MedPAC eyes cost-cutting strategies

Washington -- Categorizing physicians based on how expensive they are, in a fashion similar to the tiering of pharmacy benefits, is just one strategy that the Medicare Payment Advisory Commission is evaluating to make the program a more efficient purchaser of care.

Medicare already has begun to study the cost and quality benefits of disease management for chronic conditions, including diabetes, congestive heart failure and chronic obstructive pulmonary disease.

MedPAC's June report examines the private marketplace's experimentation with other approaches, such as physician profiling and report cards, as well as incentives for beneficiaries to choose doctors and hospitals that offer good outcomes at low cost.

"The implicit question is whether some of these strategies can be used in Medicare," said MedPAC Executive Director Mark Miller, PhD.

The commission stated that Medicare could reduce its spending per beneficiary without compromising patient care.

"There are opportunities for getting the same level of quality and outcome with spending less, certainly in the high expenditure areas," said David A. Kindig, MD, PhD, professor of preventive medicine at the University of Wisconsin and director of the Wisconsin Network for Health Policy Research.

These strategies, known as value purchasing, generally involve directing patients to physicians, hospitals and others based on measures of cost, quality, efficiency and/or outcomes.

"Quality improvement is a desirable goal that may eventually reduce the overall cost of health care, but it is likely to do this by increasing physician care initially," said AMA trustee Joseph Heyman, MD.

Experts criticize the current system for linking payment to specific treatments and services with little or no regard for the overall care or health of the patient. While physicians have been encouraged to improve quality, few payers have yet to offer help in paying for the cost of such efforts, Dr. Kindig said.

"Over the next decade, we are going to have to move toward using financial incentives to get better quality and ultimately better health outcomes," he said. "Otherwise, it's not going to happen. We're going to just keep paying for the pieces."

The MedPAC report examined several such approaches being tried in the health insurance market. It cited in particular the Minnesota Advantage Health Plan, a state benefit program that covers about 120,000 people.

The program is administered by local health plans and offers a statewide network of physician practices. The groups are organized into four tiers, and as the tiers go up, so does patients' cost sharing.

With an eye to fairness, the tiers are based on the risk-adjusted cost of claims aggregated from a state data warehouse. Patients still can go to the more expensive, higher-tier physicians if they pay more out of their own pockets.

"If we didn't have this kind of model, the other possibility would have been to drop higher-cost providers," said David Haugen, assistant commissioner for employee insurance in Minnesota's Dept. of Employee Relations.

In its two years of existence, the tier rating already has created more competition in the market, he said. In some cases, physician groups in tier three or four have come to the table to negotiate lower payments, thereby lowering their tier rating.

Doctors likely will be happy to go along with these measures of quality and efficiency as long as they are reasonably accurate, Dr. Kindig said. But arriving at an accurate way to measure those factors could take a while.

"Any strategies designed to address [the rising use of medical services] must not increase physicians' cost of practice or rely too heavily on profiles that fail to adequately account for differences in physicians' patient mix," Dr. Heyman said.

Haugen admitted that the implementation of Minnesota's approach has not been painless, but that the state had to take some action to deal with rising health care spending.

Inevitably, Medicare will face the same dilemma between rising costs and the risk of making mistakes in attempting to address them. MedPAC's March report showed that the program is facing insolvency sooner than many thought.

Keeping an eye on other trends

The MedPAC report also looks at several other areas in which Medicare will evolve over the next several decades, the most immediate of which is the drug benefit.

The commissioners reported on the many possible permutations of drug formularies under the drug benefit, which begins in 2006. They concluded that an inherent tension exists between making medications available to beneficiaries and preserving cost-containment mechanisms.

They also are concerned that drug plans could structure their formularies to cherry-pick patients. To discourage that, the Dept. of Health and Human Services will examine formularies. In addition, the Medicare reform law gives the U.S. Pharmacopoeia the task of developing a model formulary. Companies that adopt the model will avoid that scrutiny.

The MedPAC report also reiterated the need for Medicare to play a central role in the diffusion of information technology, which has been shown to help improve health care quality and efficiency.

Without Medicare to set the standards, the market for electronic records and other systems has been fragmented, discouraging physicians from investing in technology for fear that it soon could be obsolete or incompatible, Miller said.

The commissioners also reported on the cost associated with the increased number of imaging facilities and the dramatic rise of long-term-care hospitals.