[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
MEDICARE PAYMENT POLICY: ENSURING STABILITY AND ACCESS THROUGH
PHYSICIAN PAYMENTS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 14, 2002
__________
Serial No. 107-91
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia BILL LUTHER, Minnesota
ED BRYANT, Tennessee LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania TED STRICKLAND, Ohio
NATHAN DEAL, Georgia THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina LOIS CAPPS, California
ED WHITFIELD, Kentucky RALPH M. HALL, Texas
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
Vice Chairman PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Lewers, Theodore, Trustee, American Medical Association...... 46
McSteen, Martha, President, National Committee to Preserve
Social Security and Medicare............................... 65
Russell, Thomas R., American College of Surgeons............. 58
Scanlon, William J., U.S. General Accounting Office.......... 44
Scully, Hon. Thomas A., Centers for Medicare and Medicaid
Services, Department of Health and Human Services.......... 10
Shuren, Allison Weber, American College of Nurse
Practitioners.............................................. 53
Turney, Susan, Medical Group Management Association,
Marshfield Clinic.......................................... 67
Material submitted for the record by:
American Academy of Family Physicians, prepared statement of. 73
American Academy of Ontolaryngology--Head and Neck Surgery,
prepared statement of...................................... 74
American College of Osteopathic Physicians, letter dated
February 15, 2002, to Hon. Michael Bilirakis............... 75
American College of Physicians--American Society of Internal
Medicine:
Letter dated February 14, 2002........................... 76
Prepared statement of.................................... 77
American College of Radiology, prepared statement of......... 80
American Osteopathic Association, letter dated February 15,
2002, to Hon. Michael Bilirakis............................ 81
American Physical Therapy Association, letter dated February
12, 2002, to Hon. Michael Bilirakis........................ 82
American Society for Gastrointestinal Endoscopy, letter dated
February 13, 2002, to Hon. Michael Bilirakis............... 83
Association of American Medical Colleges, prepared statement
of......................................................... 84
Coalition for Fair Medicare Payment, letter dated February
14, 2002, to Hon. Michael Bilirakis........................ 86
Lewers, Theodore, Trustee, American Medical Association,
responses for the record................................... 92
McSteen, Martha, President, National Committee to Preserve
Social Security and Medicare, responses for the record..... 96
Medical Group Management Association, letter dated March 6,
2002, enclosing response for the record.................... 104
National Association of Rehabilitation Providers and
Agencies, letter dated February 22, 2002, to Hon. Michael
Bilirakis.................................................. 87
Russell, Thomas R., American College of Surgeons, responses
for the record............................................. 100
Scanlon, William J., U.S. General Accounting Office,
responses for the record................................... 87
Scully, Hon. Thomas A., Centers for Medicare and Medicaid
Services, Department of Health and Human Services,
responses for the record................................... 107
Shuren, Allison Weber, American College of Nurse
Practitioners, responses for the record.................... 97
(iii)
MEDICARE PAYMENT POLICY: ENSURING STABILITY AND ACCESS THROUGH
PHYSICIAN PAYMENTS
----------
THURSDAY, FEBRUARY 14, 2002
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 8:30 a.m., in
room 2322, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Greenwood,
Burr, Ganske, Norwood, Wilson, Shadegg, Bryant, Buyer, Brown,
Waxman, Barrett, Capps, Stupak, and Green.
Also present: Representative Bereuter.
Staff present: Anne Esposito, health policy coordinator;
Erin Kuhls, majority counsel; Eugenia Edwards, legislative
clerk; Amy Hall, minority counsel; Karen Folk, minority
counsel; Bridgett Taylor, minority professional staff; and
Nicole Kenner, minority research assistant.
Mr. Bilirakis. Good morning. I call to order the first
hearing of the Health Subcommittee in the second session of the
107th Congress. Today, we will examine the Medicare payment
policy for physicians and at the outset I would say I know
we've already extended our apologies to Mr. Scully, but I
wanted to also apologize to our witnesses and the audience for
such an early start. I think members will be coming in and out,
but we were in session until 2:45 this morning, so we're going
to do the best that we can.
I did want to announce that on this Valentine's Day in
addition to saying Happy Valentine's Day, I would like to take
a moment on behalf of all of us to say goodbye to Anne Esposito
who is sitting here to my right. Anne has been with me for some
time. She has been, of course, a terrific staffer,
conscientious, hardworking and she has an awful lot of energy.
But because she has been so conscientious, so hardworking,
she's been snapped up by downtown. That is the downside for
having an effective staff. But anyhow, she has contributed so
very much toward improving the health care system for all
Americans and on behalf of Mr. Brown and the other members, I'd
like to wish her the best of luck as she moves into the private
sector and let her know, and I'm sure I speak for all of us on
the committee, that she will be greatly missed. Thank you very
much, Anne, for everything.
Well, it's vital that we ensure the stability of the
Medicare program and guarantee access to provider services for
beneficiaries. This hearing will focus on the formula used to
update payment rates for individual physician services under
Medicare's Physician Fee Schedule.
In 2002, health care professionals paid under this fee
schedule will experience the largest, the largest across the
board payment cut since the fee schedule was first put in place
a decade ago. This subcommittee is concerned that the current
update formula is flawed and may at times put at risk, as it is
now doing beneficiaries' access to critical health care
services.
I would like to thank all of our witnesses for coming
before the subcommittee so early this morning and as I've
already said, I'd like to wish you all a Happy Valentine's Day.
Our first panel consists of Tom Scully, the Administrator
of the Centers for Medicare and Medicaid Services. He will
discuss the history of physician payments under Medicare and
explain the circumstances around the -5.4 percent reduction, in
physician payments this year.
On our second panel we will hear from Bill Scanlon our good
friend who we hear from so very often with the General
Accounting Office. He will lay out the various policy choices
the subcommittee will face as we consider making changes to the
current update system. We will also hear from a number of
stakeholders, including the American Medical Association, the
American College of Nurse Practitioners, the American College
of Surgeons, the National Committee to Preserve Social Security
and Medicare, and the Medical Group Management Association.
These witnesses will testify about the real world effects of
the payment cuts while highlighting ways to improve the current
update system.
As many of you know, late last year we realized the
magnitude of this payment reduction and the trouble it would
cause. In response, I introduced, along with Ranking Member
Brown, Chairman Tauzin and Ranking Member Dingell, H.R. 3351,
the Medicare Physician Payment Fairness Act of 2001. This
legislation was intended to correct the conversion factor for
payments in 2002 so the reduction would be a negative .9
percent rather than the current 5.4 percent negative figure.
Unfortunately, due to budget constraints, we were unable to get
this legislation signed into law last year, but we do remain
committed to improving the formula used to calculate the annual
update for Medicare payments to physicians and other health
care professionals paid under the physician fee schedule. I
think that 316 at latest count, 316 bipartisan co-sponsors in
the House of Representatives, along with 69 co-sponsors of the
companion legislation in the Senate agree with that statement.
I do want to keep my opening remarks brief. I will ask
members to keep their remarks brief with the exception of Mr.
Brown, to limit their remarks to no more than 3 minutes. And I
also would like, on behalf of the committee to welcome Mr. Doug
Bereuter from Nebraska here, from very cold Nebraska. Doug is
not a member of this committee, but he has a concern regarding
the physicians in his District and we wanted to give him the
opportunity to sit here and to also query Mr. Scully.
With that, I now recognize Ranking Member Brown.
Mr. Brown. Thank you, Mr. Chairman, I will also be brief. I
want to echo what you said about Ann Esposito who's been
terrific to work with and always straight forward, always
honest and honorable in her dealings and thank you for that,
Ann.
I want to thank Chairman Bilirakis for holding the hearing
today. Administrator Scully, thank you for joining us. Mr.
Scanlon, thank you for again joining us and all the witnesses
that are here this morning.
There have been dramatic changes, as we know, in health
care since Medicare was established in 1965. As the old saying
goes, the more things change, the more they stay the same.
Health care may be more sophisticated today than it was 27
years ago. Health care finance and delivery may have evolved
from unfettered fee for service to coordinated care, to
vertically and horizontally integrated care, HMOs, PPOs, PSOs,
point of service plans and hybrid arrangements, I wouldn't even
begin to explain. But it doesn't matter. Health care delivery
still hinges on the doctor-patient relationship and when it
comes to financing health insurance relies on the broad pooling
of risk and health insurance still derives its value from the
reliability of its coverage and the depth, the quality and the
accessibility of its provider network.
Medicare fee-for-service program which, if you want to get
technical, is actually not fee-for-service, but a hybrid, still
delivers on all these fronts. That's why logic rests on the
side of sustaining Medicare as a single insurance program,
rather than parsing the risk pool into multiple private plans.
That's why Medicare is enduringly popular with its
beneficiaries and that's why it's critical to pay physicians
and other professionals who contract with Medicare on a fair
and consistent basis.
The current payment formula for Medicare physicians and
allied health professionals is flawed. We need to fix it. These
providers should not have received the 5.4 percent cut in their
payments this year. I was pleased to join Chairman Bilirakis,
Chairman Tauzin and Ranking Member Dingell in legislation to
stop the cut from being implemented. That bill, H.R. 3351
enjoys strong bipartisan support. I thought it was 312
sponsors. The chairman says 316 which goes to show how
productive he was on the House floor last night at 1 in the
morning gathering more co-sponsors.
An identical measure in the other body has 69 co-sponsors.
The problem last year, the problem this year is finding the
money to pay for it. That's the perennial issue, but for
reasons I'll leave aside, Mr. Chairman, in the spirit of
bipartisanship, it's too early in the morning to do anything
else, the funding problem is even more daunting this year.
We're simply going to have to find a way to overcome that
challenge. The current payment formula is tied to a general
economic indicator, the GDP, an overall expenditure target that
is simply out of sync with legitimate changes in the volume and
cost of care, compounded by data errors, the GDP link produced
the unjustifiable 5.4 percent cut this past year. And if we do
not take action, physicians and other professionals will be
subjected to another significant and unjustifiable cut next
year. We have responsibility to the beneficiaries who depend on
Medicare to the health care professionals who make the program
work to stop the 2002 cut in its tracks and establish a
workable payment formula for the future. It's expensive, but it
should be done.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman. The Chair now
recognizes for 3 minutes, the first member to appear here this
morning and the vice chairman of the subcommittee, Mr. Norwood,
Dr. Norwood.
Mr. Norwood. Thank you very much, Mr. Chairman, and I mean
this sincerely, thank you for holding this hearing. If any of
us really do care about the health care of senior citizens,
there probably won't be a more important hearing. And as you
and I have discussed many, many times and for a long time that
the Medicare payment rates were ultimately going to affect
access to care and quality of care and it appears to me that it
is finally coming true.
I'd like to thank HCFA Administrator Tom Scully for joining
us today. Tom, we don't have an opportunity to visit lots.
You're busy, I'm busy. There are a number of little things I
want to sort of talk about while we have you out there and
frankly, I'm concerned about some of the things I've been
reading in the press. Happily, the only reason I'm not mad,
Tom, is that even I know by now you can't believe everything
you read in the press and I'm sure before this hearing is over
you're going to make me feel a lot better.
Mr. Scully. No question.
Mr. Norwood. I hear from the press that you don't like the
provision in our Medicare Reform Bill that requires HCFA to
tell someone whether a treatment is covered and I hear in the
press you call that provision crazy and a Democratic provision
and I'm upset because you're in a Republican Administration and
I see no reason to give the Democrats all the credit solving
that problem.
I happen to like that provision very well. I happen to know
it's a bipartisan provision. Dr. Ganske took the lead on that
and it hurt my feelings a great deal to be honest with you, if
you think I'm crazy, along with my mother-in-law to know if
HCFA is going to cover something that she needs in health care.
I also hear that you've been threatening to change the AWP
for oncologists without changing the--you know how the press
is, you can straighten me out in a minute. The AWP for
oncologists without changing the reimbursement structure to pay
oncologists for the services they perform. I read where you
think that you have the authority to change AWP while leaving
the oncologists high and dry. Now I don't think that would be a
wise thing to threaten. In fact, somebody might call and idea
that would blatantly drive up hospital treatment like that real
crazy.
We have some very important issues before us today, Mr.
Chairman, on Medicare and I'd like to be comfortable with Mr.
Scully on these issues and I know we will be by the end of the
day. Take today's issue and what we're actually here about
which is a very important issue. I know it's going to be
costly, but let's be honest, please. Providing almost free
health care coverage for American seniors is simply not an
inexpensive proposition. And I don't lay all that at your door.
That's Congress' responsibility. I know we're giving you
signals saying that you've got to cut costs, cut costs, cut
costs and we keep sending you less money.
If your response, however, to the growing expense of
Medicare is to constantly decrease payment to providers my view
is that's just really not smart.
Mr. Bilirakis. Please summarize. We're very happy that you
aren't angry this morning.
Mr. Norwood. Well, ultimately, as we all know, providers
are simply going to walk away from Medicare. They can't
continue to treat patients when it costs them money and I hope
you realize that. I've got another 5 or 10 pages, Mr. Chairman.
I will quit with this. I hope you will stay and hear the other
witnesses. That's important that you hear what people who are
in the trenches are going to tell this committee this morning.
So I'll be observant whether you can stay or not.
Thank you very much.
Mr. Bilirakis. I thank the gentleman. For 3 minutes, Mr.
Greenwood, a warm up for your later session today.
Mr. Greenwood. Oh, I'll pass. It's too early in the
morning.
Mr. Bilirakis. Mr. Burr.
Mr. Burr. After that, I wouldn't try it.
Mr. Bilirakis. Let's see, I'm not sure who came in first.
Dr. Ganske. Three minutes, Greg.
Mr. Ganske. Thank you, Mr. Chairman. My State of Iowa ranks
dead last in terms of provider reimbursement, 50th out of 50
States. We are about 25th in terms of overhead expenses. And we
are eighth in terms of quality of care delivery. So, we're dead
last in terms of our reimbursement. We're in the middle,
average, for overhead, yet we're still delivering really good
health care. But I have some concerns if that can continue. I
am hearing from physicians that they won't be able to take any
more Medicare patients into their practices because they're
having to make up the difference. And in small towns and rural
areas, Medicare patients make up a disproportionate percentage
of their practice.
Hospitals are in the same situation. Today, we're dealing
with the physician provider formula. We need to fix it. It is
fundamentally flawed and if we don't, I predict that we are
going to see a real decrease in terms of health care access of
senior citizens to physicians. There's a lot of historical
reasons for this, including some recent ones. For instance,
when Medicare started, we weren't so heavily dependent on
technology. In my State, there were lower utilization rates,
meaning in a rural State people don't go to the doctor quite as
often unless they really need to. So we started out with a
lower average cost per patient than say New York. So, over the
years then if you get an across-the-board increase, then the
gap increases. For instance, lets say, before Medicare started,
the average cost in New York was calculated at $300 a month and
in Iowa it was $100 a month. And then the next year you get a 3
percent increase across the board. Now you're dealing with $309
as the base for New York and $103 for Iowa. Then the next year
you get a 3 percent increase and the gap gets bigger and bigger
and bigger. We need to deal with that.
We had, as has been pointed out, a very large bipartisan
group of Congressmen and Senators that wanted to move on this
issue before we left for Christmas and I really applaud the
chairman for taking a lead on this. We need to get this thing
moving. So I'll look forward to the testimony from you, Mr.
Scully, and the other members of the Panels, thank you.
Mr. Bilirakis. I thank the gentleman. Mr. Buyer, for an
opening statement.
Mr. Buyer. I'd just say, I don't know if it's in response
or in addition to Mr. Ganske's comment, I don't think it would
be accurate to infer from his comment that if Iowa is last in
reimbursement, but eighth in delivery of care that the other 49
States are inflationary in their reimbursement. Because I think
it would be easy to infer that from that statement. I do
remember very well in April 1995 serving on a health care task
force and when we got the letter delivered to us about Medicare
and its potential insolvency and how difficult it was to work
through that and sometimes we got it right and sometimes we
didn't. And I think what was most distressing about
reimbursements, whether it was to hospitals and others, was how
the formula was handled. It was fascinating to see when you
took a map of the United States and trying to follow the money
and where it was, we actually took an overlay on to the map of
the United States and learned that after, there was a 40-year
domination of one political party when you laid the political
map and Districts on to the reimbursements you saw where there
was seniority in political power, that's where the money was
going and that was wrong. And so we sought to bring equity to
the reimbursements across the country. And I want to thank Mr.
Brown and the chairman both for this hearing so we can--I'm
hopeful that we continue in our equity in this funding formula,
not just giving it to--let it follow the power, but make sure
that it is done correctly.
I yield back my time. Thank you.
Mr. Bilirakis. I thank the gentleman. Ms. Wilson for an
opening statement.
Ms. Wilson. Thank you, Mr. Chairman. I'd like to echo the
comments of my colleague from Iowa as well as my colleague from
Indiana. Medicare, Dr. Norwood said in his opening statement
that Medicare reimbursement rates affect access to care and
quality of care. That shows up so astoundingly when we look at
the discrimination within this program against States like New
Mexico and like Iowa where we are at the low end of the
reimbursement scale.
Dr. Ganske is right. Iowa is No. 50. New Mexico is No. 37.
And what makes it particularly difficult is that a doctor who
is practicing in Albuquerque can go over the line to Amarillo,
Texas and get a $20,000 or $30,000 raise just because of
Medicare discriminating against New Mexico. New Mexico paid--
New Mexico citizens pay into Medicare at the same rate as
everybody else and we shouldn't be denied access to care
because Medicare has set up a system that discriminates against
doctors in the State of New Mexico. The geographic disparity in
this system is appalling. And I think it's about time that we
put a little sunlight on that and what it does to access to
care and quality of care in rural areas, in poor areas and in
areas where people are under served by health care.
We're going to talk today about the physician reimbursement
payment and adjusting that and I am a co-sponsor of that bill,
but I wish it was only 5 percent that we were arguing about
here because in New Mexico, the average reimbursement for a
Medicare--we can't get the reimbursement payments for
physicians and compare completely apples to apples. I think
somehow that's intentional. People don't really want everybody
to know just how bad it is. But if you just look at the average
per enrollee reimbursement for Medicare in the State of New
Mexico, $3,726. In Texas, $6,539. We're talking about
disparities of 40, 45 percent. You can't keep doctors in New
Mexico for that. We have to address the geographic disparity
and until we do that, we will continue to struggle with lack of
access to care and lack of quality of care because the Federal
Government discriminates against about 14 States in this
country.
I yield the balance of my time.
Mr. Bilirakis. Thank you. Mr. Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman, and good morning.
Nice to see you bright eyed and bushy tailed like the rest of
us this early morning after a nice evening last night.
I am thrilled that you're holding this hearing, Mr.
Chairman, because I believe it is critically important.
Medicine across America, I believe, is in a crisis of its own,
indeed, my staff would say medicine in America, we're in such a
deeply troubling situation that it's as though the building is
on fire, but nobody can smell the smoke.
I grew up with a number of young people in Arizona who are
now physicians. I will tell you they come to me every day and
they make a compelling case for what is wrong with medicine, or
the hassle of their lives, or being ordered around by
bureaucrats, or being ordered around by HMO bureaucrats and now
on top of that, Mr. Chairman, we plan as a result of I believe
a deeply-flawed formula, to reduce their reimbursement.
Make no mistake about it, Mr. Chairman, if we do not pay
physicians well, if we do not provide them control of their own
lives, if we do not enable them to exercise their professional
judgment in a way which they feel is appropriate, and reward
them for doing so, then we will not attract qualified people to
the practice of medicine. This 5 percent reduction is an
outrage.
Now there are serious problems with Medicare and the
Medicare and the Medicare system, but I want to pay compliments
to Tom Scully and the new administration for what they've done.
This is a headline from the East Valley Tribune, the second
biggest paper in the State of Arizona, I think, very
significantly, it says ``Valley's ERS Overwhelmed''. This is a
problem that has been emerging in my community and it is
extremely severe. But I raised this problem with Tom Scully,
the CMS Director who is here today and I want to tell you that
he was incredibly responsive. He agreed after a brief series of
meetings where I outlined what was going on in Arizona to come
to Arizona to see the problem first hand and to work to address
it. And he has done that.
Your bill, Mr. Chairman, has I believe, 312 co-sponsors----
Mr. Bilirakis. 316.
Mr. Shadegg. 316. And I cannot remember a time when I knew
of a bill with that many co-sponsors that did not see floor
action.
There's a great deal to be done here with regard to
Medicare. There's a great deal for us to do with regard to
medicine, because if we do not act now, we will have--we will
not have quality people going into medicine. I'll bet you
there's not a person in this room that's involved in this issue
who hasn't had a doctor come up and tell them that they were
encouraging their son or daughter not to go into medicine
because of the condition of medicine today. We can't fix it
overnight, but we must fix it. This bill is a good start. This
hearing is a good start. I compliment you, Mr. Chairman.
Mr. Bilirakis. Well, thank you, sir. And I endorse your
comments and I would say that there's one other bill. It's a
Veterans' bill that has considerably more co-sponsors and still
has not seen the light of day.
Mr. Barrett, for an opening statement, 3 minutes.
Mr. Barrett. Thank you, Mr. Chairman. I won't need 3
minutes. I just want to thank you for holding this hearing so
quickly after we finished our debate on campaign finance
reform.
I'm pleased to be here because I think that this is an
issue that needs our immediate attention. Obviously, as the
previous speaker said, as we listen to health care providers in
our Districts, we know that there's a problem here and I
appreciate your convening this and hopefully, we can address
this problem as quickly as possible.
Mr. Bilirakis. Thank you, thank you, Tom. The Chair is
pleased to recognize the gentleman from Nebraska, Mr. Bereuter,
for an opening statement.
Mr. Bereuter. Mr. Chairman, thank you very much for your
courtesy. I admire the work ethic of this subcommittee,
especially in light of what's happened. I do want to associate
myself with remarks of the gentlemen from Iowa, the gentle lady
from New Mexico, the gentleman from Indiana. This is an
extremely important issue. I think the gentle lady has pointed
out how our beneficiaries, of course, the people paying into
the Medicare system are, in fact, cross subsidizing areas of
the country with less than conservative practice styles and
beneficiary preferences.
Really, the result is that I introduced a bill which will
attempt to deal, in part, with this problem by physician work
adjustment changes, the formula thereof. And the current
reimbursement rates are really having a negative effect on our
ability to recruit adequately quality health care professionals
in my State, particularly in the most sparsely settled parts of
the State. The inequities really do need to be addressed and
I'm very interested that you're holding this hearing, that
you're trying to take some action and I appreciate the ability
to sit in and listen to the witnesses and perhaps ask a
question or two.
Mr. Bilirakis. I thank the gentleman. Thank you for your
interest.
I believe that completes the opening statements. The Chair
first would ask unanimous consent that all members of the
subcommittee, their written statements might be made a part of
the record. There's a written statement by Congressman Joe
Knollenberg who he has asked might be made part of the record,
so by unanimous consent I request it includes that, as well as
a number of statements that have been furnished to the
subcommittee by various stakeholders, unanimous consent of
those, all be made a part of the record.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Chairman Bilirakis, thank you for holding this important hearing.
I'd like to acknowledge your leadership in recognizing the urgency of
the issue before us today. The Subcommittee has been actively engaged
on the critical issue of physician payments, sponsoring Member and
staff briefings, holding a press conference, and introducing
legislation to provide immediate relief to those physicians and health
care professionals experiencing a significant payment cut this year.
At this hearing, we will focus our attention on how we got to where
we are today and why we are using such an unpredictable formula, which
has resulted in widely oscillating payment updates over the years. In
my home state of Louisiana, according to the AMA, total Medicare losses
for physicians will exceed $28 million--or $3,549 per physician. I'm
concerned that the 2002 payment cut and the expectation of similar
significant reductions in the future will cause many Louisiana
physicians who are near retirement to leave medicine, which could have
a serious effect on patient access to care.
I'm sure many of us have heard from physicians and other health
care professionals in our districts about the effect the 2002 negative
payment update will have on their practices and the beneficiaries they
serve. Just recently, I received a distressing letter from a surgeon in
Louisiana. One comment Dr. Opelka made was particularly striking and
I'd like to share it with you today.
He states in his letter that ``reductions in Medicare physician
payments are beginning to seriously impact Medicare patient access to
the full spectrum of care in our community. Patients continue to
receive treatment, but the availability of all aspects of care has
decreased . . . If reimbursements continue to decrease, I have concerns
that further changes will continue to erode the fabric of the finest
care delivery system in the community.'' We must ensure that
beneficiary access to critical health care services is not put at risk.
At the same time, I recognize that money doesn't grow on trees. We
are once again in deficit spending. Moreover, the Administration
instructs us that we need to find offsets for any increases in provider
payments. We take that budget proposal very seriously, and yet, at the
same time, this payment policy needs to be fixed. But to accomplish
this, we are going to need the Administration's help as well as the
affected groups' input to make sure this type of cut never happens
again.
During today's hearing, we are honored to have before us Tom
Scully, the Administrator of CMS. I look forward to hearing your
testimony today and hope that it yields additional insight into ways we
can improve our federal health care programs and remedy the instability
plaguing the physician payment update system.
Bill Scanlon from the General Accounting Office is also with us
today. He will lay out the different policy options we will face as we
work to draft a legislative fix--a fix that will make sense, be good
policy, and last the test of time. We are also fortunate to have
representatives from beneficiary, physician, and practitioner groups
who are particularly affected by the negative payment update this year.
They bring a valuable perspective that is critical to developing the
right legislative fix.
Chairman Bilirakis, thank you again for holding this important
hearing. I yield back the balance of my time.
______
Prepared Statement of Hon. Joe Knollenberg, a Representative in
Congress from the State of Michigan
Mr. Chairman, I applaud the committee for holding this hearing as
Congress continues to work with the Bush Administration to modernize
and improve the Medicare system. As Congress addresses the issue of
broad Medicare reform, it is essential to consider the impact of
reducing Medicare payments to physicians. After all, physicians and
other health care professionals are critical components of the Medicare
system, serving on the front lines to provide quality health care to
all Americans.
I commend the efforts made already by many Congressional Members
and the Bush Administration to implement administrative reforms to make
the Medicare program work better for physicians. Programs such as the
Physicians' Open Door Initiative and the Physicians Issues Project have
helped improve the flow of information, reduce regulatory burdens and
ease paperwork requirements. As a result, doctors will be able to spend
more of their time providing health care and less of their time wading
through pages of rules and regulations. It is my hope that we will
build on these improvements.
I appreciate the opportunity today to raise concerns expressed by
many doctors in my home district in southeastern Michigan. I believe
these issues have been echoed by health providers throughout the
country as well. My constituents have brought to my attention the
devastating consequences of the final payment policies and payment
rates for 2002 under the Medicare Physician Fee Schedule announced by
CMS on November 1, 2001. Reducing Medicare's physician payments by 5.4%
would significantly restrict their ability to provide the necessary
services to our seniors.
In addition to physicians being discouraged by the enormous amount
of federally required paperwork, our area has seen a significant
decrease in the number of physicians financially able to care for
Medicare beneficiaries, subsequently closing their practice to them.
Moreover, some doctors are simply leaving medicine altogether because
of the financial impossibility of providing services under Medicare.
Emergency physicians will be particularly adversely affected given
payment cuts in other areas. The role of emergency departments is
becoming even more important as our country prepares to respond to
bioterrorism and it is essential that their physicians be able to
effectively carry out their responsibilities.
A Medicare payment cut could also effect the entire health sector
as numerous private sector plans and state Medicaid programs tie their
physician fee schedules to Medicare rates. At a time when we are
concerned with healthcare workforce shortages, we must identify
strategies to increase recruitment, retention and development of
qualified health care providers. I look forward to working with the
Committee and the rest of my colleagues and the Bush Administration to
enact comprehensive Medicare reform that will include strengthening the
Medicare payment system.
Mr. Bilirakis. Having done that, the Chair now would
recognize, Mr. Scully. Tom, I'll set this for 10 minutes. Just
present your story and don't worry too very much about the
clock, even though I would say that we have to give us this
room by 11 o'clock.
Mr. Greenwood will definitely boot us out of here, if we're
not finished. Enron, these days, takes priority apparently over
everything else. In any case, Tom, please proceed.
STATEMENT OF HON. THOMAS A. SCULLY, CENTERS FOR MEDICARE AND
MEDICAID SERVICES, DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. Scully. Thank you, Chairman Bilirakis, Congressman
Brown and other distinguished members of the committee. I'll go
as fast as I can. First, I'd like to quickly add my thanks to
Ann. I didn't know she was leaving until this morning, so I'm
sorry to hear that. She's been a terrific help to me and a lot
of people in the administration.
I also brought with me Rick Foster, who is the Chief
Actuary at CMS, in case there are any technical questions and
I'm not smart enough to answer or in case Mr. Norwood gets too
mad at me. He'll get all the questions.
But anyway, I'll go through this as quickly as I can. Let
me just start off by saying I've worked on Medicare physician
payment issues since 1989 when I was one of two people in the
first Bush Administration who was, I guess, primarily
responsible for working with Congress to develop the RBRVS
system. Over the years, I think you can argue, that this has
been the most stable system in Medicare and historically, the
payments to physicians have been more predictable, more stable
than most of the other Medicare payment systems. I think it's
worked reasonably well, and in fact, of all the Medicare
payment systems, this is probably the one that is mimicked most
regularly by the private insurance sector.
However, I do think it's important that we fix Medicare's
payment mechanism because I think it does have significant
problems for a variety of reasons, including the fact that I
think we have to be careful that doctors don't lose confidence
in the system and that the beneficiaries don't start to lose
access to the vital services they provide.
This year, Medicare will make about $43 billion in
physicians payments. Between 1997 and 2001, Medicare physician
spending went from about 17.6 percent of the program to 20.5
percent of the Medicare fee-for-service program, so physician
spending is not shrinking as a percentage of the program. It's
actually growing and I'll get into that in much greater detail.
Each year, Medicare processes about 600 million physician
claims and the fee schedule that we use--the relative value fee
schedule--pays for about 7,000 different physician services.
The annual update for these services is now calculated based on
inflation in physicians' costs to provide care and it's
adjusted up or down for what is called the sustainable growth
rate. I'll try to go through this as sanely as I can and
explain how this extremely complicated system works.
The system was designed to constrain the rate of Medicare
physician spending and link the growth of physician spending to
the overall economy as well as to take into account physician
growth of volume and intensity of services. In large part,
believe it or not--and there are obviously significant flaws
and I'll try to explain them--the system has been working
almost exactly as designed. There's just been a lot of factors
that have come together in probably the worst possible way to
throw the formula out of whack, but it is, in fact, working as
designed.
The law, as it was designed in 1989 and then updated in
1993, 1997, and 1999, is extremely prescriptive, especially the
last two updates. It gives CMS virtually no administrative
flexibility to change anything. I think, as many of you know, I
spent about a month working every day with many of the
physician groups, including the AMA, to see if I had the
administrative flexibility to change it this fall and it was
abundantly clear that legally we do not. So the negative update
was a surprise to us when the formula produced this mumber in
September. We came up as quickly as we could to the Congress
and explained it. Normally, we don't talk to anyone about this
regulation until it comes out in November, but this year we
started explaining it probably in mid-September.
Several factors led to this negative update. First and most
prominent is the downturn of the economy, since the formula,
the sustainable growth rate formula, is tied to the gross
domestic product. Second, the annual cumulative physician
spending for services in prior years is much higher than
expected. And third, as we go back and calculate actual
expenditures in the past, there were some significant
miscalculations--a couple of billion dollars a year, which I'll
explain, in past years--that were basically missed in the
expenditure formula. So we actually identified those and
calculated them correctly and it significantly increased
expenditures, basically putting the target back down--I'll go
into great detail explaining this.
The combination of the lower target for GDP and the much
higher expenditures produced the negative update for physicians
for 2002. We're required by law to make an estimate for 2003 on
March 1--and Rick actually does it--and it is in these charts,
as you'll see. We have given you our projections for the next
couple of years and as you will see, the update is again
significantly negative for next year.
I think it's important to understand, from a historical
perspective, how the system was set up and why it was designed,
so let me just very quickly go through that, if I can.
During the 1970's and 1980's--this is a quick discussion of
physician payment before 1997--the annual growth rate for
physicians was an unsustainable average growth rate of about 14
percent. And because the system was based on historical
charges, it produced even wider geographic variabilities and
variabilities between medical specialties and services than the
system we have now, which as you can see from the opening
statements, is certainly not perfect.
To address these criticisms, Congress directed the
Physician Payment Review Commission, which is the predecessor
of MedPAC, to come up with a new formula and on a bipartisan
basis in 1989, the first Bush Administration, which I was a
part of, and bipartisan Members in Congress--in this committee
and the Ways and Means Committee and the Finance Committee in
the Senate--pushed through those recommendations to create what
is now the RBRVS, resource-based relative value system. Under
these recommendations, we created a lot of relative values for
each physician's service and the system is based on work from
the AMA. So essentially, every year, the Relative-Value Update
Committee, which is basically put together by the AMA and all
of the physician groups in the country, sits down and says,
``Here's $43 billion. What's the relative value of rates
between anesthesiologists, gastroenterologists, surgeons,'' and
recommends relative values of what the physician community
thinks the relative payment should be.
We take over 90 percent of the RUC's recommendations--that
really is what drives the payment system.
Let me just quickly, I'm going to quickly, since it's a
very complicated structure, what I'm going to try to do, rather
than just spend a lot of time testifying is I brought some
charts which I was going to use the easel, but due to the
cameras and the microphones, I'll just go through them over
here at the table and I hope each of you have these charts in
front of you.
This is an unbelievably complicated process. I spent 15
years on it and a lot of time in the last couple of days trying
to figure out exactly how it works, so I don't expect everyone
here to understand this in the next 5 minutes.
Ms. Wilson. Mr. Chairman?
Mr. Bilirakis. Yes?
Ms. Wilson. Do we have these charts?
Mr. Scully. You should have the charts, I hope.
Mr. Bilirakis. No, they're not part of your statement.
Mr. Scully. They were handed out separately from my
statement because they weren't done in time to come up with the
statement. They should be there. And I apologize that they're
not, but we have charts and brought many copies.
Mr. Bilirakis. Why don't you proceed, Tom.
Mr. Scully. Anyway, just to walk through this quickly, what
you'll find on the top line in the orange, in the dark orange
is the sustainable growth rate, which is largely based on the
GDP and what you see there is for 1998--I did it from 1998
through 2003. The sustainable growth rate is 1.5 percent in
1998 and goes up to 7.3 percent in 2000. That is the first
major piece of the puzzle of how this works.
The second piece is the actual annual spending target. This
is what the current statute does. You look at 1998, the
spending target for what we were supposed to spend in the year
under the statute was $49.6 billion. This includes physician
payments and additional things like lab services, other things
that go into the pot.
In 1999, it was $49.4 billion and then the next year 2000,
$39.6 due to the changeover from fiscal years to a 9-month
calendar year in 2000. For calendar year 2000, it was 55.9,
then 59.3 for this year. The point of that is those are the
statutory targets and they were set in 1997. So pre-1997, this
target floated and changed every year.
After 1997, it was locked in, locked in to GDP growth,
locked in to expenditures. So what's happened to produce this?
As I said, the formula worked virtually exactly as expected;
this was the target and the target expenditures in orange and
blue and then you have the target, the actual expenditures in
the lighter shaded orange and, in the light blue, real
spending. So what happens when you match up the years is, in
1998 for instance, we're supposed to spend $49.6 billion. We
spent $49.2. So we came in under the target. In 1999, we were
supposed to spend $49.4 billion. We spent $50.6 billion, so
we're obviously $1.2 billion over the target. It's important to
remember, because as you go over the target, the numbers
buildup and you have to recapture in later years.
In 2000, the fiscal year was 9 months, there were two
2000s, strangely, we were supposed to spend $39.6 billion in
fiscal year 2000. If you look at the blue line, the two blue
lines as a comparison, $39.6 billion versus $39.5. So we're
under the target. Then the problems begin.
In calendar year 2000, the target was $55.9 billion. We
actually spent $58.2 billion. In calendar year 2001, we were
supposed to spend $59.3 billion and we actually spent $65
billion. So what you find is in 2000, we were $2.3 billion over
the target and in 2001, we were $5.7 billion over the target.
And this target is cumulative and it adds up every year and
over a number of years you have to recapture the excess
spending. This is the way it was designed. It's obviously not a
perfect formula, but it's working exactly as designed, a whole
bunch of factors, unfortunately, kicked in this year's very
negative update.
What you end up with is the cumulative growth target. If
you look at the far right side in green, under the year 2001,
over this year period, up through 2001, we were supposed to
spend $302.7 billion. We, in fact, spent $311.6 billion and
that's how the formula works. So roughly we have $9 billion in
overspending over those years that, under the formula, has to
be recaptured over the next couple of years.
So two things happened. One is that, under the formula, the
spending has to be recaptured and two things happened that
really threw the formula off, resulting in the big change. One
is GDP went down, so the target, which had been determined a
year ago, had been estimated to be significantly higher but is
now 5.6 percent. The target had been a lot higher when GDP was
higher. In addition, spending was significantly higher than
expected for two reasons. One, and I don't want to confuse you
too much, but originally looking back at last March, we
expected that spending was going to be significantly higher and
it came down as GDP went up. Second, spending was much higher
because we discovered a couple billion dollars a year in
spending. What happens in these codes, and it's very confusing,
I know, is that we have 7,000 codes. We used to have about
6,000. We keep adding codes. Over the years as we added codes,
some of the spending of those codes never showed up in the
system. So going back a couple of years, our actuaries and our
people found out the spending was actually larger, and they
have to put that into the formula. Spending was actually
larger, the GDP came down, the two lines crossed and instead of
having a positive update, you ended up with a significantly
negative update.
So what you've got if you looked at last March when the
Congressional Budget Office and CMS came out and said what is
update going to be for this year, it was basically negative .1
percent. The GDP came down this summer. The actual spending
that we found going on was significantly higher, so instead of
having a negative .1, you had a negative 5.4.
The second chart, which is important, is that this is a per
code calculation. This is not total spending. The negative 5.4
is the base amount, called the conversion factor, and the
original idea when it was passed in 1989 was to represent a
base office visit for a physician. So the next code--when I go
through and you see it ranges from anywhere from $31 to $38 and
back down--that's the base dollar conversion factor for every
one of these 7,000 codes. The update for that, next year is
negative 5.4. Spending does not go down. The update of the
dollar conversion factor is what's going down by 5.4 percent
and that's important to remember. There are a lot of factors
beyond that, including the fact, as I'll go through, that as we
add codes and we do this with the agreement of the AMA and the
physician groups, when you go from the 6,200 codes we started
out with to 7,000, as you add codes and we do this in support
of the medical system and it's happened gradually over the
years, it waters down the base conversion factor value. So it's
not always a cut. If the physicians come in and say we need
extra codes, it comes out of the stagnant, finite pot of $43
billion for physician spending this year, or roughly $60
billion for the whole pot.
So the point is it's not always a cut. Sometimes when you
add codes, you actually water down the pot and payments go
down.
Anyway, the point of this next chart, to go through as
quickly as I can and I'm sure I'm going to create a lot of
confusion, but if you're trying to redesign these, I think it's
important to understand why the numbers are driving the change.
It's not an easy decision to figure out what the right fix is
because what you'll find under the current law baseline
spending which is the top one, I'm going to jump down to the
second one. We obviously made some mistakes. Had we
hypothetically calculated everything totally right the last
couple of years and understood all the spending that was going
on, what you'll find is that under the existing formula, if you
look at line 2, you'll find that as a total amount of growth in
the program, even though the updates are pretty flat and you
see that they would be for 2002, the second line is if
everything had worked fine and we understood all the spending,
the physician payment update for 2001 would have been plus 3.6
percent and 2002 it would have been negative 2.1; 2003 would be
negative 4.9 which sounds, obviously, unsustainable and
outrageous. But if you look at what actual spending is, and you
look at the next line below, you'll see in 2000, spending, if
everything is going right, would have gone up by 5.9 percent;
spending in 2001 would have gone up by 9.7 percent; spending in
2002 goes up by 5.2 percent and it's 1.2. But some of these
numbers, obviously, 1.2 percent growth in physician spending is
not a reasonable number, but I would argue 9.7 is and later on
there's a 7.6 percent increase.
So even though the actual per code, per conversion factor,
which is the base physician visit, may be going down, spending
is going up because volume is increasing significantly.
The current law baseline, which is what we're really doing
this year, given our errors, is a little harsher and produces a
little tougher result, but as you can see, what's driven this,
if you look under 2000 and 2001, the payment update for 2000
was 5.5 percent. It shouldn't have been 5.5 percent had we been
doing it correctly. If you look down below it, it should have
been 1.0 percent under the formula. The agency made some
mistakes and did not understand the expenditures. It's a multi-
year very static calculation.
If you look at 2001, physicians got a 5.0 percent update.
They should have gotten a 3.6 percent update. The result of
that is that real physician spending in this pot in 2000 went
up by 10.7 percent and in 2001 it went up by 11.2 percent.
Those numbers are obviously fairly high. Part of the problem
here is we--it's not the physicians' fault--inadvertently did
not understand how the numbers were growing. The formula was
thrown off and we paid out significantly more in 2000 and 2001
than we should have. This is a recapturing formula by statute
to take some of that back.
So you go from--this is the current law baseline, it's
actual real law and how it works right now. In 2000, we had
10.7 percent increase; in 2001, we have 11.2; and the formula
recaptures that spending. So under the current formula, you
have a negative 4.8 percent update and there are other things
that result in the 5.4 percent, but the 4.8 percent update
results in a 2.4 percent spending increase. 2003, you get a
negative 5.7 percent update, worse than this year. That results
in a 1.1 percent spending increase. In 2004, and this is again
current law, negative 5.7, results in a positive 1.5 percent
spending increase.
Now I think there's probably a good argument to be had that
2.4 percent, 1.1, 1.5 is not a real significant spending
increase. On the other hand, if you look at the other policy
options, and I don't want to get into too much detail, but one
of the major glitches in this formula, if you go down to the
third option here, the way the statute was changed in 1998 and
1999, the numbers we used for 1998 and 1999 were projected
numbers, not actual numbers. Some people would argue that was a
mistake as well and I think that's been some of the debate in
the fall on the Hill.
If you plugged in actual numbers for spending in 1998 and
1999 rather than projections and, just to be clear about what
that really means is the GDP under the formula we use early
1998 and 1999 estimates coming out of our actuaries and that's
what the law says, use those estimates. The GDP in 1998 and
1999 was much, much, much higher than everybody projected. So
if you actually plugged in real numbers instead of the
projections, which the law does not allow us to do, you get
totally different results. With that formula in place, if you
look down there, you'd still have pretty significant negative
updates the next 2 years. It would have been the same this
year, but next year you have a positive update of 0.8, a
positive update of 1.4, and in 2005, you go up to a positive
update of 1.7. That would get you back on track, if you look at
the growth in physician spending on the next line down under
where it says fiscal year 1998 and 1999 adjusted for actual
data, you'd have spending increases this year of 2.4 percent
which is low, but next few years, 8.1, 9.1, 8.3, which some
would argue is high. So that ought to give you the last
torturous example because I think these are the sum of the
policy suggestions.
MedPAC's suggestion I would argue, is probably overly
generous as a fix and the reason is it sounds good. If you look
down at the bottom under the MedPAC proposed formula--they're
going to suggest formally in a couple of weeks, but they put it
out a few weeks ago--would result in payment updates just to
start in 2001 of 2.6 percent, 2.9 percent, 2.2 percent, 2.0 and
2.0, which sounds extremely reasonable and maybe modest. But
the spending increases you get out of that are starting in
2001, 9.7 percent, 11.7 percent, 10.7 percent, 10.8 percent and
9.7 percent. And what that tells you is the problem is volume.
There are a lot more services. A lot more high tech services. A
lot more coming on line and the decision for Congress and it's
obviously a very complicated one and we're happy to help
redesign the formula any way you like, is what growth rate do
you want? So the real issue is not necessarily the negative
update, it's do you want physician spending in Part B to grow
at 2 percent? Probably not. Do you want it to grow at 11
percent? Probably not. Do you want it at 5 percent, 6 percent,
7 percent? There are a million variables in between. I think
there's a very strong argument this formula needs to be fixed
and changed, but I don't believe anybody that I've seen has
gotten it right yet and I think you can pick any of the numbers
in between in their multi-billion calculations, and, obviously,
even though this is incredibly complicated and very obscure
stuff, it affects every physician in the country in a big way
and as you know, I've spent a lot of time traveling around the
districts and I've heard from 5 physicians in my family as
well--I can't even identify my job any more. I get attacked too
regularly.
