Medicare Reimbursement to Physicians

This statement is submitted on behalf of the 94,000 members of the American Academy of Family Physicians to the House Ways and Means Health Subcommittee as part of its hearing on Medicare reimbursement to physicians. The AAFP appreciates the work of this subcommittee to examine the issue of how Medicare reimburses physicians services and we share the subcommittee’s concerns that the current system is unproductive. This fee-for-service system as presently constructed rewards increased volume of services whether or not these services enhance quality outcomes for Medicare beneficiaries. Such a system of physician reimbursement by itself and without improvement is unworkable and unsustainable over the long-term. This is why the AAFP supports the restructuring of Medicare reimbursement to reward quality and care coordination. This restructuring must be built on a fundamental reform of the underlying fee-for-service reimbursement system.

Family physicians have a unique perspective on the effectiveness of the Medicare system. After all, the majority of Medicare beneficiaries who identify a physician as their usual source of care report that they have chosen a family physician. Family physicians take very seriously the obligation to provide the best health care possible to our Medicare patients. But Medicare reimbursement policies are challenging the ability of family physicians to fulfill that obligation.

The American Academy of Family Physicians supports congressional action to replace the formula known as the sustainable growth rate (SGR) used to determine the annual updates in the Medicare Physician Fee Schedule (MPFS) conversion factor. Above all, the reimbursement system should be designed to ensure that Medicare patients can continue to receive the care they depend on and deserve.

Because of the leadership of the Ways and Means Committee, the Medicare Prescription Drug and Modernization Act (MMA), signed into law in December 2003, included a provision that waived the SGR formula and set the increase in the conversion factor for the Medicare Physician Fee Schedule for 2004 and 2005 at no less than 1.5 percent each year. However, unless Congress acts again, the SGR formula used to calculate annual updates will be reinstituted in 2006 and Medicare actuaries are predicting a 5.2 percent decrease that year. Moreover, because of the cumulative nature of the arcane formula, similar sized decreases are projected annually for many years into the future. Such unrelenting decreases will make it impossible for many more family physicians to accept new Medicare patients. To avoid this, the AAFP supports the recommendation of the Medicare Payment Advisory Commission (MedPAC) that calls for repealing the SGR formula and basing the conversion factor on the Medicare Economic Index (MEI) minus a productivity adjustment.

AAFP agrees with concerns expressed by commissioners of the MedPAC that necessary changes made to the SGR going forward will not eliminate the SGR deficit that has accumulated due to the cumulative nature of the flawed formula. Nevertheless, Congress must act to protect the stability of the ambulatory care portion of the Medicare program which is essential to meeting the medical needs of our nation’s seniors. Without action to fix the SGR, these insufficient updates will continue to disproportionately affect primary care offices relative to other subspecialties because of higher overhead costs.

Until a complete revision of the reimbursement formula is accomplished, there is an administrative adjustment that CMS can make immediately. Congress should join AAFP and the community of organized medicine in urging CMS to immediately remove, retroactive to the inception of the SGR, the physician-administered drugs from the SGR. These in-office medications are not reimbursed under the MPFS and should never have been part of the formula used to calculate the conversion factor for physician services. Moreover, the MMA restructured how these medications are paid for. CMS’s continued inaction, in the face of a growing Medicare ambulatory care reimbursement crisis, is irresponsible.

The SGR has failed to result in a Medicare payment rate that has kept pace with the cost of delivering care. While the SGR update contributes to the crisis of Medicare reimbursement, the negative impact of Medicare’s reimbursement system on ambulatory-based primary care is a much larger issue.

Medicare’s current visit-based reimbursement system has compromised both the ability of primary care physicians to serve in the role for which they are best trained and the beneficial services they are prepared to deliver. Rather than rewarding cost-effective care coordination and care integration, the system rewards physicians for ordering tests and performing procedures. There is no direct compensation to physicians for the considerable time and effort of assuring that the patient’s care is organized correctly and is integrated in a way that makes sense to patients, while remaining cost-effective to the Medicare program.

Congress and CMS must be willing to adequately reimburse primary care functions. Without the necessary resources to allow physicians to redesign their clinical workflow to deliver quality outcomes, Medicare beneficiaries will continue to experience fragmented and ineffective care.

