MedPAC developing options for Medicare formula

Washington -- With prospects for long-term reform of the Medicare physician payment system all but off Capitol Hill's table for the rest of the year, the panel that advises Congress on the program is debating options to offer lawmakers this spring.

Congress has required the Medicare Payment Advisory Commission to submit a report by March that suggests alternatives to the formula that helps determine physician pay. Absent congressional intervention, the sustainable growth rate formula will prompt an estimated 5.1% cut as of Jan. 1. In addition, the formula has doctors facing similar annual cuts for most of the next decade.

The group has its work cut out for it. At the panel's October meeting, MedPAC Chair Glenn Hackbarth said the directive from lawmakers goes beyond just determining a new government formula for paying doctors.

"There is agreement within the commission that improving the efficiency and quality of the services provided to Medicare beneficiaries is not as simple as coming up with a new SGR mechanism," he said. "There's work to be done on many different fronts if we want to improve efficiency and quality."

Along those lines, MedPAC members discussed a draft list of about a dozen potential ways Medicare could pay more accurately and efficiently for doctor care regardless of what specific payment system overhaul the commission recommends. Including such recommendations in the report will help put the final reform proposals in the context of broader system change, Hackbarth said. He said the group might add items to or delete items from the list before it presents its options to Congress.

For instance, lawmakers could consider changing payment incentives to encourage physicians to coordinate their care, bundling Medicare payments instead of paying a single rate per physician service, or ensuring that Medicare identifies misvalued services and adjusts prices accordingly. Some of the proposals include recommendations MedPAC already has made to Congress, such as establishing a physician pay-for-performance program and informing doctors about how many Medicare services they provide compared with colleagues.

The goal of many of the recommendations is to control the volume of services physicians provide -- and thus the end cost of care to taxpayers and patients. Medicare's physician payment formula, which establishes yearly targets based in part on the nation's gross domestic product, fails to control volume in its current form, said Ronald D. Castellanos, MD, a MedPAC member and urologic surgeon from Fort Myers, Fla.

"What we really need to do is get down to the core values of what is good volume and what's bad volume," he said. "Just to say that we can't go above GDP, [when there] is no relationship between GDP and quality of care or volume, doesn't make sense."

Nearly half of physicians face cuts next year that will exceed the 5.1% across-the-board reduction because of imaging cuts and impending changes to the way Medicare prices certain services, Dr. Castellanos said. While other participants in Medicare continue to get positive adjustments based on cost-of-living increases and other expenses, doctors are held to unrealistic limits, he said.

But the commission must be careful not to advise abandoning the current formula completely in favor of quality and efficiency recommendations, said MedPAC member Douglas Holtz-Eakin, PhD, former director of the Congressional Budget Office. Medicare must continue to keep downward pressure on spending levels if the system is going to be adequately funded in the future, he said.

"The SGR is a highly inelegant offense to anyone who looks at health care. It is, however, a very clear recognition of the fact that we're scared about how much it costs and how much we're spending in the federal budget and in the economy as a whole," he said. "And I think to discard that casually would be a big mistake."