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Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

26–375 2006

THE MEDICARE VALUE-BASED PURCHASING FOR 

PHYSICIANS ACT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

SEPTEMBER 29, 2005 

Serial No. 109–42 

Printed for the use of the Committee on Ways and Means 

( 


ccoleman on PROD1PC71 with HEARING
ii 

COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

DEVIN NUNES, California 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

NANCY L. JOHNSON, Connecticut, Chairman 

JIM MCCRERY, Louisiana 

SAM JOHNSON, Texas 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

KENNY C. HULSHOF, Missouri 

FORTNEY PETE STARK, California 

JOHN LEWIS, Georgia 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


ccoleman on PROD1PC71 with HEARING
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C O N T E N T S 

Advisory of September 22, 2005 announcing the hearing .................................... 2 

WITNESSES 

Centers for Medicare and Medicaid Services, Hon. Mark McClellan, Administrator ..................................................................................................................... 7 

American Medical Association, John H. Armstrong, M.D. ................................... 52 

America’s Health Insurance Plans, Karen Ignagni .............................................. 43 

Jevon, Thomas, M.D., Practicing Family Physician ............................................. 39 

Urban Institute, Robert Berenson .......................................................................... 32 

SUBMISSIONS FOR THE RECORD 

California Medical Association, San Francisco, CA, joint letter .......................... 67 

Ebeler, Jack, Alliance of Community Health Plans, statement ........................... 71 

EmCare, Inc., Dallas, TX, statement ..................................................................... 75 

Griskewicz, Mary, Healthcare Information and Management Systems Society, 

Alexandria, VA, statement .................................................................................. 77 

Johnson, Michele, Medical Group Managment Association, statement .............. 78 

Mennuti, Michael, American College of Obstetricians and Gynecologists, 

Washington, DC, letter ........................................................................................ 80 

Moore, Justin, American Physical Therapy Association, Alexandria, VA, statement ...................................................................................................................... 81 

Wojcik, Steven, National Business Group on Health, statement ........................ 84 


ccoleman on PROD1PC71 with HEARING

ccoleman on PROD1PC71 with HEARING
(1) 

THE MEDICARE VALUE-BASED PURCHASING 

FOR PHYSICIANS ACT 

THURSDAY, SEPTEMBER 29, 2005 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH

Washington, DC. 

The Subcommittee met, pursuant to notice, at 3:00 p.m., in room 

1100, Longworth House Office Building, Hon. Nancy L. Johnson 

(Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

September 22, 2005 

No. HL–9 

Johnson Announces Hearing on the Medicare 

Value-Based Purchasing for Physicians Act 

Congresswoman Nancy L. Johnson (R–CT), Chairman, Subcommittee on Health 

of the Committee on Ways and Means, today announced that the Subcommittee will 

hold a hearing on H.R. 3617, the ‘‘Medicare Value-Based Purchasing for Physicians’ 

Services Act of 2005.’’ The hearing will take place on Thursday, September 29, 2005, 

in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 3:00 p.m., or immediately following the full Committee hearing. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

H.R. 3617, introduced by Congresswoman Johnson on July 29, 2005, would repeal 

the Sustainable Growth Rate formula and replace it with a stable and predictable 

annual update based on changes in the costs of providing care. Such payments 

would be linked to health care quality and efficiency. 

This legislation would provide a differential payment update to practitioners 

meeting pre-established thresholds of quality or pre-established levels of improvement, equal to the Medicare Economic Index (MEI). Practitioners not meeting these 

thresholds would receive an update of MEI, minus 1 percent. 

Measures of quality and efficiency would include a mix of outcome, process and 

structural measures. Clinical care measures must be evidence-based. Practitioners 

would be directly involved in determining the measures used for assessing their performance. 

The Centers for Medicare & Medicaid Services would be required to analyze volume and spending growth annually, and make recommendations on regulatory or 

legislative changes to respond to inappropriate growth. The Medicare Payment Advisory Commission would review this report and recommendations. 

In announcing the hearing, Chairman Johnson stated, ‘‘I introduced the Medicare 

Value-Based Purchasing Act in response to testimony at our three Subcommittee 

hearings on physician payments and value-based purchasing this year. Many of my 

colleagues on this Subcommittee and in the House support this bill, and I thank 

them for that support. For several years, I have argued that the current Medicare 

payment system for physicians is unsustainable. I believe that this legislation represents an important step in our efforts to move Medicare into the twenty-first century. We have the ability to vary payment based on the quality and efficiency of 

care delivered to our seniors under Medicare, and we should use it. This hearing 

will offer the Subcommittee an opportunity to hear from witnesses about this important legislation.’’ 


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FOCUS OF THE HEARING: 

The hearing will focus on the provisions in H.R. 3617. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, ‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Thursday, October 13, 2005. Finally, please note that due to the change in House mail policy, the 

U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225– 

1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman JOHNSON. Good afternoon, everyone. I am going to 

call the hearing to order. Pete is on his way, but I am going to start 

with my opening statement, assuming that he will survive not 

hearing it. We are going to have five votes in an hour, so we are 

going to try to hear all of our witnesses before we do have to vote 

because it is such a long recess, and after that, of course, people 


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are flying off to planes. Let me just open by saying I am very 

pleased to be holding this hearing on actually a legislative initiative that we introduced and a series of amendments that we have 

circulated. I want to thank many of my colleagues on the Subcommittee for cosponsoring the legislation and for many others for 

taking an intense interest in it, because I think this initiative represents an attempt to move into the 21st century. It is not going 

to be perfect, but it is a serious start. There are 80 pay-for-performance systems out there already, and I think it is very important 

that the Federal Government set a model of how you do this and 

try to make sure that as the Nation moves in this development— 

in this direction, there is some homogeneity in both process and 

criteria. 

Today’s legislative hearing on H.R. 3617 follows a series of hearings by this Subcommittee to explore ways to address physician reimbursement under the Medicare Program. This legislation incorporates the many ideas brought to the Subcommittee by government agencies, physician and other practitioner organizations, purchasers with experience in value-based purchasing in the private 

market, and representatives of Medicare beneficiaries. To promote 

health care quality, as well as efficiency in Medicare, the bill would 

no longer pay providers the same amount regardless of the quality 

of the care they provide. Payment updates would be linked to 

health care quality and efficiency. Under this legislation, Medicare 

would provide a differential update for physician services. All practitioners would receive a 1.5-percent update in 2006 instead of the 

4.4-percent decrease projected under the current law, and in 2007 

and thereafter—2007, 2008, practitioners who report quality and 

efficiency measures would receive an update equal to the medical 

economic index (MEI). Those who do not report will receive a lower 

but still positive update equal to the MEI minus 1 percentage 

point. This is similar to how we currently pay hospitals under 

Medicare. 

Beginning in 2009, practitioners who meet pre-established 

thresholds of quality or show pre-established levels of improvement 

would receive a payment update equal to the MEI. Those who do 

not meet this threshold would receive a positive but lower update 

equal to MEI minus 1 percentage point. The legislation provides a 

structure for a value-based program. It outlines characteristics that 

quality measures must satisfy. For example, measures must include a mix of outcome, process and structural measures; be evidence-based if they are related to clinical care; be consistent, valid, 

practical and not overly burdensome to collect. So, there are a 

number of criteria in the bill that measures must meet to assure 

that they are objective and quality-oriented. The program must address issues of fairness by adjusting measures and ratings to account for very sick patients, those who cannot or do not comply 

with directives or who are located in neighborhoods where traditions delay entry into the health care system. It is critically important that the value-based program not encourage patient selection 

or de-selection. The legislation outlines a process for selecting 

measures that ensures that practitioners would be directly involved 

in the measures used to gauge their performance. 


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Practitioners would submit clinical care—I am going to cut short 

my opening statement and not go through the whole process. It is 

laid out in the bill. But I do want to note that I believe it is terribly 

important that clinicians have control over clinical measures. So, in 

the bill, they do make the proposals, and while the consensusbuilding body builds consensus around which measures are most 

important to use, the government actually cannot invent clinical 

measures. The government can initiate on its own process and 

structural measures and goes through the rulemaking process to 

assure that they receive public input in the process of identifying 

measures in those categories. 

Our witnesses provide their thoughts on this legislation and on 

the amendments that we have circulated. On our first panel we 

have Dr. Mark McClellan, the Centers for Medicare and Medicaid 

Services (CMS) Administrator. Our second panel includes Dr. Robert Berenson of the Urban Institute and a former CMS official who 

brings us a wealth of knowledge about physician payments. Dr. 

Thomas Jevon is a family physician in solo practice located in 

Wakefield, Massachusetts, who will provide input from that perspective. Dr. Jevon also will share his experiences with the Bridges 

to Excellence quality improvement program as a solo practitioner. 

Karen Ignagni, from America’s Health Insurance Plans, will provide us with a purchaser’s point of view and give us examples of 

value-based purchasing programs from her member companies. 

Our last witness, Dr. John Armstrong from the American Medical 

Association (AMA), will present the views of physicians of the 

AMA, many of which have had experience with physician payment 

systems similar to that recommended in the legislation. Mr. Stark, 

welcome, and would you like to make an opening statement? 

Mr. STARK. I would love to. Thank you, Madam Chair. This is 

our fourth hearing this year on this physician payment system or 

problem, and we still haven’t focused in on the underlying issues 

that got us to where we are today. The administration, majority, 

organized medicine and, I suppose, us by acquiescence all know full 

well what the temporary increases in the Medicare Modernization 

Act (MMA), would exacerbate the cliff or the drop that we now 

face, yet we have done nothing to craft a solution. We have had a 

lot of hearings, but no solutions. Organized medicine and many in 

Congress have proposed to just repeal the sustainable growth rate 

(SGR) with little or no discussion or options as to what we could 

replace it with. I am not going to defend the SGR, but—I will let 

Chairman Thomas do that—but in my view, simply repealing it 

isn’t an option. I think you told us, Dr. McClellan, sometime in previous testimony that we are talking $180 billion to do it, and that 

is a little scarce right now. People are quite enchanted, if not overly focused, on the this notion of pay for performance. Done properly, that would show me some promise. But I don’t believe it can 

be done without a decent information technology plan in place. 

I would be willing to look, but I just don’t—I think that particular issue—and I don’t think until we are able to have complete 

electronic recordkeeping and universal recordkeeping that we can 

track pay for performance. Even then I suspect it would take several years, if not 10, to get the whole system going. I think the best 

thing we have now are the demonstrations that CMS has for hosVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\26375.XXX 26375

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pitals and physicians, and I think we could watch those and evaluate those and have a better idea then of how to expand from the 

demonstrations that are now going forth. To rush to embrace this, 

is a fad as I call it, has diverted our attention from underlying 

problems in physician reimbursement, a system that needs to have 

these problems addressed; RBS utilization, Committee process, coding issues, perverse incentives, a whole host of things that I think 

we have to straighten out. The critical component of fee-for-service 

Medicare has been ignored. The current system allows abusive providers to profit while the prudent providers pay the price in terms 

of reduced fees. We have to keep in mind that physician increases 

lead to premium increases unless we prevent it. Our beneficiaries 

are going to have record high increases, the next year increase 

again significant. We need to protect these premiums, and I share 

AARP’s stand on this. 

I want to remind everyone—and although I would not be so skeptical as to suggest it was intentional—increased physician spending 

will get us very quickly toward this arbitrary 45-percent cap on 

Medicare’s general revenue support. That to me is the sword of 

Damocles hanging over our head, and if that drops, we are in the 

soup. That, in effect, destroys Medicare as we know it. If that is 

the intention of the administration and the majority, fine, let’s talk 

about it; but the idea that we hit the 45-percent cap and then we 

no longer have an entitlement to me is something that I think 

should be repealed or else addressed with some replacement for 

Medicare as an entitlement. I would be willing to, as I discussed 

with the Chair and with Dr. McClellan, to support—whether you 

care whether I support it or not—but I would be willing to negotiate to support some kind of a 2-year override in the plan cuts, 

provided that we have some concrete steps for a new mechanism, 

whether it is geographic or specialty-specific targets, that would 

keep some control on overall expenditures. The best way, of course, 

to pay for this all would be to bring the plan payment down to feefor-service rates, which is what we always intended, and nobody 

has ever shown me that the plans deserve this outrageous bonus 

that they are getting. In the meantime, I would support starting 

with pay for performance in the private plans. Let us start with 

these plans as MedPAC has recommended. They already have the 

data. They claim they deliver high-quality care. Let us hold them 

accountable, and, as they say, let us see if they can walk the walk 

as well as they talk the talk. Thanks. 

Chairman JOHNSON. Thank you very much, Pete. I would like 

to just acknowledge the presence of two of the Republican physicians who have been very actively interested in the health care legislation that we have been working on, Dr. Burgess of Texas and 

Dr. Gingrey of Georgia. Welcome to sitting with us this afternoon. 

All of the issues that Pete raised will be a part of our discussion 

as we move forward. There are two sides to every matter, and I 

hope that we can come to an understanding that allows my colleague from California to work with me on this legislation, because 

I certainly respect his concerns. Dr. McClellan. 


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STATEMENT OF THE HONORABLE MARK MCCLELLAN, M.D., 

PH.D., ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Dr. MCCLELLAN. Madam Chairman, Congressman Stark, distinguished Subcommittee Members and other distinguished Members, thank you for the opportunities to be with you here this afternoon. In recent weeks we have seen once again the critical role 

that physicians play in helping people recover and stay well. We 

saw this in the response to Hurricane Katrina where when evacuees needed care all through the gulf coast and around the country, 

local physicians did not ask, how is this going to be paid for, what 

are the rules? They asked, what kind of care and assistance do 

evacuees need? They started providing it. We responded by supporting those efforts through modifications in our rules in Medicare 

and Medicaid and setting up a new waiver program that is already 

now available to most evacuees in our payment systems. In addition, I want to thank the physician community for being one of our 

most critical partners as we work to bring new drug coverage to 

Medicare beneficiaries on schedule and nationwide. Physician organizations and physicians all over the country have taken steps, like 

making available brochures and other information on where their 

patients can get the support they need to take advantage of the 

new coverage. 

On average, seniors are going to see their out-of-pocket costs fall 

by many hundreds of dollars next year, and I truly appreciate the 

effort physicians are taking to ensure that their patients have access to the medicines they need in this new program. As you well 

know, physician participation and leadership are also critical in 

providing care to beneficiaries in Medicare. We need to ensure that 

physicians are adequately compensated for this care in the Medicare Program, but how we pay also matters. Medicare’s payment 

system for physicians should be set up to encourage and support 

them in providing quality care and preventing avoidable health 

care costs. After all, physicians are in the best position to know 

what can work best to improve their practice. Updates in the current payment system for physician services are now projected to be 

negative for the next 7 years. Continued negative updates for many 

years are not sustainable in terms of assuring access to quality 

care for Medicare beneficiaries. At the same time, simply increasing spending by adding larger updates into the current payment 

system is also not sustainable from the standpoint of Medicare’s 

costs or beneficiary premiums and cost sharing, so it is critical now 

for Medicare to support physicians in achieving better care for our 

beneficiaries at a lower overall cost. 

I would like to thank you, Madam Chairman, for your leadership 

on this issue. I would like to thank the Ranking Member for his 

continued efforts to make sure that Medicare and our beneficiaries 

are getting the most value. There is also bipartisan interest in the 

Senate. We intend to continue working closely with you to consider 

changes to increase the effectiveness of how Medicare compensates 

physicians and to take new steps to avoid unnecessary costs. That 

is the best path to a sustainable payment system. I also want to 

thank the Nation’s physician organizations for their leadership on 


ccoleman on PROD1PC71 with HEARING
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issues of quality and performance. Thanks in part to the leadership 

and hard work of many physician organizations, substantial 

progress has been made to develop quality measures for most physician specialties. In fact, they have identified 66 evidence-based 

quality measures for 29 specialties, as I detail in my written testimony. Those specialties represent 80 percent of Medicare physician 

spending. This is tremendous progress working together, and physician leadership has helped make it possible. We are also developing the infrastructure needed to support the reporting of measures like these on existing physician claims as soon as 2006. While 

we are still analyzing the issues, we are working out the details so 

that voluntary reporting can be accomplished under existing statutory authorities. 

Our collaborative work on identifying and measuring quality care 

so that we can better support it has been guided by some widely 

accepted principles. Quality measures should be evidence-based, 

valid, reliable and relevant to a significant part of a physician’s actual practice. It is always important that quality measures do not 

discourage physicians from treating high-risk or difficult cases, as 

you mentioned. In addition, quality measures should be implemented in a realistic manner that is most relevant for quality improvements in all types of practices and patient populations while 

being least burdensome for physicians and other stakeholders. To 

make sure that these principles are met, quality measures should 

be developed in conjunction with open and transparent processes 

that promote consensus from a broad range of health care stakeholders. 

To achieve these goals, CMS joined in a process with the National Committee of Quality Assurance (NCQA), the AMA’s Physician Consortium For Performance Improvement, other physician 

organizations and stakeholders to develop measures that would be 

appropriate for the ambulatory setting. We supported the National 

Quality Forum (NQF) endorsement of ambulatory care measures 

developed by the NCQA and the Physician Consortium. More recently we have also been working with the Ambulatory Care Quality Alliance, the American College of Physicians, the American 

Academy of Family Practitioners, the Nation’s health plans and 

many other stakeholders to expand these efforts, and we are building on this progress—that I have already noted—with additional 

primary care quality measures as well as measures in other specialties. Activity is under way to prepare the other measures for 

NQF endorsement. As a result of this activity, we have 66 measures, as I mentioned, and 30 have already been endorsed or a part 

of the NQF process. 

The bottom line is that quality measures or indicators have been 

developed or are well along in the development process for most 

physician specialties. There are strong collaborations among health 

care providers and other stakeholders to build on this rapid 

progress to improve quality and avoid unnecessary costs. This is 

very good news for achieving our shared goal of supporting the best 

efforts of physicians to keep seniors well and to keep health care 

costs down. Madam Chairman, Mr. Stark, thanks again for the opportunity to testify. I would be happy to answer any of your questions. 


ccoleman on PROD1PC71 with HEARING
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[The prepared statement of Dr. McClellan follows:] 

Statement of The Honorable Mark McClellan, M.D., Ph.D., Administrator, 

Centers for Medicare and Medicaid Services, U.S. Department of Health 

and Human Services 

Madam Chairman Johnson, Congressman Stark, distinguished Subcommittee 

members, thank you for inviting me to testify on value-based purchasing for physicians under Medicare. 

I want to take this opportunity to thank the physician community for their heroic 

efforts on behalf of evacuees of hurricanes Katrina and Rita. Physicians rushed to 

provide care for those in need without even considering payments or program requirements. Providers who were personally affected by the hurricanes as well as 

those in areas sheltering evacuees have provided extensive medical services under 

the most challenging conditions. We have acted expeditiously to provide effective 

support for these efforts. We’ve done this through administrative adjustments to our 

Medicare and Medicaid payment rules. And we’ve implemented a new Medicaid 

waiver that provides for immediate, temporary Medicaid coverage as well as financial support for needed medical services that fall outside of standard Medicaid benefits, all using existing systems in the affected states so that they can be implemented quickly and effectively. Within just ten business days CMS reviewed and 

approved waivers for the states housing the vast majority of evacuees, including 

Texas, Arkansas, Mississippi, Alabama, Georgia, Florida, Idaho, and the District of 

Columbia. And we are working closely with all other states that need financial support. Through these efforts, we are helping all evacuees get the care they need as 

they get back on their feet, we are making sure that the health care providers get 

reimbursed for providing that care, and we are making sure that the states hosting 

the evacuees are covered for any substantial expenses that they incur. 

In addition, the physician community is one of our key partners as we work to 

implement the Medicare Modernization Act (MMA). As you well know, we are rapidly approaching the implementation date for Medicare’s new prescription drug coverage. As physicians have known for many years, adequate access to medications 

is more important today than ever before. Physician organizations have worked 

closely with us to help inform their membership about the new benefits coming in 

Medicare to help their patients get access to up to date care. Physicians all over 

the country are helping beneficiaries take advantage of the new coverage, for example by providing materials in their offices about the basics of Medicare’s prescription 

drug coverage, and letting them know where to go to get the information and support they need to make a confident decision. The new Medicare drug coverage will 

be available on time, nationwide, at a lower cost and with more benefits available 

than many people had expected. As a result, on average seniors will save many hundreds of dollars next year in their total out of pocket costs. I truly appreciate the 

time and effort physicians are taking to ensure their Medicare patients have access 

to the medications they need. 

As I testified in July, continued improvement of the Medicare program requires 

the successful participation of physicians and we need to ensure they are adequately 

compensated for the care they provide to people with Medicare. But how we pay also 

matters. In addition to providing adequate payments, Medicare’s payment system 

for physicians should encourage and support them to provide quality care and prevent avoidable health care costs. After all, physicians are in the best position to 

know what can work best to improve their practices, and physician expertise coupled with their strong professional commitment to quality means that any solution 

to the problems of health care quality and affordability must involve physician leadership. 

Updates to the current payment system for physicians’ services are projected to 

be negative for the next seven years. Such continued negative updates raise real 

concerns about this payment system in terms of assuring access to quality care for 

Medicare beneficiaries. At the same time, simply increasing spending by adding 

larger updates into the current volume-based payment system that is already experiencing increases of 12 to 13 percent or more per year would have an adverse effect 

from the standpoint of Medicare’s finances or beneficiary premiums and cost-sharing, and does not promote better quality care. 

However, it is clear, under our current system, there is much potential for physicians to improve the value of our health care spending. Under the current system, 

there are substantial variations in resources and in spending growth for the same 

medical condition in different practices and in different parts of the country, without 

apparent difference in quality and outcomes, and without a clear basis in existing 

medical evidence. A study published in 2003 looked at regional variations in the 


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1Fisher, Elliott S., MD, MPH; David E. Wennberg, MD, MPH; Therese A. Stukel, Ph.D.; Daniel J. Gottlieb, MS; F.L. Lucas, Ph.D.; and Etoile L. Pinder, MS, ‘‘The Implications of Regional 

Variations in Medicare Spending. Part 1: The Content, Quality, and Accessibility of Care,’’ in 

The Annals of Internal Medicine, February 18, 2003, Vol. 138, Issue 4. 

number of services received by Medicare patients who were hospitalized for hip fractures, colorectal cancer, and acute myocardial infraction. The researchers found that 

patients in higher spending areas received approximately 60 percent more care, but 

that quality of care in those regions was no better on most measures and was worse 

for several preventive care measures. 1 Further, there are many examples of steps 

that physicians have taken to improve quality while helping to keep overall costs 

down. 

Because it is critical for CMS payment systems to support better outcomes for our 

beneficiaries at a lower cost, CMS is working closely and collaboratively with medical professionals and Congress to consider changes to increase the effectiveness of 

how Medicare compensates physicians for providing services to Medicare beneficiaries. I am engaging physicians on issues of quality and performance with the 

goal of supporting the most effective clinical and financial approaches to achieve 

better health outcomes for people with Medicare. We are committed to developing 

reporting and payment systems that enable us to support and reward quality, to improve care without increasing overall Medicare costs. When clear, valid and widely 

accepted quality measures are in place, pay-for-performance is a tool that could enable our reimbursement to better support efforts to improve quality and avoid unnecessary costs. 

Currently, hospitals and physicians are paid under separate systems. Under these 

systems, physicians do not receive credit for avoiding unnecessary hospitalizations 

by providing better care to their patients. However, in our physician group practice 

demonstration project, physicians could receive performance based payments derived from savings from preventing chronic disease complications, avoiding hospitalizations, and improving quality of care. 

The evidence is increasing that when we provide an incentive for reporting and 

achieving better quality, health care providers respond by using payments to take 

a range of steps from the simple to the high-tech to make it happen. This should 

not really be surprising—our health professionals are dedicated, and they want to 

do everything in their power to get the best care to their patients. So when we support better quality, we enable them to do what they do best. 

We’ve seen this approach work first-hand with hospital payments where we have 

tied the annual hospital payment update to quality measure reporting. It has had 

a positive impact on the availability of quality information, with about 70 percent 

of hospitals reporting quality data. 

Reporting clinically valid quality measures is an important step toward making 

it easier to achieve major improvements in quality—if you cannot measure it, it is 

hard to take steps to improve it. We have been working hard in close collaboration 

with health professionals and other stakeholders to promote the development of better measures. 

Voluntary Reporting of Quality Measures Can Be Implemented Soon 

Thanks to the leadership and hard work of many physician organizations, we 

have made considerable progress creating consensus around a set of primary care 

quality measures. In addition, we have made substantial progress to develop quality 

measures for the majority of physician specialties. We now have 66 quality measures for 29 specialties. Those 29 specialties represent about 80 percent of Medicare 

physician spending. We are also developing the infrastructure so that the reporting 

of these measures on existing physician claims could begin as soon as 2006. While 

we are still analyzing the issues, we are working out the details so that reporting 

can be accomplished under existing statutory authorities. 

CMS Works with Partners to Develop, Endorse, and Implement Quality 

Measures 

The ability to evaluate and measure quality is an important component in delivering high quality care. For several years, CMS has been collaborating with a variety of stakeholders to develop and implement uniform, standardized sets of performance measures for various health care settings. In recent months, thanks to the 

leadership of many physician organizations, these efforts have accelerated even further. 

Our work on the quality measures has been guided by the following widely-accepted principles. Quality measures should be evidence-based. They should be valid and 

reliable. They should be relevant to a significant part of medical practice. And to 


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assure these features, quality measures should be developed in conjunction with 

open and transparent processes that promote consensus from a broad range of 

health care stakeholders. It also is important that quality measures do not discourage physicians from treating high-risk or difficult cases, for example, through a risk 

adjustment mechanism. In addition, quality measures should be implemented in a 

realistic manner that is most relevant for quality improvement in all types of practices and patient populations, while being least burdensome for physicians and other 

stakeholders. 

More than two years ago, CMS initiated a process with the National Committee 

for Quality Assurance (NCQA), the American Medical Association’s (AMA) Physician 

Consortium for Performance Improvement, and other stakeholders to develop measures that would be appropriate for the ambulatory setting. As part of this endeavor, 

CMS took the lead in supporting the National Quality Forum (NQF) endorsement 

of ambulatory care measures developed by the NCQA and the Physician Consortium. The NCQA is a private, not-for-profit organization dedicated to improving 

health care quality by providing information about health care quality to help inform consumer and employer choice. The NQF is a private, not-for-profit membership organization created to develop and implement a national strategy for 

healthcare quality measurement and reporting. The result of this activity has been 

the recent endorsement by the NQF of 36 ambulatory quality measures. 

Examples of three ambulatory quality measures are the results of the hemoglobin 

A1C and LDL and blood pressure tests for diabetic patients. The clinical evidence 

suggests that patients who have a hemoglobin A1C test below 9 percent, an LDL 

less than or equal to 100 mg/dl, and blood pressures less than or equal to 140/90 

mmHg have better outcomes. These measures are evidence-based, reliable and valid, 

widely accepted and supported, and were developed in an open and transparent 

manner. Evidence indicates that reaching these goals can lead to fewer hospitalizations by avoiding complications from diabetes such as amputation, renal failure, and 

heart disease. 

Two quality measures endorsed by NQF for heart failure patients include placing 

the patient on blood pressure medications and beta blocker therapy. Here too, these 

therapies have been shown to lead to better health outcomes and reduce preventable 

complications. Together, diabetes and heart failure account for a large share of potentially preventable complications. 

In addition to primary care quality measures, other specialties are developing 

measures. For example, measures of effectiveness and safety of some surgical care 

at the hospital level have been developed through collaborative programs like the 

Surgical Care Improvement Program (SCIP), which includes the American College 

of Surgeons. Preventing or decreasing surgical complications can result in a decrease in avoidable hospital expenditures and use of resources. For example, use of 

anti-biotic prophylaxis has been shown to have a significant effect in reducing postoperative complications at the hospital level. This measure is well developed and 

there is considerable evidence that its use could not only result in better health but 

also avoid unnecessary costs. These post-operative complication measures, which are 

in use in our Hospital Quality Initiative, are being adapted for use as physician 

quality measures. Application of this type of post-operative complication measure at 

the physician level has the potential to help avoid unnecessary costs as well as improve quality. 

We also are collaborating with other specialty societies, such as the Society of 

Thoracic Surgeons (STS), to implement quality measures that reflect important aspects of the care of specialists and sub-specialists. The STS has already developed 

a set of 21 measures at the hospital level that are risk adjusted and track many 

common complications as outcome measures. STS is also conducting a national pilot 

program to measure cost and quality simultaneously, while communicating quality 

and efficiency methods across regional hubs with the objective of reducing unnecessary complications and their associated cost. The STS measures have been adapted 

to a set of five quality measures for physicians, such as for a patient who receives 

by-pass surgery with use of internal mammary artery. 

Many other specialties have also taken steps to develop evidence-based quality 

measures. On July 14, 2005, I sent a letter to many specialty societies, summarizing 

some of the work to date and requesting an update on their efforts to develop quality and performance measures. 

I want to thank the AMA and specialty societies for their very positive response 

to this effort. Six months ago few specialties had quality measures. Today the majority of specialties have quality measures. Many specialties have created quality 

task forces and are participating in the quality measurement process. As a result, 

a total of 66 quality measures now exist covering 29 specialties. These specialties 

represent about 80 percent of Medicare physician spending. NQF has endorsed 36 


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of the measures. Activity is underway to prepare the other measures for NQF endorsement. The latest version of all 66 quality measures is attached to this statement. 

CMS has had productive exchanges with most medical specialty organizations. I 

would encourage organizations that have not entered into discussions with us to initiate a dialogue as soon as possible so we can work together to develop clinically 

valid measures. In certain areas, compliance with evidence-based practice guidelines 

has the potential to be a quality measure. 

The process we have used with the medical profession to develop quality measures 

beyond ambulatory care should greatly expedite and facilitate the development, acceptance and implementation of quality measures for additional specialties and 

services. By working in collaboration with the societies, there has been considerable 

progress in the measure development process. This preparation will facilitate the 

NQF endorsement process. However, measures that have not yet gone through the 

NQF endorsement process are still of great value. Physician reporting of these 

measures will help foster their acceptance in the medical community and help prepare physicians for their eventual adoption. Moreover, since there is likely to be reporting of the quality measures for a period of time before payment based on performance, NQF consensus is not required to begin reporting of such measures. The 

rapid progress to develop quality measures for the majority of specialties is a clear 

indication that quality measures are gaining acceptance as an important element 

in achieving better performance in our health care system. 

Our experience with hospital quality measures is that after a measure is endorsed 

additional work with stakeholders is necessary to assure successful implementation. 

The Hospital Quality Alliance played an important role in implementation of the 

hospital quality measures by facilitating hospital adoption and understanding of 

technical concerns. The Ambulatory Care Quality Alliance (AQA) can serve a similar 

role to help with physician adoption of the ambulatory quality measures. The AQA 

is a consortium led by the American Academy of Family Physicians, the American 

College of Physicians, America’s Health Insurance Plans and the Agency for 

Healthcare Research and Quality, CMS and other stakeholders, including the AMA 

and other physician groups, as well as representatives of private sector purchasers 

and consumers. 

CMS is Developing a System to Simply Reporting of Quality Measures 

The development, endorsement, and consensus process is not sufficient to implement measures successfully. Detailed specifications are needed about such items as 

the associated diagnosis codes and the rules for reporting (e.g., the ordering vs. performing physician). There is also a key issue about how a payor like Medicare can 

obtain information on the quality measures. For this reason, while the rapid development of quality measures is ongoing, CMS also has been working on the technical 

methods for supporting effective, simple, and the least burdensome reporting and 

payment based on these measures. 

In the years ahead, it is expected that electronic record systems can be developed 

that would provide information that is needed to measure and report on quality 

while fully protecting patient confidentiality. However, while electronic health 

records would greatly facilitate the accurate and efficient use of information on 

quality measures and quality improvement, progress on supporting quality improvement should not be delayed until electronic health records are widely used. Indeed, 

taking steps now to promote quality reporting and improvement also could promote 

the adoption of and investment by physicians in electronic records, which would facilitate more efficient quality reporting and quality improvement activities. In the 

short term, there is considerable evidence that information on a broad range of quality measures can be obtained adequately via information transmitted on existing 

claims. In particular, with adequate guidance for appropriate coding practices by 

physician offices, the so-called G-codes, HCPCS codes established by Medicare and 

reportable on existing claims forms, can be the vehicle to report the information on 

claims. While HCPCS codes generally represent services furnished, the G-codes 

would report information on the quality measures, and could potentially be a basis 

for payment based on the report of such information. 

We are in the process of converting all the quality measures into a series of Gcodes that could then be reported by a physician on a claim in a way that is simple 

and does not burden physicians. This reporting mechanism has several advantages. 