There are a lot of very unhappy physicians for a lot of
reasons, but I think when you look at the numbers, and I've
been involved in this, as I said, since 1989, the goal here was
to control physician spending at a reasonable rate. I don't
think anybody expected it to be negative or even plus 1 or 2
percent, but I also don't think it needs to be plus 11 or plus
12 percent. A reasonable level is somewhere in between and it's
not just the conversion factor. The uproar is about the
negative 5.4 percent reduction in the conversion factor. But
you can have a negative 5.4 percent update and if the volume is
high, you can still get 6, 7, 8 percent of your increases in
spending. So I believe that somewhere in between these four
options is probably the right fix and the right course. I don't
believe MedPac got it right. I'm not sure anybody has it right
yet, but it's obviously complicated. It's a major, major task
for this committee and for the Ways and Means Committee and the
Finance Committee this year. We'd like to work with the
Congress to get it right, fix it and hopefully not have to come
back and do it in a couple of years, but it's also obviously a
very major spending initiative because fixing this formula,
which is very specific and very locked in in statute, is
obviously going to cost a significant amount of money under the
current law baseline.
So anyway, Mr. Chairman, I apologize if I went over and I
again apologize if I confused everybody with my crazy charts,
but I do think that if you look at them they'd really explain
the problem pretty clearly, eventually.
[The prepared statement of Hon. Thomas A. Scully follows:]
Prepared Statement of Thomas A. Scully, Administrator, Centers for
Medicare and Medicaid Services
Chairman Bilirakis, Congressman Brown, distinguished Subcommittee
members, thank you for inviting me to discuss how Medicare pays for
physicians' services. I have worked on Medicare physician payment
issues since 1989 when I was one of the primary people in the previous
Bush Administration negotiating the creation of the resource based
relative value physician payment system, sometimes referred to as
RBRVS. I personally think that, over the years, this has been the most
stable payment system in Medicare, and historically there has been far
less controversy in physician payments than we have witnessed with
other providers. In fact, the resource-based relative value system has
worked reasonably well and often is used by private payors. Last year
we encountered a situation where a number of factors combined to cause
the formula, as set in law, to produce a negative update. It is
important that we fix the mechanism and explain it to doctors so they
do not lose confidence in the system, and they continue to provide
beneficiaries with the vital care they need.
This year, Medicare will pay about $43 billion for physician fee
schedule services. Between 1997 and 2001, Medicare physician spending
increased from 17.6 percent to 20.5 percent of total Medicare fee-for-
service spending. Each year, Medicare processes about 600,000,000
physician claims. The fee schedule reflects the relative value of the
resources involved in furnishing each of 7,000 different physicians'
services. By law, we actually establish three components of relative
values--physician work, practice expenses, and malpractice insurance--
for each of these 7,000 services. The actual fee for a particular
service is determined by multiplying the relative values by a dollar-
based conversion factor. And the payment for each of the services is
adjusted further for geographic cost differences among 89 different
payment areas across the nation.
Payment rates for physicians' services are updated annually by a
formula specified in law. The annual update is calculated based on
inflation in physicians' costs to provide care, then adjusted up or
down by how actual national Medicare spending totals for physicians'
services compare to a target rate of growth called the Sustainable
Growth Rate (SGR). If spending is less than the SGR, the physician
payment update is increased, and if spending exceeds the SGR, the
update is reduced. The system was designed to constrain the rate of
growth in Medicare physician spending and link it to growth in the
overall economy, as well as to take into account physician control over
volume and intensity of services. In large part, the formula has been
working as designed.
The law that sets this formula is extremely prescriptive. It does
not give the Centers for Medicare and Medicaid Services (CMS) the
administrative flexibility to adjust physicians' payments when the
formula produces unexpected payment updates, as we witnessed last year.
The size of the negative update for this year was a surprise when it
became apparent last September. As we looked at the actual numbers
going into the formula, we explored every issue and every alternative
that could have produced a different update, but we concluded that we
did not have any flexibility. We made sure that every part of the
update was accurate and fully in accord with the law. I know that you,
Mr. Chairman, and this Subcommittee, are closely examining the issue
and potential alternatives. The Administration is willing to work with
you to find a budget-neutral way to ensure that physicians receive
appropriate payment for Medicare services, this year and in the future.
Several factors led to the negative update. First, there has been a
downturn in the economy, which affected the SGR because it is tied to
the growth in the country's Gross Domestic Product. Second, actual
cumulative Medicare spending for physicians' services in prior years
was higher than expected. Third, our measure of actual expenditures had
to be adjusted to capture spending information on services that were
not previously captured in the measurement of actual expenditures.
Counting these previously uncounted actual expenses, as required by
law, also increased cumulative actual expenditures--driving down the
update. I explain this in more detail later. The combination of a lower
target and higher expenditures produced the negative update to
physicians' payment for 2002. We are required by law to make a formal
estimate of the update for 2003 by March 1 of this year. While we are
still finalizing this estimate, our preliminary assessment is that the
formula will produce a significant negative payment update again in
2003.
Physicians argue that these negative payment updates will hinder
their ability to care for beneficiaries, and may result in some
physicians not accepting new Medicare patients. We take these
statements seriously, and are taking steps to monitor beneficiary
access to care to ensure that our nation's most vulnerable citizens
continue to receive the care they need. As we consider how to improve
the Medicare physician payment formula, I think it's important to
understand, from a historical perspective, how and why the formula
operates the way it does today. It is, in fact, operating precisely as
it was designed in 1997--but we recognize that this has produced some
large short-term adjustments.
physicians' payment before 1997
As the Medicare program has grown and the practice of medicine has
changed, Congress and the Administration have worked together in an
effort to ensure that Medicare's payments for physicians' services
reflect these changes. As a result, the physician payment system has
changed significantly in the past two decades. For many years, Medicare
paid for physicians' services according to each doctor's actual or
customary charge for a service, or the prevailing charge in the
physician's area, whichever was less. From 1970 through the 1980's,
spending for physicians' services grew at an unaffordable and
unsustainable average annual rate of more than 14 percent. And, because
the system was based on historical charges, it produced wide
discrepancies in payments among different localities, medical
specialties, and services. These payment differences did not
necessarily reflect actual differences in the cost of providing
services. As a result, the system was roundly criticized in the 1980's
as overvaluing specialty services and undervaluing primary care
services.
To address these criticisms, Congress directed the Physician
Payment Review Commission, an advisory body established by Congress and
one of the predecessor organizations of the Medicare Payment Advisory
Commission (MedPAC), to examine different ways of paying physicians
while protecting beneficiary access to care, as well as slowing the
rate of growth in Medicare physician spending. On a bipartisan basis,
and with the support of the first Bush administration, Congress
accepted these recommendations and passed these and other reforms in
the Omnibus Budget Reconciliation Act (OBRA) of 1989, and the new fee
schedule was implemented beginning January 1, 1992. The resource-based
work component of the fee schedule was phased in between 1992 and 1996.
Specifically, in its 1989 Annual Report, the Commission recommended
a number of ways to change how Medicare pays physicians. The Commission
first recommended instituting a fee schedule for physicians' payments
based on the resources involved with furnishing each physician's
service, rather than on historical charges. The Commission also
recommended that the relative value of three separate components of
each service--physician work, practice expense and malpractice
insurance--be calculated, as discussed above.
Under the Commission's recommendations, once the relative values
were established, they were adjusted for cost differences, such as in
staff wages and supply costs, based on the area of the country where
the service was performed. Then the actual fee for a particular service
for a year was determined by multiplying the relative value units by a
dollar-based conversion factor. The American Medical Association (AMA)
provides support for the Relative-Value Update Committee (RUC), a
multi-specialty panel of physicians that plays an important role in
making recommendations so that the relative values we assign reflect
the resources involved with both new and existing services. We
generally accept more than 90 percent of the RUC's recommendations, and
our relationship is cooperative and extremely productive.
The Commission's second recommendation was to provide financial
protection to beneficiaries by limiting the amount that a physician
could charge beneficiaries for each service.
The Commission's third major recommendation was to establish a
target rate of growth for Medicare physician expenditures, called the
Medicare Volume Performance Standard (MVPS). The MVPS target growth
rate was based on physicians' fees, beneficiary enrollment in Medicare,
legal and regulatory changes, and historical measures of the volume and
intensity of the services the physician performed. The MVPS was set by
combining these factors and reducing that figure by 2 percentage
points, in order to control to growth rate for physicians' services.
OBRA '93 later changed this to minus 4 percentage points. Actual
Medicare spending was compared to the MVPS target, which led to an
adjustment, up or down, to the calculation to finally determine the
update a future year. The law provided for a maximum reduction of 3
percentage points, which OBRA '93 lowered to 5 percentage points.
physicians' payment since 1997
The Balanced Budget Act of 1997 (BBA) changed the physician payment
system in a number of ways based on Commission recommendations. In BBA,
the SGR replaced the MVPS. Like the MVPS, the SGR is calculated based
on factors including changes in physicians' fees, beneficiary
enrollment, and legal and regulatory changes. However, the BBA did away
with the historical target for volume and intensity of physicians'
services. Instead, the real per capita Gross Domestic Product, which
measures economic growth in the overall economy, was instituted as a
replacement.
One other important difference between the old and the new growth
targets is that the old method compared target and actual expenditures
in a single year. If expenditures exceeded the target in the previous
year, the update was adjusted for the amount of the excess in the
current year, but there was no recoupment of excess expenditures from
the previous year. Under the new SGR, the base period for the growth
target was locked in at the 12 months ending March 31, 1997. This is
the base period and remains static for all future years. Annual target
expenditures for each following year equal the base period expenditures
increased by a percentage amount that reflects the formula specified in
the law, and they are added to base period expenditures to determine
the cumulative target. This process continues year after year, adding a
new year of expenditures to the cumulative target. If expenditures in a
prior year exceed the target, the current year update is adjusted to
make annual and target expenditures equal in the current year and to
recoup excess expenditures from a prior year. While the BBRA made some
further technical changes to allow these adjustments to occur over
multiple years, that is the general way the formula was established in
law. The SGR is working the way it was designed.
BBA also increased the amount that the update could be reduced in
any year if expenditures exceeded the target. The maximum reduction was
increased by 2 percentage points to 7 percentage points. Thus, for
example, inflation updates in the range of 2 percent, reduced by the 7
percent maximum reduction, would yield a negative update in the range
of 5 percent. BBA also established a limit of 3 percentage points on
how much the annual inflation update could be increased if spending was
less than the target.
Additionally, BBA created a single conversion factor (previously
there were three separate ones for different types of services). BBA
also required that the practice expense component of the relative value
calculation, which reflects a physician's overhead costs, be based on
the relative resources involved with performing the service, rather
than the physicians' historical charges. This change made the practice
expense component of the calculation similar to the physician work
component, and reflected actual resources. The change was phased in
over four years, and was fully implemented in 2002. BBA further
required that the malpractice insurance expense component of the
relative value calculation also be resource-based. The law required
that the resource-based practice expense and malpractice relative value
systems be implemented in a budget-neutral manner. The BBA provisions
affecting physicians accounted for about 3 percent of total BBA 10-year
Medicare savings. Because physician payment accounts for about 17.6
percent of program payments in 1997, the physician savings in the BBA
represented by these changes were perceived to be relatively modest.
The Balanced Budget Refinement Act of 1999 (BBRA) made further
revisions to the SGR in an attempt to help smooth out annual changes to
physician payments such as blending cumulative and annual comparisons
of target and actual spending. Beginning with the 2000 SGR, the law
required us to revise previous SGR estimates based on actual data that
became available after the previous estimates. BBRA also required us to
make available to MedPAC and the public an annual estimate of the
physician payment update for the succeeding year. This estimate is due
on March 1 of each year, and is very difficult to make, because none of
the claims used to determine actual spending are available by the time
we are required to make the estimate. Last year, we estimated that this
year's update would be around negative 0.1 percent. However, when we
determined the actual update, which was published 7 months later on
November 1, revised figures lowered the Gross Domestic Product figures
for 2000 and predicted a slower growing economy for 2001 than was
previously estimated. Further, 2001 physician spending was higher than
our March estimate.
Additionally, in making updates to the list of codes for specific
procedures that are included in the SGR, we discovered that a number of
codes for new procedures were inadvertently not included in the
measurement of actual expenditures beginning in 1998. Therefore, the
previous measurements of actual expenditures for 1998, 1999, and 2000
were lower than they should have been. As a result, the physician fee
schedule update was higher in 2000 and 2001 than it should have been,
had those codes had been included. These updates, which were
inadvertently higher in 2000 and 2001, created a partial downward
adjustment on the physician fee schedule for 2002, and will require a
further downward adjustment for the 2003 physician update. The
combination of these factors led to the large negative update for 2002.
In its March 2001 report to Congress, MedPAC recommended a complete
repeal of the SGR system. MedPAC recommended replacing the SGR with a
different type of annual update system like the one used for hospitals.
That recommendation was not enacted in 2001. At its January 2002
meeting, MedPAC voted to make a similar recommendation to Congress in
its upcoming March 2002 Annual Report.
As you can see, the process for calculating payments for
physicians' services is highly complex. It is the result of years of
efforts by Congress, previous Administrations, the Physician Payment
Review Commission, and MedPAC to ensure that Medicare pays physicians
as appropriately as possible. Today, while the underlying fee schedule
and relative value system have been successful, we recognize that the
update calculation has produced large short-term adjustments and
instability in year-to-year updates. I know that you, Mr. Chairman, and
others on this Subcommittee and elsewhere in Congress are involved with
legislative efforts to improve the formula. I want to work with you and
the physician community to smooth out the yearly adjustments to the fee
schedule in a way that is budget-neutral across all providers. Although
we cannot adjust the payment formula administratively, we have been
working hard to do what we can, independent of the update levels, to
help physicians and other providers in a variety of other areas.
helping physicians outside of payments
I worked in the hospital industry for years, and I know how
frustrating it can be for physicians and providers to work with
Medicare. We know that in order to ensure beneficiaries continue to
receive the highest quality care, we must streamline Medicare's
requirements, bring openness and responsiveness into the regulatory
process, and make certain that regulatory and paperwork changes are
sensible and predictable. This effort is a priority for me personally,
as well as for Secretary Thompson and President Bush. And we have a lot
of activities underway to make Medicare a more physician- and provider-
friendly program.
In June, Secretary Thompson announced that, as a first step in
reforming the Medicare program, we were changing the Agency's name to
the Centers for Medicare & Medicaid Services. The name-change was only
the beginning of our broader effort to raise the service level of the
Medicare program and bring a culture of responsiveness to the Agency.
These are not hollow words: creating a ``culture of responsiveness''
means ensuring high-quality medical care for beneficiaries, improving
communication with physicians and providers, and increasing our
education efforts. To promote improved responsiveness, we have created
eleven ``Open Door Policy Forums'' to interact directly with
physicians, as well as beneficiary groups, plans, providers, and
suppliers, to strengthen communication and information sharing between
stakeholders and the Agency. I chair three groups: long-term care,
rural health, and diversity. My Deputy Administrator and Chief
Operating Officer, Ruben King-Shaw, chairs the Open Door Policy Forum
for physicians, and I participate in the meetings. Ruben listens to
physicians' concerns, and tries to fix them where possible. All of
these Open Door Policy Forums facilitate information sharing and
enhance communication between the Agency and its partners and
beneficiaries. My goal is to make CMS an open agency--one that explains
its policies to the beneficiaries and providers who rely on us.
We also are working to alleviate the regulatory and related
paperwork burdens that for too long have been associated with the
Medicare program. The Secretary has formed a new Regulatory Reform
Advisory Committee, comprised of providers, patients and other experts
from around the country to identify regulations that prevent
physicians, hospitals, and other health care providers from serving
Medicare beneficiaries in the most effective way possible. This group
will determine what rules need to be better explained, what rules need
to be streamlined, and what rules need to be dropped altogether,
without increasing costs or compromising quality. To support this
group, we have developed a program, focusing on listening and learning,
to get us on the right track.
Under this program, we will conduct public listening sessions
across the country. We want to hear directly from physicians and health
care providers away from Washington, DC, and Baltimore--out in the
areas where real people live and work under the rules we produce and
with people who do not have easy access to policymakers to voice their
legitimate concerns. Our first regional hearing is on February 25 and
26 in Miami, Florida. Most of you in Congress have these kinds of
regular listening sessions with your constituents, and I have already
participated in 12 of these with a bipartisan group of Senators and
Congressmen. We want to hear from local physicians, as well as seniors,
large and small providers, allied health professionals, group practice
managers, State workers, and the other people who deal with Medicare
and Medicaid in the real world. We are determined to get their input so
we can run these programs in ways that make sense for real Americans
with real life health care problems. We hear from some of these people
now, but we want to get input from many, many more.
Like the physicians, providers, and beneficiaries who live and work
with Medicare every day, CMS staff have worked with managing the system
for years, and they too have suggestions about how Medicare can operate
more simply and effectively. So, another aspect of our plan is to form
a group of in-house experts from the wide array of Medicare's program
areas. I have asked one of my close friends and advisors, Dr, Bill
Rogers, a local practicing emergency room physician, to chair this
group and challenge our in-house experts to suggest meaningful changes.
This group of in-house experts will look to develop ways that we can
reduce burden, eliminate complexity, and make Medicare more ``user-
friendly'' for everyone.
Furthermore, our Physicians' Regulatory Issues Team (PRIT)
integrates practicing physicians into our decision making process,
allowing us to develop policies that will better serve beneficiaries
and physicians. Specifically, PRIT members work within the Agency to
serve as catalysts and advisors to policy staff as changes and
decisions are discussed. Team members have assisted us with:
Streamlining Medicare forms, including the physician
enrollment form;
Improving operational policies;
The PRIT also is working to improve current channels of input
from practicing physicians;
Clarifying oversight policies; and
Identifying and changing excessively burdensome requirements.
The PRIT also has initiated a Physician Issues Project, where they
sought and obtained from the physician community their input on those
Medicare issues that seem particularly burdensome to them on a day-to-
day basis. The PRIT identified 25 issues to address, and where change
or elimination of a requirement is not possible, we are looking for
creative solutions that, at the very least, provide more information
and clarification. I was very pleased that when I was in Tupelo, MS, a
few weeks ago with Representative Wicker, the incoming Chair of the
AMA, Dr. J. Edward Hill, who is from Tupelo, gave me unsolicited
congratulations for the fine job that Dr. Barbara Paul and the PRIT are
doing. So it is working a bit already!
Furthermore, we are participating in and co-sponsoring
``preceptorships'' with local county medical societies, where our
policy staff can get out in the field and ``shadow'' physicians,
watching them provide care, listening to lectures, and even observing
operating room procedures. This is a great way for us to observe first-
hand their daily work life and the challenges they face in providing
care to our beneficiaries.
These outreach efforts will allow us to hear from physicians and
all other Americans who deal with our programs. We are going to listen
and we are going to learn. But we also are going to change. I am
committed to making lots of common-sense changes and ensuring that the
regulations governing our program not only make sense, but also are in
plain and understandable language. This will go a long way in
alleviating physicians' fears and reducing the amount of paperwork
that, in the past, has all too often been an unnecessary burden on
physicians.
improving physician education
As part of our efforts to reinvigorate the Agency and bring a new
sense of responsiveness to CMS, we are enhancing our education
activities and improving our contractors' communications with
physicians and providers. The Medicare program primarily relies on
private sector contractors, who process and pay Medicare claims, to
educate physicians and providers and to communicate policy changes and
other helpful information to them. We have taken a number of steps to
ensure the information our contractors share with physicians and
providers is consistent, unambiguous, timely, and accurate.
We recognize that the decentralized nature of our educational
efforts has, in the past, led to inconsistency in the contractors'
communications with physicians and providers, and we have recently
taken a number of steps to improve the process. We have centralized our
educational efforts in our Division of Provider Education and Training,
the primary purpose of which is to educate and train both the
contractors and the physician and provider community regarding Medicare
policies. We also are providing contractors with in-person instruction
and a standardized training manual for them to use in educating
physicians and other providers. These programs help ensure consistency
so that our contractors speak with one voice on national issues. We are
continuing to refine our training on an on-going basis by monitoring
the training sessions conducted by our contractors, and we will
continue to work collaboratively to find new ways of communicating with
and getting feedback from physicians and providers.
We also are working to improve the quality of our contractors'
customer service to physicians and providers. Last year, our Medicare
contractors answered 24 million telephone calls from physicians and
providers. We now have toll-free answer centers at all Medicare
contractors. To insure that contractors provide correct and consistent
answers, we have performance standards, quality call-monitoring
procedures, and contractor guidelines in place to make our expectations
clear and to ensure that contractors are reaching our expectations.
Additionally, we want to know about the issues and
misunderstandings that most affect physician and provider satisfaction
with our call centers so that we can provide our customer service
representatives with the information and guidance to make a difference.
To improve our responsiveness to the millions of phone calls our call
centers handle each year, we are collecting detailed information on
call center operations, including frequently asked physician questions,
the call centers' use of technology, and the centers' training needs.
We will analyze this information so we can make improvements to the
call centers and share best practices among all our contractors. We
also developed a new Customer Service Training Plan to bring uniformity
to contractor training and improve the accuracy and consistency of the
information that contractor service representatives deliver over the
phone. In addition, we are holding regular meetings and monthly
conference calls with contractor call center managers to ensure
Medicare's customer service practices are uniform in their look, feel,
and quality.
Just as we are working with our contractors to improve their
physician and provider education efforts, we also are working directly
with physicians and other health care providers to improve our own
communications and ensure that we are responsive to their needs. We are
providing free information, educational courses, and other services
through a variety of advanced technologies. We are:
Making our Agency website more useful to physicians through a
new website architecture tailored to be intuitive for the
physician user. We want the information to be helpful to
physicians and their office and billing needs. Once this new
website is successfully implemented, we will move to organize
similar web navigation tools for other Medicare providers.
Additionally, we have improved our Frequently Asked Questions
section, making it more intuitive and easier to search.
Expanding our Medicare provider education website,
www.hcfa.gov/medlearn. The Medicare Learning Network homepage,
MedLearn, provides timely, accurate, and relevant information
about Medicare coverage and payment policies, and serves as an
efficient, convenient physician education tool. In recent
months, the MedLearn website has averaged over 250,000 hits per
month, with the Reference Guides, Frequently Asked Questions,
and Computer-Based Training pages having the greatest activity.
I encourage you to take a look at the website and share this
resource with your physician and provider constituents. We want
to hear feedback from you and from your constituents,
especially physicians, on its usefulness so we can enhance its
value. In fact, physicians and providers can email their
feedback directly to the MedLearn mailbox on the site.
Providing free computer and web-based training courses to
physicians, providers, practice staff, and others. Interested
individuals can access a growing number of web-based training
courses designed to improve their understanding of Medicare.
Some courses focus on important administrative and coding
issues, such as how to check-in new Medicare patients or
correctly complete Medicare claims forms, while others explain
Medicare's coverage for home health care, women's health
services, and other benefits.
Installing a Satellite Learning Channel to provide Medicare
contractors with the latest information on contemporary topics
of interest. We recently completed the installation of a
network of satellite dishes at all contractor call centers to
improve our training efforts with contractor customer service
representatives.
These reforms are just examples of the work we are doing. We also
have a comparable number of efforts underway to reach out to
beneficiaries and to make Medicare a friendlier, easier-to-use program
for them. These changes have been my top priority in my nine months at
CMS, and I will continue to pursue these types of improvements as long
as I am Administrator.
conclusion
I took this job because I know how important Medicare, Medicaid,
and SCHIP are to Americans, and because I want to make a difference in
improving our health care system. I am just as frustrated as you and
all of the physicians that you hear from when it comes to how confusing
and complex these programs are, and I am working hard to improve them.
I also am working hard to monitor beneficiary access to care, while
ensuring that America's elderly and disabled can receive the high
quality care they need and deserve.
The Administration is willing to work with Congress to smooth out
the physician payment system, but I know that it will not be easy. Any
spending increases will have to be offset by corresponding adjustments
in other provider payment systems so that it is budget neutral in both
the short- and long-term. Therefore, improvements in physician
payments, or any other Medicare payments, likely will lead to declines
in Medicare payments for some other group of providers. There will be
tough choices to make. The Administration will be helpful to you as you
consider them. Thank you for the opportunity to discuss this important
topic with you today. I hope that I have helped to explain the issues,
and I look forward to answering your questions.
Mr. Bilirakis. Thank you, Mr. Administrator. When you met
with Chairman Tauzin, Dr. Ganske and I you basically agreed, I
think, that the cut was just too onerous, you agreed that the
formula was flawed. You've said it time and time again. I guess
I would have one bottom line question. We have people here,
physicians and what not, who could probably go into some of the
details better than I, but does CMS--Mr. Norwood kept referring
to your agency HCFA. We should fine you a dollar every time you
said that.
Mr. Norwood. Mr. Chairman, I only meant that it hadn't
changed any, other than the name.
Mr. Bilirakis. That Georgia boy is quick, isn't he?
Mr. Norwood. With 4 hours of sleep, not bad.
Mr. Bilirakis. Do you have the flexibility, does CMS not
have the flexibility? I guess nothing is going to be right,
whatever we come up with. I would suggest and I'm not sure we
have the expertise up here to determine what that formula
should be. MedPAC has a lot more than we have. They apparently
are coming forward with some recommendations. They have not
issued them publicly and that's why they're not here,
basically, to defend them, but we will have a subsequent
hearing to go into that.
But CMS, do you not have the flexibility to basically work
on this and to determine what you think might be as close to
right as possible?
Mr. Scully. We certainly, Mr. Chairman, have given you a
lot of technical advice and guidance and we'd be happy to do
that. I've got a lot of people in the agency who have done this
since it was written in 1989. Some of them I knew back then are
still there. So we'd be happy to do that.
We don't have the flexibility to do anything
administratively in the law. I have gone up to the highest
level of the Justice Department last fall but the law is
incredibly prescriptive and gives us no flexibility to change
it. It has to be done legislatively.
Mr. Bilirakis. Should you have more flexibility?
Mr. Scully. I think we probably did have more flexibility,
the statute was more flexible, pre-1997. To be honest with you,
the 1997 bill, the physician cuts in that bill were very, very
modest. They were about 5 percent of the 1997 bill's cuts and
physician spending is probably over 20 percent of the program.
But this is part of 1997 bill and one of the ways they saved a
little money on physicians in 1997 was to ratchet down in the
formula a little bit, but they made it much more prescriptive.
They basically made it a multi-year recapture. If you find
overspending, it all comes back and is recaptured. And it's
just a much tougher formula. It's much tighter, with much less
wiggle room.
But we'd be happy to work with you any way we can to come
up with the right policy.
Mr. Bilirakis. I wonder, you indicated that the proposed
MedPAC formula would be terribly expensive. You didn't use a
dollar figure unless I missed it. As I understand it, your
actuaries have reported it would cost $127.7 billion over 10
years to adopt the recommendation. Is that correct?
Mr. Scully. That number is pretty close.
Mr. Bilirakis. I don't know whether Mr. Foster wants to
very briefly go into the basis for your coming to this cost
estimate?
Mr. Scully. He'd be happy to do that because a lot of
people have questions about it. I mean the one thing I'm proud
of--and I think the agency is too--is that our actuaries have
always been perceived to be totally independent, above board,
trusted on a bipartisan basis and of all the scoring and I
spent many years at OMB, as you know, I think the No. 1 place
in the Federal Government where the people who do the scoring
has never been doubted is CMS. And Rick, I think, has an
unbelievably squeaky clean 30-year history at this. So with
that, Rick is our chief actuary.
Mr. Bilirakis. Very, very briefly if you can, Mr. Foster. I
know it's very difficult to describe it briefly.
Mr. Foster. Sure. Can you hear me? Let me emphasize first
that MedPAC, of course, has not actually released its
recommendations yet.
Mr. Bilirakis. Right.
Mr. Foster. So we were working off of what our
understanding was of the likely recommendation. That would
involve essentially a limit in the SGR process and then paying
an update each year based on an inflation index, the Medicare
economic index with an adjustment or productivity. What happens
is, if you use that basis, first, instead of getting these
large negative updates that Mr. Scully referred to in his
remarks, you would have something like a positive 2 to 2.5
percentage here. So, on an on-going basis, you've have 2 or 2.5
percent. Instead of for the next several years, minute 5.7,
etcetera. That's where the bulk of the cost would come from and
the $127.7 billion over 10 years, as we said was remarkably
close to our estimate.
Mr. Scully. Mr. Chairman, I might add that if you look at
the chart we handed out and if you basically add up current law
baseline physician spending, which is the top line versus the
MedPAC proposal and you add up the numbers year by year, it
only goes out to 2005, but those are Rick's numbers and if you
calculate them, you get the first few years of the calculation
pretty much dollar for dollar.
Mr. Foster. The one other issue I would add is that the SGR
process exists because Congress was worried about rapid growth
in physician expenditures under Medicare. Without the SGR and
with no other constraint on growth and volume or intensity of
services, you would probably have more than you would have
under the SGR and we estimated a modest additional growth in
that regard which contributes further to the $127.7.
Mr. Bilirakis. Well, my time has expired. I guess I just
wonder wouldn't it have been simple to just start out with a
certain basic figure that everybody kind of feels is relatively
realistic and then just jack it up on the basis of cost of
living increases or inflation increases and just let it go at
that, rather than GDP? Why GDP is a part of this formula? What
the heck does GDP have to do with doctors' costs?
Mr. Scully. Mr. Chairman, I will say having been involved
in this and I was not in the government, times have changed,
obviously, but the argument at the time was that the formula
used to grow with physician volume and intensity of services
and that wasn't particularly well liked either. In 1997, this
was expected to be in 1997 a more stable situation. I would
argue it probably backfired to some degree, but it was with the
best of intents when it was originally done.
Mr. Bilirakis. I honestly feel that you care about the
problem, Tom, and hopefully you'll continue to care. I know the
dollars are big here and I don't know if the MedPAC formula is
the best way to go, but I think we all are very intent on
changing that formula. I don't know how many lost dollars, if
you will, we can recover, but certainly in the future we should
come up with something a little smarter, it seems to me.
The Chair yields to Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman. Tom, thank you again
for joining us. I think our primary mission here today is not
to satisfy doctors who do enjoy by and large pretty good
incomes. Our mission it to make sure, obviously, that patients
have good, quality care. We sometimes lose sight of that in our
deliberations here. We're talking about 2002 and beneficiary
and reimbursement levels. The last, my understanding is the
last survey of beneficiaries was from 1999 which is a poor
measure, I think, of whether seniors will have access in 2002.
Is there a way, would you comment on that? Because
reimbursement rates were obviously different, as your charts
show in 1999. How do we get better measures of beneficiary
access and participation? Ultimately, we want physicians to
continue to provide that care. We want to make sure that the
physicians are participating, beneficiary levels in 1999 were
different from 2002. How can we measure that better and what
are your plans to do that?
Mr. Scully. I believe we have a new measurement coming out
shortly, but I personally think, and I watch it reasonably
closely, and there are probably other private measures as well,
more than 85 percent of physicians always take Medicare
assignment, which is where they take full Medicare payment as
full payment, and about another 10 percent take Medicare
patients, but charge what they're allowed to charge, 15 percent
above the fee schedule. So I personally don't believe that
right now there's a significant access problem for seniors. I
do think that it's very possible that if this formula is not
changed and you have multi-year reductions, then you will find
more and more physicians not taking new Medicare patients in
the least and you will eventually see an access problem. I
don't believe we have one now, but I do think it's a boiling
pot.
Mr. Brown. So even with this new, these new 2002 numbers,
surveys coming out, that's not going to measure something that
you think is not a problem yet, but could possibly be or two or
three from now?
Mr. Scully. We haven't seen a significant erosion of access
of physicians, taking Medicare patients yet. I would say
anecdotally from just spending a lot of time talking to
physicians I think more and more are trying to avoid taking new
Medicare patients, but they generally do still take Medicare
patients.
Mr. Brown. The administration's 2003 released last week
indicates that any so-called ``give backs'' to providers should
be made in a budget neutral fashion, obviously payment
increases to one provider should be paid by reductions in
payments to others. We have sort of been in a sort of whipsaw
situation the last four or 5 years with the cuts in 1997. And
then we're restored some of the excessive cuts, the 15 percent
cut in home health payment is imminent. DSH payment cuts. When
we're talking estimates of fixing this problem seem to be as
much as $80 billion over the next 10 years, how is the
administration recommending we make this budget neutral, be
able to do these ``give backs'' to providers that I think
everybody up here wants to do? Where does it come from? What
does it mean with DSH? What does it mean with the cut in home
health payments, all of that?
Mr. Scully. Well, that's multiple questions. As I said, I
think the MedPAC formula--with all respect to MedPAC--probably
goes a little too far. I think there are a variety of ways to
do it. I think $80 billion is probably on the high end of what
needs to be done and we're happy to work on that. In our
budget, we also did not extend any existing Medicare policies,
called baseline extenders, so virtually every policy from 1997
that expires this year was not extended in our budget. And we
did that intentionally because we did not have a specific way--
because there are many ways to do this--to fix this policy, but
there are a whole bunch of things. There are virtually no
``cuts'' in the traditional sense in our budget either. So for
instance, the hospital payments--and we certainly have a debate
about that--go back to the full market basket for the first
time. I think it's happened once since 1982. So there are a lot
of different policy options out there to ``save money'' to pay
for this in a budget-neutral way. I'm not suggesting that.
That's certainly one that the Ways and Means Committee has
brought up in a previous hearing last week with Secretary
Thompson and pretty directly asked his opinion on it. We
basically said we're happy to sit down and evaluate the merits
of all these different pieces.
On home health for instance, and I know this probably won't
be a popular comment, but it's our position, we very
specifically did not propose fixing the 15 percent cut. Home
health spending went up 42 percent last year and even if the
``cut'' goes in place, spending goes up 12 percent next year,
8.3 percent the year after that, 7.8 percent the year after
that. And the fact is it's really not a cut, it's a 15 percent
reduction in a 6-year-old calculation. The actual per home
health spending rate from last year will go down by 7 percent
from the old interim payment system. I'm not saying that we
shouldn't look at home health as well, but just purely getting
rid of the 15 percent cut will result in many, many double
digit spending increases for years to come. So I think there's
some mid-range approach to home health too.
There are many pieces that are put together. I think there
are certainly the grounds for putting together a budget-neutral
reasonable package that can deal with some of the more acute
provider problems that we have. I'm not suggesting specifically
one way or the other. Obviously, the President's budget came
up. I'm not the only one that has input in that. The
President's budget very specifically did not fix this. It also
very specifically did not extend a lot of the baseline
extenders that traditionally had been in past budgets, so we
could come out and work out some of these extremely complicated
policies.
Mr. Brown. Thank you.
Mr. Norwood [presiding]. I recognize myself now for 5
minutes. Tom, I think you do a great job. It's much like it was
when you started. I thought you were crazy to take the job
because there's no way you can win. I don't actually, in my
heart, that it's you or your agency nearly as much as the
problems that are in Congress, but you're much funner to shoot
at than Congress.
And what we want from you is to try to help Congress get it
right because Congress has not gotten it right. Since 1992,
Medicare payments to physicians averaged only 1.1 percent
annual increases or 13 percent less than the annual increase in
practice costs as measured by the Medicare Economic Index.
Do you agree with that?
Mr. Scully. I would certainly agree, I'm not sure the
numbers are right, now that the per visit, what a physician
gets paid per office visit, I'm sure that's right. But the
fact, that because volume has been increasing and because we've
added----
Mr. Norwood. Well, this is accounting an annual increase,
this is how much more money, in general, they receive.
Mr. Scully. Per visit, that's probably true.
Mr. Norwood. And the reason I'm saying that, we're going to
have a witness testify to that. My question to you, you keep
talking about increased spending, but clearly the problem isn't
necessarily increased spending at the provider level at 1.1
percent increase isn't exactly what I'd call increased
spending.
Are we directing our attentions to the fact that there are
other factors that are causing this program to grow, rather
than continually dealing with the problem of always costing
more money, let's cut the providers back. Are you even talking
about the other areas that are causing this increased spending?
Mr. Scully. There are a lot of factors across the board. To
be honest with you, one of the reasons I think RBRVS was put in
place in 1989 and because, for instance, when you look at
hospital spending, volume of services has not always been as
big a variable. So there's never been a design situation for
volume of services. Hospital spending has been flatter and more
predictable.
There's no question that per visits for physicians, the
spending has been relatively flat and probably at or slightly
below inflation. But the problem and the reason the system was
designed in 1999 was that volume, new technologies, new
services, the volume of service has grown and frequently have 2
percent or less annual increases in the actual per visit fee,
while spending was going up 15, 17 percent a year. So the idea
has always been to find the right balance to disincentivize
greater volume, but also to be fair to the individual
physician.
Mr. Norwood. If you want to do that, does that imply you
mean they're treating people who don't need to be treated,
that's how they increase their volume?
Mr. Scully. No, part of it is also the physician community
comes in every year and argues for new codes and new services
and we've added hundreds in recent----
Mr. Norwood. Well, why do you suppose they do that?
Mr. Scully. To be more accurate, but the fact is, there's
basically an agreement between the government and the physician
community that as you add a new code, you take that percentage
out of the pot, so every other one goes down a little bit.
Mr. Norwood. I understand you take that percentage out of
the pot, but I presume the new codes are for treatments that
patients need and they're trying to make it clear with you guys
so they can be paid.
Mr. Scully. Sure. Mr. Norwood, obviously, the formula we
use, the physicians come in and argue and we try to be
conscious that we're not going to add a new gastroenterology
code unless it's needed because by law, we're required to--
let's say we add 2 percent new codes, every other code goes
down by 2 percent to pay for it. So if you add new codes----
Mr. Norwood. That's part of the problem with the system is
why the system is sort of broken.
Let me get on to the next part because I'm running out
time.
Mr. Scully. Yes sir.
Mr. Norwood. You implied earlier that CMS estimates were
very wrong in 1998 and 1999. In fact, you were wrong with the
GDP growth and enrollment changes and the fact is that ended up
costing about $20 billion and I would suspect you would think
it saved $20 billion, but it took away $20 billion from people
who should have been paid and we have been told that you don't
have the legal authority to fix that even though you know it
was wrong 3 years ago. We still can't fix it because you don't
have the legal authority. It is of interest to me that you're
now spending in 2002 in the final rule that you do have the
legal authority to change the 1998, 1999 SGR projections
related to expenditures for certain CPT codes that had been
overlooked by the agency.
One gets the impression that you have the legal authority
to do what you need to do, if it cuts payments or decreases
your costs. You just never have the legal authority to do what
you need to do if it increases the cost and I don't guess I
have especially a question about that, other than that is an
observation that I'd like to see somebody look at.
Mr. Scully. I'd be happy to address that. I think this has
been totally completely by the book and the fact is the AMA
sued the Clinton Administration over the issue about whether
they could use real numbers in 1998 and 1999. It was litigated
extensively and the Clinton Administration prevailed and won in
court. So it was litigated at length for 2 years because the
previous administration said we are required by law, by statute
to use projections and I can tell you that's very clear, I used
to be a lawyer, thank God, I'm not anymore, and it says, by
law, we have to use the projections. It was litigated in
length. The Justice Department prevailed in that, so we're
stuck.
On the other side of spending, the law also clearly says
you put in expenditures and what happened was inadvertent, the
Department did not know about some of these expenditures
related to new codes that we added. When they found them out,
by law they're required to say those billions of dollars came
out of the trust funds and were spent and they have to be
calculated and I honestly, I'd be happy to spend as many hours
as it would take, but I really believe we've done this totally
by the book.
Mr. Norwood. I'll finish with this. I know Congress
requires you to use projections. Does Congress require you to
continue to use projections that are known to be wrong?
Mr. Scully. Unfortunately, it's only for those 2 years. The
law, when it was changed in 1999, said continue to use
projections for 1998 and 1999. For the years after that we can
actually update it with real numbers. So since 1999 the numbers
are correct. I mean they're real numbers, but what happened, as
you know, it wasn't just CMS's numbers. It was the OMB numbers
for GDP and if you look back in 1999 and 1998, no one projected
4 or 5 percent annual growth rates, they projected 1 and 2
percent. And at the end of the year it turned out to be 5 and
6. So if those numbers were plugged in, the targets would have
been higher. But it's very clear in the statute that we do not
have the flexibility.
Mr. Norwood. That sort of reminds me of the projections
Lyndon Johnson's staff made in 1965. Not to worry, Medicare
will only cost $9 billion 25 years from now. We don't do very
well in this government with projections and when we do them
wrong, we hurt a lot of people.
My time is expired.
Mr. Scully. Can I say just two quick things? You asked in
your opening statement, you asked about our appeals policy and
if I thought it was crazy and I said it was a Democratic
provision. I don't believe I ever said it was a Democratic
provision, by the way----
Mr. Norwood. Great.
Mr. Scully. But--and I'm happy to say it's crazy on a
bipartisan basis. It's crazy, not because the policy is not
good. My frustration, Mr. Norwood, is that basically what we
allow, as I said, we get 600 million physician claims a year.
What it would allow is for every patient that walks into an
office to call up Medicare first and say is this claim going to
be paid, and to be honest with you, my biggest concern about
that----
Mr. Norwood. It actually doesn't allow that. What it allows
is what used to be done with predeterminations where when a
patient comes in, the physician says you need such and such a
treatment. The patient needs to know is this covered or not and
the physician applies for that information. I think the crazy
part is--what it basically does it a way of rationing care,
it's a way of keeping people from getting treated because if
you come in and need an MRI and the doc says hey, I don't know
who's going to pay for this and if HCFA doesn't, you're going
to and the patient's headache isn't real bad. They put it off.
It's a way of rationing care.
Mr. Scully. My concern, just to be clear, is not with the
policy. My concern is that--and I'm a cheap OMB guy, so I'm not
asking for more money. I run a $525 billion agency with a $2.3
billion administrative budget. If we had seniors--you can
debate the policy whether they should be able to call up and
get preauthorization--if they did, I'd probably need at least
$1 billion to hire more staff to answer those phone calls. We
just don't--and the authorizing committees, as much as I love
them, if the appropriators will give me the money to hire all
those people, wonderful--but I just don't have the staff to do
it. And so my concern about it being crazy is that it may be a
wonderful idea, but frequently, with all due respect, Congress
passes things and then CMS gets stuck with hundreds of
thousands to millions of phone calls and nobody to answer them
and it causes a lot of problems.
Mr. Norwood. I stated that up front. It's Congress' fault,
but if we're going to run an insurance agency, in my mind,
that's what you really are, you're a third party, do it right
for pity's sake. I'm way overboard.
Mr. Scully. Well, can I have one more thing because I
normally do stay around for these hearings and I would like to,
but because the chairing was changed, I was supposed to speak
at the AARP's Board at breakfast and I'm going to speak to them
afterwards, so I'll stay as long as I can, but I have to go
talk to the AARP right after this, so it's not out of lack of
respect or interest of the other witnesses, but at some point I
have to go over there and speak to their Board.
Mr. Norwood. Thank you. Mr. Barrett, I apologize. You're
recognized for 5 minutes.
Mr. Barrett. Thank you very much, Mr. Chairman. It's a
pleasure to have you here this morning, Mr. Scully. As I listen
to your testimony and showing the charts and going through the
charts, the thing that became most clear to me is that none of
this is very clear to me.
Mr. Scully. Sorry about that.
Mr. Barrett. And I realize that we've discovered the enemy
and the enemy is us in large part because of the actions taken
by this Congress. But if you can just sort of help me. And
hindsight is 20-20, but I'm still baffled as to why GDP is the
factor here as opposed to a combination of factors, medical,
technology, aging population. What would you give as the best
rationale for using the GDP?
Mr. Scully. From 1989 to 1997, volume and intensity of
physician services, new technology was, in fact, the factor.
And to be honest, I think, for a variety of reasons, some
physicians didn't like it, to some degree, in those years
because in many cases volume and intensity went up higher and
they said what does this have to do with--maybe health care
should be 1 or 2 percent higher spending. If the physician
volume intensity was higher than GDP, they got cut more. So
some people perceived the GDP to be a better number because it
wasn't going to cut physicians as much and that might have been
the case, but two factors happened. One is that GDP was added
and it's argued that because it's bounced around much more than
expected the last couple of years, it had a much more erratic
effect. The second thing is that until 1997, the formula wasn't
a multi-year calculation. So if you had found out that you paid
too much out in 1999 and 2000, and they discovered in 2001, you
only recaptured a little bit for past errors. This new formula
is very strict, so if you make multi-year errors or over
payments, as we have, to the tune of $209 billion, it's all
recaptured over a certain period of time. It's just a much
harsher formula.
