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79–793 2014

SGR: DATA, MEASURES, AND MODELS; BUILDING 

A FUTURE MEDICARE PHYSICIAN PAYMENT 

SYSTEM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 14, 2013 

Serial No. 113–6 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

(III) 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

RALPH M. HALL, Texas 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

RENEE L. ELLMERS, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

GENE GREEN, Texas 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

HENRY A. WAXMAN, California (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 2 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 3 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 4 

Prepared statement .......................................................................................... 5 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 6 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 7 

Prepared statement .......................................................................................... 8 

WITNESSES

Glenn M. Hackbarth, J.D., Chairman, Medicare Payment Advisory Commission ........................................................................................................................ 9 

Prepared statement .......................................................................................... 11 

Answers to submitted questions ...................................................................... 182 

Harold D. Miller, Executive Director, Center for Healthcare Quality and 

Payment Reform ................................................................................................... 71 

Prepared statement .......................................................................................... 74 

Answers to submitted questions ...................................................................... 188 

Elizabeth Mitchell, CEO, Maine Health Management Coalition ........................ 100 

Prepared statement .......................................................................................... 102 

Robert Berenson, M.D., Institute Fellow, Urban Institute .................................. 124 

Prepared statement .......................................................................................... 126 

Answers to submitted questions ...................................................................... 194 

Cheryl L. Damberg, Ph.D., Senior Policy Researcher, Professor, Pardee Rand 

Graduate School ................................................................................................... 139 

Prepared statement .......................................................................................... 141 

SUBMITTED MATERIAL

Letter of February 13, 2013, from the National Partnership for Women & 

Families to the Subcommittee, submitted by Mr. Pallone ................................ 176 

Statement of the American Medical Association, submitted by Mr. Pitts .......... 178 

Statement of the American College of Physicians, submitted by Mr. Pitts ........ 181 

(1) 

SGR: DATA, MEASURES AND MODELS; BUILDING A FUTURE MEDICARE PHYSICIAN PAYMENT SYSTEM 

THURSDAY, FEBRUARY 14, 2013 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:18 a.m., in Room 

2123 of the Rayburn House Office Building, Hon. Joe Pitts (chairman of the subcommittee) presiding. 

Members present: Representatives Pitts, Burgess, Hall, Shimkus, 

Murphy, Gingrey, Lance, Cassidy, Guthrie, Griffith, Bilirakis, 

Ellmers, Upton (ex officio), Pallone, Dingell, Engel, Capps, Green, 

Barrow, Christensen, Castor, Sarbanes, and Waxman (ex officio). 

Staff present: Clay Alspach, Chief Counsel, Health; Matt Bravo, 

Professional Staff Member; Steve Ferrara, Health Fellow; Julie 

Goon, Health Policy Advisor; Debbee Hancock, Press Secretary; 

Robert Horne, Professional Staff Member, Health; Carly 

McWilliams, Legislative Clerk; John O’Shea, Senior Policy Advisor, 

Health; Andrew Powaleny, Deputy Press Secretary; Chris Sarley, 

Policy Coordinator, Environment and Economy; Heidi Stirrup, 

Health Policy Coordinator; Alli Corr, Democratic Policy Analyst; 

Amy Hall, Democratic Senior Professional Staff Member; Elizabeth 

Letter, Democratic Assistant Press Secretary; and Karen Nelson, 

Democratic Deputy Committee Staff Director for Health. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Mr. PITTS. The subcommittee will come to order. The chair recognizes himself for 5 minutes for an opening statement. 

The background and details of the topic of today’s hearing are 

well known to physicians, to this subcommittee, and to most health 

policy analysts. The Sustainable Growth Rate, or SGR payment 

system, originated with the Balanced Budget Act of 1997. At that 

time, the intent of the of SGR physician payment system, placing 

controls on Medicare spending through global spending targets and 

fee cuts if the targets were exceeded, seemed like a reasonable 

thing to do. However, within a short time, it became apparent that 

this policy was flawed. 

This subcommittee has had previous hearings that have addressed the shortcomings of SGR, including the repeated threats to 

2 

patient access to care, and provider income, and the mounting costs 

of Congressional actions to override the scheduled fee cuts. Congress has acted to override these statutory cuts on at least 15 occasions, and the cost of these overrides has been staggering. The 

most recent 1-year extension override comes at a price of $25.2 billion. 

Furthermore, all the money spent on avoiding cuts to physician 

fees has not gotten us any closer to a payment policy that will reimburse physicians for the value rather than the volume of services, will pay physicians and other providers fairly, and ensure access to high quality health care for all Medicare beneficiaries. 

Today’s hearing is an attempt to move us closer to that goal. This 

hearing will focus on three themes: data, measures and models. In 

thinking about the proper payment policy, there seems to be fairly 

widespread agreement that certain elements are needed to build 

that system. 

First of all, physicians, payers, and other stakeholders need access to reliable data that can be used to improve the value of 

health care. Appropriate measures also need to be developed on an 

ongoing basis to continually assess progress in improving the system. In addition, as new and better payment and care delivery 

models are developed, they should be incorporated into the Medicare program. 

The witnesses that are here today are well equipped to address 

these areas. I would like to express my thanks to today’s witnesses 

who have taken time out of their busy schedules to share their expertise with the subcommittee on this difficult problem which has 

confronted the Medicare system for more than a decade. 

[The prepared statement of Mr. Pitts follows:] 

PREPARED STATEMENT OF HON. JOSEPH R. PITTS

The background and details of the topic of today’s hearing are well-known to physicians, to this Subcommittee, and to most health policy analysts. 

The Sustainable Growth Rate, or SGR payment system, originated with the Balanced Budget Act of 1997. At the time, the intent of the of SGR physician payment 

system, placing controls on Medicare spending through global spending targets and 

fee cuts if the targets were exceeded, seemed like a reasonable thing to do. However, 

within a short time, it became apparent that this policy was flawed. 

This Subcommittee has had previous hearings that have addressed the shortcomings of SGR, including the repeated threats to patient access to care and provider income, and the mounting costs of Congressional actions to override the scheduled fee cuts. 

Congress has acted to override these statutory cuts on at least 15 occasions and 

the cost of these overrides has been staggering. The most recent one year override 

comes at a price of $25.2 billion. 

Furthermore, all the money spent on avoiding cuts to physicians fees has not gotten us any closer to a payment policy that will reimburse physicians for the value 

rather than the volume of services, will pay physicians and other providers fairly, 

and ensure access to high quality health care for all Medicare beneficiaries. 

Today’s hearing is an attempt to move us closer to that goal. 

This hearing will focus on three themes: data, measures and models. 

In thinking about the proper payment policy, there seems to be fairly widespread 

agreement that certain elements are needed to build that system. 

First of all, physicians, payers and other stakeholders need access to reliable data 

that can be used to improve the value of health care. 

Appropriate measures also need to be developed on an ongoing basis to continually assess progress in improving the system. 

In addition, as new and better payment and care delivery models are developed, 

they should be incorporated into the Medicare program. 

3 

The witnesses that are here today are well equipped to address these areas. 

I would like to express my thanks to today’s witnesses who have taken time out 

of their busy schedules to share their expertise with the Subcommittee on this difficult problem which has confronted the Medicare system for more than a decade. 

Mr. PITTS. Now I would like to recognize the ranking member of 

the Subcommittee on Health, Mr. Pallone, for 5 minutes for an 

opening statement. 