It allows collection of information on the quality measures via an existing system 

familiar to the physician community. It makes reporting of the information simple 

for physicians. Furthermore, it allows collection of the quality measures to begin 

very soon—possibly as early as 2006. 


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Many changes in Medicare involve changes in the systems used by our contractors 

to pay claims. We are currently assessing whether changes in our contractor systems might be necessary to implement the reporting of information on the quality 

measures on claims. We are also assessing implementation issues under a scenario 

where reporting and subsequent performance could result in a payment differential 

for physicians. 

Many believe that a trial period of a year or two might be appropriate where physicians would report on the quality measures, including quality measures that have 

broad endorsement and support but that have not yet fully completed a formal consensus process. The bill you introduced, Madam Chairman, H.R. 3617, would begin 

with reporting and move to performance. Some believe that Medicare could establish 

a payment differential where physicians who report on the measures get a different 

payment from physicians who do not report. Many believe that after a trial period 

for reporting Medicare would then move to a system where the payment differential 

would be based on performance for the measures. 

In many ways, where we are today with reporting quality measures for physicians 

is analogous to where we were before the MMA enacted section 501, the 0.4 percentage point payment differential for reporting of 10 quality measures. Prior to MMA, 

mechanisms had been established so that hospitals could voluntarily report information on the quality measures. When MMA was enacted, hospitals quickly responded 

and most of those institutions that had not previously reported the measures did 

so. Today there are a total of 20 hospital quality measures. Hospitals can voluntarily report information on the additional 10 measures and such reporting does not 

have a payment consequence. About 70 percent of hospitals are already reporting 

on 17 of the measures. Information on all measures reported by hospitals is available on the CMS Hospital Compare website. 

The bottom line is that quality measures or indicators have been developed or are 

well along in the development process for most physicians’ specialties. We are currently developing G-codes to report information on these measures on existing 

claims. We are sorting through systems issues for our contractors. While we still 

have much work to do, at this point, we believe that we can make rapid progress 

in very short order so that broad initial reporting of measures that are very relevant 

to the quality and cost of care for our beneficiaries could begin as soon as 2006. 

CMS Works to Ensure Resources are Utilized Appropriately 

In many cases, quality measures may help us get more value for our health care 

dollars. We need to build on this by examining appropriate resource use. The well 

documented wide variation in resource use among areas for treating the same medical condition raises questions about whether Medicare is getting good value in all 

areas. 

In my June 24 letter to you and Chairman Thomas, I indicated that we supported 

and were preparing to implement MedPAC’s March recommendation to Congress 

that: ‘‘The Secretary should use Medicare claims data to measure fee-for-service 

physicians’ resource use and share results with physicians confidentially to educate 

them about how they compare with aggregated peer performance.’’ 

Measures of physician resource use have been used and are being developed by 

a number of public and private entities. The most widely used measure of physician 

resource use is total expenditures per case. Total expenditures include all resources 

involved in furnishing the case, including physicians’ services, laboratory services 

and other diagnostic tests, hospital services, other facilities, drugs, durable medical 

equipment, etc. 

The measures of resource use are generally applied to episodes of care. The beginning of an episode may be defined by a new diagnosis or treatment, such as hospitalization. Such episodes usually end after claims related to the episode are not 

present for a defined period of time. Such episodes could include heart attacks or 

broken hips. For surgeons, coronary bypass surgery and hip replacements would be 

considered episodes. Episodes also may occur for a full year in the case of chronic 

diseases, such as diabetes, heart failure, and chronic pulmonary disease. 

We are working to implement the MedPAC recommendation using information derived from claims data. We are developing resource use measures that target particular tests and procedures that may be over—or under-used, as overuse is inefficient and under-use raises quality concerns. We also are developing pilot projects 

that will use software programs created by a number of private sector entities. 

These programs group services into episodes using claims data. The episodes are 

then assigned to physicians so average resource use can be computed. We plan to 

pilot test resource use for a few selected conditions in two states. We are assessing 

measurement issues such as case-mix/severity adjustment and identification of appropriate comparison groups. Our goal would be to share results with physicians 


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confidentially to educate them about how they compare to peers and ultimately to 

incorporate measures related to services, resources, and expenditures into the payment system as envisioned in your bill, H.R. 3617. 

Conclusion 

Madam Chairman, thank you again for this opportunity to testify on improving 

how Medicare pays for services. We look forward to working with Congress and the 

medical community to develop a system that ensures appropriate payments while 

also promoting the highest quality of care, without increasing overall Medicare 

costs. As a growing number of stakeholders now agree, we must increase our emphasis on payment based on improving quality and avoiding unnecessary costs to 

solve the problems with the current physician payment system. Thanks to the leadership of many private-sector organizations working together, and especially thanks 

to the leadership of physicians, we have made rapid progress in developing quality 

measures and indicators as well as in building an infrastructure to allow the reporting of such measures. I would be happy to answer any of your questions. 

————— 

Conversion of Clinial Measures to G-Codes 

Physicians Pay-for-Performance 

As of: September 26, 2005 

Internal Medicine, Family Practice, General Practice 

• Diabetic patient with most recent HbA1c level (within the last 6 months) documented as less than or equal to 9% • Diabetic patient with most recent HbA1c level (within the last 6 months) documented as greater than 9% • Clinician documented that diabetic patient was not eligible candidate for HbA1c 

measure • Clinician has not provided care for the diabetic patient for the required time 

for HbA1c measure (within the last 6 months) 

• Diabetic patient with most recent LDL (within the last 12 months) documented 

as less than or equal to 100 mg/dl • Diabetic patient with most recent LDL (within the last 12 months) documented 

as greater than 100 mg/dl • Clinician documented that diabetic patient was not eligible candidate for LDL 

measure • Clinician has not provided care for the diabetic patient for the required time 

for LDL measure (within the last 12 months) 

• Diabetic patient with most recent blood pressure (within the last 6 months) documented as less than or equal to 140/90 mmHg • Diabetic patient with most recent blood pressure (within the last 6 months) documented as greater than 140/90 mmHg • Clinician documented that the diabetic patient was not eligible candidate for 

blood pressure measure • Clinician has not provided care for the diabetic patient for the required time 

for blood measure (within the last 6 months) 

• HF patient with LVSD documented to be on either ACE–I or ARB therapy • HF patient with LVSD not documented to be on either ACE–I or ARB therapy • Clinician documented that HF patient was not eligible candidate for either 

ACE–I or ARB therapy measure 

• HF patient with LVSD documented to be on B-blocker therapy • HF patient with LVSD not documented to be on B-blocker therapy • Clinician documented that HF patient was not eligible candidate for B-blocker 

therapy measure 

• AMI–CAD patient documented to be on B-blocker therapy • AMI–CAD patient not documented to be on B-blocker therapy • Clinician documented that AMI–CAD patient was not eligible candidate for Bblocker therapy measure 

• AMI–CAD patient documented to be on antiplatelet therapy • AMI–CAD patient not documented to be on antiplatelet therapy • Clinician documented that AMI–CAD patient was not eligible candidate for 

antiplatelet therapy measure 

• Patient documented to have received influenza vaccination during the flu season 


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• Patient not documented to have received influenza vaccination during the flu 

season 

• Clinician documented that patient was not eligible candidate for influenza vaccination measure 

Internal Medicine—Cardiology 

• HF patient with LVSD documented to be on either ACE–I or ARB therapy 

• HF patient with LVSD not documented to be on either ACE–I or ARB therapy 

• Clinician documented that HF patient was not eligible candidate for either 

ACE–I or ARB therapy measure 

• HF patient with LVSD documented to be on B-blocker therapy 

• HF patient with LVSD not documented to be on B-blocker therapy 

• Clinician documented that HF patient was not eligible candidate for B-blocker 

therapy measure 

• AMI–CAD patient documented to be on B-blocker therapy 

• AMI–CAD patient not documented to be on B-blocker therapy 

• Clinician documented that AMI–CAD patient was not eligible candidate for Bblocker therapy measure 

• AMI–CAD patient documented to be on antiplatelet therapy 

• AMI–CAD patient not documented to be on antiplatelet therapy 

• Clinician documented that AMI–CAD patient was not eligible candidate for 

antiplatelet therapy measure 

• CAD—with LDL documented to be less than or equal to 100mg/dl 

• CAD—with LDL documented to be greater than 100mg/dl 

• Clinician documented that CAD patient was not eligible candidate for LDL 

measure 

• Counseling on the importance of blood sugar control and monitoring of HgA1c 

documented to have been provided to patient with diabetes mellitus 

• Counseling on the importance of blood sugar control and monitoring of HgA1c 

not documented to have been provided to patient with diabetes mellitus 

• Counseling on the use of antioxidants documented to have been provided to patient with intermediate age-related macular degeneration (AMD), or advanced 

AMD in one eye, based on data from the Age-Related Eye Disease Study 

• Counseling on the use of antioxidants not documented to have been provided 

to patient with intermediate age-related macular degeneration (AMD), or advanced AMD in one eye, based on data from the Age-Related Eye Disease Study 

• Clinician documented that patient with intermediate age-related macular degeneration (AMD), or advanced AMD in one eye (based on data from the AgeRelated Eye Disease Study) was not eligible candidate for antioxidant measure 

• Central corneal thickness measurement documented for a patient who is primary open angle glaucoma suspect 

• Central corneal thickness measurement not documented for a patient who is 

primary open angle glaucoma suspect 

• Clinician documented that patient who is primary open angle glaucoma suspect 

was not eligible candidate for central corneal thickness measure 

• Cataract surgery candidate documented to have been questioned about his/her 

visual function, including a review of the patient’s self-assessment of visual status and visual needs 

• Cataract surgery candidate not documented to have been questioned about his/ 

her visual function, including a review of the patient’s self-assessment of visual 

status and visual needs 

• A 5% solution of povidone-iodine documented to have been provided as an infection prophylaxis in the pre-operative period for intraocular surgery 

• A 5% solution of povidone-iodine not documented to have been provided as an 

infection prophylaxis in the pre-operative period for intraocular surgery 

• Clinician documented that patient at the pre-operative period for intraocular 

surgery was not an eligible candidate for 5% solution of povidone-iodine infection prophylaxis measure 

Surgery—Ophthalmology 

• Chronic open angle glaucoma patient documented to have received optic nerve 

assessment 

• Chronic open angle glaucoma patient not documented to have received optic 

nerve assessment 


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Surgery—Orthopedic 

• Patient documented to have received antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

• Patient not documented to have received antibiotic prophylaxis one hour prior 

to incision time (two hours for vancomycin) 

• Clinician documented that patient was not an eligible candidate for the antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

measure 

• Patient with documented receipt of thromboemoblism prophylaxis 

• Patient without documented receipt of thromboemoblism prophylaxis 

• Clinician documented that patient was not an eligible candidate for 

thromboemoblism prophylaxis measure 

Surgery—General 

• ESRD Patient requiring hemodialysis vascular access documented to have received autogenous AV fistula 

• ESRD Patient requiring hemodialysis documented to have received vascular access other than autogenous AV fistula 

• Clinician documented that ESRD patient requiring hemodialysis was not a candidate for autogenous AV fistula (or other autogenous AV fistula) evaluation 

measure 

• Patient documented to have received antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

• Patient not documented to have received antibiotic prophylaxis one hour prior 

to incision time (two hours for vancomycin) 

• Clinician documented that patient was not an eligible candidate for the antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

measure 

• Patient with documented receipt of thromboemoblism prophylaxis 

• Patient without documented receipt of thromboemoblism prophylaxis 

• Clinician documented that patient was not an eligible candidate for thromboembolism prophylaxis measure 

Internal Medicine—Hematology 

• Patient with multiple myeloma not in remission documented to be treated with 

a bisphophonate 

• Patient with multiple myeloma not in remission not documented to be treated 

with a bisphophonate 

• Clinician documented that patient with multiple myeloma not in remission was 

not an eligible candidate for bisphophonate treatment measure 

• MDS patient presenting with anemia (Hb < 11 g/dl) documented to have received bone marrow examination, including iron stain, prior to receiving erythropoietin therapy 

• MDS patient presenting with anemia (Hb < 11 g/dl) not documented to have 

received bone marrow examination, including iron stain, prior to receiving 

erythropoietin therapy 

• Clinician documented that MDS patient presenting with anemia (Hb < 11 g/ 

dl) was not an eligible candidate for bone marrow examination, including iron 

stain, measure prior to receiving erythropoietin therapy 

• CLL patient documented to have received confirmation of CLL diagnosis by flow 

cytometry as part of initial diagnostic evaluation 

• CLL patient not documented to have received confirmation of CLL diagnosis by 

flow cytometry as part of initial diagnostic evaluation 

• Clinician documented that CLL patient was not eligible candidate for flow 

cytometry as part of initial CLL diagnostic evaluation measure 

• MDS and acute leukemia patient documented to have received cytogenic testing 

on bone marrow or peripheral blood (as appropriate) as part of initial diagnostic 

evaluation 

• MDS and acute leukemia patient not documented to have received cytogenic 

testing on bone marrow or peripheral blood (as appropriate) as part of initial 

diagnostic evaluation 

• Clinician documented that MDS and acute leukemia patient was not an eligible 

candidate for cytogenic testing on bone marrow or peripheral blood (as appropriate) as part of initial diagnostic evaluation measure 


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Emergency Medicine 

• AMI: Patient documented to have received aspirin at arrival 

• AMI: Patient not documented to have received aspirin at arrival 

• Clinician documented that AMI patient was not an eligible candidate aspirin at 

arrival measure 

• AMI: Patient documented to have received B-blocker at arrival 

• AMI: Patient not documented to have received B-blocker at arrival 

• Clinician documented that AMI patient was not an eligible candidate for Bblocker at arrival measure 

• PNE: Patient documented to have received antibiotic within 4 hours of presentation 

• PNE: Patient not documented to have received antibiotic within 4 hours of presentation 

• Clinician documented that PNE patient was not an eligible candidate for antibiotic within 4 hours of presentation measure 

Internal Medicine—Gastroenterology 

• Clinician documented that patient received conscious sedation consistent with 

guidelines, including procedural monitoring (ASGE Guidelines) 

• Patient received conscious sedation in a manner that was not outlined in the 

guideline specifications, including procedural monitoring (ASGE Guidelines) 

• Clinician documented that patient was not an eligible candidate for conscious 

sedation measure 

• Patient documented to have serum HCV RNA performed prior to initiating HCV 

antiviral therapy 

• Patient not documented to have serum HCV RNA performed prior to initiating 

HCV antiviral therapy 

Internal Medicine—Pulmonology 

• COPD patient with documented spirometry evaluation in last 12 months 

• COPD patient without documented spirometry evaluation in last 12 months 

• COPD patient documented to have received, at least annually, smoking cessation intervention 

• COPD patient no documented to have received, at least annually, smoking cessation intervention 

• COPD patient documented to have received annual influenza vaccination 

• COPD patient not documented to have received annual influenza vaccination 

Anesthesiology 

• Patient who underwent general anesthesia for greater than 60 minutes documented to have immediate post-operative normothermia 

• Patient who underwent general anesthesia for greater than 60 minutes not documented to have immediate post-operative normothermia 

• Clinician documented that patient who underwent general anesthesia for greater than 60 minutes was not an eligible candidate for immediate post-operative 

normothermia measure 

• Patient documented to have received antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

• Patient not documented to have received antibiotic prophylaxis one hour prior 

to incision time (two hours for vancomycin) 

• Clinician documented that patient was not an eligible candidate for the antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

measure 

• Patient treated with chronic pain management with documented comprehensive 

history and physical consistent with guidelines (ASA Guidelines) 

• Patient treated with chronic pain management without documented comprehensive history and physical consistent with guidelines (ASA Guidelines) 

Internal Medicine—Neurology 

• Patient with acute ischemic stroke documented to be on anti-thrombotic therapy 

(aspirin, ticlopidine, clopidogrel, dipyridamole, and warfarin) 

• Clinician documented that patient with acute ischemic stroke was not an eligible candidate for anti-thrombotic therapy (aspirin, ticlopidine, clopidogrel, 

dipyridamole, and warfarin) measure 


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• Patient with acute ischemic stroke and nonvalvular atrial fibrillation documented to be on warfarin therapy • Clinician documented that patient with acute ischemic stroke and nonvalvular 

atrial fibrillation was not an eligible candidate for warfarin therapy measure 

• Non-ambulatory patient with acute ischemic stroke documented to have received DVT prophylaxis within the first 24 hours of admission • Clinician documented that non-ambulatory patient with acute ischemic stroke 

was not an eligible candidate for DVT prophylaxis measure within the first 24 

hours of admission 

• Patient with mild to moderate Alzheimer’s disease documented to have received 

centrally acting cholinesterase inhibitors • Clinician documented that patient with mild to moderate Alzheimer’s disease 

was not an eligible candidate for centrally acting cholinesterase inhibitor measure 

Psychiaty 

For patients with a newly diagnosed episode of major depressive disorders: 

• Patient documented as being treated with antidepressant medication during the 

entire 12 week Acute Treatment Phase • Patient not documented as being treated with antidepressant medication during 

the entire 12 week Acute Treatment Phase • Clinician documented that patient was not an eligible candidate for 

antidepressant medication during the entire 12 week Acute Treatment Phase 

measure 

• Patient documented as being treated with antidepressant medication for at 

least 6 months Continuous Treatment Phase 

• Patient not documented as being treated with antidepressant medication for at 

least 6 months Continuous Treatment Phase 

• Clinician documented that patient was not an eligible candidate for 

antidepressant medication for Continuous Treatment Phase 

Internal Medicine—Nephrology 

• ESRD patient with documented dialysis dose of URR greater than or equal to 

65% (or Kt/V greater than or equal to 1.2) 

• ESRD patient with documented dialysis dose of URR less than 65% (or Kt/V 

less than 1.2) 

• Clinician documented that ESRD patient was not an eligible candidate for URR 

or Kt/V measure 

• ESRD patient with documented hematocrit greater than or equal to 35 

• ESRD patient with documented hematocrit less than 35 

• Clinician documented that ESRD patient was not an eligible candidate for hematocrit measure 

• ESRD Patient requiring hemodialysis vascular access documented to have been 

evaluated for autogenous AV fistula 

• ESRD Patient requiring hemodialysis documented to have been evaluated for 

vascular access other than autogenous AV fistula 

• Clinician documented that ESRD patient requiring hemodialysis was not a candidate for autogenous AV fistula (or other autogenous AV fistula) evaluation 

measure 

Internal Medicine and Rehabilitation 

• Patient with acute ischemic stroke documented to be on anti-thrombotic therapy 

(aspirin, ticlopidine, clopidogrel, dipyridamole, and warfarin) 

• Clinician documented that patient with acute ischemic stroke was not an eligible candidate for anti-thrombotic therapy (aspirin, ticlopidine, clopidogrel, 

dipyridamole, and warfarin) measure 

• Patient with acute ischemic stroke and nonvalvular atrial fibrillation documented to be on warfarin therapy 

• Clinician documented that patient with acute ischemic stroke and nonvalvular 

atrial fibrillation was not an eligible candidate for warfarin therapy measure 

• Non-ambulatory patient with acute ischemic stroke documented to have received DVT prophylaxis within the first 24 hours of admission 

• Clinician documented that non-ambulatory patient with acute ischemic stroke 

was not an eligible candidate for DVT prophylaxis within the first 24 hours of 

admission measure 


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Internal Medicine—Rheumatology 

• Patient with established diagnosis of rheumatoid arthritis documented to be 

treated with a DMARD • Clinician documented that patient with established diagnosis of rheumatoid arthritis was not an eligible candidate for DMARD treatment measure or patient 

refuses 

• Osteoporosis patient documented to have been prescribed calcium and vitamin 

D supplements • Clinician documented that osteoporosis patient was not an eligible candidate for 

calcium and vitamin D supplement measure 

• Newly diagnosed osteoporosis patients documented to have been treated with 

antiresorptive therapy and/or PTH within 3 months of diagnosis • Clinician documented that newly diagnosed osteoporosis patient was not an eligible candidate for antiresorptive therapy and/or PTH treatment measure within 3 months of diagnosis 

• Within 6 months of suffering a nontraumatic fracture, female patient 65 years 

of age or older documented to have undergone bone mineral density testing or 

to have been prescribed a drug to treat or prevent osteoporosis • Clinician documented that female patient 65 years of age or older who suffered 

a nontraumatic fracture within the last 6 months was not an eligible candidate 

for measure to test bone mineral density or drug to treat or prevent osteoporosis 

• Patients diagnosed with symptomatic osteoarthritis with documented annual 

assessment of function and pain • Clinician documented that symptomatic osteoarthritis patient was not an eligible candidate for annual assessment of function and pain measure 

Surgery—Neurological 

• Patient documented to have received antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) • Patient not documented to have received antibiotic prophylaxis one hour prior 

to incision time (two hours for vancomycin) • Clinician documented that patient was not an eligible candidate for the antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

measure 

• Patient with documented receipt of thromboemoblism prophylaxis • Patient without documented receipt of thromboemoblism prophylaxis • Clinician documented that patient was not an eligible candidate for thromboembolism prophylaxis measure 

Surgery—Vascular 

• ESRD Patient requiring hemodialysis vascular access documented to have received autogenous AV fistula • ESRD Patient requiring hemodialysis documented to have received vascular access other than autogenous AV fistula 

• Clinician documented that ESRD patient requiring hemodialysis was not a candidate for autogenous AV fistula (or other autogenous AV fistula) evaluation 

measure 

• Patient documented to have received antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

• Patient not documented to have received antibiotic prophylaxis one hour prior 

to incision time (two hours for vancomycin) 

• Clinician documented that patient was not an eligible candidate for the antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

measure 

• Patient documented to have required surgical re-exploration 

• Patient did not require surgical re-exploration 

• Patient undergoing carotid endarterectomy, aortic aneurysm repair, or lower extremity bypass surgery documented to have received pre-operative beta-blockade 

• Patient undergoing carotid endarterectomy, aortic aneurysm repair, or lower extremity bypass surgery not documented to have received pre-operative betablockade 

• Clinician determined that patient undergoing carotid endarterectomy, aortic aneurysm repair or lower extremity bypass was not an eligible candidate to receive pre-operative beta-blockade 


ccoleman on PROD1PC71 with HEARING
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• Patient undergoing carotid endarterectomy or lower extremity bypass surgery 

documented to have received aspirin or clopidogrel within 24 hours 

• Patient undergoing carotid endarterectomy or lower extremity bypass surgery 

not documented to have received aspirin or clopidogrel within 24 hours 

• Clinician determined that patient undergoing carotid endarterectomy or lower 

extremity bypass surgery not a candidate for aspirin or clopidogrel within 24 

hours 

• Patient undergoing carotid endarterectomy documented to have received heparin during surgery 

• Patient undergoing carotid endarterectomy documented not to have received 

heparin during surgery 

• Clinician determined that patient undergoing carotid endarterectomy was not 

eligible candidate for heparin during surgery 

• Patient undergoing carotid stent documented to have received clopidogrel within 

24 hours 

• Patient undergoing carotid stent documented not to have received clopidogrel 

within 24 hours 

• Clinician determined that patient undergoing carotid stent was not eligible for 

clopidogrel within 24 hours 

Surgey—Thoracic, Cardiac 

• Patient documented to have received CABG with use of IMA 

• Patient documented to have received CABG without use of IMA 

• Clinician documented that patient was not an eligible candidate for CABG with 

use of IMA measure 

• Patient with isolated CABG documented to have received pre-operative betablockade 

• Patient with isolated CABG not documented to have received pre-operative 

beta-blockade 

• Clinician documented that patient with isolated CABG was not an eligible candidate for pre-operative beta-blockade measure 

• Patient with isolated CABG documented to have prolonged intubation 

• Patient with isolated CABG not documented to have prolonged intubation 

• Patient documented to have received antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

• Patient not documented to have received antibiotic prophylaxis one hour prior 

to incision time (two hours for vancomycin) 

• Clinician documented that patient was not an eligible candidate for antibiotic 

prophylaxis one hour prior to incision time (two hours for vancomycin) measure 

• Patient with isolated CABG documented to have required surgical re-exploration 

• Patient with isolated CABG did not require surgical re-exploration 

Obsterics/Gynecology 

• Patient documented to have received antibiotic prophylaxis one hour prior to 

hysterectomy 

• Patient not documented to have received antibiotic prophylaxis one hour prior 

to hysterectomy 

• Clinician documented that patient was not an eligible candidate for antibiotic 

prophylaxis one hour prior to hysterectomy measure 

• Patient documented to have received management of initial abnormal cervical 

cytology consistent with guideline (ACOG Guidelines) 

• Patient documented to have received management of initial abnormal cervical 

cytology in a manner that was not outlined in the guideline (ACOG Guidelines) 

• Clinician documented that patient was not an eligible candidate for management of initial abnormal cervical cytology measure 

• Patient with documented receipt of thromboemoblism prophylaxis 

• Patient without documented receipt of thromboemoblism prophylaxis 

• Clinician documented that patient was not an eligible candidate for thromboembolism prophylaxis measure 

Surgey—Plastic & Reconstructive 

• Patient documented to have received antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 


ccoleman on PROD1PC71 with HEARING
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• Patient not documented to have received antibiotic prophylaxis one hour prior 

to incision time (two hours for vancomycin) • Clinician documented that patient was not an eligible candidate for antibiotic 

prophylaxis one hour prior to incision time (two hours for vancomycin) measure 

• Patient with documented receipt of thromboemoblism prophylaxis • Patient without documented receipt of thromboemoblism prophylaxis • Clinician documented that patient was not an eligible candidate for thromboembolism prophylaxis measure 

Internal Medicine Endocrinology/Diabetes/ Metalbolism 

• Diabetic patient with most recent HbA1c level (within the last 6 months) documented as less than or equal to 9% • Diabetic patient with most recent HbA1c level (within the last 6 months) documented as greater than 9% • Clinician documented that diabetic patient was not eligible candidate for HbA1c 

measure • Clinician has not provided care for the diabetic patient for the required time 

for HbA1c measure (within the last 6 months) 

• Diabetic patient with most recent LDL (within the last 12 months) documented 

as less than or equal to 100 mg/dl • Diabetic patient with most recent LDL (within the last 12 months) documented 

as greater than 100 mg/dl • Clinician documented that diabetic patient was not eligible candidate for LDL 

measure • Clinician has not provided care for the diabetic patient for the required time 

for LDL measure (within the last 12 months) 

• Diabetic patient with most recent blood pressure (within the last 6 months) documented as less than or equal to 140/90 mmHg • Diabetic patient with most recent blood pressure (within the last 6 months) documented as greater than 140/90 mmHg • Clinical has not provided care for the diabetic patient for the required time for 

HbA1c measure (within the last 6 months) 

Critical Care 

Prevention of catheter-related infection 

• Patient with documented catheter insertion including the use of sterile barrier 

precautions in a manner consistent with guidelines for prevention of IV catheter-related infections (CDC Guidelines) • Catheter insertion performed in a manner that was not outlined in the guideline specifications for prevention of IV catheter-related infections (CDC Guidelines) 

Management of catheter-related infection 

• Management of patient for catheter-related infection (i.e., staphylococcus A and 

candida A), including removal of catheter, blood cultures and empiric antibiotics 

was performed in a manner consistent with guidelines for management of IV 

catheter-related infections and is documented in chart (IDSA/ACCCM/SHEA/ 

SCCM Guidelines) 

• Management of patient for catheter-related infection (i.e., staphylococcus A and 

candida A), including removal of catheter, blood cultures and empiric antibiotics 

was performed in a manner that was not outlined in the guideline specifications 

for management of IV catheter-related infections and is documented in chart 

(IDSA/ACCCM/SHEA/SCCM Guidelines) 

Internal Medicine—Geratic Medicine 

For patients 75 years of age or older: 

• Patient documented to have received influenza vaccination during flu season 

• Patient not documented to have received influenza vaccination during flu season 

• Clinician documented that patient was not an eligible candidate for influenza 

vaccination measure 

• Patient documented to have received pneumococcal vaccination 

• Patient not documented to have received pneumococcal vaccination 

• Clinician documented that patient was not an eligible candidate for pneumococcal vaccination measure 

• Patient (female) documented to have been screened for osteoporosis 


ccoleman on PROD1PC71 with HEARING
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• Patient (female) not documented to have been screened for osteoporosis 

• Clinician documented that patient was not an eligible candidate for osteoporosis 

screening measure 

• Patient documented for the assessment for falls within last 12 months 

• Patient not documented for the assessment for falls within last 12 months 

• Clinician documented that patient was not an eligible candidate for the falls assessment measure within the last 12 months 

• Patient documented to have received hearing screening 

• Patient not documented to have received hearing screening 

• Clinician documented that patient was not an eligible candidate for hearing 

screening measure 

• Patient documented for the assessment of urinary incontinence 

• Patient not documented for the assessment of urinary incontinence 

• Clinician documented that patient was not an eligible candidate for urinary incontinence assessment measure 

Surgey—Colorectal 

• Patient documented to have received antibiotic prophylaxis one hour prior to incision time (two hours for vancomycin) 

• Patient not documented to have received antibiotic prophylaxis one hour prior 

to incision time (two hours for vancomycin) 

• Clinician documented that patient was not an eligible candidate for antibiotic 

prophylaxis one hour prior to incision time (two hours for vancomycin) measure 

• Patient with documented receipt of thromboemoblism prophylaxis 

• Patient without documented receipt of thromboemoblism prophylaxis 

• Clinician documented that patient was not an eligible candidate for thromboembolism prophylaxis measure 

Nuclear Medicine 

• Patient documented to have received myocardial perfusion imaging examination 

in a manner consistent with the guidelines, including determination of proper 

patient preparation (SNM Guidelines) 

• Patient documented to have received myocardial perfusion imaging in a manner 

that was not outlined in the guideline specifications, including determination of 

proper patient preparation (SNM Guidelines) 

• Clinician documented that patient was not an eligible candidate for myocardial 

perfusion imaging measure 

• Patient documented to have received SPECT MPI for an indication rated as appropriate/may be appropriate as outlined in the ACC/ASNC SPECT MPI appropriateness criteria 

• Patient documented to have received SPECT MPI appropriateness rating in a 

manner that was not outlined in the ACC/ASNC SPECT MPI appropriateness 

criteria or for an indication not specified 

Preventive Medicine 

• Patient documented to have received influenza vaccination during the flu season 

• Patient not documented to have received influenza vaccination during the flu 

season 

• Clinician documented that patient was not an eligible candidate for influenza 

vaccination measure 

• Patient (female) documented to have received a mammogram during the measurement year or prior year to the measurement year 

• Patient (female) not documented to have received a mammogram during the 

measurement year or prior year to the measurement year 

• Clinician documented that female patient was not an eligible candidate for 

mammography measure 

• Clinician did not provide care to patient for the required time of mammography 

measure (i.e., measurement year or prior year) 

• Patient documented to have received pneumococcal vaccination 

• Patient not documented to have received pneumococcal vaccination 

• Clinician documented that patient was not an eligible candidate for pneumococcal vaccination measure 

f 


ccoleman on PROD1PC71 with HEARING
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Chairman JOHNSON. Thank you very much, Dr. McClellan. I 

want to ask you a question that one of the amendments that we 

proposed to the bill goes to, and it is also mentioned in Dr. 

Berenson’s testimony, if I can find the quote. Well—oh, yes, here 

he says, but I am suggesting that relative values to determine physician payments should be adjusted to try to accomplish policy 

goals such as reorienting the care of those with end-stage chronic 

conditions to palliation and caring rather than curative interventions. Pay for performance might be able to contribute to achieving 

this reorientation. Now, that is a reorientation that does interest 

me a lot. The amendment in the bill simply allows you to develop 

a pool of money from part A and part B. It doesn’t compel you to 

do it. But after all the MEI and MEI minuses is a rather narrow 

straight jacket in—payment system in which to think about quality. When you look at what the premier system is demonstrating 

about hospitals’ ability to take on a far more aggressive quality 

program and meet a much broader spectrum of standards, you certainly want to allow that to develop in the physician payment area. 

If it developed in the physician payment area, at least I believe 

that it would give you the tools, this larger pool of money to address situations in which a physician’s office practice as a whole becomes a care management group, and eventually to recognize palliative care and the kind of end-of-life care that involves a team 

management approach and we know would be so fruitful both for 

the quality of life of our seniors in either of those situations and 

also so much more respectful of our resources. So, I just wondered 

whether you think pay for performance as we are thinking about 

it now, identifying criteria for payment, and then structuring differential payments can enable us to move to a system that is rather more comprehensive in terms of both the number of—the 

breadth of the team involved and the breadth of their quality performance defined. 