In addition, before 1997, the most the update could be, the
true inflation update this year is about 2.9 percent, but then
we go back and recapture previous spending. The current formula
allows you to go as negative as negative 7 percent--we actually
did it this year, negative 7 percent. We took 7 percent out to
make up for what we were spending in past years because that's
what the formula says. Prior to 1997, I believe the cap was
originally 3 percent and then 5 percent. So this formula, I
wouldn't say necessarily GDP is the problem. It's just that GDP
has been much more erratic than it had been in the past and
wasn't as predictable, plus the formula is much harsher at
recapturing past errors or overpayments and I think all three
of those combined come up with a particularly harsh result.
Mr. Barrett. We're going to hear in the next panel from
some people who are going to talk about the impact on rural
areas and they will make the case, I think, that rural areas
are hit disproportionately higher. Can you address that? What's
your analysis as to which areas are hit the hardest and where
beneficiaries potentially will be hit the hardest?
Mr. Scully. I'm not sure that I can really give a fair
analysis of who gets hit the hardest. I'm sure physicians any
place that are getting lower payments per visit probably all
feel like they're hit the hardest. I think the argument on the
rural areas applies more to the Hospital Wage Index Update,
that Congresswoman Wilson and others mentioned. When you get
into rural areas, there's obviously a significant differential
in payment, both in hospitals and physicians and across the
board based on geographic area costs. Some have argued that
maybe this is not fair. You could certainly spend a couple days
debating that, but for a hip replacement, for instance, you may
have the base rate, maybe $10,000, and in New York City make it
$17,000 and in a rural area make it $6,000. Very similar things
happen in physician payments. A gastroenterologist may get
paid, if the base rate, I'm just picking out of thin air--I
don't know what the rate is, $600 for a colonoscopy as the
national rate. In some areas you may get $850 and some areas
might get $450. It's all based on the area wage costs that are
measured again through a statutory formula, for what it costs
in Phoenix as opposed to rural Arizona or Los Angeles versus
Santa Barbara or some place with the various wages in those
areas. There's a very strict formula, both on the physician
side and the hospital side, but the payments vary pretty
significantly. In some places, like Mr. Ganske mentioned in
Iowa for instance, that have traditional low costs of health
care, health providers would argue that for being efficient and
low cost they pay for that and there's probably some truth to
that.
Mr. Barrett. Has CMS run any data or do you have any data
on specifically how different segments of the community----
Mr. Scully. How different the payments are?
Mr. Barrett. The impact.
Mr. Scully. We have unbelievable amounts of data. I'd be
happy to share whatever you'd like. The impact is probably a
little tougher to measure, what the real impact is as far as
the impact on provision of care. I think probably the impact
probably--talking about rural versus urban and provision of
care and access--is probably clear when you talk about what the
base fee for service rates provide and as a result of
Medicare+Choice payments is probably the clearest place it
shows up, rather than as far as physicians versus hospitals.
We have unbelievable amounts of data, if you'd like to get
some for your District, I'd be happy to provide it for you.
Mr. Barrett. I would like that. In terms of a remedy, and
you've talked about cost neutrality----
Mr. Bilirakis. Please finish up, Tom. I tell you, we've got
to give us this room at 11 o'clock. So it's critical that we
stay within----
Mr. Barrett. Do you realistically think we can do this in a
cost neutral basis?
Mr. Scully. Yes, I do. I would think this formula is
significantly flawed and it's up to Congress as to how you'd
like to fix it. I personally believe that the MedPAC formula,
it's just my personal opinion, it's not a good idea to return
to double digit, Part B spending or any place in Medicare. So I
don't think you have to spend $127 billion. I think there are
some fixes that are significantly less expensive. I also think
there are some other places in the Medicare spending and budget
where you can extend some existing policies that expire and
save enough money to come up with a budget neutral fix.
Mr. Barrett. For example?
Mr. Scully. The President, to be honest with you, sent up
his budget last week and I don't think it's appropriate for me
to make suggestions outside of that, but I think if you look at
existing policies, there are many----
Mr. Bilirakis. I'm sorry, we're going to have to move on
here.
Mr. Greenwood.
Mr. Greenwood. Thank you, Mr. Chairman. Tom, I don't know
if you've testified on this this morning or not, I'm a little
groggy, but what has been the experience, the relative
experience in the fee alterations in the Medicare managed care
system versus the fee-for-service schedule?
Mr. Scully. I'm sorry, as far as the year by year, the
changes or? Well, I personally didn't testify to this. I
personally think that it could be a toss-up as to which is more
screwed up, the physician schedule or the managed care,
Medicare+Choice schedule. Again, this is my opinion, I'm not
sure it's administration policy, but I'm not sure we have one.
In 1997, with the best of intentions at the time,
Medicare+Choice was booming and it was about 18 percent of
Medicare and CBO and everyone else projected we'd be at 30
percent Medicare private plans by 2002. I believe a lot of
rural areas, I'm sure Mr. Ganske could agree with this, said
managed care is booming in New York and Philadelphia and
Chicago, why can't it come to Iowa and Minnesota? And so
effectively what Congress did in 1997 is they capped most of
the urban areas for 5 years at 2 percent increases by statute
while the rural area payments have gone up pretty
significantly. What's effectively happened is there have
probably been $2 billion a year that was expected to be spent
and actually allocated under the budget that's not being spent
because, basically, managed care rates really went up
significantly and no one showed up. They built it, nobody came.
And so the money has been allocated out there, but actual
managed care spending in Medicare dropped from $42 billion last
year to about $34 billion this year. That was never in the
projections, but the idea was that managed care was on cruise
control in the urban areas and was going to continue to do well
and we need to push the money in the rural areas. Well, there
is no managed care in many rural areas----
Mr. Greenwood. My question is--sorry to interrupt you, my
question is you're looking at the negative update for
physicians and the fee-for-service fee schedule. What are the
physicians looking at in average, if we know, in the managed
care system?
Mr. Scully. Well, obviously they don't get paid directly by
us, but it's calculated in the formula, so overall, within the
managed care formula, is an averaging of the fee-for-service
payments. So fee-for-service payments are going down for
physicians, that's built into the base Medicare+Choice managed
care payment rate. That also, pro rata, goes down because it's
basically----
Mr. Greenwood. Are they, in fact, experiencing or projected
to experience actual decreases in their fees?
Mr. Scully. That's hard to say. We have, I guess, we're
down to, how many, less than 250 Medicare+Choice contractors
and I'm not exactly sure where the balances come down, but
essentially what's happened is you know, especially in your
District, premiums have gone up, deductibles have gone, drug
coverage has dropped and physician payments have been squeezed,
so it's hard to measure in M+C, but I would be very surprised
if physician fees haven't been flat or reduced.
Mr. Greenwood. On your charts, when we look at growth in
physician benefit, do you have statistics to break that down so
that we can take a look at how that affects the average
physician? Is the average physician increasing volume to get
that growth or is that--how do you separate that out from
growth in the number of participating physicians, for instance?
Mr. Scully. We have lots of data on that and I'd be happy
to share it with you. It depends on physician practice areas.
Some physician practices and the AMA puts out a lot of this
data, but we have quite a bit too, some physician area incomes
have been going up, volumes have been going up, payment for the
services has been going up. The services that have been covered
have been going up. For example, the last few years, Congress
has covered a lot more services of gastroenterologists. And I
think you can see that gastroenterologist Medicare services,
that's probably a good thing. It's mainly colonoscopies that
have been going up and some of the incomes have been going up.
In other areas, like primary care and others, it's been going
down, but we have a lot of data on that and I'd be happy to
give you information by specific practice groups, if you'd
like.
Mr. Greenwood. You've talked about the increase in codes.
Are codes regularly deleted? Is there any fall off? Is it only
an additive process?
Mr. Scully. I'm sure we do delete codes. It's my
experience, I think we've gone from about over a little over
6,000, close to 7,000 codes in the last 15 years, so they've
generally been more additive, but occasionally we do delete
them. But it's almost always done with the cooperation of the
RUC, which is an AMA-guided physician group.
Mr. Greenwood. Mr. Chairman, in the interest of time, I'll
yield back the balance.
Mr. Bilirakis. The Chair appreciates that. Ms. Capps?
Ms. Capps. Thank you, Mr. Scully, for being here with us
today. If you want more data about rural areas of our country,
I can tell you that there are increasing number of physicians
in my rural District who are applying for work at the prison
hospital facility, citing that they will get better payment,
payment on time and better hours. Because the number of
Medicare+Choice programs is almost gone, our reimbursement rate
in our District in California is so disproportionate to the
costs of living in our area and they are also facing a very
skewed geographic practice cost index, the GPCI, which means
for them this current physician payment update is just kind of
like the last blow. So it's reached dire proportions in many
parts of the country, I'm sure, but I can tell you from first
hand experience with the providers in my District that it is
really a problem and it needs to be addressed. That's not in
the form of a question. I would like for you to speak about two
parts of technology. One piece of the physician payment formula
need to account for scientific and technological advancements
and changes in the complexity of services provided, the ability
to account for that in a better way more quickly. And also,
almost like the flip side of that, what kind of technology is
going to really make a difference within your Department as
you've come on to the scene now and taken over the helm, so
that you can be better and that we can better monitor? In other
words, accounting for the technology that is in medical
practice, but also the use of technology to do a better job of
monitoring the practice of medicine in the country as you do
with the reimbursement rates and all of the reporting that
needs to be done, the paperwork aspect of this for the
providers?
Mr. Scully. Well, there are a lot of things. One, to be
honest with you, just with my own agency because we pay
probably, certainly 50 percent of hospital bills and the bulk--
we're by far the biggest payor in the country--we're dealing
with 35-year-old computers and our own systems are a disaster.
The Clinton Administration tried to fix that and put several
hundred million dollars and flipped the switch and it blew up.
So we clearly, to their credit, they tried.
We clearly have a technology problem at CMS. We have a very
old, antiquated insurance system. As far as technology goes,
the biggest help as far as monitoring the doctors and others is
the paperwork burden, which is as controversial as HIPAA, which
was put off for a year by Congress. I think that was probably
wise, but we've been talking about streamlining paperwork for
15 years. At some point we need to quit delaying it and just
flip the switch and close our eyes and do it. Hopefully, we're
going to do it in about a year and a half with HIPAA, but
eventually, every physician will have common codes, common
paperwork, common forms, every Blue Cross plan, every Cygna,
Medicare will all be on one common coding system and it will be
very difficult to pull off, but in four or 5 years when we
actually do it, I think most physicians will find much less
burdensome paperwork as will hospitals and providers all across
the board, because they'll have basically one set of common
insurance codes. That will be a big change.
As far as technology, obviously medical technology is
wonderful and there are a lot of terrific things about it. But
part of our exploding health care problem is technology. I
spent an enormous amount of time, for instance, spent a lot of
time, 12 years ago when MRIs were coming in, trying to figure
out how quickly we should pay for them, when we should pay for
them, under what circumstances. There's a new generation of
that. I spent a lot of time PET scans right now and I'm sure,
as you know, it's wonderful technology for some things. I also
know a lot of radiologists would like three in every hospital,
so finding the balance where patients get access to the right
things like PET scans, but that you don't have too many,
generate too much volume and have an explosion of inappropriate
volume for services is a very tough balance. It's something
that I struggle with with the help of my large staff of
physicians every day. There are a lot of complicated issues
around technology and volume. And a lot of it is wonderful and
terrific for the patient, but it also generates costs, that's
one of the reasons why you have flat per visit fees and
exploding health care costs. It's a tough balance to keep.
Ms. Capps. I've had some manufacturers of devices and other
people tell me that they know that even though this is
developed in this country that there are other countries where
patients are getting access to that kind of care at a much
faster rate and that's a hard thing to swallow.
Mr. Scully. It's tough. On the other hand, there are a lot
of times when I get calls from the device manufacturers asking
me to call people in Japan who are about six times as slow as
we are, so it's a balance. There are some countries that are
quicker. There are some that are a lot slower. And we're
spending a lot of time working on this to try to improve new
technology as quickly as we can. On the other hand, it is a
constant debate, I spent most of last night on it. FDA approves
things, drugs and devices, for being safe and efficacious.
We're an insurance company. We have to pay for it with the
taxpayer dollars and we try to find the balance to pay for the
right things. We don't always pay for everything if it's not
efficient for the patients and not a significant enhancement in
health care.
Mr. Bilirakis. The gentle lady's time has expired. Dr.
Ganske.
Mr. Ganske. Thank you, Mr. Chairman, I remember back in
1995 when we had committee hearings and we were looking down
the road at increased costs for Medicare. We were trying to
preserve and protect and strengthen Medicare. I gathered a
group of 30 Republicans the night before our vote on the House
floor and we marched over to the Speaker's Office and I
basically led that discussion and told Newt he didn't have the
votes unless we began to address this issue of inequitable
geographic payments.
We got some improvement then, but I also warned everyone at
the time that a tourniquet can stop a hemorrhage, but applied
too tightly can cause gangrene. We are looking at a situation
here where we can have gangrene happening.
In the interest of disclosure, I think most people here
know that I am a physician. I am a member of the American
Medical Association and the American College of Surgeons and
I'm proud of the professional ethics enforcement and standards
of both of those organizations. Representatives will be
testifying here.
Now, my daughter is a senior is college. She's major in
architecture, but she's interested in going into medicine. She
asked me recently what I thought of her interest. With all of
this data from Mr. Scully in mind, I said well, Ingrid, I don't
know what your reimbursement will be. I then showed her a bill
I received from the auto shop where I took my car. I pointed to
the labor expense line and I pointed out to her what the
mechanic was getting paid on an hourly basis compared to family
physicians in my District. But I said to her, Ingrid, taking
care of patients is the greatest privilege in the world and
that's how you should make your decision because it's a
wonderful profession. And helping people is really important.
Nevertheless, we are dealing with a situation here today
that, Mr. Scully, when I look at your own chart, for instance,
on the third main line where it has data measured correctly all
along physician update, if you look from 1995 through 2005,
you're talking about on average of 1.1 percent annual increase
and that is probably about half of what the medical inflation
rate is.
We have to do something about this. And so Medicare, MedPAC
in January, voted to recommend adjustments to the Medicare
update system to better account for actual physician practice
costs, including a 2.5 percent payment increase in 2003. Now
CMS actuaries, I am told, have reported that it would cost $127
billion over 10 years to adopt those recommendations.
I think we have to recognize that when we have an aging
population, when they're getting treatments that help them be
healthier, freer of pain and when we're dealing with the high
cost of prescription drugs, we are going to have to spend more
on health care.
My question to you is this, the President identified the
need to fix the update formula in his fiscal year 2003 budget.
You also have expressed a willingness to work with Congress to
develop a fix, albeit a budget neutral fix. Can you outline for
this committee any solutions the administration has developed
to deal with this problem?
Mr. Scully. We don't have a specific policy proposal and
what I tried to do with these charts is to outline the
variations. I would say that probably we're somewhere between
current law which is probably not sustainable and the MedPAC
proposal and I think to be honest with you, I can't calculate
it real quickly. I'm not that smart with the--1.1 percent is
roughly the average conversion factor increase, but the average
actual, part of the spending increase during those years is
probably more along the lines of 7 or 8 percent. And I think
that's the balance we have to find which is----
Mr. Ganske. Mr. Scully, but we're recognizing that we have
a lot more Medicare patients. They're getting total hip
replacements. They're getting coronary artery bypasses. They're
getting a lot of procedures that are helping them to be
healthier, but also live longer and therefore have more
expenses.
Mr. Scully. I understand that. We're happy to find a fix,
but we're also very committed, and incredibly serious about
doing prescription drugs and Medicare reform this year and I'd
also personally like to very much push through some combination
of access expansions to knock down 42 million uninsured. There
are a lot of claims on health care dollars and we're trying to
do a lot of things with--I think there's no question we're
going to spend more money on health care, but some of that has
to go to the 42 million uninsured and some it has to go to
prime prescription drugs, particularly for low-income seniors
and hopefully for all seniors. And we obviously have to fix the
physician update as well, but there's a lot of claim on what is
going to be a growing health care budget, there's no doubt, but
how much it's going to grow I think is the challenge.
Mr. Bilirakis. The gentleman's time----
Mr. Ganske. One question----
Mr. Bilirakis. We've got to give up this room at 11 o'clock
and we have another panel coming up. I can't. Mr. Green?
Mr. Green. Thank you, Mr. Chairman. I know we have a vote
and I'll be as quick as I can. I know our next Panel, Mr.
Scully is going to--he said many of the witnesses suggest that
we adopt a MedPAC, suggest we adopt the Medical Economic Index
and you said earlier that you thought that an $80 billion fix
might be excessive for the physician formula. Can you give us a
number that you think would be available and also, since you
also mentioned that the MedPac recommendation might be too
much, can you tell us how we're going to deal with some of the
problems my colleagues have asked questions about earlier, and
I know you recognized and it is particularly sad that my
colleague from Iowa who has a daughter who may go into medicine
suggesting she not do that and maybe become an auto mechanic. I
have lots of auto mechanics in my District, but not many
doctors.
Mr. Ganske. No, I actually suggested that she strongly
think about going into it, but that the reason should be
because she'd love to take care of patients.
Mr. Green. Yes, and I understand that. It's just that we
can't continue to see physicians who serve our Medicare
population continually not matching what inflation is because
they can't continue that. Maybe on a short term basis because
of our budget needs, but not over the long term.
Mr. Scully. Mr. Green, there are a million ways to do this.
As a technical matter, a couple days ago I gave some of the
staff a variety of different options done by our actuaries who
were available to both sides of the aisle, any time they want,
to run these numbers. And it went anywhere from $16 billion to
$127 billion. So there are a variety of ways to do it. One
observation I make is, and I hate to create policy that looks
closely like what we arguably did in home health, but these
numbers could get much smaller tomorrow if the economy comes
back. A lot of this is related to the SGR which is related to
GDP. So my own opinion, this hole is about as deep as it's
going to get and you could argue they should make a two or 3
year fix and if the economy comes back, Congress' ability to
fix it much less expensively might be easier in a year or two.
So you could certainly argue that a shorter-term fix to spend
less money and see if this formula also has the capability of
self-correcting the other way, so if the economy came back up
and spending went back down, you could come back in 2 years and
make a fix that was a lot easier. So fixing it for 10 years may
not always be the right way to do it. Sometimes, for purely
technical scoring purposes, and that sounds confusing, but from
the point of view of spending money under the Federal budget
guidelines on a pay-as-you-go basis, there certainly might be
an argument for not fixing this. This is probably as backfired
as this formula is going to get.
Mr. Green. I can understand on a short term basis you can
force Congress to revisit it on a timely basis instead of
waiting like we have a tendency to do until maybe if we had
dealt with it last year it might not have been as big a crisis
as it is now for our medical community. That's why we want to
do it in the long term because it takes Congress so long to
come back and revisit some of these issues.
Mr. Scully. This formula has gotten a lot of people angry.
I personally, I shouldn't bring up old news, but I was very
involved in writing it. I think it's still a good structure. It
works and can be saved and I'm certainly committed to doing
that.
Mr. Green. At least a short-term fix on an immediate basis
we have to do something. Should have done it last year with our
Chairman's bill. Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman. Mr. Burr to inquire.
Mr. Burr. Thank you, Mr. Chairman. Tom, you know I wouldn't
have your job. Of course, I'm pretty safe in saying that. I
don't think it would ever be offered to me.
Mr. Scully. You never know, standards have gotten pretty
low, obviously.
Mr. Burr. I've got a lot of confidence in your ability to
understand both sides, the policy side and the fiscal side.
That doesn't necessarily help you to increase the number of
pools that you've got to solve the problem. And I'm confident
that we will or have come to an agreement between Congress and
the administration and the Agency on how to tweak the formula
to where it may make more sense long term and the process that
we've got to go through.
I remember some time ago when there were targeted cuts,
specifically for thoracic surgeons that were huge and I think
Bruce Vladeck was the Administrator. I went home that next week
and called one of my physicians and I said I want to come to
the OR. I want to go in with you. And my purpose was to go in
and see who was in that room, to see what could be eliminated
in that bypass surgery or in that lung removal and that day I
went through three surgeries. I was there all day. And I came
back and I called Bruce and I said I don't know how we can
propose a 55 percent cut because if I was on that table, there
was nothing I didn't want in there.
My point to him was at some point you have to look at what
it takes to accomplish what you're trying to do. And I know you
made the statement earlier, I don't want to see double digit
increases in any part of Medicare. My response would be are we
going to ration care or are we just going to ration
reimbursement?
Mr. Scully. Do you want me to answer that?
Mr. Burr. Loved for you to.
Mr. Scully. If I could just leave.
I've been through--in the first Bush Administration, as you
know, I was there from the first day to the last and we went
through 18, 19 percent medical inflation in Medicaid, probably
16 percent in Medicare. Everybody said this is the way it has
to be. And we got back to where we had negative Medicare
inflation in 1989 and certainly much for sustainable growth
rates in the 1990's of 4, 5, 6 percent and I think the health
care system did fine. Now I think we've got a significant
problem with the Medicare update, but I don't think it's
healthy for the economy or healthy for health care to have
medical inflation running double or triple the rate of
inflation of the rest of the economy. It may be a few percent
higher, but I think there's no reason we should have 15
percent.
I also think the reality is there are many demands. As I
mentioned, we have 40 million, pick your number, uninsured, and
I think we need to do something about that. I know President
Bush and Secretary Thompson and I are incredibly committed to
that and we also have seniors who want prescription drugs. So
if we're going to fit all these demands in a pot, I think we
have to be somewhat restrained when we do the base programs. We
certainly want to provide great health care and I think we do.
I was in Grady Memorial Hospital, probably the biggest public
hospital in the country, with Congressman Lewis Tuesday. I was
thrilled to see the good quality care there. I think we need to
make sure the quality care stays up. But there's also the great
potential, because I've seen it, for overspending in health
care and I think that's a tough balance we have to keep.
Mr. Burr. I notice that as you presented the charts, it hit
the percentage of increase, but it also talked about the total
outlay, the total amount of money spent. And one of the things
that you pointed to is that there are new procedures that are
coming on line every day. They're requesting codes and
physicians want to do this and companies are out trying to
create a better way to accomplish a certain procedure.
There's no mechanism for this process where we talk about
physician reimbursements that if these procedures that we
reimburse physicians under that are new and technologically
advanced, enable us to keep somebody out of an in-patient 10-
day stay in the hospital, there's nothing that correlates the
savings with the increase that's happening over there, is
there?
Mr. Scully. I think there are. I think in a lot of cases
you've seen outpatient spending has clearly grown over the last
few years, the trend----
Mr. Burr. Not just when you're looking at the raw numbers
of physician reimbursement.
Mr. Scully. You can see where preventive services, and
clearly I mean the drug companies make the argument that
there's no question, some prescription drugs have reduced
hospitalizations. They've reduced coronary bypasses. There's a
lot of positive spending that saves money in other areas. But
there's also places where there are services that aren't
appropriate and I don't think we should always assume
everything is appropriate. One example, we talked about home
health earlier and I think home health is wonderful, but when I
was booted out of the government in 1992, home health spending
was $3 billion a year. By 1997, it went to $18 billion a year
and then it went back to $9. It was a harsh cut, but the fact
is it's probably should have gone from 3 to 9 without the 18 in
between. There was a lot of churning home health services in
the mid-1990's that shouldn't happen. Home health services are
wonderful, but there is clearly the potential, if you don't
watch it, for health spending to get out of control. And I
think that's a very tough balance for us to keep an eye on.
There's no doubt that new technologies, new spending and new
services in many cases have positive benefits for patients, but
not all of them.
Mr. Burr. Thank you very much. We have home health to take
care of before the calendar year is over too. Thank you, Mr.
Chairman.
Mr. Norwood [presiding]. Heather, it's a general vote and
we've asked them to hold it until you get there. You're
recognized for 5 minutes.
Ms. Wilson. Thank you, Mr. Chairman, I appreciate that very
much.
Tom, I also appreciate you for being in this job, although
like my colleagues, I'm not sure why the heck you took it, but
it's certainly one of the tougher jobs in the country at this
point.
You were talking about various things the administration is
considering for changing these formulas and as I mentioned in
my opening statement my primary concern is the geographic
disparity in these formulas which make this physician
reimbursement issue just a side bar as far as my State of New
Mexico is concerned.
Would the administration support or consider changing this
geographic adjustment for the physician work component or
eliminating it entirely?
Mr. Scully. Sure, I mean obviously, we'd be happy to
discuss anything with Congress. I think that the statutory fix,
it's very similar, as I said on the hospital side, there was a
minor adjustment in the hospital geographic adjustment made a
few years ago and we're happy to talk to anybody in Congress
about doing that. Obviously, it's the tension between rural New
Mexico and New York City and Philadelphia and Pittsburgh and
that's the tension. We're happy to sit down and try to come up
with the right substantive result.
Ms. Wilson. The more I read about this and look at the
Medicare system, the more I see the kind of Rube Goldberg
patterns on the wall as to the way the whole system is set up.
We've talked about--last year we dealt with Medicare+Choice and
New Mexico, I think, is an anomaly in that 40 percent of New
Mexicans have HMO health care coverage. It's a very high rate
which is one of the reasons I think why we have very efficient
health care and we're discriminated against in some of these
reimbursements. But how many different fee schedules are there?
I mean you talk about the fee-for-service Medicare physician
payments. We know we've got Medicare+Choice. How many different
fee schedules are there that have geographic components in them
in the system that you operate?
Mr. Scully. Virtually, all of them. There's only one that
I'm aware of that does not have a geographic difference which
isn't even out yet. It's coming out in 2 weeks is the long-
term, acute care hospital and that the hospital inpatient/
outpatient hospitals are geographically adjusted, physicians
are. I think virtually everything is. Clinical labs may not be.
But all the major payment systems. It's a $256 billion year
program and I would say that the vast bulk of that is
geographically adjusted.
Ms. Wilson. How many payment systems, how many different
schedules are there in this?
Mr. Scully. The biggest are hospital in patient which is
$100 billion. Hospital out patient is about $20 billion a year.
Physicians are about $43 billion. That's the bulk. There's
probably another, I guess, 25 different payment systems or so
at much smaller levels. It's a great country, isn't it?
Ms. Wilson. It's amazing this works at all.
Have you ever considered or is it taking into account
quality or efficiency factors into the formula, either as to
control inflation and also to eliminate some of the disparity
and the punishment of places that are efficient?
Mr. Scully. That's very hard to do because, obviously,
quality measurements are very subjective. The first major
quality initiative we have, which actually starts April 1, is
with the National Quality Forum. We've taken on six States--and
New Mexico is not one of them, unfortunately--where we're
basically going to measure every nursing home on an objective
set of criteria on 11 outcomes. And as of April 1 in those six
States, every nursing home, every local newspaper will publish
the outcomes and relative quality. And we're trying to put
together broad-based widely supported quality measures that we
can start using to identify relative quality health care. But
right now every hospital in Arizona or New Mexico or Georgia or
anywhere gets paid the exact same amount in the same region for
hip replacement or heart bypass regardless of quality and some
day I think that's a very legitimate point, but I think we're a
long way away from getting there.
Ms. Wilson. Thank you, Mr. Chairman. It is hard to
underestimate the impact this has on a community like
Albuquerque, New Mexico and these disparities. We are
hemorrhaging doctors to surrounding States where the payment
rates are just much higher. In Albuquerque, New Mexico, we are
so short of anesthesiologists and neurosurgeon, we are almost
at the point where you cannot get neurosurgery in the State of
New Mexico, the entire State of New Mexico. We have limited
enclosed newborn ICU beds as we don't have the staff.
I was talking to an OB/GYN recently and he just sent to
hospitals in Phoenix and Denver critically ill newborn babies,
15 of them within the prior 3 months because we don't have the
staff in New Mexico to take care of them, so we had to close
the beds and the reason we don't have the staff is because we
can't compete with Denver and Phoenix and Amarillo and Dade
County, Florida, because they pay so much more. And the reason
they pay so much more is because the Federal Government pays so
much less. If you just look at Medicare+Choice, even with the
fixes we got last year with putting in a floor for
Medicare+Choice. Per person per month in Albuquerque, New
Mexico is $553 per person per month. In Dade County, Florida
that same person, the Federal Government pays $834 per person
per month for their health care. Until we got that floor last
year, in Torrance County which is just outside of the
Albuquerque, New Mexico, that amount was $370 per person per
month. How can you attract doctor practice in Estancia, New
Mexico with that kind of disparity? We have to fix that system
or we will never have access and quality of care in my State.
Thank you, Mr. Chairman.
Mr. Norwood. Thank you. Mr. Scully, I don't know how you
feel about it, no offense to my friend, Mr. Burr, who is my
friend, but it makes me real nervous when a Member of Congress
goes into an OR looking for efficiency.
Mr. Waxman? No questions. We thank you very much for coming
and in conclusion, let me just point out to you that in 1973
when Congress, in its wisdom, decided to take taxpayer dollars
and fund managed care, the idea, of course, was to save money.
Now we're at the process where we're saying oh, we have to
reimburse managed care, Medicare+Choice at 100 percent level
for fee-for-service where at the same time continuing to cut
fee-for-service. My President's budget has $4 billion for
managed care, Medicare+Choice and we don't have any money out
there for fee-for-service.
Do you believe that there's an effort anywhere in this
government that is trying to totally wipe out fee-for-service
and move all Medicare patients into managed care?
Mr. Scully. Absolutely not. We feel strongly about
Medicare+Choice for one reason--I feel extremely strongly is
that it's a great option for low-income people and the people
in that program are disproportionately low income. And if you
look around the country and you find people who are getting
Medicare+Choice, it's usually because they can't afford Medigap
and they, generally in the past, have gotten drug coverage,
relatively low deductibles and co-payments and they're losing
those options. And that money in the President's budget which
is 6.5 percent increase, mainly for urban areas to be honest,
is what our actuaries have told us was treading water, so we
don't lose more people, but low-income people are seeing higher
premiums, higher co-payments, less drug coverage. The money in
the President's budget is a maintenance-of-effort level that
would just keep us treading water where we are. It's not going
to improve anything. We think that--I personally feel very
strongly that it's a terrific option for low-income people, and
it's one that's evaporating quickly and I think it's very
dangerous to let it go. I have personally zero bias one way or
the other toward--we like the private sector health plans, but
we are committed to the Medicare fee-for-service program every
bit as much.
Mr. Norwood. What you're doing whether you like it or not
is you're driving everybody in to managed care by simply
running people out of fee-for-service because they can't afford
it and I would just simply say let's use a little bit of that
$4 billion to put back into the fee-for-service program
particularly the 1.25 because of this cut.
Mr. Shadegg, do you wish to question?
Mr. Shadegg. I do.
Mr. Norwood. You're recognized for 5.
Mr. Shadegg. Thank you. I may be briefer than that. I
recognize there's a Panel to follow you, Mr. Scully and I
appreciate your being here. And we're going to have a limited
time for them because as the chairman has pointed out, we're
getting kicked out of the room.
I simply want to kind of step back one notch. We're looking
at the individual trees and we need to look at the forest. I've
got to say if you look at the forest, it's a very bizarre
picture. Indeed, I'm not certain that the Soviet Union could
have created a more bizarre structure. I will compliment you on
the charts. I actually never understood this one, but I tried
diligently.
I did understand this one. And it made sense to me and it
compared what we planned to spend and the mistakes we made,
what we actually spent and then you carefully explained it,
this entire structure was created and I wrote your words down
because I know you were accurately representing the system
which you articulately make the case for that it was well
intentioned, that it was signed with good intention. But what
you said is we are--it is designed to control physician
spending at a reasonable rate. In all candor, and without
directing this at you in any personal way at all, I want to
point out that that sounds precisely like the planned economy
of the Soviet Union.
We, the government, created the Medicare program. Good or
bad, we made this decision and we said to America's seniors,
these services will be there for you. And then we discover oh
my gosh, they cost more than we thought. Why do they cost more
than we thought? Well, we didn't take into consideration the
aging of the population. We didn't take into consideration
their increased demand for services. We didn't take into
consideration it appears to me technology and the fact that
much of the medicine today would be vastly more expensive then
the medicine of 20 years ago, but by God, look how much better
it is than the medicine of 20 years ago. I think you and I have
had this discussion. We're saving the lives of people that 15,
20 years ago we would have said goodbye on. We're performing
operations on people we wouldn't have thought of operating on
15, 20 years ago. We're extending their lives and their life
spans and doing it in a great way. And I think that's
appropriate, but we didn't account for those factors. But here
along comes the government and says well, we better control
physician spending. And what that sounds to me like is we
promised these benefits. Then we've discovered what they cost
and so what we're going to do is we're not going to pay for the
benefits. We're going to squeeze the people in between the
government and the patient. And the people in between the
government and the patient are the physicians. And it may have
been a laudable goal in 1997 to say well this is the way we'll
do it, we'll squeeze down costs by projecting only these
certain growth rates, and we leave out some facts in what now I
think everybody agrees is a flawed formula and at the end of
the day what we'll get to is a restraint from the growth of
spending which harms physicians or which kind of takes the cost
of the system, the differential between what it really costs to
provide the services and what we're willing to pay for it out
of the hides of physicians. It doesn't work. I think a complete
abandonment of this formula is called for and I think we need
to create a formula which takes into account what is necessary
to pay for the services we've promised and to do so in a
fashion which keeps professionals in the field. I think that
you've been very candid about telling us that you're open to
whatever we do. I hope we'll do something more responsible in
the 1997 formula. I hope we do something that gives America's
seniors the benefits we've promised them. And I really don't
have a question, Mr. Chairman.
Mr. Norwood. Thank you very much for that speech, Mr.
Shadegg. We appreciate, Mr. Scully, thank you, sir.
Mr. Scully. Thanks. Can I add one thing because I really
would like to work on a physician formula? We really are
extremely serious about Medicare reform, prescription drugs,
and access for the uninsured and so I hope we can have an
extremely active year in health care. We've got a lot of things
like Enron, other things going on, but thank you very much.
Mr. Norwood. Thank you, sir. If we can ask the other
panelists to quickly come to the table. I apologize for the
rush here.
The committee will come to order. Ladies and gentlemen,
thank you so much for being here. It is something we badly need
to do is hear from you and we're all under time constraints
that I'm very sorry about, but if we could, Mr. Scanlon, who is
Director of Health Care Issues, U.S. General Accounting Office,
if you begin your testimony, sir.
STATEMENTS OF WILLIAM J. SCANLON, U.S. GENERAL ACCOUNTING
OFFICE; THEODORE LEWERS, TRUSTEE, AMERICAN MEDICAL ASSOCIATION;
ALLISON WEBER SHUREN, AMERICAN COLLEGE OF NURSE PRACTITIONERS;
THOMAS R. RUSSELL, AMERICAN COLLEGE OF SURGEONS; MARTHA
McSTEEN, PRESIDENT, NATIONAL COMMITTEE TO PRESERVE SOCIAL
SECURITY AND MEDICARE; AND SUSAN TURNEY, MEDICAL GROUP
MANAGEMENT ASSOCIATION, MARSHFIELD CLINIC
Mr. Scanlon. Thank you very much, Mr. Chairman. I'm pleased
to be here and I'll try to be brief, given the time
constraints. As you review how Medicare pays physicians and
deal with the incongruous result that we have had this year
with the 5.4 percent reduction in fees while CMS has estimated
that the cost of inputs required to produce physician services
have increased 2.6 percent. It is not surprising, given that
result, we have heard calls for the elimination of the spending
targets that are in the sustainable growth system and----
Mr. Norwood. Mr. Scanlon, if you will suspend just a
minute. If we can have quiet in the back of the room, and close
that door as quickly as possible. Please, proceed.
Mr. Scanlon. As I've said, we have had calls to eliminate
the sustainable growth system or at least to provide for
changes in it. What I'd like to do today is provide you with
some information about the potential for changes in this
system. I think it's important first to take a historical
perspective that looks at why we have the SGR and its
predecessor the Volume Performance Standards and why they were
created and what has transpired since their introduction.
In the 1980's, the Congress began a series of steps to
address the continuing rapid increases in Medicare spending by
revising provider payment methods. The first step involved the
hospital prospective payment system, the second, the physician
fee schedule. When the fee schedule was adopted, it was widely
recognized that controlling fees alone would not moderate
physician growth.
It was something that was recognized by analysts at CBO, at
HCFA at the time, and in the private sector. We had some
controls on physician fees during the 1970's, but the spending
growth continued due to increases in volume and intensity
beyond the increases that would be attributable to increases in
the numbers of Medicare beneficiaries.
If you look at Figure 2 in my written statement which is on
page 6, you see that, prior to 1992 when the volume performance
standards were introduced, annual increases in volume and
intensity per beneficiary were quite significant--averaging
nearly 8 percent per year between 1985 and 1991. After the
introduction of the spending targets under the volume
performance standard first, and then under the sustainable
growth rate, increased spending due to volume and intensity
declined dramatically, averaging roughly 2 percent per year
between 1992 and 2000.
While we've benefited from these moderations in spending,
today we have this incongruous result that the fees are being
reduced 5.4 percent. Administrator Scully, I think, gave you
very clearly the reasons why this occurred, the confluence of
events in terms of correcting for errors in past targets and
mis-estimates of the spending in prior years.
As we think about how to deal with this, one option is, of
course, to deal with how errors are incorporated into payment
adjustments. They can be phased in over time. Some steps in
this direction were taken within the BBRA. It's clear though
that those steps to moderate the annual changes do not result
in enough moderation. Therefore, payment adjustments could be
made over longer periods of time.
A second thing to think about, and it's come up today, is
the issue of the target itself. As we've talked, it's partially
based on GDP and I'd underscore that ``partially.'' Other
factors that are taken into account are increases in the number
of beneficiaries in Medicare fee-for-service as well as
increases in the costs of delivery of physician services, and
changes in law that result in additional services--such as the
addition of preventive services to Medicare over the last few
years.
GDP though is potentially a measure of the affordability of
Medicare to our economy. The Comptroller General has testified
many times before the Congress about the problem that we face
over the longer term as the baby boom generation joins the
ranks of Medicare beneficiaries. The cost of this program is
going to be greater, if current trends continue, than what we
currently spend on all Federal activities. We need to find a
way to generate control over that spending.
Using GDP though, is potentially problematic because of the
fact that GDP is a cyclical variable. It moves up and down with
the economy, whereas the health care needs of Medicare
beneficiaries do not. We need to think about how we can take
into account affordability without having this cyclical
variation. One very simple way would be instead of using GDP
for a single year as the basis for a target, is to take the
average of GDP over much longer period of time. It reflects our
economic wealth, but does not fluctuate with the business cycle
on an annual basis.
Let me end by saying that while we need to be very
concerned about maintaining fiscal discipline, we also need to
keep in mind the primary purpose of this program which is to
generate appropriate access to services for Medicare
beneficiaries. The one thing I think that is incredibly
lamentable at this time is the fact that we have such
inadequate data on access that we are not able on a timely
basis to measure whether access is appropriate, whether a
problem exists and whether an intervention is called for.
Part of what needs to be done as we move forward is to be
able to position ourselves to generate that kind of information
so that appropriate interventions can be taken.
Thank you very much, Mr. Chairman. I'd be happy to answer
any questions the committee may have.
[The prepared statement of William J. Scanlon appears at
the end of the hearing.]
Mr. Bilirakis. Thank you very much, Dr. Scanlon. Again, we
appreciate your taking time to be here with us.
Dr. Lewers is a trustee with the American Medical
Association. Please proceed.
STATEMENT OF THEODORE LEWERS
Mr. Lewers. Thank you, Mr. Chairman, and thank you, members
of the committee, we do appreciate your holding this hearing in
such a timely fashion. I am Dr. Ted Lewers and I am a Trustee
of the American Medical Association and a nephrologist from
Easton, Maryland. I have to also reveal that I am a former
member of the Medicare Payment Advisory Commission and its
predecessor, the Physical Payment Review Commission, so this is
something I have lived with for a number of years.
Mr. Chairman, I want to thank you personally and Ranking
Member Brown for the leadership in advancing H.R. 3351 and we'd
also like to thank Committee Chairman Tauzin and Ranking Member
Dingell for their support as well.
The bipartisan majorities that you have spoken about are
super majorities and they're both in the House and in the
Senate and they recognize the need for Congress to correct a
Medicare policy that threatens access to care for Medicare
patients.
We strongly urge this committee to promptly report out
legislation that immediately halts the 5.4 percent cut that
took effect on January 1, 2002. The SGR system must be
repealed.
CMS uses estimates that everyone agrees with, and you've
heard today, are seriously off the mark. On Chart 2 on the
panel down on the end, you will see these SGR projection,
errors have shortchanged physicians and other health
professionals by over $20 billion since fiscal year 1998. That
was brought out earlier in the testimony. The errors that were
made in predicting the enrollment mean that every year,
physicians care for nearly 1 million Medicare patients whose
costs are not counted in the update. Under this flawed formula,
these errors are compounded annually and if you just look at
the numbers on each year, the compounding comes to $20 billion.
The current Medicare policy links physician updates to
changes in the GDP, as Dr. Scanlon has just mentioned. There is
no relationship between GDP and disease. The medical needs of
the Medicare patient do not wane when the American economy
falls into a recession. Chart 1 indicates information that has
been discussed and clearly indicates the growing gap between
the Medicare economic index or the practice cost inflation and
the annual physician updates. Since 1991, physicians have
received an average annual increase of 1.1 percent as shown by
the red line versus the 2.4 percent increase in practice costs
as shown in the blue line. That's called negative reimbursement
and you cannot survive in a small business with negative
reimbursement. This trend has serious implications for Medicare
patients.
Medicare payments are continually falling behind the actual
cost of running a practice. In addition, physicians are
experiencing a sharp increase in professional liability
premiums, something we have not had the opportunity to discuss
today. It is particularly acute in Pennsylvania, West Virginia,
Florida and several other States.
In addition to that, we have a host of regulatory burdens.
The 5.4 percent Medicare cut will force physicians to make
difficult choices such as whether to stop accepting new
Medicare patients. This is occurring. Last night late, I got
the word from Baylor that the orthopedic spine surgeons of
Baylor University are no longer going to accept Medicare
patients. This is a disaster and it is occurring and anyone who
says it's not occurring needs to tour this country with me on a
few visits.
Other things that physicians are having to do, include
discontinuing the provision of some medical services, stopping
or reducing charitable care, limiting or discontinuing
investments in new technology, laying off staff or retiring
from practice entirely. These are not choices that physicians
want to make because in each case their patients lose.
Medicaid history teaches us that a payment structure that
does not support the economics of maintaining a medical
practice ultimately decreases physician participation in the
program. Congress must promptly intervene. According to our
estimates, physicians may see an additional 5 percent cut next
year on top of the 5.4 percent that we've been discussing
today.
Last June, MedPAC warned that if the update of 2002 was
``significantly lower'' then the negative .1 percent update
that CMS was predicting at that time, this could raise concerns
about the adequacy of payments and beneficiary access to care.
Ladies and gentlemen, clearly, the 5.4 percent cut is
significantly lower than .1 percent. The Commission recently
recommended a new framework for Medicare physician updates and
a repeal of SGR. We wholeheartedly agree. We support the MedPAC
general framework and look forward to working with the
committee on the specific details of a new update system.
We ask the full committee to ensure that its views and
estimates submitted to the Budget Committee include necessary
funds to implement the MedPAC recommendation.
In conclusion, we strongly urge Congress to enact an
immediate halt to the 5.4 percent cut and repeal the flawed SGR
system that threatens access to care for Medicare patients.
Thank you, Mr. Chairman.
[The prepared statement of Theodore Lewers follows:]
Prepared Statement of the American Medical Association
The American Medical Association (AMA) is grateful to the
Subcommittee for the opportunity to provide our testimony concerning
the fatally flawed Medicare physician payment update formula as well as
the 2002 Medicare payment cut of 5.4 percent. This sudden and
unexpected steep payment cut is alarming, and it is critical that
Congress take steps to immediately halt this cut before it further
jeopardizes the success of the Medicare program and patient access to
care.
We first would like to express our sincere appreciation to
Subcommittee Chairman Bilirakis and Ranking Member Brown for your lead
co-sponsorship of H.R. 3351, the ``Medicare Physician Payment Fairness
Act of 2001,'' as well as for your strong efforts to move this critical
legislation. We further extend our appreciation to full Committee
Chairman Tauzin and Ranking Member Dingell for your additional support
of H.R. 3351. Finally, we thank the more than 300 House co-sponsors of
this bill, many of whom are on the Committee, and believe that the
strong and broad bipartisan support of this legislation underscores the
need to remedy the flawed Medicare physician payment update formula.
congressional action needed to remedy access problems
Because no action was taken last year on H.R. 3351, as of January 1
of this year, the 5.4 percent Medicare cut impacts all Medicare
services provided by physicians and other health professionals,
including, but not limited to, physical therapists, audiologists,
optometrists, advanced practice nurses and podiatrists, as well as
medical doctors and osteopaths.
