A Whole New Medicare

May 1, 2005

The Feds have ushered in a remarkable number of demonstration and pilot projects. Here's what it means for you.

Florida pain specialist Lynne Carr-Columbus spends thousands each year on a variety of marketing efforts and salesmanship, including an in-practice store, Web site, and other promotion. She needs to find innovative ways to generate patients and revenue, she says, if only to make up for the Medicare cuts of up to 20 percent that she estimates her practice has absorbed since 1994.

Now, though, Medicare is about to undergo fundamental change in the way it pays doctors. And Medicare is in the hands of physicians like Carr-Columbus who depend on Medicare revenues. At least that's what the program's overlords want you to believe. Primed by the historic Medicare law passed in 2003 - the Medicare Prescription Drug, Improvement and Modernization Act - federal officials have ushered in a remarkable number of demonstration programs and pilot projects involving thousands of practices throughout the nation.

Physicians who participate will get a taste of the future of Medicare, which is on a fevered path to link better care to better payments - a concept that is loosely known as "pay for performance." The agency also wants to usher in electronic medical records (EMR) and other health information technology advances as quickly as possible.

Everything from how well diabetics are managed over time, to how to prod physicians like you into making investments in health information technology is under study. And, as the saying goes, Uncle Sam wants you.

Sean Tunis, the chief medical officer for the Centers for Medicare and Medicaid Services (CMS), urges physicians to "be proactive about seeking opportunities" to join in the pilots and demonstrations. Ultimately, your own wallets (and your patients') will benefit, he says.

"The performance of physicians, at the individual and aggregate level, will be an increasingly important determinant as to how they are compensated," Tunis says. "I don't know that the average doctor in a small practice is aware of moves toward pay for performance, but increasing numbers of payers are adopting this.

"Five years from now, it will be a big part of the environment of practices, maybe even before that," he predicts.

Medicare is "trying to attach a greater proportion of payment to coordinated care, preventive care - good solid primary care. That will help those physicians who have been undervalued and underpaid in the current system."

What's wrong

Undoubtedly, many physicians do feel unappreciated by Medicare, and for them, inadequate reimbursements are the biggest reason. But this year their concerns are being aired against a backdrop of discussions on reforming Social Security.

For all the debate about Social Security's long-term solvency problem, Medicare is in much deeper trouble, according to the overseers of both programs' trust funds. In their annual report at the end of 2004, the trustees projected that in 20 years, Medicare's annual costs are expected to surpass Social Security's, and continue climbing to equal 14 percent of the gross domestic product by 2078. In that year, Medicare costs would be double those of Social Security's, the trustees said.

So while the trustees are projecting that the "financing arrangements in current law" are "inadequate" to continue funding Medicare, many groups, including medical societies and MedPac, an official Medicare advisory panel to Congress, are angling for a change from the current physician payment system. What has drawn most of their fire is the sustainable growth rate (SGR) calculation that has been used to determine payments since 1999.

The SGR, which takes into account all physician payments since 1996, allows for some growth in spending. But its purpose is to "apply financial brakes whenever spending for physician services exceeds predefined spending targets ... by reducing physician fees or limiting their annual increase," says Bruce Steinwald, director of healthcare, economic and payment issues for the Government Accountability Office (GAO).

The SGR formula resulted in annual fee increases of 2.3 percent to 5.5 percent from 1999 to 2001. But in 2002, the system triggered an automatic decrease of nearly 5 percent. And because costs were projected to continue increasing, the Medicare trustees have estimated that this payment formula will result in annual cuts of about 5 percent for each of the next seven years, beginning in 2006.

In 2003, Congress intervened - temporarily. So instead of projected cuts of 5 percent in 2003, 4.5 percent in 2004, and 3.3 percent for this year, Congress specified in the Medicare Act that physician payments would be increased by at least 1.5 percent annually until 2006. And as 2006 draws ever closer, "the honeymoon is almost over," in the words of Mary Frank, president of the American Academy of Family Physicians (AAFP).

AAFP and a host of other groups are working to convince Congress to step in again - not only to delay the impending cuts, but also to change the way payments are calculated.


The effort seems to be a long shot. Talk on Capitol Hill these days is about cutting the cost of Medicare, especially in light of the revelation that the new prescription drug benefit is estimated to cost $724 billion over 10 years, not $534 billion as calculated earlier. Because the president is also focused on deficit reduction and reforming Social Security, this may not be the year physicians see substantive Medicare payment changes.

"We have all known this is going to be a tough budget year, which does absolutely nothing to change the fact that Medicare is projected to cut physician reimbursements by more than 30 percent between 2006 and 2012," says Paul Speidell, a lobbyist for MGMA. "This is a very challenging situation, but one that has got to be addressed. Numerous folks in Congress have expressed an interest in this issue and support for fixing the system."

Possible solutions

The "easiest" short-term solution being floated is to modify the elements that go into the SGR calculation to reduce the projected cuts. Specifically, the medical groups want to remove the cost of physician-administered medications, an increasingly expensive component of spending, from the SGR.