Dr. MCCLELLAN. I think the comprehensive approach has a lot 

to recommend it, and that is reflected in many of our current payment demonstrations and other activities. The fact of the matter is 

that a lot of the opportunities for improvements in physician care 

to lead to better outcomes and lower costs have interactions not 

just in physician offices, but in hospital care and in nursing facility 

care, in readmissions, in treatments that are classified under part 

A, but that is a distinction that goes back to the trust fund accounting. It doesn’t have reality in actual medical practice. All 

these costs matter, and some of the best opportunities to avoid unnecessary costs and complications go to part A. In some of the demonstrations that we have under way now, like our physician group 

practice demonstration, physicians in groups can get additional 

payments when they take steps to improve quality of care for their 

patients; for example, meeting appropriate standards of care for patients with diabetes or heart failure and reducing overall cost. We 

are seeing that some of the best opportunity for reduced costs are 

in those demonstrations, are in part A, by avoiding emergency 

room visits, by avoiding readmissions to the hospital and other 

steps. That is also where the bulk of costs are located. If physicians 

can have an impact on 1 percent of overall Medicare spending, 

well, that can translate to a positive update if they are able to 


ccoleman on PROD1PC71 with HEARING
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share in those gains. So, it is better outcomes for patients, lower 

overall costs for the Medicare program, and that is exactly—— 

Chairman JOHNSON. So, bottom line, avoiding that 45 percent 

trigger is really about all of Medicare’s costs, the biggest costs 

being hospital and emergency room. If physicians participate in 

caring for patients in a way that reduces our use of hospital emergency rooms, we have a better shot at avoiding that trigger. But 

physicians ought to have some compensation or some recognition 

for developing a far more holistic and preventive approach to patient care. I wanted to just ask you a second question, and then I 

am going to move on to Pete. The bill also sets up a way—I mean, 

it says we are going to pay this way for docs, but anybody else covered by the payment system is also going to be paid by this way, 

but then CMS will have the responsibility they have never had before. Their responsibility in the past is to watch this global target, 

and when it got breached, doctors would be cut, nobody else would 

necessarily be cut, and you just struggle with what you do. Under 

this law, you would have the absolute obligation to watch each 

group; for instance, you would have the obligation under the law 

to look at what is happening in imaging, to MedPAC, and need to 

develop some ways of identifying how much of the growth in imaging is appropriate and how much is inappropriate, and what we 

can do to control it. Now, I know you have done some things to control it. I think there is more things that you could do. But the thing 

is it would shine the focus of attention and responsibility on those 

areas under that target that were growing too rapidly. So, I think 

actually this bill gives you better control of the spending under the 

target than the old legislation did. Now, I don’t know whether you 

agree or disagree, and I don’t know half as much as about controlling spending as you do, but at least what does that lever do for 

you? 

Dr. MCCLELLAN. I think it does help. Having an emphasis on 

quality measures is a great way to turn our payment system into 

a program that supports better care, more efficient care, better outcomes for patients at a lower cost, rather than simply paying more 

for more services regardless of their quality and their impact on 

patient outcomes. But—— 

Chairman JOHNSON. This makes you not only responsible for 

a different payment system, but also a great deal more accountable 

for spending increases in the services that doctors prescribe and everything paid for under this section of the law. So, it does increase 

accountability. Won’t that give you a greater incentive to control 

costs in those individual areas? 

Dr. MCCLELLAN. It will simply help provide some incentives, 

but I think even more importantly, if some of the payments to providers are tied to these areas, they can get the financial support 

they need to invest in systems that can get those costs down. Right 

now if providers don’t, if hospital and doctors don’t coordinate on 

sending over an X-ray, well, we will just pay for an extra X-ray. 

You get more money when you have less coordinated care. It would 

be far better if we paid for better quality at lower costs and then 

used those financial resources to support doctors and investing in 

things like electronic medical records which could transmit the 


ccoleman on PROD1PC71 with HEARING
25 

records. We don’t pay for that now, and this would be a big change 

in those incentives. 

Chairman JOHNSON. Thank you. Mr. Stark. 

Mr. STARK. Thanks, Doctor, for being with us today. I want to 

just ask you to go back—you brought it up, I wouldn’t have, but 

I am not so sure that I wouldn’t ask you to go back and review 

what you are doing relative to the Katrina/Rita survivors. My sense 

is that with them being spread all over in different States from 

which they may or may not formerly have resided, that you have 

got to do something special in Medicaid, like pay the Medicaid bills 

for a while or—it ain’t going to work. With all these people dislocated, somehow they won’t get attention if they—you know, they 

will be turned away, or get to the bottom or the end of the line if 

somebody isn’t sure that they will get paid for treating them. I am 

worried about that, and I hope you would consider that. 

Dr. MCCLELLAN. Absolutely. 

Mr. STARK. There are two questions. First of all, we are going 

to hear a lot today about the impoverished physicians in the United 

States, and I just want to—my sense has been on these rate cuts 

that we are really talking about piecework. It is a fee per procedure. But somehow, very seldom—certainly never mentioned by the 

AMA, but by others—nobody talks about the income these docs are 

getting from your Department on the theory that maybe they don’t 

play as much golf, so they do some more procedures. Or maybe 

they are getting more productive, and so they do it more quickly, 

and they can do more procedures in the same amount of time. I 

have got some statements from you over the last 3 years, and it 

would show us that—well, I do—I must say I feel sorry for the GPs 

and the general surgeons who are down around the 4 to 6 percent 

annual increase in payments is what you are paying out, and I presume it mostly goes to them. There may be some overhead in here. 

So, in spite of the fact that they are talking about reduced fees, 

their income in the aggregate is going up. 

Then you get dermatologists, 13 percent a year on the average; 

hematologists and oncologists, 24 percent a year increase; even 

emergency medicine, although that may be the whole bill for the 

emergency room. I don’t know that that is fair, but that is 14 percent. Cardiology is what, 121⁄2 percent—no, a little under 12 percent annual increase, neurology right up there. So, even family 

practice, who I would have been inclined to think would have taken 

more of a hit down with the general practice, but at any rate they 

are not going broke. This is a per-procedure payment. In this discussion, I just want to—and maybe I am missing some something 

here. I would ask you to correct me if I am, but I don’t think I am 

misleading anybody by suggesting that your records show that you 

are paying out more each year in spite of the reduced fee for procedure. 

But what do you think we should do—let us assume that we are 

going to give the docs an increase. Let us say it is 2 years. What 

do you think we should do about the overall control of costs? What 

is your idea? Would you support going to regional or practice specialty caps? How—what do you see that is out there for us? Because my thought is we would do a couple of years of an increase, 

but with the idea that the—we are there now. I mean, this will be 


ccoleman on PROD1PC71 with HEARING
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the second go-round. But I would hope that we would have something firmly in place that would be a permanent system if we go 

for a couple-of-year increase. 

Dr. MCCLELLAN. Well, first of all, the overall spending growth 

in part B is very concerning. It is not just physician services, it is 

essentially all components of part B that have been growing at double-digit—— 

Mr. STARK. Stop right there. You have about 600,000 docs. Can 

you give us some—by specialty, some idea of what the income, 

Medicare income, to these specialty docs has been growing at, 

which is just to the physician component? 

Dr. MCCLELLAN. For the physician component, in the past couple of years it has been growing about 12 percent in total spending. 

Now it is spending—and out of that you have to remove expenses 

and so forth, but spending on the practices has been going up at 

a rapid rate. 

Mr. STARK. So, what do we do? Let us say we give them a little 

more, which I think politically we will be pushed to do. Then what 

do we do to rebuild this reimbursement system? 

Dr. MCCLELLAN. As I said, I don’t think the solution is simply 

putting more money into the current payment system. I think we 

need to move much more toward focusing on how you get better results at a lower cost. Steps like paying for performance I think can 

help a lot, but we do need to make sure that any of these steps 

are done with an eye toward how we keep overall costs on a sustainable path, and with the recent increases in utilization—— 

Mr. STARK. You are going to propose what? 

Dr. MCCLELLAN. I think some of the pay-for-performance steps 

can make a big difference. We are doing demonstration programs 

now where we are paying physicians more when they improve 

quality and—— 

Mr. STARK. Where were the demonstrations—when could you 

anticipate, a year, 2 years could we see some results out of the 

demonstration? 

Dr. MCCLELLAN. Absolutely within the next year, and you were 

talking about a year, 2 years of period with reporting or some other 

changes, definitely during that time period. We are seeing some results now from the physician group practice demonstration. We are 

seeing more investment in electronic records, in keeping patients 

out of the hospital; and even out of the doctor’s office, how that is 

showing up in fewer complications and emergency room visits and 

admissions. Our hospital payment demonstration, we start it a 

year earlier, it is showing improvements across the board in performance which lead to fewer readmissions, shorter hospital stays, 

lower costs. So, I think this evidence is coming up right now. There 

is also already a lot of evidence from the private sector. You will 

hear about Bridges of Excellence in a minute, other programs for 

conditions like diabetes and heart failure; when you pay to get better results, you see better support for physicians to take steps that 

keep people well and avoid complications. It is a pretty fundamental change in the way our system works, which, as you said, 

has been piecework up to now. 

Mr. STARK. Thank you. 


ccoleman on PROD1PC71 with HEARING
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Chairman JOHNSON. I would note that all of those demonstrations allow the issue of, quote, savings to be viewed across the care 

of the person, so we are able to count in hospital savings and credit 

them to the work of the physicians. One difficulty in this bill is 

that CBO refuses to allow that kind of thinking, which is just realworld thinking. It is outside of the box of the ludicrous legislation 

that we are saddled with, but it is real-world thinking. So, the 

costs really aren’t what they appear to be. Mr. Hulshof. 

Mr. HULSHOF. Thank you, Madam Chairman. I always enjoy 

getting to follow my colleague from California. I would simply say, 

or make the observation, that even given the statistics cited about 

areas of specialty—and I certainly don’t know everyone in the 

room, but I think the only people here that get to vote themselves 

a pay increase every year are those of us up here. So, I would make 

that observation for what purpose it may serve. Dr. McClellan, I 

appreciate that you are here. The other observation I would make 

is a tip of the cap to Chairwoman of this Committee, because this 

bill was put out over the—before the August district work period, 

and the fact is that she did that purposely so that everybody could 

push and pull and yell or praise or talk about this in a constructive 

fashion. And, in fact, we took that opportunity back home in Missouri to have our physician advisory groups and others weigh in to 

say whether this is good or bad, what are your concerns. Obviously 

when you talk about self-reporting and things of that nature, you 

know, the tendency is to brace yourself. So, I applaud the fact that 

we have had some good discussion about this. 

The easy applause line—and, again, Monday I spoke to a physician group—the easy applause line in any physician group is to 

say, we think we should toss the HCR overboard. I would recommend, Dr. McClellan, if you want to say that publicly, you are 

guaranteed to get an applause line. We do need to move to a system that more accurately reflects the cost to providing care. When 

you have a 4.5-percent increase in one calendar year and looking 

at a 5.4 percent negative reimbursement the next year, that is not 

the type of stability that one needs in the practice of medicine. Not 

only that, to follow up on what Mrs. Johnson has said, the inefficient physicians, the ones that—the efficient physicians that have 

more in-office visits that might keep that patient out of the hospital setting is going to get reimbursed less than the other physician that has fewer office visits who is willing to just push that patient into some other setting. So, I would think that we are on the 

right track. I don’t know that we can look at this just in the vacuum, however. You mentioned health information technology. So, let 

me sort of bridge the gap, because I see the momentum is really 

building for this. I know your views on that, and I applaud those 

views as far as having some momentum behind being more efficient, not only helping the patient safety aspect, but obviously helping huge costs to the system. 

As we move to the system of data collection and dissemination 

of health care information, what is your perspective on how CMS 

might be able to coordinate provider reporting requirements with 

potential electronic standards and private sector initiatives that 

are likely to come down the pike? Maybe another way to ask the 

question is do you think that CMS needs to look at—consider modVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 E:\HR\OC\26375.XXX 26375

ccoleman on PROD1PC71 with HEARING
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ernizing data collection requirements to keep up with these changing needs? What general thoughts do you have about that? 

Dr. MCCLELLAN. I think that will certainly help, and we are 

in the process of doing that. We are moving to some Internet-based 

systems toward getting claims processing done now. We have got 

that going now in Wisconsin and a few other States around the 

country, and the physicians really like it. It saves a lot of calls to 

Medicare, and it saves a lot of paperwork. We are going to be phasing that in nationally over the next couple of years. With respect 

to the quality measures and giving better information on quality so 

we can support it, I do think that it is feasible to start collecting 

those measures through reporting in our claims systems in the 

near future, as soon as next year, but that planning to move from 

that to a fully electronic system that is based on interoperable 

health care records and other electronically-based systems that can 

make the reporting more automatic over several years. If we send 

a very strong signal that this kind of quality-performing and performance-based payment is important, that is going to create more 

momentum and support for making the investments necessary in 

getting widespread electronic health records. 

Mr. HULSHOF. So, you see this—from your answer I take it we 

can do this in tandem then. We don’t have to initiate or pay one 

piece of legislation. 

Dr. MCCLELLAN. I see this working together as a gradual but 

urgent process over the next few years to get to electronic health 

care and to get to better quality. 

Mr. HULSHOF. Thank you. Thank you, Madam Chair. 

Chairman JOHNSON. Just to clarify, that is why the bill allows 

the administration the power to set structural or process criteria 

and ease the system in that direction. Mr. Thompson. 

Mr. THOMPSON. Thank you, Madam Chair. Thank you, Doctor, 

for being here. I have just seen some AMA numbers that I find 

very, very alarming. They are talking about some 40 percent of doctors who are going to reduce the number of Medicare patients that 

they see, and they also talk about the reduction in rural areas of 

outreach, and I find this troubling for a couple of reasons, not the 

least of which in rural areas we have another set of problems that 

we are dealing with, and that is the extreme difficulty we are having in recruiting and retaining physicians in these areas. I see this 

as the proverbial train wreck coming for anybody who not only represents a rural area, but lives in a rural area and depends upon 

medical care in those areas. I am wondering, if we cut rates again, 

this is just going to exacerbate this problem, and it is going to be 

a real catastrophe for benefactors throughout all rural America. I 

am just curious as to what CMS has to say about this. I wonder 

if you have run any estimates on what the real impact is going to 

be of what the AMA’s findings are along with the proposed reductions. 

Dr. MCCLELLAN. Well, if those findings were realized, that 

would be a significant impact. I would even say that we do ongoing 

analysis and ongoing monitoring of the access of our beneficiaries 

to physicians in communities all over the country, urban and rural. 

So, far we have not seen any substantial problems of access to 

needed care. We haven’t seen any problems yet, and as I said a few 


ccoleman on PROD1PC71 with HEARING
29 

minutes ago, if we saw significant negative payment updates, significant reductions in payments year after year, I don’t think that 

is sustainable because I think that would at some point create 

some real problems in access to care. 

Mr. THOMPSON. I would like to invite you to come to my district, and I don’t know that you have ever been there before, but 

I will take you to some places where it is a very real problem. Add 

to that, as I mentioned before, the recruitment and retention issue, 

and it is a disaster area. I think you guys should really be aware 

of that. 

Dr. MCCLELLAN. I would like very much to take you up on that 

and definitely to hear more about it. I have been. 

Mr. THOMPSON. I am on an 8 o’clock flight in the morning. 

Dr. MCCLELLAN. Thank you for the kind invitation. I was in 

rural North Dakota recently hearing from some of the providers 

there who actually would benefit tremendously from reforms in the 

payment systems that paid more for better outcomes and lower 

costs. Many of these rural providers are used to having a lot of distance between them and their patients, and they will go from satellite office to satellite office. They have set up relationships with 

hospitals that may not be in the same community, but they work 

smoothly together. We need to be doing more to support this kind 

of high-quality care in rural areas, and I think payment reforms 

could help do that. 

Mr. HULSHOF. Would you yield just a second? 

Mr. THOMPSON. Are you next? 

Mr. HULSHOF. No. On your time. Now might be a good time to 

ask for the Dr. Hulshof-Thompson telehealth bill. 

Mr. THOMPSON. It is a great author, great bill. 

Dr. MCCLELLAN. We will definitely talk with you about it. 

Mr. THOMPSON. I like to see anything you have on rural statistics, so—— 

Dr. MCCLELLAN. Absolutely, and how these kinds of payment 

reforms can really help rural areas where some of the most innovative idea like telemedicine are being developed to help get the patients the care they need even when doctors are few and far between. 

Mr. THOMPSON. Thank you. The second question I have, as you 

know, I represent an area in this area, locality 99. Sonoma County, 

I think, was one of the 10 counties that was being reimbursed at 

a lesser rate, been working on this for a while. Your predecessor 

came out to Sonoma County and met. You have offered a solution 

for this which does take care of 2 of the 10 counties—only 2 of the 

10 counties—but unfortunately it takes away from the other counties in the area. So, I am in that difficult position where I want 

to help Sonoma County docs, but at the same time five of my other 

counties are going to experience, albeit small, but given the problems we are talking about, it is going to be a significant hit. It 

seems to me that—I will give you the fact this is a good first step, 

but we really need to look at a bigger solution to this that takes 

in all of the areas. I don’t think we can continue to do the proverbial robbing from Peter to pay Paul; all from Napa and Mendocino 

to pay Sonoma. All of these areas are experiencing very difficult 

problems, and how we can reconstruct the reimbursement model is 


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going to make a difference in who and what kind of health care 

people get. 

Dr. MCCLELLAN. That is absolutely right, and that is why we 

put this idea out for comment. The comment period on this physician payment, we will close this tomorrow. We are hoping to get 

better ideas. I have a lot of sympathy for this particular problem 

having practiced in Palo Alto right over the Santa Cruz Mountains 

from Santa Cruz, which is another county that is in 99 and affected 

by the payment issue. But, unfortunately, I can really sympathize 

with the problem that you are talking about, the zero sum here. 

We don’t have the administrative authority to increase payments 

across the board. We can only do redistributions with our administrative authority. But we will keep looking as best we can working 

with you on finding a good solution. 

Mr. THOMPSON. CMA had a proposal, as you know, that was 

a little more fair. 

Dr. MCCLELLAN. That would cost money. The problem with 

that proposal is that we can’t do it administratively. We are very 

much looking for any good ideas in this challenging problem 

though. 

Mr. THOMPSON. Thank you. 

Chairman JOHNSON. Thank you. I appreciate the problems that 

my colleague from California has brought to you attention. I am 

going to recognize Mr. Emanuel from Illinois, but I do think CMS 

is significantly underestimating this access problem. The data on 

the whole of the studies is old, even the AMA data. When you ask 

doctors are they taking Medicare patients, they mean they are taking new Medicare patients are people they took care of for 20 years 

and just turned 65. But as you watch older doctors age with their 

older patient base, there is a limit to how long they can stay in 

practice if too many of their patients are in the Medicare category 

and they are in one of these payment areas where they are underpaid. So, Mr. Emanuel. 

Mr. EMANUEL. I would like to thank the Chairlady, having 

come in late, so I apologize to you for not—for missing part of your 

testimony and some of the earlier questions. I have just got in 

three areas, if I can. One is I want to add my voice at least on the 

issues of the IT, information technology. The Chairlady knows of 

my interest in the issue. Senator Kennedy recently—he and I 

worked with—passed a bill in the Senate. This is the only place 

that has low-lying fruit in the sense of any other subject—let us 

just be honest, we are talking about who is going to pay and shifting cost to who is going to pick up the bill. This is one place where 

we can actually pick up dollars, do what is right to do, and also 

find a tremendous amount of synergy there where dollars can either be saved or replowed back into—from savings into the medical 

field, back into either expanding coverage or other type of care. 

My concern is—I raised with the Chairwoman in other meetings 

on the IT space is not doing what is happening in the mobile telephone areas, setting up too much freedom, and therefore we have 

a system that doesn’t work. We have no improvement there. I do 

think it should be centrally managed, set up boundaries, and I 

think Senator Kennedy’s legislation is very strong, and I hope we 

can get something done in this environment. This may be one place 


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we can get consensus and bipartisan agreement on the IT space as 

it relates to information technology and medical records, and I look 

forward to working on that. 

Second, in Illinois we have a delegation meeting, Democrat, Republican. There was a big discussion today about the confusion that 

we are all experiencing at our local offices as relates to the prescription drug bill. I know you have been working hard on trying 

to clarify that confusion. We have an interest in as a delegation— 

you may be getting a letter soon—about how Illinois can maybe— 

to wrap around on the Website some information about—so people 

in the low-income area on the wraparound don’t miss in their coverage. We have a very good State as it relates to helping those who 

are disadvantaged, and how we can maybe get them the information, and what Illinois is providing to people who are not automatically cut off before they are enrolled. So, heads up, that is coming, 

a Democrat-Republican—— 

Dr. MCCLELLAN. I look forward to it. On that point briefly we 

have been working very closely with the State, as you know, so the 

State can modify its existing program, its existing Pharmacy Plus 

waiver to instead have a program that wraps around, as you said, 

the Medicare benefit. The result is going to be $140 million in savings to the State next year as well as additional coverage for more 

people to get comprehensive access to prescription drugs. We absolutely share the goal of making sure everyone who is eligible can 

take advantage of it, because it is such an important program and 

so much new help with drug costs in Illinois. 

Mr. EMANUEL. I think we are all trying to make sure that people who are supposed to be served are getting served. I think there 

is, A, a step into the unknown. B, there is a sense that Illinois has 

a good program, and we want to make sure it is dovetailed and is 

promoted as much as on your Website and on your pages there for 

people specifically in Illinois. Just a heads up there. Last thing on 

the subject, if I may, I look at this and I think obviously we have 

to make some reforms here. My worry here is given the cost, $150 

billion over 10 years, and throwing out wholesale this program. If 

you were—obviously, it needs reform. It was—it solved a problem, 

but now it is part of a problem. What would be the steps, what— 

if your ideal—forget the legislative process. What would you keep, 

and what would you reform? Starting with what you would keep 

that you think exists in SER that is good, and what would you reform because of the objective? My worry is on the cost control. 

Where are you going to shift the dollars? 

Dr. MCCLELLAN. Well, we need to make sure that physicians 

are adequately compensated for the care they provide, but right 

now, we will pay more in cases where care is not well coordinated, 

where additional services, maybe duplicative services are provided, 

the kinds of steps that Chairman Johnson has been discussing, the 

kinds of ideas in pay for performance approaches generally where 

we shift our payments to instead pay more for better results for patients, better overall care, lower overall costs would make a big difference. We have seen that already in some of our demonstration 

programs and then some in the private sector. So, that is a very 

important set of steps that we can take right now because we have 

quality measures available we can use, we have measures of reVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 E:\HR\OC\26375.XXX 26375

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source use that we can use, and as you said, we can plow in of 

these savings into supporting IT and other steps to make our 

healthcare system work better. I think we ought to start doing this 

right away. 

Chairman JOHNSON. Thank you very much. Thank you, Dr. 

McClellan. I am going to call the panel up so that we can hear everybody on the panel before the bells ring for the next series of 

votes. Thank you for being with us, and we look forward to working 

with you as we perfect this legislation, and hopefully move it forward. Dr. Berenson, Dr. Jevon, Karen Ignagni and Dr. Armstrong, 

if you would come forward. I hope it is not missed on the Committee that this issue, the current volume control mechanism in 

the physician payment system isn’t working. If we somehow can 

help doctors keep patients out of hospitals and emergency rooms, 

we will lower overall costs, and that is the most immediate thing 

we can do to actually begin to flattening out the spending curve. 

So, it is urgent that we get started. It is also true that we will have 

to keep working on this. We had to keep working on the other payment system we put in place, and so this is a new beginning, not 

an end. Dr. Berenson, a pleasure to have you, sir. I read with great 

interest your testimony. I think that we intend to do more through 

what we are doing in this bill than you give us credit for, but I am 

extremely interested in your comments and measurement and on 

the other STR problems, so I look forward to your testimony. 

STATEMENT OF ROBERT BERENSON, M.D., SENIOR FELLOW, 

URBAN INSTITUTE 

Dr. BERENSON. Thank you, Madam Chairman and Mr. Stark 

and Members of the Committee. As always, I appreciate the opportunity to testify on the Chairman’s Medicare Value-based Purchasing of Physician Services Act of 2005. For over 2 decades I 

have been very interested in physician payment policy as a practicing internist, as a medical director of a preferred provider organization responsible for physician payment, and as a senior official 

in the centers for Medicare and Medicaid services. I have, in fact, 

written approvingly of Pay For Performance, a new departure for 

Medicare and other purchasers and plans to promote improved 

quality of care. As the payer that often influences market directions, Medicare can play a very important role in leading this activity in collaboration with other purchasers. For different reasons, 

Pay For Performance for Medicare Advantage plans and for renal 

dialysis centers seems to me ripe for implementation right now. I 

have mixed views on the work on hospital measurement in the premier demo, but it seems to be proceeding well. 

I generally applaud the goal of measuring physician performance, 

holding physicians accountable for deviations from desired performance and through publication of their performance, helping Medicare beneficiaries make informed choices about where to get their 

care. However, there are particularly formidable barriers to assessing performance at the individual physician level, and the current 

measures that are being adopted are not relevant for many Medicare patients, especially those with multiple chronic conditions and 

those who are quite old. More work needs to be done in this area. 

In addition, in the crucial areas of overuse and inefficient provision 


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of services, and in misuse, that is, errors of commission or faulty 

judgment, measures are in their infancy, and there is only so much 

I believe that you can do with administrative data. So, I would conclude—in my introduction, I would make the point that the state 

of the art of Pay For Performance does not permit it to be the solution to all healthcare problems. It has a role, but I think we are 

loading too much on Pay For Performance. 

The physician payment system used by most private insurers 

and by Medicare is based on the Fee-for-service Payment Model. 

The payments reimburse for transactions, not for population-based 

healthcare, and the powerful inherent incentives and fee-for-service 

for reimbursements are to drive up volume. Recent data from both 

Medicare and private payers document that that is exactly what is 

happening and volume is being increased to unsustainable levels. 

In this fee-for-transactions environment, the validated Pay For Performance measures that mostly address primary and secondary 

prevention services and patient experiences with care likely will 

have little effect on utilization spending, even as they improve patient outcomes. So, I looked with interest at the G-codes that Administrator McClellan provided with his testimony, the kinds of 

measures that physicians will be asked to submit, and they are, indeed, related to underservice in some very specific important areas, 

but are tangential to the issue of healthcare costs and what is driving healthcare costs. 

The Sustainable Growth Rate Mechanisms needs to be reformed 

or replaced, and while significant changes are needed, current Pay 

For Performance measures that focus on underuse of preventive 

services simply will not serve as a substitute for the STR mechanism. It seems to me that this well-intentioned attempt is an example of the tail-wagging the dog, by that I mean the engine that 

drives physician behavior is the financial incentive to increase volume. Physicians, especially those who may knowingly take advantage of that system, will surely ignore any marginal payment incentive of one or 2 percent if the behavior to gain the marginal income conflicts fundamentally with the underlying incentives in the 

payment system. It would be much easier to do an extra test, see 

an extra patient, or of most concern, simply upcode visits to make 

up for what otherwise would be lost under such a scenario. While 

there is no conflict between the underlying payment incentives and 

a Pay For Performance approach that rewards more care, that 

won’t contain costs or limit inappropriate utilization. 

So, I am concerned that the attention on Pay For Performance 

to some extent is distracting policy makers and the medical profession from addressing what are increasingly apparent flaws in the 

resource base relative value scale payment system that controls 

physician payment in Medicare, and in somewhat altered form in 

many private health plans. Very briefly, physicians—Medicare’s 

physician payments system is facing fundamental problems that 

Pay For Performance alone will not address in which few policy 

makers seem to have paid attention to in recent years. There is a 

disconnect between what we pay physicians and the underlying 

cost of production of those services. Recently MedPAC did a study 

on specialty hospitals and the DRG payment system documenting 

the problem on hospital payments. I would assert that there are 


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similar distortions in the physician payment system that is driving 

physicians to procedural services and away from evaluation management services. 

Again, there is little to no volume or cost control incentives in 

the system. When you have a national volume performance control, 

you are basically treating all physicians the same when we know 

there are particular areas of problems in certain—like imaging 

services that are going up 20, 25 percent a year. Major surgical 

procedures are not increasing out of control, evaluation management office visits are not, but in some areas, we do have problems, 

and yet we have an STR mechanism that is applied nationally and 

treats all physicians the same. 

Then finally, the point that you made in your remarks earlier; 

we have no particular coding mechanism for encouraging physicians to actually do care coordination or to hire staff who can do 

care coordination. Again, I am not—I would love Pay For Performance to give incentives for physicians to do that, but as long as we 

have a fee-for-service system that is using 7,000 codes that document what the professional activities are that physicians get to be 

reimbursed for, until we get to the robust Pay For Performance 

system that I think we all hope for, we should define some of those 

services as reimbursable, and try to redirect physician services. So, 

let me conclude by simply saying, I like Pay For Performance, I applaud your leadership and Dr. McClellan’s activities to try to get 

us on that road, but I think we have loaded onto it too much baggage; it is not going to solve all of our problems, and in particular, 

it is not going to solve the volume and cost problem in part B. 

Thank you very much. 

[The prepared statement of Dr. Berenson follows:] 

Statement of Robert Berenson, M.D., Senior Fellow, Urban Institute 

I would like to thank Chairman Johnson and members of the Subcommittee on 

Health of the Ways and Means Committee for the opportunity to testify on the 

Chairman’s Medicare Value-Based Purchasing of Physicians’ Services Act of 2005. 

For over two decades, I have followed the evolution of Medicare’s policies for compensating physicians under part B—as a practicing internist, a medical director of 

a preferred provider organization responsible for the physician fee schedule, a senior 

official in the Centers of Medicare and Medicaid Services overseeing payment policy 

for all providers, and a policy analyst and commentator. 

I have had the opportunity of looking at the issues that H.R. 3617 raises from 

virtually all sides and conclude that although pay-for-performance efforts are important and show promise, they should not be viewed as a substitute for the flawed 

sustainable growth rate mechanism for controlling physician spending. There are 

important and largely overlooked issues in the underlying payment system that 

have been all but ignored in this debate and which are long overdue for attention. 

First Steps on Pay-For-Performance 

I have written approvingly of pay-for-performance (P4P) as a new departure for 

Medicare and other purchasers and plans to promote improved quality of care. 

Given the disappointing state of quality, where it can be measured, providing incentives for physicians to do better seems an appropriate response. As the payer that 

often influences market directions, Medicare can play a uniquely important role in 

leading this activity in collaboration with other purchasers. Indeed, two years ago 

a group of highly respected health care leaders from across the ideological spectrum 

agreed in an open letter in Health Affairs that Medicare should lead on P4P. A particularly desirable attribute of P4P is holding providers accountable against validated measures of performance, rather than just paying claims for services rendered. 

The presence of validated and useful measures, as well as an evolving culture that 

has accepted the desirability of meeting objective performance measures, means 


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1 Cynthia M. Boyd, et al., Clinical Practice Guidelines and Quality of Care for Older Patients 

With Multiple Comorbid Diseases. JAMA 294(6): 716–723. 

that certain providers are ready to participate in such a system. For health plans, 

the nearly two decades old work on HEDIS and CAHPS measures and the tedious 

but essential implementation work under the leadership of the National Committee 

for Quality Assurance suggests that P4P can be a useful approach to rewarding performance and improvement by Medicare Advantage plans. In addition, ESRD providers are ripe for P4P because of the presence of widely accepted process measures 

that are good predictors of the outcomes of dialysis. In fact, MedPAC recommended 

that P4P commence in Medicare with these two provider categories. 

I have mixed views about the readiness of hospitals for P4P, but the Premier demonstration seems to be off to a good start, and, importantly, the expectations of what 

P4P can accomplish in the hospital sector are appropriately limited; that is, the 

marginal incentive for hospitals to meet explicit performance on the core CMS measures are not integral to hospitals’ basic reimbursement. Importantly, the basic approach to hospital payment relies on prospective payment through case rates—diagnosis related groups (DRGs). Although, as we all learned through the MedPAC 

study of specialty hospitals, DRG payments can be skewed and create distorted incentives for hospitals to emphasize certain services at the expense of others, nevertheless, the hospital prospective payment system creates the basic incentives for 

hospitals to improve efficiency, at least in caring for the patients that enter through 

their doors. P4P is not looked to for the purpose of improving hospital efficiency. 

Physician Pay-For-Performance 

Which brings me to the subject of today’s hearing—pay-for-performance for physicians in Medicare. Here, I would make a point about terminology. I have chosen to 

use the term pay-for-performance rather than value-based purchasing, the term that 

the Chairman has adopted to title the proposed bill. I believe value-based purchasing is a much broader concept than pay-for-performance, which is but one of 

many strategies that a value-based purchaser might adopt. 

I generally applaud the goal of measuring physician performance, holding physicians accountable for deviations from desired performance, and through publication 

of performance, helping Medicare beneficiaries make informed choices about which 

physicians they should seek care from. However, there are formidable barriers to 

assessing performance at the individual physician level. Further, in the crucial 

areas of overuse and inefficient provision of services and in misuse, that is, errors 

of commission and faulty judgment, measures are in their infancy. 