This is the largest payment cut since the Medicare fee schedule was
developed a decade ago, and is the fourth cut over the last eleven
years. Since 1992, Medicare payments to physicians averaged only a 1.1
percent annual increase, or 13 percent less than the annual increase in
practice costs, as measured by the Medicare Economic Index (MEI). (See
attached Chart 1, Medicare Payments vs. MEI, which compares Medicare
physician payment updates to increases in inflation.)
Further, this 5.4 percent cut is forcing doctors to make difficult
choices concerning their ability to continue accepting new Medicare
patients. It also raises questions about whether they can continue
accepting assignment for their Medicare patients, and, ultimately,
whether to retire from medicine and change careers. If the pay cut is
not quickly reversed, it could become extremely difficult to prevent
serious access problems for elderly and disabled patients.
We appreciate the Subcommittee's continued support of legislation
to remedy the ongoing problems resulting from the flawed Medicare
physician payment update, and we urge the full Committee to report, and
the Congress to enact, legislation that would--
Immediately halt the 5.4 percent Medicare payment cut;
Repeal the sustainable growth rate (SGR) system; and
Replace the fatally flawed Medicare payment update formula
with a new system that appropriately reflects increases in
practice costs, including changes in medical practice, changes
in technology, patient need for medical services and other
relevant information and factors.
It is critical that Congress not defer legislative action to halt
the current payment cut or repeal the SGR until consideration of a
broader package that might face significant delay. Continuation of the
SGR system beyond 2002 would likely produce another steep payment cut
in 2003, and there are no guarantees that a positive update would occur
in 2004.
Further, we ask the full Committee to ensure that its ``views and
estimates'' on budgetary and legislative matters, to be submitted to
the House Budget Committee, include an appropriate and specific amount
of funds that should be set aside in the budget resolution to replace
the Medicare physician payment update formula beginning in 2003.
medpac's recommendations to replace the flawed medicare physician
update formula
The Medicare Payment Advisory Commission (MedPAC) warned in June
2001 that if the 2002 update was lower than the Centers for Medicare
and Medicaid Services' (CMS) estimate, which at that time was -0.1
percent, it ``could raise concerns about the adequacy of payments and
beneficiary access to care. MedPAC adopted a recommendation that
Congress replace the current Medicare payment formula with one that
more fully accounts for increases in practice costs. Specifically,
MedPAC advised Congress to repeal the SGR system because an expenditure
target system, like the SGR, does not appropriately reflect increases
in practice costs. MedPAC further recommended that future updates be
based on inflation in physicians' practice costs, less an adjustment
for multi-factor productivity.
We strongly agree with MedPAC's assessment and urge the
Subcommittee to act on MedPAC's recommendations.
medicare patient access is seriously threatened by the flawed medicare
payment update formula and 5.4 percent medicare payment cut
The current 5.4 percent Medicare cut for physicians' services has a
broad impact well beyond the physician community and Medicare program.
Since Medicare payments for numerous health professionals are directly
tied to the physician payment schedule, these practitioners also are
experiencing large payment cuts. In fact, nearly one million physicians
and other health care professionals are immediately impacted by the
cut. In addition, many private health insurance plans base their rates
on Medicare payment rates.
Most significantly, the payment cut jeopardizes access for elderly
and disabled patients. Two-thirds of physician offices meet the
definition of a small business. If a business, especially a small
business, continues to lose revenue and operate on a negative income
statement, the business cannot be sustained. Thus, when physicians and
non-physician practitioners experience a Medicare cut of the magnitude
being incurred in 2002, as small businesses, they will lose significant
amounts of revenue and operate in the red. This means that physicians
and impacted non-physician practitioners are left with very few
alternatives for maintaining a financially sound medical practice.
These alternatives include:
Discontinue seeing new Medicare patients;
Opt out of the Medicare program;
Move from being a participating to a non-participating
Medicare provider;
Balance bill patients;
Lay off administrative staff;
Relocate to an area with a smaller Medicare patient
population;
Discontinue certain low-payment/high-cost Medicare services;
Limit or discontinue charity care;
Retire early;
Partial or complete career change; and
Postpone or discontinue necessary investments in new
technology.
It is clear from the foregoing that the current Medicare payment
cut likely will result in patients having difficulty finding a
physician. Indeed, surveys and reports have found that Medicare
patients increasingly are experiencing access problems. For example, an
American Academy of Family Physicians (AAFP) survey found that nearly
30 percent of family physicians are not accepting new Medicare
patients. Further, recent press reports in many states have documented
the access problems resulting from the Medicare payment cut. Excerpts
from these reports are as follows:
``As a result (of the 5.4% cut), doctors around the country
are finding themselves pinched. `If you continue to lose and
lose, there may be a time when we will have to limit services
or close one of our sites,' says Susan Turney, medical director
of reimbursement at Marshfield Clinic, of Marshfield, Wis.,
which operates about 40 sites with 600 physicians. `In some
areas of Wisconsin, we're the only provider,' she adds.'' The
Wall Street Journal, Jan. 20, 2002 (Some Doctors Say They May
Stop Seeing Medicare Patients After Cuts);
``Washington's health-care system is in serious decline, and
the prognosis is guarded. `Tests show the severity of the
problem,' said Tom Curry, executive director of the Washington
State Medical Association, which released a gloomy report in
Olympia. Responding to an informal poll of members in November,
57 percent of physicians said they are limiting the number or
dropping all Medicare patients from their practices . . . The
report says that for many years the state's health-care
delivery system has been in decline, characterized by a slow
erosion of funding for public health, growing administrative
expenses for practitioners and mounting frustrations of
physicians trying to cope with myriad regulations. A growing
number of patients, even those with private insurance, are
having trouble finding a physician because increasing numbers
of doctors have been leaving the state or retiring early since
the late 1990s, the report says.'' Seattle Times, Jan. 30,
2002;
``Medicare reimbursement to doctors was cut 5.4 percent the
first of the month, worsening an already tight financial
situation for rural hospitals . . . One result likely will be a
harder time recruiting doctors to rural areas . . . Medical
equipment purchases can suffer, staff cuts are more likely and
doctors sometimes will leave for better conditions elsewhere,
Bruning said (Dr. Gary Bruning of the Flandreau, South Dakota
Medical Clinic),'' Associated Press, Jan. 22, 2002 (Medicare
Cuts Strain Rural Health);
``Other West Virginia doctors fear their peers will stop
treating patients who have Medicare . . . And some wonder how
they will recruit doctors to a medical environment marred by
the recent struggles over malpractice insurance . . . At
Madison Medical PLLC in Boone County, three doctors treat at
least 80 patients a day. About 65 percent of them have
Medicare, said office management Phyllis Huffman. The cut in
Medicare reimbursement does not come at a good time, she said.
In the last two years, for example, the physician group's
malpractice insurance doubled. Huffman said she fears that in
the long run, the practice will not be able to afford to
replace a departing employee. Or they may have to stop offering
services for which they get little or no reimbursement from
Medicare.'' The Charleston Gazette, Jan. 23, 2002 (Doctors
criticize federal pay cut; AMA says state physicians will lose
$4,889 each).
We urge the Congress to enact legislation to ensure that the 85
percent of Medicare patients enrolled in the fee-for-service program
will maintain access to physicians and the health care services to
which they are entitled.
factors compounding medicare payment cuts
Several factors compound the current 5.4 percent Medicare payment
cut. First, this cut occurs at a time when premiums for physicians'
professional liability insurance (PLI) are increasing at an alarming
rate. For example, the Las Vegas Sun recently reported that a Minnesota
company's decision to get out of the PLI business could force nearly 40
percent of Nevada's physicians to pay painfully high premiums for new
coverage or close their office doors. This trend is occurring across
the country. The Miami Herald reported that South Florida physicians'
will see PLI premium increases between 25 and 350 percent this year, if
any insurance is available at all. In Pennsylvania, rising PLI premiums
threaten to close trauma centers and emergency rooms.
Further, the effects of the payment cut also are compounded by
requirements under the Medicare and Medicaid programs that physicians
take on expensive new responsibilities without any additional
compensation. For example, program integrity activities have led to
demands for reams of documentation, expensive new compliance programs
and the proliferation of time-consuming certificates of medical
necessity that force physicians to police other providers, such as home
health agencies and medical suppliers. Patient safety, quality
improvement, privacy protection, interpreters for non-English-speaking
patients and a host of other well-intentioned requirements also are
pushing medical practice costs ever upward.
The costs associated with PLI insurance premiums and the
continually increasing amount of government-imposed regulatory
requirements are not properly reflected in the Medicare payment update
for physicians' services.
flawed medicare physician payment update formula
Medicare payments to physicians are annually adjusted through use
of a ``payment update formula'' that is based on the SGR and the MEI.
As discussed above, this formula has a number of critical flaws that
create inaccurate and inappropriate payment updates that do not reflect
the actual costs of providing medical services to Medicare patients.
Flaws In The Sustainable Growth Rate System
Under the SGR system, CMS annually establishes allowed expenditures
for physicians' services based on a number of factors set forth in the
law. CMS then compares such allowed expenditures to actual
expenditures. If actual expenditures exceed allowed expenditures, then
Medicare payment updates may be reduced by as much as 7 percent below
the MEI. Conversely, if allowed expenditures are less than actual
expenditures, payment updates may increase up to 3 percent above the
MEI.
Allowed expenditures under the SGR system are intended to be based
on changes in expenditures for physicians' services due to changes in
(i) inflation, (ii) fee-for-service enrollment, (iii) gross domestic
product (GDP), and (iv) laws and regulations. It is a highly
unpredictable and unstable system that has a number of critical flaws:
GDP Does Not Measure Health Care Needs: The SGR system permits
beneficiary Medicare spending for physicians' services to increase by
only as much as real per capita GDP growth--a measure of the business
cycle that bears no relationship to the health needs of Medicare
beneficiaries. Indeed, incidence of disease does not track the business
cycle.
Specifically, GDP does not take into account health status, the
aging of the Medicare population, the costs of technological
innovations or the escalating costs of medical practice. Thus, the link
between medical care utilization and GDP growth under the SGR system
creates a terribly flawed system as well as seriously deficient public
policy. For example, unlike any other segment of the health care
industry, physicians are being penalized with a steep Medicare cut this
year largely because the economy has slowed, and, as discussed above,
if the economy remains slow, an additional cut is likely in 2003. Yet,
despite the economy, the health needs of patients continue and the use
of new medical services increases.
SGR Requires Unreliable Economic Forecasts: The SGR is based on
factors, such as GDP or enrollment changes, that require CMS to make
economic forecasts that almost always turn out to be erroneous. Thus,
it is impossible to make accurate projections about future payment
updates. When the resource cost-based physician payment system was
first enacted in 1989, its major advantage was intended to be its
stability and predictability over time. It is apparent, however, that
the update formula has exactly the opposite effect; it creates payment
updates that are unpredictable and subject to sharp swings as economic
circumstances, beyond physicians' control, change. Perhaps most
disturbing is that because of the lack of predictability, severe
payment cuts may be imposed without any warning or opportunity for
action by Congress.
In March 2001, for example, CMS predicted that the Medicare payment
update for 2002 would be a 1.8 percent increase. Tens days later, CMS
reversed this prediction and stated that the 2002 update would likely
be a 0.1 percent decrease. Finally, not until November, only eight
weeks before the effective date of the 2002 update and with only a few
weeks left in the Congressional session, CMS announced that the 2002
physician payment update would be a 5.4 percent cut.
As MedPAC has recognized, it has become clear that the current
physician payment update system simply is bad public policy and should
be replaced.
Erroneous SGR Projections: In annually calculating the SGR, as
discussed above, CMS has repeatedly underestimated or even ignored
certain critical data. Erroneous CMS estimates of GDP growth and
enrollment changes in 1998 and 1999 have shortchanged physicians by $20
billion to date. (See attached Chart 2, CMS Errors in SGR: Impact on
Funding for Physician Services.) CMS projected, for example, that
Medicare+Choice enrollment would rise 29 percent in 1999, despite the
many HMOs abandoning Medicare in 1999. This error led, in turn, to a
projected drop in fee-for-service enrollment and a negative 1999 SGR.
Accurate data later showed that managed care enrollment increased only
11 percent in 1999, a fraction of CMS' projection and a difference of
about 1 million beneficiaries.
Nevertheless, based on this erroneous estimate, each year since
1999, when CMS has calculated the total amount of expenditures that it
is allowed to spend on physicians' services, the agency has not taken
into account the cost of treating these 1 million patients. Since the
SGR is a cumulative system, every year physicians are continuing to
treat 1 million patients for whom the costs of their care are
disallowed under the SGR system.
CMS acknowledged its erroneous 1998 and 1999 SGR estimates at that
time, but concluded it did not have the authority under the law to
correct its erroneous projections. We disagreed, and were further
perplexed by CMS' announcement in the 2002 final rule that it does have
the legal authority to change 1998 and 1999 SGR projections relating to
expenditures for certain CPT codes overlooked by the agency. CMS'
interpretation of the law is highly unusual; it seems to allow the
agency to make SGR changes only when they result in Medicare payment
cuts, but not when the same changes would increase payments.
Flawed Productivity Adjustment under the Medicare Economic Index
In the early 1970s, pursuant to congressional directive, CMS
developed the MEI to measure increases in physician practice costs. A
key component of the MEI has been a ``productivity adjustment,''' which
offsets practice cost increases. Over the last eleven years, CMS
estimates of productivity gains with respect to physicians have reduced
annual increases in the MEI by 27 percent. Such estimates contrast with
MedPAC estimates of the degree to which productivity gains offset
hospitals' cost increases. In fact, in 2001, MedPAC's estimate for
hospitals was -0.5 percent, while CMS' estimate for physicians was
three times higher than MedPAC's. It is highly improbable that
physician practices, which generally operate as small businesses, could
achieve such substantial productivity gains in comparison to hospitals,
which arguably have a much greater opportunity to utilize economies of
scale.
We continue to believe that the productivity adjustment in the MEI
overstates productivity gains in the physician services industry for
two reasons. First, it is widely recognized that productivity growth in
service industries is typically lower than that in other types of
industries. Indeed, productivity data from the Bureau of Labor
Statistics show productivity growth in the general non-farm economy of
2 percent per year from 1991 to 2000, compared to 4 percent annual
productivity growth for manufacturing.
Second, we believe that productivity growth in physician practices
is likely to be low in comparison to other service industries due to
the massive regulatory burden imposed on physicians. As discussed
above, physician compliance with such matters as evaluation and
management guidelines and other documentation requirements, workplace
and patient safety requirements, quality improvement initiatives,
language interpreter requirements, and certification (medical
necessity) requirements, places demands on physician and staff time and
reduces physician productivity. The cost of these regulatory
requirements is absorbed by physicians with no offset paid by the
Medicare program. In establishing the annual update for hospitals,
however, MedPAC includes a category for these costs, and in its
recommended update for 2000, for example, the Commission included a 0.2
percent increase to help cover hospitals' Y2K conversion costs. None of
these government-mandated costs are presently captured in the MEI.
In recommending a framework for future payment updates, MedPAC is
advising that the MEI should simply measure inflation in practice costs
and that productivity should be separately reported. MedPAC further
recommends that the productivity adjustment be based on multi-factor
productivity instead of labor productivity, and estimates that this
would significantly reduce the productivity adjustment that CMS
currently uses in updating the Medicare fee schedule.
Cost of New Technology Not Taken Into Account
Unlike most other Medicare payment methodologies, the Medicare
physician update system does not make any adjustments to accommodate
new technology, and thus physicians essentially are required to absorb
much of the cost of technological innovations.
Congress has demonstrated its interest in fostering advances in
medical technology and making these advances available to Medicare
beneficiaries through FDA modernization, increases in the National
Institutes of Health budget, and efforts to improve Medicare's coverage
policy decision process. The benefits of these efforts could be
seriously undermined if physicians face disincentives to invest in
important medical technologies as a result of reliance on a defective
expenditure target system. New technologies, including ever-improving
diagnostic tools such as magnetic resonance imaging, new surgical
techniques including laparoscopy and other minimally-invasive
approaches, have significantly contributed to quality of life for
Medicare beneficiaries. For example, a paper published by the National
Academy of Sciences indicated that from 1982-1994 the rates of chronic
disability among the elderly declined 1.5 percent annually.
Technological change in medicine shows no sign of abating, and the
physician payment update system should take technology into account to
assure Medicare beneficiaries continued access to mainstream, state-of-
the art quality medical care.
All of the foregoing factors contribute to a payment update system
that does not adequately reflect increases in the costs of practicing
medicine and is already undermining Medicare patients' access to
necessary medical services provided by physicians and other health
professionals.
Again, we thank the Subcommittee for its continued support of
legislation to remedy the ongoing problems resulting from the flawed
Medicare physician payment update.
We urge the full Committee and Congress to (i) immediately halt the
5.4 percent Medicare payment cut, and not defer action on this matter
for consideration as part of a broader package that might face
significant delay; and (ii) replace the flawed Medicare payment update
formula with a new system that appropriately reflects increases in
practice costs, in contrast to the current system, the flaws of which
are significantly illustrated in attached Chart 1.
We further ask the full Committee to include in its ``views and
estimates'' of budgetary and legislative matters submitted to the House
Budget Committee an appropriate and specific amount of funds that
should be set aside to replace the Medicare physician payment update
formula beginning in 2003.
We appreciate the opportunity to provide our views about Medicare's
physician payment update formula, and we look forward to working with
the Subcommittee to quickly reach a satisfactory resolution to this
critical problem.
Mr. Bilirakis. Thank you, Doctor.
Dr. Shuren, Allison Shuren represents the American College
of Nurse Practitioners.
STATEMENT OF ALLISON WEBER SHUREN
Ms. Shuren. Good morning, Mr. Chairman, members of the
committee. My name is Allison Shuren and as a Nurse
Practitioner, I'm honored to be here today to testify on behalf
of the American College of Nurse Practitioners. ACNP thanks the
committee for giving us this opportunity to share how the
reimbursement cut and the difficulties with the MEI and SGR
impact providers other than physicians.
We also wish to thank the chairman, the members of the
committee, as well as Chairman Tauzin, Ranking Member Dingell
for your support of H.R. 3351.
The Balanced Budget Act of 1997 authorized Nurse
Practitioners to bill the Medicare program directly and set the
reimbursement rate at 85 percent of that received by other
providers. As a result, an additional 5.4 percent reimbursement
cut impacts NPs particularly hard. From the Nurse Practitioner
perspective, we start at 15 percent below what is already a low
payment rate, given that our costs of providing care are
similar to those of other health care providers who receive 100
percent of the fee schedule. Now, we're being asked to function
with 5.4 less reimbursement.
Furthermore, physicians and Nurse Practitioners who provide
technical component services for Medicare beneficiaries such as
diagnostic ultrasounds or EKGs experience an additional 4 to 6
percent cut in their practice expense reimbursement this year.
This cut was implemented by CMS without any notice in last
year's proposed rule.
If the update factor suffers another 3 percent decrease
next year, that would leave NPs just 10 months from now
receiving as much as 23 percent below the level of
reimbursement other providers received just 2 months ago.
If we consider the change in the payment for the technical
component services, that number would rise to 29 percent. What
profession would not be crippled by such a devastating series
of losses in such a short period of time.
Our members do not talk about profits or profitability.
They talk only of surviving, to fulfill their commitments to
patient care.
We have already heard from NPs in at least 23 States,
stating that the cut is affecting access. NPs are reporting
that practices are limiting or refusing to accept new Medicare
beneficiaries. They're laying off staff. They're reducing the
length of patient visits and they're eliminating ancillary
services such as vaccinations, EKGs and blood draws.
Perhaps the best window into what our members are
experiencing is the following comment from an NP in New York.
She says, ``Currently, our practice is approximately 65 percent
Medicare. A 5.4 percent cut will require us to stop accepting
new Medicare clients. The physician in our practice will be
cutting his hours and my hours will also be cut as a result.
Urgent visits usually seen on the same day by the practice will
become emergency room visits. We're planning on cutting certain
conveniences already.'' She says she has one couple that she
brings to mind. The husband is 91. The wife is 82. And just 1
month ago the wife's hypertension became unstable. This couple
until now was relatively self-sufficient, now she can't even
get to her office for follow-up care. How is she possibly going
to get to a laboratory for blood drawing and to a cardiologist
to have an EKG. She says these people who lived through the
Depression, a World War and know how to ration to help on the
home front, what will we tell them now? Do we just tell them to
go away?
This situation has led our members and many others to ask
us and you why--when 316 co-sponsors support H.R. 3351--this
bill has not passed. We recognize and sincerely appreciate this
committee's leadership, but our members are searching for
definitive action.
We urge you to please change the MEI to be a forecast that
reflects cost changes for the coming year and that takes into
account, among other things, the tremendous increase in
malpractice premiums being experienced in State after State and
increased practice operational costs that include new
technology and expenses associated with compliance of the
plethora of well-intentioned, although costly, mandates such as
compliance plans and the HIPAA privacy standards. Furthermore,
the MEI must take into consideration nonlabor productivity and
use professional and technical employment cost indicies rather
than the nonfarmworker index.
Finally, the SGR mechanism needs to be replaced with a
mechanism that in some rational manner determines to increase
or decrease costs associated with providing services. As
currently structured, the spending target really operates as an
automatic tax on the physician fee schedule providers that can
jeopardize the availability of health care to our elderly
without any benefit of congressional debate nor an opportunity
for providers, patients and patients' advocates to discuss
whether this cut or another alternative is more appropriate
from a policy perspective.
On behalf of ACNP I thank you again for inviting us to be
here and we look forward to working with you in the coming
weeks to fix this issue.
[The prepared statement of Allison Weber Shuren follows:]
Prepared Statement of Allison Weber Shuren on Behalf of the American
College of Nurse Practitioners
Good morning. Chairman Bilirakis, Ranking Member Brown, and Members
of the Committee, I am Allison Weber Shuren and I am honored to appear
before you today to present testimony on behalf of the American College
of Nurse Practitioners or ACNP regarding Medicare payment policy for
nurse practitioners (``NPs''), physicians and other health care
professionals. As both a nurse practitioner and a health care
regulatory attorney, I understand that, as a country, we must find a
balance between covering the costs of efficient providers of care to
our elderly and addressing budget limitations. I also appreciate the
enormity of this task.
ACNP is a national nonprofit professional society dedicated to
ensuring consumer access to health care and high quality nurse
practitioner services through professional education, promotion of
research, and leadership in health care policy development. One of
ACNP's highest priorities is to increase access to outcome-driven,
cost-effective health care by educating policymakers of the benefits of
an interdisciplinary team approach to the delivery of health care
services. ACNP considers direct Medicare reimbursement for nurse
practitioners a key component of this mission, and, as a result, is
extremely concerned by the 5.4% cut for provider reimbursement under
the Medicare Part B fee schedule and by the formula used to calculate
the annual conversion factor update, as we fear that both constitute a
fundamental threat to access.
ACNP thanks the Committee for including nurse practitioners in this
important hearing and for giving us an opportunity to share how the
reimbursement cut and the difficulties with the Medicare Economic Index
(``MEI'') and the Sustainable Growth Rate (``SGR'') impact providers
other than physicians. In addition, ACNP wishes to extend its
appreciation to the Chairman and the many other members of this
Committee for the introduction and sponsorship of The Medicare
Physician Payment Fairness Act, H.R. 3351. This bill, along with the
passage of the Medicare Regulatory and Contracting Reform Act last
year, illustrate your commitment to addressing the pressing issues
regarding health care for Medicare beneficiaries and the health care
professionals who provide their care.
Nurse practitioners are registered nurses who are prepared through
advanced education and clinical training to provide a wide range of
preventive and acute health care services to individuals of all ages.
The first nurse practitioners were trained on-the-job in the early
1960s. Today most nurse practitioners complete graduate level education
and earn a master's degree. In addition, nurse practitioners who wish
to obtain a Medicare provider number must be certified by a nationally
recognized certifying body.
Nurse practitioners take health histories and provide complete
physical examinations; diagnose and treat many common acute and chronic
problems; interpret laboratory results and X-rays, prescribe and manage
medications and other therapies; provide health teaching and supportive
counseling with an emphasis on prevention of illness and health
maintenance; and refer patients to other health care professionals as
needed. Like our physician colleagues, nurse practitioners may choose
to specialize in a particular clinical area. For example, there are
nurse practitioners who specialize in geriatrics, family health,
pediatrics, cardiology, women's health and critical care.
Nurse practitioners work in every site of service in which health
care is delivered, solo practices, small and large group practices,
medical centers, ambulatory surgery centers, skilled nursing
facilities, homeless shelters, school-based clinics, and in the
military, and in every possible geographic location, from the most
inner city-urban areas, to upper class neighborhoods, to the most rural
parts of this nation. Our patients range from the poorest, least
educated individuals in this country to those who might be considered
the most well-off, most educated members of our communities. According
to 2001 data from the Health Resources and Services Administration,
there are more than 88,000 nurse practitioners across the country.
Nurse Practitioners have often been considered one of the backbones of
care in underserved areas, willing to provide cost-effective, high
quality services in rural and urban settings where providers are
scarce.
The National Bipartisan Commission on the Future of Medicare
reports that ``Medicare must be strengthened and improved to handle the
increased demand of 77 million `Baby Boomers' who will begin entering
Medicare in the year 2011.'' As the geriatric population grows, we must
work carefully to protect patient care, the availability of services
and the quality of those services. This is the prism through which both
this Committee and provider organizations must view the difficult issue
of payment policy--to do otherwise is to compromise our respective
duties to the Medicare beneficiaries. Unfortunately, we fear that we
are on the brink of failing at this very task.
The Balanced Budget Act of 1997 authorized nurse practitioners to
bill the Medicare program directly and set the reimbursement value at
85% of the physician rate for identical services. As a result, an
additional 5.4% cut in reimbursement impacts nurse practitioners
particularly hard. From the nurse practitioner perspective, we started
15% below what is already a low payment rate given that our costs for
providing care are similar to those of other health care providers who
receive 100% of the fee schedule rate, now we are being asked to
function with an additional 5.4% less in reimbursement. Furthermore,
physicians and nurse practitioners who provide, or who are part of
groups that provide, technical component services such as ultrasound
and other basic diagnostic testing for their Medicare beneficiaries,
experienced an additional 4 to 6 percent cut in practice expense
reimbursement associated with these services this year. This cut was
implemented by CMS without any notice in last year's proposed rule, and
became apparent only after health care providers around the country
began to calculate payment rates based on the Final Fee Schedule
published November 1, 2001. Given the instability of the update factor
and the practice expense formula, nurse practitioners cannot help but
fear additional cuts next year unless these problems are addressed. If
the update factor suffers another 3% decrease next year that would
leave us, just 10 months from now, receiving as much as 23% below the
level of reimbursement that other providers received just two months
ago. If we consider the change in payment for technical component
services that number could rise to 29%. What profession, trade, or
industry would not be crippled by such a devastating series of losses
in such a short period of time?
The unstable nature of reimbursement has left our members scared--
scared for their patients, scared for their families, scared for the
future of health care. Our members don't talk about net profits and
profitability, instead they talk of surviving to fulfill their personal
and professional commitments to patient care. Though the 5.4% cut is
obviously a very recent change, our members report that it is already
affecting access, and the willingness or ability to invest in
additional personnel, equipment, and other inputs. We have heard
repeatedly of practices that will stop offering vaccines, other
injections, and blood drawing services as they simply can no longer
afford to do so.
We have received ACNP member input on the 5.4% cut and the comments
show a disturbing and consistent trend of threats to access. Here are
some examples: ``[w]e turn away Medicare patients every day,'' ``[w]e
will consider restricting our Medicare influx to handle costs,'' and
``[w]e reached our quota [of Medicare beneficiaries].'' A nurse
practitioner from Texas stated that ``NPs and physicians in our area
already do not see Medicare patients due to poor reimbursement and tons
of reg[ulations] and paperwork. This will not encourage taking those
patients who need care.'' Similarly, an NP from Minnesota told us that
``[t]here will be practices closing or limiting services due to these
cuts.'' An NP from California advised us that the clinic where she
works is experiencing an influx of Medicare beneficiaries who are being
turned away by other practitioners. We have also been informed that
many practices are being forced to reduce the time they spend with
patients in order to increase the volume of patients treated each day.
Finally, there appears to be considerable concern that the commercial
insurance/HMO community will follow Medicare's lead regarding
reimbursement, possibly creating comparable challenges for all
patients.
Perhaps the best window into what our members are thinking and
feeling is the comment on this issue shared by an NP in New York who
told us the following--I note that some of what this practitioner who
is struggling on the front lines articulates is a reflection of the
frustration that so many feel. It is hard to hear, but it is important
that we all listen:
``A 5.4% cut in reimbursement will devastate the care
received by the neediest segments of our society. Currently,
our practice is approximately 65% Medicare. A [sic] 5.4% cut
will require us to stop accepting new Medicare clients . . .
the physician in our practice will be cutting office hours,
[and] . . . [m]y hours will also be cut as a result . . .
Urgent visits, usually seen on the same day will become
Emergency Room visits as patients will be advised to seek care
in an ER. We are planning on cutting certain conveniences
already. For example, we attempt to provide one stop shopping
by doing our own labs and EKGs. We will now require patients to
go to a laboratory, and for EKGs we will send the patients to a
Cardiologist . . . I have one couple in particular. The husband
is 91, the wife is 82 . . . Just one month ago, her
hypertension was complicated with new onset atrial
fibrillation. This wonderful couple who up until now was
relatively self sufficient cannot even get here--how will she
get to the lab for her blood draws? How will she get to a
Cardiologist? . . . I am beginning to feel as though the
government would really prefer that these people just curl up
and die. It is certainly less costly than actually taking care
of them. If I sound frustrated, I am. These are the people who
lived through a depression, a World War (sometimes more than
one), know the meaning of rationing to help on the home front,
and what do we do when they are no longer ``productive members
of society''? We tell them to go away.''
The situation has led our members to ask us, and you, their
representatives in Congress some tough questions. If we as a society
and as a government really value access to and the quality of the
services that our elderly and disabled receive, is that commitment
borne out by our actions? Why, when there are 312 cosponsors in support
of H.R. 3351, has Congress not passed this bill? We know that this
Committee has supplied tremendous leadership on this issue. We thank
the Committee for that leadership, but our members are searching for
definitive action. None of us want our commitment to the health of
Medicare beneficiaries not adequately realized in policy and in fact.
Our members have also asked why, when this Committee and its
exceptional staff were able to articulate steps that CMS could have
taken to offset some of the devastating effect of the current formulae,
such as using a professional/technical employment cost index rather
than the all non-farm worker index, did CMS fail to adopt that simple
solution to this problem. We appreciate the reference in the Senate
Finance Report to the use of a ``general earnings index,'' but the
report did not say to use ``the most'' general index. This kind of
rigidity strikes our members as failing to appreciate the need for a
solution to a very real problem. It also seems to invite Congressional
intervention.
There appears to be some broad support for a number of steps
Congress can take to address the existing situation prospectively.
The MEI must be refined to include non-labor productivity as a
factor.
The MEI must also be adjusted to be a forecast that reflects
cost changes for the coming year and take into account, among
other things, the tremendous increases in malpractice premiums
being experienced in state after state, increased practice
operational costs, and the expenses associated with developing,
implementing and maintaining compliance programs and the new
HIPAA Privacy Standards. When the government imposes additional
burdens on providers, the MEI must reflect the real cost of
complying with those burdens.
Incorrect estimates from previous years need to be corrected--
the current situation permits such arbitrary and capricious
results as to taint the system and undermine basic confidence
in the Medicare program.
Finally, the automatic spending target mechanism needs to be
removed and replaced with a mechanism whose focus is to, in
some rationale manner, determine the increased or decreased
costs associated with providing services. As currently
structured, the spending target operates as an automatic tax on
physician fee schedule providers that can jeopardize the
availability of health care to our elderly without any benefit
of Congressional debate, nor an opportunity for providers,
patients, and patient advocates to discuss whether such a cut
or other alternatives are appropriate from a policy
perspective. Why are health care professionals automatically
singled out to bear a disproportionate burden of a diminished
Gross Domestic Product? We have no problem with health care
providers sharing in the burden to balance federal expenditures
in tough budget times, but we should have the opportunity at
those moments to engage with Congress and the public regarding
alternatives to such cuts, and the pertinent policy issues
driving the perceived need to decrease Medicare payment rates--
particularly, where the cut is so devastating as to risk the
ability of the program to protect the very individuals it was
designed to assist.
Given the support that has emerged for enacting at least these
three modifications to the conversion factor update methodology, ACNP
members are looking to this Committee to use its commendable leadership
around this issue to implement such changes as soon as possible. Our
members are counting on you as their representatives to fix a system
that clearly seems broken at this point.
On behalf of ACNP, I thank you again for the opportunity to be here
this morning. ACNP looks forward to working with you in the coming
weeks to help resolve the update issue as well as the many other
significant health care issues we all face this session.
Mr. Bilirakis. Thank you very much.
Dr. Thomas R. Russell is Executive Director of the American
College of Surgeons. Welcome, Dr. Russell, please proceed, sir.
STATEMENT OF THOMAS R. RUSSELL
Mr. Russell. Thank you, Mr. Chairman, and members of the
committee. My name is Tom Russell and I'm the Executive
Director of the American College of Surgeons. To put it very
briefly, I would simply like to say that the College urges
prompt action on H.R. 3351, the Medicare Physician Payment
Fairness Act, and an adoption of the framework MedPAC is
recommending to address serious problems in the fee schedule
update mechanism.
We agree with the Commission's conclusion that the current
update system is seriously flawed and must be reformed. The 5.4
percent Medicare payment reduction in 2002 is the fourth
across-the-board decrease in the last 10 years. Since 1991,
Medicare payments to physicians have increased an average of
1.1 percent per year while physician practice costs over the
same period rose more than twice that amount.
In addition, premiums for medical liability insurance are
skyrocketing, up to 200 percent in certain States such as
Pennsylvania and West Virginia. In my written statement, Mr.
Chairman, I have some charts showing the history of Medicare
payments over time for certain key surgical procedures,
coronary artery bypass, cataract surgery, etcetera. These
charts show the magnitude of the cuts that have occurred since
1989 and what payments would have been if they had been allowed
to keep pace with inflation. Payment for surgical services
would, in fact, be considerably higher today if Congress had
decided back then to simply freeze them for the next 12 years.
One of the greatest achievements of the Medicare program is
the access to high quality care it has brought to our nation's
seniors and that's what this is all about, not so much payment
reimbursement for physicians, but for our beneficiaries. We
cannot expect this to continue uninterrupted, however, in the
face of repeated steep pay reductions.
The gap between physician payment and physician costs is
leading to reported access problems throughout this country.
Two years ago I stopped doing surgery and I have in my new
position traveled extensively around the United States visiting
surgeons in academic medical centers, in large urban centers
and in rural areas. I can tell you that the morale of the
providers of health care is abysmally low at this point. Many
of them are limiting their range of services to the elderly,
limiting the number of Medicare patients they will see and
opting out of the program on occasion completely.
Particularly, there are stressed areas of the country, such
as Pennsylvania, which is driving physicians out of the area
because of the cost of liability insurance. One of the most
disturbing things that we've seen and Dr. Ganske alluded to
this earlier, is the lack of people interested in a career in
surgery, what I always call the joy of a surgical career,
because nothing is any better. But young physicians today
realize when they hear from the practicing physicians how
really difficult it is, the hassle of practice, the cost of
liability, the increased cost of running an office and of
course, the reimbursement issues.
I cannot overemphasize the seriousness of the situation
from a provider aspect. This cut in the 2000 fee, the pattern
of reductions of the last several years, escalating practice
costs and the projected future decreases combine to create a
truly urgent problem.
Despite assurances from other sources, we believe that
there is a real cause to be concerned about access to care. The
data may not be there, but I can tell you I'm in the trenches
going around this country and I may not have the data, but
there's a problem. I cannot stress enough the importance of
this issue. For any problems that are created cannot be solved
simply by passing a new omnibus spending bill. It takes a long
time to train a surgeon. They're often in debt over $100,000
and they're about 35 years of age when they finish a training
program in surgery and the new practice patterns that the
system is forcing them to adopt are really going to be
difficult.
Thank you again, Mr. Chairman, and members of this
committee for the opportunity to give our comments on this very
pressing issue.
[The prepared statement of Thomas R. Russell follows:]
Prepared Statement of Thomas R. Russell on Behalf of the American
College of Surgeons
Mr. Chairman and Members of the Committee, I am Tom Russell,
Executive Director of the American College of Surgeons. I am pleased to
appear here today on behalf of the College's 62,000 Fellows to present
our comments and recommendations about problems in the annual update
mechanism of the Medicare physician fee schedule. I also will be
commenting on the recommendations of the Medicare Payment Advisory
Commission (MedPAC).
First of all, I want to mention that the issue before you today
affects all medical and surgical specialties and all Medicare patients.
In an effort to develop a effective solution, the College is working
closely with members of Congress and with other physician
organizations, including the American Medical Association and the
Coalition for Fair Medicare Payment--a group of medical and surgical
societies that includes those who have been hit hardest by Medicare
payment reductions over the course of many years.
I come before you today urging prompt action on HR 3351, the
Medicare Physician Payment Fairness Act, and adoption of the framework
MedPAC is expected to recommend in its upcoming report to address
serious problems in the Medicare physician fee schedule update
mechanism. I strongly concur with the Commission's conclusion that
statutory provisions specifying the physician fee schedule update are
seriously flawed and must be reformed immediately.
For 2002, the law produced a large negative adjustment in physician
reimbursement--minus 5.4 percent--and government projections for the
next few years indicate further significant cuts in Medicare physician
payments. The reduction in 2002 is the fourth across-the-board decrease
in Medicare payment rates for physician services over the last 10
years. Since 1991, Medicare payments to physicians have increased an
average of 1.1 percent per year, while over the same period physicians'
practice costs rose more than twice that amount. In addition, premiums
for medical liability insurance are skyrocketing. Physicians in some
specialties report liability premium rate increases of more than 200
percent.
One of the greatest achievements of the Medicare program is the
access to high quality care it has brought to our nation's seniors.
This level of access, however, cannot be expected to continue
uninterrupted in the face of continued reductions in payments to
physicians and other health professionals whose reimbursement is based
on the Medicare fee schedule. The gap between physician payment and
physician costs has already led to press reports of access problems for
Medicare beneficiaries throughout the country.
The impact of the flawed update methodology and the negative update
for 2002 must be viewed in the context of the significant Medicare
payment reductions for surgical services that have occurred since
implementation of the Medicare fee schedule. The Omnibus Budget
Reconciliation Act of 1989 changed the payment methodology for
physicians' services from a charge-based system to a resource-based
system with three service components: work, practice expenses, and
malpractice. The fee schedule was implemented in 1992 with a three-year
transition, and in 1999 the four-year transition to resource-based
practice expenses began. Resource-based malpractice relative values
were incorporated into the fee schedule in 2000. This year marks the
end of the transition to a fully resource-based system.
Payments for surgical services have fallen substantially since
inception of the fee schedule and they have suffered especially large
decreases since passage of the Balanced Budget Act of 1997. The
Medicare conversion factor applicable to surgical services decreased
from $40.96 in 1997 to $36.20 in 2002, a reduction of almost 12
percent.1 In addition to the conversion factor reduction,
which dropped more for surgical services than for other physician
services, the adoption of new relative values for the practice expense
portion of the fee schedule cut payment rates for surgical services
significantly. I would like to share some examples of how severe these
decreases have been.
---------------------------------------------------------------------------
\1\ In 1997, a separate conversion factor applied to surgical
services. The Balanced Budget Act moved all services to a single
conversion factor beginning in 1998.
---------------------------------------------------------------------------
I am submitting for the record a table that illustrates the
dramatic reductions in payments for surgical services by comparing 1989
average payments for commonly performed procedures to the 2002 fee
schedule amounts. For all these procedures, the fee schedule rate
decreased by 7 percent or more; for 10 of these procedures, payments
decreased by 10 percent or more; and for 9 of the 12--three-quarters of
them--payments were reduced by more than 20 percent. There are four
procedures on this chart with 2002 payments that are half what they
were in 1989.
Medicare Payment History for Representative Surgical Services
National Averages
------------------------------------------------------------------------
% Change 89-
DESCRIPTION 1989 2002 02
------------------------------------------------------------------------
Removal of breast................ $1,051 $961 -8%
Total hip replacement............ $2,427 $1,452 -40%
Total knee replacement........... $2,301 $1,514 -34%
CABG, vein, three................ $3,957 $1,888 -52%
Rechannel carotid artery......... $1,677 $1,061 -37%
Partial removal of colon......... $1,256 $1,171 -7%
Diagnostic colonoscopy........... $425 $205 -52%
Repair inguinal hernia........... $560 $448 -20%
Prostatectomy (TURP)............. $1,139 $770 -32%
Total hysterectomy............... $991 $893 -10%
Removal of spinal lamina......... $2,078 $1,036 -50%
Remove cataract, insert lens..... $1,573 $669 -57%
------------------------------------------------------------------------
Obviously, physician payment rates for surgical services would be
higher today if they had been frozen in 1989 for the next 12 years--a
policy Congress certainly would not have enacted.
As dramatic as the reductions are, they are much worse after
considering the effect of price inflation. There are two principal
measures of inflation that could be used to gauge whether physician
payments are keeping pace with price changes: the consumer price index
for U.S. cities (CPI-U) and the Medicare economic index (MEI).
Comparing actual reimbursements to those that would be in place if
updates were based on the MEI show that payments would have been 36
percent higher in 2002 than they were in 1989; using CPI-U they would
have been 46 percent higher.
I am submitting for the record another table that compares actual
2002 payments to projected payments based on updates of the 1989
amounts using either the MEI or the CPI-U as the measure of inflation.
The size of the payment reductions are so large that it can not be
surprising that many skilled surgeons are considering early retirement
while others are discouraging talented young men and women from
pursuing surgical careers.
Comparison of Actual 2002 payments to Projected Medicare Payments Based on Annual MEI or CPI-U Updates of the
1989 Average Payments
----------------------------------------------------------------------------------------------------------------
CPI-U
DESCRIPTION 2002 Actual MEI Update Update % Decrease % Decrease
Payment Payment Payment from MEI from CPI-U
----------------------------------------------------------------------------------------------------------------
Removal of breast.............................. $961 $1,430 $1,528 -49% -59%
Total hip replacement.......................... $1,452 $3,303 $3,497 -121% -141%
Total knee replacement......................... $1,514 $3,132 $3,316 -107% -119%
CABG, vein, three.............................. $1,888 $5,386 $5,702 -185% -202%
Rechannel carotid artery....................... $1,061 $2,283 $2,417 -115% -128%
Partial removal of colon....................... $1,171 $1,710 $1,810 -46% -55%
Diagnostic colonoscopy......................... $205 $579 $613 -182% -198%
Repair inguinal hernia......................... $448 $762 $807 -70% -80%
Prostatectomy (TURP)........................... $770 $1,550 $1,641 -101% -113%
Total hysterectomy............................. $893 $1,349 $1,428 -51% -60%
Removal of spinal lamina....................... $1,037 $2,828 $2,994 -173% -189%
Remove cataract, insert lens................... $669 $2,141 $2,267 -220% -239%
----------------------------------------------------------------------------------------------------------------
I cannot over-emphasize the seriousness of this situation. The 5.4
percent fee cut in 2002, the pattern of reductions over the last
several years, escalating practice costs, and the projection of future
decreases combine to create an urgent problem.
Many factors contribute to the flawed update mechanism, but none is
as important as the Sustainable Growth Rate (SGR). Legislated in 1997
as part of the Balanced Budget Act, the SGR is used to set a target for
aggregate Medicare expenditures under the fee schedule.\2\ If actual
spending for physician services exceeds the applicable target,
physicians are penalized by having the MEI update reduced; if spending
remains below the target, they are rewarded with a full inflation
update plus a ``bonus'' percentage. The SGR provision was amended by
the Balanced Budget Refinement Act of 1999 (BBRA) to correct some
technical deficiencies, but the SGR remains a seriously flawed and
misguided policy, with negative consequences for the adequacy of
physician payment rates. The dominant factor driving the 5.4 percent
reduction in physician reimbursement this year is the SGR update
adjustment factor, which caused a 7.0 percentage point reduction. If
physician payments had been updated by the MEI alone, rates would have
increased 2.6 percent.\3\
---------------------------------------------------------------------------
\2\ The SGR formula is based on the government's estimate of the
change in each of four factors: the estimated change in payments for
physicians' services; the estimated change in the average number of
Medicare fee-for-service beneficiaries; the estimated projected growth
in real GDP per capita; and the estimated change in expenditures due to
changes in law or regulations.
