Healthcare Business News
Medicare slow growing

How to fix the SGR

Evaluation and management services at issue

By Rich Daly
Posted: April 19, 2013 - 12:01 am ET

Some see the stars aligning for a once-in-a-lifetime shift in the way clinicians are paid. But the future physician payment system could end up looking a lot like the past.

An increasingly common refrain in Washington health policy circles is that “the SGR is on sale.” That is, the cost of scrapping the mechanism that determines physician payments from Medicare, called the sustainable growth-rate formula, dropped earlier this year. That development theoretically increases the likelihood Congress will take action to replace the SGR, as well as the fee-for-service model on which it is built.

The SGR was created by the 1997 Balanced Budget Act to link physician fees and costs to the U.S. gross domestic product. It includes a “clawback” mechanism that reduces Medicare fees if overall spending targets were exceeded the previous year.

That provision produced a 4.8% pay cut to physicians in 2002 and an outcry from providers that led Congress to suspend or patch all subsequent Medicare physician fee cuts required by the formula. The repeated delays have produced the need for an ever-larger reduction. The latest required cut is 24.4% from Medicare physician fees set to take effect Jan. 1, 2014.

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But the cost of tossing the SGR and its hated cuts dramatically dropped in February when the Congressional Budget Office revised estimates for repeal and a 10-year freeze in physician payments. The new calculation dropped the cost of scrapping the SGR from an August 2012 estimate of $245 billion to $138 billion, down about 44%.

The reduced estimate, policy experts say, is an opening to replace the system. “The SGR fix is much more likely than ever before because of the lowered replacement estimate by CBO,” says Paul Ginsburg, president of the Center for Studying Health System Change.

The SGR fire sale has spurred talk in Washington of ways to fund its repeal and the need for a transition period to a replacement system. But relatively few proposals have detailed what that new system would look like, and no consensus has emerged for systemwide post-SGR reimbursement.

“There's a lot of talk about making changes, but in some ways we don't have it figured out yet,” says Miriam Laugesen, assistant professor of health policy and management at the Mailman School of Public Health at Columbia University.

For instance, it's unclear how a reformed Medicare payment system would treat one of the most common classes of services: evaluation and management.

Evaluation and management services accounted for 45% of all Medicare-funded services provided by physicians and other healthcare professionals in 2011, according to the March 2013 report from Medicare Payment Advisory Commission.

Policymakers have increasingly focused on boosting payments for evaluation and management services, which receive relatively low reimbursement from Medicare. Such services consume a proportionally smaller share of Medicare funds—30% of Part B spending in 2010—according to HHS' inspector general's office.

The goal of such efforts is to bolster the primary-care physicians who derive the majority of their Medicare payments from such services and whose numbers haven't grown as fast in recent years compared with other physician specialties.

The outlook for evaluation and management services is unclear under most of the highest-profile SGR replacement initiatives because most proposals only establish a structure for developing a replacement payment system, instead of detailing any replacement.

For instance, House Republican healthcare leaders have committed to introducing their first SGR replacement bill by August. An outline issued in February says they plan to replace the SGR with statutorily defined payment rates for several years before moving to a “performance-based” payment model.

Similarly, Rep. Allyson Schwartz (D-Pa.) has repeatedly introduced legislation that would permanently replace the current system with at least one of four as-yet-undetermined alternatives to the traditional fee-for-service system. Under her bill, the CMS would develop those options for physicians who are unable to participate in accountable care organizations or similar group payment models.

One SGR replacement proposal under which providers of evaluation and management services could benefit has come from Congress' primary advisory body. MedPAC has recommended since 2011 that Congress replace the SGR with a combination of expanded ACOs and a recalculated fee-for-service system. Congress would replace the SGR with statutory fee schedule updates and authorize the HHS secretary to collect data directly on the time and effort required for various services and to adjust payments accordingly.

The MedPAC proposal is one of a growing number of efforts that aim to preserve and reform the fee-for-service payment system, instead of replacing it altogether. And there is good reason for that trend, experts say.

“Fee-for-service sometimes gets a bad reputation, but you can target activities,” says Robert Berenson, a senior fellow at the liberal Urban Institute. “It's one thing to have a performance measure that says you're supposed to give immunizations, it's another thing to pay directly for providing an immunization; it's much more effective.”

One possibility is that some form of the fee-for-service system could continue alongside of coordinated care and integrated payment models for physicians who cannot fit in those systems. Such a hybrid payment system would be less likely to engender fierce political opposition. “It's definitely worth a try to figure out what can be done in the short term,” Laugesen says. “It doesn't have to be an all-or-nothing proposition.”

However, even with improvements to Medicare's fee schedule, MedPAC ultimately wants financial incentives that encourage provider movement away from fee-for-service and toward “delivery models that reward improvements in quality, efficiency and care coordination, particularly for chronic conditions,” Glenn Hackbarth, MedPAC chairman, wrote to congressional leaders in 2011.

An overhaul of the fee-for-service system—including shifting more funding toward evaluation and management—also could eliminate the financial incentives that the current system provides specialists to avoid participation in voluntary group payment models, such as bundled payment programs, policy experts contend.

The CMS is undertaking its own complex effort to overhaul the fee-for-service system by trying to find a new way to assign values to various healthcare services. Using authority provided by the Patient Protection and Affordable Care Act, the agency has hired contractors to develop validation mechanisms for the relative value units assigned to services paid under the physician fee schedule. The CMS currently assigns those values based on recommendations of the American Medical Association's Relative Value Scale Update Committee, known as the RUC.

Primary-care physicians have long derided the AMA panel as overvaluing the work of surgical specialists while undervaluing their services—especially those that fall under evaluation and management.

The CMS' re-examination of the time and effort that physicians devote to 100 of the most commonly reimbursed services is part of an effort to develop possible replacements for the survey-based valuations the RUC uses. The agency recently contracted with the RAND Corp. and the Urban Institute to study physician time and effort involved in Medicare services.

“We're spending about $70 billion on physician fees in Medicare, and we still rely on 30 doctors—and in some cases not even 30—to tell us how long they take to do something when they actually have a financial incentive to inflate that estimate,” says Berenson, who is helping to lead the Urban Institute's CMS contract to assign empirical values to various physician services.

However, efforts to rebalance the values assigned to various services under the fee-for-service system also have their critics. One such proposal is the CMS' overhaul and a re-valuation proposed in March to the CMS by the American Academy of Family Physicians.

“It doesn't get you away from the fundamental problems of the fee-for-service system,” says Harold Miller, executive director of the Center for Healthcare Quality and Payment Reform, about efforts to rebalance payments.

Among the leading shortcomings that would continue no matter what values were assigned to evaluation and management is the requirement for face-to-face visits when remote communications would suffice for many patients.

Rural providers have long sought reimbursements for remote services because their patient populations are spread over great distances. Health policy experts say Medicare policies limiting evaluation and management services payments to in-person encounters discourage some patients from seeking needed preventive care because of the inconvenience and restrict the number of patients to whom primary-care physicians can provide services.

Follow Rich Daly on Twitter: @MHrdaly

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