Physician pay-for-performance faces unique barriers in Medicare because of certain characteristics of the Medicare beneficiary population. In an important article 

that appeared last month in the Journal of the American Medical Association, a 

group at Johns Hopkins cogently argued that most clinical practice guidelines 

(CPGs) and performance measures focus on single conditions, failing to recognize 

that many Medicare beneficiaries have multiple chronic conditions, not just a single 

one for which most guidelines and measures are directed. The authors concluded, 

‘‘Basing standards for quality of care and pay for performance on existing CPGs 

could lead to inappropriate judgment of the care provided to older individuals with 

complex comorbidities and could create perverse incentives that emphasize the 

wrong aspects of care for this population and diminish the quality of their care.’’ 1

It will take years to develop validated measures relevant to the large number of 

beneficiaries with complex comorbidities. 

A related issue is that most CPG and P4P measures are relevant to younger populations. For an 85 year-old, measures that focus on primary and secondary prevention are not particularly relevant, whereas measures appropriate to geriatric syndromes, e.g. reducing falls, addressing incontinence and chronic pain, deserve priority. I recognize that H.R. 3617 calls for measures that address issues related to 

frail elderly and those with multiple chronic conditions, but the work to develop agerelevant performance measures is just beginning. 

One P4P initiative that seems to be on the right track is the California-based activity under the auspices of the Integrated Healthcare Association. However, it is 

important to identify the unique aspects of IHA that suggest to me it will not be 

simple to replicate the approach in Medicare. The IHA initiative assigns accountability to relatively large multi-specialty medical groups contracting with health 

plans under capitation arrangements that, similar to DRGs for hospitals, transfers 

financial risk to the provider group. The fundamental approach to promoting cost 

conscious physician behavior resides in the basic professional capitation payment to 

the groups. In this context, P4P provides an important complement by looking for 


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2 Cara S. Lesser, Paul B. Ginsburg and Laurie E. Felland, Initial Findings from HSC’s 2005 

Site Visits: Stage Set for Growing Health Care Cost and Access Problems. Center for Studying 

Health System Change, Issue Brief 97, August 2005. 

and measuring possibly substantial under-use of services, which is a potential byproduct of incentives that could lead to withholding needed care. Importantly, there 

are reasonable process measures of under-use for certain important diseases that 

also supports the goals of the IHA initiative. 

In contrast, the Medicare physician payment system and, outside of California 

and a few other places, the physician payment system used by most private insurers 

based on a fee-for-service (FFS) model. The payments reimburse for transactions, 

not for population-based health care, and the powerful, inherent incentives in FFS 

reimbursements are to drive up volume. Recent data from both Medicare and private payers document that that is exactly what is happening—to unsustainable levels. In this fee-for-transactions environment, the validated P4P measures that mostly address primary and secondary prevention services and patient experiences likely 

will have little effect on utilization and spending even as they improve patient outcomes. Further, where patients have free choice of physician at the point of service, 

as in Medicare, PPOs and, now, many HMOs, patients obtain care in an a la carte 

fashion, providing no easy way to assign the responsibility for performance. It is far 

easier to attribute performance against specified measures to multi-specialty groups 

that assume responsibility for individuals who designate them as their source of 

care than to independent physicians who take patients one by one and face no incentives to conserve resources. Physicians are supposed to meet the standards of 

care of their specialty, not assure that patients actually have good outcomes at a 

reasonable cost. Thus, pay for performance offers some promise as a tool to move 

physician orientation to actually meeting patients’ needs. We will see. 

In short, physician P4P faces formidable barriers in Medicare, as it does for most 

private plans. For all the P4P talk, the current round of Center for Studying Health 

System Change (HSC) Community Tracking Study site visits found that physician 

P4P was underway robustly only in 2 of the 12 metropolitan areas that it tracks— 

in Orange County, in the heart of the delegated capitation model of care and in Boston, where there are large physician groups, often attached to the major teaching 

hospitals. 2 Although Medicare surely could lead on P4P, I doubt that P4P is ready 

for the decisive role envisioned for it under the Chairman’s proposed legislation, a 

role that sees it as a substitute for the flawed sustainable growth rate (SGR) formula for holding down Part B expenditures. 

P4P is Not a Subsitute for the Troubled SGR Mechanism 

The SGR needs to be reformed or replaced. While significant changes are needed, 

current P4P measures that focus on under-use of preventive services simply will not 

serve as a substitute for the SGR mechanism for constraining physician spending 

in Medicare. The well-intentioned attempt, unfortunately, strikes me as a classic example of the ‘‘tail wagging the dog.’’ By that I mean that the engine that drives physician behavior is the financial incentive to increase volume. Physicians, especially 

those who may be knowingly taking advantage of the system, will surely ignore any 

marginal payment incentive of 1 or 2 percent if the behavior to gain the marginal 

income conflicts fundamentally with the underlying incentives in the payment system. It would be much easier to do an extra test, see an extra patient, or—of most 

concern—upcode visits to make up for what otherwise might be lost under such a 

scenario. While there is no conflict between the underlying payment incentives and 

a P4P approach that rewards more care, that won’t contain costs or limit inappropriate utilization. To the contrary, it might increase spending, albeit for desired activities. 

But on issues of overuse, I suggest that the conflict does exist. For example, in 

Medicare spending for advanced imaging services increased last year by 25 percent. 

Because much of the costs associated with imaging services are fixed and able to 

be spread over the number of imaging services provided, those providing these services have every incentive to suggest the need for additional, discretionary imaging 

services. And referring physicians, for various reasons, face no constraint on ordering imaging services that, importantly, do no harm, except to taxpayers and the relatively few beneficiaries without supplemental insurance who actually have to pay 

a co-payment. Thus, even if we could reliably measure overuse, I am skeptical that 

physicians will markedly change their behavior to respond to a modest 1–2 percent 

change in payment. 

In short, pay-for-performance is a worthy initiative and I applaud the goal of trying to produce relevant and validated measures for each specialty. However, I exVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 E:\HR\OC\26375.XXX 26375

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3Paul B. Ginsburg and Joy M. Grossman When The Price Isn’t Right: How Inadvertent 

Payment Incentives Drive Medical Care Health Affairs Web Exclusive, August 9, 2005 4 Chapter 9: Review of CMS’s Preliminary Estimate of the Physician Update for 2006 in ‘‘Report to the Congress: Issues in a Modernized Medicare Program’’ MedPAC, June 2005. 5MedPAC Report, June 2005. 

pect that this objective done correctly would take many years. The current state of 

measurement and structural impediments to P4P effectiveness does not constitute 

an acceptable substitute for the SGR, which I think we all agree needs to be replaced. 

The RBRVS System Needs A Comprehensive Review 

I am concerned that the attention on P4P is distracting both policy makers and 

the medical profession from addressing what are increasingly apparent flaws in the 

resource-based relative value scale (RBRVS)-based payment system that controls 

physician payment in Medicare and, in somewhat altered forms, in private health 

plans. 

As suggested earlier, a value-based purchaser asks whether it is obtaining the 

right kind and mix of services, of acceptable quality, for the right cost. For example, 

a value-based purchaser would not simply defer to the medical profession to determine the mix and relative value of services provided by the profession, the explicit 

concept that underlies the RBRVS-based payment system. Further, a value-based 

purchaser would feel no obligation to provide payment bonuses to all specialties if 

the areas of that need improvement could be affected by a subset of physicians. The 

goal of value-based purchasing, with P4P as but one strategy, should be to provide 

greater value for beneficiaries and taxpayers, not to promote equitable access to 

bonus payments for physicians, which seems to be the American Medical Association’s position. Thus, P4P should be seen a means to the end of getting greater value 

for money spent and not as an end in itself, that is, to measure and reward for the 

sake of measuring and rewarding. 

Given the problems in the Medicare physician payment approach that preceded 

RBRVS, basing payment on dollar estimates of work and practice overhead, rather 

than historic charges, was a clear improvement. And in the first decade of implementation beginning in 1992, the volume control mechanisms that limited spending 

functioned reasonably well. Unfortunately, those days are over. 

Briefly, Medicare’s physician payment system is facing fundamental problems 

that pay-for-performance alone will not address and to which few policymakers 

seems to have paid attention in recent years. 

1. Disconnect between costs and payments. For many services, payments 

bear poor relation to underlying cost of production. The MedPAC finding that 

skewed DRG payments were distorting market behavior in relation to specialty hospital development is surely also true in relation to physician payments. Recently, 

Paul Ginsburg and Joy Grossman of the Center for Studying Health System Change 

wrote about this phenomenon of distorted payments in relation to hospital and ambulatory care based upon recent findings from the 12 HSC Community Tracking 

Sites. 3 I am currently reviewing HSC interviews from the fifth round of site visits 

that demonstrate that physician behavior too often reflects a strong bias toward performing procedures, even leading them to be unavailable to perform the consultative 

role that specialists traditionally have performed. For example, in some sites, gastroenterologists have stopped caring for complex hospitalized patients, preferring to 

perform routine endoscopies in ambulatory endoscopy suites in which they are likely 

to have ownership interests. In short, physicians respond to economic incentives, 

which has distorted physician behavior, resulting in the provision of an inappropriate mix of services. MedPAC has identified the issue of mispricing of physician 

services and plans to study it in detail in the near future. 4

One of the explicit objectives of the RBRVS system based on work performed by 

William Hsiao and colleagues, was to redistribute from procedural and technical 

services to what were then called ‘‘cognitive’’ services and now ‘‘evaluation and management’’ services. Although there was initial redistribution in implementing the 

RBRVS system in 1992, a preliminary Urban Institute study I helped produce for 

MedPAC demonstrated that desired redistribution progress has stopped for a number of reasons. 5

Compounding the problem within the physician fee schedule is the apparent overpayment in facility fees, which are paid separately from the physician fee schedule, 

As a result, many physicians now invest in ambulatory surgery centers, endoscopy 

suites, and diagnostic imaging and testing centers. In short, to make up for what 

they consider inadequate professional fees, in particular for their time associated 


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with patient visits and consultations, physicians increasingly are becoming entrepreneurs, able to self-refer to increase volume and revenues. Thus, in any serious 

attempt to fix the SGR mechanism, consideration should be given to redirecting savings from reducing overly generous facility fees to the pool of dollars that physicians 

can receive for their professional services, so that physicians can again resume their 

roles of acting in their patients’ best interests and performing services they have 

been trained for, rather than feel a need to self-refer to support their investments. 

Again, MedPAC is doing some work in this area, at least with respect to examining 

site-of-service differentials. 

2. Volume or cost control. Many have described the problems of the SGR as 

the mechanism for controlling physician expenditures. Preceding the SGR was the 

Volume Performance Standard (VPS), which had problems as well, but was reasonably successful in the face of the daunting volume incentives that fee-for-service provides. I believe one of the problems in both approaches is that the volume control 

is applied at a national level. When prices are cut as a result of national volume 

controls, an individual physician’s incentive is to increase services that do no harm 

to patients, of which there are many. Thus, prudent physicians are penalized and 

profligate ones are rewarded. This reality does provide a strong rationale for individual level assessments of utilization as performance measurement attempts to do. 

But again, the physician who is increasing volume to increase revenues that go to 

the bottom line is unlikely to respond to a P4P incentive of a percentage point or 

two to restrain volume. 

Interestingly, in recommending a national volume control mechanism that was 

subsequently adopted in statute as the VPS, the Physician Payment Review Committee (PPRC) understood that a control mechanism applied nationally was a crude 

approach. In 1989, the PPRC expressed hope that organized medicine would step 

up to the challenge of developing clinical practice guidelines, enhanced peer review 

and other professionally-grounded approaches to reducing excessive volume. That 

never happened. PPRC also discussed moving to specialty specific and geographic 

volume performance standards to target price cuts to where the excessive volume 

was taking place. That never happened either. 

And now, more than fifteen years later, we understand through the work of Jack 

Wennberg, Elliot Fisher and their colleagues that geographic variations in volume 

of physician services do not produce important differences in quality. We are spending too much in particular geographic areas, but the volume controls are being applied nationally. Further, not all services are rising at unacceptable rates. The volume of major surgical procedures is not rising out of control; nor are doctor visits. 

Yet, the SGR spreads the pain of price cuts indiscriminately. In short, the SGR 

mechanism is broken, but as long as Medicare reimburses for professionally-determined transactions, there needs to be more targeted volume control mechanisms to 

address inflationary spending. We are asking too much of P4P to do the job of controlling volume increases and the accompanying unsustainable spending increases. 

3. Lack of care coordination for beneficiaries with chonic conditions. The 

current physician payment system does virtually nothing to promote care coordination by physicians and their offices for the increasing numbers of beneficiaries with 

multiple chronic conditions. These patients typically see numerous unconnected physicians and other health professionals and may take ten or more prescription and 

OTC drugs without supervision. The Chairman knows of my interest in this area. 

I have had the privilege of testifying here on how to improve the provision of services to beneficiaries with chronic illnesses, and I applaud the Chairman for her interest in helping enact important pilots and demonstrations in the Medicare Modernization Act that are now proceeding. Nevertheless, I continue to believe that physicians have a crucial role to play in being part of teams that address the care for 

patients with multiple chronic conditions. To achieve that objective, basic payment 

policy must provide incentives for physicians to spend some of their professional 

time and to allow others working under physician supervision to take part in care 

coordination activities. 

Simply, the Current Procedural Terminology (CPT) coding system that Medicare 

and private payers use does not address care management and care coordination. 

Frankly, care coordination is not an easy thing to define and pay for. Nevertheless, 

a value-based purchaser would ask how to promote the set of activities that Ed 

Wagner and colleagues have delineated to constitute good chronic care management. 

At the same time a value purchaser would try to offset that new spending by reducing the volume of services that are serving no useful purpose, such as intensive care 

unit stays for many patients in their last weeks and months of life. 

I am not recommending arbitrarily limits on what services patients are eligible 

for. But I am suggesting that relative values that determine physician payments 

should be adjusted to try to accomplish policy goals, such as reorienting the care 


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of those with end-stage chronic conditions to palliation and caring, rather than curative interventions. Pay—for-performance might be able to contribute to achieving 

this reorientation. But the real action is in the nitty-gritty coding and payment policy that has seemed on automatic pilot for the past decade. 

Conclusion 

In summary, I think measuring physician performance and moving to greater accountability for that performance is a desirable goal. But I am concerned that inflated expectations about what pay-for-performance can achieve has diverted attention from the increasingly evident problems with many aspects of the basic physician payment system. In particular, P4P currently does not provide a plausible 

mechanism for controlling the volume of or spending on physician services. The 

RBRVS-based payment approach has been a very important alternative to what 

came before and worked well initially. But a number of problems with the RBRVS 

conceptual foundation and its implementation have now become apparent. MedPAC 

has identified some of the issues that I have briefly discussed above, with tentative 

plans to explore them in greater detail. 

Measurement of physician performance and attempts to pay differentially for performance should proceed, but P4P currently will not address soaring volume increases of certain physician services in particular geographic areas. P4P should not 

distract the committee from a long overdue look at the basic payment system. As 

part of that review, I believe better alternatives to the SGR will be found. And until 

we have a solution, I think it unwise to simply repeal the SGR. 

f 

Chairman JOHNSON. Thank you very much, Dr, Berenson. Dr. 

Jevon. 

STATEMENT OF THOMAS JEVON, M.D., PRACTICING FAMILY 

PHYSICIAN, WAKEFIELD, MASSACHUSETTS 

Dr. JEVON. Madam Chairman, Congressman Stark, Members of 

the Ways and Means Health Subcommittee, I would like to thank 

you very much for the opportunity to testify before you today regarding my experience participating in the Bridges to Excellence 

program and other Pay For Performance programs. My name is Dr. 

Tom Jevon, I am a solo family physician practicing in a solidly middle class suburb about 15 miles north of Boston. I may be among 

a rare group of physicians in that I have used an electronic medical 

record since 1993. As a practicing physician in an area dominated 

by very large HMOs, as a leader of a 300 doctor physician hospital 

organization, and as a member of a large network of providers, including Mass General and Brigaman Women’s Hospital, I have a 

lot of experience with financial incentives for physicians. I truly believe that most physicians support the concept of Pay For Performance measures. They support the idea of rewarding their colleagues 

who work harder and demonstrably do a better job than their 

peers. For Pay For Performance plans to work, however, they need 

to meet a number of criteria. Most important, Pay For Performance 

only works for the primary care physician like myself when real 

dollars are at stake. It takes a bonus of $2,000 to get a physician 

interested, probably $5,000 to grab his or her attention. The proposed differential of 1 percent in the current draft of the bill would 

probably translate into perhaps a thousand dollars, not enough to 

engage a doctor in the effort. 

The Pay For Performance has to capture the imagination, or at 

least the attention of the doctor; we have to believe the goal or 

measure will actually make a difference, that is, both improve patient health, and hopefully improve the healthcare delivery system. 


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The Bridges to Excellence program pays physicians bonuses if they 

show success in treating diabetics better with improved education 

programs and objective laboratory-based measures of diabetic control. The Pay For Performance has to be transparent, accurate and 

fair. Our major source of data for physician performance is the 

claims physicians submit to be paid for services. Unfortunately, 

this claims data is often inaccurate, delayed, and in many ways 

flawed. This can cause all kinds of disturbing results, such as the 

doctor universally known by his colleagues to be a weak or inferior 

clinician achieving top scores on a patient satisfaction index and 

being rated as a top physician in an HMO network. We must improve our data and measurement techniques by being careful about 

what we choose to measure and ensuring the integrity of our data. 

Bridges to Excellence has been very careful in this regard, they do 

not rely on claims to evaluate physician performance. They also 

choose measures that can be accurately measured and verified. 

The physician effort to improve performance, including the physician’s cost to collect the data, can’t outweigh the financial benefit 

to be gained. In my own experience, I decided not to apply for the 

Bridges to Excellence diabetic program because the bonus I would 

achieve was not worth the word. On the other hand, the bonus for 

me for an EMR was significant, more than $5,000. It was an easy 

decision to apply for it. We need to create grant programs or provide pools of cash for special purposes when there isn’t enough 

funding to make significant cash payments to all physicians. In my 

own PHO, we decided to give grants to a few earlier adopters of 

electronic medical records. Medicare should encourage programs 

like Bridges to Excellence that are simply bonuses, programs that 

offer straightforward transparent rewards that are not wrapped up 

in health insurance contracts, or simply the return of expected physician fees. Like it or not, bonuses without strings attached improve performance and outcomes. Physicians must be intimately involved in both the design and implementation of measures that report relative physician quality. If the measure is unfair or flawed 

by bad data, there is likely to be a huge backlash or disengagement 

or disenchantment from physicians. 

My own perspective is an that EMR is essential to any long-term 

success with Pay For Performance. Access to an EMR allows collaboration between patients, physicians and other healthcare providers and can provide the accurate data we need to truly and fairly measure relative physician performance and quality, and develop 

fair Pay For Performance models. It allows us to move away from 

our dependence on claims data for measuring physician performance. To most physicians, Pay For Performance is just the latest 

iteration in the struggle to control costs, while at the same time 

improving quality. Physicians appreciate that if they are not willing to engage in this on-going battle, insurers and government will 

impose possibly Draconian solutions. Yet many physicians are 

angry because on top of the real business of healing, they are often 

caught in the middle of doing society’s job of deciding how to deploy 

health resources all day, every day with every patient. For older 

doctors, this is certainly not what they signed up for, nor was it 

what they were trained for. As we design new payment programs 

to incentivize physicians, we should not forget the multiple, difVerDate Aug 31 2005 05:29 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00044 Fmt 6633 Sfmt 6602 E:\HR\OC\26375.XXX 26375

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ficult and conflicting challenges that hardworking physicians face 

each day. Thanks very much for the opportunity to present my 

views. 

[The prepared statement of Dr. Jevon follows:] 

Statement of Thomas Jevon, M.D., Practicing Family Physician, Wakefield, 

Massachusetts 

Madame Chairman, Congressman Stark, and Members of the Ways and Means 

Health Subcommittee, I would like to thank you for the opportunity to testify before 

you today regarding my experience participating in the Bridges to Excellence Program and other Pay for Performance Programs. 

My name is Dr. Tom Jevon, and I am a solo family physician practicing in a solidly middle class suburb 15 miles north of Boston. I am a typical primary care physician with a very busy practice seeing a wide range of patients 5 days a week with 

both evening and Saturday hours. I may be atypical in that I have used my own 

EMR (Electronic Medical Record) since 1993 and have been deeply involved in managed care for 15 years, not only as a practicing physician in an area dominated by 

large HMO’s but as director of medical management and vice president for the 300 

physician PHO (Physician Hospital Organization) in our area. I am currently heading an effort to create a central, shared EMR for the physicians in our PHO, which 

we plan to implement in early 2006. I’ve also been involved in PCHI, (Partners 

Community Health Care Inc) a large network of community hospitals, physician 

groups and academic centers including Massachusetts General Hospital and 

Brigham and Woman’s Hospital, since it’s inception more than 10 years ago. I have 

grappled with the issues of different financial incentives for physicians for years, 

both as a practicing physician and in my various administrative roles. Our present 

contracts contain multiple pay for performance measures, mostly an opportunity for 

physicians to win back money withheld from their fees. Public reporting and measurement of physician quality as well as tiered patient co pays based on these results 

are also coming to our marketplace. 

Pay for Performance 

I truly believe that most physicians support the concept of Pay for Performance 

Measures. They support the idea of rewarding their colleagues who work harder and 

demonstrably do a better job than their peers. For Pay for Performance plans to 

work however they need to meet a number of criteria, many of which Chairwoman 

Johnson has elaborated in her legislation. 

However, Pay for Performance only works when real dollars are at stake. Physicians are relatively insensitive to measures that provide less than $2000 in their 

pocket. The 1% differential in the Johnson bill would probably translate into perhaps $1000 into the average primary care physician’s pocket, probably not enough 

to engage him in the effort. To really grab a physician’s attention you need to be 

in the $5000 and up range. Specialists with higher incomes may have a higher 

threshold and generally require programs that are different from those for primary 

care physicians. 

Pay for Performance has to capture the imagination or at least the attention of 

the doctor: We have to believe the goal or measure will actually make a difference 

and either improve patient health or make our system work better. The Bridges to 

Excellence (BTE) program pays physicians bonuses if they show they really succeed 

in treating diabetics better, with improved education programs and objective laboratory based measures of diabetic control. 

Pay for Performance has to be transparent, accurate and fair: Our major source 

of data for physician performance is the claims physicians submit to be paid for 

services. Unfortunately this claims data is often inaccurate, always delayed and 

often flawed in many different ways. In my PHO we have achieved hundreds of 

thousands of dollars for our physicians, not by helping them achieve their performance goals but by digging through data that starts out as looking improbable or unusual and then turns out to be simply in error. This has nothing to with Pay for 

Performance and every thing to do with flawed data. Once the data is ‘‘clean’’ there 

are further hurdles; we need to apply adjustments for Health Status, patient compliance and other factors unique to our local environment. Even then we can see disturbing results like the doctor universally known by his colleagues to be a weak clinician achieving top scores on a patient satisfaction index and being rated as a top 

physician in an HMO network. 

We must improve our data and measurement techniques, by being careful about 

what we choose to measure and ensuring the integrity of our data. Our PHO uses 


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claims data to measure physician performance with diabetics with mixed results. 

Documenting annual eye visits has been challenging, documenting blood and urine 

tests, less so. Measures around physician performance with radiology based on 

claims data has been very problematic. BTE has been very careful in this regard. 

They do not rely on claims to evaluate physician performance. They also choose 

measures that make sense and can be accurately measured and verified. 

The physician effort and cost of achieving a goal or simply obtaining the appropriate data to measure that goal cannot overwhelm the financial benefit to be 

gained: Physicians are far too busy and overworked already to take on something 

that is clearly not worth the effort. I decided not to apply for the BTE Diabetic program because the bonus I would achieve was not worth the work. On the other hand 

the bonus for me for an EMR was significant, more than $5000. It was an easy decision to apply for it. I paid a $475 fee to register with the National Committee for 

Quality Assurance, (NCQA) and document my system’s capabilities with their webbased tool. They evaluated my submission and certified that I met their criteria for 

the Physician Office Link program. 

When there isn’t enough funding to make significant cash payments to all physicians create grant programs or provide pools of cash for special purposes. We have 

decided to give grants to early adopters of EMR in our PHO. 

Medicare should encourage programs like Bridges to Excellence that are true 

value added programs and offer straightforward, transparent rewards that are not 

wrapped up in health insurance contracts or simply the return of withheld physician 

fees. My own experience with BTE was relatively painless. I used a NCQA website 

and screenshots from my system to document exactly how my EMR was used, what 

data it routinely contained on blinded patients. There were discreet criteria that had 

to be met to achieve different levels or reward. For doing this I received both recognition and a cash award. It felt good to be paid a bonus without strings attached 

for going above and beyond the average physician. 

Physicians must be intimately involved with both the design and implementation 

of measures that report relative physician quality. If the measure is unfair or flawed 

by bad data there is likely to be a huge backlash or disengagement or disenchantment from physicians. 

I support many of the recommendations of the February 10th, 2005 Statement for 

the Record by Wendy Gaitwood from the American Academy of Family Physicians. 

Specifically I support those recommendations that require feedback to physicians 

about the data, disclosure of the sources of the data, and assurances through the 

use of a 3rd party that the data has been validated and verified. 

Conclusion 

My own perspective is that an EMR is essential to any long-term success with 

Pay for Performance. Access to an EMR/EHR allows collaboration between patients, 

physicians and other health care providers, and can provide the accurate data we 

need to truly and fairly measure relative physician performance and quality and develop fair P4P models. It allows us to move away from our dependence on claims 

data for measuring physician performance. EMR has its own challenges, not the 

least of which are: huge changes in physician style of practice, high costs both in 

dollars and physician time to implement, ongoing expense to maintain, and a perceived threat to physician autonomy. But I believe its benefits far outweigh its costs, 

and it is really the only way forward. 

To most physicians, Pay for Performance is just the latest iteration in the struggle 

to control costs while at the same time improving quality. Physicians appreciate 

that if they are not willing to engage in this ongoing battle, insurers and government will impose possibly draconian and noxious solutions. Yet physicians are angry 

because, on top of the real business of healing, they are often caught in the middle 

doing society’s job of deciding how to deploy health resources all day, every day with 

every patient. For older doctors this is certainly not what they signed up for, nor 

was it what they were trained for. We all yearn for something like the lawyer’s role 

in society: Serve only the needs of your client and leave all concern about the costs 

to society resulting from your actions to someone else. As we design new payment 

programs to incentivize physicians we should not forget the multiple, difficult and 

conflicting challenges that hardworking physicians face every day. 

Thank you, again, for the opportunity to present my views. 

f 

Chairman JOHNSON. Thank you very much for your excellent 

testimony. Ms. Ignagni. 


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STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, AMERICA’S HEALTH INSURANCE PLANS 

Ms. IGNAGNI. Thank you, Madam Chair and Mr. Stark, Members of the Committee, it is a pleasure to be here this afternoon. 

As we were listening to the discussion, it occurs to me to begin 

with the obvious, and all of you have mentioned it today. We face 

three core challenges in healthcare, controlling costs, improving 

quality and expanding access. The interrelationship of these challenges is encapsulated in data provided by the Rand Corporation 

that indicates only 55 percent of healthcare services nationwide are 

delivered in accordance with best practices. The payment system 

hasn’t encouraged a do-it-right-the-first-time attitude or commitment to best practices. Indeed, until recently, efforts in the private 

sector payments for good care, bad care or mediocre care has been 

the same, and wide variations and practice patterns have been ignored. 

Further exacerbating these trends quite seriously are data recently reported in JAMA, indicating that physicians feel that they 

are forced to practice defensive medicine with almost half reporting 

that they used imaging technology in clinically unnecessary circumstances. A dollar spent on unnecessary or duplicative procedures is a dollar that could ameliorate the burden of rising costs 

on employers and consumers, and be devoted toward improving access or maintaining benefits in public programs. These problems 

clearly didn’t arrive overnight and they will not be solved overnight. 

As we move to considering how to move in the direction of 

incenting quality, we think it is very critical to link that conversation to the matter of reliable data. We are happy to offer comments 

on these broad issues, as well as specifically on H.R. 3617. In our 

written testimony, we emphasize the following points: One, the importance of uniform performance measurement to reduce the proliferation of multiple uncoordinated and conflicting data requests 

going to physicians from health plans, from employer coalitions, 

from consultants and public sector. Two, the need to aggregate 

data, to facilitate the reporting the data that fairly represents the 

patient population served by a provider. We can’t expect that a particular provider should be judged by his or her population served 

from a particular health plan, from a particular public program, we 

need to aggregate data. 

Three, we need to report data to consumers to help them make 

more informed decisions back to providers so that they can improve 

quality of care. Four, any legislation in our view should require 

public officials to work with established groups working on the 

data elements I mentioned above rather than reinventing the 

wheel. Five, the measures should be updated regularly to reflect 

new evidence, new understandings and new information. 

Our testimony also discusses and provides some examples of private sector experience with innovative payment arrangements. An 

important lesson we have learned is that quality and efficiency 

measures go hand in hand. Many of our members are offering physician financial rewards, others offer nonfinancial rewards in the 

form of public recognition, preferential marketing or streamlined 

administrative procedures. Still other programs provide lower coVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 E:\HR\OC\26375.XXX 26375

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pays deductibles or premiums to consumers who choose providers 

found to be of higher quality, based on specific performance measurement. 

AHIP and our members are active participants in the Ambulatory Care Quality Alliance, AQA, which is working on the matters 

I referred to above. The objective of that alliance is to create uniformity in performance-based initiatives. The AQA members include numerous physician groups, the American College of Physicians, the Academy of Family Physicians, the American Medical 

Association, the Osteopathic Association, the Society For Thoracic 

Surgeons, the College of Surgeons, the AARP, the National Partnership For Women and Families, the Pacific Business Group on 

Health, the Agency For Healthcare Research and Quality, and 

CMS. 

Together, these organizations are working to identify what 

should be measured for proficient performance, both quality and efficiency, and develop a data aggregation model that will comprehensively assess provider performance. We hope these efforts 

will be useful to the Committee by putting in motion baseline work 

that needs to be done to make this transition to a quality-based 

payment system a success. Earlier this year, AQA reached consensus on a common set of 26 ambulatory care performance measurements to provide clinicians, consumers and purchasers with a 

starter set, but it is only that, and now we are working on additional sets of quality measures. But it is a beginning. 

More recently, AQA has been focused on developing pilot projects 

that combine public and private payer data, leveraging the experience of existing data aggregation efforts and evaluating the most 

effect processes for measuring physician level performance. We 

think that this is an important matter to begin this work and to 

begin the conversation. AQA is currently seeking to secure both 

public and private funding to implement these pilot projects in 

2006, and we are very optimistic about that. AQA has also developed fundamental principles for reporting reliable and useful quality information to consumers and providers, and we would be delighted to share that with the Subcommittee. In closing, Madam 

Chair, thank you for the opportunity to testify. We applaud the beginning of this conversation, and we would like to be as helpful as 

possible in working on the issues that all of the members referred 

to in their opening statements this afternoon. Thank you. 

[The prepared statement of Ms. Ignagni follows:] 

Statement of Karen Ignagni, President and Chief Executive Officer, 

America’s Health Insurance Plans 

I. INTRODUCTION 

Good afternoon, Madam Chairwoman and members of the subcommittee. I am 

Karen Ignagni, President and CEO of America’s Health Insurance Plans (AHIP), 

which is the national trade association representing nearly 1,300 private sector companies providing health insurance coverage to more than 200 million Americans. 

Our members offer a broad range of health insurance plans to employers, state and 

federal governments, and individuals, and also have demonstrated a strong commitment to participation in Medicare, Medicaid and other public programs. 

We appreciate this opportunity to testify, and to share our thoughts with you 

about H.R. 3617 and the importance of establishing payment incentives that promote quality, safety, and efficiency goals. Indeed, this experience indicates that paying for quality and efficiency is a promising strategy for improving overall health 

care outcomes and advancing evidence-based medicine. 


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1 ‘‘National Survey of Physicians Regarding Pay-for-Performance,’’ Ayres, McHenry & Associates, Inc., September/October 2004 2The Lewin Group LLC, Managed Care Savings for Employers and Households: 1990 through 

2000; 1997 3Strunk, B., Ginsburg, P., & Cookson, J. (June 2005). Tracking Health Care Costs: Spending 

Growth Stabilizes at High Rate in 2004. Center for Studying Health System Change. Data Bulletin No. 29. 

