflected in the Healthy People 2010 initiative. Now is a particularly
inopportune time to weaken that system, as it is already being severely
stressed. Shortages of varicella, measles, mumps, rubella, DtaP and
pneumococcal vaccines mean providers must recall the child, thus,
increasing their financial burden and workload. In some cases,
physicians' offices vaccine shortages mean that patients seek
immunizations in already overburdened public health clinics.
The rationale guiding CMS' values for vaccine administration does
not reflect what actually happens at an administration site, since
there is, in fact, physician work involved in the administration of
childhood vaccines. The American Medical Association's Related Value
Update Committee (RUC) recently reaffirmed their recommendation to
include specific vaccine administration physician work values. At the
time each dose is administered, the physician must explain the
vaccine's benefits and possible adverse reactions to the patient's
parents or guardians. Provision of this information is requirement of
the National Childhood Vaccine Injury Act. With the increases in
disseminating misinformation, the time that physicians spend on
education and cognitive discussion has increased. Some children receive
vaccines from a variety of sources (e.g., public health departments,
community health centers) further complicating the physician's task of
forming a comprehensive vaccine history using scattered records.
Finally, physicians make every effort to avoid any ``missed
opportunities'' to immunize a patient, so they administer vaccines in
contexts other than preventive health care visits.
For these reasons, AMCHP strongly recommends that the committee
correct this problem, either through working with the administration on
rewriting the rule or through legislative action if necessary, so that
physicians are adequately compensated for administering vaccines to our
nation's children.
The goal of public health and its partner organizations is to
foster a healthy society. This goal will be significantly and
negatively affected if private physicians are not adequately
compensated for administration of vaccines. The result would be
increasing the burden on public health clinics and reducing the
likelihood that a child will receive comprehensive care in a medical
home. If CMS does not change the Medicare fee schedule for vaccine
administration, the result could be a decrease in the number of
immunized children and a concomitant increase in preventable--and
sometimes fatal--infectious diseases. We urge the committee, on behalf
of our nation's women, children, and their families, to address this
issue as you look at the broader issues involved with the physician
payment rule put forth by CMS.
Sincerely,
Deborah F. Dietrich
Acting Executive Director
Statement of the College of American Pathologists
The College of American Pathologists (CAP) is pleased to submit
this statement for the record of the Subcommittee on Health's hearing
on the Medicare physician fee schedule formula and physician payments.
The College is a medical specialty society representing more than
16,000 board-certified physicians who practice clinical or anatomic
pathology, or both, in community hospitals, independent clinical
laboratories, academic medical centers and federal and state health
facilities.
The CAP first would like to applaud Subcommittee Chair Nancy
Johnson for her support of improved Medicare payments for physicians
and her strong statement last week regarding the flawed formula now
used to calculate annual updates to the Medicare physician fee
schedule. The CAP also would like to express its appreciation to Ways
and Means Chair William Thomas and other members of the full committee
who have voiced the need to address the important issue of Medicare
physician payments. We look forward to working with all of you so that
Congress can act quickly to lessen the damage caused by this year's
precipitous decline in Medicare physician payments and replace the
current update formula with one that more accurately reflects true
practice costs.
The 5.4 percent reduction in physician payments that began January
1, 2002, affects pathologists profoundly and exacerbates existing
financial pressures brought on by increasingly complex and costly
regulatory requirements and rising liability insurance rates.
The January 1 reduction in payments is the fourth payment cut--and
the largest--since Medicare instituted its physician fee schedule a
decade ago. Since 1991, Medicare physician payment rates have risen an
average of only 1.1 percent annually, or 13 percent less than the
annual increase in practice costs, as measured by the Medicare Economic
Index. Further, the Jan. 1 reduction comes on top of cuts to pathology
services made in the transition to resource-based practice expenses,
such as an 11.5 percent drop in payment over four years for the
diagnosis of breast cancer, prostate cancer and malignant melanoma.
Pathologists and other physicians cannot continue to sustain the
financial pressures the Medicare program has placed upon them.