\3\ The fee schedule conversion factor fell 5.4% for CY 2002. Of
the total reduction, 4.8% is due to the update adjustment percentage
and the remaining 0.6% derives from the budget neutrality adjustments
for the 5-year review and the final transition to resource-based
practice expense. The -4.8% update is the combined effect of the MEI
(2.6%, or 1.026), the SGR performance adjustment (-7.0%, or 0.93), and
an additional 0.2% reduction (or, 0.998) required by the technical
amendments to the SGR made by the BBRA.
---------------------------------------------------------------------------
The College is concerned that the current SGR growth limits are so
stringent that they could affect Medicare beneficiaries' access to care
both today and in the future as young men and women choose careers
other than surgery. They also could have a chilling effect on the
adoption of technological and clinical innovations in medical practice.
Many organizations, including the Association of American Medical
Colleges, the American Medical Association, and the national medical
specialty societies comprising the Coalition for Fair Medicare Payment
share this view. In addition, the Medicare Payment Advisory Commission
(MedPAC) has identified serious problems in the SGR system and
recommends replacing it with a totally different system. Improving the
SGR is important to ensure that the 85 percent of Medicare
beneficiaries enrolled in fee-for-service Medicare continue to receive
the benefits to which they are entitled.
problems with the sgr
Before I discuss our recommendations, I would like to note a few of
the most salient problems with the SGR.
The SGR sets an arbitrary target ceiling on physician spending
unrelated to beneficiaries' need for physician services.
Consequently, it does not ensure beneficiary access to high
quality physician services.
To preserve access, Medicare payments should reflect the costs that
efficient providers incur in providing services. Medicare's other
payment systems are adjusted annually using an update framework that
accounts for changes in the cost of providing services, including
changes in practice patterns, the intensity of services, and service
mix. No other component of Medicare is subject to an overall limit on
spending. Even worse, the annual increase in the physician spending
target is strictly limited by the rate of GDP growth. If the economy
falters, as it has, the physician spending target drops. This approach
completely fails to assure that payments keep pace with the needs of
Medicare beneficiaries and the cost of providing care. Beneficiaries do
not need fewer services when the economy slumps
The SGR is highly volatile and unpredictable.
In a letter to MedPAC and in data made public on its website in
March 2001, the Centers for Medicare & Medicaid Services (CMS)
estimated that the SGR adjustment factor for the CY 2002 update would
be -1.5 percent. That is, the update percentage would be the MEI minus
1.5. The actual adjustment factor for 2002, published just eight months
later in the November 2001 final rule, was -7.0 percent. The most
volatile component of the SGR is projected GDP growth. The cumulative
SGR fell 4.0 percentage points from November 2000 to November 2001 due
to the slumping economy and lower forecasts of GDP.
The SGR ignores many factors that affect physician services.
Many factors influence the level of physician services provided to
Medicare beneficiaries. The price of practice inputs like staff,
building costs, equipment, and supplies; malpractice insurance
premiums; productivity; new technology; aging of the Medicare
population; site-of-service shifts; intensity of services provided in
physician offices; preferences and needs of beneficiaries; and
physician practice patterns all affect the cost of delivering physician
services. Because the SGR only attempts to account for the first two
factors--prices and productivity--it is an inadequate predictor of the
appropriate level of physician spending.
The SGR is a crude attempt to control spending arbitrarily. Better
strategies are available that would not threaten beneficiary
access to services.
Adjusting the physician update for a current period based on total
physician spending in a past period compared to an arbitrary and
inappropriate spending target is a crude and ineffective policy
instrument. It can lead to fee schedule updates that may appear
inappropriately high, as occurred in a couple of years, or updates that
bear very substantial reductions, as for 2002. If growth in the volume
and intensity of physician services were to re-emerge as a Medicare
policy issue, MedPAC's March 2001 Report to Congress identifies several
strategies that could be used. For example:
working to achieve appropriate use of services through
outcomes and effectiveness research;
disseminating tools for applying this research, such as
practice guidelines; and
developing evidence-based measures to assess the extent to
which knowledge is being applied.
recommendations
To address the many problems caused by the SGR and the fee schedule
update mechanism, the College urges the Committee to approve
legislative changes in several areas. We believe HR 3351 is an
important first step and its enactment is our first recommendation.
Recommendation 1--Enact HR 3351 to limit the CY 2002 reduction in the
fee schedule conversion factor to 0.9 percent.
HR 3351, introduced by Congressman Bilirakis, would limit the 2002
fee schedule cut to 0.9 percent. We are extremely pleased that the
legislation now has 321 cosponsors and we hope this Committee can act
quickly to move it now rather than waiting for a larger Medicare bill
later in the legislative session. The need for action is urgent.
Although the CY 2002 conversion factor took effect January 1, 2002, the
legislation could be enacted with a prospective effective date as early
as April 1, 2002.
HR 3351 also would require MedPAC to ``conduct a study on replacing
or modifying the sustainable growth rate . . . as a factor in
determining the update for payments under the Medicare physician fee
schedule . . . such that the factor used more fully accounts for
changes in the unit costs of providing physicians' services.'' MedPAC
would be required to submit a report to Congress on the study together
with any recommendations for legislation and administrative action. The
College is pleased that MedPAC's March 2002 report to Congress will
include recommendations to fix the SGR problem. We believe that the
Commission's imminent report satisfies the study requirement in HR 3351
and that Congress can proceed immediately to make the necessary
legislative changes.
Finally, we strongly support the technical clarification in HR 3351
that the additional expenditures made in CY 2002 due to the higher
update would not be considered in any year in calculating subsequent
physician fees; that is, they would not be built into the base for any
purpose. This is a significant protection to include while the Congress
considers and legislates a lasting solution.
Recommendation 2--Eliminate the SGR update methodology and replace it
with an annual update based on factors influencing physicians'
costs of efficiently providing patient services. The update
formula would not include any performance adjustment factor
based on an expenditure target.
This recommendation closely follows those made by MedPAC in its
March 2001 Report to Congress, as well as those that are anticipated in
its March 2002 report. Like MedPAC, the College believes the physician
update should be based exclusively on Medicare beneficiaries' need for
services and the cost of providing those services. Access to physician
services under Medicare and payment for those services should not be
limited, or even threatened to be limited, in any manner that could
impede beneficiary access to the high quality care that the program has
made possible for 36 years. Physician services provide the core of all
patient care. They are essential for achieving quality care and, in
addition, we believe they are the most cost-effective of all services
included in the Medicare program.
Under this College recommendation, MedPAC and the Secretary would
establish an update framework similar to those used for other Medicare
services. In addition to changes in input prices (as measured by the
MEI), the framework would include components to reflect changes in all
other factors affecting the cost of delivering physician services.
These other factors include changes in the volume and intensity of
physician services due to new technology, site of service shifts, and
practice patterns, among others. Physician updates would be based
solely on beneficiary needs and the cost of providing physician
services.
Under this recommendation, the SGR is repealed and it is not
replaced with any expenditure target or similar adjustment mechanism.
The expenditure target concept is a badly flawed policy. It is time to
scrap it entirely.
The College is very concerned about reports about the cost of
repealing the SGR. We acknowledge that the cost may be substantial, but
we do not believe it is nearly as much as some have suggested, unless
the budget baseline assumptions are out of touch with reality. While we
do not have an estimate of the proposal's cost, we note that if
physician fees were increased by 2.0 percentage points each year over
the next five years, Medicare physician spending would be about $12.7
billion higher over the five years. If this continued for another 5
years, total spending over the 10-year period would increase about $55
billion. We also observe that if physician fees were frozen at their
current level and given no MEI increase over the next 10 years, the
savings would be about $53 billion. (The MEI is projected to average
about 1.8 percent over the 10-year period.) In comparison to a savings
estimate for a rate freeze, the projected price tags we have heard for
eliminating the SGR suggests that the current payment system is
expected to reduce physician spending by considerably more than a
freeze--an outcome that is extremely troubling given the pressures
facing the program today. Of course, estimates of the proposal's cost
are driven by the baseline assumptions and projections made by the
Congressional Budget Office (CBO) and CMS's Office of the Actuary. We
think members of Congress should question a physician spending baseline
that assumes physicians' payments will be reduced by an amount that is
so much larger than the reductions that would occur under a rate
freeze.
The College is committed to working with this Committee and others
to eliminate the SGR and replace it with an update framework like those
used for other Medicare updates. We do not believe that unrealistic
cost estimates should block action on this urgent problem.
changes needed in the medicare economic index (mei)
The College also urges Congress to direct the Secretary of Health
and Human Services to make needed changes in the MEI. This index is
important because it is the basis for the annual inflation updates to
the physician fee schedule. Over the last several years, we have shared
our MEI concerns with the agency in commenting on proposed regulations
and in other communications, but the problems persist. We do not
believe that the MEI as currently structured provides an appropriate
measure on which to base annual adjustments to the physician fee
schedule.
The MEI continues to have essentially the same structure that it
has had since its inception in 1972. Today, however, the Medicare
program pays for physician services in a completely different way than
it did in 1972. At that time, physicians were paid their reasonable
charges, and the MEI was employed to limit the portion of the annual
increases in charges that Medicare would recognize in its
reimbursement. The portion of charges not recognized by Medicare was
owed by the beneficiary. In contrast, physicians are now paid based on
a government-set fee schedule, and--importantly--physicians face strict
limits on the amount that can be balance-billed to the beneficiary. The
College strongly believes that CMS should re-examine the structure of
the MEI and not continue to make only minor changes in an index that
was developed 30 years ago under a very different set of payment rules.
At a minimum, we urge two changes.
Recommendation 3--The price proxy for the physician earnings component
of the MEI should be the employment cost index (ECI) for
professional workers, not the average hourly earnings (AHE) for
total non-farm workers.
The component of the MEI designed to track changes in the cost of
the physician work component of the fee schedule uses the average
hourly earnings of all non-farm workers rather than the more
appropriate category of all professional workers. To support its
position in its proposed regulations, CMS cites Committee report
language from 1972. The report language states that ``it is necessary
to move in the direction of an approach to reasonable charge
reimbursement that ties recognition of fee increases to appropriate
economic indexes so that the program will not merely recognize whatever
increases in charges are established in a locality.'' And, ``. . .
Initially, the Secretary would be expected to base the proposed
economic indexes on presently available information on changes in
expenses of practice and general earnings levels.'' CMS also states its
own conclusion that ``there is an obvious concern about circularity if
increases in prevailing charges are linked to increases in physician
charges, which are then tied to increases in physician income.''
The College strongly disagrees with the CMS position and emphasizes
two points: (1) the Committee's concern about charge-based
reimbursement is not relevant since implementation of the resource-
based fee schedule; and (2) an index based on the earnings of all
professional workers would have been sufficient to address the
Committee's concern because physicians comprise a small portion of all
professional workers. Physicians represent less than 3 percent of all
professional workers in the economy, so the circularity point appears
extremely weak. The College also notes that, in contrast, a significant
portion of the hospital market basket, which is used as the basis for
the annual update in the inpatient prospective payment system (PPS)
rates, derives from the actual wages and salaries of civilian hospital
workers. If there is any case to be made regarding circularity, this
would seem to be the prime candidate.
The College believes it would be much more appropriate for Medicare
to use the rate of growth in incomes of all professional workers as the
basis for adjusting payments to physicians, rather than using an index
based on all non-farm workers in the economy. According to CMS, basing
the physician earnings portion of the MEI on increases in the incomes
of all professional and technical workers would have produced an
average annual MEI of 2.4 percent for the period 1992-1997, compared to
an average 2.2 percent under the all-worker proxy used by HCFA. The
College strongly urges the Committee to direct CMS to make this long
overdue change effective January 1, 2003.
Recommendation 4--The non-physician employee compensation component of
the MEI should be adjusted using a price proxy that reflects
the increase in skill mix in physicians' offices.
Although CMS acknowledges that there has been a substantial shift
in the skill mix in physicians' offices over the last few years, it
continues to measure price changes using an economic statistic that
holds the skill mix constant. The agency's rationale for this decision
is that the use of higher skilled labor reflects the fact that work
formerly performed in the hospital is now done in ambulatory settings.
CMS continues its reasoning as follows: ``Skill mix shifts that reflect
rising intensity of outputs in physician offices are automatically paid
for by higher charge structures for the more complex mix of service
inputs. Physicians performing more complex services may hire more
skilled employees, and, thus, may tend to charge more for their
services.''
We do not understand what points CMS is trying to make in its
argument, or the relevance of those points to physician reimbursement
under the fee schedule. Medicare pays for physician services based on
rates set by the government, not based on charges. In addition, much of
the increased care provided by physicians in their offices is for post-
surgical care. These office visits cannot be separately billed under
Medicare policy because they are included in the global service period.
It is clear, however, that responsibility for much of this portion of
patient care has shifted to the physician office as patients are
discharged from the hospital significantly earlier in their recovery
than in the past. These patients' greater care requirements necessitate
both a higher skill mix in physicians' offices and the use of more
costly supplies and equipment.
The College would stress that payments under the Medicare fee
schedule already fail to cover physicians' actual practice costs, a gap
that has widened for surgeons under the recently implemented resource-
based formula for practice expenses. And, the problem is compounded by
the agency's continuing failure to recognize shifts in skill mix in its
design of the MEI. We urge the Committee to direct CMS to remedy this
problem by adopting an index--such as one based on the average hourly
earnings of health care workers--that recognizes skill mix shifts. This
change should be effective January 1, 2003.
In summary, the College strongly believes that the MEI as proposed
by CMS does not provide an adequate basis for updating the physician
fee schedule. The agency is continuing to rely on decisions made in the
early 1970s about the appropriate structure of the index. We emphasize
the points made earlier concerning the very different context for use
of the MEI today compared to its use prior to implementation of the
Medicare fee schedule and charge limits.
conclusion
Finally, I would like to close with some additional comments about
access to care. The College had an opportunity to review a draft of the
section of MedPAC's 2002 report pertaining to physician payment
updates, and we were concerned by conclusions reached about access to
care. Survey findings from 1999 can not measure practice changes that
are likely to have occurred with the phase-in to lower practice expense
payments. Other limited studies we have seen tend to focus on allowed
frequencies for the top three or four most often performed surgical
services, or on the number of physicians signing Medicare participation
agreements. These proxy measures are woefully inadequate to the task--
and are likely to be misleading. Much more timely and sophisticated
analysis is needed before the cumulative impact of payment reductions
occurring over the course of more than a decade can be assessed in any
meaningful way. I can not stress enough the importance of the issue,
for any problems that are created can not be solved simply by swift
passage of a new omnibus spending bill. It takes a long time to train a
surgeon, or to change the new practice patterns that the system is
forcing them to adopt.
Thank you once again, Mr. Chairman, for the opportunity to offer
the College's comments and views. I would be pleased to answer any
questions.
Mr. Bilirakis. Thank you very much, Dr. Russell.
Martha McSteen is the President of the National Committee
to Preserve Social Security and Medicare.
Ms. McSteen, nice to see you again, welcome. Please
proceed.
STATEMENT OF MARTHA McSTEEN
Ms. McSteen. Thank you. Good morning, Mr. Chairman and
Ranking Member Brown and members of the committee. Thank you
for holding this important hearing on the issue of Medicare
payment policy and I'm pleased to speak as President of the
National Committee to Preserve Social Security and Medicare and
also as one of the first regional administrators of Medicare
back in the mid-1960's.
Certainly we find that many of our members across the
country have been telling us that they are having a difficult
time finding a physician who accepts Medicare. Now, with the
5.4 percent cut in physician reimbursement, we are particularly
concerned about any issue that will serve as a barrier to care
for Medicare beneficiaries.
Decreased payments to physicians can potentially be such a
barrier, limiting beneficiaries access to primary and specialty
care physicians. With decreased reimbursement, physicians may
not be able to provide the same level of quality care. They may
have to limit the time they spend with a patient or cut back on
support staff.
Some physicians may have to refuse to accept additional
Medicare beneficiaries. Our members across the country tell us
of physicians who are unable to accept Medicare reimbursement
because they cannot afford to keep their offices open. The
physician in many situations has to withstand some of the
expenses of treating each Medicare patient. Frequently, that
forces the physician to make an unwilling decision to eliminate
Medicare patients from his or her practice.
We also wonder if the Medicare reimbursements force the
physicians to make up the difference by cost shifting to non-
Medicare patients.
Physicians should not be overpaid in certain years and
underpaid in other years. Uniformity and predictability are
needed so that Medicare beneficiaries will know that their
physician will not suddenly drop out of the program.
One of our members who lives in Florissant, Colorado has
advanced Parkinson's disease. He's had a terrible time finding
a doctor who will accept Medicare. He says some doctors tell
him he can pay them directly and he can try to get money from
Medicare, if he would like. A person on Medicare shouldn't have
to do this. Medicare shouldn't become two programs, one for the
rich and one for the poor.
It should treat everyone equally.
Actually, our member says he probably can afford to do this
more than some. He worries about his neighbors who may be
living on a small Social Security check and have Medicare
coverage, but no supplemental insurance. He says they can't
afford to pay. Unfortunately, the parts of the country that are
designated health profession shortage areas or medically under
served areas are also the areas as we have heard this morning
with the lowest physician reimbursement.
In these areas, beneficiaries already have a hard time
locating a physician, particularly a specialist. We fear that
the 5.4 percent cut in physician payments may cause more
providers to stop accepting Medicare. This will further limit
seniors' access to care.
The National Committee to Preserve Social Security and
Medicare recommends that MedPAC study the issue again and again
and suggest a payment formula to Congress.
Mr. Chairman and members of the committee, thank you for
this opportunity on behalf of seniors who depend on highly
skilled physicians in this great country of ours for their
well-being.
[The prepared statement of Martha McSteen follows:]
Prepared Statement of Martha McSteen, President, National Committee to
Preserve Social Security and Medicare
Good Morning Chairman Bilirakis, Ranking member Brown and members
of the committee. Thank you for holding this important hearing on the
issue of Medicare payment policy and for inviting me to speak as
president of the National Committee to Preserve Social Security and
Medicare, a senior's grass root's education and advocacy organization
with millions of members and supports.
Unfortunately, many of our members across the country, have been
telling us that they are having difficulty finding a physician who
accepts Medicare. Now, with the 5.4% cut in physician reimbursement, we
are particularly concerned about any issue that will serve as a barrier
to care for Medicare beneficiaries. Decreased payments to physicians
can potentially be such a barrier; limiting beneficiaries' access to
primary and specialty care physicians.
With decreased reimbursement physicians may not be able to provide
the same level of quality care, they may have to limit the time they
spend with a patient or cut back on support staff. Some physicians may
have to refuse to accept additional Medicare beneficiaries.
Our members tell us of physicians who are unable to accept Medicare
reimbursement because they cannot afford to keep their offices open.
The physician in many situations has to withstand some of the expenses
of treating each Medicare patient. Frequently, that forces the
physician to make an unwilling decision to eliminate Medicare patients
from his or her practice.
We also wonder if the Medicare reimbursements force the physicians
to make up the difference by cost shifting to non-Medicare patients.
Physicians should not be overpaid in certain years and underpaid in
other years. Uniformity and predictability are needed so that Medicare
beneficiaries will know that their physician will not suddenly drop out
of the program.
One of our members, who lives in Florissant, Colorado has advanced
Parkinson disease. He has had a terrible time finding a doctor who will
accept Medicare. He says some doctors tell him he can pay them directly
and try to get money from Medicare if he would like. A person on
Medicare shouldn't have to do this; Medicare shouldn't become two
programs; one for the rich and one for the poor. It should treat
everyone equally. Actually our member says he probably can afford to do
this more than some. He worries about his neighbors who may be living
on a small Social Security check and Medicare with no supplemental
insurance. He says they cannot afford to pay.
Unfortunately, the parts of the country that are designated Health
Professions Shortage Areas (HPSA) or Medically Underserved Areas (MUA)
are also the areas with the lowest physician reimbursement. In these
areas beneficiaries already have a hard time locating a physician,
especially a specialist. We fear the 5.4% cut in physician payments may
cause more providers to stop accepting Medicare. This will further
limit senior's access to care.
We recommend that MedPac study the issue and suggest a payment
formula to Congress.
Mr. Chairman and members of the committee, thank you for the
opportunity to testify on behalf of seniors who depend on the highly
skilled physicians in this great country of ours for their well-being.
Mr. Bilirakis. Thank you very much, Ms. McSteen.
Dr. Susan Turney is a Member of the Board of Directors of
the Medical Group Management Association. She has traveled all
the way from Wisconsin to be here with us today. Thank you--and
to get a little warmer.
Ms. Turney. Yes.
Mr. Bilirakis. Please proceed.
STATEMENT OF SUSAN TURNEY
Ms. Turney. Good morning. I am a Member of the Board of
Directors of the Medical Group Management Association and on
behalf of MGMA I would like to thank you for convening today's
hearing.
I would also like to express our gratitude to the full
committee for its leadership in pursuing the important issue of
physician payments under Medicare. MGMA is the nation's oldest
and largest organization representing medical group practices.
There are 19,000 members who lead and manage more than 10,000
organizations and represent more than 200,000 practicing
physicians.
Our individual members include practice managers, clinic
administrators, and physician executives who work on a daily
basis to ensure that the financial and administrative
mechanisms within group practices run efficiently so that
physician time and resources can be focused on patient care.
As such, MGMA members are uniquely qualified to assess the
direct impact of Medicare payment inadequacies on the delivery
of quality care to Medicare beneficiaries.
I am also a practicing internist and the Medical Director
of Reimbursement at Marshfield Clinic. Marshfield is the
largest private medical group practice in Wisconsin and one of
the largest group practices in the United States. We have 678
physicians, over 5,000 staff and we had over 1.6 million annual
patient encounters. We are a tax-exempt corporation and we
include a major diagnostic treatment center, research facility,
reference lab and we provide care to 39 sites in rural
Wisconsin.
Mr. Chairman, the current Medicare physician payment system
is stuck in reverse and threatens to severely impact
beneficiary access and the stability of physicians practicing
across the country. MGMA urges Congress to take three immediate
steps to get Medicare moving forward in the right direction.
First, halt the 5.4 percent reduction to the Medicare fee
schedule.
Second, eliminate the current unsustainable growth rate
system.
Third, implement a methodology that bases Medicare
reimbursement on a formula that measures actual practice costs.
Currently, Medicare patient access is unsustainable if we
keep moving along this track. Again, at Marshfield, our
experience serving a large rural region in northern Wisconsin
is that the Medicare payment system falls far short of meeting
the cost of delivering medical services to the Medicare
beneficiaries.
Recently, we conducted an internal analysis to determine to
what extent the Medicare program covers the cost of providing
services to the beneficiaries. Our analysis demonstrated that
the clinic presently recovers only about 70 percent of the cost
that we have in providing Medicare Part B services. And we
project that for 2002 that amount will actually decrease as a
percent of cost to approximately 68.5 percent.
Like other practices, at Marshfield, we are directly
impacted by the volatility of the current SGR system as well as
the shortfall. The magnitude of the discrepancy between the 0.2
percent reduction which had been predicted in March of 2001 and
the actual reduction which took place in November, placed our
clinic in an untenable position.
In 2000, our clinic had net earnings as a percent of
revenue of 2.87 percent and in 2001, this dropped to 1.58
percent. These tight margins highlight how even minor
fluctuations in the revenue stream have a material impact on
our operations.
Under the current Medicare payment system, SGR volatility
plays havoc with our planning and our budgeting initiatives. We
calculate that the revenue impact of the Medicare payment cut
will be a negative $2.8 million for calendar year 2002. Such
losses compromise acquisition of new technology as well as our
ability to expand into additional rural areas.
Marshfield Clinic is currently in the final stage of an
internal analysis to determine the feasibility of entering the
Medicare+Choice market. Our objectives as a system are to
improve choices and to expand services to under served areas
throughout north, central and western Wisconsin. The startup
costs of implementing a Medicare+Choice Plan are significant.
But from a Medicare beneficiary perspective, the plan
potentially holds great value because beneficiaries with
medigap insurance could receive a nearly identical plan and
save between $35 and $95 per month to join.
Unfortunately, the greatest challenge to this effort comes
as a result of the Medicare fee-for-service payment cuts that
have reduced the revenue the clinic needs to take the risk of
bringing on any new product.
At this time we are uncertain whether it is feasible in the
present environment of pay cuts and with the SGR volatility to
become an M+C plan.
The true test of a system is how well it takes care of
those in need. Presently, the Medicare payment system places
those most in need in jeopardy. The leadership of the chairman
and ranking member and other members of the subcommittee has
been demonstrated by sponsorship of H.R. 3351. This truly
indicates your support for physicians' ability to take care of
those who are most in need.
We do thank you for your efforts and we look forward to
working with the committee to correct this problem.
[The prepared statement of Susan Turney follows:]
Prepared Statement of Susan Turney, Member, Board of Directors, Medical
Group Management Association
Good morning. My name is Dr. Susan Turney. I am a member of the
Board of Directors of the Medical Group Management Association (MGMA).
On behalf of MGMA, I would like to thank the Chairman, the ranking
member, and the entire Subcommittee for convening today's hearing. I
also would like to express our gratitude to the full Committee for its
leadership in pursuing the important issue of physician payments under
Medicare so stability and access to this vitally important program are
assured.
MGMA, founded in 1926, is the nation's oldest and largest
organization representing medical group practices. MGMA's 19,000
members manage and lead more than 10,000 organizations in which more
than 200,000 physicians practice medicine. Our individual members, who
include practice managers, clinic administrators, and physician
executives, work on a daily basis to ensure that the financial and
administrative mechanisms within group practices run efficiently so
that physician time and resources can be focused on patient care. As
such, MGMA members are uniquely qualified to assess the direct impact
of Medicare payment inadequacies on the delivery of quality care to
Medicare beneficiaries.
In addition to my leadership role with MGMA, I am a practicing
internist and the Medical Director of Reimbursement at the Marshfield
Clinic. Marshfield is the largest private medical group practice in
Wisconsin and one of the largest in the United States, with 678
physicians, 5158 staff, and over 1.6 million annual patient encounters.
A tax-exempt corporation, the Marshfield Clinic system includes a major
diagnostic treatment center, a research facility, a reference
laboratory, and 39 regional centers. The Clinic also provides services
in partnership with a federally funded Community Health Center at 13
locations in Wisconsin, providing comprehensive integrated care to un-
and under-insured residents of the community with incomes at or below
200% of the federal poverty level.
Mr. Chairman, the current Medicare physician payment system is
stuck in reverse and threatens to severely impact beneficiary access
and the stability of physician practices around the country. MGMA urges
Congress to take three immediate steps to get Medicare moving forward
in the right direction: (1) halt the recent 5.4% reduction to the
Medicare fee schedule, (2) eliminate the current Sustainable Growth
Rate system, and (3) implement a new methodology that bases Medicare
reimbursement on a formula that measures actual practice costs. No
other payment system under Medicare fluctuates with the Gross Domestic
Product (GDP). Only physician fees are tied to this type of formula.
Unless immediately addressed through congressional action, the cut in
Medicare reimbursement rates will dramatically affect physician group
practices that serve Medicare beneficiaries throughout the nation,
especially in rural and underserved areas. MGMA is deeply concerned
this will lead to new barriers to access to care for many Medicare and
privately insured patients.
impact of the 2002 reduction
According to MGMA data, the recent 5.4% cut steepens the slide
created by inadequate Medicare payment updates over the last decade.
From 1992-2000 MGMA's national practice cost survey indicates that
total operating costs per physician in an average multi-specialty group
practice rose 31.7%. During that same period, physician Medicare
payments only increased 13%. Simply stated, Medicare payment increases
covered roughly 40% of the actual cost increases that average group
practices faced during this period. The recent cut exacerbates this
critical situation.
Over the past few months, MGMA received hundreds of reports
regarding the impact of the 2002 cut. I would like to share two
specific examples from around the country, as well as some personal
details from my work at the Marshfield Clinic.
In Colorado, a cardiology group practice reports that it expects an
annual loss of over $1 million. To deal with the shortfall, it will
dramatically reduce operating expenses and lay off employees. It has
reached the point where the group is considering no longer accepting
assignment for Medicare beneficiaries. These patients currently
comprise 40% of its practice. In other words, it may no longer
participate in the Medicare program.
An academic medical practice in New York estimates a $1.7 million
loss from the 2002 cut directly attributed to its 15% Medicare patient
population. It faces an even more critical cut from its private sector
patients, impacting approximately 60% of its business. This is due to
the reduction in managed care fee schedules, which are negotiated based
on the Medicare fee schedule. Including both public and private payers
it estimates the total loss this year could be close to $7 million. In
addition, this academic group practice is comprised of full time
faculty employed by a university. The patient care revenue supports the
education and research mission of the university's medical college. To
the extent that patient care revenue drops, it will not only reduce the
amount of faculty physician time available to Medicare patients, but
also the amount of faculty time available for clinical education and
clinical research.
medicare patient access is unsustainable
Patient access to care is a critical issue where I work at the
Marshfield Clinic. Currently we have 102 physician openings that remain
unfilled. These are most often in satellite clinics in rural areas we
serve, where services are needed most but funding is limited. Physician
recruiters advise the Clinic it will need to pay a premium to attract
the physicians it needs. Under current funding conditions, let alone
those reduced by recent cuts, this is extremely difficult. In 1999,
Marshfield Clinic budgeted its physician salaries for the 50th
percentile of relevant market surveys for the year, at the 45th
percentile for the year 2000; and at the 55th percentile for the year
2001. Both specialists and primary care physicians are needed by the
Clinic to fill vacancies throughout the rural area the Clinic serves.
In addition to physician openings, the Clinic presently has 237
staff vacancies. These include open positions for nurses, medical
assistants, MRI/ laboratory/ECG/ Nuclear medicine technicians,
phlebotomists, housekeepers, clerks, programmers, medical illustrators,
social workers, and many others that are essential components of a
large integrated system of care.
In our experience serving a large rural region in northern
Wisconsin, the Medicare payment system falls far short of meeting the
cost of delivering medical services to Medicare beneficiaries. To
continue to exist as an organization, such revenue shortfalls are
subsidized by private sector insurers, such as employer sponsored
health coverage.
At Marshfield Clinic, we conducted an internal analysis to
determine to what extent the Medicare program covers the cost of
providing services to Medicare beneficiaries. Our analysis demonstrated
that the Clinic presently recovers only about 70% of its costs in
providing Medicare Part B services. Specifically, for FY 2000 Medicare
revenue was 71.52% of costs for fee-for-service Medicare. For FY 2001
Medicare revenue (un-audited) as a percent of costs goes down to
70.59%. For FY 2002 we project that Medicare revenue will decrease as a
percent of costs to approximately 68.5%.
To calculate the percent of its Medicare allowed costs for which
Medicare reimbursement is received, Marshfield accountants eliminated
all expenses and revenues received that might potentially be questioned
by the Medicare program. Our methodology for FY 2000 follows principles
applied in our annual federally qualified health center (FQHC) cost
report that was audited by external auditors and submitted to the
state. (Marshfield Clinic in conjunction with Family Health Center Inc.
functions as a FQHC under the Medicaid Program.) For the purposes of
this analysis, all expenses and revenues from activities such as the
outreach lab, veterinary lab, research and education, rental property
and optical and cosmetic surgery departments were removed. Our
accountants also removed all non-Medicare ``allowed'' costs related to
our bad debt, interest expenses, marketing programs, government affairs
activities, National Advisory Council, goodwill amortization and other
miscellaneous costs.
effect of sgr volatility
Like other practices, at Marshfield, we are directly impacted by
the volatility of the current SGR system as well as the 5.4% shortfall.
The magnitude of the discrepancy between the 0.2% reduction, which CMS
predicted in March 2001, and the November 1 5.4% announced cut placed
the Clinic in an untenable position. Using the best available data from
CMS, Marshfield Clinic budgeted a 0.1% reduction in Medicare Part B
reimbursement for 2002.
In 2001, the Clinic had net earnings as a percent of revenue of
1.58%, 2.87% in FY 2000, and 0.86% in FY 1999. These tight operating
margins highlight how even minor fluctuations in the revenue stream
have a material impact on operations. Under the current Medicare
Payment system, SGR volatility plays havoc with our planning and
budgeting initiatives.
We presently calculate that the revenue impact of the Medicare
payment cut will be negative $2.8 million for CY2002. Such losses
compromise planned capital equipment purchases, acquisition of new
technology, and the Clinic's determination to expand the infrastructure
of services in the rural areas throughout the 20 plus counties we
serve. There are also many forms of Community Support in which the
Clinic is involved including charity care, patient assistance, and
charitable donations. While it is not the desire of the Clinic to
withdraw this support to offset the losses, the Clinic's ability to
maintain the same level of support will be constrained.
barriers to new markets
Marshfield Clinic is in the final stages of an internal analysis to
determine the feasibility of entering the Medicare+Choice market. Our
objectives as a system are to improve beneficiary choices and expand
services in areas that are presently underserved throughout north,
central and western Wisconsin. By entering the M+C program, we hope to
help support the infrastructure needed to fund information system
improvements and implement targeted care management for the population
we serve. The start up costs of implementing a Medicare+Choice plan are
significant, and the prospect of breaking even is challenging because
the health conditions of Medicare beneficiaries in the Marshfield area
are slightly more complex than the national average and risk adjustment
is uncertain. It is also very difficult to market to Medicare
beneficiaries when they are spread so far geographically. From a
beneficiary perspective, the Marshfield's M+C plan holds great value
because beneficiaries with MediGap insurance could receive a nearly
identical benefit plan and save between $35 and $95 per person per
month to join the plan. Unfortunately, the greatest challenge to this
effort comes as a result of the Medicare fee-for-service payment cuts
that have reduced the revenue the Clinic needs to take risks in
bringing on line a new product. At this time, Marshfield is uncertain
whether it is feasible in the present environment of pay cuts and SGR
volatility to become a Medicare+Choice plan.
stability of the medicare program threatened
I thought it important to quote from physician group practices
around the country that have contacted MGMA to express their concerns.
Each of these practices faces the daunting task of managing the 2002
cut and dealing with the uncertainty of how to plan for the future.
These are but a few of the reports we received expressing concern over
the existing situation:
A 225 physician group practice in Pennsylvania stated ``we
will have to close some of our offices, forcing our elderly
patients to travel a much greater distance to more centralized
locations if these rate decreases continue.''
A group of 500 family physicians and internists responded that
``we have restricted new Medicare patient access . . . this
will become terrible for this needy and deserving population.''
A group of 180 physicians in New York said ``we will need to
discontinue senior outreach programs, thus not allowing us to
sustain services at current levels.''
Several group practices in the Northwest reported ``to
survive, we will be limiting Medicare access.''
A group in southeastern Wisconsin summed up their planning in
the following fashion. ``We are already having discussions
regarding the closure of the practice to new Medicare patients.
Unfortunately, we see no other alternatives, particularly if
the 2002 Medicare reduction stands. Without adequate
reimbursement, we simply will not be able to continue to offer
the level of care that our physicians expect of themselves
without limiting access.''
One group of orthopedists in North Carolina reported ``we will
be forced to limit our exposure to Medicare recipients.''
A practice of over 400 physicians in Utah reported that ``the
reduction in payment places a significant, if not impossible,
strain on our desire to provide services to the Medicare
population within our community.''
recommendations
Last month, the Medicare Payment Advisory Commission voted to
recommend that Congress repeal the current SGR system. MGMA strongly
supports this recommendation.
MedPAC also recommended that annual Medicare physician payment
updates be based on changes in input prices that reflect actual medical
practice costs as opposed to linking physician payments to GDP. Using
this formula, MedPAC recommended a 2.5 percent Medicare payment
increase in 2003. MGMA strongly supports this framework but believes
work remains on the development of accurate price measures to reflect
true costs.
MGMA also agrees with MedPAC that if the Medicare Economic Index
(MEI) is to be used to measure practice cost inflation, it must be
improved. The MEI should be updated to include a number of significant
costs borne by physician practices.
Mr. Chairman, over the past year this Committee has shown
tremendous leadership in addressing onerous regulatory obligations
faced by Medicare providers. MGMA testified before the Committee last
year regarding the impact of some of these regulatory burdens which
include: communication failures with Medicare contractors, increased
requirements for documentation, conflicting Medicare rules, costly
compliance programs, needle stick prevention rules, onerous privacy
provisions, and the un-funded requirement that practices provide free
interpreters for patients with limited English proficiency. In
addition, practices in many states currently face a crisis regarding
premium increases for professional liability insurance. The current MEI
does not accurately measure these costs. MGMA pledges to work with
Congress to improve the precision of these practice cost measurements.
As members of Congress, it is important for you to understand the
global impact of changes to the Medicare fee schedule. In addition to
the direct Medicare implications, physician group practices have
contracts with private payers who benchmark their payment rates to the
Medicare fee schedule. A drop in Medicare payments will mean a
commensurate drop in reimbursement from numerous other payers linked to
Medicare, damaging group practices ability to provide care to both
Medicare beneficiaries and privately insured patients. The true test of
a system is how well it takes care of those most in need. Presently the
Medicare payment system places those most in need in jeopardy. Mr.
Chairman, this Subcommittee has shown its leadership and understanding
of this important point by its virtually unanimous co-sponsorship of
H.R. 3351 ``Medicare Physician Payment Fairness Act.''
We appreciate all of your hard work and, as you move forward, urge
you to take the following steps to correct the existing system:
Immediately halt the 5.4% physician payment cuts went into
effect on January 1, 2002.
Adopt MedPAC's recommendation to eliminate the SGR system.
Develop a system so that Medicare payments match the real
world costs of delivering efficient quality services to
Medicare beneficiaries.
Mr. Bilirakis. Thank you. Thank you very much, Dr. Turney.
Thanks to all of you. You have really reinforced in such a
great down to earth, real world way concerns that I think every
member of this committee has regarding what has taken place
with respect to physicians' update.
I know that we're all very anxious to at least improve or
come up with a new formula, whether it be the MedPAC one or one
that's going to be fair, that's going to be more real world and
take into consideration the concerns not only of the
physicians, but obviously of the patients.
We're going to have to empty this room. So we're not going
to have time to do what we want to do and that is to orally ask
you questions. So what I'm asking the members to do is you have
48 hours to submit to us any questions you want to be forwarded
to this Panel and then of course, staffs will be working on
others. So I'm going to ask you to respond in a timely fashion
to these questions we will be asking and at the same time
implore upon you to make suggestions. You know, you've all
apparently expressed support, as I understand it from your
written testimony, for the MedPAC recommendation. We don't
really know how that's going to go. I mean right now I would
say that's probably leading the pack, but if you have any other
thoughts, whether you have improvements upon that formula, or
something in lieu thereof, whatever it might be, feel free to
bring it to the committee's attention. I assure you we will
spend an awful lot of time on this issue.
Mr. Norwood. Mr. Chairman, the answers to our questions
will be placed in the record?
Mr. Bilirakis. The answers to our questions and the answers
thereto, will be made a part of the record. So with your help
we're going to try to get this problem solved once and for all.
Obviously, you know, democracy works only if the public gets
involved and as great as it is for you to be here, and your
testimony as helpful as it is, getting your folks back home to
lobby, lobby, lobby is really most of the answer to resolving
any problem we may have up here.
Having said that, I will thank you on behalf of the entire
committee. And I'm going to have to ask everybody other than
maybe members of the press to vacate this room. Thank you very
much. The hearing is adjourned.
[Whereupon, at 11:07 a.m., the hearing was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of the American Academy of Family Physicians
Physicians and other health practitioners have experienced a sharp
(5.4 percent) across-the-board reduction in their Medicare payments
beginning January 1st. These cuts apply to all services and to more
than one million health professionals. The Medicare Payment Advisory
Commission (MedPAC) has called for the elimination of the current
update formula and warned that cuts of the magnitude expected under
this formula could raise concerns about the adequacy of payments and
beneficiary access to care. AAFP agrees with that assessment and joins
in urging Congress to take immediate steps to ``freeze and revise'';
that is, freeze the conversion factor (payment rate) at the 2001 level
and work to revise the update formula as recommended by MedPAC.
Currently, Medicare officials are required to use a seriously
flawed [because it's tied to business cycle not patient need],
statutory formula to calculate physician conversion factor updates
which take effect each January 1 and which apply to chiropractors,
optometrists, nurse practitioners, therapists and many other
practitioners in addition to doctors of medicine and osteopathy. This
formula known as the sustainable growth rate (SGR) restrains aggregate
Part B spending and ties this spending target to the business cycle
rather than patient need. Despite 1999 legislation that attempted to
stem volatility, large and unpredictable payment swings with potential
cuts of more than 5 percent a year are still occurring.
The cut experienced this year makes the fourth time in 11 years
that Medicare physician payment rates have been reduced. During that
time, physicians and other practitioners have been inundated with
expensive new government regulations requiring physicians to provide
interpreters, dedicate staff to documenting and overseeing compliance
plans and supply unnecessary and duplicative documentation. Yet,
Medicare payments during the same 11 years have risen by an average of
just 1.1 percent a year or 13 percent less than the government's own
estimate of practice cost inflation.
The gap between cost inflation and Medicare's payment updates is
already starting to take its toll and a negative update could greatly
exacerbate the situation. In the last year or so, access problems have
been reported in Atlanta, Phoenix, Albuquerque, Annapolis, Denver,
Austin, Spokane, northern California and Idaho. AAFP data reveals that
17 percent of family physicians are not taking new Medicare fee-for-
service patients.
Perhaps the most striking example of the payment rate cut can be
illustrated by the experience of Dr. Baretta Casey:
Dr. Casey has done what the government wants many physicians
to do: set up practice in an underserved area, taking care of
many patients on Medicare and Medicaid. She came to medicine
later in life than many do, as a wife with two children--three
by the time she graduated. She wanted to become a family doctor
and practice in her Appalachian hometown of Pikeville, Ky.
Her business background stood her in good stead. She bought
an office building at an auction, rented out the top floor to
offset the cost of her first-floor office, computerized her
practice from the start and opened her doors as a solo
practitioner eight years ago.
Thanks to the booming practice and conservative living, Casey
significantly paid down her $145,000 in student loans her first
full year. But that was as good as it got. Ensuing years didn't
get better. In fact, they got worse.
On her computer Dr. Casey watched while medical expenses
continued to grow but payment rates failed to keep pace. Dr.
Casey says: ``As a solo practitioner, I pay for everything. And
the increase in expenses hasn't been the measly little
percentage you hear forecasted by the government. I've tracked
it on my computer. It has gone up 10 to 15 percent every
year.''
``It took about six years, but at the six-year mark, expenses
and income literally met in the middle,'' she says. ``This past
year, they crossed over. And now, I have to dip into my savings
to cover the extra expense. I'm basically subsidizing my own
practice out of a savings account.''
And now, in 2002, the worst blow of all--the 5.4 percent cut
in the Medicare conversion factor. ``I've had to make some
decisions,'' Dr. Casey says. ``I won't take any new Medicare
patients or any new patients with any insurance company that
follows suit and drops payment.'' And ultimately, she says,
``If things don't change, I probably couldn't stay in practice
any more than two more years.''
Dr. Casey has a message for Washington:
``If our reimbursement rates continue to go down and our
expenses continue to go up,'' she says, ``you will see an
exodus of physicians out of rural areas like Moses out of
Egypt. It's not because doctors don't care about their
patients. They do, tremendously.''
``It's because nobody is going to continue in a field or in a
business when they're losing 10 to 15 percent per year. The
practice of medicine is like any other business: If you can't
pay your bills, you can't survive.''
Experience has already shown the danger of unrealistic payment
rates in Medicaid, where twenty years of studies have consistently
concluded that fee levels affect both access and outcomes. Medicare is
not immune from similar problems as has been made abundantly clear by
the continued exodus of Medicare+Choice plans from the program despite
a guaranteed pay increase of at least 2 percent a year. Some 85 percent
of elderly and disabled Americans rely on fee-for-service Medicare and
for an ever-increasing number, there is no other option available.
The American Academy of Family Physicians and its 93,500 members
urge Congress to act now to freeze the conversion factor at last year's
rate as we all work to revise the flawed formula that causes volatile
swings and insufficient reimbursement for physicians. Your action will
ensure that Medicare patients can continue to receive the care they
depend on and deserve.
______
Prepared Statement of American Academy of Otolaryngology--Head and Neck
Surgery
The American Academy of Otolaryngology--Head and Neck Surgery (AAO-
HNS) is pleased to submit this statement for the record of the Energy
and Commerce Subcommittee on Health's hearing on the future of
Medicare's payment policy. AAO-HNS, representing more than 10,000
otolaryngologist--head and neck surgeons across the country, is the
national medical association of physician specialists dedicated to the
care of patients with disorders of the ears, nose and throat and
related structures of the head and neck. We are often referred to as
ENT physician specialists.