OPENING STATEMENT OF HON. FRANK PALLONE JR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Thank you, Chairman Pitts. I want to commend 

you for holding today’s hearing. As our first Health Subcommittee 

of the 113th Congress, I think it sends a strong message that fixing 

the Sustainable Growth Rate system is our top priority, and I know 

it is certainly my top priority. 

So let me just note that I was very encouraged by Chairman 

Upton’s remarks yesterday, that it is his goal to put a bill on the 

House Floor before the August recess. I stand ready to work with 

you both to meet that goal, and it is my hope that this will be a 

bipartisan process. But I would be remiss if I didn’t express my disappointment to see the release of a Republican framework by the 

committee and its Ways and Means counterpart. Truthfully, since 

I understand that there was a commitment to working with us on 

a bipartisan basis, putting out a Republican-only framework is 

somewhat perplexing. With little detail, I will refrain from commenting on its substance, so I just ask that moving forward, any 

future products will include the input of the Democratic members 

of the committee. 

Now, we are here again facing yet another year of uncertainty 

in Medicare for physicians and beneficiaries. Clearly, we can all 

agree that the SGR is fundamentally flawed and it is creating instability in the program. While the formula represented an attempt 

to minimize unnecessary growth in volume of services, it has not 

only failed to do that, but also fails to reward providers for improved quality and outcomes. As a result, Congress has spent more 

than a decade overriding arbitrary cuts to physician payments generated by this formula with little to show for that other than an 

ever-growing budgetary hole. At a time when it is often difficult to 

find bipartisan consensus, this is one area where people on the left 

and the right of the political spectrum have come to agreement, 

and that is that the SGR formula must be repealed and replaced. 

But the question that has vexed those us in Congress is how best 

to accomplish that replacement. While no one proposal is likely to 

hold a perfect solution, I believe there are a number of elements 

we should seek to incorporate into a new payment model including 

building on the reforms that are already underway in Medicare 

through the Affordable Care Act. 

First, we have to reward quality. Providers who contribute to improved health care outcomes and better quality deserve recognition. 

Second, we must also reward efficiency, delivering the right care at 

the right time in the right setting. Third, we must reward collaboration and a patient-centered approach. Too often, Medicare is fragmented and a complete view of the patient is missing. We need to 

4 

ensure providers have incentives to work together and share information. 

Now, today’s hearing will delve into these issues by exploring 

how quality is measured, what data is needed and what models 

will deliver the best results. These components must be resolved in 

order to finally replace the SGR. And so I welcome our witnesses 

here to bring their perspectives to help our members evaluate these 

essential issues. 

I also wanted to say, Mr. Chairman, I don’t know how many 

newer members we have today but I do think my feeling is that 

the newer members of the committee on both sides of the aisle 

have a lot to offer with regard to the SGR and looking towards the 

future, and so I hope that we will get a lot of our newer members 

involved in whatever final outcome we come up with, because I do 

think they have a lot to offer. 

I want to close with a fact that I think can’t be ignored, and that 

is that SGR repeal is too expensive to pay for with Medicare cuts 

alone, especially when Medicare cuts are being considered to reduce the Nation’s debt. I have said to my colleagues including you, 

Mr. Chairman, that I really worry that every time there need to 

be some changes, you know, to meet the SGR goal or to deal with 

other health care initiatives, it is also assumed that the cuts have 

to be within the health care system, and whether it is Medicare or 

Medicaid, we should not always look to provider cuts within the 

health care system to pay for other provider cuts that have been 

out there. I know we are all delighted to see that the cost of repealing the SGR is lower than it has been in years, but we are not 

fools. A hundred and eighty-three billion dollars is still a lot of 

money, and we simply can’t find that amount of savings from Medicare alone, and that is why I have insisted from the beginning that 

we not only consider savings from within the health care system, 

I believe we can use another approach to write off the costs such 

as an unpaid baseline adjustment or the OCO funds. The OCO 

funds are something I have suggested in the past. 

But in any case, the SGR is unsustainable, unreliable and unfair, 

so the question remains, how do we fix it. I hope we can begin to 

truly answer that question after today’s hearing so that we can 

provide security and reliability for our seniors and our doctors 

alike. 

I yield back. Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman, and I join him in 

welcoming all the new members to the subcommittee including on 

our side Mr. Hall, Mr. Griffith, Ms. Ellmers and Mr. Bilirakis. 

At this time the Chair recognizes the chairman of the full committee, Mr. Upton, for 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Thank you, Mr. Chairman. 

You know, by now we are all too familiar with how the current 

SGR system has caused uncertainty among physicians and threatened access to care for our Nation’s seniors. Unfortunately, this 

issue was ignored in the Affordable Care Act, but continuing to ignore it is no longer an option. 

5 

Yesterday, I had the opportunity to address the AMA, and I emphasized our desire to work with physicians and the need for input 

from the medical profession in order to arrive at a physician payment policy that will in fact achieve real reform. Real reform will 

mean that doctors no longer have to wonder whether they will face 

substantial fee cuts and that our Nation’s seniors will not have to 

wonder whether they will be able to see their docs. 

During the last Congress, the Energy and Commerce Committee 

began a bipartisan effort to address the problem that has plagued 

seniors and their physicians for more than a decade. In 2011, the 

committee sent a bipartisan letter to more than 50 physician organizations, soliciting input on how to reform the Medicare physician 

payment system. More than two dozen responded with a good number of valuable ideas. 

This subcommittee then held hearings to address the issue, and 

the committee has continued to engage with physicians and other 

stakeholders to formulate a payment policy to solve this difficult 

problem. 

Last week, Ways and Means Chairman Dave Camp and I, along 

with Subcommittee Chairmen Pitts and Brady, as well other committee members, announced the release of a proposal to finally 

achieve long-term reform of the current SGR Medicare physician 

payment system. This is a top priority. And as we move closer to 

the goal, I am confident that we can make it a bipartisan effort. 

Today’s hearing is another step in that way, and I would yield the 

balance of my time to the vice chair and a very important player 

as we have formulated the draft and pursue this issue, Dr. Burgess 

from Texas. 

[The prepared statement of Mr. Upton follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

By now, we are all too familiar with how the current Sustainable Growth Rate 

system has caused uncertainty among physicians and threatened access to care for 

our nation’s seniors. 

Unfortunately, this issue was ignored in the Affordable Care Act, but continuing 

to ignore it is no longer an option. 

Yesterday, I had the opportunity to address the American Medical Association. I 

emphasized our desire to work with physicians and the need for input from the 

medical profession in order to arrive at a physician payment policy that will achieve 

real reform. 

Real reform will mean that doctors no longer have to wonder whether they will 

face substantial fee cuts and that our nation’s seniors will not have to wonder 

whether they will be able to see their doctors. 

During the 112th Congress, the Energy and Commerce Committee began a bipartisan effort to address this problem that has plagued seniors and their physicians 

for more than a decade. 

In 2011, the Committee sent a bipartisan letter to more than 50 physician organizations and others, soliciting input on how to reform the Medicare physician payment system. More than 30 groups responded to our letter with a number of valuable ideas. 

The Health Subcommittee then held hearings to address this issue, and the committee has continued to engage with physicians and other stakeholders to formulate 

a payment policy to solve this difficult problem. 