Compounding the current problem of falling payment rates are numerous
new administrative requirements imposed on Medicare providers in recent
years. For example, documentation requirements necessitated by Medicare
program integrity initiatives and various provisions of the Health
Insurance Portability and Accountability Act of 1996 have created
substantial new paperwork burdens in laboratories and physician
offices, and more are expected in coming years. These requirements
raise the cost and complexity of providing care, but come with no
additional compensation. Further adding to the burden on providers are
rising professional liability insurance rates and the cost of
technological advances critical to maintaining state-of-the-art medical
care.
The 2002 payment cut stems from a flawed Medicare update formula--
the ``sustainable growth rate,'' or SGR. This system inappropriately
reflects downturns in the general economy and that, along with data
errors by the Centers for Medicare and Medicaid Services, have short-
changed physicians by $15 million since 1998. The Medicare Payment
Advisory Commission (MedPAC) warned last year that significant cuts in
2002 ``could raise concerns about the adequacy of payments and
beneficiary access to care.'' MedPAC adopted a recommendation that
Medicare replace the SGR with a system based on estimated changes in
physician practice costs less an adjustment for growth in multi-factor
productivity (labor, supplies and equipment--not just labor, as is now
the case).
MedPAC's concerns regarding access must not be taken lightly.
Experiences with Medicare+Choice disenrollment and Medicaid patient
access give ample evidence of the need to maintain adequate payment to
ensure adequate access. This year's reduction and future cuts that are
likely absent immediate changes to the update system will force some
physicians to discontinue accepting new Medicare patients, switch from
participating to non-participating provider status, reduce
administrative staff, retire early or take other actions to limit their
Medicare liability. It is unfortunate that those same actions likely
will jeopardize Medicare patients' access to care.
The CAP urges Congress to act this year to mitigate the 5.4 percent
reduction to the Medicare physician fee schedule, repeal the
sustainable growth rate system and replace it with an update formula
that accurately reflects increases in practice costs.
The College thanks the Subcommittee for the opportunity to present
its views on this important issue and offers its support and continued
assistance as Congress moves toward remedying the flawed SGR formula
and restoring equity to Medicare physician payments.
Colorado Otolaryngology Associates
Colorado Springs, Colorado 80909
February 26, 2002
The Honorable Nancy L Johnson
Chairwoman, House Ways and Means Committee, Health Subcommittee
2113 Rayburn H.O.B.
Washington, DC 20515
Dear Representative Johnson;
I recently learned of the February 28, 2002, hearing on 2002
physician payments. I would like to offer this written comment for
consideration during this hearing.
Physicians are very concerned about the 5.4% decrease in Medicare
payments. This year this decrease in payment is linked to most if not
all-commercial third-party payers. Since 1997 the commercial third
parties have been trying to control their costs and increase their
profits by changing the way they develop their fee schedules. Fees used
to be based on standard unit values by McGraw Hill (now called St.
Anthony) but are now based on RBRVU's (Resource Based Relative Value
Units). The sole purpose of this change was to reduce their physician
payments. This move has been very successful for the health plans but
has left the physicians with less money to run their practices.
As of January 2, 2002, most health plans had completed their
conversion to RBRVU's. Physicians have had no input into this change.
Health plans have also changed computer systems to comply with other
government regulations and now the systems support only one fee
schedule, as I understand it.
My physicians have not received an increase in salary in 7 years.
This is far longer than most people in this country have gone without a
salary increase. Therefore, you can see that a 5.4% decrease in payment
is a deep cut into the physician budget; and you expect this decrease
to continue through 2006. I can foresee many physicians having to give
up their practices because they cannot afford to run an office at that
level of payment.
To add to our problems, over the past two years commercial third-
party payers have increased their premiums to employers by 50-60% per
year. Health plans have not only increased their premiums but also now
get a windfall profit of 5.4%.
