Medicare Compliance & Reimbursement

Current system has too many problems, experts say.

Come fall, expect Congress and the Medicare Payment Advisory Commission to increase their attention to a task that's likely upcoming soon -- overhauling Medicare's physician-payment formula.

That was the prediction of MedPAC Executive Director Mark Miller at a June briefing with health reporters. Look for lawmakers and analysts to discuss much "more targeted" methods of updating payments, such as mechanisms to rein in just one set of services whose volume is rapidly increasing -- such as imaging services -- or schemes to link quality outcomes and efficiency with payments, Miller said.

Like physicians, analysts and lawmakers are concerned about the recent volatility of Medicare Part B payments under the so-called sustainable growth rate formula. But they're also worried about the current formula's failure to check the high growth in volume and intensity of physician services, which continues unabated even though the SGR scheme was enacted specifically to help control it, Miller said.

By tying allowable growth in service volume to annual growth in real gross domestic product per capita, the SGR formula was intended to keep real Part B spending growth per beneficiary at levels comparable to overall growth in the national economy, and to incentivize physicians themselves to slow their provision of services if Part B grew faster. Under the SGR, if the volume and intensity of physician services grow faster than GDPin a given year, the next annual increase in physician fees will essentially impose a penalty, setting the fee increase at less than the projected increase in doctors'cost of providing services. On the other hand, if Part B spending grows more slowly than the economy generally, physicians can reap the benefit by seeing their service-by-service fees rise faster than the cost of producing services.

Just one problem, however: These supposed incentives don't work, most analysts agree. In fact, some argue that the system actually encourages physicians to increase their service volume -- thus accelerating spending growth -- to compensate for lower service-by-service fees.

MedPAC has argued for several years that Congress should scrap the formula.

Evidence demonstrates that the SGR doesn't work, MedPAC Chair Glenn Hackbarth told the House Energy and Commerce Committee May 5. The SGR "is a flawed volume-control mechanism," he said. "Because it is a national target, there is no incentive for individual physicians to control volume. When fee reductions have occurred they have not consistently slowed volume growth, and the volume of services and level of spending are still increasing rapidly."

Furthermore, the SGR method "is inequitable because it treats all physicians and regions of the country alike, regardless of their individual volume-influencing behavior," Hackbarth said.

Those things being the case, a new formula should tackle payment adequacy and volume control separately, he told legislators.

For example, under an improved scheme to achieve payment adequacy, periodic reimbursement updates "would not be automatic (required in statute) but be informed by changes in beneficiaries'access to physician services, the quality of services being provided," and other factors, especially the estimated change in input prices for the coming year.

Physicians also would be asked to improve their productivity each year by about the same amount as the rest of the economy achieves.

Once adequate reimbursement levels are set, based on the above considerations, Medicare potentially could determine whether the volume of services was growing too fast or not fast enough -- on a service-by-service or geographic basis, for example -- and implement mechanisms that would target specific volume problems.

For example, spending growth for imaging services has been skyrocketing, for both public and private payers. MedPAC is studying volume-control strategies private insurers are pursuing in that area, with an eye to making recommendations in the next year, said Hackbarth. Strategies under study include provider profiling, service preauthorization, beneficiary education, coding edits, safety standards, site inspections, and privileging -- credentialing -- of providers.

"Whether Medicare should do more to emulate private insurers'strategies for purchasing imaging depends on the administrative feasibility of more closely aligning Medicare policy with the strategies of private insurers," as well as on how effective the techniques turn out to be, Hackbarth said.

Also in progress is a General Accounting Office report on the appropriateness of payment-update factors now used in the SGR formula and on possible alternatives to the SGR.