SHM’s Advocacy Efforts
Pay-for-performance legislation gains momentum on Capitol Hill
By Eric Siegal, MD
Washington policymakers are embracing a new approach to reforming the Medicare payment system: giving physicians and other providers financial incentives to meet certain quality standards. The so-called “pay-for-performance” or “value-based purchasing” model contained in various bills moving through Congress builds on recommendations made earlier this year by the Medicare Payment Advisory Commission (MedPAC) and mirrors initiatives that have proliferated in the private sector. In its March 2005 report to Congress, MedPAC officially recommended that Congress establish a pay-for-performance system for Medicare providers.
The Center for Medicare and Medicaid Services (CMS) is also developing and implementing a set of pay-for-performance initiatives to support quality improvement in the care of Medicare beneficiaries. CMS Administrator Mark McClellan, MD, an internist, has been a big proponent of this effort.
The basic thrust of pay-for-performance is to use Medicare’s purchasing power to reward and promote quality. This effort is also tied to legislation to accelerate the development of electronic medical records and to expand the use of information technology in the healthcare delivery system. The Public Policy Committee is examining the pay-for-performance bills introduced in Congress and their implications for hospital medicine.
In late June, Senate Finance Committee Chair Charles Grassley (R-IA) and Ranking Member Max Baucus (D-MT) introduced the Medicare Value Purchasing Act of 2005, S. 1356. This legislation would apply to physicians, acute care hospitals, Medicare Advantage plans, end-stage renal disease providers, home health agencies, and (to some extent) skilled nursing facilities.
In the first phase of implementation, Medicare reimbursement rates would be tied directly to reporting data on quality measures, while the second phase ties a portion of payment to provider performance. The Senate bill doesn’t makes changes to the sustainable growth rate formula that determines Medicare payments to physicians. That will likely be handled in separate legislation.
S. 1356 directs the Secretary of Health and Human Services to select quality measures through a multistakeholder, consensus-building process. Those quality measures already developed and accepted by the healthcare community would be taken into account. Under the legislation, the Secretary has the ability to vary measures used within types of providers. For example, the Secretary could differentiate hospital measures by the hospital’s size and scope of services. Or, the Secretary could vary physician measures based on physician specialty, type of practitioner, or the volume of services delivered. The legislation also specifies criteria for the selection of quality measures. For example, the measures should be evidence-based, reliable, and valid; relevant to rural areas; and relevant to the frail elderly and those with chronic conditions. They should include measures of over- and under use and measures of health information technology infrastructure.
House Ways and Means Health Subcommittee Chair Nancy Johnson (R-CT) was expected to introduce legislation before the August Congressional recess that would add pay-for-performance programs for physicians under Medicare and repeal the sustainable growth rate formula.
On July 12, Ways and Means Committee Chairman William M. Thomas (R-CA) and Johnson asked McClellan to make regulatory changes that could avert a 4.3% cut in the Medicare physician update in 2006. In particular, the lawmakers said that CMS should remove prescription drug expenditures from the sustainable growth rate, which are used to calculate yearly changes in reimbursements. Legislation to permanently fix the sustainable growth rate “would be prohibitively expensive given current interpretations of the formula,” they said.
In testimony before the Ways and Means Committee July 21, McClellan said eliminating the sustainable growth rate system in favor of an update that is similar to the current Medicare Economic Index, which measures the weighted average price change for various inputs involved with producing physicians’ services, would cost $183 billion over 10 years. CMS is currently reviewing the legal arguments regarding whether it can remove prescription drugs from the services included in the sustainable growth rate under existing authorities, he told the subcommittee.