On November 1, 2001, the Centers for Medicare and Medicaid Services
(CMS) announced a 5.4% reduction in the Medicare physician fee schedule
conversion factor that resulted in an across-the-board cut in Medicare
physician fees. This significant decrease, which went into effect
January 1, 2002, reduced the conversion factor from $38.2581 to
$36.1992 and sparked a unified and exhaustive effort in the physician
community to urge Congress and the Administration to provide relief
from the payment cut. However, despite overwhelming support by a
majority of the House and Senate, Congress adjourned on December 21,
2001 without addressing the physician payment update and left
physicians struggling to cope with the largest payment cut since the
inception of the fee schedule.
It has been only six weeks and yet the reduction in physician
payments has had immediate ramifications for physicians and the
patients they treat. Physicians in every state are losing thousands of
dollars in Medicare reimbursements, with specialists taking the hardest
hit. The loss of revenue compounded with rising practice costs and
increasing medical liability premiums are forcing physicians to lay off
staff, reduce services and treat fewer Medicare patients in an attempt
to keep their practices afloat. The overwhelming number of state and
federal regulations and the inherent cost of remaining current and
compliant further exacerbate the problems facing physicians.
Unfortunately, these problems are not unique and will continue to
adversely affect patients unless a permanent and equitable adjustment
to the formula that determines physician payment is found. Linking
physician reimbursements to the U.S. Gross Domestic Product (GDP) and
the fluctuations of the nation's economy is an inaccurate measurement
of the true cost of practicing medicine.
Otolaryngologists are committed to providing their patients with
the highest quality of care, including the latest technologies and
procedures available. The significant reductions in reimbursement
coupled with rising practice expenses, may force physicians to increase
patient volume thus spending less time with individual Medicare
patients. Reluctantly, doctors may forsake the treatment of Medicare
patients altogether to preserve the viability of their practices and
their dedication to quality care. The unfortunate consequences of the
cut will ultimately jeopardize Medicare beneficiaries' access to
physician services.
We urge Congress to take immediate action to prevent any further
erosion to an already fragile system. The best way to ensure access to
high quality care to each and every Medicare beneficiary is to devise a
permanent solution to the physician payment formula that reflects the
real-world cost of treating patients.
The AAO-HNS is pleased that the Subcommittee is addressing the
important issue of adequate Medicare reimbursements for physicians. We
welcome the opportunity to work with the Subcommittee to address the
flawed formula currently used to calculate the physician payment
update.
Thank you for the opportunity to submit this statement.
______
American College of Osteopathic Family Physicians
February 15, 2002
The Honorable Michael Bilirakis
Chairman
Energy and Commerce Health Subcommittee
2125 Rayburn House Office Building
Washington, DC 20515
Dear Chairman Bilirakis: On behalf of the 21,000 osteopathic family
physicians represented by the American College of Osteopathic Family
Physicians (ACOFP), thank you for holding the hearing ``Medicare
Payment Policy: Ensuring Stability and Access Through Physician
Payments.''
The ACOFP appreciates the leadership role that you and the
Committee took in 2001 to try to prevent the 5.4% cut in the Medicare
fee schedule from taking place on January 1st. We continue to support
strongly the ``Medicare Physician Payment Fairness Act of 2001'' (H.R.
3351) and look forward to working with you and the Committee to ensure
its enactment. As you know, H.R. 3351 has over 315 cosponsors. We feel
that any bill with this type of bipartisan support deserves immediate
action.
As you begin to formulate a strategy, and potentially draft new
legislation, the ACOFP offers the following recommendations:
Immediately halt the 5.4% Medicare payment cut;
Repeal the sustainable growth rate (SGR) system;
Replace the Medicare payment update formula with a new system
that reflects increases in practice costs, increased
utilization and other relevant factors; and
Work with the House Budget Committee to ensure that
appropriate funds are set-aside in the budget resolution to
replace the Medicare physician payment update formula,
beginning in 2003.
The ACOFP also requests that the Committee seriously consider the
recommendations made by the Medicare Payment Advisory Commission
(MedPAC) regarding the development of a new payment formula. The ACOFP
supports the MedPAC proposal and urges its consideration by the
Committee.
Mr. Chairman, the ACOFP appreciates the invitation you extended to
Congressman Doug Bereuter to share his thoughts on Medicare payment
inequities. We have long supported legislation that would remove the
geographic disparities in Medicare reimbursements. We support Rep.
Bereuter's ``Rural Equity Payment Index Reform Act'' (H.R. 3569). It
was evident by comments made during the hearing that a number of
Committee members are concerned about payment policies that adversely
effect rural areas. H.R. 3569 would raise all localities with a
physician work adjuster below 1.000 to a floor of 1.000 over a five-
year period. We believe that H.R. 3569 provides an opportunity to
improve health care in rural areas and we encourage the Committee to
consider it during its deliberations.
Mr. Chairman, thank you for the leadership you have displayed on
these and many other health care issues. The ACOFP and our members
stand ready to assist you and the Committee. Please contact Shawn
Martin, Director of Government Affairs at (202) 414-0147 for additional
information.
Sincerely,
Louis J. Radnothy, D.O., FACOFP
President
cc: The Honorable W.J. Tauzin, The Honorable John Dingell, The
Honorable Sherrod Brown, ACOFP President-Elect, ACOFP Board of
Governors, ACOFP Executive Director, Chairman AOA Council on
Federal Health Programs, AOA Department of Government Relations
______
American College of Physicians
American Society of Internal Medicine
February 14, 2002
The Honorable Michael Bilirakis
Chairman
Committee Energy and Commerce Subcommittee on Health
2125 Rayburn House Office Building
Washington, DC 20515
The Honorable Sherrod Brown
Ranking Member
Committee Energy and Commerce Subcommittee on Health
2125 Rayburn House Office Building
Washington, DC 20515
RE: Addendum to ACP-Aim's Statement for the Record for the February 14,
2002 Hearing, ``Medicare Payment Policy: Ensuring Stability and Access
Through Physician Payments.''
Dear Representatives Bilirakis and Brown: The American College of
Physicians-American Society of Internal Medicine (ACP-ASIM)--
representing 115,000 physicians and medical students--is the largest
medical specialty society and the second largest physician organization
in the United States. Internists provide care for more Medicare
patients than any other medical specialty. ACP-ASIM wishes to extend
its sincere gratitude to the Committee for its efforts in assuring
stability and access in the health care system through adequate
physician payment.
ACP-ASIM recently provided a statement for the record for the
February 14, 2002 hearing entitled, ``Medicare Payment Policy: Ensuring
Stability and Access Through Physician Payments.'' We are writing today
to elaborate and clarify our position on the MedPAC's recommendations
that will be contained in their March 2002 Report to Congress. We would
request that the Committee include this addendum along with our
official statement in the interest of a complete and accurate hearing
record.
ACP-ASIM strongly supports the MedPAC's goal of ``achieving
consistent payment polices'' for physicians and their practices.
Therefore, ACP-ASIM supports the Commission's recommendation to replace
the SGR system and to require Medicare to update payments for physician
services based on the estimated change in input prices for the coming
year as measured by the Medicare Economic Index (MEI). We agree that
any productivity adjustment for physician services should be based on
several factors instead of being based on labor costs alone, and that
this should be applied as a separate adjustment to the update, rather
than being included in the MEI itself. Further, ACP-ASIM supports the
Commission's recommendation to update the physician fee schedule by 2.5
percent for 2003.
We are recommending one addition to the MedPAC's recommendations,
however. Legislation to eliminate the SGR formula and replace it with
the MedPAC update framework should specify that if Congress declines in
any given year to enact legislation to establish the physician fee
schedule update based upon recommendations of the MedPAC, a default
update equal to the modified MEI, i.e., the MEI excluding the
productivity factor, MINUS a separate .5% productivity adjustment,
shall apply. This adjustment would, at the very least, assure some
predictability and stability in the update in the coming years,
notwithstanding our reservations about applying an automatic
productivity adjustment to the update (See the original ACP-ASIM
statement for the hearing record).
Finally, ACP-ASIM continues to seek a halt to the 5.4% cut that
went into effect in January 2002 and calls on Congress to enact
immediate relief. Correcting the problem in 2003, by replacing the SGR
formula with the MedPAC framework, will not be sufficient to undo the
harm created by the 5.4% cut. We are concerned that Congress may delay
action on halting the 5.4% cut by bundling this relief into other
Medicare reforms that may not be acted upon until late in the
congressional session.
We urge the Committee to report legislation to (1) put an immediate
halt to the 5.4% reduction (2) replace the SGR formula with the MedPAC
framework, with the addition of the above default mechanism recommended
by ACP-ASIM and (3) establish the 2003 update at 2.5%. Such measures
should be reported and acted upon by Congress prior to, and independent
of, other needed Medicare reforms.
Again, ACP-ASIM wishes to thank the Committee and its members for
their interest in ensuring adequate Medicare physician payment. We
would appreciate the Committee including this addendum along with our
official statement for the record. If we can be of assistance to the
Committee throughout this process in any way, please do not hesitate to
let us know.
Sincerely,
Robert B. Doherty
Senior Vice President, Governmental Affairs and Public Policy
______
Prepared Statement of the American College of Physicians--American
Society of Internal Medicine
The American College of Physicians-American Society of Internal
Medicine (ACP-ASIM)--representing 115,000 physicians and medical
students--is the largest medical specialty society and the second
largest medical organization in the United States. Internists provide
care for more Medicare patients than any other medical specialty. We
congratulate the Subcommittee on Health for holding this important
hearing. Of the College's top priorities for 2002, addressing the
inadequacies of physician payment is the most critical to our members.
ACP-ASIM thanks Congressmen Michael Bilirakis, Chairman of the
Subcommittee, Sherrod Brown, Ranking Member of the Subcommittee, and
other members, for holding this important hearing to discuss ways to
ensure stability and access in the health care system through adequate
physician payment. We also want to extend special appreciation to
Chairman W.J. ``Billy'' Tauzin and Ranking Member John Dingell for
their efforts to seek stability in the physician payment system.
background
Beginning January 1, 2002, Medicare reimbursement payments to
physicians and other health care professionals fell an average 5.4
percent. Despite serious concerns raised by ACP-ASIM and other medical
associations, and warnings from the Medicare Payment Advisory
Commission (MedPAC), medicine is having to endure the fourth physician
payment cut in ten years.
This is not a problem that was created overnight. Congress adopted
the current physician payment methodology (known as the Sustainable
Growth Rate or SGR) in the Balanced Budget Act of 1997. Even then, ACP-
ASIM recognized the serious flaws inherent in the SGR payment system
and voiced our concern. Congress attempted to make corrections to the
payment formula in 1999 with the Balanced Budget Refinement Act,
however, it was not sufficient enough to correct the intrinsic
problems. The recent economic downturn the country is now facing has
only exacerbated the problem.
Recognizing the unfairness of the SGR methodology and the
tremendous hardship it has placed on physicians across the country, a
super-majority of members of Congress cosponsored legislation that
would stymie the magnitude of the 5.4 percent cut. Introduced in the
waning days of the first session of the 107th Congress, ``the Medicare
Physician Payment Fairness Act of 2001,'' (H.R. 3351 and S. 1707) would
have cut the SGR update to physicians to 0.9 percent, rather than the
current 5.4 percent cut. ACP-ASIM continues to strongly support this
legislation. Unfortunately, Congress failed to act prior to adjournment
and physicians are consequently now beginning to feel the affects of an
across-the-board reduction in their medical practices.
flawed data used in formula
The 5.4 percent across-the-board reduction in Medicare payment is
primarily due to the flawed SGR system that governs the annual payment
for physician services. The SGR system errantly ties physician payment
to the Gross Domestic Product (GDP). There is no other segment of the
health care industry that uses such a methodology to update payment.
What is most unfortunate is that this method of tying physician payment
to the health of the overall economy bears absolutely no relation to
the cost of providing actual physician services. In the years where the
economy is facing a downturn, such as today, a reduction in physician
payment is significant.
In its March 2002 report to the Congress, MedPAC expresses grave
concern about the underlying problem of tying the SGR to the economy.
MedPAC reports that the current SGR system may even cause payments to
deviate from physician costs because it does not fully account factors
affecting the actual cost of providing services. Specifically, while
the current SGR payment system accounts for input price inflation and
productivity growth, it provides no opportunity to account for other
factors, such as an increase in the regulatory burden of the Medicare
program.
In addition to the flawed SGR payment system, physicians have
repeatedly been penalized for inaccurate estimates in the past. Since
the SGR payment formula was first utilized in 1998 and 1999, Medicare
officials have consistently relied upon flawed data for the annual
update. Because the SGR formula is cumulative (i.e., it relies on
previous years' estimates), these errors that were never corrected are
compounded, further exacerbating the problem year after year. Due to
these successive errors, the spending target is about $15 billion lower
than it actually should be.
effect on physicians and their patients
A physician payment cut of this proportion is a tremendous blow to
physicians, particularly internists. According to a 2001 Medical Group
Management Association study, Medicare payments account for nearly 50
percent more of the average internists revenue than the average primary
care physician. The 5.4 percent physician payment cut comes at a time
when malpractice premiums are at their highest levels, the amount of
regulatory burden it at its peak (such as costs associated with
complying with HIPAA), and the costs of other overhead expenses are
dramatically increasing. This culmination of events may force
physicians to make difficult choices in order to continue to operate.
Facing the rising cost of practicing medicine, physicians may be
forced to limit the number of Medicare patients in their practice; lay
off staff that help Medicare patients with appointments or medications;
relocate to areas with a younger, non-Medicare eligible patients; spend
less time with Medicare patients; discontinue participation in the
Medicare program; limit or discontinue investment in new technology;
limit or discontinue charitable care; or retire. A recent American
Academy of Family Physicians study confirmed that physicians are having
to make tough decisions, citing that nearly 30 percent of family
physicians are not taking new Medicare patients.
This will make it even more difficult for patients to gain access
to an increasingly under-funded health care system. The effects of the
most recent cut in reimbursement will most likely be hardest felt in
rural areas. The problems that we see today will certainly only get
worse unless the methodology in which physician payment is computed is
immediately addressed.
In a survey sponsored by MedPAC and conducted by Project HOPE and
The Gallup Organization in 1999 (Schoenman and Cheng 1999), many
physicians expressed concerns about payment levels. About 45 percent of
them said that reimbursement levels for their Medicare fee-for-service
patients were a very serious problem, compared with 25 percent who
reported reimbursement levels for private fee-for-service was a very
serious problem.
Finally, many physicians who responded to MedPAC's 1999 survey
reported that they had taken steps to reduce their practice costs. More
than one-half said their practice had reduced staff costs, and two-
thirds said their practice had delayed or reduced capital expenditures.
It should be noted that because this survey was taken three years ago,
it does not reflect the current level of physician concern--which is
likely to be even greater given the 5.4% reduction that went into
effect on January 1, 2002.
More recent studies confirm doctor frustration with inadequate
reimbursement from all areas of physician payment. In Washington State,
for example, a Washington State Medical Association poll of members in
November 2001 revealed that 57 percent of physicians said that they are
limiting the number or dropping all Medicare patients from their
practice. The report blames the many years of decline of the state's
health care delivery system, characterized by a slow erosion of funding
for public health, growing administrative expenses for practitioners
and mounting frustrations of physicians trying to cope with myriad of
regulations.
In December 2001, the American Medical Association conducted a
state-by-state analysis of the impact of the 5.4% Medicare cut, which
revealed a tremendous blow to the states. In Louisiana, for example,
physicians' total Medicare losses will exceed $28 million. In Michigan,
physicians are expected to lose $105 million. Surveys in both Louisiana
and Michigan show that 80 percent of physicians in the over-50 age
group are considering retirement or job changes. Florida physicians
stand to lose more than $206 million, making it the second highest loss
only to New York ($207 million) in physician payment reduction. And in
Ohio, physicians' total Medicare losses will exceed $95 million, making
Ohio the eighth ranked state in total Medicare losses.
medpac recommendations to congress
In its March 2001 report to the Congress, MedPAC recommended that
the Congress replace the SGR system with an annual update methodology
based on factors influencing the unit costs of efficiently providing
physician services. According to MedPAC, getting the price right is
more important than controlling spending through the payment mechanism.
The Commission noted that the main problems with the SGR were that it
failed to account for all relevant factors that affect the cost of
providing services, and the system exacerbates Medicare's problem of
paying different amounts for the same service depending on where it is
provided (physician's office, hospital outpatient department,
ambulatory surgical center). The Commission added that other inherent
problems with the SGR system stem from its volatility and
unpredictability. These problems are as true today as ever.
In MedPAC's March 2002 Report to Congress, the Commission will once
again recommend that Congress repeal the SGR system due to these same
concerns. This time, however, MedPAC offers more concrete
recommendations for Congress to ask the Secretary of HHS to have
implemented for the year 2003 and beyond.
MedPAC's proposed payment method would make updates to physician
services similar to the updates for other services and promote the goal
of ``achieving consistent payment polices'' across ambulatory care
settings, including physician offices, hospital outpatient departments,
and ambulatory surgical centers. MedPAC's recommendations are as
follows:
(1) The Congress Should Repeal the Sustainable Growth Rate System and
Instead Require that the Secretary Update Payments for
Physician Services Based on the Estimated Change in Input
Prices for the Coming Year, Less and Adjustment for Growth in
Multifactor Productivity;
(2) The Secretary Should Revise the Productivity Adjustment for
Physician Services and Make it a Multifactor Instead of a
Labor-Only Adjustment; and
(3) The Congress Should Update Payments for Physician Services by 2.5
Percent for 2003.
The Congress Should Require the Secretary to Update Payments for
Physician Services Based on the Estimated Change in Input
Prices, Less and Adjustment for Growth in Multifactor
Productivity
In MedPAC's first recommendation to repeal the SGR system, the
Commission states, ``Replacing the SGR system in this way would solve
the fundamental problems of the SGR system.'' The adjustment the
Commission recommends would change the current measure of input price
inflation for physician services--the Medicare Economic Index (MEI)--to
make it a forecast of input price growth for the coming year. Further,
the productivity adjustment from the MEI would also be removed so the
MEI is only a price measure and productivity can be considered
separately in update decisions.
The Secretary Should Revise the Productivity Adjustment for Physician
Services and Make it a Multifactor Instead of a Labor Only
Adjustment
MedPAC's second recommendation to revise the productivity
adjustment to account for labor and nonlabor factors is consistent with
the way physician services are produced. While labor accounts for the
majority of the costs for providing physician services, other inputs,
such as office space, medical materials and supplies, and equipment,
are also important to consider. This adjustment would more accurately
measure growth in productivity by considering all inputs. However, ACP-
ASIM cautions that tying physician productivity in order to lower the
physician payment update may be problematic. Due to increased
compliance with federal regulations, such as Medicare paperwork and
HIPAA mandates, this may be what is contributing to the lower
productivity, and may therefore skew the update. MedPAC acknowledges
this problem, but admits that it has little or no data to support
compensating for this issue.
The first two recommendations in physician payment methodology
would allow the updates to more fully and accurately account for
factors affecting costs, and it would decouple payment updates from
spending control. Further, the revision to the productivity adjustment
will make payment of physician services consistent with modern methods
of measuring productivity, and make payments stable and predictable
from year to year.
Congress Should Update Payments for Physician Services by 2.5 Percent
for 2003
MedPAC's third recommendation to update physician services by 2.5
percent for January 2003 is the application of the first two
recommendations. Since input prices are expected to rise 3 percent in
2002, when factored in with a 0.5 percent productivity adjustment, the
result yields a 2.5 percent payment increase.
solution
ACP-ASIM strongly supports MedPAC's goal of ``achieving consistent
payment polices'' for physicians and their practices. Therefore, ACP-
ASIM supports the Commission's recommendation to replace the SGR system
and to require Medicare to update payments for physician services based
on the estimated change in input prices for the coming year. We
believe, however, that there needs to be further examination of the
MedPAC recommendation to apply a negative adjustment to the update for
productivity growth. We agree that any productivity adjustment for
physician services should be based on a several factors instead of
being based on labor costs alone. ACP-ASIM also supports the
Commission's recommendation to increase physician payment by 2.5
percent for 2003. Further, ACP-ASIM believes that consideration should
be given to establishing an automatic default update, based on the
revised MEI, should Congress decline to act on MedPAC's recommendation.
These necessary changes will not only put the physician payment
system in line with other segments of the health care industry, but
more importantly, these changes will allow for an accurate accounting
for all factors that impact the cost of providing physician services.
Further, these changes will also contribute to a more stable and
predictable physician payment schedule for years to come.
Finally, ACP-ASIM continues to support legislation, H.R. 3351 and
S. 1707, ``the Medicare Physician Payment Fairness Act of 2001''--that
would cut the SGR update to physicians to 0.9 percent, rather than the
current 5.4 percent cut--or any other legislative vehicle that would
bring immediate relief and halt the 5.4 percent payment cut.
conclusion
ACP-ASIM is pleased that the Subcommittee is addressing the serious
problems associated with the current SGR physician payment system. We
strongly urge the Subcommittee to adopt the MedPAC recommendations in
the March 2002 Report to the Congress, and ask the Subcommittee to halt
the 5.4 percent cut that became effective on January 2002 as quickly as
possible.
______
Prepared Statement of The American College of Radiology
The American College of Radiology (ACR) welcomes the opportunity to
submit written testimony for the record to the House Energy and
Commerce Subcommittee on Health regarding its February 14, 2002 hearing
entitled ``Medicare Payment Policy: Ensuring Stability and Access
Through Physician Payments.''
The ACR is very concerned about the drastic reduction in the
conversion factor and that this significant across-the-board cut could
exacerbate existing access problems for Medicare beneficiaries,
particularly in rural communities. The conversion factor reduction
stems from a fatally flawed formula that penalizes physicians for
economic downturns and from CMS data errors that have short-changed
physicians by $15 billion since 1998 and 1999. This would be the fourth
broad-scale reduction in physicians' and other practitioners' fees
since 1992 and has brought the average increase in Medicare fees
between 1991 and 2002 down to just 1.1 percent a year--or 13 percent
less than the government's own estimate of practice cost inflation.
Over the last 10 years, physicians have been inundated with
expensive new federal requirements and the gap between payments and
costs has already led to access problems for Medicare beneficiaries in
Atlanta, Phoenix, Albuquerque, Annapolis, Denver, Austin Spokane,
northern California and Idaho. Experience with Medicaid has already
shown the danger of unrealistic payment rates and Medicare is not
immune from similar problems as has been made abundantly clear by
Medicare+Choice plans' continued exodus from the program despite a
guaranteed pay increase of at least 2% a year. Some 85% of elderly and
disabled Americans rely on fee-for-service Medicare and for an
increasing number, there is no other option available.
As devastating as the 2002 reductions in the Medicare Conversion
Factor are, the College is deeply concerned about the very real
possibility that there may be similar reductions in 2003. ACR, the
Medicare Payment Advisory Commission (MedPAC) and other medical
specialty societies agree that if changes are not made to the present
conversion factor update formula, and future cuts in the conversion
factor continue, the ability of physicians to continue to treat
Medicare patients will be in serious jeopardy.
To address the problems described above, the ``Medicare Physician
Payment Fairness Act of 2001,'' H.R. 3351, was introduced in the House
on November 27, 2001 by Rep. Michael Bilirakis (R-Fla.). This bill
would create an opportunity for Congress to make systemic changes in
the physician update system. Specifically, it would reduce the current
$38.26 conversion factor by 0.9 percent. In addition, it would ask the
Medicare Payment Advisory Commission (MedPAC) to make further
refinements in the commission's earlier proposal to eliminate the
expenditure target or Sustainable Growth Rate (SGR) that now helps
determine annual updates in the conversion factor. HR 3351 currently
has 316 cosponsors. The College fully supports this legislation.
The American College of Radiology is ready to work with the
Subcommittee and all of Congress to ensure that this country's Medicare
population continues to receive the care it deserves.
______
American Osteopathic Association
February 15, 2002
The Honorable Michael Bilirakis
Chairman
Energy and Commerce Health Subcommittee
2125 Rayburn House Office Building
Washington, DC 20515
Dear Chairman Bilirakis: On behalf of the 48,000 osteopathic
physicians represented by the American Osteopathic Association (AOA),
thank you for holding the hearing ``Medicare Payment Policy: Ensuring
Stability and Access Through Physician Payments.''
The AOA appreciates the leadership role that you and the Committee
took in 2001 to try to prevent the 5.4% cut in the Medicare fee
schedule from taking place on January 1st. We continue to support
strongly the ``Medicare Physician Payment Fairness Act of 2001'' (H.R.
3351) and look forward to working with you and the Committee to ensure
its enactment. As you know, H.R. 3351 has over 315 cosponsors. We feel
that any bill with this type of bipartisan support deserves immediate
action.
As you begin to formulate a strategy, and potentially draft new
legislation, the AOA offers the following recommendations:
Immediately halt the 5.4% Medicare payment cut;
Repeal the sustainable growth rate (SGR) system;
Replace the Medicare payment update formula with a new system
that reflects increases in practice costs, increased
utilization and other relevant factors; and
Work with the House Budget Committee to ensure that
appropriate funds are set-aside in the budget resolution to
replace the Medicare physician payment update formula,
beginning in 2003.
The AOA also requests that the Committee seriously consider the
recommendations made by the Medicare Payment Advisory Commission
(MedPAC) regarding the development of a new payment formula. The AOA
supports the MedPAC proposal and urges its consideration by the
Committee.
Mr. Chairman, the AOA appreciates the invitation you extended to
Congressman Doug Bereuter to share his thoughts on Medicare payment
inequities. We have long supported legislation that would remove the
geographic disparities in Medicare reimbursements. The AOA supports
Rep. Bereuter's ``Rural Equity Payment Index Reform Act'' (H.R. 3569).
It was evident by comments made during the hearing that a number of
Committee members are concerned about payment policies that adversely
effect rural areas. H.R. 3569 would raise all localities with a
physician work adjuster below 1.000 to a floor of 1.000 over a five-
year period. We believe that H.R. 3569 provides an opportunity to
improve health care in rural areas and we encourage the Committee to
consider it during its deliberations.
Mr. Chairman, thank you for the leadership you have displayed on
these and many other health care issues. The AOA stands ready to assist
you and the Committee. Please contact Shawn Martin, Director of
Congressional Affairs at (202) 414-0147 for additional information.
Sincerely,
James E. Zini, D.O.
President
cc: The Honorable W.J. Tauzin
The Honorable John Dingell
The Honorable Sherrod Brown
Members, Energy and Commerce Health Subcommittee
AOA President-Elect
AOA Board of Trustees
Chairman, AOA Council on Federal Health Programs
Members, AOA Council on Federal Health Programs
AOA Executive Director
AOA Senior Staff
AOA Department of Government Relations
______
American Physical Therapy Association
Washington, D.C. 30036
February 12, 2002
The Honorable Michael Bilirakis
Chairman
House Energy and Commerce Committee
Health Subcommittee
2125 Rayburn House Office Building
Washington DC 20515
The Private Practice Section of the American Physical Therapy
Association (``APTA-PPS'') thanks you for your leadership in holding
the February 14, 2002 hearing entitled, ``Medicare Payment Policy:
Ensuring Stability and Access through Physician Payment.'' APTA-PPS
represents over 3,300 privately practicing physical therapists
nationwide who have been negatively impacted by the reductions in the
physician fee schedule announced by the Centers for Medicare and
Medicaid Services (``CMS'') last fall. As you know, while the term
``Medicare Physician Fee Schedule'' implies that the payment
methodology principally affects physicians, physical therapists are
also reimbursed pursuant to the fee schedule and accordingly suffer
financially as a result of decreases in fee schedule payments. This is
particularly problematic for many of our members who practice in rural
areas where they are often the only source of critical rehabilitative
care.
On November 1, 2001, CMS unveiled final payment policies and
payment rates under the fee schedule for physicians and non-physician
practitioners who treat Medicare beneficiaries. Among other things, the
regulation included a 5.4 percent across the board reduction in
payments for services including physical therapy. According to CMS, new
economic data from a slowing economy and high levels of expenditures
for practitioners' services produced a negative update for the base
practitioner fee calculation for calendar year 2002. As a result, the
factor used to update payment rates for individual services has gone
down by 4.8 percent, and the conversion factor is still lower--5.4%
below 2001 levels. The 5.4% decrease in the conversion factor became
effective on January 1, 2002 and privately Practicing physical
therapists are now feeling the financial pinch. CMS Administrator
Scully has said that CMS cannot address this problem without
legislative authority. For this reason, Congress must act.
The Section strongly supports the tenants of the ``Medicare
Physician Payment Fairness Act of 2001'' (HR 3351 and S 1707.) Despite
strong support, this legislation, which would have reduced the cut in
2002 to 0.9% and required the Medicare Payment Advisory Commission
(``MedPAC'') to report to Congress on a replacement for the sustainable
growth rate (``SGR'') formula, did not pass last year. Nevertheless, we
support legislation this year to lessen the impact of the 5.4 percent
reduction in payments and to ease the burdens these reductions have
placed on private practice physical therapists and their patients. The
Section is aware of the recently issued Medicare Payment Advisory
Commission recommendations on the physician fee schedule and the SGR
formula and is currently reviewing them.
We commend the House Energy and Commerce Committee for holding this
hearing and look forward to working with the Committee to ensure that
our nation's Medicare beneficiaries receive the quality of care they
deserve and to ensure that physical therapists are reimbursed at a
level that will enable them to continue providing such care.
Sincerely,
John Hendrickson
APTA-PPS President
______
American Society for Gastrointestinal Endoscopy
Manchester, Massachusetts
February 13, 2002
The Honorable Michael Bilirakis
Chairman
Subcommittee on Health
Committee on Energy and Commerce
United States House of Representatives
2125 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Bilirakis: On behalf of the more than 7,000 members
of the American Society for Gastrointestinal Endoscopy (ASGE), I am
pleased to have the opportunity to submit these comments for the record
of the hearing on Medicare physician payment issues scheduled for
February 14. We greatly appreciate the Subcommittee's interest and
concern about the problems that exist within Medicare's physician fee
schedule. We strongly urge the Subcommittee to address these problems
this year.
ASGE recommends that Congress act quickly to address several key
issues in the physician payment system.
Congress should make every effort to immediately restore the
conversion factor as suggested in H.R. 3351, the ``Medicare Physician
Payment Fairness Act of 2001''. The technical changes and adjustments
needed to create a new update mechanism will not be in place until
2003; however, physician practices are today living with the reduced
resources that came from the current method of calculating the
conversion factor. The crisis in professional liability insurance costs
that is affecting physicians in a number of states is only one of many
reasons to act this year.
The way Medicare updates the physician fee schedule each year is
wrong. No other segment of the health care industry has experienced the
same kind of swings in payment as physicians, who have watched their
conversion factor rise by 4.5% in 2001 only to fall by 5.4% this year.
Any notion that Medicare payments would be reasonably predictable went
out the window with the current reduction. The fact that many observers
anticipate a similar drop in the 2003 conversion factor calls for quick
action by Congress. MedPAC and the physician community will soon make
detailed recommendations for changes to the current sustainable growth
rate system that governs the annual adjustments. We urge Congress to
move rapidly to implement them.
It is very important to get to a payment system that has
predictable outcomes and determines those outcomes in a manner that is
easily understood. The system must accurately measure the factors that
drive the cost of physician services. This does not exist in the
current arrangement, and it is time to correct that failure.
Congress needs to take on the problem of the site of service
differential in the physician fee schedule. This failed policy
understates the value of procedures provided in hospitals and
ambulatory surgery centers (ASC). This creates incentives to move
services out of the hospital and ASC where quality of care is
regulated, into the unregulated office, without carefully examining
whether the office should be the venue of choice.
ASGE recommends that the Centers for Medicare & Medicaid Services
(CMS) either eliminate the site of service differential or make certain
that the safety requirements for all settings are equal. Hospitals and
ambulatory surgery centers must meet certain safety standards. None of
these apply in the office setting; yet the risks of performing the
procedure are equal in all settings.
The problems in Medicare's physician fee schedule are exacerbated
by the current difficulties with the implementation of the hospital
outpatient department prospective payment system. Despite Congressional
efforts to address the needs of new technology and to correct problems
with the way the Medicare rates are calculated, it was still necessary
to delay the effective date of the 2002 rates. Nearly 60% of all
gastrointestinal endoscopic services for Medicare beneficiaries are
provided in the outpatient department, and many of them use newer
technologies that should be subject to pass through payments. ASGE
members are very concerned that this new Medicare system threatens the
economic stability of hospital outpatient departments and that new
medical advances will not be widely available to patients if hospitals
cannot recover their costs.
ASGE is also concerned with the health of the ambulatory surgery
center (ASC), where many endoscopic procedures are performed safely and
effectively. CMS has not updated the list of procedures that will be
covered when performed in that setting since 1995. This means that
these centers are hard pressed to remain technologically current, and
can no longer provide the level of care that Medicare beneficiaries
have a right to expect. Congress needs to press CMS on this issue so
that Medicare certified ASCs could once again provide modern medical
care.
ASGE believes that a crisis has been building in the Medicare
physician fee schedule since its establishment in 1992. The current
reduction of 5.4% in the conversion factor is just the most recent
example. The misguided effort to develop new practice expense relative
value units continues to distort payments, as reimbursement for complex
physician services provided in the hospital declines, while payments
for simpler work done in the office increases dramatically. This shift
cannot be sustained if we are to continue providing high quality,
technologically superior care in the hospital. It is time for Congress
to address this imbalance. A further irony is the fact that even with
the shift in dollars, compensation for many office based services is
still too low because Medicare can't, or won't, accurately account for
the true costs of providing medical care.
Striking evidence of the failures of the fee schedule can be found
in the low rates of colorectal cancer screening among Medicare
beneficiaries, in the current debate over payments for outpatient
cancer care, and in the numerous requests by Congress for the General
Accounting Office to evaluate various problems arising in the payment
system.
The physician fee schedule is not channeling Medicare's investment
into the services and procedures that can save lives and improve the
quality of life for our nation's senior citizens. Congress needs to
make sure that Medicare resources are directed to assure that
beneficiaries maintain ready access to life enhancing and live saving
procedures. Our senior citizens expect nothing less.
Immediate action on these problems will go a long way to restore
physician and patient confidence in Medicare. Failure to respond will
only create more concern among those individuals dependent upon the
program for their medical care. ASGE urges prompt action this year on
these issues.
Thank you for your careful consideration of these views. I request
that this letter be made part of the formal record of the hearing.
Sincerely,
David A. Lieberman, M.D.
President
______
Prepared Statement of The Association of American Medical Colleges
The Association of American Medical Colleges (AAMC) is pleased to
submit for the record testimony to the House Energy and Commerce
Subcommittee on Health on the need to replace the Sustainable Growth
Rate (SGR) methodology used to calculate the update for Medicare
payments under the Physician Fee Schedule (``physician payment
update''). We believe the SGR should be replaced with a methodology
that assures adequate payments and stable updates for physicians who
participate in Medicare. Appropriate and stable physician payments
would ensure that Medicare beneficiaries have access to the complex and
specialized care provided by academic physicians.
The AAMC comprises the country's 125 accredited medical schools and
nearly 400 major teaching hospitals and health systems, 90 academic/
professional societies representing approximately 100,000 faculty
members (``academic physicians''), and the nation's medical students
and residents.
the role of academic physicians
Academic physicians play a unique, multifaceted role within the
physician community, as well as within the larger healthcare system. As
experts in their particular fields of medicine, academic physicians
provide patients and referring physicians with cutting-edge clinical
expertise. Academic physicians also educate and train the medical
students, residents, and other health professionals who will become the
next generation of caregivers. In addition, many academic physicians
conduct clinical research that generates more effective, efficient, and
compassionate healthcare for all Americans--including aging Americans.
Because of their clinical expertise, access to innovative
technologies within teaching hospitals, and participation in clinical
research, academic physicians frequently provide inpatient and
outpatient care for patients--including Medicare beneficiaries--with
complex, multiple, or acute health problems that can not be managed
elsewhere in the community.
Working together with their teaching hospital partners, academic
physicians are vital to the delivery of essential medical services.
Over three-quarters of AAMC's teaching hospital members (which account
for just 6% of the nation's hospitals) operate certified trauma centers
in conjunction with academic physician partners. Over one-quarter of
our teaching hospital members offer burn care, about 89% provide AIDS
treatment, and 77% deliver geriatric care (eg, treatment for
Parkinson's or Alzheimer's disease) in partnership with faculty
practices.
In addition, faculty practices partner with AAMC's teaching
hospital members to provide nearly 45% of the nation's hospital-based
charity care. By comprising a significant segment of America's
healthcare safety net, academic physicians and their teaching hospital
partners assure healthcare access for the poor and underserved--
including Medicare beneficiaries who are dually eligible for Medicaid
or who are unable to pay for their care.
flaws in the update methodology (sgr)
The Balanced Budget Act of 1997 (BBA) established a formula to
calculate the SGR--the ``target growth rate'' for Medicare spending on
physician services--that would control overall Medicare spending while
simultaneously accounting for changes in the cost of providing care.
The AAMC is concerned that the SGR has not achieved an equitable
balance between fiscal management of the Medicare program and the
actual cost of caring for Medicare patients, including the cost of
medical inflation. Various analyses have shown that, since
implementation of the SGR, updates in physician payments have failed to
rise in proportion with increases in input prices.
Additionally, as was the case this year, the SGR's link to the
country's gross domestic product (GDP) is problematic and volatile.
While payment updates in 2000 and 2001 were relatively large (5.4% and
4.5% respectively), the 2002 payment update of negative 5.4% is not
only a dramatic decline, but also contrasts sharply with the previous
two years.
In its March 2001 report, the Medicare Payment Advisory Commission
(MedPAC) identified similar concerns with the SGR and unanimously
called to replace the methodology, stating that it ``neither adequately
accounts for changes in cost nor controls total spending.'' MedPAC
reiterated their concerns at their January 2002 meeting and announced
in their January 16-17 Meeting Brief that their March 2002 report will
recommend ``replacing the SGR system, updating payments for 2003,
accounting for productivity growth outside the MEI, and revising the
productivity adjustment . . .'' The AAMC strongly supports MedPAC's
conclusion regarding the need to develop a new update methodology that
produces stable and adequate payments for physicians.
the impact of stable and adequate physician payments on medicare
beneficiaries' access to care
Stable and adequate Medicare physician payments are critical to
ensure that seniors have continued access to the specialty care
provided by academic physicians. Nearly one-sixth of all physicians
providing Medicare services are academic physicians. Medicare
reimbursements to academic physicians total about $2.5 billion each
year and represent up to one-third of faculty practice revenues. In
light of the fact that faculty practice revenues, on average, represent
about 35% of a medical school's total revenue, unstable Medicare
payments could jeopardize beneficiary access to specialty care, as well
as academic medicine's core missions of medical education, research,
clinical services, and providing charity care.
As disparity grows between the costs of caring for patients and the
rates at which payers reimburse for those costs, medical schools and
teaching hospitals find it increasingly difficult to maintain their
missions. Since private payers often tie their own rates to those set
by Medicare, reductions in Medicare payments could drive additional
declines in reimbursement.
a legislative solution to the sgr problem
Last fall, bipartisan, bicameral legislation, ``The Medicare
Physician Payment Fairness Act of 2001'' (H.R. 3351/S. 1707), was
introduced to provide short- and long-term relief from unstable
Medicare physician payment updates. The bills provide short-term relief
by reducing the cut to the Medicare physician payment update from minus
5.4% to minus 0.9% and long-term relief by directing MedPAC to develop
a replacement for the SGR.
The AAMC strongly endorses these bills and we applaud the
Subcommittee's leadership--Chairman Bilirakis (R-FL) and Ranking Member
Brown (D-OH)--for sponsoring H.R. 3351. We are pleased that a majority
of Congress, including nearly all Energy and Commerce Committee
members, are cosponsors of the bill. The AAMC and the deans of 86
medical schools--who have signed a letter on behalf of their faculty
practices in support of S. 1707/H.R. 3351--thank you for your support
and urge your continued leadership to ensure that the losses currently
experienced by physicians are mitigated as quickly as possible.
In conclusion, Medicare beneficiaries--including those dually
eligible for Medicaid--rely on academic physicians and academic medical
centers to provide high quality, innovative, and accessible healthcare.
They also rely on faculty physicians to develop the clinical advances
and train the new generation of Medicare providers that will assure a
high quality of life for all American seniors. Passage of H.R. 3351/S.
1707 is a vital first step toward mitigating the losses currently
experienced by all physicians. The AAMC looks forward to working with
you in accomplishing the second step--devising a long-term solution to
replace the current SGR methodology and assure adequate and stable
Medicare physician payment updates.
Thank you for your consideration.
______
Coalition for Fair Medicare Payment
Washington, D.C. 20005
February 14, 2002
The Honorable Mike Bilirakis,
Chairman, Subcommittee on Health,
Committee on Energy and Commerce
Dear Chairman Bilirakis: The Coalition congratulates you and
ranking minority member Brown for your leadership in scheduling today's
hearing on Medicare physician payment policy. We know that the
testimony the Subcommittee will hear from physician and non-physician
provider groups will demonstrate the seriousness of the looming access
crisis brought about by the recent negative update in reimbursement
under the Medicare Fee Schedule.
For almost all Coalition member organizations, the negative update
represents only part of this critical problem. As you are aware, most
physicians have recently experienced radical increases on the cost of
professional liability insurance, and over the past four years, most
surgical specialties represented in the Coalition have undergone very
significant cuts in their reimbursement for practice expenses under the
Fee Schedule.
Congress has the opportunity to help, now, by immediately halting
the 5.4% Medicare reimbursement cut that took effect last month. Well
over 300 members of the House have cosponsored S. 3351, introduced by
you and Mr. Brown with the direct support of Committee Chairman Tauzin
and Ranking Committee Minority Member Dingell. We urge early action on
this feature of the bill.
The Coalition equally supports replacement of the current Medicare
update formula with one which fully reflects increased annual costs to
physician and non-physician providers in delivering care. We look
forward to working with you on this issue in the weeks and months
ahead.
Sincerely,
Michael Scott, Chair
Coalition for Fair Medicare Payment
______
National Association of Rehabilitation Providers
and Agencies
Reston, Virginia 20190-5202
February 22, 2002
The Honorable Michael Bilirakis
Chairman
House Energy and Commerce Committee
Health Subcommittee
2125 Rayburn House Office Building
Washington DC 20515
The National Association of Rehabilitation Providers and Agencies
(``NARA'') would like to thank you for your leadership in holding the
Subcommittee's recent hearing entitled, ``Medicare Payment Policy:
Ensuring Stability and Access Through Physician Payment.'' NARA
represents the interests of Medicare-certified rehabilitation agencies
that furnish physical therapy, occupational therapy, and speech-
language pathology services to Medicare beneficiaries. Many NARA
members are small businesses that have experienced a significant
negative impact from the fee schedule reductions announced by the
Centers for Medicare and Medicaid Services (``CMS'') last fall.
The term ``Medicare Physician Fee Schedule'' suggests that the
payment methodology principally affects physicians. However,
rehabilitation agencies that provide services to Medicare beneficiaries
are also paid under the fee schedule pursuant to the Balanced Budget
Act of 1997. The cuts have been particularly problematic for many of
NARA's members who are small businesses operating in rural areas.
On November 1, 2001, CMS announced final payment policies and
payment rates under the fee schedule for physicians and non-physician
practitioners who treat Medicare beneficiaries. The regulation included
a 5.4 percent across the board reduction in payments for services
including physical, occupational, and speech-language pathology. The
use of new economic data from an economy in recession and high levels
of expenditures for practitioners' services have produced a negative
update for the base practitioner fee calculation for calendar year
2002. Thus, the conversion factor is 5.4% below 2001 levels--a decrease
that is severely impacting NARA's members.
NARA strongly supports the tenets of the ``Medicare Physician
Payment Fairness Act of 2001'' (H.R. 3351 and S. 1707,) which despite
strong support, did not pass last year. Nevertheless, we support
legislation this year to lessen the impact of the 5.4 percent reduction
in payments and to ease the burdens these reductions have placed on
therapists and their patients. NARA is aware of the recently issued
Medicare Payment Advisory Commission recommendations on the physician
fee schedule and the sustainable growth rate (``SGR'') formula, and is
currently reviewing them.
The Administration has made it clear that it views payment
adjustments through reforms in payment policy as something that must be
budget neutral in both the short and long term. Given these budget
constraints, we commend you for giving this matter priority and for
holding this hearing. We look forward to working with the Subcommittee
to ensure that our nation's Medicare beneficiaries receive the quality
of care they deserve and that therapists are reimbursed at a level that
will enable them to continue providing such care.
