Recent Pay-for-Performance and Reimbursement Issues in the 109th Congress
In the March 2005 Report to Congress: Medicare Payment Policy, the Medicare Payment Advisory Commission (MedPAC), the congressional advisory committee for Medicare, recommends that Medicare pay providers who deliver quality care between 1% to 2% more than other providers. MedPAC envisions this policy as budget-neutral, meaning Congress would authorize no new funding for the Medicare program to support the new proposal. As medical specialty societies advocate for increases in Medicare reimbursement for physicians, some groups question not only the prudence of a budget-neutral scheme, but also the equity of a policy that would allow better performing providers to gain financially at the expense of poorly performing providers. These concerns were intensified with the recent reimbursement cuts called for by the Center for Medicare and Medicaid Services (CMS).
On August 1, CMS announced the much-anticipated 4.3% reduction in the physician reimbursement rate under the 2006 physician fee schedule, which was published in the Federal Register August 8. MedPAC estimates this percentage will be the amount of the reduction for such services annually through 2012.
Under Part B of Medicare, physician fees are adjusted annually by a formula known as the sustainable growth rate (SGR), which has been in place since 1998. The SGR sets spending targets and adjusts physician fees based on the extent to which actual spending aligns with specified targets. Currently, prescription drugs expenditures are a component of the SGR formula.
Finding the inclusion of prescription drugs under this formula "illogical," U.S. House of Representatives Committee on Ways and Means Chair Bill Thomas (R, Calif) and Ways and Means Subcommittee on Health Chair Nancy L. Johnson (R, Conn) sent a July 12 letter to CMS Administrator Mark B. McClellan requesting CMS remove such expenditures from the SGR formula by modifying the definition of "physician services." Thomas and Johnson also urged CMS to account for the costs of new Medicare benefits in determining its formula updates.
At a July 21 hearing before the House Ways and Means Subcommittee on Health, Chairman Johnson criticized McClellan and the Administration for attempting to implement pay for performance initiatives without first eliminating the SGR formula. Johnson contends such action will actually exacerbate physician reimbursement cuts because of the projected increase in physician spending to provide quality care. Moreover, the projected cuts for physicians over the next 6 years will devour any bonuses provided under a pay-for-performance paradigm.
Adoption of health IT systems is an essential first step toward establishing a pay-for-performance model, according to Mark E. Miller, executive director of MedPAC, at a July 27 hearing before the U.S. Senate Committee on Finance. Establishing a health IT infrastructure will enable physicians to measure clinical processes, which is a crucial component of the pay-for-performance paradigm. In both testimony and letters to Congress, Mark McClellan has illustrated CMS' commitment to improve quality of care through health IT, as well as the several physician and hospital pay-for-performance demonstration programs it already has in place. CMS has developed an infrastructure that can serve to collect data for quality measurement purposes through secure channels for its submission, storage, analysis, validation, and reporting.
In order to spur adoption of health IT in all facets of practice, CMS will soon begin providing physicians with the opportunity to purchase inexpensive health IT software developed by the U.S. Department of Veterans Affairs. The VistA-Office EHR system will provide both support for disease management and practice management. This software will play a useful role as Congress moves forward with pay for performance.
During the 109th Congress, both the House and the Senate have introduced legislation to implement a pay for performance paradigm. On June 30, Senate Finance Chair Charles E. Grassley (R, Iowa) and Sen. Max Baucus (D, Mont) introduced S. 1356, the Medicare Value Purchasing Act of 2005, which creates a new Part E (Value-Based Purchasing) for title 18 of the Social Security Act, under which the Secretary of Health and Human Services would develop a measurement system to provide value-based payments to: (1) hospitals (2) physicians and practitioners (3) health plans (4) end stage renal disease providers and facilities and (5) home health agencies. Under this legislation, CMS would develop the quality measures. As MedPAC recommends, this bill is budget-neutral.
Specifically, S. 1356 would establish a 2-phase implementation of paying providers bonuses for delivering high quality care to patients: (1) Medicare reimbursement would be linked to reporting quality data; and (2) Medicare providers would voluntarily participate in value-based purchasing where a portion of their payments would be set aside to create a quality pool. In FY 2007, payments would begin at 1% of the Medicare payments for each provider group. These payments would rise annually in small increments to 2% percent in FY 2011 and beyond. This pool would initially be valued at $2.5 billion, increasing annually to $7.5 billion by 2013.
Health care providers, purchasers, quality organizations, and senior citizen advocacy groups are expressing nearly unanimous support for S. 1356. The chief concern of the stakeholders, however, is the budget neutrality of the bill because many believe new money should be added to the Medicare system. Some are also not satisfied that the only recognition of the current reimbursement problem in the Senate bill is a "Sense of the Senate" provision. Although S. 1356 does not directly address the SGR formula, Chairman Grassley expects this bill to be part of a Senate "final package" at the end of the year that would include language remedying the SGR problems.
The House bill, however, does specifically address the SGR formula. On July 28, House Ways and Means Health Subcommittee Chair Nancy L. Johnson (R, Conn) introduced H.R. 3617, the Medicare Value-Based Purchasing for Physicians' Service Act of 2005. This legislation reforms Medicare's physician payments system by replacing the SGR with the Medicare Economic Index (MEI) and introduces pay-for-performance reimbursement. This program will initially reward physicians for reporting, then for their actual performance.
Under the Johnson bill, the scheduled 4.3 percent Medicare physician reimbursement cut for 2006 will be replaced by a 1.3% increase. Additionally, in 2007 and 2008, physicians reporting quality measures would receive an annual update equal to the MEI, while those who do not report would be penalized 1 percentage point of the MEI. For 2009 and succeeding years, doctors meeting quality measures or making progress toward meeting them would get a full MEI update, while those that do not, would be penalized 1 percentage point of the MEI.
The quality standards will: (1) contain a mix of outcome, process, and structural measures; (2) include efficiency measures related to clinical care; (3) be evidence-based; and (4) include measures assessing the use of resources. Medical specialty societies will be instrumental in developing such measures by submitting input to consensus-building organizations, such as the National Quality Forum (NQF), of which ACR is a member. NQF will make recommendations to CMS.
The Congressional Budget Office (CBO) estimates eliminating the SGR will cost approximately $154 billion over 10 years, while the Bush Administration now projects such costs at $183 billion. If CMS uses its regulatory power to remove prescription drugs from the SGR formula, Johnson believes H.R. 3617 will only cost $45 billion over 10 years to implement rather than $154 billion. CMS is examining whether it can legally take such action.
Johnson believes this measure could move in 2005 as part of the budget reconciliation process.
