Medicare advisers critical of both SGR and hospital pay

In its June report, MedPAC discusses the possibility of equalizing pay rates across different care settings.

By Charles Fiegl amednews staff — Posted June 24, 2013

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Congress’ advisers on Medicare payment policy again have voiced strong concern over large scheduled cuts to physician services, while also scrutinizing higher pay rates for care delivered in the outpatient hospital setting.

During its annual review of payment issues, the Medicare Payment Advisory Commission warned that current law will reduce rates for physician services by nearly a quarter in 2014. Congress has heeded the warning in previous years — and it’s expected to do so again before the end of 2013 — by preventing cuts mandated by the national health program’s sustainable growth rate formula. Commissioners have found systemic problems with the current framework and have called for a permanent replacement, MedPAC wrote in its June report to Congress.

“The SGR formula may have resulted in lower updates, but it has failed to restrain volume growth; in fact, for some specialties the formula may have exacerbated growth,” MedPAC stated. “In addition, the temporary increases, or ‘fixes,’ to override the SGR formula are undermining the credibility of Medicare by engendering uncertainty and frustration among providers, which may be causing anxiety among beneficiaries.”

Congress again will be required to pass legislation before the end of the year to prevent Medicare payment rates from undergoing steep reductions, said then-AMA President Jeremy A. Lazarus, MD. The American Medical Association has advocated for lawmakers to repeal permanently the Medicare SGR formula used to calculate payments.

“The AMA has worked tirelessly for many years to end the failed SGR, and the June MedPAC report is a reminder that it is vital for Congress to act this year to replace it with sustainable delivery and payment options that will improve the nation’s health care system,” Dr. Lazarus said.

The AMA and more than 100 physician organizations have proposed ideas to build a better and more sustainable delivery and payment system in Medicare. Such a system would offer doctors more flexibility to improve quality and lower costs, Dr. Lazarus said. The 10-year cost to repeal the SGR is estimated to be $139 billion, according to the Congressional Budget Office.

“The failed SGR formula causes instability in Medicare and exacerbates the type of problems MedPAC addresses in this report, including payment differences across geographic regions and between hospitals and outpatient settings,” Dr. Lazarus said. “The CBO estimates that the cost to repeal the SGR is now less than half the cost projected at this time last year, and the AMA applauds MedPAC’s recent statements about the urgency to take action now.”

Different settings, uneven pay

MedPAC did not offer recommendations to level payments for similar services provided across care settings, but the report scrutinized rates for echocardiograms and 66 ambulatory payment classifications. Researchers have found an increase in these services being delivered in hospital outpatient departments. For instance, the share of evaluation and management office visits provided in the departments increased by 9% from 2010 to 2011. Echocardiograms and other cardiac tests also increased 15% and 22%, respectively, during that period.

The services provided in the outpatient department also cost Medicare and beneficiaries more money than if they had been provided at physician offices. An echocardiogram costs 141% more when administered in the hospital setting, the report stated.

“One way to address payment variations between physicians’ offices and [outpatient departments] is to reduce payment rates in the outpatient prospective payment system so that payments are equal whether a service is provided in a freestanding physician’s practice or in an OPD,” the June report stated. In January 2012, MedPAC had recommended that 10 hospital E&M services should have their pay rates reduced.

The American Hospital Assn. has opposed these policies, because they would reduce payments to already underfunded outpatient departments by additional billions of dollars, said Joanna Kim, AHA’s vice president for payment policy.

“AHA believes that it was premature and ill-advised for MedPAC to include a site-neutral payment policy chapter in its report,” Kim said. “Given the complexity involved in crafting a site-neutral payment policy, we believe that a more robust analysis of impact should have been conducted before this issue was committed to a published chapter. The impact of these potential cuts is very significant.”

Flaws seen in pay adjustments

The current Medicare geographic system used to account for differences in the costs of practicing medicine in different regions across the country should be abandoned, MedPAC stated. Medicare uses geographic practice cost indexes to adjust doctor payments based on location, but since 2003, Congress has prevented that system from lowering rates in lower-cost areas by establishing an index floor that’s equal to the national average.

“The report finds there is evidence of the need for some level of geographic adjustment of fee schedule payments for professional work, because there is geographic variation in the cost of living and the earnings of professionals in the reference occupations,” MedPAC stated. “However, the current index is flawed both conceptually and in implementation.”

The commission recommended to Congress that it allow geographic adjustments to take place in the meantime by removing the floor set by lawmakers. MedPAC also called on Congress to direct the Health and Human Services secretary to develop an alternative adjuster to replace the current system.

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Why hospitals are pricier for Medicare

Medicare issues a single payment when an outpatient service is provided in a physician’s office, but when it occurs in a facility, the program pays fees to both the physician and the hospital. For instance, a 15-minute evaluation and management visit will cost the program and patient $72.50 when it’s done in an office in 2013, but the total facility rate is about 70% higher.

Payment rate Medicare pays Patient pays Total payment
Physician practice rate $58.00 $14.50 $72.50
Physician facility rate $39.76 $9.94 $49.70
Outpatient facility rate $58.94 $14.74 $73.68
Total outpatient facility rate $98.70 $24.68 $123.38

Source: “Report to the Congress: Medicare and the Health Care Delivery System,” Medicare Payment Advisory Commission, June (link)

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External links

“Report to the Congress: Medicare and the Health Care Delivery System,” Medicare Payment Advisory Commission, June (link)

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