Medicare battle heating up

The Centers for Medicare & Medicaid Services (CMS) has every intention of moving forward with a new pay for performance (P4P) system, eventually ditching the current payment scheme.

But it needs help from Congress to make it happen.

Testifying before the House Energy and Commerce Health Subcommittee in mid-November, McClellan presented his case for P4P, and acknowledged that physicians would face severe reductions over the next several years under the existing Medicare payment system, including an overall 4.4 percent reduction in 2006.

He said CMS would work with Congress during the budget reconciliation process to address the physician Medicare cuts expected in 2006 and 2007, "with differential updates for physicians who report valid, consensus-based quality measures" as a first step in establishing a P4P system.

"We also recognize that the very rapid growth in physician-related Part B services has contributed significantly to the extent of this payment problem," Dr. McClellan told the subcommittee.

"Although CMS carefully examined the possibility of taking administrative action to address statutorily mandated cuts, we have concluded that we have no authority, under existing statute, to make changes that will immediately or directly impact the physician update. More over, even if we took administrative actions suggested by the physician community, this step would add substantially to Medicare costs and beneficiary premiums..."

Many physician groups have called for an end to the sustainable growth rate (SGR) formula, used to control the growth in expenditures each year. SGR is comprised of four factors:

When actual spending exceeds targeted spending, the following year's update is reduced to bring actual spending back in line with the targets.

"Unfortunately, actual spending has greatly exceeded targeted spending," Dr. McClellan says, "and the formula results in negative updates to physician payments to correct this disparity."

Some groups have called on CMS to retrospectively remove drugs covered under Part B from the definition of physician services, and thus revise the SGR. CMS has said such a move would be difficult to achieve, and further, Dr. McClellan contended, it would not result in a positive update for several years.

"Consequently, CMS believes that statutory change is needed to improve the physician payments. More over, such changes should do more than simply add substantial taxpayer and beneficiary payments to the current payment system," he declares.

According to CMS, utilization and intensity of physician services increased 6.3 percent in 2004 and were estimated to be 5.6 percent for 2005 and 6.4 percent for 2006, compared to an average of about 1 percent between 1992 and 1999. Much of that increase was attributed to increases in office visits, lab tests, minor procedures and physician-administered drugs.

While some of these increases in the use of services are related to improvements in the quality of health care, Dr. McClellan says "much of the spending increase cannot easily be explained by changes in treatments based on new medical evidence and valuable new technologies."

A major problem, he contends, is that the current payment system does not encourage more efficient and better quality care while avoiding unnecessary costs and disease complications.