Medical Device Daily Washington Editor

WASHINGTON — As even casual observers know, the sustainable growth rate (SGR) mechanism employed by the Centers for Medicare & Medicaid Services has engendered few warm feelings in the hearts of doctors. Even the Medicare Payments Advisory Commission (MedPAC) cannot decide whether to recommend that Congress scrap its creation and start over again — with or without an alternate spending constraint mechanism in place.

Thus it was no surprise that a panel assembled yesterday by a conservative think tank, the American Enterprise Institute (AEI; Washington), was divided in its view of SGR, though only one panelist, Edward Langston, MD, of the American Medical Association (AMA; Chicago), declined to acknowledge the merits of spending controls.

Joseph Antos, a healthcare policy scholar at AEI and the panel moderator, described physician payment policy as "Medicare's version of Russian roulette," and said that SGR does not examine the appropriateness of treatment or intensity — intensity generally described as the number of services per beneficiary.

Inflexible budget rules are not all bad, Antos said, but that one of the problems with rules is what he described as Newton's first law of budget policy: "A policy set in motion tends to stay in motion unless acted on by Congress."

Bruce Steinwald, director of health policy at the Government Accountability Office, said that in the 1980s, prior to fee targets, Medicare was a charge-based system that incurred "substantial inflation-per-beneficiary," and that Congress was thus "largely unsuccessful" in attempting to corral costs.

Intensity was a problem in the 1980s as well, he said.

The 1992 fee schedule for doctors, updated under a "volume performance standard," blunted spending increases at that time, which Steinwald said was "[i]n some respects, the good old days."

But when performance standards failed to contain increases, Congress replaced them with SGR. The early years of SGR were characterized by "modest increases in volume and complexity," but by 2000, cost increases exceeded overall inflation.

For the first few years under SGR, inflation in the cost of medical practice "had been fairly modest," Steinwald said, running 2%-3% between 1998 and 2003. Physician fee updates "either matched or exceeded [practice] inflation" for most of this period.

Then, in 2002, he said, a "perfect storm" cut overall spending to docs by 4.8%, but the numbers show that with the exception of that one year, spending-per-beneficiary always increased more than fees.

Steinwald took a moment to debunk the idea that physicians respond to cuts by ordering more services, thus elevating intensity. He made the case that the behavioral response by doctors is "a terrific theory, but volume and intensity increases were much higher" when fee updates were high and that the converse also applies — that drops in reimbursement rates were typically accompanied by drops in intensity.

GAO conducted a study to figure out what sort of approach would affect physician behavior and examined the approach taken by private payers, many of which profile their doctors for both efficiency and quality. When a doctor flunks the test or scores unacceptably high marks, a tiered co-payment scheme is used to drive patients to other doctors.

"Ultimately, they start to exclude physicians who do not meet the standards," Steinwald said.

"Medicare is well placed to do studies of [physician] efficiency" because of its enormous database, Steinwald said, adding that while health-status adjusters are not perfect, they are improved and are useful for examining physician practices. "A profiling approach has the virtue of being as surgical as you want it" and would likely be more efficient than the "blunt instrument" of SGR, he said.

Mark Miller, executive director of MedPAC and former branch chief for health finance at the Office of Management and Budget, said that charge basis employed by CMS, then known as the Healthcare Financing Administration, in the 1980s did not work because doctors figured it out and increased their charges.

"In a fee-for-service system, the problem is obvious; you can increase your services" and hence revenues. He said that Congress tied fee increases to growth in gross domestic product because GDP is an objective metric and renders a multiplier that "society could afford."

The problem with the current impasse is that Congressional overrides of SGR have created "a vicious cycle where you're just driving negative updates for a longer period of time," which will eventually "create access problems," even if access problems are not yet apparent.

Miller also said that doctors who run a tight practice get the short end of the payment stick under SGR.

"There's a lot of consensus that the SGR … is not working well," but some on the commission feel that spending targets "play a role in focusing policymakers on the problem and bring providers to the table to consider policies that they might otherwise not consider," Miller said.

Langston, the chairman-elect of the AMA, said that the SGR problem "could spell disaster as Medicare prepares to accept a huge influx of Baby Boomers in the next few years." And he described SGR as a "flawed, arbitrary spending target" that should be junked in favor of a "formula that adequately reflects increases in medical practice costs."

Langston said that projections are that Part B doctor fee cuts will total 40% over the next 10 years, but that "[i]n contrasts, payment updates for other providers reflect increases in their costs each year."

Broadly speaking, managed care companies are paid about 12% more per patient than doctors under fee-for-service, and Langston said that "AMA supports beneficiary choice" between fee-for-service and Medicare Advantage (that is, Part C). But he blasted the difference in reimbursement is an "inequitable and short-sighted disparity."

Langston said that AMA will make repeal of SGR its "first priority," adding that the association "does not support an expanded target" of SGR to other providers because "no amount of tinkering" will make SGR work.

"Its time to repeal SGR and put in its place an update" that reflects cost, he said.