In concrete terms the cost to run our practice has increased 6% in
the past year. Coupled with this new 5.4% decrease in payments, we are
now faced with an increased cost of 11% this year. We cannot sustain
increased costs and decreased payments. If this only affected Medicare
patients, a solution would be to stop seeing Medicare patients. As it
is, our patient mix includes only 10% Medicare patients.
I hope this helps you understand the plight of all physicians in
the United States. I need you to understand this issue and develop a
formula for the Medicare conversion factor that will be fair and allow
physicians to provide quality care to patients and at the same time let
the medical business grow.
If you have questions or need clarification, I can be reached at
(719) 867-7850. Thank you in advance for your consideration.
Sincerely
Judy Boesen, RN, BGS, MAM
Administrator
J. Lewis Romett, MD
Neiland Olson, MD
Joel Ernster, MD, FACS
Barton Knox, MD, FACS
J. Christopher Pruitt, MD
John Hohengarten, MD
Edgar B Galloway, MD
Statement of the Hon. J.D. Hayworth,
a Representative in Congress from the State of Arizona
Thank you Madam Chairwoman for holding today's hearing on the
Medicare payment formula for physicians. I commend your leadership in
addressing this pressing issue that will impact not only physician
payment levels, but also beneficiary access to quality health care.
I have heard from many physicians in Arizona who have serious
concerns about the physician payment update, which has resulted in a
negative 5.4 percent update in 2002. I share their concerns because
this significant cut could exacerbate existing access problems for
Medicare beneficiaries, particularly in rural communities.
Unfortunately, the current flawed formula has nothing to do with the
cost of providing health care. I am concerned that the physician
payment cut in 2002 and the expectation of similar significant
reductions in the next several years may have the potential to sway
physicians to retire early or simply choose not to participate in the
Medicare program, which would have a serious effect on patient access
to care.
As you know, the current physician payment formula links physician
updates to the Sustainable Growth Rate (SGR) and changes in the Gross
Domestic Product (GDP). The Medicare Payment Advisory Commission
(MedPAC) and others have recommended replacing the SGR because it fails
to account adequately for changes in physicians' costs by tying updates
to the growth in the economy and exacerbating different payments to
different groups for the same services.
I strongly believe that this critical issue must be addressed this
year and I again commend your leadership in holding this hearing today.
With the input of the physician community, MedPAC, the General
Accounting Office, and the Administration, our committee can improve
the existing physician reimbursement system. I look forward to
continuing to work with you on a new payment methodology that will
yield more fair, stable, and predictable updates for physicians.
Statement of the Hon. Joe Knollenberg,
a Representative of Congress from the State of Michigan
Mr. Chairman, I applaud the committee for holding this hearing as
Congress continues to work with the Bush Administration to modernize
and improve the Medicare system. As Congress addresses the issue of
broad Medicare reform, it is essential to consider the impact of
reducing Medicare payments to physicians. After all, physicians and
other health care professionals are critical components of the Medicare
system, serving on the front lines to provide quality health care to
all Americans.
I commend the efforts made already by many Congressional Members
and the Bush Administration to implement administrative reforms to make
the Medicare program work better for physicians. Programs such as the
Physicians' Open Door Initiative and the Physicians Issues Project have
helped improve the flow of information, reduce regulatory burdens and
ease paperwork requirements. As a result, doctors will be able to spend
more of their time providing health care and less of their time wading
through pages of rules and regulations. It is my hope that we will
build on these improvements.
I appreciate the opportunity today to raise concerns expressed by
many doctors in my home district in southeastern Michigan. I believe
these issues have been echoed by health providers throughout the
country as well. My constituents have brought to my attention the
devastating consequences of the final payment policies and payment
rates for 2002 under the Medicare Physician Fee Schedule announced by
CMS on November 1, 2001. Reducing Medicare's physician payments by 5.4%
would significantly restrict their ability to provide the necessary
services to our seniors.
In addition to physicians being discouraged by the enormous amount
of federally required paperwork, our area has seen a significant
decrease in the number of physicians financially able to care for
Medicare beneficiaries, subsequently closing their practice to them.