Last week, Ways and Means Chairman Camp and I, along with Subcommittee 

Chairmen Pitts and Brady, as well other committee members, announced the release of a proposal to finally achieve long-term reform of the current SGR Medicare 

physician payment system. This is a top priority. As we move closer to this goal, 

I am confident that we can make this a bipartisan effort. Today’s hearing is another 

step in that process. 

6 

I would like to thank the witnesses for volunteering both their time and expertise 

today and for helping us as we move toward a solution to this problem. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Well, I thank the chairman for the recognition, 

and we all know that this Sustainable Growth Rate formula, it is 

an issue whose time has come and should have gone long ago. It 

is unrealistic assumptions of spending and efficiency. It has certainly plagued this committee, but really, the important thing is, 

it has been a problem for doctors and it has been a real problem 

for beneficiaries at a time when beneficiaries are growing at 10,000 

a day. 

It has already been mentioned about the follow-up where our two 

committees share jurisdiction. The framework does build off the 

work done over the past year and a half by the chairman of the 

subcommittee and his staff and has involved collaboration from 

doctors and patient groups all over the country. It should be noted, 

it is not for discriminating between physicians and other providers. 

It does not seek to benefit one form of medical practice over another. The framework realizes, there are always going to be areas 

where providers choose or need to practice in a fee-for-service for 

model. It doesn’t mean there are not better ways to revamp fee-forservice but it does mean the fee-for-service may continue to exist. 

Our goal cannot be flexibility in practice models if we do not 

have the ability to quickly evaluate innovative practice environments, and if appropriate, build them into future options. Innovation for the future is critical and every encouraging the reevaluation of adoption of models that adapt to changes in best practices 

and clinical guidelines and the technology. 

I will submit the balance of my remarks for the record and yield 

the time to Dr. Gingrey. 

Mr. GINGREY. I thank Mr. Burgess for yielding. 

Mr. Chairman, I am encouraged that Chairman Upton has signaled the SGR repeal and replacement will be a chief concern for 

the Energy and Commerce Committee this year. I am excited to be 

here today as it is hopefully the conclusion of a large fact-finding 

mission this subcommittee has undertaken over these few years. 

We began with hearings to address the need for action, then to understand past attempts to reform, and now we are finally here 

today to seek how to use data and other measures to modernize 

and improve the Medicare payment system as a last step before 

legislative action. 

As a doctor and as co-chairman of the GOP Doctors Caucus, I understand the necessity of these changes, and I look forward to seeing the job of reform completed this year, and certainly, Mr. Chairman, thank you for calling this hearing, and I yield the balance of 

this time to the gentleman from Louisiana, Dr. Cassidy. 

Mr. CASSIDY. Thank you, Mr. Gingrey. 

The 113th Congress has a tremendous opportunity and obligation 

to finally eliminate the SGR payment regime, but I would say as 

we discuss and contemplate new and innovative payment models, 

we have to keep in mind that the typical Washington solution involves very large bureaucracies, either public or private. That said, 

7 

as a practicing physician, I know many of my colleagues are reluctant to give up their smaller practice, and if we are going to 

achieve a quicker reform, we must keep that in mind if for no other 

reason than that is reportedly a major cause of physician burnout 

and early retirement. So my office is working on a proposal that 

would allow these physicians to continue to participate in their private practice but to have gain-sharing relationships, participate in 

those innovative reforms while retaining the independent nature of 

their current practice, and I would look forward to the Democratic 

side participating in this discussion as well because I do think that 

is a bipartisan concern. 

I look forward to the panel’s testimony and discussion, and I 

yield back. Thank you. 

Mr. PITTS. The Chair thanks the gentleman. At this time the 

Chair recognizes the ranking member of the full committee, Mr. 

Waxman, for 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. I guess that is called 

good timing. I was present at another subcommittee hearing upstairs and I wanted to get down here as soon as I could. I want 

to thank you for holding this hearing. 

Today’s discussion will focus on some of the critical questions we 

must address in redesigning Medicare’s physician payment system. 

There is no question about it: Medicare is vital to the health of seniors in our country, and physicians are a vital part of Medicare, 

and a critical partner to helping us build a health care system that 

provides better health care and improved health for all patients. 

We know that the payment system can drive patient outcomes but, 

unfortunately, right now it is not driving it in the direction of better health and value. 

It is clear from this hearing that there is a broad consensus on 

the need to fix this problem, and even consensus on which direction 

we need to move. The question is how to get there. The Affordable 

Care Act provides the foundation for the right path forward. 

Through its support for new delivery and payment models like accountable care organizations, bundled payments, medical homes 

and initiatives that boost primary care, it moves us in the direction 

of improved quality, efficiency and value. Innovative delivery and 

payment system models are also being developed and implemented 

by physician groups, health systems, regional health improvement 

collaboratives, and private payers, in some cases as private-public 

partnerships. We will hear more about these in today’s hearing. We 

have the opportunity to leverage payment reform in Medicare to 

support these new delivery and payment models. We need to respect and encourage local innovation, but ensure accountability for 

improvement and prudent management. 

Our challenge is to judiciously balance the many competing interests in our health care system. I believe that we need to approach this discussion with physicians as our partners, but we also 

need to ensure that other health care stakeholders, including beneficiaries and non-physician providers, have input as well. 

8 

It is no longer acceptable to accept the status quo. It is time for 

us to work together and permanently repeal SGR and put in place 

a truly sustainable system that aligns provider payments with 

quality and ensures that all Americans have access to the best care 

at lower cost. 

I am pleased the chairman is moving forward with this hearing 

early in this Congress, and I am hopeful that we can find common 

ground on a solution for a problem that has been calling out for one 

for a very long time. We shouldn’t have this SGR threat hanging 

over us every year with the uncertainty it has meant to the physicians in this country, not knowing whether Medicare is going to be 

there for them, which has brought about many physicians leaving 

the Medicare program completely, which is a disservice to the beneficiaries of Medicare. 

I thank you for the time allotted to me. I will be happy to yield 

whatever period of time I have left to any other member that 

wants me to yield. If not, I will yield back the time. 

[The prepared statement of Mr. Waxman follows:] 

PREPARED STATEMENT OF HON. HENRY A. WAXMAN

I would like to thank the Chairman for holding this hearing. Today’s discussion 

will focus on some of the critical questions we must address in re-designing Medicare’s physician payment system. 

There is no question about it, Medicare is vital to the health of seniors in our 

country. And physicians are a vital part of Medicare, and a critical partner to helping us build a health care system that provides better health care and improved 

health for all patients. We know that the payment system can drive patient outcomes but, unfortunately, right now it is not driving it in the direction of better 

health and value. 

It’s clear from this hearing that there is broad consensus on the need to fix this 

problem, and even consensus on which direction we need to move. The question is 

how to get there. The Affordable Care Act provides the foundation for the right path 

forward. Through its support for new delivery and payment models like accountable 

care organizations, bundled payments, medical homes, and initiatives that boost primary care, it moves us in the direction of improved quality, efficiency, and value. 

Innovative delivery and payment system models are also being developed and implemented by physician groups, health systems, regional health improvement 

collaboratives, and private payers, in some cases as private-public partnerships. We 

will hear more about these in today’s hearing. We have the opportunity to leverage 

payment reform in Medicare to support these new delivery and payment models. We 

need to respect and encourage local innovation, but ensure accountability for improvement and prudent management. 

