AGA eDigest

March 2, 2006

MedPAC To Congress: Fix the Reimbursement System

The Medicare Payment Advisory Commission (MedPAC), and advisory body to Congress, has released its March report, which focuses on payment adequacy and policies for physicians, hospitals and other health care providers. Throughout the report, MedPAC points out inadequacies with the current sustainable growth rate formula (SGR), which sets physician reimbursement rates. Under the SGR, 5 percent rate cuts are planned yearly through 2011. The Commission recommended approximately a 2.8 percent physician fee update for 2007, and used the Medicare Economic Index instead of the SGR to estimate costs. The AGA and MedPAC oppose sustained fee cuts planned under the SGR because the cuts could result in reduced beneficiary access to physician services.

The March report specified that per capita volume for imaging, tests and non-major procedures grew the most over 2004. Volume grew 6.2 percent per beneficiary and in 2004, spending on physician services grew by 11.5 percent, resulting in substantial increases in Part B spending. The SGR formula includes the growth in input costs, growth in fee-for-service enrollment, and growth in the volume of physician services relative to growth in the national economy. The Commission indicates in the report that it considers the SGR formula a flawed, inequitable mechanism for volume control and plans to examine alternative approaches to the SGR over the coming year. As previously reported in AGA eDigest, Congress overrode the scheduled payment cuts under the SGR formula by freezing 2006 Medicare fees at 2005 levels. The AGA aggressively advocated against payment cuts.

The MedPAC report also contained a chapter on the review of work relative values of the physician fee schedule. The Commission is concerned that the current system does a poor job of identifying services paid too high relative to others and that inaccurate payment rates can distort the market for physician services. MedPAC recommended that the Secretary of Health and Human Services establish a standing panel of experts to help CMS identify overvalued physician services and to review recommendations from the AMA’s Relative Value Scale Update Committee (RUC). The panel should be given the resources it needs to independently collect data and develop evidence. The panel should initiate a five-year review of services that have experienced substantial changes in length of stay, site of service, volume, practice expense and other factors that may indicate changes in physician work. New services likely to experience reductions in value should be referred to the RUC for review. Lastly, to ensure the validity of the physician fee schedule, the Secretary should review all services periodically.

At this time, MedPAC reported that beneficiary access to physicians remains strong and that the number of physicians providing services to Medicare beneficiaries has kept pace with the growth in the beneficiary population. MedPAC also reported that 2004 Medicare rates were 83 percent of extrapolated private payer rates, a slight increase from 81 percent in 2003.

MedPAC is an advisory body to Congress and, as such, Congress is not bound to accept the commission’s recommendations. Stay tuned to next week’s AGAeDigest, however, to read about the Health Subcommittee of the Ways and Means Committee’s hearing on MedPAC’s March report. To review the complete report, see www.Medpac.gov.