Moreover, some doctors are simply leaving medicine altogether because
of the financial impossibility of providing services under Medicare.
Emergency physicians will be particularly adversely affected given
payment cuts in other areas. The role of emergency departments is
becoming even more important as our country prepares to respond to
bioterrorism and it is essential that their physicians be able to
effectively carry out their responsibilities.
A Medicare payment cut could also effect the entire health sector
as numerous private sector plans and state Medicaid programs tie their
physician fee schedules to Medicare rates. At a time when we are
concerned with healthcare workforce shortages, we must identify
strategies to increase recruitment, retention and development of
qualified health care providers. I look forward to working with the
Committee and the rest of my colleagues and the Bush Administration to
enact comprehensive Medicare reform that will include strengthening the
Medicare payment system.
Professional Radiology Inc.
Cincinnati, Ohio 45223
February 27, 2002
Ms. Allison Giles
Chief of Staff
US House of Representatives
Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515
Dear Ms. Giles:
Attached is a submission for the record to be included in the
February 28, 2002 Subcommittee on Health Hearing on Physician Payments.
This letter represents the views of the President Elect of the Alliance
Physicians and Surgeons, speaking for 1250 Cincinnati physicians, the
Ohio State Radiological Society representing 150 Diagnostic
Radiologists and Radiation Oncologists, as well as the members of
Professional Radiology, Inc., a 21-physician radiology group from the
Christ and Jewish Hospitals in Cincinnati, Ohio, who are also members
of the Health Alliance.
Sincerely,
Frank E. McWilliams, M.D.
__________
Professional Radiology Inc.
Cincinnati, Ohio 45223
February 27, 2002
The Honorable Rob Portman
Member of Congress
238 Gannon Building
Washington, D.C. 20515
FAX: c/o Mr. Tim Miller
(202) 225-1992
Dear Rob:
Thank you very much for inviting me to attend the Medicare
information meeting with Mr. Tom Scully on February 22, 2002. I found
the exchange positive and Mr. Scully an eminently reasonable,
intelligent man with a good grasp of CMS services, as one would expect.
I was interested in the comments of all that spoke, and wanted to
supplement what was stated at the meeting with some of my own comments,
particularly in regards to physician reimbursement and mammography
screening, as these issues were not perhaps as definitively explained
by the participants as I think they should be. It is my understanding
that the Health Services Subcommittee in the House is meeting this
week, according to Mr. Miller, and hopefully these comments, if
helpful, could be forwarded.
PHYSICIAN REIMBURSEMENT:
CMS indicated that between 1998 and 2001, the cumulative update for
physicians was 15.9%, compared to a 9.3% increase in medical inflation.
This calculation ignores certain technical adjustments that reduce the
conversion factor by a total of about one percentage point between 1998
and 2001. Furthermore, and more importantly, it focuses on the most
positive four-year period in the target's history, and completely
ignores six of the ten years that physicians have been under an
expenditure target. The physician payments were cut in three of the
missing years, 1992, 1996 and 1997, and were well below medical
inflation in a fourth, 1993. Therefore, over the full ten years under
an expenditure target, the cumulative change in physician payment was
18.5% compared to a 26% increase in medical inflation. Average annual
increase in payments was 1.7% per year for physicians, while medical
inflation averaged 2.3% per year. If one includes inflation, adjusted
physician's reimbursement over that period of time is minus 13%, with
all hospital and institutional reimbursement staying at 0% with no
increase or decrease relative to inflation.
MS also claimed that over the long haul, physician payments and the
CPI have risen by nearly identical rates, with one going up on the
average of 3.2% and the other by 3.3%. To understand this assertion, it
is important to understand that Medicare officials essentially issue
two different conversion factor updates every year. The first (-4.8% in
2002) is based just on the Medical Economic Index. The second
conversion factor as required by the expenditure target (-5.4% in 2002)
makes additional negative budget neutrality adjustments, including one
to offset volume increases that CMS assumes will occur as physicians
attempt to make up for the reductions in the relative values for some
services. This significantly impacts physicians in the service area,
such as Radiology, where examinations are requested by other
physicians, and there is no control by the radiologist over the volume.