Our challenge is to judiciously balance the many competing interests in our health 

care system. I believe that we need to approach this discussion with physicians as 

our partners, but we also need to ensure that other health care stakeholders, including beneficiaries and non-physician providers, have input as well. 

It is no longer acceptable to accept the status quo. It is time for us to work together and permanently repeal SGR and put in place a truly sustainable system 

that aligns provider payment with quality and ensures that all Americans have access to the best care at lower cost. 

I am glad to see the Chairman moving forward early in this Congress, and I am 

hopeful that we can find common ground on a solution. 

Mr. PITTS. All right. The Chair thanks the gentleman. 

We have two panels today. Our first panel will have just one witness, Mr. Glenn Hackbarth, chairman of the Medicare Payment 

Advisory Commission. We are happy to have you with us today, 

Mr. Hackbarth, and you are recognized for 5 minutes for an opening statement at this time. 

9 

STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN, 

MEDICARE PAYMENT ADVISORY COMMISSION 

Mr. HACKBARTH. Chairman Upton, Ranking Member Waxman, 

Subcommittee Chairman Pitts and Ranking Member Pallone, I appreciate the opportunity to talk to you today about repeal of the 

Sustainable Growth Rate system for physicians. 

MedPAC, which I chair, first recommended repeal of SGR in 

2001. We recommended repeal at that point because we thought 

that the system would be ineffective in achieving the goal of encouraging efficient use of limited resources but also be inequitable 

to physicians inasmuch as any penalties apply equally to all physicians without regard to their individual performance. 

To those two original concerns, we have now added a third, and 

that is that continuation of SGR poses an increasing risk to access 

to care for Medicare beneficiaries. Although we have not yet seen 

a significant erosion in access at the national level, we have all 

heard about problems with access to care for Medicare beneficiaries 

in particular markets and especially for primary care services. 

MedPAC’s fear is that those problems could spread rapidly if 

SGR is continued. We have a tight balance between supply and demand for services in many markets, again, in particular for primary care services, and growing physician frustration and anger 

about SGR means that even small numbers of physicians electing 

to reduce their participation in Medicare could have significant effects on access to care for Medicare beneficiaries. Now, to be clear, 

I am not predicting a national crisis at this point but we certainly 

cannot rule it out either. 

We have an especially good opportunity, I think, now to address 

the SGR issue. As you well know, CBO has recently significantly 

reduced the budget score attached to repeal of SGR. In effect, SGR 

appeal is now on sale but the sale may not last forever. If experience is any guide, projections of this sort vary over time. I have 

been doing this for quite a while now, and I have gone through 

multiple cycles where we had low periods of growth followed by acceleration and rapid periods of growth, then low periods and then 

rapid periods again. Right now, we are in a low period of growth 

in utilization of services and hence the low score for repeal. I think 

it is important to seize this opportunity. 

Repealing SGR alone is not enough, however. MedPAC recommends that the repeal legislation pursue two other goals. First 

is to balance payments within the physician payment system with 

particular focus on increasing payments for cognitive services relative to procedures and tests with a particular emphasis on improving payment for primary care services, and the second objective that we recommend is to encourage migration away from feefor-service to new payment models for Medicare. 

The criticism of fee-for-service that one most often hears is that 

fee-for-service has the incentive to increase volume without regard 

to outcomes for patients. That is true. But from our perspective, 

equally important is that fee-for-service enables, if not encourages, 

a fragmentation of care delivery, and through its siloed nature actually impedes the free flow of resources to where clinicians think 

they can do the best for patients. We believe that a better approach 

is a payment system that decentralizes decisions about what is apVerDate Nov 24 2008 11:10 Feb 25, 2014 Jkt 037690 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-6 CHRIS
10 

propriate care in exchange for accountability by clinician and provider organizations for outcome and total cost. 

Last point: Moving to these new payment models will take time. 

These are complicated changes to make, both on the payment side 

and on the care delivery side. They should take time. For us, that 

is a reason to begin now and not to delay any further. If we delay 

longer, it means that we will be well into the bulge of Baby 

Boomers retiring in the Medicare program and the financial pressures will be heightened, and we believe as a result the risk to both 

physicians and patients will be greater. 

With that, Mr. Chairman, I am happy to take your questions. 

[The prepared statement of Mr. Hackbarth follows:] 

11 


79793.001

Medicare 

Payment Advisory 

Commission 

TESTIMONY 

Moving Forward From 

the Sustainable Growth Rate 

(SGR) System 

February 14, 2013 

Statement of 

Glenn M. Hackbarth, J.D. 

Chairman 

Medicare Payment Advisory Commission 

Before the 

Subcommittee on Health 

Committee on Energy and Commerce 

U.S. House of Representatives 

Glenn M. Hackbarth, J.D., Chairman· Michael Chernew, Ph.D., Vice Chairman· Mark E. Miller, Ph.D., Executive Director 
12 


79793.002

Chairman Upton, Ranking Member Waxman, Subcommittee Chairman Pitts, Subcommittee 

Ranking Member Pallone, distinguished Committee members. I am Glenn Hackbarth, chairman of 

the Medicare Payment Advisory Commission (MedP AC). I appreciate the opportunity to be here 

with you this morning to discuss MedP AC' s approach to moving forward from the sustainable 

growth rate (SGR) system. 

The Medicare Payment Advisory Commission is a Congressional support agency that provides 

independent, nonpartisan policy and technical advice to the Congress on issues affecting the 

Medicare program. The Commission's goal is to achieve a Medicare program that assures 

beneficiary access to high-quality care, pays health care providers and plans fairly, rewards 

efficiency and quality, and spends tax dollars responsibly. 

Each year, MedPAC conducts an analysis of payment adequacy for physician and other health 

professional services. This analysis covers a range of issues-access to care, quality, and 

changes in volume and intensity of Medicare-covered services. MedPAC has also considered 

other approaches to improving the Medicare program, including delivery system reforms (such 

as accountable care organizations) and the role that physicians and other health professionals 

would play in those reforms. However, given the focus of this hearing, this testimony focuses 

solely on the Commission's recent work regarding the SGR system. 

Backgraund 

Physicians and other health professionals deliver a wide range of services to Medicare 

beneficiaries, including office visits, surgical procedures, and diagnostic and therapeutic services 

in a variety of settings. In 2011, the Medicare program paid $68 billion for physician and other 

health professional services, 12 percent of total Medicare spending. 

Medicare pays physicians and other health professionals (such as nurse practitioners or 

therapists) using a fee schedule that includes payment rates for over 7,000 separate billing codes. 

Weights for work, practice expense and malpractice insurance are set for each code and are 

designed to reflect the resources needed on average to provide the service. The sum of the 

weights is multiplied by a dollar amount called the conversion factor, which produces the total 
13 


79793.003

payment amount for each service. So on net, Medicare's payments for physician services are a 

function of the number of services the physician orders and the rate for each of those services. 