Historically, health care practitioners have not been paid based on the quality of 

care they deliver. Until recently, positive clinical outcomes, high patient satisfaction, 

and efficiencies have not been rewarded. Instead, provider reimbursement—particularly in the Medicare program—has been based on the volume and technical complexity of services rendered. This approach rewards any over-utilization and misuse 

of services, and results in higher payments when health care complications arise. 

In effect, the current financing system creates disincentives to improve quality and 

efficiency. More tests, more visits, and repeated hospital stays are rewarded, whereas efficiency, effectiveness and getting it right the first time are not. 

The flaws of the current system are recognized by physicians. A 2004 survey 1 of 

400 primary care and specialty physicians, conducted on behalf of AHIP by Ayres, 

McHenry & Associates, found that 86 percent of physicians are concerned that the 

current payment system does not reward practitioners for providing high quality 

medical care. Other findings of this survey indicate that 71 percent of physicians 

favor payments based in part on the quality of care they provide, and 62 percent 

believe that information on the quality of care provided by a physician should be 

made available to the public. 

Additionally, this survey included other findings which may be relevant to the 

subcommittee’s discussions. Specifically, an overwhelming majority of physicians indicate support for pay-for-performance programs if the performance measures were 

developed with physicians in that particular medical specialty (87 percent), if the 

performance measures were clearly communicated to physicians before they were 

used in payment arrangements (84 percent), and if the performance measures were 

evidence-based and grounded in science (83 percent). 

II. THE CASE FOR CHANGE 

The U.S. health care system faces a number of significant challenges. Rising 

health care costs are threatening to make health coverage unaffordable for more 

Americans, and are holding back efforts to meet the needs of the uninsured. 

Rising Costs 

The most recent data from the Department of Health and Human Services (HHS) 

project that national health care spending increased by an estimated 7.5 percent in 

2004. Although this is the lowest rate of increase since 2000, health care costs still 

are growing faster than the overall economy and, as a result, large and small employers are finding it more difficult to provide or maintain coverage for their employees. 

AHIP and our members are encouraged about what we can do in the private sector to reduce growth in health care spending. From 1994 through 1999, national 

health expenditures were in line with overall economic growth, because health insurance plans implemented a variety of tools to constrain costs. This had a direct 

impact on the ability of employers to purchase affordable coverage for their employees. 

Indeed, the Lewin Group estimated that up to 5 million people 2 who otherwise 

would have been uninsured were able to receive coverage as a result of these costs 

being restrained. 

As the policy debate shifted away from containing costs, legislative proposals at 

both the federal and state levels focused on rolling back the mechanisms that were 

keeping health care affordable. This led to a new cycle of accelerating health care 

costs with a2deleterious effect on purchasers and consumers. 

Recognizing this challenge, our members have developed a new generation of cost 

containment tools that already are having a positive impact and showing promise 

for the future. For example, the rates of increase in pharmaceutical expenditures 

have significantly declined as a result of our members’ implementation of programs 

to encourage greater use of generic drugs and other measures that encourage case 

management of chronic conditions. The Center for Studying Health System Change 

has reported 3 that growth in prescription drug spending fell to 7.2 percent in 2004, 

down from almost 20 percent in 1999. 


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4 ‘‘To Err is Human,’’ Institute of Medicine, 1999 

5 ‘‘The Quality of Health Care Delivered to Adults in the United States.,’’ Elizabeth A. 

McGlynn, RAND, June 25, 2003 6 Center for the Evaluative Clinical Sciences, Dartmouth Medical School, The Dartmouth 

Atlas of Health Care, ‘‘The Quality of Medical Care in the United States: A Report on the Medicare Program,’’ 1999 7Fisher, E., Health Affairs, October 7, 2004 8Dr. Bodenheimer, T., The New England Journal of Medicine, Vol. 340, No. 6, pp. 488–492, 

1999 9 ‘‘Defensive Medicine Among High-Risk Specialist Physicians in a Volatile Malpractice Environment,’’ Journal of the American Medical Association, June 1, 2005. 10 NCQA, The State of Health Care Quality: 2004, 2004 

Quality Concerns 

Through its landmark reports released in 1999, To Err is Human, and in 2001, 

Crossing the Quality Chasm, the Institute of Medicine (IOM) focused the nation on 

the critical need to improve health care quality and patient safety, coordinate chronic care, and support evidence-based medicine. Variation in medical decision-making 

has led to disparities in the quality and safety of care delivered to Americans. The 

1999 IOM report 4 found that medical errors could result in as many as 98,000 

deaths annually, and a 2003 RAND study 5 found that patients received only 55 percent of recommended care for their medical conditions. 

A wide range of additional studies indicate that Americans frequently receive inappropriate care in a variety of settings and for many different medical procedures, 

tests, and treatments. Such inappropriate care includes the overuse, underuse or 

misuse of medical services. Studies also show that patterns of medical care vary 

widely from one location to another, even among contiguous areas and within a single metropolitan area—with no association between higher intensity care and better 

outcomes. For example: 

• The Dartmouth Atlas of Health Care 6 documents wide variation in the use of 

diagnostic and surgical procedures for patients with coronary artery disease, 

prostate cancer, breast cancer, diabetes, and back pain. For example, the rates 

of coronary artery bypass graft (CABG) surgery were found to vary from a low 

of 2.1 per 1,000 persons in the Grand Junction, Colorado hospital referral area, 

to a high of 8.5 per 1,000 persons in the Joliet, Illinois region. The Atlas’ most 

recent findings 7 reveal wide variation in hospital care and outcomes for chronically ill Medicare patients. For example, the length of hospital stays varied— 

depending on a patient’s geographic location—by a ratio of 2.7 to 1 for cancer 

patients and by a ratio of 3.6 to 1 for congestive heart failure patients. • The longstanding nature of quality problems in the U.S. health care system is 

evidenced by a 1999 article 8 in The New England Journal of Medicine, which 

stated:‘‘A number of studies have demonstrated overuse of health care services; 

for example, from 8 to 86 percent of operations—depending on the type—have 

been found to be unnecessary and have caused substantial avoidable death and 

disability.’’ A more recent study, published in the June 1, 2005 edition of the 

Journal of the American Medical Association 9, indicated that 93 percent of 

practicing physicians in the state of Pennsylvania reported practicing defensive 

medicine—with 43 percent reporting that they used imaging technology in clinically unnecessary circumstances. • The National Committee for Quality Assurance (NCQA) 10 documents the state 

of health care quality annually, reporting in 2004 that ‘‘enormous quality gaps’’’ 

persist as ‘‘the majority of Americans still receive less than optimal care’’ with 

between 42,000 and 79,000 avoidable deaths occurring each year. While health 

care quality is improving in some areas, the health care system remains ‘‘deeply 

polarized, delivering excellent care to some people, and generally poor care to 

many others.’’ 

These research findings clearly indicate the need for innovative strategies to improve quality and efficiency throughout the U.S. health care system. Decisive action 

is needed to address these wide-ranging variations in medical decision-making, as 

well as the overuse, underuse and misuse of health care services. While we understand that the subject of this hearing is paying for quality, we have thoughts about 

other strategies that could support these efforts and would be delighted to share 

them with the subcommittee. 

III. WHERE WE GO FROM HERE 

We need to move toward a health care system that rewards physicians, hospitals 

and other health care practitioners for high quality performance. Although the private sector is implementing programs to meet this challenge, it is time for Medicare 


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and other federal programs to make similar changes and reward health care practitioners for best practices and improved patient outcomes. This would be an important step toward advancing an evidenced-based health care system that yields better health outcomes and greater value for beneficiaries. 

We applaud you for introducing legislation—H.R. 3617, the ‘‘Medicare ValueBased Purchasing for Physicians Act of 2005’’—to provide incentives to physicians 

to provide high quality health care. We support the objectives of improving quality, 

efficiency, patient safety and satisfaction, and believe that a strong commitment to 

these goals will result in benefits to a variety of key stakeholder groups. Consumers 

benefit from public disclosure and the opportunity to select the best practitioners. 

Clinicians who perform well will be sought after, and all clinicians will benefit from 

receiving feedback on how their performance compares to their peers. For public 

programs, transitioning to a payment-for-quality system will improve care and 

shrink the wide variation in practice patterns around the country. 

AHIP’s members are committed to working with stakeholders across the health 

care community, particularly health care professionals who work on the frontlines 

every day, to develop a strategy that accounts for the quality of care delivered to 

patients. In November 2004, AHIP’s Board of Directors demonstrated this commitment by approving principles that are in sync with the goals underlying H.R. 3617 

and at the same time offer additional thoughts for advancing quality-based payment 

systems. AHIP’s principles include eight key elements: 

• Programs that reward quality performance should promote medical practice 

that is based on scientific evidence and aligned with the six aims of the IOM 

for advancing quality (safe, beneficial, timely, patient-centered, efficient, and equitable). • Research is urgently needed to inform clinical practice in priority areas currently lacking a sufficient evidence-based foundation. • The involvement of physicians, hospitals and other health care professionals in 

the design and implementation of programs that reward quality performance is 

essential to their feasibility and sustainability. • Collaboration with key stakeholders, including consumers, public and private 

purchasers, providers, and nationally recognized organizations, to develop a 

common set of performance measures—process, outcome and efficiency measures—and a strategy for implementing those measures will drive improvement 

in clinically relevant priority areas that yield the greatest impact across the 

health care system. • Reporting of reliable, aggregated performance information will promote accountability for all stakeholders and facilitate informed consumer decision-making. • The establishment of an infrastructure and appropriate processes to aggregate—across public and private payers—performance information obtained 

through evidence-based measures will facilitate the reporting of meaningful 

quality information for physicians, hospitals, other health care professionals, 

and consumers. • Disclosure of the methodologies used in programs that reward quality performance will engage physicians, hospitals, and other health care professionals so 

they can continue to improve health care delivery. • Rewards, based upon reliable performance assessment, should be sufficient to 

produce a measurable impact on clinical practice and consumer behavior, and 

result in improved quality and more efficient use of health care resources. 

IV. IMPORTANCE OF UNIFORM PERFORMANCE MEASUREMENT, DATA 

AGGREGATION AND REPORTING 

Performance Measurement 

A critically important step in moving forward with programs that reward quality 

performance is the development of a uniform, coordinated strategy for measuring, 

aggregating and reporting clinical performance. Disseminating information derived 

from aggregated performance data—which provides stakeholders with a more comprehensive view of performance across marketplaces—would yield benefits on several levels. Consumers would be allowed to make more informed decisions about 

their health care treatments. Physicians, hospitals and other health care professionals would be better able to improve the quality of care they provide. Purchasers 

would receive greater value for their investment in health care benefits. Health insurance plans could continue to develop innovative products that meet consumer 

and purchaser needs. 

Unfortunately, the nation lacks a uniform and coordinated strategy for measuring 

and aggregating physician performance data. While many different private and public sector groups have attempted to step up to the challenge by designing models 


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for assessing performance and reporting data, the proliferation of multiple, uncoordinated and sometimes conflicting initiatives has significant unintended consequences for different stakeholders. For example, duplicative efforts: 

• unnecessarily burden physicians, other clinicians, and health insurance plans 

with different data requests, shifting focus away from quality and efficiency improvement; 

• create confusion among consumers due to different information that is being 

publicly reported; and 

• detract from collective efforts to efficiently make decisions and design programs 

that meet broad quality goals. 

Perhaps most important, however, are the adverse effects numerous initiatives 

have on patient care and the health care system as a whole. Without a uniform approach to select performance measures for public reporting, they will continue to divert limited resources and focus away from establishing clear priorities and reaching 

goals. 

To create uniformity across purchasers, coalitions and consulting firms, AHIP has 

been working in a collaborative effort with the Ambulatory Care Quality Alliance 

(AQA), whose membership also includes the American College of Physicians (ACP), 

the American Academy of Family Physicians (AAFP), the American Medical Association, the American Osteopathic Association, the Society for Thoracic Surgery, the 

American College of Surgeons, AARP, the National Partnership for Women and 

Families, the Pacific Business Group on Health, and the Agency for Healthcare Research and Quality (AHRQ), with the support of the Centers for Medicare & Medicaid Services (CMS). Together, these organizations are working to identify what 

should be measured for physician performance—both quality and efficiency—and develop an effective and efficient data aggregation model that would comprehensively 

assess provider performance. 

The AQA recently reached consensus on a common set of 26 ambulatory care performance measures. These measures are grouped under eight separate categories: 

(1) prevention; (2) coronary artery disease; (3) heart failure; (4) diabetes; (5) asthma; 

(6) depression; (7) prenatal care; and (8) overuse or misuse of medical services. 

Many of the measures under these categories are ‘‘bundled’’ measures—i.e., multiple 

measures which if used collectively, have the potential to more comprehensively and 

accurately assess physician performance and provide improved outcomes for patients. 

These measures are intended to serve as a ‘‘starter set’’ that will provide clinicians, consumers, and purchasers with a set of quality indicators that can be used 

for quality improvement, public reporting, and pay-for-performance programs. Over 

the next several months, AQA will be seeking to expand this starter set to include 

efficiency, patient experience, non-primary care and other key measures. 

Data Aggregation 

In addition to working toward a strategy for performance measurement, AQA is 

developing a uniform data aggregation strategy. The aggregation model developed 

by this alliance would include the following key attributes: 

• transparency with respect to framework, process and rules; 

• a process that allows provider performance to be compared against both national and regional benchmarks and makes the data useful for physicians to improve the quality and efficiency of care they provide to their patients; 

• collection of both public and private data so that physician performance can be 

assessed as comprehensively as possible; 

• a process that facilitates public reporting to consumers of user-friendly and actionable information about physician quality and efficiency; 

• standardized and uniform rules associated with measurement and data collection; and 

• potection of privacy and confidentiality of data while ensuring necessary access 

to appropriate stakeholders. 

Launching Pilots 

A first step toward achieving this model is to implement pilot projects that combine public and private payer data, leverage the experience of existing aggregation 

efforts, and evaluate the most effective processes for measuring physician-level performance. AQA—which at its last meeting reached consensus on the need and value 

for pilots—is currently seeking to secure both public and private funding to implement such pilots in 2006. 

Key elements of the proposed pilots would include: 


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• assessment of clinical quality, efficiency and patient experience; 

• collection and aggregation of Medicare claims data and private sector data from 

multiple sources; 

• exploration of both existing and new methods for collecting, submitting and 

sharing data from physicians’ medical practices; 

• dissemination of measurement information. 

The proposed pilots would address numerous important issues, including the most 

effective methods for linking measures, and data from multiple sources; the most 

effective ways to address methodological issues (e.g., sample size for validating physician performance, how to attribute performance to particular physicians, and 

which risk-adjustment model is most effective); and what type of information should 

be reported back to physicians and other stakeholders. We believe that these pilot 

efforts could inform the subcommittee’s discussions, and we hope you will be supportive of this broad effort. 

Consumer Reporting 

AQA is also exploring strategies for reporting reliable and useful quality information to consumers, providers and other stakeholders. The Alliance recently developed fundamental principles for reporting with the objectives of facilitating more informed decision-making about health care treatments and investment, facilitating 

quality improvement, and informing providers of their performance. Two AQA committees are working on this issue—one specifically addressing the issue raised in 

H.R. 3617 about how to communicate these data to physicians; and the other focusing on how to communicate this information to consumers. We hope this effort, 

which involves a broad range of stakeholder groups, also will be helpful to your discussions. 

The AQA will continue to move forward in the areas of measurement, aggregation 

and reporting, and encourage various stakeholders to become involved in this important effort to improve health care quality and patient safety. The work currently 

being undertaken by the AQA, including the development of a common set of measures and pilot projects which aggregate public and private sector data, will help us 

reach our goals of identifying quality gaps, controlling skyrocketing cost trends, reducing confusion and burdens in the marketplace, and otherwise addressing the 

challenges of the current health care system. 

V. COMMENTS ON H.R. 3617 

We appreciate this opportunity to offer for your consideration comments on key 

elements of H.R. 3617. 

A. Characteristics and Fairness of Performance Measures 

Health plans strongly support the criteria set forth in H.R. 3617 for performance 

measures. Many of these characteristics—such as the requirement that measures 

should be evidence-based, valid, and not overly burdensome to collect—are consistent with the criteria endorsed by the Ambulatory Care Quality Alliance (AQA). 

Similarly, the other criteria set out in the bill—such as outcome measures; process 

measures; structural measures (e.g., use of health information technology); measures of overuse, misuse and underuse; and measures that assess the relative use 

of resources, services or expenditures—have been recognized by the AQA as critical 

areas that need to be addressed. We, at the same time, urge the committee to consider supporting other important characteristics endorsed by the AQA, including 

that measures be aligned with the IOM’s six aims for improvement (safe, effective, 

patient-centered, timely, efficient and equitable), that physician-level measures 

should as much as possible complement measures in other health care settings and 

that measures should as much as possible be constructed so as to result in minimal 

or no unintended harmful consequences (e.g., adversely impact access to care). 

Health insurance plans agree that performance measures should be applied and 

implemented fairly. This requires that measures be appropriately risk-adjusted to 

take into account differences in individual health status and conditions, and that 

an adequate sample be used to ensure a statistically valid assessment of physician 

performance. Fairness also requires the use of outcomes measures, as well as measures that reflect processes of care that physicians can influence (e.g., measures that 

assess the appropriate treatment for children with upper respiratory infection and 

the appropriate testing for children with pharyngitis). 

B. Selection Process for Measures 

A good deal of work is currently being done to create a robust measurement set 

that can be used on a uniform basis for performance-based payments throughout the 

health care system. The National Committee for Quality Assurance (NCQA) has 


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been working with the health plan and purchaser communities to create programs, 

such as Bridges to Excellence, that align incentives around higher quality, efficient 

care. The AMA Physician Consortium for Performance Improvement, which includes 

representation from 70 national medical specialty societies, has been working to develop evidence-based clinical performance measures to improve patient care and foster accountability. The National Quality Forum (NQF) reviews the work of these organizations and other entities in an attempt to reach consensus on a preferred set 

of performance measures and quality reporting. The Ambulatory Care Quality Alliance, (AQA) which includes the involvement of NCQA, the AMA Consortium and 

NQF—along with CMS and AHRQ—strives to reach consensus across purchasers, 

physicians, consumers and health plans on the most appropriate performance measures that have been endorsed by NQF or validated through experience for immediate use. The AQA currently is working to gain consensus on common rules and 

logic for efficiency measures, as well as targeting those performance measures that 

address underuse, overuse and misuse. Given the depth and breadth of ongoing 

work, we believe it is essential for the Secretary to work with these groups in selecting quality and efficiency measures as opposed to reinventing the wheel. The selection of measures not currently being utilized by the private sector will create unnecessary inconsistency, add confusion, and impose an additional burden on physicians. 

By contrast, the collaborative efforts of the AQA are paving the way for greater 

standardization and uniformity in value-based purchasing initiatives. 

C. Periodic Revision of Measures 

It is important that quality and efficiency measures be evaluated periodically for 

their relevance and ability to improve care. To evaluate improvements in care, 

trending data is important; for example, a minimum of two years of data are needed 

to evaluate provider efficiency. Thus, periodic review and revision should occur in 

a timely period. However, as new evidence becomes available, these measures 

should be revised as soon as possible to reflect such evidence, while not being disruptive to data collection efforts. 

D. Disclosure and Reporting 

Public reporting will encourage quality performance. While our members believe 

that physicians should be involved actively in the selection of measures and reviewing information before it is disclosed, such processes should ensure the timely provision of meaningful information. 

VI. THE PRIVATE SECTOR’S EXPERIENCE 

Your proposal for a value-based purchasing program in Medicare is similar in 

many respects to initiatives that many private sector health insurance plans have 

implemented in recent years. Health insurance plans have long been at the forefront 

of developing innovative payment arrangements that have promoted populationbased health care, improved care for the chronically ill, and encouraged prevention. 

Many of our members currently are offering financial awards to physicians in the 

form of increased per-member-per-month payments or non-financial rewards in the 

form of public recognition, preferential marketing or streamlined administrative procedures. Additionally, some plans are offering consumers reduced co-payments, 

deductibles, and/or premiums in exchange for using providers deemed to be of higher quality, based on specific performance measures. The categories of performance 

measures most commonly reported include clinical quality, utilization experience/efficiency, patient satisfaction, and information technology infrastructure. Specific examples of these initiatives are outlined in Appendix A. 

While still in their early stage in some markets, initiatives that reward quality 

and tier clinicians according to how they achieve quality goals have an early track 

record in several states, including California, Massachusetts, and Michigan. What 

we have learned is that quality and efficiency measures go hand in hand. 

Based on the experiences of our members, we know that programs for rewarding 

quality performance have a number of common features: 

• Reason for Implementation: Across the board, the programs seekto enhance 

and sustain clinical quality, facilitate excellence across provider networks, and 

improve and promote patient safety. 

• Role of Clinicians: Nearly all plans indicate that clinicians are actively involved in key aspects of rewarding quality performance programs, including program development, selection of performance measures, and determination of 

how rewards are linked to provider performance. 

• Emphasis on Specific Measures: In rewarding quality performance programs 

for physicians and medical groups, achieving clinical quality goals plays the 

most significant role in the formula for determining financial rewards. In proVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 E:\HR\OC\26375.XXX 26375

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grams for hospitals, utilization experience/efficiency and patient safety objectives tend to play equivalent roles. • Consumer Incentives: Efforts are being launched to encourage consumers 

through reduced co-payments, deductibles, and/or premiums to use providers 

that are achieving quality performance. 

VII. CONCLUSION 

Thank you for the opportunity to testify on this important issue. Today’s health 

care system is at a critical crossroads. We need to work on the three interrelated 

goals of controlling costs, improving quality, and expanding access. Progress on cost 

containment and quality improvement can free up resources to expand access to 

health care coverage for all Americans. 

We applaud the subcommittee for focusing on value-based purchasing as an important step toward improving the quality, safety and efficiency of the U.S. health 

care system, and we look forward to working closely with you to achieve these goals. 

Appendix A 

SPECIFIC INITIATIVES FOR REWARDING QUALITY PERFORMANCE 

To provide a better understanding of pay-for-performance initiatives in the private 

sector, we are providing brief examples of programs being implemented by our members across the country. • Aetnahas launched a network of specialist physicians who demonstrate effectiveness based on certain clinical measures, such as hospital readmission rates 

over a 30-day period, reduced rates of unexpected complications by hospitalized 

patients, and efficient use of health care resources. Consumers who choose these 

specialists benefit through lower co-payments, and providers benefit through increased patient volume. The Aexcel network, which is currently available in 

nine markets across the country, includes physicians in twelve medical specialties—cardiology, cardiothoracic surgery, gastroenterology, general surgery, obstetrics/gynecology, orthopedics, otolaryngology, neurology, neurosurgery, plastic 

surgery, vascular surgery, and urology. • CIGNA HealthCare of California participates in the Integrated Healthcare 

Association’s (IHA) quality incentive program. CIGNA rewards the top 50 percent of contracted physician groups for meeting each of the IHA clinical and 

member satisfaction metrics. Top-performing groups in all components of the 

Rewards Program are eligible to receive a minimum of $1.60 per member per 

month. Payment is based upon the total annual member months of the group’s 

population. In the first year of the program, the payout in CaliforniaforIHA was 

$4 million. • Health Net of Connecticut has entered into a partnership with the Connecticut State Medical Society-Individual Practice Association (CSMS–IPA) to 

establish a ‘‘P4Q’’ program that will reward eligible physicians for providing 

high quality, cost-effective care. The P4Q program, announced in July 2005, includes both primary care providers and specialists, providing them with an opportunity to earn bonus compensation beyond their current fee-for-service reimbursement. Diabetes treatment, breast cancer screenings and childhood immunizations are included among the areas where physicians will be rewarded for 

taking preemptive action. The first bonuses are expected to be paid out in the 

second quarter of 2006, based on performance measures for 2005. 

• HealthPartners has implemented an Outcomes Recognition Program that offers annual bonuses to primary care clinics that achieve superior results in effectively promoting health and preventing disease. Since 1997, this program has 

awarded more than $3.95 million in bonuses to primary care groups that meet 

performance goals focusing on diabetes, coronary artery disease, tobacco cessation, generic prescribing, and consumer satisfaction. 

• Highmark Blue Cross Blue Shield has adopted a Quality Incentive Payment 

System that rewards primary care physicians for demonstrating improvement 

in measures for preventive screenings, treatment of chronic conditions, and 

other quality and service issues. In the tenth year of the program (2003), more 

than $12 million in bonuses were paid to primary care physicians who exceeded 

the average performance measure on various indicators. 

• Independent Health uses a Quality Management Incentive Award Program 

that involves a physician advisory group in developing performance targets for 

key issues such as patient satisfaction, emergency room utilization/access, office 

visits, breast and colorectal screening, immunizations, and treatment for diabetes and asthma. In addition to paying bonuses to physicians who exceed these 

targets, this program has documented significant improvements in clinical care 

for enrollees. 


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• PacifiCare Health Systems has developed a Quality Index profile that uses 

clinical, service, and data indicators to rank medical groups. Enrollees pay 

lower co-payments for office visits if they select physicians from a ‘‘value network’’ of higher quality, lower cost providers. Additionally, PacifiCare’s Quality 

Incentive Program incorporates a subset of the Quality Index profile and has 

demonstrated an average improvement of 20 percent in 17 of 20 measures, with 

rewards to high performing physicians exceeding $15 million in the past three 

years. • WellPoint’s quality programs provide increased reimbursement to hospitals 

and physicians based, in part, on achieving improved quality measures. For example, hospitals selected for Anthem Blue Cross and Blue Shield’s Coronary 

Services Centers program in Indiana, Kentucky, and Ohio must meet stringent 

clinical quality standards for patient care and outcomes for certain cardiac procedures. Anthem Blue Cross and Blue Shield of Virginia’s Quality-in-Sights 

Hospital Incentive Program (QHIP) rewards hospitals for improvements in patient safety, patient health, and patient satisfaction. The 16 hospitals that participated in the first year of QHIP in 2004 are receiving a total of $6 million 

for actively working to implement nationally recognized care and safety practices that can save lives. Blue Cross of California has a comprehensive physician pay-for-performance program that paid $57 million in bonus payments to 

134 medical groups based on quality criteria in 2003. Blue Cross of California 

also has a PPO Physician Quality and Incentive Program (PQIP) that allows 

more than 4,000 physicians insix countiesin the San Francisco areato receive 

financial bonuses for superior performance on clinical quality, service quality, 

and pharmacy measures. 

f 

Chairman JOHNSON. Thank you. Dr. Armstrong. 

STATEMENT OF JOHN H. ARMSTRONG, M.D., MEMBER, BOARD 

OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION 

Dr. ARMSTRONG. Thank you, Chairman Johnson. My name is 

John Armstrong, I am a trustee of the American Medical Association and a practicing trauma critical care and general surgeon from 

Miami, Florida. The American Medical Association would like to 

commend you, Madam Chairman, on introduction of your bill, H.R. 

3617, the Medicare Value-based Purchasing For Physician Services 

Act of 2005. We are grateful to you and Members of the Subcommittee for your leadership in recognizing the need to replace 

the current Medicare physician payment formula, the SGR, and 

provide appropriate incentives for improving quality of care for 

Medicare patients. We also appreciate your repeated efforts, 

Madam Chairman, with Chairman Thomas in pressing CMS to 

make administrative changes to the physician payment formula 

retroactive to 1996 that would help Congress lower the cost of enacting a new formula. We agree, and urge CMS to do so immediately. 

Today we are here to discuss H.R. 3617, which is critical for ensuring continued quality of care and access to healthcare services 

for Medicare patients. The American Medical Association and its 

member physicians are staunchly committed to quality improvement. We have convened the Physician Consortium For Performance Improvement for the development of physician performance 

measures. As a result of these efforts, 24 of 36 measures for physician-care endorsed by the National Quality Forum were developed 

by the consortium. The CMS is also using measures developed by 

the consortium in demonstration projects on Pay For Performance 

authorized by the Medicare Modernization Act. In June, our house 

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lines. A number of the provisions in H.R. 3617 are consistent with 

these. 

First, H.R. 3617 would repeal the fatally flawed SGR and provide 

positive updates for physicians that reflect increases in practice 

costs. We appreciate your recognition that value-based purchasing 

and the SGR are not compatible. Value-based purchasing may save 

dollars for the Medicare Program as a whole, but many of the 

measures ask physicians to deliver more care. This concept conflicts with the SGR, which penalizes physicians with payment cuts 

when volume increases exceed a target. Additional pay cuts would 

only exacerbate the projected 26-percent reduction in physician reimbursement over the next 6 years, beginning with the first of this 

coming year. A recent AMA survey shows that these cuts will impair patient access. 

Second, H.R. 3617 would require evidence-based valid performance measures developed by the medical specialties in a transparent process. Third, the bill would mandate a volume growth 

study for physician services. This is important for carefully distinguishing between appropriate and inappropriate utilization of services. We are happy also to have the opportunity to offer suggestions 

for enhancement of H.R. 3617 and want to work further with the 

Subcommittee in this effort. We would strongly support a greater 

amount of time for transitioning to a value-based program for physician services. A ramp-up period in 2006, with a phase-in from 

2007 through 2010, would allow for proper development of the program. Pilot testing prior to full implementation is essential. Medicare value-based purchasing for physician services is a completely 

new concept, and demonstration results with this type of system 

are currently not available. The CMS only began a limited demonstration in April that applies to large group practices, not a wide 

array of physician practices, and a demonstration mandated by the 

AMA is still under development. 

Further, we urge the decisions about public reporting be deferred 

until there is full resolution of certain elements, such as risk adjustment, that could affect how information is reported. Inaccurately reported information could adversely impact access to care 

for vulnerable populations. This would undermine the goals of 

value-based purchasing and violate our physicians’ oath, first do no 

harm. Patients are served only if they are provided accurate, relevant and user friendly information. We urge clarification that 

H.R. 3617 would require resource use efficiency measures to meet 

the same rigorous evidence-based standards that apply to other 

measures. All physician measures must be valid, evidence-based 

measures that improve quality of care. 

To conclude, we emphasize that stable medical practice economics are essential for value-based purchasing. Physicians must have 

the financial ability to invest in tools and initiatives, such as information technology that are necessary for moving medicine forward 

and continually achieving the new levels of quality improvement 

envisioned by value-based purchasing programs. The American 

Medical Association was founded on the mission of serving patients 

and ensuring access to quality care. We look forward to working 

with the Subcommittee and Congress to make improvements in the 

Medicare Program that allow physicians to carry out that mission 


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in service to our patients. I thank you for the opportunity to be 

here today. 

[The prepared statement of Dr. Armstrong follows:] 

Statement of John H. Armstrong, M.D., Member, Board of Trustees, 

American Medical Association 

The American Medical Association (AMA) appreciates the opportunity to provide 

our views today regarding H.R. 3617, Chairman Johnson’s ‘‘Medicare Value-Based 

Purchasing for Physicians’ Services Act of 2005,’’ which now has 31 cosponsors. We 

would like to commend you, Madam Chairman, and Members of the Subcommittee, 

for all of your hard work and leadership in recognizing the fundamental need to replace the Medicare physician payment update formula and provide appropriate incentives for improving quality of care for Medicare patients. 

A 4.4% Medicare physician pay cut is scheduled to become effective January 1, 2006, and is the first in a series of cuts expected over the next six 

years, totaling 26%. H.R. 3617 is crital for ensuring continued quality of 

care and long-term access to health care services for Medicare beneficiaries. 

AMA COMMITMENT TO THE DEVELOPMENT OF EFFECTIVE QUALITY 

IMPROVEMENT PROGRAMS 

The AMA has long been committed to quality improvement, and we have undertaken a number of initiatives to achieve this goal. The AMA has convened the Physician Consortium for Performance Improvement for the development of performance measurements and related quality activities. Consortium membership includes: 

(i) clinical experts representing more than 65 national medical specialty and state 

medical societies, and additional medical specialty societies continue to join the Consortium; (ii) experts in methodology; (iii) the Agency for Healthcare Research and 

Quality (AHRQ); (iv) the Centers for Medicare and Medicaid Services (CMS); (v) the 

Joint Commission on Accreditation of Healthcare Organizations—liaison member, 

and; (vi) the National Committee for Quality Assurance (NCQA)—liaison member. 

The Consortium has grown to become the leading physician-sponsored initiative 

in the country in developing physician-level performance measures, and senior CMS 

officials have stated that CMS is looking to the Consortium to be the primary measure development body for physician level performance measures used by CMS for 

quality improvement and accountability purposes (e.g., pay-for-performance). In fact, 

CMS is now using the measures developed by the Consortium in its large group 

practice demonstration project on pay-for-performance, and plans to use them in 

demonstration projects authorized by the Medicare Prescription Drug, Improvement, 

and Modernization Act of 2003 (MMA). Once measures have been developed through 

the Consortium, they should be reviewed and endorsed in a transparent process by 

a multi-stakeholder organization, such as the National Quality Forum (NQF), as is 

required by H.R. 3617. In fact, the NQF recently endorsed 36 measures for outpatient care, 24 of which were developed by the Consortium. 