This results in a skewing of the relative value units, which we have
all previously negotiated and agreed to in past years, and places an
undue burden on those physicians who do not control the service demand.
It also does not take into account the growing Medicare population or
patient demands.
The 5.4% across the board reduction in Medicare physician payments
is indefensible and will create a political fire storm. The practice
policies that are beyond the control of physicians have increased
dramatically. Medicare has imposed excessive administrative burdens and
unfunded mandates on physicians in the past, and is now going to
compound the situation with and an across the board cut. In fact, in
some services such as Radiology, the cut is not 5.4%, but is estimated
between 12 and 14%.
In Cincinnati, this Medicare fee schedule impacts dramatically the
reimbursement climate. As Mr. Scully pointed out, the average Medicare
recipient receives $6,800 in benefits across the country, whereas in
Cincinnati it is $4,800, and in other areas it is $8,400, representing
a significant discrepancy. This discrepancy is compounded by the fact
that the high HMO penetration in the Greater Cincinnati area utilizes
Medicare as a benchmark. Therefore, Cincinnati physicians, again at a
reimbursement rate that is 25% below the national average for Medicare,
are penalized further by the insistence of the HMO's on utilizing those
figures as the baseline.
In Cincinnati, there are numerous physicians that are leaving the
community. In particular, we note that cardiovascular surgery is
significantly understaffed in the community, as well as neurosurgery.
In Radiology, we are unable to recruit physicians who do not have
significant ties to the Greater Cincinnati community and who wish to
return in spite of a significant penalty in initial and ultimate
reimbursement. A group of oncologic surgeons with which I am familiar,
has been trying for three years to recruit an additional surgeon. One
individual who came and interviewed demanded a salary that was greater
than any of the senior associates in the medical corporation. Of
course, they were unable to adequately answer his salary demands.
Across the board, as Mr. Scully indicated, this creates a downward
spiral in employment opportunities and institutional viability, as well
as in the general level of medical care. I am hopeful, Rob, that you
can address these inequities in this session of Congress, as in some
instances, physicians are really on the economic bubble and may have to
bail out on the Cincinnati community and move elsewhere. I am hopeful
that our parents and ourselves as we age, will have an excellent
medical environment in which to receive care. I am sincerely concerned
that this reimbursement discrepancy will lead to a lower tier of care
in the long run, as it seems to have in the short run in certain areas,
for our future.
Finally, it appears to me that we are reaching a crisis in the
Medicare program. I believe that the President's proposal for phased-in
prescription coverage for the poorest seniors is an appropriate first
step. I also believe Mr. Scully's comments that Medicare needs to be
overhauled to be more of an insurance plan with co-payments, and follow
the insurance model is an appropriate one. We find often that families
insist on heroic measures for their elderly family members that appear
to be related to their complete desensitivation from financial
responsibility. This often leads to patients receiving extraordinary
heroic care in the last waning moments of their lives, which often does
not provide any benefit to the patient, but only prolongs suffering. A
reasonable economic model, I believe, would help reign in these
excesses.
Rob, as always, I appreciate your listening to my concerns as a
friend and constituent, and as a practicing Radiologist in the
Cincinnati community. In my new role as a member of the Board of
Trustees of the Health Alliance, and as President-Elect of the Alliance
Physicians and Surgeons, as 1200 member group of specialists and
primary care physicians, I am in a position to speak for numerous
physicians. In addition, in my position as President-Elect to the Ohio
State Radiological Society, I represent the views of 950 radiation
oncologists and diagnostic radiologists who practice in Ohio. I look
forward to any way to serve you to provide time, expertise, or counsel
regarding these complex issues in the healthcare arena.
As always, those of us in the Cincinnati community feel proud and
privileged to have you representing us in the United States Congress.
With fondest regards,
Frank E. McWilliams, M.D.