The old system of Medicare physician payment was similar to that used by private insurers. It 

was based on a percentage (e.g., 75 percent) of prevailing charges in a market and proved to be 

highly inflationary. 1 Providers learned that by raising charges, they could increase their payments 

from private insurers and Medicare. Moreover, it resulted in distortions among services and 

specialties (i.e., primary care vs. procedural based specialties) because certain specialties were 

more able to raise charges than others2 The Medicare physician fee schedule (PFS) was 

developed by a Harvard physician in consultation with panels of practicing physicians] Upon 

implementation in 1992 it was intended to rationalize payments across services based on the time 

a service took to provide and the level of intensity it required, and it was also intended to narrow 

the differences between primary care/cognitive services and procedural services4 However, an 

additional concern was the volume of physician services. As noted above, physicians are able to 

order more or fewer services, and Medicare has gone through periods of high volume 

growth5 When the PFS was implemented there were concerns that physicians would respond to 

fee adjustments by generating more service volume. This led to volume-control policies, such as 

the SGR being tied to physician payment. 

Under current law, the conversion factor is governed by the SGR formula, which creates a limit 

on aggregate growth in payments to physicians and other health professionals by reducing the 

conversion factor if the SGR targets are exceeded. The SGR formula allows for growth in input 

prices, enrollment, and changes in law and regulation. The SGR formula also allows for volume 

growth equal to the rate of growth in per capita gross domestic product (GDP). As a result, the 

1 Holahan. John. and Lynn M. Etheridge, eds. 1986. Medicare physician payment re(brlll. Washington, DC: The 

Urban Institnte Press. 

2 Holahan. J01UL and Lynn M. Etheridge, cds. 1986. Medicare physician payment reform. Washington. DC: The 

Urban Institute Press. Hsiao, W. C, D. B. Yntema. P. Braun, et a1. 1988. Measurement and analysis of intraservice 

work. Journal of the American Medical Association 260. no. 16 (October 28): 2361-2370. Physician Payment 

Review Commission. 1989. Annual report ro Congress, Washington. DC: PPRC 

3 Hsiao, W. C., D. B. Yntema. P. BramL et a1. 1988. Measurement and analysis of intra service work. Journal of the 

American Medical Association 260, no. l6 (October 28): 236l·2370, 

4 Physician Payment Review Conunission. 1989. Annual report to Congress. Washington. DC: PPRC. 

5 Government Accountability Office. 2006. Trends' in seYlJjce utilization, spending, and fees prompt consideration of 

alternative payment approaches. GAO-06·1008T. http://www.gao,gov/assetslI20/114491.pdf. 

2 
14 


79793.004

differential between GDP and volume is an important factor. A rationale for setting GDP as the 

volume target is that national output-or GDP-reflects a measure of affordability, as 

government tax collections have generally remained a constant share of national output. And 

Medicare Part B, which funds physician and other health professional services, receives the bulk 

of its financing from tax collections. 

The resulting SGR formula has produced negative payment updates every year since 2003 due to 

increases in volume and intensity beyond those permitted by the SGR. However, the Congress 

has implemented short-term overrides of these negative payment adjustments every year since 

2003. On January 2, 2013, the estimated 27 percent payment cut to physician fees under the SGR 

was overridden, and payment rates will remain at their 2012 level until the end of2013. With the 

significant accumulation in spending that must be recouped under the SGR, repealing it has a 

high budgetary cost. 

The Commission's position on the SGR system 

The SGR is fundamentally flawed and is creating instability in the Medicare program for 

providers and beneficiaries. The Commission recommends that the Congress repeal the SGR 

system for many reasons. First, the SGR system, which ties annual updates to cumulative 

expenditures, has failed to restrain volume growth and may have exacerbated it (Figure 1). 

While some physicians and other health professionals contribute to the inappropriate volume 

growth that has resulted in large payment adjustments through the SGR, others have restrained 

volume (Figure 2). But the SGR does not differentiate between physicians who restrain volume 

and physicians who do not restrain volume. 

3 
15 


79793.005

80 

70 

~ 1ii 60 .c: 

1: " 50 <II 

~ 2l. 40 

., 

~ 30 

:; '" 

E 20 

a 10 

o 

100 

90 

<II 80 .. 

c 70 '" .c: 

" 60 1: 

<II 50 ~ <II 40 Co 

<II 

> 30 .~ 

20 :; 

E 10 ::> 

u 0 

Figure 1. Volume growth has caused spending to increase 

faster than input prices and updates, 2000-2011 

-t-Spending per beneficiary 

- ... MEl 

...... Updates 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

Note: MEllMedicare Economic Index). The MEl is a measure of input prices for physician services. 

Updates are aclual payment updates for the physician fee schedule. 

Source: 2012 Trustees' report and Office of the Actuary 2012. 

Figure 2. Growth in the volume of practitioner services, 

2000-2011 

_Imaging ---.-- - ... - Tests 

............. Other procedures 

- -0- - E&M services 

_ Major procedures 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

Note: E&M (evaluation and management). Volume growth for E&M from 2009 to 2010 is nol directly 

observable due 10 a change in payment policy for consultations. To compute cumulative volume growth 

for E&M through 2011, we used a growth rate for 2009 to 2010 of 1.85 percent, which is the average 

of the 2008 to 2009 growth rate of 1 .7 percent and the 2010 to 2011 growth rote of 2.0 percent. 

Source: MedPAC analysis of claims data for 100 percent of Medicare beneficiaries. 

4 
16 


79793.006

Second, temporary, stop-gap fixes to override the SGR undermine the credibility of the Medicare 

program because they engender uncertainty and anger among physicians and other health 

professionals, which may in turn cause anxiety among beneficiaries. Third, the short-term 

overrides have led to an administrative burden for providers and CMS due to holding of claims, 

delays in submission of claims, and reprocessing of claims. 

The Commission laid out its findings and recommendations for moving forward from the SGR 

system in its October 2011 letter to the Congress, attached to this testimony as an appendix. 

Several principles embody our position: 

• Repeal of the SGR is urgent. 

• Beneficiary access must be preserved. 

• The physician fee schedule must be rebalanced to achieve equity of payments between 

primary care and other specialties. 

• Pressure on fee-for-service (FFS) must encourage movement toward new payment 

models and delivery systems. 

• Repeal of the SGR should be done in a fiscally responsible way. 

Repeal is urgent 

The presence of the SGR and the temporary, stop-gap fixes to the SGR have had a destabilizing 

influence on the Medicare program by creating uncertainty for physicians, other health 

professionals, and beneficiaries. 

Two reasons have often been given for delaying repeal: the large budgetary cost of repeal and 

concern about reverting to FFS payment without any limit on volume growth or change in 

incentives. CBO's recent re-estimation of the cost of repeal may reduce fiscal concerns about 

repeal or at least make it more feasible to find acceptable offsets. Similarly, implementation of 

ACOs as a new payment model is a significant first step toward addressing incentives for volume 

growth in a more effective, and equitable, manner than the SGR. Other new payment models, 

5 
17 


79793.007

including bundling around hospital episodes and patient-centered medical homes, are now being 

pilot tested. 

In our judgment, further delaying SGR repeal would expose beneficiaries to increasing risk of 

impaired access, and the budget score attached to repeal could begin to increase again (discussed 

below). Moreover, the array of new models for paying physicians and other health professionals 

is unlikely to change dramatically in the next few years. Rather than wait longer, we urge the 

Congress to repeal the SGR now and to begin rewarding physicians and other professionals as 

they shift their practices from open-ended FFS to accountable care organizations (ACOs). As 

additional new payment models move from pilot stage to implementation, similar incentives may 

be established for them. By committing to this course now, the Congress could stimulate 

physician interest in new payment models and thus accelerate their development and adoption. 

