American Society of Hematology

MedPAC Recommends Plan to Overhaul Physician Payment; Overlooks Concerns About Offsets

Published on: October 07, 2011

Despite overwhelming provider opposition, the Medicare Payment Advisory Commission (MedPAC), an advisory committee to Congress, approved a proposal to recommend repealing the physician payment formula that has caused problems for a decade and offset the costs to fix it with other Medicare cuts. ASH has long advocated to eradicate the flawed formula, however, has joined with other physician groups in opposing MedPAC's proposed fix because it would pay for the cost of the repeal through significant cuts and long-term freezes to physicians.

Almost all health policy experts agree that the physician payment formula, known as the sustainable growth rate (SGR), does not work as intended. Congress has repeatedly staved off scheduled cuts in physician rates that were set by the formula. But the cost of permanently fixing the problem grows with every temporary reprieve. In January, the formula would result in a nearly 30 percent payment cut for physicians if Congress does not vote to prevent it.

The MedPAC recommendation would replace the problematic physician payment formula, known as the sustainable growth rate (SGR), with a 10-year fee schedule that would freeze primary care payment rates and cut rates for other providers by 5.9 percent for three years before freezing those payments as well. MedPAC included a list of offsets totaling $220 billion over a decade that Congress might consider to pay for the new physician payment rates. About 34 percent of the funding for the changes would come from the drug industry; 21 percent from post-acute care, such as skilled nursing facilities and home health agencies; 15 percent from higher cost-sharing by beneficiaries; and 11 percent from hospitals.

One of the two MedPAC commissioners who voted against the proposal noted that specialists who face a growing number of government regulations and declining payment rates are going to ask themselves: "Is it worth it for me to stay in practice?" But all of those who voted to approve the recommendation said the time had come to finally stop passing one-year changes to the SGR, and that goal overcame their reservations about the offsets.

ASH had opposed MedPAC's proposal since it was unveiled and had sent a letter to the organization arguing that the costs of replacing the flawed payment formula should not be borne by physicians.

MedPAC's Proposal:

  • "The Congress should repeal the sustainable growth rate and replace it with a 10-year path of statutory fee schedule updates. This path is comprised of a freeze in current payment levels for primary care and for all other services, annual payment reductions of 5.9 percent for three years, followed by a freeze. The commission is offering a list of options for the Congress to consider if it decides to offset the cost of repealing the SGR system within the Medicare program." Approved 15-2.
  • "The Congress should direct the secretary [of Health and Human Services] to regularly collect data — including service volume and work time — to establish more accurate work and practice expense values. To help assess whether Medicare's fees are adequate for efficient care delivery, the data should be collected from a cohort of efficient practices rather than a sample of all practices. The initial round of data collection should be completed within three years." Approved 17-0.
  • "The Congress should direct the secretary to identify overpriced fee-schedule services and reduce their RVUs accordingly. To fulfill this requirement, the secretary could use the data collected under the process in recommendation 2. These reductions should be budget neutral within the fee schedule. Starting in 2015, the Congress should specify that the RVU reductions should achieve an annual numeric goal — for each of five consecutive years — of at least 1 percent of fee-schedule spending." Approved 16-1.
  • "Under the 10-year update path specified in draft recommendation 1, the secretary should increase the shared savings opportunity for physicians and health professionals who join or lead two-sided risk ACOs. The secretary should compute spending benchmarks for these ACOS using 2011 fee-schedule rates. Approved 15-1, with one abstention."
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