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Senate Seeks to Advance Medicare Payment System Reform

WASHINGTON – Senators said Congress has a window of opportunity now to fix the current Medicare physician payment system, a volume-driven model that encourages medical providers to focus on offering more procedures instead of improving quality.

Senate Finance Committee chairman Max Baucus (D-Mont.) said at a hearing Tuesday that the time has come to repeal the “sustainable growth rate” (SGR) formula used to calculate doctor payments and replace it with a payment system that is more predictable.

The Finance panel hearing focused on repealing and replacing Medicare’s SGR, which mandates reimbursement cuts that have piled up for years as lawmakers have struggled to find a long-term solution. Congress has deferred Medicare physician payment cuts each year since 1997 through a fiscal maneuver dubbed the “doc-fix.”

“Each year, Congress has intervened to prevent these cuts. But we need to get beyond this annual ‘doc fix’ ritual. The year-in, year-out uncertainty is not fair to physicians or seniors,” said Baucus in his opening statement. “We need to ensure that seniors can continue to see their doctors. We must permanently repeal this broken formula and we need to do it this year.”

The 1997 Balanced Budget Act introduced the SGR to keep the growth rate in Medicare physician-related spending per beneficiary in line with the nation’s gross domestic product growth. But beginning in 2002, the formula would cut physician payments. Medical groups lobbied for a series of “doc fixes” that prevented the cuts from going into effect. Baucus said Congress has made 15 short-fixes to the SGR since 2003 at a cost of nearly $150 billion. In 2010 alone, the senator added, Congress passed six short-term fixes.

“Congress has chosen to override the legislative reductions for years, and that coupled with continued service volume growth has led to an annual process of trying to avoid large fees reductions by the end of the year,” said Dr. Mark Miller, executive director of the Medicare Payment Advisory Commission, in his testimony at the hearing.

Other lawmakers and experts present at the hearing echoed Baucus’ sentiment, noting a recent report by the Congressional Budget Office (CBO) as a major factor for the need to act quickly. Enthusiasm to fix Medicare’s payment system rose this year after the CBO cut the estimated cost for reforming it.

“I believe we currently have a good window of opportunity before us. But, we must act soon,” Sen. Orrin Hatch (R-Utah) said.

In February, the CBO reported slower growth in Medicare costs and lowered its estimate for the 10-year cost of addressing the formula and freezing physicians’ payments from $245 billion over the course of 10 years to $138 billion. The price tag for fixing the doctors’ pay formula will remain at a record low, according to an updated estimate from the CBO released on Tuesday.

“The time to repeal is now, as you noted yourself, the cost of the repeal has been revised downward…but history is cautionary here; this is because service volume has slowed down but trends in service volume are volatile and if they reaccelerate the cost of repeal the SGR will go up again,” Miller said.

Miller said the cost estimates for repealing the SGR depend on projections of growth in the volume and intensity of services provided by physicians and other health professionals and the relationship between that volume growth and gross domestic product growth. The difficulty in making the estimates, because of the unpredictability of volume growth, has made the estimates more volatile – a point that was constantly stated during the hearing.

Miller also said the current payment system must move from volume-drive systems to systems that focus on quality, coordination, and accountability.

“We should not simply repeal the SGR. We also must change the underlying fee-for-service system that Medicare uses to pay physicians. Fee-for-service promotes volume over value. Physicians are rewarded for doing more tests and more procedures, even when unnecessary,” Baucus said.

Bruce Steinwald, a healthcare consultant, mentioned that now is a particularly “fertile period” to do away with SGR.

“For years, the stance of the profession seemed to be repeal the SGR and then we'll talk about reform,” Steinwald said. "Now it seems to me that the medical profession recognizes [reform] needs to be part of the same conversation.”

Baucus noted that the payments models being currently tested by the Center for Medicare and Medicaid Services (CMS) are not ready to replace the existing fee-for-service system.

Dr. Kavita Patel, managing director of the Engelberg Center for Health Care Reform at the Brookings Institution, called for harmonization of all the existing incentive payment initiatives under the CMS into a “care coordination program” that would a offer a transition pathway to novel methods of payment.

“Short-term strategies that will result in better care coordination between primary care physicians and specialists are the ultimate answer but the question remains on how to get there,” Patel said.

Bipartisan support in both chambers of Congress to act quickly has increased in recent months. Panels in the House and Senate are eagerly pursuing a permanent “doc fix.”

Last month, the Energy and Commerce and Ways and Means panels outlined additional details of their latest draft plan to reform the current system. The proposal would also repeal the SGR and replace with a more “fair and stable system” of physician payment.

Baucus and Hatch sent a letter to healthcare providers Friday asking specific questions about repealing and replacing the SGR. Tuesday’s hearing made clear that there is no agreement on the best path forward yet.