Medicare pay-for-performance bill omits reimbursement formula fix

The decision of the Senate bill's sponsors to tackle quality and payment system reforms separately rankles physicians.

By David Glendinning — Posted July 25, 2005

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Washington -- For doctors who are not prepared to embrace pay-for-performance in the Medicare program, recently introduced legislation raises the specter of mandatory payment reductions on top of the cuts they are already facing.

A bipartisan group of senators late last month introduced a bill that would adjust Medicare reimbursement according to how well physicians and other program participants rate based on yet-to-be-determined federal quality-of-care measures. Doctors who were unable to begin reporting quality data to the government starting in 2007 would see an automatic 2% reduction in their Medicare update for each year that they don't participate.

This penalty would be on top of whatever reductions are mandated by the physician payment formula, which is projected to cut doctors' pay by more than 4% in each of the next six years.

The pay-for-performance legislation makes no mention of the upcoming rounds of cuts beyond a nonbinding "sense of the Senate" resolution that says Congress needs to fix the formula. Consequently, lawmakers and the White House could approve the bill without green-lighting separate legislation that turns the next couple of years of reductions into rate increases.

A perception that the bill would penalize nonparticipants without any guarantee that the underlying payment system will be repaired prompted opposition from physician groups, including the American Medical Association and the American Academy of Family Physicians.

"The AMA is concerned that newly introduced pay-for-performance legislation does not also halt steep Medicare physician reimbursement cuts of 26% over six years that begin Jan. 1, [2006]," said AMA Trustee John H. Armstrong, MD. "Congress must take concrete steps to stop the cuts as a condition of any proposed pay-for-performance legislation."

AAFP President Mary E. Frank, MD, said the academy is "gravely disappointed" that lawmakers declined to more solidly link the quality and payment system issues.

"These new requirements on physicians will mean they face lower payments and additional costs," she said. "This is not a formula for improving health care quality."

Senate Finance Committee Chair Charles Grassley (R, Iowa), who wrote the pay-for-performance bill along with Ranking Member Max Baucus (D, Mont.), said he would attempt to move that measure and the physician rate-fix bill out of his committee later this year. But the verbal commitment from the lead sponsor to move both bills at roughly the same time did not placate either physician group.

What to expect

The "Medicare Value Purchasing Act of 2005," largely based on recommendations from the Medicare Payment Advisory Commission, violates at least two major principles upon which the AMA has conditioned its support.

While lawmakers insist that the program would not be mandatory, doctors would take a financial hit for opting out, contravening the AMA requirement that payments for nonparticipants remain unaffected. Also, the measure would commit no new dollars to fund any bonus payments that high-performing doctors would receive, violating the AMA requirement that additional funding be provided.

This means that even the doctors who submitted all of the required quality information to the government would still face the possibility of payment reductions under the Grassley-Baucus proposal.

If the bill becomes law, federal officials starting in 2008 would set aside 1% of Medicare reimbursements to fund the bonus pool. Only doctors exhibiting sufficient improvement or exceeding certain quality thresholds set by regulators would receive performance-based payments. The bonus pool would increase each year until 2012, when it hits the 2% maximum.

AMA delegates at the Association's Annual Meeting in Chicago in June voted to oppose any pay-for-performance plan that does not follow the group's sets of principles and detailed guidelines on the issue. The American Academy of Family Physicians and several other specialty groups broke ranks with the AMA and issued their own letter to lawmakers that largely echoed many of the same themes but stated that a program with no additional funding would be acceptable as a starting point.

The AMA, nevertheless, looks forward to "working with Sens. Grassley and Baucus on pay-for-performance legislation that truly benefits America's patients," Dr. Armstrong said.

Doctor input on quality guidelines

If the Grassley-Baucus proposal is enacted, doctors will still have plenty of opportunities to weigh in on how their quality of care should be measured, the lawmakers said.

"Sen. Baucus and I know that it's a pretty ambitious strategy," Grassley said in a speech on the Senate floor last month. "We also recognize that this substantial departure from current payment practices cannot and should not happen overnight."

Upon approval, federal regulators would be required to develop quality measures over the next year based on sound evidence as well as input from physicians and other stakeholders.

The legislation does not specify how to gauge high-quality performance, but the bill states that the program should incorporate targets for providing recommended medical services, reducing overuse and underuse of services, ensuring beneficiary satisfaction and improving health information technology infrastructure.

Regulators would draft separate sets of guidelines for hospitals, Medicare managed care plans, end-stage renal disease facilities and home health agencies, each of which would have their own bonus pool based on the same concept as the physician rewards. Government officials also may choose to determine separate quality measures within the physician community, based on medical specialty or volume of services offered.

In addition, the legislation calls for Medicare to take into account quality measures that health care organizations have already developed. The AMA's Dr. Armstrong said his group has much to offer in this department.

"Through the AMA's Physician Consortium for Performance Improvement, almost 100 performance measures have been developed and are in use in physician practices and government pay-for-performance demonstration projects," he said.

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Pay-for-performance timeline

The next several years will be busy ones for physicians if Medicare pay-for-performance legislation recently introduced in the Senate becomes law. Here's what would happen:

2006: The Health and Human Services Dept. would select measures designed to gauge the quality of care physicians provide.

2007: Physicians who do not report quality data would start receiving a 2% reduction in annual Medicare updates.

2008: HHS would begin redistributing 1% of reporting physicians' payments to top performers, based on the quality measures, with the figure increasing 0.25% each year until it reaches 2%.

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Tandem bill offers tech help

Lawmakers pushing a new proposal for a Medicare pay-for-performance system acknowledge that not every doctor has the electronic tools needed to participate.

That's why the bipartisan sponsors of the recently introduced Senate bill are promoting their measure in tandem with another piece of legislation aimed at getting health information technology into the hands of physicians.

For doctors to report the required quality data to federal officials under the proposed pay-for-performance bill, they would need at least a bare-bones IT setup. Plus, performance bonuses would be dependent, in part, on how well doctors build up an information infrastructure.

Backers of both pieces of legislation say federal money is needed to help physicians who haven't yet reached that level of computerization.

"These two bills both address two critical issues in medicine: quality of care and health information technology," said Senate Health, Education, Labor and Pensions Committee Ranking Member Edward Kennedy (D, Mass.), co-sponsor of the IT bill along with Chair Mike Enzi (R, Wyo.). "These issues are inextricably linked."

The Kennedy-Enzi bill would launch three new funding streams to encourage physicians to adopt IT. Grants would flow to doctors and others demonstrating financial need, regional health information technology organizations would receive federal money, and a new public-private fund would offer loans at below-market rates for IT purchases.

If Medicare pay-for-performance is not accompanied by sizeable federal assistance for doctors who cannot afford to go electronic, a dangerous gulf in payment rates would likely appear between the haves and the have-nots, some physicians fear.

"If doctors don't have the technology to participate in the reporting system, their reimbursement will be cut even further, which will hinder their ability to ever be able to afford the technology," said Mary E. Frank, MD, the American Academy of Family Physicians president. "Sound like a vicious cycle? It is."

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