Moving physicians from fee-for-service first step to 'doc fix,' McClellan says

(This item has been updated with a correction.)

Bipartisan legislation that would permanently end scheduled cuts to Medicare physician reimbursement rates is missing one crucial element: how to cover its estimated 10-year, $121 billion cost. Dr. Mark McClellan, who ran the CMS during the George W. Bush administration and now runs the Brookings Institution's Health Care Innovation and Value Initiative, co-authored a plan to pay for a permanent “doc fix.” He said in an interview with Modern Healthcare editor Merrill Goozner that the fix should begin with moving physicians away from fee-for-service medicine. The following is an edited excerpt.

Modern Healthcare: The House and Senate bills adjust quality reporting, the value-based payment modifier and EHR meaningful-use requirements in exchange for a permanent fix. Do these reforms go far enough?

Dr. Mark McClellan: There are some elements that would modify fee-for-service, but alternative (payment) models are the ones with the most potential. They would make it easier for physicians to do some of the things they're doing in the private sector, like medical homes and bundled payments. It takes some effort to get off the ground.

MH: The “pay for” plan you co-authored claims the CMS could save $45 billion over the next decade by paying a single amount for post-acute care based on an assessment of the needs of a discharged Medicare patient. Are hospitals ready to manage such a bundled payment system?

McClellan: Yes, in some cases. There are some interesting examples in ACOs we've seen and Medicare Advantage plans where hospitals do more work in coordinating care on the post-acute side. It includes very selective referral arrangements, where the hospital sets up tight contact with the post-acute care provider so all patient information and medication status gets passed along to reduce readmissions.

That approach has received support from the readmission penalty that has started in the last year or two and also from having more bundled approaches to paying for care.

MH: You would like to see the readmission penalty period extended to 90 days and change it to a shared-savings program rather than a straight penalty. Why would that work better than the current approach, which appears to have made a dent in readmissions?

McClellan: Just as the penalty started at 1%, going up gradually to 3%, this could also start small and then increase. It's a question of what is the alternative. A lot of the other proposals would just do the same thing that happened in past fee-for-service legislation, which is to cut the payment rates.

MH: You also endorse the MedPAC proposal to equalize payments between outpatient services, which currently get paid a higher rate if done in a hospital-owned facility. Why?

McClellan: There's some justification for paying higher rates in a hospital system, but the problem comes from having two different payment systems for patients on similar tracks. Payment rates for physician services in their offices have been frozen. Hospital payments have been more significant every year. So there's a growing wedge between the two for similar services. It's not to say all those payments should be equalized for all patients. But the general principle should be to move toward payments that are based on quality and the needs of the patient, not the setting of care.

MH: The largest money generator in your plan calls for changes in copayments for beneficiaries—in essence, making seniors have more skin in the game. Do you think there is political will to implement such changes?

McClellan: There's definitely some will for considering approaches that, while giving seniors more skin in the game, at the same time protect their more sensitive skin. The current benefit— because of all the gaps in Medicare coverage— doesn't give much protection against high costs. They must buy or have their former employer buy Medigap plans with premiums that often exceed their premiums in Medicare. And they don't get to save money when they use physicians or hospitals or post-acute care that keeps them healthier.

Every one of the proposals we describe would lower out-of-pocket costs overall. It would require more payment for healthcare services that are less efficient up front, but less payment for high-cost healthcare services and lower premiums for Medigap policies. They are all designed to reduce seniors' costs overall.

This article has been updated to correct McClellan's title at the Brookings Institution.