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Pay for performance: moving from concept to legislation

From the September ACP Observer, copyright 2005 by the American College of Physicians.

By Robert B. Doherty

For months, pay for performance has been the hot topic in Washington. As reported in past ACP Observer columns, policy-makers have embraced this concept as offering the best hope for achieving both quality improvements and cost savings in Medicare and other federal programs.

What's been surprising is how quickly pay for performance has moved from concept to legislation. In the month preceding Congress' August recess, legislators introduced two different pay-for-performance bills. One was introduced by Sens. Charles Grassley (R-Iowa) and Max Baucus (D-Mont.), the Senate Finance Committee's chair and ranking Democrat, respectively.

The other was introduced by Rep. Nancy Johnson (R-Conn.), chair of the House Ways and Means Committee's health subcommittee. Because the Senate Finance Committee and the House Ways and Means Committee control the fate of Medicare, these bills may play a particularly influential role in determining the future course of legislation on pay for performance. ACP was at center stage during the intense political activities leading up to the introduction of both bills.

Prior to the bills' introduction, the College had provided Congressional leaders, including Sen. Grassley and Rep. Johnson, with recommendations for a pay-for-reporting legislative framework. That framework calls for measures to be quality-driven, evidence-based, developed by the medical profession and validated through a consensus process. The framework also advocates for gradually phasing in the use of performance measures.

Our pay-for-reporting recommendations also include the need to repeal the sustainable growth rate (SGR) formula and ensure that all physicians receive positive updates. Physicians who participate in programs that involve voluntary reporting of care based on evidence-based measures should receive higher payments, according to ACP recommendations. But pay based on how well physicians actually do in providing care that is consistent with those measures should be implemented only after physicians have gotten sufficient experience—through pilot testing, for example—with the earlier voluntary reporting phases.

Same concept, different approach

The Grassley-Baucus and Johnson bills share the same conceptual framework: Medicare should begin spending its dollars to acquire value--defined as better care at lower cost--instead of just paying out more to "providers" without regard to quality and cost. But the two bills differ markedly in scope and in the all-important details of how measures would be developed, implemented and reimbursed.

Sen. Grassley's Medicare Value Purchasing Act of 2005 (S.1356) would set pay-for-performance rules for physicians, hospitals, and end-stage renal disease and nursing facilities. According to the bill, the physician pay-for-reporting program will begin in 2007. Physicians who agree to report quality data will get the full Medicare update for that year--while those who do not report would see their update cut by 2%.

Importantly, the Grassley-Baucus bill would not repeal the SGR. Instead, it includes a non-binding "sense of the Senate" that SGR cuts will be prevented. Sen. Grassley has also stated that he intends to move legislation forward on a separate track to halt SGR cuts.

But because the value-based purchasing act does not change the SGR, it is impossible to tell from the bill what the updates will be in 2006 and subsequent years. If SGR cuts are not halted by separate legislation, for instance, the 2% reduction for those who do not report quality data in 2007 will come on top of an SGR cut that will already have reduced payments by between 4% and 5%, based on current estimates.

In 2008 and subsequent years, the Grassley-Baucus bill will direct Medicare to "weight" payments based on how well physicians provide care consistent with evidence-based clinical and structural measures, and with efficiency measures based on a statistical comparison of claims data. Clinical measures could come from physician specialty societies and other entities, but would be validated through a consensus organization that involves multiple stakeholders. Public reporting of quality data will also begin in 2008.

By comparison, Rep. Johnson's Medicare Value-Based Purchasing for Physician Services Act of 2005 (H.R. 3617) applies only to physician services. It would repeal the flawed SGR formula, replace it with updates based on the Medicare Economic Index (MEI)—and provide a framework for phasing in evidence-based performance measures.

The bill ensures that all physicians will receive a positive reimbursement update in 2006, instead of the anticipated 4.3% payment cut. Beginning in 2007, it gradually phases in a voluntary program of physician reporting on evidence-based quality measures. During the phase-in, all physicians will receive positive updates, instead of the SGR-imposed 26% cut over five years. Physicians who participate in a quality improvement and reporting program will receive a full update based on the MEI, while those who do not will receive the MEI minus 1%.

ACP's views

The College has concluded that it cannot endorse the Grassley-Baucus bill right now because it veers away from ACP's recommended approach in several key respects.

In a July 18 letter to Sens. Grassley and Baucus, ACP commended them for their commitment to quality improvement, but asked for changes in the legislation. Those changes would guarantee that all physicians receive positive reimbursement updates, remove the CMS' authority to base payments on "efficiency" measures derived from comparative claims data and ensure that adequate safeguards are put in place before public reporting starts to not disadvantage sicker or less compliant patients. (The letter is online.)

Rep. Johnson's bill, on the other hand, has earned ACP's support because it specifically includes most of the key elements in the College's recommended framework.

This was not coincidental: Rep. Johnson and her staff consulted closely with the College while drafting the legislation. At her invitation, ACP President C. Anderson Hedberg, FACP, testified before a hearing of the health subcommittee she chairs to present the College's recommendations. And after receiving an advance copy of the bill and finding that it addressed the College's key concerns, ACP representatives appeared with Rep. Johnson at a July 28 press conference to announce the College's support. (A College letter of support is online.)

Rep. Johnson's bill provides for a gradual phase-in of quality measures, starting with voluntary self-reporting before any payment is based on performance thresholds. Measures must be evidence-based and developed by the medical profession itself. The bill also includes safeguards against the de-selection of high-risk patients. By repealing the SGR, the bill ensures that all physicians will receive positive updates—and allows higher payments for those who participate in quality reporting and improvement.

Rep. Johnson's bill is not the end of the story, however. Before the end of the year, Congress will have to decide if the SGR cuts will go into effect. Legislators will also likely decide on a starting framework for pay for performance. As they do so, they will need to reconcile the two approaches between the Johnson and Grassley-Baucus bills.

There are still no guarantees that Congress, in the end, will make the right decisions. What is certain is that ACP will continue to provide the leadership and skilled advocacy needed to make sure internists' voices are heard as pay for performance moves from concept to legislation.

Robert B. Doherty is ACP's Senior Vice President for Governmental Affairs and Public Policy.

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