Volatility in the cost estimates for repealing the SGR is another reason to repeal the formula 

now. The estimates depend on projections of growth in the volume and intensity of services 

furnished by physicians and other health professionals and the relationship between that volume 

growth and growth in gross domestic product. The difficulty in making those estimates is that 

volume growth has proven to be unpredictable. According to GAO, volume growth per 

beneficiary in the 1980s ranged from at least 3.7 percent to 9.7 percent, and in the 1990s the 

range was -0.7 percent to 3.4 percent6 According to the Commission's analyses, volume growth 

per beneficiary since 2000 has ranged from 1.0 percent to 5.6 percent (Figure 3). 

6 Government Accountability Office. 2009. Medicare physician payments: Concerns about spending target system 

prompt interest iu considering reforms. GAO-05-85. Washington. DC: GAO. 

6 
18 


79793.008

Figure 3. Growth in the volume of services furnished by 

physicians and other health professionals has been volatile 

Average annual growth rate 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 

Note: Volume growth for one type of service-evaluation and management (E&MJ-from 2009 fa 2010 is not 

directly observable due to a change in payment for consultations. To compute volume growth for 2010, 

we used an E&M growth role of 1.9 percent, which is the overage of the services! 2008 to 2009 and 

2010 to 2011 growth rates. 

Source: MedPAC analysis of claims data for 100 percent of Medicare fee-for-service beneficiaries. 

2011 

It is unclear why volume growth has had such volatility. Reasons offered for the slowdown that 

started in 2009 include a mild flu season in 20]0 (compared to 2009) and-in the case of 

decreases in the use of certain types of imaging services-concerns about radiation exposure. 7 

The Commission has found further that there has been a shift in billing for cardiovascular 

imaging from health professionals' offices to hospitals, a shift that is consistent with reports of 

an increase in cardiologists' practices owned by hospitals. 8 In tum, the shift has implications for 

measures of volume growth, increasing the volume of services billed by hospitals but reducing 

the volume of services billed by physicians and other health professionals. 

While uncertainty remains about the reasons for the volatility in volume growth, we do know 

that scoring estimates for repealing or replacing the SGR have fallen dramatically. Three months 

ago, before CBO incorporated the most recent experience with volume growth in their budget 

Medicare Payment Advisory Commission. 2012. Report to the Congress: Medicare payment policy. Washington, 

DC: MedPAC. 

8 American College of Cardiology. 20ll. Findings from the ACC cardiovascular practice consensns. Washington, 

DC: ACe. http://www.nccacc.org/newsI20 l2USCVPracticeCensusNorthCarolina.pdf. 

7 
19 


79793.009

estimates, the budget impact of a 10-year freeze was higher than it is today by more than $100 

billion9 However, the volatility in volume growih we have seen historically suggests that 

circumstances could change again-in the direction not oflower cost estimates but instead ones 

that are higher. 

Beneficiary access must be preserved 

Although our latest access survey does not show significant deterioration at the national level, 

the Commission is nonetheless concerned about access. The balance between supply and demand 

is tight in many markets, and problems have surfaced in some markets, particularly in primary 

care. Those problems could spread, perhaps rapidly. The Medicare population is growing as 

members of the baby-boom generation become eligible for the program, a large cohort of 

physicians is nearing retirement age, and SGR fatigue is increasing. We do not predict abrupt 

changes in the national access picture, but we cannot rule them out either. 

Because SGR repeal is costly, it may be necessary to replace it with a 10-year schedule of low, 

or even negative, updates to the conversion factor. That new schedule of updates would establish 

a new budgetary baseline, but the conversion factors would not be immutable. Each year 

MedPAC will continue to review whether payments to physicians and other health professionals 

are adequate-through surveying beneficiaries, conducting physician and beneficiary focus 

groups, tracking practitioner participation in Medicare, and examining changes in volume and 

quality of ambulatory care. If, through these analyses, the Commission determines that a change 

in payment rates is needed to ensure adequate access, the Commission would make such a 

recommendation to the Congress. 

The physician fee schedule must be rebalanced to achieve equity of 

payments between primary care and other specialties 

The Commission finds it crucial to support primary care, considering that the most recent data 

show that access risks are concentrated in primary care. We see a higher share of beneficiaries in 

our annual patient survey reporting problems finding a primary care physician than those seeking 

a specialist, and primary care physicians are more likely to report that they are not taking new 

Medicare patients than are specialty physicians. The Commission is concerned that there is an 

9 Congressional Budget Office. 2013. The budget and economic outlook: Fiscal years 2013 to 2023. Washington. 

DC:CBO. 

8 
20 


79793.010

imbalance between supply and demand in primary care, an imbalance that is likely to get worse, 

and this represents a market signal: the payment level for primary care is too low. 

There are two ways to redress the imbalance between fees for primary care and specialty 

services. One is to improve the methods by which relative values are calculated under the 

Medicare fee schedule. The other is to use different conversion factors for primary care and 

specialty services (the primary care bonus in PPACA is a type of conversion factor adjustment). 

MedPAC believes both approaches are needed. 

Pressure on FFS must encourage movement toward new payment 

models and delivery systems 

The FFS payment system inherently encourages volume over quality and efficiency. The rapid 

volume growih over the last decade which led to the large payment cuts required under the SGR 

was partially due to the underlying volume incentives in FFS reimbursement. New payment 

models, such as ACOs and bundled payment, offer an opportunity to correct some of these 

undesirable incentives and have the potential to reward providers who control costs and improve 

quality. Incentives for providers to work across settings to improve quality and maximize 

efficiency are strongest in "risk-bearing" ACOs-where providers take financial risk for poor 

performance as well as being eligible for financial bonuses for good performance. 

The Commission's approach uses two policies to encourage movement from open-ended FFS to 

better managed models (e.g, risk-bearing ACOs). It creates pressure to exit FFS by reducing and 

restraining updates. And it encourages movement to an ACO by recommending a performance 

standard that does not reflect the lower updates. In this way physicians are given a clear 

opportunity to share in savings by joining an ACO. While movement to ACOs and other models 

should result in less volume growth, more importantly, they should result in greater coordination 

of care and ultimately better quality of care. 

SGR repeal must be fiscally responsible 

The Commission's role is to make recommendations to the Congress that will preserve or 

enhance beneficiary access to quality care while minimizing the financial burden on beneficiaries 

and taxpayers. We take seriously our statutory charge to consider the budgetary consequences of 

our recommendations. Consistent with that charge, our October 2011 letter recommending SGR 

9 
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79793.011

repeal includes options for the Congress to consider as budget offsets on the assumption that 

repeal would need to be fully financed from within Medicare. It bears emphasis that MedPAC is 

NOT necessarily recommending that repeal be fully financed out of Medicare. Instead, our 

October 20 II letter offered options for the Congress to consider if it decided to pursue that path. 

Whether SGR repeal is offset, and how, is for the Congress to decide. 

CBO recently lowered its estimate of the cost of repealing the SGR. This re-estimate may 

provide the Congress with somewhat more flexibility in choosing offsets as well as an 

appropriate schedule of updates for physicians and other health professionals. For example, the 

Congress could choose to stabilize payment rates for a period of time, then gradually impose 

conversion factor reductions for physicians who are not practicing within new payment models. 