Sun Health
Sun City, Arizona 85351
March 7, 2002
The Honorable Nancy Johnson
Chairwoman, Subcommittee on Health
Committee on Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515
Re: March 1, 2002 Ways and Means Health Subcommittee hearing
Dear Chairwoman Johnson:
I respectfully request that this letter be included in the official
record for the Ways and Means Health Subcommittee hearing on March 1,
2002, regarding physician payment for Medicare services.
Sun Health is a nonprofit healthcare system with over 90% of its
hospital admissions representing Medicare beneficiaries; for this
reason, Sun Health is often the harbinger of various healthcare trends
and Medicare reimbursement implications. In the case of current
Medicare reimbursement for anesthesia services, the quality of care
offered to Medicare beneficiaries is suffering and will become
substandard in Medicare-dependent locations nationwide. The following
appeal is in support of an increase in Medicare's anesthesia conversion
factor, and strives to depict the early albeit devastating implications
of the current anesthesia conversion factor insufficiencies.
Sun Health prides itself on a tradition of offering superior
patient care to over 135,000 seniors in our service area. During 2001,
Sun Health treated 28,228 inpatient cases and 124,033 outpatient cases,
and is well on its way to surpassing those numbers in 2002. However,
the quality of care offered to our Medicare beneficiaries is threatened
by Medicare's minimal reimbursement for anesthesia services.
Currently, Arizona anesthesiologists serving Medicare patients
receive $16.61 per unit. In contrast, commercial payers in Arizona
reimburse up to $42 per unit. This translates into an Arizona Medicare
rate that is 50-60% lower than current market value. Accordingly, Sun
Health and other Arizona facilities that serve high proportions of
Medicare patients are facing a crisis in recruiting and retaining
qualified anesthesiologists because serving Medicare beneficiaries
results in a financial detriment to the anesthesia professional.
There is an exodus of anesthesiologists from Medicare-dependent
facilities. For instance, Walter O. Boswell Memorial Hospital, our Sun
City facility, lost an unheard of 65% of its anesthesia professionals
in the past year, while Del E. Webb Memorial Hospital, our Sun City
West facility, lost its entire anesthesia group because of the Medicare
reimbursement insufficiencies.
An inadequate supply of anesthesiologists translates into longer
days for the few anesthesiologists who do stay, often upwards of 12
hours for five consecutive days of direct patient care, and often in
critical care situations. When anesthesiologists who leave Sun Health
or other Medicare-dependent facilities to seek at least the median
income in their profession at other hospitals, a multitude of surgical
procedures must be cancelled or postponed. This compromise to Medicare
beneficiaries is inexcusable.
While Sun Health continues to search for methods to recruit and
retain anesthesiologists, we are utilizing locum tenens, or temporary,
anesthesiologists. Between this unforeseen expense and the added
expense of guaranteeing after-hours coverage of staff
anesthesiologists, the substandard Medicare reimbursement cost Sun
Health over $2,920,000 during 2001 for anesthesia services, and is
projected to cost Sun Health $1,680,000 in 2002. This expensive
subsidization solution should not be borne by community hospitals, but
will continue to be an extreme financial burden as this issue
intensifies for Medicare-dependent facilities nationwide.
In order to solve the anesthesia payment crisis, anesthesiologists
serving Medicare beneficiaries nationwide deserve at least a 25%
adjustment to the conversion factor. Additional increases may still be
required in the future. Sun Health urges the House Ways and Means
Subcommittee on Health to reform the process for physician payment
under Medicare in an effort to avoid the Medicare patient anesthesia
catastrophe that otherwise awaits us.
This issue is so critical to the health of our patients and to the
future of our hospital system that our system appeals to Congress to
take steps necessary to ensure a fair rate adjustment. If I or any of
my colleagues at Sun Health may be of assistance to you in this
endeavor, including providing additional correspondence, contact with
our anesthesiologists, or personally testifying in Washington, D.C., we
would be pleased to do so.
Respectfully submitted,
Leland W. Peterson
President and Chief Executive Officer