In June of this year, the AMA House of Delegates also adopted comprehensive 

pay-for-performance principles and guidelines that address five broad aspects of 

pay-for-performance programs: (i) quality of care; (ii) the patient/physician relationship; (iii) voluntary participation; (iv) accurate data and fair reporting; and (v) fair 

and equitable program incentives. More specific guidelines are associated with each 

of the AMA pay-for-performance principles, and we provided these principles and 

guidelines to the Subcommittee at its July 21, 2005 hearing on value-based purchasing. 

LEGISLATION TO ESTABLISH VALUE–BASED PURCHASING FOR PHYSICIANS’ 

SERVICES UNDER MEDICARE 

AMA/Medical Specialty Conceptual Framework for a Phased Approach to Pay-ForPerformance 

The attached conceptual framework for a phased-in approach to a Medicare payfor-performance program was as jointly developed by the AMA and over 70 medical 

organizations, and we believe it will be helpful in providing guidance as we work 

toward refinements of H.R. 3617. We are committed to working with the Subcommittee, Congress and the Administration to help develop a fair, ethical, patientcentered, and evidence-based Medicare pay-for-performance program. 

The attached framework is the result of extensive work by organizations representing a wide variety of physician specialties. It is our belief that the only way 


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pay-for-performance will be successful in Medicare is if it recognizes the great diversity of physician practices in this country. Many medical specialty organizations 

have shared with Congress very detailed principles outlining the necessary elements 

for pay-for-performance to work effectively. This framework is not intended to supersede these important documents, but rather to highlight areas of consensus in medicine to provide you with our best sense of how Medicare might begin to implement 

pay-for-performance. 

Provisions in H.R. 3617 that are Consistent with AMA Pay-for-Performance Principles and Guidelines 

As discussed further below, the AMA strongly supports theprovision in 

H.R. 3617 that would repeal the current Medicare physician payment sustainable growth rate formula (SGR) and replace it with updates that reflect 

increases in medical practice costs. This would treat physicians similarly 

to other Medicare providers, such as hospitals, home health agencies and 

skilled nursing facilities. H.R. 3617 also would ensure that physicians receive a base payment update, while physicians achieving quality goals 

would receive a bonus payment, and we strongly support this provision as 

well. We are happy to work with the Subcommittee in working through the 

details of the timing sequence of these payments, while keeping in mind 

that all physician organizations should have equal opportunity to qualify 

for available bonus payments 

In addition, the AMA greatly appreciates that a number of provisions in H.R. 

3617 are consistent with key pay-for-performance principles and guidelines recently 

adopted by our House of Delegates. These provisions would: (i) require that evidence-based, valid performance measures be developed in a transparent process by 

the medical specialties and validated through a consensus-building organization involving multiple stakeholders, such as the Physician Consortium for Performance 

Improvement; (ii) require a phased-in approach to allow all physician specialties the 

opportunity to participate in the program; (iii) allow voluntary physician participation in the program; (iv) require performance measurement to be scored against 

both absolute values and relative improvements in those values; (v) require safeguards against patient de-selection, as well as measures that take into account patient non-compliance, and (vi) require the Secretary of HHS to educate physicians 

and beneficiaries about the value-based purchasing program. 

We also applaud the fact that H.R. 3617 would require a payment update equal 

to the Medicare Economic Index (MEI) for new physicians for the year they are determined by the Secretary to be ‘‘new.’’ In addition, the bill would require a physician volume growth study whereby HHS must annually report on physician volume 

growth, with recommendations for responding to inappropriate volume growth by 

service, specialty and region. (The Secretary of HHS would also review, over 5 years, 

improvement in quality and efficiency, access and fairness of implementation of program.) There are many reasons for growth in the volume of Medicare services, and 

without further study it is impossible to determine what volume growth is appropriate or inappropriate. Earlier this year, for example, Medicare officials announced 

that spending on Part A services is decreasing. This suggests that, as technological 

innovations advance, services are shifting from Part A to Part B, leading to appropriate volume growth on the Part B side. The volume growth study in H.R. 3617 

is important for distinguishing between appropriate and inappropriate volume 

growth. If there is a problem with volume growth regarding a particular type of 

medical service, the AMA would look forward to working with Congress and the Administration to address it. 

Factors to Consider for Improvement of H.R. 3617 

Public Reporting 

The AMA is concerned about public reporting. Potential, adverse affects of public 

reporting must be avoided. If not approached thoughtfully, public reporting can have 

unintentional adverse consequences for patients, including, for example, patient deselection in the case of those who, for a variety of reasons, are non-compliant. Further, health literacy may not be adequate to comprehend basic medical information. 

Thus, several critical issues that must be resolved before public reporting provisions 

can be implemented. There needs to be a method for ensuring that any publicly reported information is: (i) attributable to those involved in the care; (ii) appropriately 

risk-adjusted; and (iii) accurate, as well as relevant and helpful to the patient. 

Moreover, with regard to public reporting, it is critical that physicians have the 

opportunity for prior review and appeal with regard to any data that is part of the 

public review process, and physician comments should be included with any publicly 

reported data. This is necessary to give an accurate and complete picture of what 


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is otherwise only a snapshot, and possibly skewed, view of the patient care provided 

by a physician. 

We urge clarification of the provisions in H.R. 3617, however, that address the 

opportunity for prior review and appeal with comment. The bill contains a provision 

establishing an appeals process and allowing the opportunity for prior review and 

comment on information concerning whether the physician met performance objectives, with comments to be made public with the report. Yet, the bill prohibits administrative or judicial review of certain matters, including the development and 

computation of physician ratings, as well as the application of performance improvement standards and thresholds to physicians. These provisions (e.g., those barring 

administrative and judicial review of the application of performance standards to 

physicians) may be in conflict with those allowing physician appeal and comment 

of whether they met performance objectives. Thus, we urge that H.R. 3617 make 

clear that physicians have the opportunity for prior review, appeal and comment on 

publicly reported data. 

Pilot Testing 

We urge that H.R. 3617 include a provision for pilot-testing of any value-based 

purchasing program prior to full implementation. Since value-based purchasing is 

a completely new concept with regard to Medicare payment for physicians’ services, 

pilot testing is critical for determining whether this type of payment system 

achieves its intended purpose. Pilot tests would also help identify program ‘‘glitches’’ 

and any needed modifications. For example, we are concerned about the impact of 

a pay-for-performance program on patients in areas that are under-served or have 

a high-disease burden. Pilot testing could illuminate appropriate methods for ensuring access for these patients. 

A limited demonstration project being conducted by CMS, i.e., the Physician 

Group Practice Demonstration, began only in April of this year, and thus results 

from that demonstration will not be forthcoming for some time. Moreover, this demonstration only applies to large group practices and not to the wide array of physician practices across the country. In addition, CMS’ Care Management Performance 

Demonstration, authorized by section 649 of the MMA, is still under development 

and has not yet begun. Thus, it is not clear when results from this demonstration 

will be available. 

In addition to pilot testing by CMS, we believe the Agency for Healthcare Research and Quality could also play a valuable role in identifying best practices related to value-based purchasing. Evidence-basedresearch, coupled with CMS pilot 

tests, wouldhelp ensure that no unintended consequences arise from the application 

of this new concept in Medicare. 

Measures of Efficiency 

Measures of efficiency are another strong area of concern. Efficiency measures 

have the danger that the lowest-cost treatment will supersede the most appropriate 

care for an individual patient. We appreciate that H.R. 3617 requires that efficiency 

measures relating to clinical care meet the same high standards that apply to quality measures. Efficiency measures must be evidence-based, valid measures developed by the medical specialty societies in a transparent process. 

We urge the following considerations, however, with regard to efficiency measures. 

There must be broad-based consensus regarding what constitutes appropriate levels 

of care before measuring for efficiency. In addition, all efficiency measures should 

be evidence-based. (The same is true for quality measures.) All measures must have 

a valid basis, with sufficient evidence to show that the measure will improve quality 

of care. Thus, H.R. 3617 should extend the evidence-based requirement to all measures, including efficiency measures that the bill designates as not relating to clinical 

care. 

Risk Adjustment 

Development of risk-adjustment techniques are of great concern to the physician 

community. A reliable method for risk-adjustment is critical. Without it, there will 

not be an adequate reflection of a physicians’ performance. As we move toward developing a reliable risk-adjustment technique, physician organizations must be consulted and be integrally involved in the process. We caution, however, that the 

measure development process must remain within the domain of the multi-stakeholder organization (such as the Physician Consortium for Performance Improvement) and medical specialty societies, and the separate process for developing risk 

adjustment techniques should not interfere with measure development. 


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Phase-In of Value-Based Purchasing Program 

In accordance with the pay-for-performance AMA/specialty society joint conceptual 

framework discussed above, the AMA urges a greater amount of time in 

transitioning to a value-based program for physicians’ services. Under this framework, there would be: (i) a ‘‘ramp up’’ period in 2006; (ii) pay-for-reporting in 2007 

through 2009 with regard to various levels of quality information and measures, and 

(iii) pay-for-performance in 2010. 

This timeframe would allow for the development of evidence-based measures, as 

well as their validation and endorsement through the appropriate process. This is 

necessary so that each medical specialty has an opportunity to participate in the 

value-based program. 

Administrative Costs 

The AMA also urges that any value-based purchasing program ensure that physicians are not burdened with additional administrative costs, especially for information technology systems that are needed to participate in the program. As discussed 

above, physicians cannot continue to absorb unfunded government mandates, and 

value-based payments for participation in the program should not be undermined 

by administrative costs. 

Other Critical Considerations 

The AMA also wishes to raise overall factors to be considered as we move forward 

in developing value-based purchasing legislation for physicians: (i) the number of 

patients needed to achieve a statistically valid sample size, which is particularly important for purposes of determining how ‘‘billing units,’’ as set forth under H.R. 

3617, are ultimately defined; (ii) the desire to keep the data collection burden low, 

while at the same time maintaining accuracy of the data; (iii) level of scientific evidence needed in establishing appropriate measures; (iv) the ability to trace a performance measure back to one or many physicians involved in a patient’s care; (v) 

the complexities of distributing payments when multiple physicians are involved in 

a patient’s care, and without violating any fraud and abuse laws and regulations; 

and (vi) protection of patient privacy. 

Finally, as we move forward in the development of value-based purchasing programs for physicians’ services, care should be taken to review savings achieved in 

certain parts of the Medicare program due to these programs. In fact, AMA policy 

seeks to ‘‘ensure that any Medicare Part A savings which are achieved when physicians’ efforts result in fewer in-patient complications, shorter lengths-of-stays, fewer 

hospital readmissions, etc., are ′′credited′′ and flow to the Part B physician payment 

pool.’’ 

We commend Chairman Johnson for your sensitivity to these important factors, 

and we look forward to working with you to achieve a new payment system for physicians that keeps pace with the cost of practicing medicine and rewards physicians 

for the quality of care they provide. 

H.R. 3617 Recognizes the Need to Repeal the Current Medicare Physician Payment 

Sustainable Growth Rate Formula 

The AMA applauds the Subcommittee’s recognition that value-based purchasing is not compatible with the current fatally flawed SGR physician 

payment formula. We also strongly support the provision in H.R. 3617 that 

would repeal the SGR and replace it with updates that reflect increases in 

medical practice costs. 

Specifically, H.R. 3617 would establish a 1.5% update in 2006. Thereafter, the update would be based on MEI, which is Medicare’s index for measuring medical practice cost inflation. In 2007–08, the payment update would be based would MEI if 

certain performance reporting requirements are met. If not, the update would be 

MEI minus 1. In 2009 and subsequent years, the update would be MEI if reporting 

requirements and quality and efficiency measures are met. If not, the update would 

be MEI minus 1. 

H.R. 3617 recognizes that the current Medicare physician payment system is not 

compatible with a value-based purchasing program for physicians. Value-based purchasing may save dollars for the Medicare program as a whole by reducing medical 

complications and hospitalizations. The majority of measures, however, such as 

those focused on prevention and chronic disease management, ask physicians to deliver more care. During his May 11, 2004 testimony before the House Ways and 

Means Health Subcommittee, CMS Administrator, Dr. Mark McClellan, suggested 

that one of the agency’s quality improvement projects, the Chronic Care Improvement Project, ′′may actually increase the amount of (patient-physician) contact 

through appropriate office visits with physicians.′′ 


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The SGR is a spending target that penalizes volume increases exceeding the target. If the SGR is retained, the so-called reward for physicians will be additional 

pay cuts. This is antithetical to the desired outcome of value-based purchasing and 

would only compound an ongoing serious problem. 

The flaws in the SGR formula led to a 5.4% payment cut in 2002, and additional 

cuts in 2003 through 2005 were averted only after Congress intervened. Without 

Congressional and Administrative action, Medicare payments to physicians will be 

cut by 4.4%, beginning January 1, 2006. As discussed above, this is the first of a 

series of cuts that are projected by the Medicare Trustees over the next six years, 

totaling about 26%. If these cuts begin, on January 1, 2006, average physician payment rates will be less in 2006 than they were in 2001, despite substantial practice 

cost inflation. These reductions are not cuts in the rate of increase, but are actual 

cuts in the amount paid for each service. Physicians simply cannot absorb these draconian payment cuts and, unless Congress acts, physicians may be forced to avoid, 

discontinue or limit the provision of services to Medicare patients. 

A recent AMA survey indicates that if significant Medicare pay cuts become effective beginning in 2006: 

• More than a third of physicians (38%) plan to decrease the number of new 

Medicare patients they accept; • More than half of physicians (54%)plan todefer the purchase of information 

technology, which is necessary to make value-based purchasing work; • A majority of physicians (53%) will be less likely to participate in a Medicare 

Advantage plan; One-third (34%) of physicians whose practice serves a rural patient population will discontinue rural outreach services; • One-third of physicians (34%) plan to discontinue nursing home visits if payments are cut in 2006. By the time the cuts end, half (50%) of physicians will 

have discontinued nursing home visits. 

A physician access crisis is looming for Medicare patients. While the MMA 

brought beneficiaries important new benefits, these critical improvements must be 

supported by an adequate payment structure for physicians’ services. There are already some signs that access is deteriorating. A MedPAC survey found that 22% of 

patients already have some problems finding a primary care physician and 27% report delays getting an appointment. Physicians are the foundation of our nation’s health care system. Continual cuts put Medicare patient access to 

physicians’ services at risk. They also threaten to destabilize the Medicare 

program and create a ripple effect across other programs. Indeed, Medicare cuts jeopardize access to medical care for millions of our active duty 

military family members and military retirees because their TRICARE insurance ties its payment rates to Medicare. 

PROBLEMS WITH THE SUSTAINABLE GROWTH RATE 

There are two fundamental problems with the SGR formula: 

1. Payment updates under the SGR formula are tied to the gross domestic product, which bears little relationship to patients’ health care needs or physicians’ practice costs; and 

2. Physicians are penalized with pay cuts when Medicare spending on physicians’ services exceeds the SGR spending target, yet, the SGR is not adjusted 

to take into account many factors beyond physicians’ control, including government policies, that although good for patients, promote Medicare spending on physicians’ services. 

CMS Administrator McClellan recently stated that the current system of 

paying physicians is simply not sustainable. We agree, and urge CMS to use 

its authority to take administrative action to help Congress avert physician 

pay cuts and ensure that a stable, reliable Medicare physician payment formula is in place for Medicare patients, as discussed below. 

ADMINISTRATIVE ACTION NEEDED TO ASSIST CONGRESS IN REPLACING THE SGR 

CMS has the Authority to Remove Drug from the SGR, Retroactive to 1996 

The AMA extends its gratitude to Chairman Thomas and Subcommittee Chairman Johnson for your repeated efforts in pressing CMS to join forces with Congress 

to replace the flawed physician payment formula. As your letter to CMS Administrator McClellan, dated July 12, 2005, states: ‘‘A permanent legislative fix to the 

Sustainable Growth Rate (SGR) formula would be prohibitively expensive given current interpretation of the formula, but could proceed through our joint efforts combining administrative and legislative action.’’ The letter also affirms CMS’ authority 


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to remove the costs of drugs, back to the base period, from calculation of the SGR. 

The AMA adamantly agrees with the Chairmen that CMS should retroactively remove drugs from the SGR, and we continue to join the Chairmen 

in urging CMS to do so for the 2006 physician payment rule. 

Recently Administrator McClellan testifiedthat removing drugs will not have any 

impact on physician payment updates under the SGR for at least several years. We 

believe that this statement is based on a scenario where drugs are removed going 

forward, rather than from the base-year forward. Nonetheless, under any scenario, 

removing drugs will significantly reduce the cost of legislation to address the looming Medicare pay cuts and CMS should take this step as soon as possible. Indeed, 

CMS told Congress earlier this year that removing drugs prospectively is worth 

about $36 billion, while removing them from the base-year forward is worth $111 

billion. 

CMS has the authority to remove physician-administered drugs from the SGR, 

retroactive to 1996. When CMS calculates actual Medicare spending on ‘‘physicians’ 

services,’’ it includes the costs of Medicare-covered prescription drugs administered 

in physicians’ offices. CMS has excluded drugs from ‘‘physicians’ services’’ for purposes of administering other Medicare physician payment provisions. Thus, removing drugs from the definition of ‘‘physicians’ services’’ for purposes of calculating the 

SGR is a consistent reading of the Medicare statute. Drugs are not paid under the 

Medicare physician fee schedule, and it is illogical to include them in calculating 

the SGR. 

Further, if CMS adopts a revised definition of ‘‘physicians’ services’’ that excludes 

drugs, it can revise its SGR calculations going back to 1996 using its revised definition. 

These revisions would not affect payment updates from previous years, but would 

only affect payment updates in future years. This recalculation would be similar, for 

example, to the recalculation of graduate medical education costs in a base year for 

purposes of setting future payment amounts. That recalculation was approved by 

the Supreme Court. 

CMS Should Remove Drugs from the SGR 

Drug expenditures are continuing to grow at a very rapid pace. Over the past 5 

to 10 years, drug companies have revolutionized the treatment of cancer and many 

autoimmune diseases through the development of a new family of biopharmaceuticals that mimic compounds found within the body. Such achievements do not 

come without a price. Drug costs of $1,000 to $2,000 per patient per month are common and annual per patient costs were found to average $71,600 a year in one 

study. 

In 2004 alone, six oncology drugs received FDA approval or expanded approval, 

and two others received approval in 2003. As Dr. McClellan noted in testimony earlier this year, spending for one recently-developed drug, Pegrilgrastim (Neulastra) 

totaled $518 million last year, more than double the 2003 total. This drug strengthens the immune systems of cancer patients receiving chemotherapy, thereby improving and extending the lives of many and potentially reducing hospital costs in the 

process. 

While the bulk of all physician-administered drugs are used to treat cancer patients, other factors—such as a rise in the number of patients with compromised immune systems and the number of drug-resistant infections in the U.S—also have 

contributed to the rapid growth of drug expenditures. This growth has dwarfed that 

of the physician services the SGR was intended to include. Between the SGR’s 1996 

base year and 2004, the number of drugs included in the SGR pool rose from 363 

to 445. Spending on physician-administered drugs over the same time period rose 

from $1.8 billion to $8.6 billion, an increase of 358% per beneficiary compared to 

an increase of only 61% per beneficiary for actual physicians’ services. As a result, 

drugs have consumed an ever-increasing share of SGR dollars and have gone from 

3.7% of the total in 1996 to 9.8% in 2004. 

This lopsided growth lowers the SGR target for real physicians’ services, and, according to the Congressional Budget Office, annual growth in the real target for 

physicians’ services will be almost a half percentage point lower than it would be 

if drugs and lab tests were not counted in the SGR. As 10-year average GDP growth 

is only about 2%, even a half percent increase makes a big difference. Thus, including the costs of drugs in the SGR pool significantly increases the odds that Medicare 

spending on ‘‘physicians’ services’’ will exceed the SGR target. Ironically, however, 

Medicare physician pay cuts (resulting from application of the SGR spending target) 

apply only to actual physicians’ services, and not to physician-administered drugs, 

which are significant drivers of the payment cuts. 


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Medicare actuaries predict that drug spending growth will continue to significantly outpace spending on physicians’ services for years to come. In 2003, MedPAC 

reported that there are 650 new drugs in the pipeline and that a large number of 

these drugs are likely to require administration by physicians. In addition, an October 2003 report in the American Journal of Managed Care identified 102 unique biopharmaceuticals in late development and predicted that nearly 60% of these will be 

administered in ambulatory settings. While about a third of the total are cancer 

drugs, the majority are for other illnesses and some 22 medical specialties are likely 

to be involved in their prescribing and administration. 

The development of these life-altering drugs has been encouraged by various federal policies including streamlining of the drug approval process and increased funding for the National Institutes of Health. In fact, under the leadership of Dr. 

McClellan and this Administration, the NIH has made substantial progress toward 

its goal of wiping out cancer deaths by 2015 and much of that progress is tied to 

the development and more rapid diffusion of new drugs. The AMA shares and applauds these goals. It is not equitable or realistic, however, to finance the 

cost of these drugs through cuts in payments to physicians, and thus these 

costs should be removed from calculations of the SGR. 

Government-Induced Increases in Spending on Physicians’ Services should be Accurately Reflected in the SGR Target 

The AMA agrees with Chairmen Thomas and Johnson, as stated in the 

July 12, 2005, letter referenced above, that CMS should take steps to ensure 

that the SGR accurately reflects spending increases due to such matters as 

expanded Medicare benefits and national coverage decisions. 

As discussed above, the government encourages greater use of physician services 

through legislative actions, as well as a host of other regulatory decisions. These initiatives clearly are good for patients and, in theory, their impact on physician 

spending is recognized in the SGR target. In practice, however, many have either 

been ignored or undercounted in the target. Since the SGR is a cumulative system, 

erroneous estimates compound each year and create further deficits in Medicare 

spending on physicians’ services. 

Effective January 1, 2005, CMS implemented the following new or expanded 

Medicare benefits, some of which have been mandated by the MMA: (i) initial preventive physical examinations; (ii) diabetes screening tests, (iii) cardiovascular 

screening blood tests, including coverage of tests for cholesterol and other lipid or 

triglycerides levels, and other screening tests for other indications associated with 

cardiovascular disease or an elevated risk for that disease, (iv) coverage of routine 

costs of Category A clinical trials, and (v) additional ESRD codes on the list of telehealth services. 

As a result of implementing a new Medicare benefit or expanding access to existing Medicare services, the above-mentioned provisions will increase Medicare spending on physicians’ services. Such increased spending will occur due to the fact that 

new or increased benefits will trigger physician office visits, which, in turn, may 

trigger an array of other medically necessary services, including laboratory tests, to 

monitor or treat chronic conditions that might have otherwise gone undetected and 

untreated, including surgery for acute conditions. 

CMS has not provided details of how its estimates are calculated, and certain 

questions remain. Further, CMS reportedly does consider multiple year impacts and 

cost of related services, but the agency has not provided any itemized descriptions 

of how the agency determines estimated costs. Without these details, it is impossible 

to judge the accuracy of CMS’ law and regulation allowances. For example, in reviewing the 2004 utilization and spending data, we found that utilization per beneficiary of code G0101 for pelvic and breast exams to screen for breast or cervical 

cancer had increased 10% since 2003. Although this benefit was enacted in BBA 

1997 eight years ago, clearly it is continuing to effect SGR expenditures as continued promotion of the benefit by both the government and beneficiary organizations 

prompt more beneficiaries to take advantage of it. Likewise, per beneficiary utilization of code G0105, colorectal cancer screening of a high-risk patient, also enacted 

in the BBA, was up 13%. These impacts should be taken into account in determining the 2004, 2005 SGRs and 2006 SGRs. 

In addition, CMS recently announced that physicians will receive an increased 

payment as a result of additional paperwork burden that will be shifted to physicians in documenting patient need for power wheelchairs and scooters. These increased payments should be reflected in the SGR. Further, in its 2006 payment preview, CMS identified physical therapy as an area of rapid volume growth contributing to accelerated growth in 2004. The physical therapy community has identified 

a number of regulatory changes that likely encouraged that growth, and CMS 


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should examine the degree to which legislative and regulatory changes on the Part 

A side have led to a shift of services into outpatient settings where they are included in the SGR pool. 

Spending due to all of the foregoing governmentinitiatives should be reflected in the SGR. 

Medicare Physician Spending Due to National Coverage Decisions should be Reflected in the SGR 

When establishing the SGR spending target for physicians’ services, the law requires that impact on spending, due to changes in laws and regulations, be taken 

into account. The AMA believes that any changes in national Medicare coverage policy that are adopted by CMS pursuant to a formal or informal rulemaking, such as 

Program Memorandums or national coverage decisions, constitute a regulatory 

change as contemplated by the SGR law, and must also be taken into account for 

purposes of the spending target. 

When the impact of regulatory changes for purposes of the SGR is not properly 

taken into account, physicians are forced to finance the cost of new benefits and 

other program changes through cuts in their payments. Not only is this precluded 

by the law, it is extremely inequitable and ultimately adversely impacts beneficiary 

access to important services. 

CMS has expanded covered benefits through the adoption of more than 80 national coverage decisions (NCDs), including implantable cardioverter defibrillators, 

diagnostic tests and chemotherapy for cancer patients, carotid artery stents, cochlear implants, PET scans, and macular degeneration treatment. While every NCD 

does not significantly increase Medicare spending, taken together, even those with 

marginal impact contribute to rising utilization. CMS has stated its view that it 

would be very difficult to estimate any costs or savings associated with specific coverage decisions and that any adjustments would likely be small in magnitude and 

have little effect on future updates. We disagree, and strongly believe that CMS 

should make these adjustments in its rulemaking for 2006. CMS already adjusts Medicare Advantage payments to account for NCDs, so it clearly is 

able to estimate their costs. 

Accordingly, CMS should ensure that the SGR reflects the impact on utilization and spending resulting from all national coverage decisions for 

purposes of the 2006 physician fee schedule rule. 

The AMA appreciates the opportunity to provide our views to the Subcommittee 

on these important matters, and we look forward to working with the Subcommittee 

and CMS to develop a payment system for physicians that ensures quality for our 

patients and reflects the costs of practicing medicine. 

————— 

ATTACHMENT—AMA TESTIMONY 

2006 Ramp-up 

Medicare Update: Total additional dollars allocated to fix the SGR at least equal to 

the amount required to provide a fee schedule update equal to the increase in 

the MEI. 

Development Period 

• Measure Development (ongoing) 

• PFP Pilot Tests/Demos 

2007 Pay for Reporting 

Medicare Update: Total additional dollars allocated to fix the SGR and fund a pay 

for reporting program are at least equal to the amount required to provide a 

fee schedule update equal to the increase in the MEI. All physicians guaranteed 

a payment ‘‘floor’’ of positive updates. 

Reporting basic quality information such as: 

• Practice structure (e.g. functions of IT use—patient registries) 

• Participation in patient safety programs/use of protocols (e.g. mark your site, 

time out) 

Development Period 

• Measure Development (ongoing) 

• PFP Pilot Tests/Demos 


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2008–2009 Pay for Reporting/Pay for Participation 

Medicare Update: Total additional dollars allocated to fix the SGR and fund a pay 

for reporting/pay for participation program are at least equal to the amount required to provide a fee schedule update equal to the increase in the MEI. All 

physicians guaranteed a payment ‘‘floor’’ of positive updates. 

• Transition to participation in more advanced quality improvement programs 

and reporting of evidence-based quality measures. Quality performance data will be 

transmitted back to physicians for internal quality improvement purposes. This 

phase would also test the feasibility of collecting data and accurately measuring 

physician performance in preparation for PFP. 

Development Period 

• Measure Development (ongoing) 

• PFP Pilot Tests/Demos 

2010 Pay for Performance 

Medicare Update: Pay for performance (PFP) provisions are triggered contingent on 

repeal of SGR formula. Long term solution must assure that sufficient dollars 

are allocated to allow for positive annual fee schedule updates linked to inflation and money to be set aside to fund the proposed PFP program. All physicians must be guaranteed a payment ‘‘floor’’ of positive updates. 

• % of Medicare payment of physicians (all specialties) based on quality performance 

• Program focus on continuous quality improvement 

• Performance measured on evidence-based measures of process and/or outcomes 

with appropriate risk adjustment, valid sample size, etc.. 

• Any ‘‘efficiency measures’’ used are transparent, evidence based, and focus on 

clinical quality improvement 

• Only after adequate safeguards are put in place to prevent unintended consequences such as patient de-selection is public reporting permitted 

• HHS conducts studies on Medicare program savings resulting from Part B quality efforts 

f 

Chairman JOHNSON. Thank you very much to all of the panelists. Dr. Armstrong, we really have appreciated the leadership that 

the AMA has provided to the physician community in leading the 

discussion on Pay For Performance, and not only the AMA, but all 

of the specialty organizations have been very helpful both to us and 

to the administration in beginning to identify clinical quality standards. As to this issue of public reporting, which I think is terribly 

important, it doesn’t happen for 3 years. I think you are absolutely 

right, by then we need to be assured that the risk adjustment to 

process is accurate and that the data is accurate. I thought Dr. 

Jevon’s comment about his effort to have to clean up his data was 

very interesting. Ms. Ignagni, you and your organization have been 

excellent at data issues and integrating data, and the sort of extraordinary number of things happening in the data management 

world does give me hope that Pay For Performance will push 

ahead. Remember at first it is on reporting things that are much 

simpler; by the time we really get to paying for clinical performance, I think we should have incentivized the world to be much 

more—to clean up the data that we use and to have much better 

grasp of what is usable and what isn’t. The bill does, of course, require that the data be accurate and widely respected and so on. So, 

I do—I wanted to acknowledge those issues because they are all 

very important. Dr. Jevon, I just wanted to briefly ask you, it 

sounds to me like the systems that you have been involved in give 

bonuses because then a physician can actually see this is $5,000, 


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whereas no matter what the percent is, it is hard to see what is 

going to be at the end of the year? 

Dr. JEVON. Well, I mean, there are different options for physicians. I have certainly been in a lot of programs where 10 percent 

of what your—10 percent of your fees are withheld and you get 

back parts of that—— 

Chairman JOHNSON. Well, we are not going to get into that. 

Dr. JEVON. All right. So, Bridges to Excellence is clearly a 

bonus program, it is above and beyond. You apply, and if you meet 

their qualifications and you can prove that you are doing better 

things in several different areas, then you receive a bonus based 

on each patient that you see that is involved in the program. 

Chairman JOHNSON. But that might be an easy way to address 

the issue of reduced hospitalizations. So, at the end of the year you 

get a bonus based on performance. 

Dr. JEVON. Based on performance—— 

Chairman JOHNSON. For the effective level of hospitalization 

versus your level of hospitalization. 

Dr. JEVON. Right. I don’t know of any programs now that exist 

based on that. I mean, what I would mention is that in our world, 

with the under 65 population we have had tremendous success developing management programs that go after our sickest patients, 

treat them intensively at home to prevent hospitalization. So, I 

think this is a huge area for Medicare, because you know, the saying among us is that the top 2 or 3 percent of your patients consume 50 percent of your costs. So, if you focus laser—use a laser 

like focus on those patients, you can take care of them better and 

keep them out of hospital. 

Chairman JOHNSON. It does seem to me, knowing as little as 

we do in so many aspects of this, giving the administration the opportunity to use bonuses could be a very good thing because you 

a couple that with MEI and MEI minus for some of the more complicated situations at the beginning, and at least begin to learn 

something about it. There are some definable circumstances. Anyway, we will think about that, and anyone on the panel who wants 

to help us think about that, I would appreciate. Dr. Berenson, I 

really was excited by your testimony because repealing SGR is 

clearly what we have to do. While I think we can use Pay For Performance to do more than you think we can use it for, certainly site 

of service differentials we are beginning to identify as a terrible 

cancer in the system. The Specialty Hospital Movement did demonstrate that. The administration is doing some work on that, we 

are doing some work on that. Next year we are going to look at all 

the rehab reimbursements in all the sites and try to take on those 

areas. MedPAC is doing this too, where there are clear differentials 

based on site that are driving care. I think we can kind of handle 

that, at least I think we can move in that direction because it is 

definable. 

There are two issues that I want to get your opinion on; one is, 

you know, we don’t repeat will SGR and leave nothing there, we 

repeal the SGR, we put in place a Pay For Performance system 

that actually can have very powerful criteria. I mean, eventually it 

can have electronic health records is one of the things that we have 

to move toward and parse that out to make steps toward, as well 


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as clinical data and histories and things like that; but it does require that there be both focus and accountability on other spending 

increasing in the program. If you look at Herb Koone’s letter about 

the 15-percent increase, you know, the physician portion of it, and 

especially the office visit portion of it, was not one of the biggies, 

the biggie was imaging. So,me of that imaging we know to be a 

good idea, some we know to be a bad idea; it is very hard from 

Washington to figure out what is good and what is bad and you 

have to be careful. But they are doing some sensible things. If you 

go in and get the patient all set up and take one body part and 

then you take successive body parts, well, you are not going to get 

paid as much for the other two. 