Sincerely,
Gerald Goldstein, MSA, President
National Association of Rehabilitation Providers and Agencies
______
Responses for the Record of William J. Scanlon, U.S. General Accounting
Office
questions from hon. michael bilirakis
Question 1. With the 5.4 percent negative update for physician
payments this year, the rationale behind paying for physician services
differently than other Medicare covered services has come into
question. It seems as though there would be merit in having consistent
payment methodologies across different service categories. What makes
physician services different? Why was a different payment methodology
put in place for physician services?
The principle behind Medicare's payment systems is to pay providers
fairly and efficiently to achieve the ultimate goals of ensuring that
beneficiaries have appropriate access to quality care and that the
program remains sustainable in the long run. The consistent application
of this principle may require tailoring payment systems to fit the
circumstances different providers face. Currently, Medicare's payment
systems vary across types of providers. Some have comparable elements,
but there are also divergent features to reflect differences in types
of providers and services. In all cases, Medicare should establish and
maintain appropriate payment levels that take these circumstances into
account and reimburse providers fairly for the services they deliver.
The current physician payment method, which includes the use of
spending targets, was introduced after Medicare spending on physician
services grew at an average annual rate of more than 12 percent per
beneficiary through the 1980s. Previous attempts to limit spending
growth had only limited success because of large increases in the
volume and intensity of services provided by physicians. The Congress
recognized that expenditure growth of this magnitude was not
sustainable and created a payment update mechanism that makes use of
spending targets to curb Medicare expenditures for physician services.
Question 2. The current physician fee schedule update system
includes a spending, or expenditure, target. Is it possible to
reconcile the need for a spending target with assuring that payments
keep pace with the needs of Medicare beneficiaries and the cost of
providing care? Please explain. Are there other ways to address growth
in the volume and intensity of services provided? If so, please provide
a detailed description of these alternatives.
Under the current system, spending targets increase as the number
of beneficiaries grows and the cost of providing services Uses. In
addition, targets increase to permit real spending per beneficiary
(volume and intensity) to grow as fast as the overall economy.
The current payment system was created after attempts to limit
spending growth by moderating fee increases alone were unsuccessful.
Spending targets have been in effect since 1992. Since that time, the
volume and intensity of physician services has grown at an average
annual rate of about 2 percent--much lower than prior periods--while
virtually all physicians treated Medicare beneficiaries or, if
accepting new patients, accepted those covered by Medicare.
Any payment system needs to be revisited periodically to ensure
that it is still meeting its objectives. It is important, for example,
to monitor service use in order to ensure that beneficiary access
continues to be secure as updates change. Spending targets should
always be viewed within the context of beneficiary needs. Targets may
need to be periodically adjusted based on a reassessment of the
spending necessary to ensure that Medicare continues to meet the needs
of beneficiaries.
Question 3. The sustainable growth rate (SGR) system and its
reliance on the gross domestic product (GDP) have been widely
criticized. Specifically, cities have cited the failure of GDP to take
into account the health status, the aging of the Medicare population,
costs of technological innovations, or escalating costs of operating a
medical practice. Why is GDP a part of the SGR system? Should the
annual increase in the expenditure target for physician services be
limited by the rate of GDP growth? Why or why not?
GDP is only one of four factors that determine the SGR expenditure
targets. The other factors are included to help account for some of the
cost-related elements you mentioned. They include the changes in the
cost of inputs used to produce physician services (as measured by the
Medicare Economic Index (MEI)), the number of Medicare beneficiaries in
the traditional fee-for-service program, and the estimated effect that
changes in laws or regulations win have on spending. The Congress
designed the expenditure target formula to allow for increases in the
volume and intensity of services delivered to each beneficiary. By
including GDP in the formula, the Congress permitted volume and
intensity to grow at the same rate as the economy. This decision
reflects a policy choice about how much of the increase in society's
wealth should be spent on physician services. In linking this growth to
GDP, the Congress created a balance between growth in volume and
intensity on the one hand and the need to limit growth in Medicare
spending on the other hand. Without such limits, there is nothing to
keep spending on physician services from consuming an increasing
proportion of Medicare dollars and the federal budget. As I indicated
earlier, however, it is important to periodically revisit the SGR
target to ensure it remains aligned with beneficiaries' needs.
Question 4. With positive updates in 2000 and 2001 and flow a
negative update in 2002, it is clear that the sustainable growth rate
(SGR) system is some what uncertain. Should the SGR system be replaced?
Is there any way to modify the current update system to make it less
volatile and more predictable? For example, would a five-year average
of GDP growth help? In your testimony, you mention narrowing the
statutory update limits. Currently, they are 3 percentage points above
MEI and 7 percentage points below MEI. How would you suggest the limits
be narrowed?
My testimony outlined two ways the current update system could be
made less volatile. First, greater rate stability could be achieved by
revising how adjustments to the MEI are determined. For example, the
current bounds of plus three and minus seven percentage points around
the MEI could be narrowed. Another approach would be to limit the
adjustment as a share of the change in MEI--say to no more than a 75
percent increase or decrease. Alternatively, a hold harmless provision
could be implemented to prevent rate decreases. Finally, some
combination of these types of changes could be adopted. Any of these
kinds of changes could increase rate stability, but they might also
increase the amount of time necessary to bring actual spending in line
with targeted spending.
Second, the update system could be made less volatile by linking
spending targets to average increases in GDP over several years rather
than a single year. By neither significantly lowering spending targets
during a downturn nor unduly increasing them in a period of prosperity,
spending targets would be less variable in the short term.
Question 5. To improve the precision of the measurement of prices
within the SGR system, should additional factors that affect the cost
of delivering physician services be included, such as new technology,
aging of the Medicare population, site of service shifts, the intensity
of services provided in physician offices, the preferences and needs of
beneficiaries, and changes in physician practice patterns? If so, which
factors should be included and why?
The Centers for Medicare and Medicaid Services (CMS) \1\ uses the
MEI to measure changes in physicians' cost of providing services. The
MEI is a weighted average of annual price changes for inputs used to
provide care, including physician time and effort (work), non-physician
employees, and office expenses, and is adjusted for changes in labor
productivity.
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\1\ In June 2001, the agency formerly known as the Health Care
Financing Administration (HCFA) was renamed the Centers for Medicare
and Medicaid Services (CMS). These responses refer to the agency as
HCFA when discussing actions taken before the name change and as CMS
when discussing actions taken since the name change.
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It is important that the MEI remain current--reflecting the changes
in the cost of delivering services, including differences in the use of
equipment and sites of service delivery. The Medicare Payment Advisory
Commission has recommended that productivity adjustments should reflect
all the factors involved in producing physician services, not just
labor, and we agree with that recommendation.
The SGR system includes the changes in real per capita GDP to
provide an allowance for growth in the volume and intensity of services
that can reflect, in part, the health of the population and the
development of new valued services. Accounting for changes in the age
distribution of the Medicare fee-for-service population in the annual
payment update formula would be feasible, but would require estimating
which segment of the overall Medicare population will remain in the
fee-for-service program and could introduce the kind of estimation
errors that have been problematic this year. Estimating the cost effect
of the aging of the entire Medicare population is straightforward, but
these changes are likely to be gradual and so may be better addressed
through periodically revisiting the appropriateness of the overall
target. It may also be interesting to note that as the large number of
baby boomers start to join Medicare, the average beneficiary age and
hence, cost per beneficiary, will initially decline.
Question 6. In your testimony, you highlighted the need for
improved data to monitor the effect of the negative update on
beneficiary access to care. How would you suggest such data be
improved?
Ensuring that the use of spending targets does not compromise
appropriate access to services is a key concern. As I mentioned in my
testimony, more timely data on beneficiary access and physician
participation in the program are essential to monitoring the adequacy
of program payments. Data are also needed that allow evaluation of
beneficiary access at the state and local level to detect access
problems that could be masked by national aggregation. By regularly
reviewing Medicare claims data, CMS could quickly detect changes in
providers' billing patterns and potential beneficiary access problems.
CMS would need to make information from claims available more quickly,
but increased data timeliness is also an imperative for overall program
management improvements.
The advantage of using claims data to monitor access is that it
could help to identify potential access problems in specific locations
or among certain specialties. In addition, claims data are already
collected for payment purposes. Information from claims data could be
augmented with information gathered from a beneficiary survey, such as
the Medicare Current Beneficiary Survey, to determine the extent to
which supplemental insurance coverage, income levels, or other factors
also affect beneficiary access to physician services.
questions from hon. charlie norwood
Question 1. Do you believe that physicians are, generally,
reimbursed at a rate that is below the cost of the treatment provided?
Unlike other providers, physicians do not file cost reports that
can be used to compare the costs of providing physician services to
Medicare payments. A physician's time is the largest single component
of the cost of his or her services. On average, 55 percent of the fees
in Medicare's fee schedule are for physician work. Given this inability
to compare payments and costs for physician services, the question that
needs to be asked in setting payments is whether they are sufficient to
secure appropriate access. Payment rates that are too low can impair
beneficiary access to physician services, while payment rates that are
too high add unnecessary financial burdens to Medicare.
Information on physicians willingness to see Medicare patients is
dated but overall indicates that providers are willing to accept
Medicare patients, and thus Medicare payment for services. However, as
I discussed in my testimony, more timely data are critical to
monitoring beneficiary access to the program and responding if data
indicate that access is jeopardized. As health needs change, technology
improves, or health care markets evolve, spending targets and resulting
payment rates may need to be adjusted periodically to ensure
appropriate payment rates and beneficiary access to services. Informed
decisions about appropriate payment rates and rate changes cannot be
made unless policymakers have detailed and timely data on beneficiaries
access to needed services.
Question 2. Do you believe that is the case for any specific
physician or any specific treatment?
Medicare's physician fee schedule establishes payments for more
than 7,000 different services, such as office visits, surgical
procedures, and treatments. Since 1992, HCFA, now CMS, has been phasing
in a new fee schedule that bases the payment for each service on the
amount of resources used to provide that service relative to all other
services.\2\ The implementation of the resource and methodology for
determining practice expense has been the subject of considerable
controversy, partly because of HCFA's adjustments to the underlying
data and basic method and partly because payment changes were required
to be budget-neutral--which means that total Medicare spending for
physician services was to be the same under the new payment method as
it was under the old one.
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\2\ The Medicare physician fee schedule has three components: the
physician work component, the practice expense component, and the
malpractice component. In 1999, the three components accounted for
approximately 55 percent, 42 percent, and 3 percent, respectively, of
the average fee.
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As a result, if Medicare payments to some specialties increased,
payments to other specialties had to decrease.
As we discussed in our October 2001 report on physician practice
expense payments, such redistributions have in fact occurred, prompting
concern from various specialties that their revised practice expense
payments, a component of the total physician payment, are too low.\3\
Oncologists (cancer specialists) claim that their practice expense
payments are particularly inadequate for certain office-based services,
such as chemotherapy administration. In that October 2001 report we
made several recommendations regarding the determination of the
practice expense component of the physician fee schedule. One of the
effects would be to increase payments to oncologists for some services.
We believe that implementing these recommendations would help ensure
that practice expense payments better reflect differences in the costs
of providing services. At the same time, we recognize the limitations
of the data used to set fees. We are working on a reported mandated by
the Congress to assess how these data can be improved.\4\ That report
will be issued later this year.
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\3\ Medicare Physician Fee Schedule Practice Expense Payments to
Oncologists Indicate Need for Overall Refinements (GAO-02-53, Oct. 31,
2001). This study was mandated in section 213 of the Medicare,
Medicaid, and SCIHP Balanced Budget Refinement Act of 1999 (P.L. 106-
113, Appendix F, 113 Stat. 1501, 1501A-350).
\4\ The study was mandated in section 411 of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(P.L. 106-554, Appendix F, 114 Stat. 2763, 2763A-508).
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questions from hon. sherrod brown
Question 1. Under the current payment formula for physician
services, the Sustainable Growth Rate (SGR) acts as an expenditure
target. In other words, the SGR works to control the growth in Medicare
payments for physician services. Could you explain exactly how this
works and how an expenditure target is different from a cap on
expenditures?
The SGR sets overall spending targets for physician services and is
used to determine fees for services paid for under the physician fee
schedule so that, over time, total spending equals the spending
targets. The target under the SGR system for a given year is not
considered a cap because it can be exceeded in that year. The SGR
target does not limit expenditures, but rather is taken into account
when setting payment rates for the next year. The fee schedule update
reflects the success or failure in meeting the spending target. If
prior expenditures have exceeded the established target, the update for
the upcoming year is reduced. If expenditures were less than the
target, the update is increased.
Question 2. The SGR, or expenditure target on payments for
physician services, is intended to control the volume and intensity of
services provided. Has the growth in volume and intensity of services
actually been controlled, and, if so, was it due to the SGR or other
factors?
As my testimony indicated, between 1992 and 2000, volume and
intensity grew at an average annual rate of about 2 percent. In
contrast, between 1985 and 1991, immediately before the introduction of
spending targets, volume and intensity of services per beneficiary
increased at an average annual rate of about 9 percent. Because a
number of changes may have affected spending for physician services, it
is impossible to isolate the precise effect the SGR has had on growth
in volume and intensity of services provided. However, the SGR and its
predecessor the Volume Performance Standard were designed and
implemented to impose discipline on the growth in volume and intensity
of physician services. Because the use of the spending targets to set
payment rates coincided with a period of slowed growth in volume and
intensity, the role of targets cannot be dismissed as an important
factor in controlling growth in Medicare spending for physician
services.
Question 3. At the hearing, several witnesses stated that Medicare
payments for physician services need to reflect the actual costs of
providing services to beneficiaries. However, Medicare has moved away
from cost-based reimbursement. Congress does not necessarily want to
return to basing payments on costs, which does not encourage
efficiency. Could you explain how payments that reflect the costs of
providing services are different than cost-based reimbursements
The cost-based reimbursement that Medicare has wisely moved away
from is one where individual providers could increase their revenues by
increasing the costs of delivering services. It was inherently
inflationary and has been recognized as such for decades. At the same
time, it is necessary to have payments that reflect the costs of
delivering services. Otherwise, providers may not be willing to deliver
services and we may not be able to ensure appropriate beneficiary
access to those services.
The difference between the new method of setting payments to
reflect costs and the old method of malting payments based on reported
costs, is that under the new method individual providers cannot
increase their revenue simply by reporting higher costs. The hospital
prospective payment system (PPS) is a prime example. Before the PPS,
each hospital was paid its actual costs of providing services, subject
to certain limits. Payments under the PPS reflect the average costs of
delivering particular services for all hospitals in an earlier period
of time. The payments are updated to reflect changes due to inflation,
service delivery, and other factors, to ensure that they continue to
reflect the costs of an efficient provider.
Question 4. I have heard concerns voiced about the current way we
evaluate beneficiary access. The best indicator we have for beneficiary
access today in 2002, is a survey of beneficiaries from 1999. Whether
or not seniors had access to doctors in 1999 seems a poor measure of
whether seniors will have access in 2002, when reimbursements have
changed significantly. How do we get better measures of beneficiary
access and participation? Or are we stuck with relying on old data and
anecdotes and trying to guess what's going on?
Ensuring that the use of spending targets does not compromise
appropriate access to services is a key concern. As I mentioned in my
testimony, more timely data on beneficiary access and physician
participation in the program are essential to monitoring the adequacy
of program payments. Data are also needed that allow evaluation of
beneficiary access at the state and local level to detect access
problems that could be masked by national aggregation. By regularly
reviewing Medicare claims data CMS could quickly detect changes in
providers' billing patterns and potential beneficiary access problems.
CMS would need to make significant improvements in the timeliness of
the availability of information from claims, but those improvements are
also imperative for improved overall program management. Our prior work
on the state of information technology systems at CMS indicated that
malting necessary improvements to these crucial systems may require a
larger administrative budget.\5\
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\5\ Medicare: Information Systems Modernization Needs Stronger
Management and Support (GAO-01-824, Sept. 20, 2001).
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The advantage of using claims data to monitor access is that it
could help to identify potential access problems in specific locations
or among certain specialties. In addition, claims data are already
connected for payment purposes. Information from claims data could be
augmented with information gathered from a beneficiary survey, such as
the Medicare Current Beneficiary Survey, to determine the extent to
which supplemental insurance coverage, income levels, or other factors
also affect beneficiary access to physician services.
Question 5. A number of witnesses on the second panel mentioned
that they are particularly concerned with how the 54% cut in physician
payments could hurt access to care for beneficiaries living in rural
areas. Could you discuss how this cut could disproportionately affect
beneficiaries living in rural areas? Does CMS have any data on how this
payment reduction could affect beneficiaries living in rural areas?
GAO does not have data to evaluate whether the physician payment
reduction in 2002 will disproportionately affect beneficiaries in rural
areas. I expect that CMS would have difficulty generating these data as
well. Your question highlights the need for CMS to monitor claims data
to detect potential access problems at the community level.
Queston 6. Many people, including the Medicare Payment Advisory
Commission, are recommending that Congress eliminate the SGR and
replace it with another formula to calculate updates to physician
payments. However, there isn't a clear answer as to what the SGR should
be replaced with. Could you outline some of the questions that Congress
needs to answer in developing a replacement for the SGR system? What
type of information does Congress need before making decisions, and
what type of policy questions will Congress need to answer?
As I outlined in my testimony, a physician payment update policy
must balance concerns about program sustainability with the need to
maintain adequate payment rates to ensure that beneficiaries have
access to physician services. Because the paramount consideration in
setting payment rates is ensuring appropriate beneficiary access to
services, timely and detailed data on Medicare beneficiary service use
are essential to achieving this balance. Congress could consider
whether CMS currently has the resources to generate these data in a
timely manner and communicate the importance of this task to the
agency.
Since targets were established, spending growth for physician
services that was viewed as unsustainable has been greatly moderated.
Before considering a completely new system, Congress may want to
consider whether modifications to the SGR system could address its
perceived shortcomings, such as year-to-year rate instability. When
contemplating an entirely new system, Congress may want to consider
whether the new system will be able to restrain spending growth and
help ensure the long-term sustainability of the program. The approach
Medicare tried before 1992 constrained fee increases, but not overall
spending.
______
Responses for the Record of Theodore Lewers, Trustee, American Medical
Association
questions from chairman bilirakis:
Question 1. In your testimony, you mentioned that errors made by
the Centers for Medicare and Medicaid Services (CMS) in 1998 and 1999
have shortchanged physicians by $20 billion to date. Could you explain
this further? It was my understanding that CMS is required by statute
to correct past projection errors. Is that not the case? What happened
with the 1998 and 1999 errors? How do these past errors factor into
this year's payment reduction?
In annually calculating the SGR, estimates by the Centers for
Medicare and Medicaid Services (CMS) for GDP growth and enrollment
changes in 1998 and 1999 have shortchanged funding for physicians'
services by $20 billion to date. CMS projected that Medicare+Choice
enrollment would rise by 29 percent in 1999 and that fee-for-service
enrollment would fall by 4.3%, even though many HMOs were abandoning
Medicare. In fact, as accurate data later showed, managed care
enrollment increased only 11 percent in 1999, a difference of about 1
million beneficiaries. This means that when CMS determined the fee-for-
service spending target for 1999, it did not include the costs of
treating about 1 million beneficiaries. Nevertheless, since the SGR is
a cumulative system, each year since 1999, the costs of treating these
1 million patients have been and will continue to be included in actual
Medicare program expenditures, but not in the SGR target. Clearly, this
disparity should be remedied. Without these 1998 and 1999 projection
errors, the 5.4% Medicare payment cut in 2002 would have been smaller,
and, unless remedied, these errors will continue to negatively impact
annual physician updates.
CMS acknowledged its 1998 and 1999 projection errors at that time,
but concluded it did not have the authority under the law to correct
its mistakes. We disagreed, and supported a clarification under the
Balanced Budget Refinement Act of 1999 (BBRA) requiring CMS to fix past
projection errors as actual data becomes available. The BBRA, however,
applied with respect to SGR projections after the 1999 update.
Question 2. In your testimony, you indicated strong support for
repealing the sustainable growth rate (SGR) and replacing it with an
inflationary adjustment. However, in the past, the American Medical
Association (AMA) has supported refining the SGR to reduce payment
volatility, including the adoption of a five-year average for growth in
the gross domestic product (GDP) and the tightening of current
statutory update limits. How would these refinements reduce payment
volatility? Are these options the AMA continues to support?
While those refinements might reduce payment volatility, they would
not eliminate the possibility of multi-year payment cuts that put
elderly and disabled Americans' access to high quality health care at
risk. In fact, CMS is currently projecting such a wide divergence
between target and actual spending that narrowing the limits on payment
updates would mean only that physicians would face perhaps a decade-
long payment freeze instead of the current projection of a nearly 20%
cut over four years.
Further, refining the sustainable growth rate (SGR) would leave in
place the current expenditure target system, which is a flawed concept.
The AMA has always been opposed to this type of system. Simply
tinkering with the SGR formula will not remedy the fact that if the
Medicare program is not adequately funded, physicians will be forced to
ration care to their patients. Further, maintaining a payment update
system that is linked to the U.S. Gross Domestic Product (GDP) is
inherently flawed. The GDP is a measure of the economy that bears
little relationship to the health needs of Medicare beneficiaries.
Indeed, incidence of disease does not lessen with downturns in the
economy.
The improvements to the payment update formula that were part of
the Balanced Budget Act of 1997 (BBA) and the BBRA were as much change
as we were able to accomplish at those times. It is apparent, however,
that even these refinements to an expenditure target system have not
eliminated the problems with the target. We agree with MedPAC that the
goals of controlling patients' use of services while maintaining
payment updates that keep up with the cost of inflation are simply
incompatible.
Question 3. The current physician fee schedule update system
includes an expenditure target. It is my understanding that the target
was put in place to curb spending growth due to significant increases
in the volume and intensity of physician services provided in the
1980s. You testified in strong opposition to an expenditure target
system. Are there other ways to address growth in the volume and
intensity of physician services provided? If so, please provide a
detailed description of these alternatives.
Physicians' services are the only segment of the Medicare program
that are subject to an expenditure target. No other provider is paid on
this basis. An expenditure target assumes that physicians have a
collective incentive to control the volume of services. This is
incorrect, however, because aggregate spending targets do not create
direct incentives for any individual physician.
In large part, the volume and intensity of physician services is
driven by technological advances and other improvements in clinical
practice that have extended and improved the lives of Medicare
beneficiaries. Any restrictions on the availability of such services to
the elderly should be determined through national policy and not by
individual physicians who are trained, and indeed have a Hippocratic
Oath, to provide appropriate treatment for each of their patients.
Imposing an expenditure target that attempts to ration care indirectly
is failed public policy.
If CMS believes that some new services are not of any benefit to
the elderly, it need not approve coverage for these services. If, on
the other hand, CMS believes physicians are providing services that are
not necessary in individual cases, it has a wide array of tools--such
as utilization review and physician profiling--available to detect and
eliminate abusive billing practices.
Question 4. The Medicare Economic Index (MEI) is a common component
of both the SGR system and the proposed update system you have
discussed in your testimony. You have identified a number of flaws in
the current composition of the MEI. How can the MEI be improved so that
it more accurately represents increases in the cost of operating a
medical practice, including premium rate increases.
In the early 1970s, CMS developed the MEI to measure increases in
physician practice costs. A key component of the MEI has been a
``productivity adjustment,'' which offsets practice cost increases.
Over the last eleven years, CMS estimates of productivity gains have
reduced annual increases in the MEI by 27 percent. Such estimates
contrast with MedPAC estimates of the degree to which productivity
gains offset hospitals' cost increases. In fact, in 2001, MedPAC's
estimate for hospitals was -0.5 percent, while CMS' estimate for
physicians was -1.4 percent. It is highly improbable that physician
practices could achieve such substantial productivity gains in
comparison to hospitals, which arguably have a much greater opportunity
to utilize economies of scale. Indeed, physicians have very limited
ability to increase productivity. Economic and societal factors have
forced physicians to see and treat as many patients as possible within
a single day. At a certain point, it is virtually impossible to
increase productivity through increased patient visits or medical
procedures.
In recommending a framework for future payment updates, MedPAC is
advising that the MEI should simply measure inflation in practice costs
and that productivity should be separately reported. MedPAC further
recommends that the productivity adjustment be based on multi-factor
productivity instead of labor productivity, and estimates that this
would significantly reduce the productivity adjustment that CMS
currently uses in updating the Medicare fee schedule.
We agree with the general framework of MedPAC's recommendations. We
also believe that MedPAC should be directed to look at other aspects of
the MEI--such as the treatment of liability insurance premiums, which
we do not believe are adequately reflected under the current formula--
to determine if additional changes are needed. We look forward to
working with the Subcommittee to implement the details of a new payment
update system.
Question 5. At its January meeting, the Medicare Payment Advisory
Commission reported that there is no evidence indicating that
beneficiary access has been impaired as a result of the 2002 negative
update. For example, most physicians are still participating in
Medicare. However, much of the testimony today mentions access. How do
you reconcile this? Is there an access problem?
The Medicare Payment Advisory Commission (MedPAC) warned in June
2001 that if the 2002 update was lower than the CMS estimate, which at
that time was -0.1 percent, it ``could raise concerns about the
adequacy of payments and beneficiary access to care.'' Clearly, the 5.4
percent cut is significantly lower than 0.1 percent.
The 5.4% cut took effect on January 1, and MedPAC met on January 16
and 17. It was at this time that MedPAC reported that there is no
evidence indicating impaired beneficiary access. Yet, there was
virtually no way that the Commission could have had any information on
how the negative update was affecting access at that time. In fact,
what the Commission concluded in January was that access seemed to be
adequate in 1999 and that there was insufficient information to draw a
conclusion about access at the current time. In its just-released
annual report, MedPAC said that ``payments for 2002 may be too low
raising concerns about beneficiary access to care.''
Further, although it may be too early to clearly understand the
full impact of this cut, there are early warning signs that must be
recognized and that indicate significant problems. For example, a
cardiology group in Colorado is being forced to lay off employees and,
in Texas, spine surgeons at Baylor University plan to stop taking
Medicare patients. In addition, there have been many press reports
about reduced access resulting from the 5.4% cut that are very
alarming. We have attached a sampling of those reports for your review.
Further, CMS predicts that under the current system the updates
over the next three years will be, respectively, -5.7, -5.7 and -2.8.
This is roughly a 20% cut in Medicare payments over 4 years (2002
through 2005), and this number increases to almost 30% when you account
for medical inflation. Moreover, the 2005 conversion factor predicted
by CMS would be lower than the conversion factor in 1993. Physicians
will be paid less in 2005 than they were in 1993. A 20 to 30 percent
pay cut over four years would add to the already significant pressures
on physicians to discontinue or limit the provision of services to
Medicare patients.
Question 6. With positive updates in 2000 and 2001 and now a
negative update in 2002, it is clear that the current update system is
volatile and unpredictable. How would you fix the physician fee
schedule update system to prevent instability in payment changes from
year to year and ensure that Medicare beneficiaries continue to receive
the quality care they deserve?
As discussed above, we wholeheartedly agree with MedPAC's
recommendations to replace the SGR system. We believe that the current
update system should be replaced with one that:
Eliminates the use of the SGR or any other expenditure target;
Uses a more realistic productivity assumption in calculating
the MEI; and
Bases annual updates primarily on the revised MEI but allow
MedPAC to recommend and Congress to adopt higher or lower
updates.
We look forward to working with the Subcommittee and Congress on
the details of a new payment update system that better reflects
increases in practice costs.
question from ranking member brown:
Question 7. Many providers are concerned about Medicare payment
reductions that are scheduled to occur this year or next. In some
cases, these are reductions that were enacted in the Balanced Budget
Act of 1997 (BBA). In other cases, these reductions will occur because
temporary payment increases implemented since the BBA are scheduled to
expire. However, it seems that the problem with the physician payment
system is different. In this case, there are major problems with the
underlying formula used to update payments to physicians. Instead of
figuring out how to offset a planned reduction, Congress is going to
have to figure out how to rewrite a formula. Could you comment on how
the problem with physician payments is unique.
The two giveback bills, the BBRA and the Medicare, Medicaid and
SCHIP Benefit Improvement and Protection Act of 2000 (BIPA), generally
adjusted specific payment updates for hospitals, home health agencies
and other providers that had been set by Congress in the BBA. Congress
does not set physician updates; they are set by a formula that runs on
automatic pilot. Legislation to address the physician update problem
would replace a system with the flaws in the underlying payment
structure. This is needed to ensure that Medicare payments
appropriately reflect increases in practice costs. Otherwise, as CMS
predicts, the current system will produce negative updates over the
next three years, which would be, respectively, -5.7, -5.7 and -2.8.
This comes to almost a 20% cut in Medicare payments over 4 years (2002
through 2005), and this number increases to almost 30% when you account
for medical inflation. The 2005 conversion factor predicted by CMS
would be lower than the conversion factor in 1993. Congress did not
intend for the SGR payment system to pay physicians less in 2005 than
they were in 1993. Further, a 20 to 30 percent pay cut over four years
would add to the already significant pressures on physicians to
discontinue or limit the provision of services to Medicare patients,
thereby creating a significant access problem.
questions from representative norwood:
Question 1. Do you believe that physicians, generally, are
reimbursed at a rate that is below the cost of the treatment provided?
Question 2. Do you believe that is the case for any specific
physician or any specific treatment?
In many cases, Medicare payments are below the cost of providing a
service. More significantly, however, is the fact that over the last 11
years, Medicare payments to physicians have been significantly less
than increases in practice costs. The 5.4% cut, effective on January 1,
2002, is the largest payment cut since the Medicare physician fee
schedule was developed more than a decade ago, and is the fourth cut
over the last eleven years. Since 1991, Medicare payments to physicians
averaged only a 1.1 percent annual increase, or 13 percent less than
the annual increase in practice costs, as measured by the Medicare
Economic Index (MEI).
Further, CMS predicts that under the current system the updates
over the next three years will be, respectively, -5.7, -5.7 and -2.8.
This is roughly a 20% cut in Medicare payments over 4 years (2002
through 2005), and this number increases to almost 30% when you account
for medical inflation. Moreover, the 2005 conversion factor predicted
by CMS would be lower than the conversion factor in 1993. Physicians
will be paid less in 2005 than they were in 1993. A 20 to 30 percent
pay cut over four years would add to the already significant pressures
on physicians to discontinue or limit the provision of services to
Medicare patients.
These cuts impact all physicians and other health care
practitioners whose rates are tied to the physician fee schedule, as
well as the health system as a whole. For example, many physician
practice plans affiliated with an academic institution provide
substantial support to the teaching program. We understand that the
current cuts, as well as any potential future cuts, are seriously
impacting these practice plans. This, in turn, can impact the viability
and quality of the teaching program, which has far-reaching
implications.
In addition, the Marshfield Clinic in Wisconsin recently reported,
based on their internal analysis, that the Clinic recovers only about
70% of its costs in providing Medicare Part B services, and, that for
FY 2002, Medicare revenue will decrease as a percent of costs to
approximately 68.5%. Further, the Medical Group Management Association
(MGMA) conducted a survey of its members and found that average total
operating costs from 1999 to 2000 increased by 6.2%.
Finally, these Medicare cuts are exacerbated by the fact that
physicians are experiencing sharp increases in professional liability
premiums.
These trends cannot be sustained.
______
Responses for the Record of Martha McSteen, President, National
Committee to Preserve Social Security and Medcare
questions of hon. michael bilirakis
Question 1. In your testimony you state that ``the parts of the
country that are designated Health Professions Shortage Areas (HPSAs)
or Medically Underserved Areas (MUAs) are also the areas with the
lowest physician reimbursement.'' Cay you explain this further? Is
there data that indicates beneficiaries in these areas already have
greater barriers to access to care?
Areas that are designated Health Professionals Shortage Areas, for
a variety of reasons have not attracted sufficient numbers of
physicians. Although some of them are urban areas with sufficient
Medicare physician reimbursement levels, many of them are in fact rural
areas. Rural areas in particular have low levels of Medicare physician
reimbursements. Many members of the Subcommittee on Health of the
Energy and Commerce Committee remarked during their opening statements
that their rural districts have very low Medicare physician
reimbursements levels. The situation is the same with Medically Under
served Areas, those areas with insufficient numbers of all health care
providers. Far too many of them are rural areas with low Medicare
physician reimbursement. The problem feeds on itself: Medicare
reimbursements stay low, or decrease (as happened this year), therefore
physicians do not locate in these areas, and they remain HPSA and MUA.
Question 2. Have your members seen a different in access between
primary and specialty care physicians? If so, do you know why?
They have not reported any difference to us.
Question 3. With positive updates in 2000 and 2001 and now a
negative update in 2002, it is clear that the current update system is
volatile and unpredictable. How would you fix the physician fee
schedule update system to prevent instability in payment changes from
year to year and ensure that Medicare beneficiaries continue to receive
the quality care they deserve?
Medicare beneficiaries need a system that will ensure they continue
to have access to quality care. This means access to a physician and
sufficient time with the doctor as well. We believe Congress, with
advice from MedPac, physicians groups and other knowledgeable parties,
can arrive at a formula that is fair to beneficiaries, physicians and
taxpayers. These are the parties most appropriate to determine how to
fix the formula
questions of hon. charlie norwood
Question 1. Do you believe that physicians are, generally
reimbursed at a rate that is below the cost of the treatment provided?
No, not generally. However, with inflation the cost of everything
goes up, not down. Certainly, physicians cannot have cuts in payments
when their cost of operations is going up.
Question 2. Do you believe that is the case for any specific
physician or any specific treatment?
As a consumer and beneficiary organization, we only hear from
Medicare beneficiaries. Our members have not reported this to us. We
have not heard from physicians.
questions of hon. sherrod brown
Question 1. Medicare fee-for-services is the plan of choice for
about 85 percent of seniors. In any given year, almost all seniors
receive Part B services, the most common of which are physician
service. Given these facts, it is particularly important that Congress
work on revising the physician payment formula to ensure that payments
are appropriate. Otherwise, we could end up in a situation where tens
of millions of beneficiaries are at risk due to instability in Medicare
physician payments. What do you think could happen to seniors if large
numbers of physicians either dropped out of Medicare of decided not to
accept new Medicare patients?
This would certainly create a crisis situation for seniors. The
doctors who continue to accept Medicare would quickly find their
practice full, reaching the saturation point they would not be able to
accept any more patients. We know that seniors could not self-pay; most
are on low fixed incomes. Nor should they have to self-pay this was the
situation Medicare was designed to prevent. Seniors would have no place
left to go for treatment. Without physician management, senior's
chronic conditions would quickly escalate to acute episodes requiring
long in hospital stays or surgery. Persons with high blood pressure
would have strokes, persons with heart problems would have heart
attacks and those with diabetes would have all of the complications
that result from that disease. Treatment in hospital for acute epos
ides and for surgery cost far more than years of routine physician
visits. This would ultimately cost the Medicare system far more than
increasing payments to physicians.
Question 2. If Congress does not fix the problem with the physician
payment formula in the Medicare fee-for-service system, I worry that
physicians could decide to drop out of the Medicare program. I'm afraid
that we could end up with a have-and-have-not situation, where seniors
with less money would have less access to physician services than
seniors who can pay physicians with private funds. One of the
fundamental tenets of the Medicare program is that all seniors are
treated equally, regardless of their ability to pay. How important is
it for Medicare to ensure that seniors of all income levels have access
to the same level or care?
This is crucial. We don't want to develop 2 Medicare systems, one
for the rich and one for the poor. In fact, Medicare was developed to
ensure that all seniors have access to the same level of quality care.
We don't want to means test Medicare.
Question 3. Physicians and other practitioners--including nurse
practitioners, physician assistants, and more--are really the
foundation of the Medicare fee-for-service system. We need to maintain
adequate payments for these providers so we can keep the fee-for-
service system strong. Could you elaborate on how important the fee-
for-service Medicare program is to seniors?
The Medicare fee-for-Service system is literally a lifesaver for
seniors. As you stated, 87% of seniors remain in the traditional
Medicare program, enrollment in Medicare Plus Choice plans is down from
an all time high of 15% down to 13%. This is despite years of CMS
trying to attract Medicare Plus Choice plans and trying to enroll
beneficiaries in the plans. Plans have proven to be very unbelievable;
they withdraw from particular coverage areas, raise premiums and copays
and decrease benefits. The Medicare Plus Choice Plans have throw the
lives of many seniors into total disarray by abruptly dropping hundreds
of thousands of seniors from their plans leaving these seniors
scrambling to find alternative coverage. Fortunately, fee-for-service
Medicare was there to provide essential coverage. What would almost one
million seniors (933,000) have done in 2001 if traditional Medicare
were not there when the Medicare Plus Choice Plans withdrew? We must
make sure seniors never have to face this by keeping traditional
Medicare strong and viable. The M+C experience proves we cannot rely on
private companies to provide critical lifesaving coverage for seniors.
Private companies are about profits. We cannot rely on private
companies to ensure high quality health care; this is our collective
responsibility as a people, otherwise know as the government's
responsibility. Therefore, alternatives can be made available, but the
bedrock of Medicare must be fee-for-service and we must continue to
strengthen and improve this program.
______
Responses for the Record of Allison Weber Shuren, The American College
of Nurse Practitioners
responses to questions presented by the honorable michael bilirakis
Questions #1: In your testimony, you talk about ``practices that
will stop offering vaccines, other injections, and blood drawing
services as they simply can no longer afford to do so.'' What options
are left for beneficiaries to obtain these necessary services?
Response #1: Though the 5.4% cut is a very recent change, members
of the American College of Nurse Practitioners (ACNP) are reporting
that it is already affecting access, and the willingness or ability of
nurse practitioners and physicians to invest in additional personnel,
equipment, and other inputs. We have heard repeatedly of practices that
will stop offering vaccines, other injections, and blood drawing
services as they simply cannot afford to do so. For example, an NP in
New York informed us that her practice is planning on cutting certain
conveniences already, such as offering laboratory and EKG services on
site. As a result, Medicare beneficiaries will now be required to go to
an outside laboratory and to a Cardiologist for an EKG. Beneficiaries
now will be forced to travel in order to have such diagnostic tests,
and our members fear that many Medicare beneficiaries will simply
choose not to have necessary procedures performed.
Question #2: You are representing nurse practitioners--allied
health professionals who are padia set percentage of the physician fee
schedule. Are there other allied health professionals whose payment
rates are based on the physician fee schedule? If so, please identify
them.
Response #2: A number of allied health professionals receive
payments under the Medicare program that are based upon the physician
fee schedule. According to Section 1833 of the Social Security Act, the
allied health professionals who are reimbursed under the Medicare
program and the percentages they receive of the physician rate are
listed below:
a. Nurse Practitioners, Physician Assistants, Clinical Nurse
Specialists, and Medical Nutrition Therapists are reimbursed at
85% of the physician rate.
b. Certified Nurse Midwives are reimbursed at 65% of the physician rate
c. Certified Registered Nurse Anesthetists are reimbursed at 80% of the
physician rate
d. Psychologists are reimbursed at 80% of the physician rate
e. Clinical Social Workers are reimbursed at 100% of the physician rate
for covered diagnostic tests (according to the Part B Answer
Book, 2002 Edition)
f. Assistants at Surgery are reimbursed at 85% of the physician rate
g. Occupational and Physical Therapists are reimbursed at 100% of the
physician rate
Question #3: You have identified a number of flaws in the current
composition of the Medicare Economic Index (MEI). How can the MEI be
improved so that it more accurately represents increases in the cost of
operating a medical practice, including premium rate increases?
Response #3: There appears to be broad support for a number of
steps Congress can take to address the existing concerns with the
Medicare Economic Index (MEI). First, the MEI must be refined to
include non-labor productivity as a factor. At present, the MEI only
recognizes growth in labor productivity. In addition, the MEI must also
be adjusted to be a forecast that reflects cost changes for the coming
year and take into account, among other things, the tremendous
increases in malpractice premiums being experienced in state after
state; increased practice operational costs; and the expenses
associated with developing, implementing and maintaining compliance
programs; and the new HIPAA Privacy Standards. When the government
imposes additional burdens on providers, the MEI must reflect the real
cost of complying with those burdens.
Question #4: The current physician fee schedule update system
includes an expenditure target. It is my understanding that the target
was put in place to curb spending growth due to significant increases
in the volume and intensity of physician services provided in the
1980s. You testified in strong opposition to an expenditure target
system. Are there other ways to address growth in the volume and
intensity of physician services provided? If so, please provide a
detailed description of these alternatives.
Response #4: The Medicare Payment Advisory Commission (MedPAC)
released a report in March 2001 encouraging Congress to replace the
SGR. In light of this recommendation, MedPAC also addressed the issue
of controlling spending for physician services, with which we concur.
The report states, ``If volume growth reemerged as a concern, a better
strategy might depend on: 1) trying to achieve appropriate use of
services through outcomes and effectiveness research; 2) disseminating
tools for applying this research, such as practice guidelines; and 3)
developing evidence-based measures to assess the extent to which
knowledge is being applied (PPRC 1994).''
Question #5: I appreciate your support of this Committee and our
efforts to reform the methodology behind the update for physician
services. In your testimony, you list several steps Congress can take
to address the current situation. How would you prioritize those and
how would you rank the costliness of those priorities?
Response #5: Our recommendations as reported at the February 14
hearing in order of priority are: 1) Remove and replace the SGR system.
2) Refine the MEI to include non-labor productivity as a factor; 3)
Adjust the MEI to be prospective in nature rather than retrospective;
and 4) Correct erroneous estimates from previous years--the current
situation permits such arbitrary and capricious results that taint the
system and undermine basic confidence in the Medicare program.
We understand that modifying the system to alleviate the 5.4% cut
may entail a considerable price tag; however, Congress must take
action. Even if providers and practices are able to withstand a one
time 5.4% cut, the compounding nature of reimbursement cuts as
projected by the Centers for Medicare and Medicaid Services (CMS) for
the next five years is staggering. According to CMS projections,
providers will be operating at a -18.3% cut by 2005. The estimated
decline in reimbursement will make it impossible for providers to
operate within the Medicare program, thereby damaging our seniors
insurance system and threatening the access to care they deserve.
Question #6: With positive updates in 2000 and 2001 and now a
negative update in 2002, it is clear that the current update system is
volatile and unpredictable. How would you fix the physician fee
schedule update system to prevent instability in payment changes from
year to year and ensure that Medicare beneficiaries continue to receive
the quality care they deserve?
Response #6: The Sustainable Growth Rate (SGR) system must be
eliminated. The automatic spending target mechanism needs to be
replaced with a mechanism whose focus is to, in some rationale manner,
determine the increased or decreased costs associated with providing
services. As currently structured, the spending target operates as an
automatic tax on physician fee schedule providers that can jeopardize
the availability of health care to our elderly without any benefit of
Congressional debate, nor an opportunity for providers, patients, and
patient advocates to discuss whether such a cut or other alternatives
are appropriate from a policy perspective. Why are health care
professionals automatically singled out to bear a disproportionate
burden of a diminished Gross Domestic Product? We have no problem with
health care providers sharing in the burden to balance federal
expenditures in tough budget times, but we should have the opportunity
at those moments to engage with Congress and the public regarding
alternatives to such cuts, and the pertinent policy issues driving the
perceived need to decrease Medicare payment rates--particularly, where
the cut is so devastating as to risk the ability of the program to
protect the very individuals it was designed to assist.
responses to questions presented by the honorable charlie norwood
Question #1: Do you believe that physicians are, generally,
reimbursed at a rate that is below the cost of the treatment provided?
Response #1: The Balanced Budget Act of 1997 granted Nurse
Practitioners the statutory authority to bill directly under the
Medicare program, but according to the Social Security Act, Nurse
Practitioners are only reimbursed at 85% of the physician rate for
delivering the exact same services. Therefore, Nurse Practitioners
automatically receive a lower Medicare reimbursement for the services
performed.
Furthermore, Nurse Practitioners and physicians who provide, or who
are part of groups that provide, technical component services such as
ultrasound and other basic diagnostic testing for their Medicare
beneficiaries, experienced an additional 4 to 6 percent cut in practice
expense reimbursement associated with these services this year. This
cut was implemented by CMS without any notice in last year's proposed
rule, and became apparent only after health care providers around the
country began to calculate payment rates based on the Final Fee
Schedule published November 1, 2001. Given the instability of the
update factor and the practice expense formula, Nurse Practitioners
cannot help but fear additional cuts next year unless these problems
are addressed. If the update factor suffers another 3% decrease next
year that would leave Nurse Practitioners, just 10 months from now,
receiving as much as 23% below the level of reimbursement that other
providers received just two months ago. If we consider the change in
payment for technical component services that number could rise to 29%.
In addition, in sharing your question with our members, we received
various feedback. Some members mentioned specific treatments which they
felt are underpaid, while others stated that everything under the
Medicare program is reimbursed well below the accepted range of
payment.
Question #2: Do you believe that is the case for any specific
physician or any specific treatment?