In considering budget packages to improve the government's fiscal picture, the Congress often 

looks to Medicare for savings. If those savings are applied to deficit reduction and the SGR 

remains in place, it will become more difficult to offset the cost of replacing the SGR one or two 

years from now. At that point, the only option for dealing with an even larger score for SGR 

repeal may be to add it to the deficit, which may be unpalatable after much effort to get the 

deficit down. 

MedPAC's October 2011 letter on SGR repeal 

The Commission's October 20Illetter to the Congress on moving forward from the sustainable 

growth rate system is attached as an appendix to this testimony. Although the figures and 

budgetary estimates may be out of date, the letter continues to reflect the findings and principles 

that guide our recommendations. The letter provides more detail on each of the specific 

recommendations below. 

The Commission made four distinct recommendations. First, the link between cumulative feeschedule expenditures and annual conversion factor updates is unworkable and should be 

eliminated. In place of the SGR, the Commission outlined a 10-year path oflegislated updates, 

including updates for primary care services that are different from those for other services. 10 

10 For primal}' care. payment mtes would be frozen at their current levels. For all olher services, there would be 

reductions in the fee schedule's conversion factor in each of the first three years, and then a freeze in the conversion 

factor for the subsequent seven years. 

10 
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79793.012

Second, CMS should collect data to improve payment adequacy within the fee schedule. Third, 

CMS should identify overpriced services and adjust the RVUs of those services. And fourth, the 

Medicare program should encourage movement from FFS into risk-bearing ACOs by creating 

greater opportunities for shared savings. 

11 
23 


79793.013

Appendix 
24 


79793.014

Medicare 

Payment Advisory 

Commission 

The Honorable Max Baueus 

Chainuan. Committee on Finance 

U.s. Senate 

219 Dirksen Senate Office Building 

Washington. DC 20510 

111e Honorable Dave Canlp 

Chairman, Committee on Ways and Means 

U.S. House of Representatives 

1102 Longworth House Office Building 

Washington. DC 20515 

11,e Honorable Fred Upton 

Chainnan, Committee on Energy and Commerce 

U.S. House of Representatives 

2125 Rayburn House Office Building 

Washington, DC 20515 

October 14, 2011 

The Honorable Orrin G. Hatch 

Ranking Member. Committee on Finance 

U.S. Senate 

104 Hart Senate Office Building 

Washington. DC 20510 

The Honorable Sander M. Levin 

Ranking Member, Committee on Ways and Means 

U.S. House of Representatives 

1139E Longworth House Office Building 

Washington. DC 20515 

11,e Honorable Henry A. Waxman 

Rmlking Member. Committee on Energy and 

Commerce 

U.S. House of Representatives 

2322A Rayburn House Office Building 

Washington, DC 20515 

RE: Moving forward from the sustainable growth rate (SGR) system 

Dear Chairmen and Ranking Members: 

The sustainable growth rate (SGR) system-Medicare's formulaic payment method for services 

provided by physicians and other health professionals-is fundamentally flawed and is creating 

instability in the Medicare program for providers and beneticiaries. This system, which ties annual 

updates to cumulative expenditures since 1996, has failed to restrain volume growth and, in fact, 

may have exacerbated it. Although the pressure of the SGR likely minimized fee increases in the last 

decade, this effect disproportionately burdened physicians and health professionals in specialties 

with less ability to increase volume. Additionally, temporary, stop-gap "fixes" to override the SGR 

are undermining the credibility of Medicare because they engender uncertainty and anger among 

physicians and other health professionals, which may be causing anxiety among beneficiaries. The 

risks of retaining the SGR now clearly outweigh the benefits. Moreover, the cost of tull repeal, as 
25 


79793.015

well as the cost of temporary reprieves, grows inexorably. It will never be less expensive to repeal 

the SGR than it is right now. 

With this assessment, the Commission recommends that the Congress repeal the SGR system and 

replace it with a 10-year schedule of specified updates for the physician fee schedule. The Commission 

drew on three governing principles to form our proposal. First, the link between cumulative fee-schedule 

expenditures and annual updates is unworkable and should be eliminated. Second, beneficiary access to 

care must be protected. Third, proposals to replace the SGR must be fiscally responsible. 

From these principles, we recommend complete repeal of the SGR system and propose a series of 

updates that would no longer be based on an expenditure- or volume-control formula. These 

legislated updates would allow total Medicare expenditures for fee-schedule services to increase 

annually-roughly doubling over the next ten years. Approximately two-thirds of this increase 

would be attributable to growth in beneficiary enrollment and one-third would be attributable to 

growth in per beneficiary service use. Although our proposed updates reduce fees for most 

services, current law calls for far greater fee reductions and could lead to potential access problems 

under the SGR. The Commission finds it crucial to protect primary care from fee reductions, 

considering that the most recent data show that access risks are concentrated in primary care. 

As is our charge, each year MedPAC will continue to review annually whether payments to 

physicians and other health professionals are adequate. To this end, we will continue to survey 

beneficiaries, conduct physician focus groups, track physician and practitioner participation in 

Medicare, and examine changes in volume and quality of ambulatory care. If, through these 

analyses, we determine that a future increase in fee-schedule rates is needed to ensure 

beneficiary access to care, then the Commission would submit such a recommendation to the 

Congress. Enacting our recommendation would eliminate the SGR and would alter the trajectory 

of fee-schedule spending in Medicare's baseline. Therefore, future fee increases relative to this 

new baseline would require new legislation and would carry a budgetary cost. 

Our recommendation for repealing the SGR carries a high budgetary cost. The Congress, of 

course, may seek offsets for repealing the SGR inside or outside of the Medicare program. 

Because MedPAC was established to advise the Congress on Medicare policies, we are offering 

a set of savings options that are limited to the Medicare program. We do not necessarily 

2 
26 


79793.016

recommend that the Congress offset the repeal of the SGR entirely through Medicare. The steep 

price of this effort, and the constraint that we imposed on ourselves to offset it within Medicare, 

compels difficult choices, including fee-schedule reductions and offsets that we might not 

otherwise support. 

The Commission is also proposing refinements to the accuracy of Medicare's physician fee 

schedule through targeted data collection and reducing payments for overpriced services. Even 

with improvements to the fee schedule's pricing, moreover, Medicare must implement payment 

policies that shift providers away from fee-for-service (FFS) and toward delivery models that 

reward improvements in quality, efficiency, and care coordination, particularly for chronic 

conditions. The Commission is also recommending incentives in Medicare's accountable care 

organization (ACO) program to accelerate this shift because new payment models-distinct from 

FFS and the SGR-have greater potential to slow volume growth while also improving care 

quality. Similarly, incentives for physicians and health professionals to participate in the newly 

established Medicare bundling pilot projects could also improve efficiency across sectors of care. 

Respectfully, we submit the recommendations described below. Several of them are interrelated. 

Our willingness to recommend difficult measures underscores the urgency we attach to repealing 

the SGR. The cost of repealing the SGR, as well as the cost of any short-term reprieves, will only 

increase. Meanwhile, the opportunities for offsetting that cost by reducing Medicare 

expenditures will only shrink if Medicare savings are used for other purposes (such as, to help 

finance coverage for the currently uninsured or for deficit reduction). Our concern is that 

repealing the SGR will become increasingly difficult unless the Congress acts soon. 