The urgency to transform the design, delivery, and financing of primary care converges well with interest in more broadly implementing a model of chronic care that demonstrates improved quality and cost-effectiveness. CMS is currently engaged in congressionally-created demonstration projects such as the chronic care improvement program and in projects of its own design such as the high-cost Medicare beneficiary demonstration program. There is strong evidence that the Chronic Care Model, as developed by Ed Wagner, M.D., does produce both quality and efficacy. The six components of this model (self management, decision support, delivery system design, clinical information systems, health care organizations, and community resources) have been tested in more than 39 studies and have repeatedly demonstrated their value.¹ The implementation of the Chronic Care Model can reduce unneeded specialty referrals, as well as lead to increased patient satisfaction and improved clinical outcomes. These components are not specific to the care of the chronically ill, rather they are generally applicable to the needed redesign of primary care for all Medicare beneficiaries.

A blended model of payment combining fee-for-service reimbursement system plus a per-beneficiary, per-month stipend for care management, paid directly to the patients’ designated personal physician, is a promising option that would enable family physicians to redesign their offices to deliver high quality preventive and chronic care with improved outcomes for Medicare beneficiaries. Bodenheimer et al. suggest that through blended payments Medicare, specifically, could best make the business case to primary care for taking on chronic care management by paying for chronic care costs (including information technology) and paying for performance through reimbursement enhancements.² Others have made similar recommendations to Medicare for blended payments that support additional coordination responsibilities, electronic communication and documentation, and community-based care as well.³

Pay-for-performance programs are rapidly growing among private health plans. Payers see pay-for-performance as a means of tailoring reimbursement to physician performance. Its increasing use in the private sector has prompted federal health policymakers to examine whether pay-for-performance could be applied to Medicare physician reimbursement.

For example, MedPAC recommended during the January meeting that Congress create Medicare pay-for-performance programs for physician services. According to the MedPAC commissioners, such a program should begin with structural measures such as whether a physician office is utilizing a patient registry to notify patients of follow-up appointments or whether a physician is utilizing an electronic health record (EHR). MedPAC commissioners recommend the subsequent gradual inclusion of performance measures such as whether patients with diabetes have had their cholesterol checked or whether they have received an annual foot exam.

Such a recommendation for structural measures as an initial step makes sense particularly in regard office based technologies such as EHRs which can provide more complete and integrated health data along with clinical reminders during the office visit. An EHR would allow a physician to track his or her performance along with CMS, as well as appropriately risk-adjust the reported data. However, even in the absence of an EHR, there is still a minimum data set that could be collected. The AAFP is working in a collaborative effort with the America’s Health Insurance Plans, the American College of Physicians, the Agency for Healthcare Research and Quality and many other groups to develop a starter set of performance measures from a larger set of ambulatory measures undergoing expedited review by the National Quality Forum. The collaborative effort plans to have agreed on an initial set of performance measures by this summer. Data on these measures will come from both administrative claims as well as clinical data sources.

As MedPAC has recommended, several legislators have expressed an interest in designing a pay-for-performance system that holds physicians accountable for the care they deliver. The Academy would support a Medicare pay-for-performance program for physicians that occurred within the context of a positive annual update in Medicare; rewarded physicians who were reporting performance measures as chosen by the collaborative efforts of the AAFP, ACP, AHRQ, and AHIP and medical specialty societies; and did not force physicians to compete for limited withholds.

For example, any competitive system that creates bonuses for those physician practices that can report clinical performance measures through the use of health information technology by taking withholds from physicians who have not been able to purchase technology will only delay the rapid dissemination of technology. In addition, it could in some areas create real access problems as physicians opt not to take on additional Medicare patients. Likewise, inequities may be created among different types of physicians. Currently, the NQF, for example, is examining a subset of clinical performance measures for ambulatory physician offices. However, this set of measures does not cover every medical subspecialty. If some physicians, such as primary care physicians, have withholds on some portion of their reimbursement while other physicians do not, it would create a profoundly unfair system for Medicare physician reimbursement.

The Academy remains deeply concerned about the inadequate and flawed Medicare physician reimbursement system. The Academy suggests that an MEI-based formula should replace the SGR. As for alternative payment schemes, they should focus on adequately reimbursing the functions of primary care with a per-member per-month fee for care management separate from and in addition to fee-for-service. Pay-for-performance programs in Medicare should focus on improving quality through the use of the starter set of performance measures currently under development. Pay-for-performance programs should give bonuses to reporting physicians while maintaining annual positive updates in Medicare reimbursement to keep pace with increased expenses.

The Academy looks forward to working with the Ways and Means Health Subcommittee in its work to improve Medicare physician reimbursement.

The Academy recognizes the need to explore alternative methods of reimbursing physicians and supports voluntary pay for performance (PFP) programs that incorporate the following guidelines: