Statement of Mark E. Miller, Ph.D., Executive Director, Medicare Payment Advisory Commission
U.S. House of Representatives
Subcommittee on Health, Committee on Energy and Commerce July 25, 2006 Medicare payment to physicians

Medicare expenditures for physician services are growing rapidly. In 2005 spending on physician services increased 8.5 percent, while the number of beneficiaries in FFS Medicare increased only 0.3 percent. To get good value for the Medicare program, the payment system should set the relative prices for services accurately. Providing incentives to control unnecessary growth in volume and intensity would be desirable, but it is much more difficult.

Measuring physician resource use

For Medicare beneficiaries living in regions of the country where physicians and hospitals deliver many more health care services there is no clear relationship with better quality of care or outcomes. Moreover, they do not report greater satisfaction with care than beneficiaries living in other regions. This finding, and others by researchers such as Wennberg and Fisher, are provocative. They suggest that the nation could spend less on health care, without sacrificing quality, if physicians whose practice styles are more resource intensive moderated the intensity of their practice.

MedPAC recommends that Medicare measure physicians’ resource use over time, and feed back the results to physicians. Physicians could then start to assess their practice styles, and evaluate whether they tend to use more resources than their peers. Moreover, when physicians are able to use this information with information on their quality of care, it will provide a foundation for them to improve the efficiency of the care they and others provide to beneficiaries. Once greater experience and confidence in this information is gained, Medicare might begin to use the results in payment, for example as a component of a pay-for-performance program.

Creating new incentives in the physician payment system

MedPAC has consistently raised concerns about the SGR as a volume control mechanism and recommended its elimination. We believe that the other changes discussed previously-pay for performance, encouraging use of IT, measuring resource use, setting quality standards for imaging services, and improving payment accuracy-can help Medicare beneficiaries receive high-quality, appropriate services and help improve the value of the program. Although the Commission’s preference is to directly target policy solutions to the source of inappropriate volume increases, we recognize that the Congress may wish to retain some budget mechanism linked to volume. An ideal volume control mechanism would overcome the incentive under fee-for-service to increase volume and instead create incentives for physicians to practice in ways that improve care coordination and quality while prudently husbanding Medicare resources. The Congress has tasked the Commission to evaluate several alternative volume control mechanisms including differing levels of application such as group practice, hospital medical staff, type of service, geographic areas, and outliers. We will report on these alternatives in March 2007.

http://www.medpac.gov/publications/congressional_testimony/072506_Testimony_physician.pdf?CFID=2415800&CFTOKEN=28943302

Comment:

By Don McCanne, MD

One of the most important features of a well-functioning national health insurance program is that it can use budgets to slow the growth in health care costs to a level closer to the growth in GDP. But what a nightmare that creates.

In a predominantly fee-for-service system, physicians respond to a slowing of rate increases by increasing the frequency and intensity of services provided (volume of services). To maintain a growth rate near that of the GDP, the rate per unit of service must be decreased to offset the increases in the number of units of services provided. This is the flaw in MedPAC’s SGR formula (sustainable growth rate). Medicare’s fee per unit of service must be reduced to slow the growth rate to a “sustainable” level.

What has been the source of the volume increase? Part of it has been that patients are brought back for return visits more frequently, and the levels of services have been increased from basic to moderate complexity. Another very important component has been the increased utilization of high-tech services, especially medical imaging. The explosion of spending in imaging has pulled a significant amount of funds away from physicians, especially family physicians and general internists just at a time that we are trying to reinforce the primary care infrastructure.

Virtually everyone agrees that the current rate of growth is not sustainable indefinitely. Costs will not be controlled without controlling volume. How do you do that? One possibility presented in this testimony is to identify the non-beneficial excesses and then educate physicians who, in response, would likely modify their practice patterns. This can be effective as has been demonstrated by the decline in the use of antibiotics in childhood viral respiratory infections once physicians were convinced that they were of no value. That approach will help, but it alone likely will not be sufficient. New innovations will continue to present new challenges.

MedPAC is currently evaluating several volume control mechanisms and will report their findings to Congress in March, 2007. Volume will be controlled, but how will they do that, and can we live with it? This is a process that requires intensive citizen oversight by the policy community. Heads up!

The Commonwealth Fund Commission on a High Performance Health System August 2006 Public Views on Shaping the Future of the U.S. Health System
By Cathy Schoen, Sabrina K. H. How, Ilana Weinbaum, John E. Craig, Jr., and Karen Davis
The Commonwealth Fund

Abstract:

On behalf of The Commonwealth Fund Commission on a High Performance Health System, Harris Interactive surveyed U.S. adults to determine the public’s perspectives on ways to improve patient care and on health policy priorities facing the President and Congress. Overall, the representative sample of 1,023 adults ages 18 and older revealed strong public support for efforts to improve care coordination and access to information. There is a shared belief that expanded use of information technology, care teams, and improved delivery of preventive services could improve the quality of care. Patients reported recent experiences of wasteful, inefficient, or unsafe care. In addition, half of middle-income and lower-income families reported serious problems paying for care and insurance coverage. Three-quarters of all adults said the U.S. health care system needs either fundamental change or complete rebuilding. Expanding insurance and controlling costs, they said, should be top priorities for federal action.

Affordability concerns are moving up the income ladder

Half of middle-income ($35,000-$49,999 annually) and lower-income (less than $35,000 annually) families said they have had serious problems paying for care in the past two years. With the median U.S. household income at $44,000, the findings indicate that more than half of all households are experiencing stress when paying for medical care.

A similarly high proportion of middle- and lower-income adults reported difficulties paying for health insurance.

Affordability is a now a concern at even higher-income levels. One-third of adults with annual incomes between $50,000 and $74,999 reported serious problems in paying for care.

Shared Views, Values and Concerns

Across income groups and regions of the country, there was resounding agreement that ensuring reliable health insurance and controlling rising costs are the most pressing health policy issues for the President and Congress to tackle. The majority consistently ranked coverage and costs as their top two priorities.

http://www.cmwf.org/publications/publications_show.htm?doc_id=394606

Comment:

By Don McCanne, MD

This report is highly credible (Harris Interactive) and is current (survey conducted June, 2006). It confirms many other reports about pubic views on the U.S. health care system.

From the perspective of reforming health care financing in the United States, the most important finding in this report is that the concerns about affordability of health insurance and health care have moved up the income ladder. The concerns of average-income families are now as great as lower-income families (more than half!), and now even higher-income families are concerned (one-third!).

The other issues addressed are very important, especially the need for a medical home. But they will be very difficult to address until we fix the financing of health care by providing comprehensive coverage for everyone.

United States Government Accountability Office (GAO) July 2006 Mammography Current Nationwide Capacity Is Adequate, but Access Problems May Exist in Certain Locations

Closures of certified mammography facilities outpaced openings during a recent 3-year period, and financial considerations were most often cited as the reason for facility closures.

Although key elements that make up mammography capacity have decreased and the use of screening mammography has grown, current nationwide capacity is adequate.

The loss or absence of machines in certain locations may have resulted in access problems, including problems for women who are medically underserved, such as those who have a low income or lack health insurance.

http://www.gao.gov/highlights/d06724high.pdf

Comment:

By Don McCanne, MD

So the United States has the capacity to provide every women with appropriate mammography screening, except for those who have low income or lack health insurance.

How much longer are we going to sit back and just talk about this. Have we no decency?

Insurance-pool plug pulled
By Gilbert Chan
The Sacramento Bee
August 12, 2006

Citing the pullout of three major health plans, California’s pioneering small-business health insurance pool is shutting down.

“PacAdvantage exhausted every possible approach to keep the voluntary partnership together. Unfortunately, market forces prevented that from happening,” said Peter Lee, chief executive officer of the Pacific Business Group on Health, which created PacAdvantage eight years ago after taking over the landmark small-business insurance pool established by the state in 1992.

Moving to boost employer-purchased health insurance in California, lawmakers launched the pool 14 years ago to make coverage more affordable businesses with fewer than 50 workers. Once off the ground, the law called for the program to be privatized. In the meantime, lawmakers also guaranteed the availability of coverage for small businesses.

PacAdvantage’s downfall began to take shape in the spring after Blue Shield said it was losing money in the program and announced plans to withdraw after this year.

Subsequent talks with Blue Shield, Kaiser and Health Net failed to work out a solution. With Blue Shield leaving, Kaiser and Health Net opted to follow suit.

http://www.sacbee.com/content/business/story/14294947p-15141048c.html

And…

Health Pool to Close for Lack of Insurers
By Daniel Yi
Los Angeles Times
August 12, 2006

Combining small business’ buying power has done little to increase affordability, (Marian Mulkey, an analyst with California Healthcare Foundation) said, because a voluntary program’s “fundamental flaw is that people will participate only when it is in their best self-interest.”

No amount of pooling can stop rising healthcare costs, experts said.

The only way a pool of buyers would have enough power to significantly influence costs, most sources agreed, is if it included virtually everyone in a form of universal care brought about by mandate or government subsidy.

http://www.latimes.com/business/la-fi-health12aug12,1,7477954.story

Comment:

By Don McCanne, MD

The proponents of association health plans (AHPs) claim that they will make health insurance affordable for small businesses by using the power of group purchasing in the private insurance market. The Pacific Business Group on Health, through PacAdvantage, has demonstrated that group purchasing by itself has no impact on controlling health insurance costs.

AHPs will achieve premium reductions only by stripping plans of benefits and shifting more out-of-pocket expenses to patients. Destroying the financial security provided by insurance is no solution to our nation’s health care financing crisis.

There are two important lessons from PacAdvantage’s downfall. Establishing separate pools for selected sectors creates inequities since pools that cover higher-risk individuals will inevitably fail (death spiral). More importantly, a fragmented system of multiple pools (e.g., private insurers and public programs) has almost no control over the systemic problems that result in continuing health care cost escalation. In contrast, the administrators of a single universal risk pool could use their monopsony to finally bring health care costs under control.

Judge Denies Preliminary Injunction In CHA Lawsuit
Medical News Today
August 4, 2006

Los Angeles County Superior Court Judge Carl J. West has rejected a request from the California Hospital Association (CHA) to prohibit Blue Cross of California (Blue Cross) from paying differing fees to physicians who perform colonoscopies in hospitals and ambulatory surgical centers (ASCs).

The CHA filed suit against Blue Cross in June, claiming its practice of paying an additional fee to network physicians who perform colonoscopies at ASCs and less for those performed in hospitals amounted to an unfair business practice that could prove harmful to patients.

In denying a request for a preliminary injunction against Blue Cross, Judge West declared that the CHA has “provided no evidence demonstrating that the policy will interfere with a physician’s medical opinion as to what is best for his or her patient.”

According to Blue Cross, the price range for these procedures is dramatic.
Hospitals typically charge two to three times more for a colonoscopy compared to ambulatory surgery centers.

“Judge West’s ruling goes a long way toward recognizing that the CHA lawsuit is really a matter of potential lost revenue for hospitals, not about patient safety,” said Josh Valdez, senior vice president of health care management for Blue Cross of California. “We strive to ensure our more than
7 million enrollees statewide receive quality health care. This policy is intended to eliminate cost barriers for our members and create an environment where patients can receive this important procedure in as convenient a manner as possible. Encouraging procedures such as colonoscopies to be performed in an ASC is consistent with that mission.”

http://www.medicalnewstoday.com/medicalnews.php?newsid=48758

Comment:

By Don McCanne, MD

Advocates of universal public insurance often dismiss, or maybe even condemn, one of the attributes of private, for-profit insurers: they make excellent business decisions. Paying physicians a modest fee for agreeing to use a lower cost facility saves Blue Cross millions of dollars, part of which will be used to slow the rate of premium increases for Blue Cross members, and part to improve the return for their investors. In the amoral world of the business community, this is exactly what they should be doing.

What about the physician? Is accepting an explicit payment that is dependent on which competing facility you will use, and not related to the professional services rendered, an amoral act? If the physician also has a proprietary interest in that facility, is accepting profits for this self-serving referral also an amoral act?

Commingling business income with professional income is troubling. Many of us would insist that the physician fee be the same for the same service, and not dependent on the facility used. Some of us would insist that the competing facility be non-profit thereby avoiding the self-referral conflict of interest. Others would take the opposite view that, in this age of third party control of compensation, any additional business arrangement that can increase physician income should be acceptable.

Under a single payer system, during price and fee negotiation, it is difficult to know the extent to which an amoral business ethic would be interjected. But one thing is certain, the process would be based on what is in the best interests of the patients and what is fair for the health care providers, and not what is in the interests of the private insurers.

How Much More Cost Sharing Will Health Savings Accounts Bring?
By Dahlia K. Remler and Sherry A. Glied
Health Affairs
July/August 2006

Proponents of health savings accounts (HSAs) contend that they will reduce medical expenditures. In practice, however, the effect of HSAs, and the high-deductible health plans that must accompany them, will depend on the actual provisions of those plans and of the plans they replace. We show that typical plans in the market today already contain substantial cost sharing.

We find that many HSA/high-deductible arrangements would actually reduce cost sharing for many groups. In particular, the group responsible for half of all medical spending would see no change or a decline in cost sharing at the margin and on average.

http://content.healthaffairs.org/cgi/content/abstract/25/4/1070

Comment:

By Don McCanne, MD

The rationale given for health savings accounts (HSAs) with HSA-qualified high deductible health plans (HDHPs) is that the HSA controls excess health care spending by making the patient sensitive to the costs while the HDHP simultaneously provides protection against catastrophic financial loss. Does it work?

This study demonstrates that insurance products have already evolved into models that create price sensitivity through deductibles and coinsurance.

For the 80 percent of individuals who use 20 percent of health care services, the HSA component provides about the same amount of financial disincentive to care as do our other current insurance products.

Much more important is the maximum out-of-pocket (OOP) spending that is required before the HSA-qualified HDHP provides “100 percent coverage” of all remaining costs (though only theoretically). Once the maximum is reached, price sensitivity is removed from the 20 percent of people who use 80 percent of our health care services. Obviously then, under the HSA/HDHP model, price sensitivity has almost no impact on much of our health care spending. In fact, the coinsurance of current PPO-type coverage actually may provide greater cost sensitivity for the larger medical bills since the maximum OOP spending is frequently greater or even without limit.

So what would you have to do to create HSA/HDHP cost sensitivity for where the real spending occurs? You would have to establish a very high OOP spending maximum before 100 percent coverage kicks in. Even then, a sick person wants relief, not discounts. The problem is that anyone who needs a significant amount of health care would then be exposed to catastrophic losses. The model doesn’t work.

The good news is that the policy community understands the fatal flaws in the HSA/HDHP model. Now we need to get the politicians to quit flogging that dead horse and get on with real reform. Maybe we can convince them that we’re serious – this November.

Number of Uninsured Kids Declines as Enrollees in State Health Insurance Programs Increase
Robert Wood Johnson Foundation
Aug 9, 2006

Even though the total number of Americans without health insurance is on the rise, a new study analyzing government data suggests good news for the nation’s children. The percentage of uninsured kids in America has decreased by 20 percent since the government-funded State Children’s Health Insurance Program (SCHIP) was approved by Congress in 1997.

“The State of Kids’ Coverage” was released today by the Robert Wood Johnson Foundation (RWJF). The report shows that the number of uninsured children has decreased by 2 million since the creation of SCHIP and recent expansions in public programs. In the same period, the number of uninsured Americans has increased by nearly 5 million people.

The percentage of children who have private health insurance has fallen by five percent since 1997-98. That means 1.4 million fewer kids have private health insurance.

The report shows that even though the number of kids with private insurance is declining, public coverage programs have expanded, resulting in more kids being insured. The percentage of kids enrolled in public health coverage programs has increased by 31 percent since SCHIP programs began-meaning at least 5 million more kids now have public coverage.

Despite the success of public programs, millions of children remain uninsured. The latest Census data show that nearly 8.3 million children remain uninsured nationwide. Experts say that more than 70 percent of these children are likely eligible for low-cost or free health care coverage through SCHIP or Medicaid, but have not yet enrolled.

Additional findings show that being uninsured for all or part of the year can have serious consequences for kids:

* Uninsured kids are twice as likely not to receive any medical care in a given year, compared to children with insurance (12.3 percent insured vs.
25.6 percent uninsured).

* More than one in three (35.0 percent) uninsured children do not have a personal doctor or nurse-which is significantly higher than children who have health coverage (13.5 percent).

“This report confirms that uninsured children face a disadvantage in their ability to access health care, compared to children who have health coverage,” said Sarah Shuptrine, national program director for the Covering Kids & Families program. “When children do not make regular visits to the doctor, or receive medical attention when it is needed, they risk minor illnesses becoming major ones. Children need health coverage so that they receive all the care they need, when they need it, to grow and thrive.”

http://www.rwjf.org/newsroom/newsreleasesdetail.jsp?id=10424

Comment:

By Don McCanne, MD

Expanding health insurance coverage for children is good. Program design that results in over 8 million children being left without coverage is bad.

Some of the reasons that not all children are covered include the fact that the programs have a family income limit for eligibility, SCHIP usually requires the payment of a premium, and participation is voluntary and requires action on the part of the parents to enroll. Barriers such as these will always prevent 100 percent participation. In spite of greater efforts to expand enrollment, four-fifths of previously uninsured children remain without coverage.

All barriers should be removed. Health insurance enrollment should as automatic as the recording of a birth certificate, not only for all children, but for everyone.