They are doing some other things. There are some credentialling 

things we can do that—we are very positive in the mammogram 

area, although we were unable to pay accurately so in the end it 

was sort of catastrophic. So, any—but I think requiring accountability, you know, requiring focus on each of the other—therapy, 

physical therapy helps us to say, well, this is going too fast, why 

is it going too fast? Is it number of patients, is it number of—types 

of changes in treatment protocols. One of the reasons why this 

third proposal that we are making to allow CMS to use AMB is 

that a lot of times the intenser treatment pattern is keeping people 

out of hospitals, and if we punish the system for the volume going 

up in this volume-based SGR system, when actually system-wide it 

is cutting costs, then we are just nuts. So, I want to try to get over 

that hump through this, and then through this experience we can 

see exactly what we need to do. In the interim, the cost control 

mechanism in the bill is not only the Pay For Performance, which 

is modest, but also focusing on the other areas, and specifically 

being responsible for controlling cost increases. Now why is that 

not going to have any effect? 

Dr. BERENSON. I guess I don’t understand what constrains in 

the bill, what constrains physician spending once the update is tied 

to the MEI, what constrains the overall spending. 

Chairman JOHNSON. There are two things. One is, a lot of the 

quality indicators will reflect a commitment to management and 

will be able to—remember—well, you probably wouldn’t because I 

don’t know why you would notice in this bill, but we do do 

profiling; so we do send that back to physicians about what resources they are using to accomplish their goal. So, when we look 

at quality indicators, you know, over time we will have the ability 

to say, you know, the outcome should be X, these are the things 

we know have to be done to include that outcome—to reach that 

outcome, but how come you are doing all these other things? Now 

you have to go good risk adjusters or you won’t be able to deal with 

complex patients and all that stuff, but why can’t that approach 

work? 

Dr. BERENSON. Well, I guess on this one I am from Missouri. 

It sounds good. I remember going to a PPRC profiling conference 

in 1991 because we were—in anticipation of the volume performance standard there was a desire—and organized medicine was at 

the table and we are going to have clinical practice guidelines and 

we are going to do evidence-based everything. There was a whole 

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formation was going to then change practice patterns, and we are 

now 15 years later and that hasn’t happened. 

I am not a real expert in Pay For Performance technology, but 

from what I have seen, there is a big—well, from what I have seen 

we have pretty good confidence on the measures of underuse. I am 

looking again at the measures that Mark shared with us. We want 

orthopedists do give antibiotics before surgery and that is desirable. That has very little to do with what is going on out there, 

which is orthopedists trying to form their own hospitals, referring 

their patients, doing surgeries that may or may not be appropriate; 

and I guess I don’t see the technology, the Pay For Performance 

technology that is going to affect that behavior. 

Again, to use the example just before, you get a report card saying that you are a high user and you are not going to get a two 

percent bonus. That, to me, is insignificant compared to the basic 

incentive to do more surgery. Now you are an owner of the facility, 

so you are not only making money as the professional doing the 

procedure, but as the owner of the facility. To me, the Pay For Performance is well-intentioned, and good doctors might respond to it, 

and the ones we are having problems with will ignore it. 

Chairman JOHNSON. Yes. You are absolutely right, this doesn’t 

solve all the problems. I think the administration is taking some 

actions, I am not sure they are going to be enough. I hear what 

you are saying about specialty hospitals. I think, though, part of 

the problem is they payment of what is a hospital and what is a 

ambulatory surgery center. We will see what the administration 

does to sort that out and what impact that has. But that is right, 

Pay For Performance doesn’t address that kind of manipulation of 

the system. But I think in combination with other things, site-specific differentials and in a sense specialty hospitals or site specific 

differentials, it does give us a critical tool without which we can’t 

either reach higher quality or—— 

Dr. BERENSON. I am all for doing all of this, I just think that 

if we really focus on the various tools around dealing with volume, 

we get away from—I mean, to me there is two major flaws in the 

SGR, tying it to the GDP just makes no sense at all. Number two, 

it functions at a national level, so good guys are penalized and bad 

guys are rewarded when they generate volume. 

The problem in volume right now, we all look at imaging; some 

of what MedPAC has suggested makes some sense to me, but fundamentally we are paying too much for advanced imaging, we are 

paying too much for an MRI when every medical group outs there 

wants to buy their own MRI. So, I believe there should be some authority for the more administrator to do—this was around a few 

years ago—inherent reasonableness tests to make some modification on prices when it is very clear that we are getting too much— 

that is what a value purchaser would do would assess are we getting enough MRIs for our patient population and would conclude 

we are getting plenty, let’s try reducing the price somewhat and 

see what happens. 

Clearly there need to be constraints on; there needs to be—you 

can’t let a rogue administrator just pick and choose. But I think 

there needs to be more ability to pick these targets of opportunity 

and not have it have to come back to Congress and go through the 


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political drill of getting everybody to agree that this is a reasonable 

place to make some cuts. So, I am all for having the administrator 

having a target and having some flexibility to do some things within constraints to make that target, Pay For Performance can certainly be one of the tools; but again, it can’t clearly be—I think 

pricing policy is what Medicare basically does, and there needs to 

be more flexibility to do some things outside of formulas, national 

formulas. 

Chairman JOHNSON. Thank you very much. We may have a 

chance to talk again and see if we can refine some of these aspects 

of the bill. Mr. Stark. 

Mr. STARK. Well, I just want to thank the panel, Dr. Berenson 

and Dr. Jevon, for their comments and what they have added to— 

I guess to clarify some of our confusion. I really don’t want to add 

anything to what the witnesses have said. I think you all have interests which are clear, and I appreciate your interest in the problems that we have to solve to bring decent care to our beneficiaries. 

We have an impending vote, so I think this session will soon come 

to an end, and thank you very much all for being here. 

Chairman JOHNSON. I thank the panel very much. If there is 

any concluding comment any one of you wants to make, I would 

be happy to hear it. Dr. Jevon, you were nodding your head vigorously as Dr. Berenson talked about some of the excess. 

Dr. JEVON. It is very difficult. For me the issue is—you know, 

healthcare can be very local, and with national policy it is very 

frustrating for doctors. We have our own issues, each of us, wherever we practice, and I do think—if Medicare wants to be successful in controlling costs, they need to develop that flexibility and 

possibly give—develop programs that say to a region or to a group 

of doctors or a network of doctors, here are your goals, this is what 

we want. 

Chairman JOHNSON. Well, that is very interesting. We will conclude the hearing, but you should know that there is a demonstration project that works that way with groups of physicians, and in 

the bill physicians have the right to be seen as one—a group to be 

seen as one and be accountable as one. So, that opens that avenue. 

Dr. Berenson. 

Dr. BERENSON. I was just going to say, I love the group practice demo, I think it is terrific, and especially the opportunity to 

achieve savings in part A. My only caution is—and I know Mark 

talks about it a lot—is for groups of 200 or more, and that is not 

where a lot of the care is being provided. In fact, I had a chance 

yesterday to visit the one in Middletown, Connecticut, which I 

know you know about, and they have got an organization that can 

manage that kind of a situation. Most doctors are not in that kind 

of situation. I am all in favor of giving incentives for docs to form 

larger groups, but until we get there, I guess I am just a little 

skeptical about our ability to measure at the individual physician 

level, to make valid inferences about performance at the individual 

doctor level around not only—I mean, quality, we will need to develop the risk adjusters to make those inferences on quality, but 

about efficiency at the individual doctor level, I am quite skeptical 

about. I know there is this episode group that people are talking 

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ure as 365 days, I am not quite sure what an episode that is. We 

are looking, I think, at capitation or something. 

These are major issues, this is not just some tinkering with Pay 

For Performance. So, I think we are stuck as long as we have that 

form of practice—and a lot of Americans and a lot of doctors seem 

to prefer that form of practice—I think we are stuck with having 

to deal with some volume control mechanisms. In a fee-for-service 

system, the STR is lousy, so we need to go to some more targeted 

measures and provide some discretion for, I think, the administrator to go to those targets and not have to come back to Congress 

to get permission to do this and to do that. 

Chairman JOHNSON. Ms. Ignagni. 

Ms. IGNAGNI. Madam Chair, I know the time short so I will be 

very brief. I hope that as you engage in these deliberations, in addition to the how, you look at the what as well in terms of the data 

issues. They are significant. We think that there is a way to begin 

to look fairly from a physician perspective at a range of data as opposed to a small slice of patients, we think that is very, very are 

important. 

Number two; if you look at the research, I think you come away 

with a strong sense that there is a real disconnect between the 

pace of development at the clinical trials level and the diffusion of 

the lag and diffusion into practice. So, we think there are—and 

clearly there isn’t time to talk about all of this today, but this is 

one part of a larger strategy, and we would be delighted to offer 

more information on what the private sector is doing to inform the 

community. But at the same time, I think the work that has been 

done in this Committee, the thinking around arc and setting up a 

center for effective practices, we can get more information out 

there, all of those issues we think are very, very relevant. Then finally, on the disclosure piece, we think it is very important to begin 

to involve consumers and purchasers in those disclosure conversations in addition to physicians so that we can move forward in a 

way that everyone will find acceptable. 

Chairman JOHNSON. Excuse me. I didn’t realize we were voting, I don’t have my beeper, so I hadn’t noticed that we were voting. But thank you very much. I have 10 minutes left, so I do have 

to call it to an abrupt halt. Thank you very much. 

[Whereupon, at 4:44 p.m., the hearing was adjourned.] 

[Submissions for the record follow:] 

California Medical Association 

San Francisco, California 94105 

September 29, 2005 

The Honorable Chuck Grassley The Honorable Bill Thomas 

The Honorable Max Baucus The Honorable Nancy Johnson 

Dear Senators Grassley and Baucus and Representatives Thomas and Johnson: 

This letter represents the work of leaders from California’s physician, consumer, 

purchaser, payer and academic communities that are coming together to affirm the 

need to reform how Medicare measures, reports on and pays for physician services. 

The current payment system for health care is not working. A Medicare Value Purchasing program must be enacted and implemented now! We urge that Medicare 

lead reforms to advance a system which increasingly rewards physicians for providing the right care at the right time; supports prevention and ongoing care for the 

chronically ill; rewards both better performance and physicians who improve; and 

in which both physicians and patients have the tools and information necessary to 

ensure high-quality, appropriate care. 


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Our consensus on many of the core elements of a Medicare Value Purchasing program is unique in that it is anchored in our work in California where diverse stakeholders working together have improved care for patients and engaged physicians 

in quality improvement. One example of California’s pioneering efforts can be found 

in the Integrated Healthcare Association’s pay for performance program. Through 

this program multiple health plans and hundreds of physician groups representing 

over 35,000 physicians and serving over 6 million consumers have collaborated to 

develop a uniform measurement set and a single public report card. Millions of dollars have been paid in performance incentives and motivated significant quality improvements. As a result, patients are getting better, more effective care, and medical 

groups and physicians are being rewarded for performance improvement. 

This letter addresses Congress’ consideration of a variety of proposed Medicare 

payment reforms, such as proposed by Senators Grassley and Baucus, and Congresswoman Johnson. At the same time, there is appropriately significant attention 

being given to the need to provide support for the adoption of health care technology 

infrastructure that is directly linked to physicians’ ability to optimize the quality of 

care delivered, improve patient experience and save costs by delivering care more 

effectively. 

There are specific elements of each of the Medicare Value Purchasing proposals 

that we respectively support, oppose or believe do not go far enough. We agree, however, that moving to robust measurement, substantial performance-based payments 

and full public reporting should be done as rapidly as possible, while ensuring that 

they are done correctly and incrementally. Whether full implementation is completed in three or five years is far less important than that the process start immediately and move ahead in a way that effectively engages physicians and consumers. 

What follows is a description of our common vision and of the core elements regarding the measures, payments and public reporting that we believe should be part of 

any ultimate reform package. 

Vision for Medicare Purchasing Reform 

Medicare Value Purchasing is a necessary first step to creating a physician measurement, payment and reporting system designed to improve the quality, safety, effectiveness and efficiency of health care. In summary, as described in more detail 

below, the launch of this reform should include: 

• Measurement of Performance that can be quickly implemented, by starting 

with measures currently in use, fairly adjusts for physicians’ patient populations where appropriate, is centered on patients’ needs and experiences, and 

is usable by physicians to improve the care they deliver; 

• Performance-Based Payments as part of an overhaul of the annual physician 

fee schedule updates to base increases on the Medicare Economic Index (MEI). 

Performance-based payments should grow over time, becoming an increasingly 

substantial portion of physician payments, initially rewarding for agreement to 

participate, and then for both performance and improvement; and 

• Performance Reporting that provides feedback to physicians on their own 

performance, with a progression to public reporting that provides as full and 

fair a picture as possible of physicians’ performance and improvement. 

Implementation must start now. These elements, while unto themselves major reforms for the current health care system, are but first steps. Next steps should include implementing parallel efforts for other health care providers and shifting the 

focus to measure and reward care for the whole person. For example, measurement, 

reporting and payment systems should increasingly consider all of patients’ episodes 

of care, enhanced measures of care processes, actual health outcomes, end-of-life and 

palliative care, delivery of preventive services and coordination of care for the chronically ill. 

Measurement of Performance 

Due to the groundwork laid by medical professional societies, California’s multistakeholder initiatives and other efforts over the past several years, there exist 

many quality of care measures that are objective, quantifiable and transparent. 

Medicare can build on these existing measures and foster the rapid development of 

new metrics for the full spectrum of patients’ care needs and physicians’ practices. 

Measurement principles for Medicare Value Purchasing include: 

• Measures should build on existing measurement initiatives and measures currently widely used. The relatively limited number of measures available for immediate adoption need not delay implementation; rather, it can be part of the 

impetus for expanding available measures; 


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• Measures using administrative data and electronic medical records are preferred to minimize costs of collection; 

• Measures should start with those easier to collect, building in a timeline for 

later adoption of outcome measures where possible. Examples of readily collected measures include process measures (e.g., the percentage of diabetes patients tested for blood sugar levels); structural capacity of physicians to provide 

high quality care (e.g., ability of physicians to identify and follow categories of 

patients or to adopt health information technology); and patient experience of 

care, using standardized and validated instruments and survey processes; 

• Measures of efficiency that go beyond conventional utilization review and provide appropriate attribution to each member of the health care team to create 

a total ownership of health care concept which evaluates the relative use of resources, services and expenditures; 

• New measures and increasingly comprehensive measure sets that assess prevalent and important (based on health status implications) conditions across all 

specialties need to be developed and submitted to consensus bodies for endorsement. Over time, increased attention should be given to measures of care coordination across providers and settings. Both physicians and consumers must 

be actively engaged in measure development and review processes; and 

• Measures should reflect attributes that assure their acceptance by physicians 

and their reliability for patients. Attributes include their being evidence-based, 

subject to appropriate attestation, audit and confirmation, consistent, valid, not 

overly burdensome to collect, relevant to physicians and patients, fairly reflect 

physicians’ patient population and are adjusted to assure there are little or no 

inappropriate patient selection or de-selection effects. 

Performance-Based Payment 

Payment based on performance is critical to Medicare physician payment reform. 

This would include replacing the current Sustainable Growth Rate (SGR) with the 

Medicare Economic Index (MEI), a portion of which would be set aside to reward 

each physician’s participation, performance and improvement as appropriate. Specific elements of the payment system for Medicare Value Purchasing include: 

• The portion of the funds allocated to performance-based payment should grow 

over time, and must eventually reach a substantial portion of a participating 

physician’s pay, while keeping the overall program cost within the MEI. Performance-based payment to participating physicians should vary based upon 

their performance; 

• Initially reward for agreeing to participate and share performance information; 

and then shift to rewarding performance (first compared to local peers and then 

national) and improvement; Payment designs that provide incentives for each 

medical specialty to ensure that robust sets of performance measures are rapidly adopted. Payments should be linked to the appropriateness and comprehensiveness of measure sets within specialties; Payment and/or measures are adjusted to ensure appropriate incentives for those who care for the sickest, or 

those with complex, chronic conditions; Payment and/or measures that encourage the adoption of care management processes or techniques; Payments for 

care based on new technologies reflect the extent to which they improve the 

quality of care and its cost-effectiveness; and Payments specifically integrate rewards for both total cost of health care impacted by physicians’ actions and 

health care quality. As the payment system evolves, this consideration should 

specifically take into account savings generated—or additional costs incurred— 

related to prescription drugs and hospital services. 

We believe that concerns of potential unintended consequences of moving too rapidly to increase the portion of physician payment that is performance-based are reasonable. However, we agree on the need to quickly increase performance-based payment because we recognize that payment today has its own unintended negative 

consequences. All too often payments today reward volume over quality, or care that 

is wasteful and inappropriate instead of patient-centered and efficient. 

Performance Reporting 

Providing performance information is critical to the goal of improving care delivery, both to the physicians themselves and to patients to enable them to be better 

engaged in their own health care. Specific elements of the performance reporting for 

Medicare Value Purchasing include: 

• Before any information is made public, the physician (or whatever unit of delivery is measured) should receive their specific performance. Physicians should be 


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1With the exception of signators from the California Medical Association, the California Association of Physician Organizations and the Pacific Business Group on Health, which have endorsed this consensus statement as organizations, the group affiliations of signators are listed 

for identification purposes. 

given actionable information from which they can improve and the opportunity 

to comment on concerns they have about the performance results; 

• Public reporting should include all Medicare contracting physicians, with performance information occurring in a phased manner: initial reporting should 

positively identify participating physicians; then those who performed well or 

with marked improvement; and then full public reporting of both composite and 

all valid specific measures of all participating physicians; and 

• Full background for any measures, their methodologies of measurement and adjustments for patient population should be publicly available to both physicians 

and the public. 

Conclusion 

We believe that the sooner a Medicare Value Purchasing program is implemented, 

the sooner we will be rewarding better care delivery and promoting the quality and 

value improvements we must expect. We appreciate your consideration of our 

thoughts. 

Sincerely, 1

Jack Lewin, MD 

Executive Vice President and CEO 

California Medical Association 

Peter V. Lee, JD 

President and CEO 

Pacific Business Group on Health 

Ron Bangasser, MD 

Director of External Affairs 

Beaver Medical Group 

Former President—California Medical Association 

Robert Margolis, MD 

Chief Executive Officer 

HealthCare Partners Medical Group 

Chairman-Elect, National Committee on Quality Assurance (NCQA) 

Bruce G. Bodaken 

Chairman, President & CEO 

Blue Shield of California 

Arnold Milstein, MD 

Medical Director 

Pacific Business Group on Health 

Donald Crane 

President and CEO 

California Association of Physician Groups 

Jo Ellen H. Ross, MNA 

President and CEO 

Lumetra 

Jarvio Grevious 

Deputy Executive Officer, Benefits Administration 

California Public Employees Retirement System 

Stephen Shortell, PhD 

Dean, School of Public Health 

University of California, Berkeley 

Jennie Chin Hanson 

Board of Directors 

American Association of Retired Persons (AARP) 

Tom Williams 

Executive Director 

f 

Integrated Healthcare Association (IHA) 


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Statement of Jack Ebeler, Alliance of Community Health Plans 

The Alliance of Community Health Plans (ACHP) is pleased to have the opportunity to submit written testimony to the Health Subcommittee regarding the introduction of value-based purchasing strategies in Medicare. ACHP is a leadership organization of 14 non-profit and provider-sponsored health plans that are among 

America’s best at delivering affordable, high-quality coverage and care to their communities. Our members seek to transform care by pursuing the six aims for quality 

health care set forth by the Institute of Medicine—health care that is safe, effective, 

patient-centered, timely, efficient and equitable. We proudly count among our membership six of the National Committee for Quality Assurance’s highest quality Medicare plans in 2004. 

ACHP member plans serve more than one million Medicare beneficiaries—about 

20 percent of current Medicare Advantage members—and will expand their Medicare Advantage plan offerings with the introduction of Medicare Advantage-Prescription Drug Plans in 2006. ACHP supports the introduction of value-based purchasing strategies throughout the Medicare program. For value-based purchasing to 

promote the broadest range of high-quality options for beneficiaries, performance 

measures should be developed for all sectors of Medicare and quality-based payment 

incentives introduced for Medicare Advantage and fee for service. 

ACHP and Health Care Quality 

ACHP has a long legacy of leadership on quality improvement and was formed 

more than twenty years ago to help health plan leaders share best practices, learn 

and innovate. One of the earliest products of this collaboration was the creation of 

the Health Plan Employer Data and Information Set (HEDIS), which has now become the standard for assessing health plan performance in the commercial and 

public sector. Through the National Committee for Quality Assurance (NCQA)— 

which today manages and updates the HEDIS measurement process—employers, 

Medicare, Medicaid and other payers regularly monitor and evaluate health plan 

quality. The HEDIS clinical quality reporting process, coupled with the CAHPS

survey of patient satisfaction, provide a vital and meaningful assessment of health 

plan performance for beneficiaries and for public and private payers. 

In 1997, the Health Care Financing Administration (now the Centers for Medicare 

and Medicaid Services) began requiring all health plans participating in Medicare 

to collect and report on HEDIS performance measures. Today, these measures include clinical service indicators such as cancer screening and the screening and control of heart disease and diabetes risk factors. To help Medicare beneficiaries make 

informed decisions about their health plan choices, CMS makes comparative information about plan performance on these measures available on-line through 

www.medicare.gov or in printed form on request from 1–800–MEDICARE. 

New health plan measures are regularly developed by NCQA and added to the 

Medicare HEDIS reporting requirements. In 2004, NCQA added colorectal cancer 

screening and osteoporosis measures. In 2006, NCQA will add health plan reporting 

measures to evaluate the appropriate use and monitoring of medication in the elderly—a timely addition given the introduction of Medicare’s Part D prescription drug 

benefit. 

Having led the way in establishing health plan performance measures, ACHP is 

committed to translating what we learn from these measures into quality improvement strategies. This work takes two forms. First, ACHP members regularly review 

their clinical quality and patient experience performance to identify areas for improvement and, through ACHP-sponsored programs, share strategies and best practices. Second, ACHP assesses the ways in which public policy can support high-quality care and advocates for policies that encourage quality improvement. Our learning sessions have included explorations of how and when plans can use pay-for-performance incentives to help drive quality improvements in specific health care settings and across multiple settings. Our policy agenda includes a commitment to 

helping Medicare link quality improvement and payment by promoting the creation 

of quality reporting and value-based purchasing strategies throughout Medicare. 

Medicare Advantage and Fee-for-Service Performance Measurement 

The earliest stages of performance measurement often begin with structural assessments such as whether an organization has a quality committee in place or information technology capacity. Performance measurement quickly progresses to 

‘‘process’’ measures that assess whether some recommended process or service has 

occurred. For example, a process measure might assess whether patients with coronary artery disease are regularly screened for high cholesterol. More advanced 

measures, sometimes called ‘‘intermediate outcome’’ measures, evaluate the clinical 


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follow-up to process steps, such as whether those identified with high cholesterol 

had it brought under control. 

Medicare Advantage. All local Medicare Advantage HMOs are required to report 

to CMS on various process and intermediate outcome performance measures, which 

assess whether clinical services were provided and whether those services helped 

control chronic disease risk factors. Process measures are often reportable from 

claims data. The more advanced intermediate measures, which capture information 

about patients’ health status, often require access to patient medical records. Access 

to records is needed because information such as blood pressure readings and lab 

test results (to determine if cholesterol or blood sugar is controlled) are not recorded 

on claims. Health plans generally employ nursing staff to audit medical records and 

report this data. There are no incentives or bonuses linked to this reporting. 

Hospitals. With the passage of the Medicare Modernization Act, hospitals that 

participate in Medicare were encouraged to voluntarily report to CMS on a discrete 

set of performance measures with the incentive of receiving of an additional 0.4 percent payment update for reporting. More than 98 percent of hospitals report and receive the payment incentive. 

Physicians. Physicians do not currently report on quality measures and are not 

required nor offered incentives to report. However, several efforts, including the Ambulatory care Quality Alliance’s (AQA) work, are underway to identify measures of 

physician performance. Many of these measures build on the HEDIS  measure set 

used to assess plan performance. It is unclear what mechanisms will be used to collect several of the proposed measures that will likely require extraction and validation of data from medical records. 

The chart below identifies the performance measures CMS requires of health 

plans, the voluntary measures reported by hospitals and the potential physician 

measures developed by the AQA. 

Measure 

Health Plan HEDIS 

Medicare Measures 

(REQUIRED) 

Hospital Core/ 

Quality Alliance Measure Set (VOLUNTARY) 

Ambulatory 

Quality Alliance Measure Set (PROPOSED) 

Prevention Measures 

Controlling high blood pressure P 

LDL screening P 

Colorectal cancer screening P P 

Breast cancer screening P P 

Cervical cancer screening * P 

Inquire about tobacco use P 

Medical assistance with smoking cessation /Advising 

smokers to quit P PPP + P 

Flu shot P * 

Pneumonia vaccine P P P 

Osteoporosis 

Osteoporosis management P 

Diabetes 

HbA1C tests P P 

HbA1C management control P P 


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Measure 

Health Plan HEDIS 

Medicare Measures 

(REQUIRED) 

Hospital Core/ 

Quality Alliance 

Measure 

Set (VOLUNTARY) 

Ambulatory 

Quality Alliance 

Measure 

Set (PROPOSED) 

Blood pressure management 

for patients with diabetes P 

Lipid measurement for patients with diabetes P P 

LDL cholesterol level for patients with diabetes P P 

Eye exam for patients with diabetes P P 

Monitoring for nephropathy P 

Heart Attack/Coronary Artery 

Disease (CAD) 

Aspirin at arrival P 

Aspirin prescribed at discharge P 

Beta-blocker after MI/at arrival P P P 

Persistence of beta-blocker 

after MI/at discharge P P P 

Cholesterol management after 

acute cardiovascular event / 

for patients with CAD P P 

ACE inhibitor for left ventricular systolic dysfunction P 

Thrombolytic agent within 30 

minutes of arrival P 

PTCA (angioplasty) within 90 

minutes of arrival P 

Heart Failure 

ACE inhibitor prescribed(for 

left ventricular systolic dysfunction) P P 

Left ventricular function assessment P P 

Comprehensive discharge instructions P 

Pneumonia 

Oxygenation assessment P 

Initial antibiotic w/in 4 hours 

of arrival P 


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Measure 

Health Plan HEDIS 

Medicare Measures 

(REQUIRED) 

Hospital Core/ 

Quality Alliance 

Measure 

Set (VOLUNTARY) 

Ambulatory 

Quality Alliance 

Measure 

Set (PROPOSED) 

Blood culture before first antibiotic received P 

Mental Illness 

Follow-up after hospitalization 

for mental illness P 

Antidepressant medication 

management (acute phase) P P 

Antidepressant medication for 

at least 6 months (continuation phase) P P 

Asthma 

Use of appropriate medications * P 

Asthma: long-term control 

medication prescribed P 

Customer Satisfaction 

Courteous and helpful office 

staff P 

How well doctors communicate P 

Getting care quickly P 

Getting needed care P 

Rating of all health care P 

Rating of health plan P 

Rating of personal doctor P 

Rating of specialist seen most 

often P 

+ The Hospital Quality Measures include three smoking cessation measures: one for heart attack patients; 

one for heart failure patients and one for pneumonia patients. 

* Note: Data collected or proposed to be collected for non-Medicare eligible age groups. 

The chart does not include four AQA prenatal and child-specific measures. 

Value-based Purchasing 

ACHP believes that value-based purchasing strategies are an essential means of 

raising the quality of all sectors of Medicare. We applaud the Subcommittee for its 

ongoing efforts to examine models for physician incentives. ACHP strongly supported the provision in the MMA, originally sponsored by former representative Jennifer Dunn (R–WA), calling for an Institute of Medicine study and report on appropriate measurement and payment incentives in Medicare. Given the state of measurement development and data collection processes, we share the assessment of the 

Medicare Payment Advisory Commission that health plans may be among the most 

logical places to begin using quality payment incentives because established measures are in place and already regularly collected. We believe that adopting valuebased purchasing for Medicare Advantage plans would be an important initial step 

in moving Medicare toward a more performance-driven system, while also helping 

to inform the development of measures and mechanisms for using incentives with 

physicians, hospitals and other health care sectors. However, wherever the Subcommittee chooses to begin, it should quickly move to introduce value-based purVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00078 Fmt 6633 Sfmt 6621 E:\HR\OC\26375.XXX 26375

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chasing strategies across the Medicare program so that beneficiaries are able to participate in a program that values and promotes quality regardless of how they 

choose to receive their care. 

The principles ACHP has crafted to help inform the development of Medicare 

value-based purchasing are outlined below: 

• Payment-for-performance should eventually apply to all Medicare providers, including fee-for-service and Medicare Advantage. Given health plans’ long record 

of reporting on standardized measures of quality, it is reasonable to begin with 

Medicare Advantage plans, including HMOs and PPOs. • Payment-for-performance incentives should be based upon standards of excellence and improvement and favor excellence. Measures to evaluate both fee-forservice Medicare and Medicare Advantage plans should be developed. In the interim, incentives should be based on existing measures, strongly favor clinical 

effectiveness and recognize patient experience. • To ensure successful implementation and sustainability, pay-for-performance incentives should be financed with new resources. 

Thank you for the opportunity to share our views. We look forward to working 

with the Subcommittee on this important issue. 

f 

Statement of EmCare, Inc., Dallas, Texas 

The Vital and Unique Role of Emergency Medicine Physicians Must Be 

Considered in Any Performance Based Standards 

Background on EmCare, Inc.: 

EmCare, Inc. (‘‘EmCare’’) is one of the nation’s leading emergency medicine physician practice management organizations. Through its emergency medicine physicians, EmCare provides emergency care in over 300 hospitals throughout the country. These hospitals range from some of the larger urban hospitals with the highest 

volume emergency departments to the smaller community hospitals with relatively 

low patient volumes, all of which depend on EmCare’s physicians to deliver high 

quality care. We appreciate the opportunity to submit comments to the Ways and 

Means Committee on the Medicare Value-Based Purchasing for Physicians Act 

EmCare supports the congressional efforts which support the Medicare ValueBased Purchasing for Physicians Act and which will protect America’s physicians 

from a reduction in reimbursement for services provided to Medicare patients. We 

strongly believe that the current Medicare Physician Fee Schedule methodology, 

which will result in a 4.3% payment cut for physicians in 2006 unless Congress acts 

to halt the reduction, will have a detrimental impact on all beneficiaries and their 

access to care. Because of EmCare’s unique role in providing care to patients in 

emergencies, we are deeply and especially concerned about the impact of this reduction on those beneficiaries who depend on care received through hospital emergency 

departments. 

The sustainable growth rate’s reliance on the gross domestic product level under 

the Fee Schedule methodology bears little relation to physicians’ actual practice expenses and, therefore, does not address the increases in practice expenses being experienced by physicians. 

This is particularly true for emergency medicine physicians. 

Increasingly large numbers of Medicare beneficiaries are receiving services from 

participating physicians, while the costs associated with professional liability insurance and pharmaceuticals have rapidly grown. In addition to these costs, emergency 

medicine physicians assume a disproportionate share of the costs related to furnishing uncompensated care. Emergency medicine physicians incur unique costs 

mandated by the Emergency Medical Treatment and Labor Act (‘‘EMTALA’’). The 

EMTALA mandate applies to all patients, not just Medicare beneficiaries. EmCare 

strongly supports access to emergency medical services regardless of a patient’s ability to pay and we are dedicated to that principle every single day twenty-four hours 

a day. 

Because of our unique circumstances and our physicians’ delivery of medical care 

within the emergency department setting, we are very concerned that the existing 

Fee Schedule does not recognize the true costs associated with furnishing emergency 

medical services, due in part (but not completely) to the large percentage of uncompensated care furnished in hospital emergency departments. Due to the fact that the 

current Fee Schedule does not take this significant factor into account, it seriously 


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threatens the care furnished by hospital emergency departments, which provide the 

crucial safety net of health care for millions of patients. 

The tragic consequences of Hurricanes Katrina and Rita have again revealed the 

critical importance of emergency medicine professionals to the nation’s public health 

safety net. The nation’s emergency medicine physicians responded heroically to the 

twin impacts of Katrina and Rita. Working in difficult conditions in hospitals and 

clinics as well as in makeshift care areas in public buildings and airports, these 

emergency health care providers furnished services to all patients who needed and 

sought care. While the water is being pumped out of New Orleans and other areas, 

local hospital emergency departments have continued to work tirelessly to handle 

the surge of cases from evacuees in addition to their regular emergency patient load. 