According to CMS actuaries, physicians could potentially see an increase of 3.7 percent in 2006, rather than the expected 5 percent cut, if the payment update is calculated without these drugs. "We believe they should never have been included," says Bob Doherty, a lobbyist for the American College of Physicians (ACP).

CMS doesn't need Congress' say-so to drop physician-administered medications from the calculation, the medical groups say. In written testimony submitted to Congress, Michael Leavitt, secretary of the Department of Health and Human Services, has indicated he is working on the payment calculation issue, but stopped short of endorsing any proposals.

Other suggested changes to the payment formula, favored by MedPac, include scrapping the SGR system entirely in favor of a different system that has not yet been detailed. This new system might not necessarily result in annual updates, says Glenn M. Hackbarth, MedPac's chairman.

Short of a new system, MedPac suggested a 2.7 percent payment increase for 2006. But on March 31st, Leavitt informed Hackbarth that the agency would propose a cut of 4.3 percent for 2006, based on the SRG. Medical associations now have their hopes pinned on Congress again intervening to stop such a reduction.

The exact timetable for an announcement on the 2006 or some other change is uncertain, Tunis says. "Whether the SGR will be changed and in which way, I don't think anybody knows in the agency," he says.

But he acknowledges that much of the debate will center on "how can we move in a direction of linking payment to better outcomes, and better quality of care."

Getting involved

To keep up with Medicare's new direction, you'll need to invest in IT. The kind of care coordination Medicare may demand "is almost impossible to do without moving in the direction of electronic medical records," Tunis adds.

Tunis believes that "even for a solo practice and small practices, the time has really come" to begin installing technology, or to "at least explore the options."

CMS wants to be "supportive and responsive" to small offices, and assist them in implementing electronic health records, he says: "We understand it's a challenge."

To this end, CMS officials have been working for a year to "customize" an EMR in use by the Veteran's Administration so that it can be used by solo and small practices. The software would be "essentially free" to practices, although some technical assistance might be needed to install it, Tunis says. Several dozen physicians in Maryland, New Jersey, and West Virginia will test the software this year.


Doctors in four other states can also get technical assistance to select and install an EMR if they participate in the Doctors Office Quality Information Technology Demonstrations (DOQ-IT). Financial incentives -  the amount has not yet been established - will also be paid if physicians using the EMR meet certain goals for care management of chronically ill patients.

Cosponsored by CMS and regional quality improvement organizations, DOQ-IT demonstration is open to practices of no more than eight physicians located in California, Arkansas, Massachussetts, and Utah. For more information on DOQ-IT, visit www.doqit.org, or contact John Weir, a senior project manager, at (415) 677-2083 or jweir@caqio.sdps.org.

Not located in any of those states? Maybe you can apply for one of several pay-for-performance demonstration projects. The Disease Management Demonstration for Severely Chronically Ill Medicare Beneficiaries, for example, hopes to amass 30,000 patients in Texas, Louisiana, California, and Arizona. The project is "designed to test whether applying disease management and prescription drug coverage in a fee-for-service environment for beneficiaries with illnesses such as congestive heart failure, diabetes, or coronary artery disease can improve health outcomes and reduce costs."

For more information, visit cms.hhs.gov/researchers/demos.If you are part of a large practice, you may have an opportunity to join CMS' Physician Group Practice Demonstration. Groups such as the Dartmouth-Hitchcock Clinic in Bedford, N.H., and the Marshfield Clinic in Wisconsin are among the participants. The project is focused on care of people with chronic illnesses, and on preventive care, such as how often recommended screenings are performed.

According to CMS, these groups will "continue to be paid on a fee-for-service basis. Physician groups will implement care management strategies designed to anticipate patient needs, prevent chronic disease complications and avoidable hospitalizations, and improve quality of care."

Physicians will be eligible for "performance payments" based on 32 clinical measures, including blood pressure management and the use of beta-blockers in appropriate patients.

The pay-for-performance idea has its critics. (See "The Case Against Incentives" in last month's Physicians Practice, and "Cash Cow or Trojan Horse?" in the February issue.) Medical associations have expressed interest in pay-for-performance initiatives but are skeptical. "ACP believes the idea is sound. But we don't have agreement [in general] on what the measures should be, or what the financial incentives should be," Doherty says.

Frank notes that it will take time before the demonstrations begin to show data that might have practical implications for physicians. "We hope CMS will let the pilots play out. The concern is it will get rushed [to all providers] before they study their own results," she says. "They set the pilots up at the same time they started talking about this as being part of the SGR fix."

Medicare can't wait too long, according to Tunis.

"I think that there is a lot of pressure, probably more even on the private payer and employer side," he says, "to push forward quickly on pay for performance, and because of that pressure, Medicare is trying to be sure we don't end up with two [different] systems. We are trying to move in a timely fashion to move these programs along, and there will always be arguments about when are they ready to be deployed."

This article originally appeared in the May 2005 issue of Physicians Practice.