Response #2: ACNP members shared a number of specific examples of
services whose Medicare reimbursement rates do not cover the cost of
the treatment. Our members comments are listed below:
`` . . flu influenza immunization. CMS reduced the payment this
year at the same time the cost of the immunization went up 27%!!! The
flu immunization program immunization rates have decreased over the
past two years per CMS claims data . . . Therefore, many providers are
not providing this service for their patients.''
``I can say that services provided for these [subacute] patients
under the Medicare Skilled Nursing regulations are under-reimbursed. We
struggle to keep this much needed, very effective, program going.''
``I think that e&m [evaluation and management] codes for nursing
home rounds are underpaid for NPs (99311, 99312, 99313, 99301, 99302,
99303).''
``Everything we do is reimbursed at well below the accepted range
of payment--and that's when we get paid.''
``I think reimbursement for any medicare visit is too little,
especially for primary care. We do a lot with physicals, scheduling
bone density tests, mammograms, colonoscopies, etc. All of this
teaching, planning and time spent doing a physical, health promotion is
given little credit.''
______
Responses for the Record of Thomas R. Russell, American College of
Surgeons
questions from the honorable michael bilirakis
Question 1. The Medicare Economic Index (MEI) is a common component
of both the current sustainable growth rate (SGR) system and the
proposed update system you have discussed in your testimony. You have
identified a number of flaws in the current composition of the MEI. How
can the MEI be improved so that it more accurately represents increases
in the cost of operating a medical practice, including premium rate
increases?
The purpose of the MEI is to measure changes over time in the
prices of the various components involved in providing physician
services. The American College of Surgeons believes that the current
MEI methodology contains technical deficiencies and urges Congress to
direct the Secretary of Health and Human Services (HHS) to make needed
changes. As you know, the MEI is important because it is the basis for
the annual inflation updates to the physician fee schedule.
Over the last several years, the College has shared its MEI
concerns with the Health Care Financing Administration (HCFA) and the
Centers for Medicare and Medicaid Services (CMS) in commenting on
proposed agency regulations and in other communications, but the
problems persist. We do not believe that the MEI as currently
structured provides an appropriate measure on which to base annual
adjustments in the physician fee schedule.
The MEI continues to have essentially the same structure that it
has had since its inception in 1972. Today, however, the Medicare
program pays for physician services totally differently than it did in
1972. At that time, physicians were paid their reasonable charges, and
the MEI's principal role was to limit the portion of the annual
increases in charges that Medicare would recognize in its
reimbursement. The portion of charges not recognized by Medicare was
owed by the beneficiary. In contrast, physicians today are paid based
on a government-set fee schedule, and--importantly--physicians face
strict limits on the amount that can be balance-billed to the
beneficiary. The College strongly believes that HCFA should re-examine
the structure of the MEI rather than continue to make only minor
changes in an index that was developed 30 years ago in a different
Medicare payment context. At a minimum, we urge four changes.
Recommendation--The price proxy used to measure changes in the
physician earnings component of the MEI should be the employment cost
index (ECI) for professional workers, not the average hourly earnings
(AHE) for total non-farm workers.
The component of the MEI designed to track changes in the cost of
the physician work component of the fee schedule uses the average
hourly earnings of all non-farm workers rather than the more
appropriate category of all professional workers. To support its use of
the non-farm worker category as the proxy, CMS has cited Committee
report language from 1972. The report language states that ``it is
necessary to move in the direction of an approach to reasonable charge
reimbursement that ties recognition of fee increases to appropriate
economic indexes so that the program will not merely recognize whatever
increases in charges are established in a locality.'' And, ``. . .
Initially, the Secretary would be expected to base the proposed
economic indexes on presently available information on changes in
expenses of practice and general earnings levels.'' CMS also states its
own conclusion that ``there is an obvious concern about circularity if
increases in prevailing charges are linked to increases in physician
charges, which are then tied to increases in physician income.''
The College disagrees with the CMS position and emphasizes two
points: (1) the Committee's concern about charge-based reimbursement is
not relevant since implementation of the resource-based physician fee
schedule; and (2) an index based on the earnings of all professional
workers would have been sufficient to address the Committee's concern
because physicians comprise a small proportion of all professional
workers. Because physicians represent less than 3 percent of all
professional workers in the economy, the circularity point is without
basis. The College also notes that, in contrast, a significant portion
of the hospital market basket, which is used as the basis for the
annual update in the inpatient prospective payment system (PPS) rates,
derives from the actual wages and salaries of civilian hospital
workers. If there is any case to be made regarding circularity, this
would seem to be the prime candidate.
The College believes it would be much more appropriate for Medicare
to use the rate of growth in the incomes of all professional workers as
the basis for adjusting payments to physicians, rather than using an
index based on all non-farm workers in the economy. According to CMS
estimates used in its most recent rulemaking on the MEI, basing the
physician earnings portion of the MEI on increases in the incomes of
all professional and technical workers would have produced an average
annual MEI of 2.4 percent for the period 1992-1997, compared to an
average 2.2 percent under the all-worker proxy used by HCFA. The
College strongly urges the Committee to direct CMS to make this long
overdue change effective January 1, 2003.
Recommendation--The non-physician employee compensation component
of the MEI should be adjusted using a price proxy that reflects the
increase in skill mix in physicians' offices.
CMS acknowledges that there has been a substantial shift in the
skill mix in physicians' offices over the last few years, yet it
continues to measure price changes using an economic statistic that
holds the skill mix constant. The agency's rationale for this decision
is that the use of higher skilled labor reflects the fact that work
formerly performed in the hospital is now done in ambulatory settings.
CMS continues its reasoning as follows: ``Skill mix shifts that reflect
rising intensity of outputs in physician offices are automatically paid
for by higher charge structures for the more complex mix of service
inputs. Physicians performing more complex services may hire more
skilled employees, and, thus, may tend to charge more for their
services.''
The College does not understand the CMS argument, or its relevance
to physician reimbursement under the fee schedule. Medicare pays for
physician services based on rates set by the government, not based on
charges. In addition, much of the increased care provided by surgeons
in their offices is for the post-surgical care of patients. These
office visits cannot be separately billed under Medicare policy because
they are included in the global surgical period. It is clear, however,
that responsibility for much of this portion of patient care has
shifted to the physician office as patients are discharged from the
hospital significantly earlier in their recovery than in the past.
These patients' care requirements are significantly greater and they
necessitate both a higher skill mix in physicians' office staff and the
use of more costly supplies and equipment. Physicians' services to
these patients are supported by their own office resources not by
hospital staff and supplies as was the case when hospital stays were
longer.
The College emphasizes that payments under the Medicare fee
schedule already fail to cover physicians' actual practice expenses, a
gap that has widened for surgeons under the recently implemented
resource-based formula for practice expenses. And the problem is
compounded by the agency's continuing failure to recognize shifts in
skill mix in its design of the MEI. We urge the Committee to direct CMS
to remedy this problem by adopting an index, such as one based on the
average hourly earnings of health care workers, that recognizes skill
mix shifts. This change also should be effective January 1, 2003.
Recommendation--The productivity adjustment should be removed from
the MEI and treated as one of the other factors affecting the cost of
providing physician services.
The MEI, liked the hospital market basket, is an index designed to
measure changes in prices affecting the cost of physician for services.
Unlike the hospital market basket, however, the MEI is not a pure price
index because it includes an offset for increased productivity. The
offset was included originally for technical reasons to avoid paying
physicians twice for productivity improvements: once in wage growth
reflected in the MEI and a second time in the additional services they
are able to provide due to their enhanced productivity.
In its March 2002 report to Congress, the Medicare Payment Advisory
Commission (MedPAC) also recommended removing the productivity
adjustment from the MEI. The College agrees with MedPAC that
productivity improvements should be considered as part of the other
factors affecting the cost of providing physician services. These other
factors, which include items such as changes in medical science and
technology, site of service, practice patterns and patient severity,
often will tend to more than offset productivity growth. Removing
productivity would make the MEI a pure form of what it is intended to
be: a price index. It also would make the measure consistent with the
market basket indices used for other Medicare services such as
hospitals and nursing homes.
The College believes that CMS could implement this change January
2003 and urges the Committee to direct the agency accordingly.
Recommendation--Medicare should use a forecast of the MEI to make
the annual update adjustments to the physician fee schedule.
Currently the fee schedule update for a calendar year is based on
changes in the MEI that occurred two years prior. This practice causes
an unnecessary lag in the MEI update and means that it does not reflect
current experience. When malpractice premiums are skyrocketing as they
currently are, the MEI is woefully out-of-date and will take two years
to catch up. The College believes that this is both unacceptable and
unnecessary. Looking again to the hospital market basket as a model,
this index is used on a forecast basis to make the annual updates in
hospital rates under both the inpatient and outpatient prospective
payment systems. Future updates are adjusted for the forecast error
made in earlier estimates.
The College urges the Committee to direct CMS to change the way the
MEI is used to measure price changes so that it is a forecast of the
change in the MEI for the coming year. Forecast errors would be
accounted for in future years' adjustments. This change should be
implemented January 2003.
In summary, the College strongly believes that the MEI as currently
used by CMS does not provide an adequate basis for updating the
physician fee schedule. The agency continues to rely on decisions it
made in the early 1970s about the appropriate structure of the index
although implementation of the physician fee schedule and limiting
charge has dramatically changed the way physicians are paid and created
a different context for the MEI.
Question 2. The SGR system compares cumulative total spending for
physician services with a spending target. It is my understanding that
the target was put in place to curb spending growth due to significant
increases in the volume and intensity of physician services provided in
the 1980s. Are there other ways to effectively address growth in the
volume and intensity of physician services? If so, please provide a
detailed description of these alternatives.
The College understands that Medicare, like other healthcare
payers, wants to reimburse only for services that are necessary to
provide quality healthcare to its beneficiaries. The program seeks
mechanisms that promote appropriate utilization and financial
accountability. But your question about how to achieve this is a very
difficult one. Before sharing our thoughts on your question, I would
like to address two assumptions that underlie mechanisms like the SGR
and its predecessor, the Medicare Volume Performance Standard (MVPS).
The first assumption of these approaches is that physician spending
is out-of-control, that unnecessary services are being provided. Data
from the CMS actuaries show that from 1985 through 2000, allowed
physician charges per aged Medicare enrollee grew at an average annual
rate of 6.1 percent. Since implementation of the physician fee schedule
in 1992, the average annual increase has been 4.1 percent (1992-2000).
By comparison, hospital outpatient spending per enrollee increased an
average annual 9.6 percent from 1985 through 2000 and an average annual
7.7 percent from 1992 through 2000. For both of these periods, average
annual increases in physician spending were about 3.5 percentage points
lower than the comparable increases for hospital outpatient spending.
In other words, growth in physician spending has been low to moderate.
Regarding the corollary assertion that physicians are providing
unnecessary services, there simply are no data or other evidence to
corroborate this.
The second assumption is that the SGR is an effective system to
control physician spending. It is not. Although it is true that the SGR
can reduce Medicare spending by imposing onerous price cuts as it is
doing this year, there is no evidence that it promotes more appropriate
utilization. In fact, going back to its predecessor, the MVPS, many
have questioned whether such mechanisms can provide an incentive for
appropriate utilization of physician services. Critics believe the
approach is fundamentally flawed and note several problems that negate
any incentive value. For example, because the target is national in
scope, no single physician or physician practice can effectively
control whether the target is met. [For this reason, the original
Medicare fee schedule legislation included an option for group volume
performance standards that would allow group practices to opt out of
the national system and be subject to separate targets set for the
group. This option has not been implemented.]
Beyond these very fundamental structural problems are other serious
issues: the scope of the SGR includes services other than physician
services, further weakening incentives; the target is set not based on
the need for physician services, but on arbitrary external factors like
economic growth; adjustments based on the SGR are made as much as two
years after the fact--too far removed to affect behavior; when the
adjustments are actually made, they could make payments in that year
inappropriately low or unnecessarily high.
Policies like the SGR are crude attempts to control spending based
on arbitrary expenditure targets. Better strategies are needed to
support appropriate utilization and discourage unnecessary utilization
of services. The College does not have a magic bullet for such a
strategy. This is a difficult issue that has perplexed physicians and
insurers for years. We do believe, however, that the solution lies in
the collection and use of better information and appropriate models of
care. For example, the government, in collaboration with physicians and
others, should continue to develop evidence-based models of care and
techniques to gauge the extent to which the models are being applied.
The goal should be, as MedPAC has observed, to achieve appropriate use
of services through outcomes and effectiveness research and through the
dissemination of tools, such as practice guidelines, for applying this
research.
The College also believes that the medical community can make much
greater use of data that compares treatments and results with
appropriate care models and with experience of other practitioners.
These data should be used as part of a non-threatening, continuous
quality improvement program, not to hit physicians over the head or
penalize them. Physicians are highly committed professionals who seek
the best for their patients. Physicians will respond to comparisons and
other information. We live in an information age of rapidly increasing
capacity and creativity, yet the practice of medicine is only recently
beginning to take advantage of the opportunity that information
technology affords. The College strongly believes that this is the path
to pursue. It is a course that will not threaten beneficiary access to
needed services, unlike the path of expenditure targets.
Question 3. With positive updates in 2000 and 2001 and now a
negative update in 2002, it is clear that the SGR system is volatile
and unpredictable. How could you fix the physician fee schedule update
system to prevent instability in payment changes from year to year and
ensure that Medicare beneficiaries continue to receive the quality care
they deserve?
To address the many problems caused by the SGR and the current fee
schedule update mechanism, the College urges the Committee to adopt the
approach contained in the MedPAC recommendations. This is an approach
modeled on the update mechanisms used for other Medicare services.
Moreover, it is policy that has been applied since 1982 for hospital
inpatient services without instability in payment levels or other major
problems.
Recommendation--Eliminate the SGR update methodology and replace it
with an annual update based on factors influencing physicians' costs of
efficiently providing patient services. The update formula should not
include any performance adjustment factor based on an expenditure
target.
Like MedPAC, the College believes that the physician update should
be based exclusively on Medicare beneficiaries' need for services and
the cost of providing those services. Access to physician services
under Medicare and payment for those services should not be limited, or
even threatened to be limited, in any manner that could impede
beneficiary access to the high quality care that Medicare has made
possible for 36 years. Physician services provide the core of all
patient care. They are essential for achieving quality care and, in
addition, we believe they are the most cost-effective of all services
included in the Medicare program.
Under this recommendation, MedPAC and the Secretary would establish
an update framework similar to ones used for other Medicare services.
In addition to changes in input prices (as measured by the MEI), the
framework would include components to reflect changes in all other
factors affecting the cost of delivering physician services. These
other factors include changes in the volume and intensity of physician
services due to new technology, site of service shifts, and practice
patterns, among others. Physician updates would be based solely on
beneficiary needs and the cost of providing physician services. I
emphasize that under this recommendation, the SGR would be repealed and
it would not be replaced with any expenditure target or similar
adjustment mechanism.
______
Medical Group Management Association
March 6, 2002
The Honorable Michael Bilirakis, Chairman
House Committee on Energy and Commerce
Subcommittee on Health
Washington, DC 20515-6115
Dear Chairman Bilirakis: Please find attached, MGMA's answers to
member questions related to MGMA board member Dr. Susan Turney's
testimony before the Health Subcommittee during its February 14, 2002
hearing regarding Medicare Payment Policy.
Again, thank you for holding the hearing on this important issue.
If MGMA can be of further assistance concerning this or any other
matter, please feel free to contact Anders Gilberg, MGMA government
affairs representative at 202-293-3450
Sincerely,
William F. Jessee MD CMPE
President & CEO
questions from chairman bilirakis:
Question: In your written testimony you mentioned that the impact
of the 2002 payment cut will be felt beyond the Medicare program can
you elaborate on this?
Many private health insurance plans that contract with Medical
Group Management Association members' group practices use the Medicare
Resource Based Relative Value System (RBRVS) as a benchmark to set
private rates. Practices often negotiate contracts with insurers as a
percentage of Medicare. In addition, a number of state Medicaid
programs use the Medicare reimbursement framework as a proxy to set and
annually update payment rates. As a result, any change to the Medicare
RVUs and/or conversion factor will be felt beyond Medicare as other
private and public payers adjust their rates accordingly.
The ripple effect of the cut can be further illustrated using the
Marshfield Clinic as example. Marshfield Clinic derives revenue
principally from physician services, and its sources of revenue are
limited to Medicare, Medicaid, BadgerCare (Wisconsin program for
uninsured families), commercial insurance, and payments made by
individuals who are not covered by any commercial or public source.
Payments from Medicare, Medicaid and BadgerCare are regulated and fall
considerably short of the cost of providing the services. Medicare is
the largest component of the public payer mix. Medicare shortfalls
require the Clinic to increase commercial charges to offset the losses
created by federal programs. This is particularly challenging in areas
where Medicare beneficiaries are in greater relative abundance, because
the losses are spread across a relatively diminishing population of
workers and individuals.
The crisis in Medicare reimbursement is becoming increasingly
precipitous, as more and more seniors transition into the Medicare
program, overwhelming other sources of revenue. Nationwide, according
to the National Bipartisan Commission on the Future of Medicare there
are presently 3.9 workers for every Medicare beneficiary. In the 20
county Marshfield Clinic service area, which covers more than one-third
of the land mass of the State of Wisconsin, the regional micro-economy
is depressed because there are only 3.04 workers for every Medicare
beneficiary, a ratio not expected on a national basis by the Bipartisan
Commission until 2017. In some counties in the Clinic service area the
ratio is already below 2 to 1. I have enclosed a map that shows the
ratios of employed workers to Medicare beneficiaries in Wisconsin.
It is also important to note that Medicare fee-for service payments
in Wisconsin are among the lowest in the nation. Wisconsin's premiums
for commercial insurance, on the other hand, according to the
ModernHealthCare Dec. 24, 2001 issue, are the 7th highest in the
nation, and are ranked above Maryland and DC. We do not believe that
this is a coincidence.
In Marshfield's service area, Federal underpayment is one of the
principle causes of high premiums for commercial insurance, and as
premiums increase the number of uninsured individuals also increase. In
addition, costs that are shifted to other sectors of the economy have
created tensions between rural and urban providers, primary care and
specialty care clinicians, doctors and HMOs, providers and the employer
purchasing community, and retirees and workers. In effect federal
payment shortfalls are the source of many of the problems in the health
care delivery system. These problems will trouble the country until the
federal government takes steps to establish parity between federal and
commercial pricing.
Question: You testified that the Marshfield Clinic has been
thinking about entering the Medicare+Choice market. How does the SGR
system factor into the Marshfield Clinic's concerns about implementing
a Medicare+Choice plan?
In 2001, the Clinic had net earnings as a percent of revenue of
1.58% on revenue of $527 million. We calculate that the revenue impact
of the Medicare Payment rule will be negative $2.8 million for CY2002.
In the pro forma analysis of the Medicare+Choice market and the rollout
of the M+C plan the Clinic assumes that enrollment will not reach a
critical mass to allow the plan to break even and expand services to
needed areas until the second or third year of operation. In 2002 we
expect to lose an additional $2.5 million if we enter the M+C market.
With such slim margins, even very slight changes in other revenue
streams take on a magnified consequence. We have assumed that we will
enroll 5000 Medicare beneficiaries in the first year of operation and
5000 more in the second year. If these enrollment projections are not
met the M+C plan losses may be significantly higher forcing the Clinic
to exit M+C prematurely. This is not a desirable outcome for the
Medicare program, Medicare beneficiaries in M+C or traditional Fee-for-
Service, or for the Marshfield Clinic.
Question: In your testimony you mentioned that payment volatility
plays havoc with your planning and budgeting initiatives because of
your slim margins. Can you help the Subcommittee understand how early
in your budget planning process you need to know what the next year's
Medicare update will be to enable you to properly plan and develop your
budget?
Like the federal government, the Marshfield Clinic initiates budget
planning for the coming fiscal year in January. In the past we have
relied on update predictions announced at the Medicare Payment Advisory
Commission in March and subsequently confirmed in the Medicare
physician fee schedule NPRM published in June or July. Usually the
Clinic budget is finalized and approved by the Marshfield Clinic's
Board in August. Like the federal government, the fiscal year for the
Clinic begins October 1. Changes announced in November that are
significantly different from those announced in July force the Clinic
to spread the impact of the period from October--January on the
remaining three quarters of the fiscal year--a task made more difficult
because there are fewer months in which to accomplish the expense
reductions.
Question: I understand that the Marshfield Clinic serves a large
rural area in northern Wisconsin. How will the current Medicare payment
reduction affect your ability to serve rural communities in your
service area?
As a matter of policy the Clinic provides services to everyone
regardless of their ability to pay. Many rural communities that lack
physician services have asked the Marshfield Clinic to provide services
in their area. The Clinic has established telemedicine services to
extend care into many of these areas. The problem is the cost of
staffing clinic satellite locations. The largest component of the
Marshfield Clinic's budget is related to staffing. The Clinic presently
has 102 physician positions open and unfilled in settings where
services are needed but funding is limited. Physician recruiters have
advised the Clinic that it will need to pay a premium to attract the
physicians it needs. Shortages in the critical medical specialties of
anesthesiology, radiology, orthopedics and dermatology are driving up
the costs of recruiting and resulting in delays in related areas of
medical service. The Clinic also has 237 other staff vacancies in all
of the fields that are essential components of a large integrated
system of care. Recruiting efforts take place in local, regional,
state, and national markets.
It is particularly distressing to the Clinic that the most cost
effective response to the Medicare payment cut is to freeze hiring
especially in the more remote areas that the Clinic serves. These areas
may have significant access problems but do not have the necessary
volumes of patients to make services viable. It is even more
distressing that the Clinic's ability to provide charity care is
further constrained by reductions in Medicare payment. Consequently
Medicare payment reductions fall on those least capable of dealing with
health problems. This is very shortsighted.
Question: You have identified a number of flaws in the current
composition of the Medicare Economic Index (MEI). How can the MEI be
improved so that it more accurately represents increases in the cost of
operating a medical practice, including premium rate increases?
The MEI should be updated to include accurate measures for a number
of significant costs borne by physician practices. These costs include
regulatory burdens such as: increased requirements for documentation,
conflicting Medicare rules, costly compliance programs, needle stick
prevention rules, onerous privacy provisions, and the unfunded
requirement that practices provide free interpreters for patients with
limited English proficiency. In addition, practices in many states
currently face a crisis regarding premium increases for professional
liability insurance. The current MEI does not accurately reflect these
costs.
From 1992-2000, MGMA's national practice cost survey indicates that
total operating costs per physician in an average multi-specialty group
practice rose 31.7%. During that same period, the MEI increased 21.2%
and, finally, Medicare payments increased only 13%. While the MEI is a
more accurate reflection of real world inflation costs than recent
Medicare payment updates, it should be updated to better reflect
medical specific economic cost inflation.
Question: With positive updates in 2000 and 2001 and now a negative
update in 2002, it is clear that the current update system is volatile
and unpredictable. How would you fix the physician fee schedule update
system to prevent instability in payment changes from year to year and
ensure that Medicare beneficiaries continue to receive the quality of
care they deserve?
No other payment system under Medicare fluctuates with the Gross
Domestic Product (GDP). Only physician fees are fixed to move in line
with the overall economy. As the economy fluctuates, so do physician
payments under the SGR system. The fact remains that Medical costs are
not necessarily tied to the growth of the overall economy
MGMA urges Congress to take three immediate steps to address the
current volatile and unpredictable SGR update system.
1. Halt the 2002 5.4% reduction to the Medicare fee schedule,
2. Eliminate the current Sustainable Growth Rate system, and
3. Implement a new methodology that bases Medicare reimbursement on a
formula that links annual Medicare updates to actual practice
costs.
questions from representative norwood:
Question: Do you believe that physicians are, generally, reimbursed
at a rate that is below the cost of the treatment provided?
Medicare reimbursement is significantly below the cost of providing
physician services. Marshfield Clinic recently worked with the General
Accounting Office to evaluate Medicare chemotherapy reimbursement and
oncology practice expense payments. In conjunction with the evaluation
Marshfield Clinic also conducted an internal analysis to determine to
what extent the Medicare program covers the cost of providing services
to Medicare beneficiaries. Our analysis demonstrates that the Clinic
presently recovers only about 70% of its costs in providing Medicare
Part B services. We do not believe that we are unique, but suspect that
the shortfalls in Medicare revenue are common for physicians providing
Medicare Part B services.
To calculate the percent of its Medicare allowed costs for which
Medicare reimbursement is received, Marshfield accountants eliminated
all expenses and revenues received that might potentially be questioned
by the Medicare program. Our methodology for FY 2000 follows principles
applied in our annual FQHC cost report that was audited by external
auditors and submitted to the state. (Marshfield Clinic in conjunction
with Family Health Center Inc. functions as a federally qualified
health center (FQHC) under the Medicaid Program.) For the purposes of
this analysis all expenses and revenues from activities such as the
outreach lab, veterinary lab, research and education, rental property
and optical and cosmetic surgery departments were removed. Our
accountants also removed all non-Medicare ``Allowed'' costs related to
our bad debt, interest expenses, marketing programs, government affairs
activities, National Advisory Council, goodwill amortization and other
miscellaneous costs.
For FY 2000 Medicare Revenue was 71.52% of Costs for Fee for
Service Medicare. For FY 2001 Medicare revenue (un-audited) as a
percent of costs goes down to 70.59%. For FY 2002 we project that
Medicare revenue will decrease as a percent of costs to approximately
68.5%.
The current shortfall between payments and cost is in part due to
payment updates that were lowered in anticipation of volume offsets.
These national decisions assume that increasing volume in response to
tightening reimbursement takes place uniformly across the country. To
the extent that rural areas, particularly those with a shortage of
physicians could not or did not participate in enhancing volume in
response to tightening payment constraints they suffer a ``fix'' for a
problem that didn't exist. We urge you to take steps to remedy this
inequity as soon as possible.
Question: Do you believe that is the case for any specific
physician or specific treatment?
It is difficult to answer this question definitively without a
mechanism for isolating costs to specific services. Marshfield Clinic
provides more than 4000 services. In aggregate we know that Medicare
services are provided below cost.
The Clinic presently has 102 physician positions open and unfilled
in settings where the services are needed but funding is limited.
Physician recruiters have advised the Clinic that it will need to pay a
premium to attract the physicians it needs. Shortages in the critical
medical specialties of anesthesiology, radiology, orthopedics and
dermatology are driving up the costs of recruiting for these
specialties and may result in limited access to care or delays in
receiving treatment by the specialist who can best address a patient's
needs.
For the present discussion it is important that Congress make the
distinction between payment adequacy and update adequacy. Even if
Congress makes wise decisions to fix the annual physician payment
updating formula, it still must address the underlying problem that the
baseline from which Medicare payment starts is still significantly
below the cost of providing services.
These circumstances are further aggravated in rural areas because
the physician work adjuster reduces Medicare physician payments in
rural localities. This disparity in payment is an aspect of Medicare
law should be revised without delay.
______
Questions for Administrator Scully from Hon. Michael Bilirakis,
Chairman, Subcommittee on Health, Committee on Energy and Commerce
Question 1. With the 5.4 percent negative update for physician
payments this year, the rationale behind paying for physician services
differently than other Medicare covered services has come into
question. It seems as though there would be merit in having consistent
payment methodologies across different service categories. What makes
physician services different? Why was a different payment methodology
put in place for physician services?
Response: Based on the recommendations of the Physician Payment
Review Commission (PPRC), one of MedPAC's predecessor organizations, in
1989, Congress first established a volume control mechanism in the
Omnibus Budget Reconciliation Act of 1989 as part of the major reform
of Medicare's payment for physicians' services. The three key parts of
the legislation were: (1) a fee schedule that redistributed payments
among types of services and geographic areas, (2) beneficiary financial
protections (limits on balance billing); and (3) a volume control
mechanism, called the Medicare Volume Performance Standard (MVPS). The
MVPS was established because of the concern about large increases in
expenditures for Medicare physicians' services through the 1980's.
These large increases in expenditures were on top of growth in the
number of Medicare enrollees and inflation.
Physicians are different from other providers in several respects.
It has long been recognized that physicians are the gatekeepers to
health care, influencing the volume and intensity of services they
furnish as well as directing the utilization of other services.
Physicians can order and receive reimbursement for services (such as
lab and diagnostic tests) that they do not necessarily personally
perform. In addition, Medicare's payment for providers such as
hospitals, skilled nursing facilities and home health agencies is
bundled. In contrast, physicians bill for each individual service
provided. For example, even though spending is twice as much for
hospitals as for physicians, there are about 500 units of service for
hospitals in comparison to about 7,000 units of service for physicians.
Under a bundled payment system, the reimbursement amount is the same
regardless of the volume and intensity of services furnished. With a
fee-for-service system, the system under which physicians are paid by
Medicare, the total payment is dependent upon the volume and intensity
of services furnished.
The MVPS was an annual system of targets. If expenditures exceeded
the target, the physician fee schedule update was reduced two years
later. If expenditures were less than the target, the physician fee
schedule update was increased two years later. This system allowed
expenditures to grow for inflation, enrollment, and any policy changes
that would increase or decrease expenditures. In addition, it included
an allowance based on historical volume trends for physicians' services
less a ``performance adjustment factor.'' OBRA 1993 tightened the MVPS
because large performance adjustments in two years led to a belief that
the MVPS was too loose.
The MVPS was replaced with the Sustainable Growth Rate (SGR) in the
Balanced Budget Act of 1997. The SGR made two major changes to the
nature of the system. First, the system was made cumulative. This
eliminated the annual rebasing under the MVPS. That is, if expenditures
exceeded the target for a year under the MVPS, the update for a year
would be reduced, but for the next year, the actual base expenditures
(including the excess expenditures) were the new starting point for
applying the target and measuring expenditures. The SGR eliminated the
annual rebasing feature. Second, like the MVPS which was based on four
factors (price, population, a volume/intensity factor and policy
changes that would increase or decrease expenditures, less a
performance adjustment factor), the SGR also is based on the same four
factors. The difference is that under the MVPS the volume/intensity
factor was the 5-year historical average of Medicare physician volume
and intensity of services. SGR changed that volume intensity factor to
real gross domestic product (GDP) per capita. Having accounted for
price and population, real GDP per capita is the allowance for growth
in the volume and intensity of physicians' services.
Question 2. The current physician fee schedule update system
includes a spending, or expenditure, target. Is it possible to
reconcile the need for a spending target with assuring that payments
keep pace with the needs of Medicare beneficiaries and the cost of
providing care? Please explain. Are there other ways to address growth
in the volume and intensity of services provided? If so, please provide
a detailed description of these alternatives.
Response: My number one priority is to ensure that Medicare
beneficiaries have access to the care they need. That includes making
sure that we maintain the fiscal integrity of the Medicare program to
so that it is solvent for the beneficiaries of today and the many new
beneficiaries that will soon be added as baby boomers become eligible.
The current physician spending target is intended to increase rates
based on the cost of providing care with an adjustment either up or
down depending upon on how expenditure growth compares to target rates
of increase. In the past few years, the system led to updates that
increased Medicare payment rates above inflation in physician costs.
Unfortunately, for the next few years, the system will lead to
adjustments below inflation in physician costs.
It is possible to reconcile the need for a spending target with
assuring that payments keep pace with the needs of Medicare
beneficiaries and the cost of providing care. While the SGR has largely
been working as designed, it has produced large short-term adjustments
and instability in year-to-year updates. One way to improve stability
in the SGR system would be to substitute a multi-year rolling average
of real per capita GDP in place of single year GDP used in the current
system. Real per capita GDP can fluctuates in the short term and lead
to large differences in the year-to-year change to physician fee
schedule rates. Using multi-year real per capita GDP would link the
physician expenditure growth to long run trends in economic growth with
less oscillation from one year to the next in the physician fee
schedule update.
Question 3. The sustainable growth rate (SGR) system and its
reliance on the gross domestic product (GDP) have been widely
criticized. Specifically, critics have cited the failure of GDP to take
into account health status, the aging of the Medicare population, costs
of technological innovations, or escalating costs of operating a
medical practice. Why is GDP a part of the SGR system? Should the
annual increase in the expenditure target for physician services be
limited by the rate of GDP growth? Why or why not?
Response: Like the MVPS, the SGR growth target is comprised of four
factors: (1) changes in prices, (2) changes in the fee-for-service
population, (3) changes in the volume and intensity of services, and
(4) changes in law or regulation. Under the MVPS, the volume and
intensity factor was the historical 5-year average of volume and
intensity of Medicare physicians' services, less 4 percentage points.
The SGR changed the volume and intensity factor to the real gross
domestic product (GDP) per capita.
The 1996 Annual Report to Congress from PPRC indicates the policy
rationale for using real GDP per capita rather than historical
physician volume and intensity as the basis for the volume and
intensity factor.
``The use of historical trends, and a fixed deduction of 4
percentage points may lead to unrealistic and arbitrary
performance standards. High or low expenditure growth
eventually becomes part of the historical trend in volume and
intensity used to calculate the default performance standards.
As a result, reducing volume and intensity growth increases the
conversion factors in the short term, but lowers the
performance standards over the long term, making them more
difficult to meet.''
``Linking the performance standard formula to projected
growth of real GDP per capita, instead of a five-year
historical trend with a fixed deduction of 4 percentage points,
would provide a realistic and affordable goal that links the
budget targets to the economy as a whole. Projected GDP growth
is an appropriate choice because it represents the economy's
capacity to grow, while avoiding the effects of business
cycles. Real, rather than nominal, GDP growth should used since
the formula already accounts for input price inflation; per
capita growth should be used because the formula incorporates
enrollment growth.''
Since real GDP per capita measures real growth in the economy, and
other factors such as technology are difficult to measure, it is
appropriate to base the volume and intensity component of the SGR on
real GDP per capita. (In 1995 PPRC recommended adding 1 or 2 points to
real GDP per capita to allow for advancements in medical capabilities.)
Question 4. With positive updates in 2000 and 2001 and now a
negative update in 2002, it is clear that the SGR system is unstable.
Should the SGR system be completely replaced? Is there any way to
modify the current update system to make it less volatile and more
predictable? For example, would a five-year average of GDP growth help?
What about changing the statutory update limits?
Response: It is important to note that the SGR system is operating
largely as designed, constraining the rate of growth in Medicare
physician spending and linking it to growth in the overall economy, as
well as to taking into account physician control over volume and
intensity of services. As such, it is not necessary to do away with the
SGR entirely. We need to refine it and make it more stable. Use of
average of real GDP per capita over a number of years would help make
the system more stable. Revision of the statutory limits on performance
adjustments could also be considered.
Question 5. To improve the precision of the measurement of prices
within the SGR system, should additional factors that affect the cost
of delivering physician services be included, such as new technology,
the aging of the Medicare population, site of service shifts, the
intensity of services provided in physician offices, the preferences
and needs of beneficiaries, and changes in physician practice patterns?
If so, which factors should be included and why?
Response: We have examined the impact of the aging Medicare
population on Medicare expenditures for physicians' services. To date,
the aging of the population has had a very small effect on year-to-year
changes in Medicare expenditures for physicians' services. However, it
may become more important in the future as the baby boom generation
becomes eligible for retirement and later as the generation ages. PPRC
also studied this issue and made similar findings. At this time, the
law governing physician payment is prescriptive and does not
specifically allow the target to be adjusted for the aging of the
Medicare population.
It is difficult, if not impossible, to measure the effect on year-
to-year changes in Medicare expenditures for physicians' services that
might result from changes in technology, changes in site of service,
changes in physician practice patterns, or changes in the needs and
preferences of beneficiaries. Basing the SGR volume and intensity
factor on real GDP per capita, or growth of the overall economy, is
intended to capture these factors. Real economic growth per capita was
intended as a proxy for the many factors that lead to expenditure
growth other than inflation, Medicare enrollment, and policy changes
that could increase or decrease Medicare expenditures.
Question 6. In your testimony, you mentioned that current law does
not give the Centers for Medicare and Medicaid Services (CMS)
administrative flexibility to adjust physician payments when the
formula produced unexpected payment updates. How would you propose
addressing this inflexibility?
Response: While the SGR has largely been working as designed, it
has produced large short-term adjustments and instability in year-to-
year updates and, currently, projected negative updates for the next
few years. The SGR system could be revised and stabilized through the
use of a multi-year rolling average of the real per capita GDP factor
rather than using the factor for a single year. While the current
formula does not give us administrative flexibility to make changes, we
want to work with Congress on changing the overall payment system in a
budget-neutral way.
Question 7. In January, the Medicare Payment Advisory Commission
(MedPAC) voted to recommend adjustments to the Medicare update system
to better account for actual physician practice costs, including a 2.5
percent payment increase in 2003. CMS actuaries have reported that it
would cost $127.7 billion over ten years to adopt the MedPAC
recommendations. Please provide a detailed explanation of the basis of
this cost estimate.
Response: The MedPAC proposal for updating Medicare payments to
physicians would:
(1) Eliminate the Sustainable Growth Rate (SGR) system. Thus, there
would be no performance adjustments beginning in 2003. In addition, the
legislated adjustments from BBRA would be removed; and
(2) Use multifactor productivity in the calculation of the Medicare
Economic Index (MEI), rather than the current labor productivity
factor. This will increase the yearly update by 0.5 to 1.0 percent per
year.
Medicare physician payments are increased on January 1 of each year
by the MEI, adjusted by a performance adjustment which compares actual
physician spending to target physician spending under the SGR system.
Elimination of the SGR system would result in significant increases in
currently projected physician fee schedule updates. Currently, we are
estimating the physician fee schedule update to be negative for each of
the next four years, including updates of -5.7 percent for 2003 and
2004. MedPAC's proposal would result in physician fee schedule payments
of between 2.0 percent and 2.5 percent per year. A summary of these
updates is shown in the table below.
Estimated Physician Updates
[In percent]
----------------------------------------------------------------------------------------------------------------
Calendar Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
Current Law..................... -5.7 -5.7 -2.8 -0.1 1.6 1.8 1.7 1.3 1.0 0.4
MedPAC's Proposal............... 2.1 2.0 2.0 2.5 2.2 2.1 2.1 2.4 2.3 2.3
----------------------------------------------------------------------------------------------------------------
In addition to the costs identified above, our actuaries assume
that the underlying growth in the volume and intensity of physicians'
services would be increased by 1 percent per year due to the
elimination of the SGR. Since Medicare spending for physicians is
currently more than $40 billion per year, there is a sizeable cost
associated with large changes to the physician fee schedule update. Our
actuaries estimate that this proposal will increase Medicare spending
by $127.7 billion over the next ten years.
Question 8. The President identified the need to fix the physician
payment update in his fiscal year 2003 budget. You also have expressed
a willingness to work with Congress to develop a budget neutral fix.
Please provide the Subcommittee with a detailed explanation of the
various options the agency is studying to fix the update formula,
including the estimated cost of each option.
Response: We believe that considerations of sustainability and of
our urgent priorities in Medicare argue strongly that, if changes in
the physician payment system are undertaken this year, they should be
undertaken carefully and implemented in a way that does not
significantly worsen Medicare's long-term budgetary outlook. The
Administration supports reforms in physician payment that lessen
volatility, and further believes that any short-term payment problems
can be addressed at a much lower cost than the MedPAC recommendation
implies. We are happy to provide technical assistance to help Congress
smooth out the physician payment system in a budget neutral way.
Questions for Administrator Scully from Hon. Sherrod Brown, Ranking
Member, Subcommittee on Health, Committee on Energy and Commerce
Question 1. How much money does CMS believe is necessary to fix the
problem with the physician formula?
Response: There are a number of options that range in cost from $17
billion to more than $127 billion, depending on the approach selected.
While we appreciate MedPAC's efforts to develop proposals to improve
the physician payment system, we do not believe their ideas are the
appropriate starting point for a discussion of Medicare provider
payment--$127 billion is simply too much. However, we are happy to work
with Congress to develop a budget neutral way to address concerns about
inconsistencies in physician payment updates.
Question 2. What specific changes does CMS recommend that Congress
make to the physician payment system to fix the problem with the
current formula?
Response: We believe that considerations of sustainability and of
our urgent priorities in Medicare argue strongly that, if changes in
the physician payment system are undertaken this year, they should be
undertaken carefully and implemented in a way that does not
significantly worsen Medicare's long-term budgetary outlook. The
Administration supports reforms in physician payment that lessen
volatility, and further believes that any short-term payment problems
can be addressed at a much lower cost than the MedPAC recommendation
implies.
Question 3. Which particular providers does CMS recommend that
Congress reduce payments in order to make the fix for physicians budget
neutral? Please describe the particular policies that CMS recommends be
implemented to reduce spending for each provider listed. What data or
other evidence does CMS have to support such payment reductions to each
of the particular provider groups?
Response: While the President's Budget did not contemplate any
particular provider payment changes, we are willing to consider limited
adjustments to payment systems and to work with you to develop a
comprehensive package that is budget neutral across providers. We will
not support any package of provider payment changes unless it is budget
neutral in the short- and long-term. To this end, we recognize that
some provisions in law that, in the past, have restrained growth in
payments are about to expire, and extension of these provisions is one
potential way to ensure a budget neutral package of reforms.
Questions for Administrator Scully from Hon. Bennie G. Thompson
Mr. Secretary, it is my understanding that under the current
Medicare Sustainable Growth Rate (SGR) update formula, the center for
Medicare and Medicaid Services (CMS) is projecting that physician
payments will be cut by 17% over the next four years due to the 5.4%
cut that went into effect on January 1, 2002. If we assume
conservatively, an inflation rate over 3%, this would result in a real
dollar cut of 25% percent over the next five years. If physicians are
forced to endure this cut, coupled with inflation, they will be forced
to cut services in some manner in order to sustain their businesses.
Mr. Secretary, I represent a rural, heavily impoverished district,
where it is already hard enough for my constituents to locate and
receive adequate health care. Under this cut, physicians in my state of
Mississippi will lose more than $22.5 million. With 9.2 physicians per
1,000 beneficiaries, Mississippi already has the fewest doctors per
Medicare beneficiary than any other state with the exception of North
Dakota. I would hate for this daunting task to be compounded even more
due to physicians having to limit the number of Medicare patients they
see, due to the relocation of service in order to serve a younger area
with far fewer Medicare eligible patients, or due to the cease of
investment in new technologies that may prove critical in the diagnosis
or treatment of ill patients.
Question 1. Is my understanding of the dollar impact of the current
flawed formula correct?
Response: The physician fee schedule update for 2002 was -4.8
percent. The 2002 conversion factor is $36.20. We currently estimate
that in 2003, the physician fee schedule conversion factor update would
be -5.7 percent. In 2004, we estimate the physician fee schedule
conversion factor would be -5.7 percent. And, in 2005, we estimate the
physician fee schedule conversion factor update would be -2.8 percent.
However, we also estimate that overall Medicare physician spending
will total $66.3 billion in 2002, a growth rate of 2.4 percent. We
estimate that in 2003, overall Medicare physician spending will total
$67.1 billion, a growth rate of 1.1 percent. In 2004, overall Medicare
physician spending will total $68.0 billion, a growth rate of 1.5
percent. And, in 2005, overall Medicare physician spending will total
$70.4 billion; a growth rate of 3.5 percent.
You can see that, under current law, although the physician payment
update will be reduced, Medicare spending for physicians' services will
continue to increase.
Question 2. If so, is it your view that physicians that provide
services to Medicare patients can absorb a reduction of 25% in their
fees without having any adverse impact on access for beneficiaries?
Response: We have no compelling evidence that there is a problem
with the overall adequacy of provider payments, nor that Medicare
beneficiary access to overall care has been negatively impacted,
although we recognize that recent short-term adjustments in the
Medicare physician payment system have been substantial. Clearly, we
will continue to monitor the situation to ensure that America's elderly
and disabled have access to the health care they need.
Question 3. And given the magnitude of this reduction, is the
administration willing to reconsider its position that any "fix" to the
problem must be budget neutral?
Response: The Administration is willing to work with Congress to
consider limited modifications to Medicare's provider payment systems
in order to address payment issues in a budget neutral manner. As we
all consider changes, we need to be cautious and recall that any
increases in spending will be borne, in part, by beneficiaries in the
form of higher premiums and coinsurance payments. We believe it is
possible to develop a fiscally responsible package of provider payment
adjustments that remain budget neutral. We are happy to begin to work
with you to provide technical support for such a package.
Question 4. Do you believe that the way the rate is determined
needs to be changed? And if so, how do you propose that the rate be
fixed to take into consideration the ability of physicians to provide
quality health care under Medicare? What can we do legislatively to
help you in this endeavor.
Response: While the underlying fee schedule and relative value
system have been successful, the update calculation has produced large
short-term adjustments and instability in year-to-year updates. As you
know, last fall I spent about a month working every day with many of
the physician groups, including the American Medical Association, to
see if I had the administrative flexibility to change the formula, and
it was abundantly clear that legally we cannot change it. Such a change
has
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