House hearing previews potential Medicare pay-for-performance plan

A combo bill addressing payment reform and pay-for-performance emerges in the House as the administration raises the estimated cost of repealing the reimbursement formula.

By David Glendinning — Posted Aug. 8, 2005

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Washington -- The leader of an influential House panel in late July started drafting her own version of a Medicare payment reform bill that also appears to address some of the physician community's concerns about pay-for-performance.

Rep. Nancy Johnson (R, Conn.), chair of the House Ways and Means health subcommittee, held a hearing last month in which physician witnesses weighed in on the need to halt impending Medicare cuts and the prospect of realigning the system to reward high-quality care.

Days before the hearing, Johnson's staff held a closed-door meeting with various specialty societies to float a draft of her Medicare "value-based purchasing" legislation. The measure would throw out the current payment system under which physicians face lower reimbursements in the next several years and implement a plan that is designed, in part, to pay doctors based on how well they perform on pre determined measures.

The developing legislation, which Johnson was still preparing for introduction at press time, drew a positive initial reaction from the American Medical Association.

"Overall, many of the elements that we understand you have included in your legislation are consistent with a number of [AMA] principles and guidelines" on pay-for-performance, said AMA Trustee John H. Armstrong, MD, who testified at the subcommittee hearing.

Unlike a recently introduced Senate bill on Medicare pay-for-performance, the draft House bill would commit new money to the system by abandoning the current physician pay formula in favor of one that better tracks the costs of providing medical services. Senate sponsors decided to pursue the pay formula issue in a separate bill.

The House draft legislation would feature voluntary physician participation, another of the Association's pay-for-performance principles. Although doctors who do not report performance measures or rate well on them would receive a lower update under the Johnson bill, they would not automatically receive a pay cut right off the bat, as they would under the Senate bill. Because the Senate bill doesn't add new money to Medicare, some doctors would get lower payments for their services so that a certain amount of the allotted money could be paid to high performers in a pay-for-performance system.

Dr. Armstrong also commended Johnson's developing legislation for proposing that physician specialists themselves submit recommendations on how the government should rate the quality of doctors' care. He described the proposal as a "transparent, open process that allows each of the individual medical specialty societies to have input into the process of developing performance measures."

But not all of the proposed House language appeared to fit in as well with the Association's pay-for-performance principles. The AMA is concerned that including efficiency measures that do not take medical necessity into account could shift the focus of the program toward cutting Medicare overhead instead of improving patient care, Dr. Armstrong said.

"Measures of efficiency should not simply reward the lowest-cost provider while ignoring quality of care," he said. "Efficiency measures must meet the same evidence-based standards as quality measures."

Physicians also worry that the performance-based system will encounter unexpected turbulence unless Medicare officials put the program through a rigorous set of pilot tests before expanding it to the entire physician community, Dr. Armstrong said.

How to pay the hefty tab?

Johnson reiterated her view that pay-for-performance will not work in the Medicare program unless Congress first overhauls the pay formula that has doctors slated for multiple years of reductions.

"I don't see how we shift to that system under the current law," she said. "The current law will defeat us before we even get started."

But the price tag for funding such a major change to the current system keeps rising as lawmakers debate the budgetary implications.

Centers for Medicare & Medicaid Services Administrator Mark McClellan, MD, PhD, said in his written testimony to the subcommittee that the Bush administration had revised upward the cost estimate for replacing the current reimbursement formula with one based on changes in physicians' costs. The White House now predicts it will cost $183 billion over 10 years. That's $20 billion more than the $163 billion over the decade that it projected earlier this year.

Lawmakers, who rely on the Congressional Budget Office for their official price estimates, are still working under a March assumption from CBO that the formula fix will cost a little less than $155 billion over 10 years. But Congress has balked in recent years when presented with opportunities to commit such a large amount of money to fixing physician pay, instead passing temporary fixes that put off the difficult financial decisions.

That is not likely to occur again, Dr. McClellan told reporters at an event held just days after the House subcommittee hearing.

"There's too strong an interest in both parties to find a better way to pay," he said, "and there's too much evidence -- including evidence developed by medical specialties themselves -- that there are better ways for us to pay."

Meanwhile, CMS continues its assessment as to what the agency can do to reduce the cost of the physician payment reforms on its own or launch more pay-for-performance demonstrations within Medicare to create savings. If CMS could use its demonstration authority to implement reforms that reduce Medicare outpatient spending by 1% each year, the upcoming years of physician cuts could be turned into 1.5% increases, Dr. McClellan said.

"There is plenty that we can do without legislation," he said.

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Medicare value-based purchasing

Draft Medicare legislation that Rep. Nancy Johnson (R, Conn.), chair of the House Ways and Means health subcommittee, was finalizing at press time would repeal the current physician payment formula and base the new system in part on quality of care. According to individuals familiar with the draft, doctors could expect the following timeline if the measure meets approval:

2006: The current funding formula would be scrapped for one that better aligns payments with the costs of providing care. Medical specialty societies would submit proposed quality and efficiency measures to the Centers for Medicare & Medicaid Services through the National Quality Forum or a comparable organization.

2007-08: Doctors would begin reporting how well they perform on the quality and efficiency measures that CMS chooses. Full cost-based reimbursement would depend on whether physician practices send the quality data to the government.

2009: Full Medicare updates would start being dependent on how well physicians actually rate according to the quality and efficiency data they submit.

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