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Medicare payment reform effort faces threat from within

From the April ACP Observer, copyright 2006 by the American College of Physicians.

By Robert B. Doherty

Over the past several months, I have often written about ACP's efforts to reform the dysfunctional Medicare payment system. The College's success will depend largely on our ability to overcome major obstacles to change.

One of the biggest challenges will be dealing with resistance to reform and a possible backlash that could come from within the medical profession itself. Changing the Medicare payment system will require redistributing dollars across and within specialties—and that could create a firestorm of controversy.

Redistributing relative payments

To determine fee-for-service payments, Medicare uses a formula that multiplies the relative values for physician services by a dollar conversion factor. Right now, the Centers for Medicare and Medicare Services (CMS) is considering proposals from ACP and other medical specialties to increase physician work relative values for evaluation and management (E/M) services.

The law now requires offsetting any such increases with a "budget neutrality" adjustment in the dollar conversion factor so overall spending remains the same. Think of a pie in which relative values determine how large a slice each service can receive, while budget neutrality makes sure the total pie of physician payments doesn't get any bigger.

If the CMS accepts the College's recommendations, the vast majority of internists could see significant payment increases on Jan. 1, 2007. That's because internists bill more Medicare office and hospital visits and consultations than any other specialty. But other physicians who provide fewer E/M services could see substantial cuts as a result of the budget neutrality adjustment. Internists who provide more procedures and fewer E/M services could also experience reductions.

Policy-makers are likewise considering reducing relative values for some services. The Medicare Payment Advisory Commission (MedPAC) recently recommended that the CMS convene an expert panel to select "misvalued" procedures for review, based on changes in length of stay, volume and other data that suggest physician work for those services may have decreased since values were last reviewed.

The College supports that MedPAC proposal. In a budget-neutral system, overvalued procedures get a disproportionately larger share of physician payments at the expense of all other services.

Realigning incentives

An even broader dollar redistribution may occur if the entire payment system is revamped to reward physician-directed care coordination and evidence-based quality measures.

The College has proposed a new model—called the "advanced medical home"—for financing and delivering primary and principal care. To qualify as an advanced medical home, practices would go through a voluntary recognition program to demonstrate they have the capability to effectively manage and coordinate patient care and deliver a full spectrum of patient-centered services.

Patients would voluntarily choose to receive care from a personal physician within an advanced medical home practice, based on those practices' enhanced services.

But for all its promise of improving quality, the medical home model will not get off the ground unless Medicare and other payers fundamentally change reimbursement to provide such practices with sustained and adequate financing. Where will that financing come from?

One possible source would be to allow physicians in medical home practices to share in system-wide savings that would result from better care coordination. Such care should, for instance, significantly reduce the number of complications that lead to hospitalization and limb amputation for patients with diabetes. A portion of those savings could then be sent back to support the medical home practices that helped produce them.

But even if Congress agrees with the medical home concept, a substantial portion of financing for such practices would likely come not from new dollars but from redistributing existing payments. Congress is determined to limit the rate of spending increases in physician services—and savings from fewer hospitalizations will not, in themselves, be enough to finance practice redesign. Practices that organize themselves as advanced medical homes could receive higher payments—but those unable to do so could get less.

Pay-for-performance initiatives will also result in a major shift in dollars. Specialties that have developed evidence-based measures and have the office systems needed to measure and report quality will qualify for a bigger share of performance-based payments than specialties that have lagged behind. And within each specialty, some physicians will get up to speed sooner and reap a greater share of performance-based payments, while others may struggle to keep up.

Finally, Congress is considering alternatives to Medicare's sustainable growth rate (SGR) formula that could lead to even greater redistribution. The SGR reduces payments to all physicians by the same percentage amount, whenever spending on physician services exceeds growth in the economy as measured by the per capita gross national product.

Congress has directed MedPAC to look for SGR alternatives that would link annual payment increases to how well individual states, group practices, hospital medical staffs or individual physicians can meet specific spending targets. State targets could, for instance, provide higher updates for physicians in those states that have smaller annual spending increases. But the flip side would also apply: Physicians in states that post larger increases would be penalized with a smaller update.

Dealing with division

How do we head off the potential discord within American medicine? The easy answer is to insist that no changes be made in reimbursement policies unless Congress is willing to spend more money instead of redistributing existing funds. The reality is, however, that Congress wants to save money, not increase overall physician spending—and insisting on only "new money" will not succeed.

Reforming Medicare's dysfunctional payment system will require the redistribution of medical dollars. If it's done right, redistribution can serve a public good, create incentives for better care coordination and quality, and reduce the reimbursement disparities that are turning young physicians away from internal medicine and family practice.

The challenge for the College, the AMA and other specialties is to support the need for redistribution, while working together to reach consensus on a process that will keep medicine at the table, making decisions on how dollars should be re-allocated.

That will be a monumental task for membership-based organizations. But the alternative would be to engage in professional fratricide that will paralyze medicine's ability to be effective—and allow Congress on its own to choose the winners and losers.

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

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