As the Committee deliberates the Medicare Value-Based Purchasing for Physicians Act, we ask that you consider the extraordinary challenges and conditions 

faced by emergency medicine physicians. We outline below our suggestions of the 

factors that should be considered in establishing quality and efficiency measures for 

services furnished by emergency physicians 

How to Measure and Reward Services Provided by Emergency Physicians 

1. Access 

• EMTALA mandates that emergency medicine physicians provide care to all patients regardless of ability to pay. This imposes significant monetary and administrative requirements that are unique to emergency physicians and hospital departments. 

• Complete access of all patients to medical care in the emergency setting should 

be recognized by Congress as the primary factor for measuring emergency physicians’ performance. 

II. Core Measures 

• The core measures used for the National Voluntary Hospital Reporting Initiative can be used as a proxy to measure emergency physicians’ performance. Because these core measures currently apply only to hospitals, certain controls 

would need to be put in place to measure individual physicians. For example, 

a unique physician identifier can be used track the services provided by each 

physician. 

• Only the core measures that apply to emergency medicine and are under the 

control of emergency medicine physicians should be used in developing quality 

and efficiency measures for emergency medicine physicians. 

III. Unique Setting 

• Emergency physicians deliver care in a unique setting. Typically, the physician 

does not have an existing relationship with the patient and full access to the 

patient’s medical history. 

• As a result, emergency physicians must make an immediate assessment of the 

patient’s condition often based on limited information. The emergency physician 

has little or no contact with or responsibility for a patient’s pre—and post-emergency care. This factor makes impossible a clear ‘‘outcomes’’ based standard for 

emergency physicians. 

IV. Auditing 

• Current standards already exist and are used to audit the metrics applicable 

to emergency medicine physicians. 

Conclusion 

As dramatically demonstrated by Hurricanes Katrina and Rita, emergency medicine physicians play a critical role in rendering care to all patients wherever and 

whenever such medical care is medically needed. For patients who lack health insurance, this provides a vital safety net. The hard lessons taught by Katrina and 

Rita show that the nation’s emergency care system must be taken seriously and protected by policymakers and planners. 

Consequently, we urge the Committee to take into account the factors discussed 

above, including, but not limited to, the significant level of uncompensated care furnished by emergency physicians as part of any pay-for-performance methodology 

which may be created by the Committee and the Congress. 

Thank you for the opportunity to submit these comments. 

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Statement of Mary Griskewicz, Healthcare Information and Management 

Systems Society (HIMSS) Advocacy & Public Policy Steering Committee, 

Alexandria, Virginia 

BACKGROUND: 

Madame Chair, Congressman Stark, and distinguished members of the Subcommittee, I am honored to submit this statement for the record. My name is Mary 

Griskewicz and I have the pleasure of serving as the 2005–2006 Chair of the 

Healthcare Information and Management Systems Society (HIMSS) Advocacy & 

Public Policy Steering Committee. I live in Connecticut and work professionally for 

IDX Systems Corporation as a Program Manager, Corporate Strategy and Business 

Development. 

HIMSS vision is to advance the best use of information and management systems 

for the betterment of healthcare. On behalf of HIMSS and the thousands of professionals in the healthcare information technology community, we want to commend you and your Subcommittee for 

your leadership role in promoting initiatives that increase the use of information 

technology throughout the healthcare sector. In particular, Madame Chair, we know 

personally of your commitment to this cause as was reflected during your remarks 

at our congressional reception where you were presented with the 2003 HIMSS Advocacy Award. 

HIMSS and our Healthcare IT community colleagues are thankful for your efforts 

to highlight our shared goal of utilizing a National Health Information Infrastructure (NHII) to seamlessly transmit electronic healthcare records (EHRs) to improve 

patient safety and healthcare quality. 

As you are well aware, healthcare IT continues to take steps and move forward 

to address President Bush’s call to establish electronic health records for most 

Americans within ten years. The federal government’s support of the of the Office 

of the National Health Information Coordinator, Agency for Health care Quality and 

the governments efforts to coordinate public and private health IT efforts by developing strategies, contracting for studies, and funding prototypes and demonstrations 

to enable health IT and most recently the appointment of the members to the American Health Information Community board created by Secretary Leavitt. The recent 

findings of the September 14, 2005, RAND study indicate ‘‘Widespread adoption and 

effective use of electronic medical record systems (EMRs) and other health information technology (HIT) improvements could save the U.S. health system as much as 

$162 billion annually by greatly improving the way medical care is managed, greatly reducing preventable medical errors, lowering death rates from chronic disease, 

and reducing employee sick days’’. http://www.rand.org/health/ 

Federal law requires Medicare payments to physicians to be modified annually 

using a formula known as the sustainable growth rate (SGR). Because of flaws in 

the formula methodology, it has mandated physician fee schedule cuts in recent 

years; these cuts have been averted only by congressional short-term fixes. Absent 

additional, long-term congressional action by December 31, 2005, the SGR will continue to mandate physician fee schedule cuts of approximately 5% per year for the 

next five years. Congress must modify the sustainable growth rate formula to allow 

adequate payment to cover physician cost. In addition, Medicare is the largest single 

purchaser of healthcare and it needs to be restructured to incentivize providers to 

provide excellent care to beneficiaries. 

We are pleased Madam Chair that you have recently introduced H.R. 3617, the 

Medicare Value-Based Purchasing for Physicians’ Act of 2005, into the U.S. House 

of Representatives for consideration. The legislation has fifteen co-sponsors and was 

referred by the House Speaker to both the House Energy & Commerce and Ways 

& Means Committees for action. 

Senators Charles Grassley (R–IA) and Max Baucus (D–MT), Chair and Ranking 

Minority Member respectively of the U.S. Senate Finance Committee, have introduced S. 1356, the Medicare Value Purchasing Act of 2005, into the United States 

Senate for consideration. This legislation is co-sponsored by four U.S. Senators and 

has been referred to the U.S. Senate Finance Committee for consideration. 

The primary purpose of both pieces of legislation is to provide promote valuebased purchasing for the Medicare program. While Senate bill S.1356 the Medicare 

Value Purchasing Act of 2005 attempts to improve the Medicare reimbursement 

payment system to physicians without attempting to stem the declining reimbursement rates. The President of the American Academy of Family Physicians has said 

that ‘‘these new requirements on physicians will mean they face lower payments 

and additional costs. This is not a formula for improving health care quality.’’ 

The House bill, on the other hand, proposes to resolve the sustainable growth rate 

(SGR) dilemma and promote value-based performance by encouraging physicians to 


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electronically report medical quality indicators. The House bill focuses only on physician reimbursement. It is estimated that the cost of H.R. 3617 is $100 billion over 

10 years just to solve physician reimbursement. 

HIMSS Position: 

• HIMSS believes that Medicare should play a leadership role in improvements 

in health care quality. Medicare is the largest single purchaser of health care, 

providing health care coverage to over 40 million Americans. Yet when the program was created back in the 1960’s, it was structured so that providers received the same payment regardless of whether they provided excellent or substandard care to beneficiaries. It is time to make a dramatic, but necessary 

change to the payment system by aligning payment policies to encourage and 

support quality care. • HIMSS supports H.R. 3617, the Medicare Value-Based Purchasing for Physicians’ Act of 2005, because it supports both implementing value-based purchasing programs under Medicare that links a small portion of Medicare payment to the delivery of high quality healthcare and the need to develop a more 

sustainable reimbursement model. • HIMSS strongly believes that the SGR dilemma and the value-based purchasing requirements need to be addressed in tandem because clinicians cannot 

continue to face declining reimbursements for Medicare patients. • HIMSS strongly supports reimbursing physicians based on the quality of care 

they provide their patients. • HIMSS believes that the Senate bill will probably increase doctors’ costs in 

order to meet and report specific care standards, but it does not help them obtain the technology to meet these requirements. If doctors don’t have the technology to participate in the reporting system, their reimbursement will be cut 

even further, which will hinder their ability to ever be able to afford the technology • The Senate bill is limited to provisions that directly relate to quality improvement, value-based purchasing, data coordination, and health information technology, but does not address the SGR dilemma. However, the bill does acknowledge, through ‘‘Sense of the Senate’’ language, that the negative physician payment update needs to be addressed. This language points out the unsustainable 

nature of the SGR formula and the need to develop a more sustainable model 

that is more appropriate in controlling the volume of physician services provided. HIMSS is pleased that the Senate recognizes that this needs to be addressed. 

CONCLUSION: 

We believe that the passage of HR 3617 will help us reach our goal to incentivize 

providers of care accordingly supporting the Presidents goal of achieving a national 

electronic health record for most Americans. We have noted that, the interest and 

attention on health information has been heightened. More specifically the events 

surrounding the Katrina relief efforts have highlighted the need for an Electronic 

Health Record, and the need to provide continued incentives to the providers of care 

that would allow them to use the technologies that will support the adoption of the 

electronic health record. 

HIMSS supports H.R. 3617 because it resolves the SGR issue for physicians and 

attempts to promote value-based purchasing. This legislation is solidly aligned with 

HIMSS Legislative Principles and recognizes the key role that information systems 

can have in improving the health of all. 

HIMSS will promote passage of this legislation as part of its overall advocacy 

agenda. 

As you proceed forward in the months and years ahead, the 17,000+ individual 

HIMSS members and over 275 corporate HIMSS members representing over 

2,000,000 employees are committed to working with you and others to make our 

shared vision of the widespread adoption of information technology and management systems in the healthcare sector a reality. 

f 

Statement of Michele Johnson, Medical Group Management Association 

Introduction 

This statement is submitted on behalf of the Medical Group Management Association (MGMA) to the Ways and Means Health Subcommittee hearing entitled, 

‘‘Value-Based Purchasing for Physicians under Medicare, H.R. 3617.’’ MGMA repVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00082 Fmt 6633 Sfmt 6621 E:\HR\OC\26375.XXX 26375

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resents 19,500 members who manage and lead more than 11,500 ambulatory medical offices in which more than 240,000 physicians provide medical care. 

Problems with Current Method of Medicare Updates to Medicare Pratices 

Currently, Medicare provides annual updates to physician reimbursement through 

the Sustainable Growth Rate (SGR). In January 2006, unless Congress acts to prevent the formula from taking effect, Medicare’s ‘‘update’’ to physician services under 

the SGR will be a—4.4 percent cut. Chairman Johnson understands that the SGR 

is a fundamentally flawed and unreasonable method of calculating physician updates. Physician practices face the prospect of significant cuts in Medicare reimbursement year after year, while their overhead costs rise significantly. This is true 

only for physician practices; other segments of the health care system receive regular annual updates because they do not utilize the SGR formula. In 2006, Medicare 

Advantage plans, hospitals, nursing homes and home health providers will all receive positive updates to their reimbursement rates. 

Medical group practices confront this looming 2006 cut within the context of their 

recent experience with Medicare reimbursement. Because Congress was unable to 

act in time, physicians received a 5.4 percent reduction in 2002. Congress recognized 

the threat to Medicare beneficiary access and stopped the SGR from further reducing physician reimbursement in 2003, 2004 and 2005. While this was a relief to physician practices, these increases did not come close to keeping pace with the increase 

in medical costs. Because the SGR is not an accurate methodology for updating physician reimbursement annually, the Medicare Payment Advisory Committee has repeatedly recommended to Congress that the SGR be statutorily replaced with the 

Medicare Economic Index (MEI). The MEI is a price index, calculated by CMS, 

which more accurately reflects the costs of delivering medical care in physicians’ offices. 

MGMA has preformed cost surveys of medical practices for over 50 years. MGMA 

data indicates that the cost of operating a group practice rose by an average 4.8 percent per year over the last 10 years. In fact, between 2001 and 2003, MGMA data 

show that operating costs increased more than 10.9 percent. However, in this same 

timeframe, Medicare physician payment rates increased between 1.5 to 1.6 percent. 

This means that increases in Medicare reimbursement have already failed to keep 

pace with the rate of inflation in practice costs as calculated by the MEI or by the 

MGMA’s cost survey data. The Medicare Board of Trustees estimates that the cost 

of providing medical care will increase by an estimated 15 percent over the next six 

years, while current reimbursement levels are scheduled to drop by an estimated 

26 percent. 

The chart below compares the recent annual increases under the SGR formula 

with the increase in medical operating expenses as calculated under the MEI and 

MGMA’s own cost survey data. 

Comparisons of SGR Updates with Calculations of Actual Increases in 

Medical Practice Operating Expenses 

Year 

Increase in 

Medicare reimbursement 

under SGR 

Medicare Economic Index 

(MEI) 

MGMA cost survey data 

2002 -5.4 % 2.9% 7.5% 

2003 1.6% 3.2% 3.2% 

2004 1.5% 3.1% Date not available 

2005 1.5% 2.9% Data not available 

H.R. 3617 Repeal of SGR 

MGMA supports Chairman Johnson’s H.R. 3617, the Value-Based Purchasing for 

Physicians bill because it envisions significant reform to Medicare’s physician reimbursement methodology. MGMA believes the bill demonstrates an awareness that 

physicians must be adequately reimbursed for the services that they deliver. MGMA 

concurs with the intent of the legislation to create a link between quality improvement based on evidence-based performance measures and full annual updates. 

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American College of Obstetricians and Gynecologists 

Washington, DC 20024 

September 29, 2005 

The Honorable Nancy Johnson 

Chair, Health Subcommittee 

Ways and Means Committee 

1136 Longworth House Office Building 

Washington, DC 20515 

Dear Mrs. Johnson: 

On behalf of the American College of Obstetricians and Gynecologists (ACOG), 

representing 49,000 physicians and partners in women’s health, thank you for the 

extraordinary leadership and commitment you’ve shown in your effort to correct a 

serious problem in the Medicare program by repealing the flawed Sustainable 

Growth Rate (SGR) formula and putting in place a system that works for physicians, and helps ensure access to high-quality care for our patients. Your legislation, 

H.R. 3617, the Medicare Value-Based Purchasing for Physicians’ Services Act of 

2005, has our full support. 

ACOG has long been dedicated to maintaining the quality of care provided by obstetricians and gynecologists and has a robust ongoing process where we provide 

women’s health physicians and providers with current quality information on the 

practice of obstetrics and gynecology. For nearly two decades, ACOG’s Committee 

on Quality Improvement and Patient Safety has regularly reviewed practice and patient safety issues and encouraged our members to incorporate ACOG’s recommendations into their practices. ACOG’s Practice Committees regularly publish 

practice guidelines developed by committees of experts and reviewed by leaders in 

our specialty and the College. Each of these guidelines is reviewed periodically and 

reaffirmed, updated, or withdrawn based on new clinical evidence to ensure continued appropriateness to practice. 

In 2004, in cooperation with the American Board of Obstetrics and Gynecology 

(ABOG), an independent, non-profit organization that certifies obstetricians and 

gynecologists in the United States, ACOG created Road to Maintaining Excellence, 

an initiative to allow ob-gyns to evaluate their own practice activities, reinforce best 

practices and assist in improving others. Currently in pilot stages, Road to Maintaining Excellence will require ACOG Fellows to complete questionnaire-based modules that focus on a single aspect of clinical practice, like prevention of early-onset 

group B Streptococcal disease in newborns and prevention of deep vein thrombosis 

and pulmonary embolism. As Fellows complete each module, data will be summarized and compiled by ACOG, and periodically reported to our members. Road to 

Maintaining Excellence will provide Fellows with valuable information about how 

their practice patterns compare to those of their colleagues but is not intended to 

be used as a performance measurement set or as a basis for payment. 

ACOG has been working collaboratively with our primary care colleagues, as well 

as our colleagues in specialty and surgical care, to be supportive of moving toward 

value-based physician payments, linked with fixing the SGR. As Congress moves 

forward in establishing quality incentives in Medicare, ACOG believes that certain 

principles should be kept in mind, many of which are reflected in your discussions 

of pay-for-performance and your draft legislation. 

• All physicians should receive a positive Medicare payment update as a floor for 

additional reporting or performance incentives. Under the current SGR formula, 

physicians will receive unsustainable payment cuts of nearly 30 percent over 

the next six years. Some performance measures may involve additional office 

visits, lab tests, imaging exams or other physician interventions that would only 

exacerbate the current volume formula. Physicians must not be penalized for 

any volume increase resulting from compliance with performance measures. To 

ensure an equitable accounting of the costs and savings generated from pay-forperformance, Medicare should account for savings to Part A generated by Part 

B performance improvements. 

• The new payment system should be phased in, beginning with an administratively simple ‘‘pay-for-reporting’’ period that provides information about the 

quality and safety processes physicians are engaged in and assesses the availability of health information technology. Quality and safety process measures 

used in the Medicare system should have widespread acceptance in the medical 

community. One such process measure in obstetrics could involve use of a prenatal flowsheet, a performance tool developed by ACOG that was recommended 


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for use by an ACOG-led prenatal workgroup of the American Medical Association’s 

Physician Consortium for Performance Improvement. In ob-gyn surgery, ACOG supports the procedural measures laid out in the first phase of the American College 

of Surgeons Framework for Surgical Care, including confirmation of operative site 

and side marking, pre-operative ‘‘time out,’’ immediate post-operative documentation, post-operative pain management and appropriate post-operative care. • Clinical performance measures should be developed by each specialty in a transparent process that considers scientific evidence, expert opinion and administrative feasibility of each measure. Measures should be appropriately risk-adjusted 

to account for a variety of factors, including patient compliance and complexity. 

Increased quality should be the goal of efficiency measures, and these measures, 

too, should be driven by data-based clinical evidence and expert opinion when 

data are lacking. • Health information technology is prohibitively expensive for some small practices, particularly for the 23 percent of ob-gyns in solo practice, but is a necessary efficiency and a vital component of pay-for-performance. Acquisition of 

this technology should be encouraged with federal financial assistance for the 

purchase of hardware and software and for system training. National standards 

for health information technology would facilitate physician adoption of these 

systems, by reassuring physicians that the technology they invest in would not 

become obsolete. Because use of health information technology may be among 

the elements of the early ‘‘pay-for-reporting’’ system, it is vital that these steps 

be taken promptly. • Congress needs to address the universe of legal issues surrounding data reporting. Information collected by CMS must be protected from use in medical liability litigation against physicians or as a basis for negligent hiring or retention 

claims. This may necessitate specifically exempting physician data from Freedom of Information Act requests. Care should be taken to avoid other unintended and unfortunate consequences of public data reporting, such as physician selection of patients with the fewest medical risk factors or the best history 

of compliance with instructions. This is essential to ensure continued access to 

care for low-income and minority populations who tend to enter the health care 

system at an acute stage of disease and illness and suffer worse outcomes regardless of the quality of care they receive. 

We recognize the challenges in creating a quality improvement program for Medicare that leads us to meaningful clinical measures and improved quality for beneficiaries. We applaud your leadership and your commitment to this effort and we 

sincerely thank you for your willingness to work cooperatively with ACOG and the 

medical community in these important discussions. ACOG stands ready to work 

with you as we embark on this historic change in Medicare. 

Sincerely, 

Michael T. Mennuti, MD 

f 

President 

Statement of the American Physical Therapy Association, Alexandria, 

Virginia 

The American Physical Therapy Association (APTA) appreciates the efforts of the 

House Committee on Ways and Means and its Subcommittee on Health to improve 

the delivery of health care, especially your focus on quality care for seniors and persons with disabilities. The transition to a payment system for high quality, efficient 

health care services is vitally important to the beneficiaries that physical therapists 

serve under the Medicare program. APTA endorses and supports HR 3617, the 

Medicare Value-Based Purchasing for Physicians’ Services Act of 2005. 

While we support HR 3617, we encourage the Committee to address all of the inadequacies in the current payment system in conjunction with its action on this legislation. 

Elimination of the Flawed Sustainable Growth Rate (SGR) Methodology 

Prior to Moving Forward with Value-Based Purchasing for Health Professionals’ Services: 

HR 3617 eliminates the flaws of the existing system that determines Medicare 

payments to physical therapists and other providers under the Part B physician fee 

schedule, as well as improving the program’s long-term solvency by creating incenVerDate Aug 31 2005 05:13 Apr 13, 2006 Jkt 026375 PO 00000 Frm 00085 Fmt 6633 Sfmt 6621 E:\HR\OC\26375.XXX 26375

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tives to improve the quality of care provided to the nation’s seniors and persons 

with disabilities. We are concerned that any effort to proceed with the transition to 

value-based purchasing or ‘‘pay for performance’’ without also addressing underlying 

flaws in the outpatient payment of physical therapy services would be inefficient 

and would ultimately erode the purpose of this legislation. By repealing the Sustainable Growth Rate (SGR) and replacing it with the Medicare Economic Index (MEI), 

the MedicareValue-Based Purchasing for Physicians’ Services Act of 2005 (HR 3617) 

resolves one of the current payment inadequacies under Medicare Part B, and APTA 

commends Chairwoman Johnson and the Committee for addressing this critical payment issue. 

Therapy Caps’ Inconsistency with Value-Based Purchasing for Physical 

Therapists’ Services under Medicare: 

The pending restoration of financial caps on outpatient physical therapy services 

under Medicare threatens to limit this legislation’s ability to fully achieve its objective. Congress must address the arbitrary caps placed on outpatient physical therapy services by the Balanced Budget Act of 1997 prior to transitioning to a valuedbased system. If the therapy caps are not repealed, the effect of HR 3617 would be 

the application of two different payment systems to rehabilitation services at the 

same time: one system that pays for quality, efficiency, and improved outcomes in 

clinical practice implemented on top of another that arbitrarily caps beneficiary coverage that is based upon the former paradigm of volume and utilization. The implementation of an arbitrary financial limit is inconsistent with the goals represented 

by a value-based purchasing system. The objective of HR 3617 is the transition to 

a payment system that rewards quality, outcomes, and efficiency in clinical practice; 

arbitrary caps on services undermine and erode this objective. APTA stands ready 

to work with you and your Committee to address the therapy caps and incorporate 

value-based purchasing into the solution for this issue. 

Inclusion of Non-Physician Providers in the Medicare Value-Based Purchasing for Physicians’ Services Act of 2005 (HR 3617): 

It is our understanding that your legislation is intended to include physical therapists practicing in outpatient settings, but we would encourage you to specifically 

reference physical therapists as participants in the development and attainment of 

clinically appropriate processes and measures to enhance the quality of rehabilitation care. We strongly encourage the inclusion of non-physician providers in the 

value-based purchasing discussions conducted by this committee and CMS. In the 

2006 Medicare Physician Fee Schedule proposed rule, CMS discusses its current involvement with the physician community in developing useful quality measures and 

understanding overall trends. Although we are pleased to see that CMS is willing 

to work collaboratively with physicians to develop quality measures, we strongly 

urge CMS and this committee to also include physical therapists and other non-physician groups in these discussions. There are more than 120,000 physical therapists 

in the United States, many of whom provide services to Medicare beneficiaries and 

would be able to provide useful information regarding appropriate quality measures 

for physical therapy services. CMS has indicated that 3,747,395 Medicare beneficiaries (9.3%) accessed outpatient therapy services in CY 2002, resulting in expenditures of $3,392,226,958 for the Medicare program, which accounts for 2.3% of 

all Medicare Part B expenditures during that year. Although the annual per-patient 

expenditure for PT services is only $760, 88% of the recipients of Medicare-covered 

rehabilitation receive physical therapy specifically, totaling $2.54 billion and accounting for 75% of the total costs of all outpatient rehabilitation services combined. 

These numbers clearly indicate that physical therapy is an essential outpatient benefit that should be incorporated into any transition to value-based purchasing for 

physicians and other health care professionals. 

Standardizationof a Consistent and Uniform Benefit for Physical Therapist 

Services in All PartB Settings: 

APTA believes that the fragmentation of rules and regulations across the multiple 

settings in which physical therapists provide services to Medicare beneficiaries creates serious problems for a uniform and consistent value-based purchasing payment 

system. Currently, physical therapists provide outpatient services in eight (8) Part 

B settings, each governed by different requirements regarding supervision, certification of plans of care, and billing authority. APTA believes that value-based purchasing would be enhanced and provider accountability increased by moving physical therapy to a uniform part B benefit similar to the physical therapist in private 

practice (PTPP) benefit, which improves accountability with individual provider 

numbers for each licensed physical therapist, similar to physician providers. We 

would welcome the opportunity to simplify the Part B physical therapy benefit by 


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eliminating the fragmentation of physical therapy services across all Part B settings. 

APTA’s Efforts to Support Value-Based Purchasing for Physical Therapists 

Services: A Foundation for Pay for Performance in Therapy Services: 

APTA believes that physical therapist practice is congruent with this initiative 

due to its focus on measurable outcomes of function, movement, and activities of 

daily living. We support reforming the Medicare payment system to reward providers for meeting clinically appropriate benchmarksto promote quality and improve 

the health outcomes of the Medicare population. APTA has been actively engaged 

in several initiatives to expand the utilization of health information technology and 

outcome measures that would lead to quality improvements in the provision of physical therapy services as well as to an effective value-based purchasing system for 

this essential service to Medicare beneficiaries. 

To achieve these objectives, APTA has developed a specialized point-of-care electronic patient record system (CONNECT) designed for use by physical therapists, 

and a patient self-report instrument, the Outpatient Physical Therapy Improvement 

in Movement and Assessment Log (OPTIMAL) which documents the outcomes of 

physical therapist treatment. Specifically, OPTIMAL provides an outcome measure 

of the patient’s functional status related to changes in movement. The patient uses 

OPTIMAL at the initiation of treatment and at discharge to indicate the level of 

difficulty experienced in performing 21 actions (e.g. rolling over, sitting, standing, 

bending, reaching, etc.) and the level of self-confidence in the ability to perform 

them. We firmly believe that OPTIMAL will be a valuable instrument in a pay-forperformance system. CONNECT enables practices to document the performance of 

a physical therapist in a particular practice and benchmark that performance with 

other clinicians. APTA would be happy to share the data derived from CONNECT 

with CMS so that it may be used to develop quality measures for a pay-for-performance system. APTA’s ultimate objective is to develop a national outcomes database 

that will enable the profession to determine the effectiveness of physical therapist 

practice and to provide quality measures to assist payers such as Medicare shift to 

payment systems that reward quality. We believe our efforts are consistent with the 

objectives that your legislation outlines and should assist the Centers for Medicare 

and Medicaid Services (CMS) in developing and implementing quality measures for 

physical therapists of the kind envisioned by your legislation. 

Recognizing the need for evidence-based practice, APTA also initiated a project 

several years ago referred to as ‘‘Hooked on Evidence,’’ which involved the creation 

of a website dedicated to literature review on physical therapy efficacy. Specifically, 

APTA’s Hooked on Evidence Website consists of a database of current evidence on 

the effectiveness of physical therapy interventions drawn from scientific research literature. The website allows physical therapists to search a database of extractions 

from peer-reviewed literature relevant to physical therapy, which has been aggregated to produce research-based guidelines for clinical practice. 

APTA has also developed the Guide to Physical Therapist Practice (‘‘the Guide’’), 

which helps physical therapists analyze their patient/client management and describe the scope of their practice. The Guide delineates tests and measures and the 

interventions that are used in physical therapist practice. It also identifies preferred 

practice patterns that will help physical therapists (a) improve quality of care, (b) 

enhance positive outcomes of physical therapist services, c) enhance patient/client 

satisfaction, (d) promote appropriate utilization of health care services, e) increase 

efficiency and reduce unwarranted variation in the provision of services, and f) diminish the economic burden of disablement through prevention and the promotion 

of health, wellness, and fitness. Through the development of a health information 

technology infrastructure that supports quality improvement by providing physical 

therapists with tools to support evidence-based clinical decision making and incorporate performance measurement in their practices, APTA is helping to lay the 

groundwork for Medicare pay—for-performance. 

Conclusion: 

In summary, we recommend the following principles to enhance the H.R. 3617, 

the Medicare Value-Based Purchasing for Physicians’ Services Act of 2005: 

• Maintain the repeal of the Substantial Growth Rate (SGR) and its replacement 

with the Medicare Economic Index (MEI) in HR 3617. 

• Eliminate the arbitrary therapy caps for physical therapists, occupational therapists, and speech language pathologists. If value-based purchasing rewards high 

quality, efficient, and clinically appropriate care, implementation of the therapy 

caps would unnecessarily limit essential benefits for our seniors and persons 

with disabilities, and would ultimately lead to increased costs in other areas. 


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• Include non-physician providers explicitly as part of value-based purchasing 

under Medicare. Physical therapists are paid according to the same fee schedule 

as physician providers and should be included in this new payment framework. • Standardize the Part B benefit regarding physical therapy services. • Utilize the foundation established by APTA to assist CMS in the transition of 

outpatient physical therapy to value-based purchasing. 

We appreciate your sensitivity to concerns about the capability of all providers to 

become eligible for incentives and the need to eliminate current payment problems 

before attempting to create this new system. We also have questions about how 

CMS will select and implement reporting requirements and assessment measures. 

We look forward to working with you in addressing these and other issues as the 

House considers this legislation and other Medicare issues this fall. APTA is eager 

to work with you and your staff to ensure that legislation creating new structures 

in the Medicare program to provide incentives for reporting and transitioning to 

value-based purchasing is enacted in a fashion that ensures appropriate beneficiary 

access to care, reduces the administrative burden on both patients and providers, 

and improves the quality of care for all Medicare beneficiaries. 

f 

Statement of Steven Wojcik, National Business Group on Health 

Congress Should Implement Medicare Pay-For-Performance Now 

Issue: Congress is considering legislation that would implement value-based purchasing, or pay-for-performance, on a program-wide basis in Medicare. Pay-for-performance programs reward health care providers for quality care and efficiency 

through higher reimbursement and payments. 

Too often, payment for health care is made without regard to whether services 

are needed or how well they are performed. While cost is tied to quality or performance in most other industries, in health care, including in Medicare, the opposite 

tends to happen—we end up paying more for poor service and the additional health 

care needed to ‘‘correct’’ poor quality. 

The pay-for-performance movement continues to rapidly expand in the marketplace. In recent years, employers and other health care purchasers have developed 

and adopted payment programs to reward quality and efficiency in the health care 

system. For example, several of the Business Group’s employer members participate 

in Bridges to Excellence and the pay-for-performance program of the Integrated 

Healthcare Association, two of the leading movements. Today, most large insurers 

and health plans have a provider incentive program. The Medicare program has several pay-for-performance demonstrations underway. 

Pay-for-performance promises to advance evidence-based medicine, improve the 

quality of health care and the health of Medicare beneficiaries, which translates into 

better value for the Medicare program. 

Position: The National Business Group on Health, a member organization of over 

240 primarily large employers who provide coverage for 50 million Americans, 

strongly urges Congress to pass legislation that would implement pay-for-performance on a widespread basis in the Medicare program for hospitals, physicians, and 

other health care facilities and professionals. Pay-for-performance in Medicare 

would harness the government’s leverage as the largest purchaser of health care in 

the U.S. to improve the quality and efficiency of Medicare and the overall health 

care system. 

The Business Group believes that a Medicare pay-for-performance program 

should include the following: 

• The performance measures adopted by Medicare should be measures developed 

by nationally recognized quality measurement organizations, such as the National Committee for Quality Assurance (NCQA), researchers, and practitioner 

groups that have been vetted and recommended by consensus-building organizations that represent diverse stakeholders, such as the National Quality Forum 

(NQF). 

• Rewarding quality is paramount but rewarding quality care that is provided efficiently is also important and should be an essential part of any pay-for-performance initiative in Medicare. 

• When measuring quality, focusing on misuse and overuse is equally important 

as underuse. 

• To the extent possible, performance measures should incorporate outcomes of 

care in addition to structure and process measures 


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• CMS should make meaningful disclosure of performance results to the public, 

which will reinforce the value of pay-for-performance. 

• The health care system will need sufficient health information technology infrastructure to report performance measures. Some providers, particularly solo and 

small group physician practices and those serving low-income urban and rural 

areas, may need financial assistance to purchase needed systems, software, 

training and related services. 

• The Medicare program should consider expanding the proportion of Medicare 

payment and reimbursement based on performance over time as it implements 

pay-for-performance. 

Pay-for-Performance in Medicare is Needed Now to Improve Quality and Safety: 

A landmark 1999 Institute of Medicine (IOM) report estimated that preventable 

medical errors in hospitals might cause as many as 98,000 deaths annually. Many 

more people are injured in hospitals and countless more preventable deaths and injuries occur in outpatient settings. 

A 2003 RAND study found that patients received only 55 percent of recommended 

care for fairly common medical conditions for which a broad consensus exists on 

care standards. 

The Dartmouth Atlas of Health Care’s most recent findings reveal wide variation 

in hospital care and outcomes for chronically ill Medicare patients. 

Fisher and colleagues (Annals of Internal Medicine, 2003) estimate that up to 30% 

of Medicare spending may be for excessive and unnecessary care. 

Æ 


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