Repealing the SGR formula and realigning fee-schedule payments to 

maintain access to primary care 

Repealing the SGR formula ultimately severs the link between future payment updates and 

cumulative expenditures for services provided by physicians and other health professionals. In 

place of the SGR, the Commission proposes a IO-year path oflegislated updates (Figure I). This 

path is consistent with the principles of an affordable repeal of the SGR, continued annual 

growth in Medicare spending for physician services, and maintaining access to care. For primary 

care, which we define more specifically later in this section, the Commission recommends that 

3 
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79793.017

payments rates be frozen at their current levels. For all other services, there would be reductions 

in the fee schedule's conversion factor in each of the first three years, and then a freeze in the 

conversion factor for the subsequent seven years, I While there would be decreases in payment 

rates for most services, projected growth in the volume of services-due to increases in both 

beneficiary enrollment in Medicare and per beneficiary service use-would lead to continued 

annual increases in total Medicare expenditures for fee-schedule services, We describe previous 

spending trends in Appendix Figure A-I. 

~ 

.!!! 

'0 

"C 

.S: 

{l 

J!! 

c 

.2 

~ Q) 

> 

c 

8 

Figure 1. Potential update path for fee schedule services 

50 

45 

40 

35 Conversion factor for primary care (left axis) 

30 Conversion factor for non-primary care services (left axis) 

25 .... N M .". U1 '" ,.... 00 '" 0 

~ ~ ~ ~ ~ ~ ~ ~ ~ .... 

~ 

OJ Q) Q) Q) Q) Q) Q) Q) Q) 

>- >- >- >- >- >- >- >- >- '" Q) 

>-

Source: MedPAC analysis of Part B fee-for-service spending per bendiciary. enrollment gr01vth. and 

grmvth in the volume of fcc-schedule services per beneficiary, See text for details. 

140 

120 ~ 

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'0 100 "C 

'0 

80 '" c 

~ 60 :;; 

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0 

The rationale for exempting primary care from fee-schedule cuts comes from recent research 

suggesting that the greatest threat to access over the next decade is concentrated in primary care 

services2 In both patient surveys and physician surveys, access to primary care providers is more 

1 Altemative update paths with the same approximate cost are possible. For example. fees [or non-primary care 

sen'ices could receive smaller reductions over more years. Under this alternative. however. by year 10, the 

com'ersion factor for non-primary care services would be lower than that proposed in Figure I. 

'Medicare Payment Advisory Comntission. 2011. Report to the Congress: Medicare payment policy Washington. 

DC: MedPAC: Friedberg. M. et al. 2010. Primary care: A critical review of the evidence on quality and costs of 

health care, Ilealth AfTairs 29. no. 5 (May): 766-772: Vaughn. B. et al. 2010. Can we close the income and wealth 

4 
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79793.018

problematic than access to specialists. These findings hold for both Medicare and privately 

insured patients, magnifying the vulnerability of access to primary care services. 

One example of this research comes from MedPAC's annual patient survey that we use to obtain 

the most timely data possible for analyzing access to physician services. This survey interviews 

Medicare beneficiaries age 65 and over and privately insured individuals age 50 to 64. (For more 

details on the survey's methodology, please see Chapter 4 our March 2011 Report to the 

Congress.) Results from this annual survey consistently find that both Medicare beneficiaries and 

privately insured individuals are more likely to report problems finding a new primary care 

physician compared with finding a new specialist (Appendix Table A-2). For instance, in 20]0, 

although only 7 percent of beneficiaries reported looking for a new primary care physician in the 

past year, among those looking, 79 percent stated that they experienced no problems finding one. 

In contrast 87 percent of the beneficiaries who were looking for a new specialist reported that 

they had no problems finding one. Among privately insured individuals looking for a new 

primary care physician, 69 percent reported no problems finding one compared with 82 percent 

of those looking for a new specialist. 

Consistent with this patient survey, physician surveys have also found that primary care 

physicians are less likely than specialists to accept new patients. Again, this discrepancy holds 

for both Medicare and privately insured patients. For example, the 2008 National Ambulatory 

Medical Care Survey finds that 83 percent of primary care physicians accept new Medicare 

patients, compared with 95 percent of specialists (Appendix Table A-3). Acceptance rates are 

lower for patients with other insurance as well. Specifically, 76 percent of primary care 

physicians accepted new patients with private (non-capitated) insurance compared with 81 

percent of specialists. In a 2008 survey conducted by the Center for Studying Health System 

Change, physicians who classified themselves in surgical or medical specialties were more likely 

gap between specialists and primary care physicians') Ifea/th 29. no. 5 (May): 933-940: Bodenheimer, T. et 

al. 2009. A lifeline for primary care. Sew England Journal 360. no. 26 (June 25): 2693-2696: 

Grumbaeh. K. and J. Mold. 2009. A health care coopef'dtive extension service. Journal a/the American ,"1edieal 

Association 301 no. 24 (Jnne 24): 2589-2591: Rittenhouse. D. et a1. 2009. Primary care and accountable care-two 

essential elements of delivery-system reform. :Yew lOng/and Journal o{Medicine 361. no. 24 (December !O): 2301-

2303; Colwill. J. ej al. 200S. Will generalist physician supply meet demands of an increasing and aging population') 

Health AjJairs 27. no. 3 (April 29): w232-w241. 

5 
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79793.019

than primary care physicians (classifying themselves as either in internal medicine or 

family/general practice) to accept all new Medicare, Medicaid, and privately insured patients3 

Exempting primary care from the reductions would mean that Medicare payments for those 

services would not be based entirely on resource-based relative values. Although resources used 

to furnish a service (e.g., the time and intensity of effort or practice expenses incurred) are 

appropriately considered in establishing the fee schedule, other considerations may also be 

important, including ensuring access or recognizing the value of the services in terms of 

improving health outcomes or avoiding more costly services in the future. Market prices for 

goods and services outside health care often reflect such factors. The Congress has demonstrated 

precedent for this approach in the Medicare fee schedule, such as through the primary care and 

general surgery bonuses included in the Patient Protection and Affordable Care Act of 20 10 

(PPACA), as well as floors established for work and practice expense values and bonuses for 

services provided in health professional services shortage areas. 

Regarding the proposed updates included in our recommendation to repeal the SGR, we specify 

a definition of primary care that focuses on protecting the practitioners and services which make 

up the core of primary care. The Commission limits the primary care update path to physicians 

and other health professionals who meet both of the following criteria: 

• Practitioner specialty designation: Physicians who-when enrolling to bill Medicaredesignated their specialty as geriatrics, internal medicine, family medicine, or pediatrics. 

Eligible practitioners would also include nurse practitioners, clinical nurse specialists, 

and physician assistants. 

• Practice focused on primary care: Physicians and practitioners who have annual allowed 

Medicare charges for selected primary care services equal to at least 60 percent of their 

total allowed charges for fee-schedule services. Primary care services used to determine 

eligibility are: office visits, home visits, and visits to patients in nursing facilities, 

domiciliaries, and rest homes. 

Under our proposal, the legislated updates for primary care would apply to the following services 

when provided by eligible primary care practitioners: office visits, home visits, and visits to 

3Boukus. E. et a!. 2009. A snapshot of u.s. physicians: KeyJindings from the 2008 fIealth TI'acking PhysiCian 

Survey. Data bulletin no. 35. Washington, DC: HSC. 

6 
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79793.020

patients in hospitals, nursing facilities, domiciliaries, and rest homes. 4 MedP AC analysis of 

claims data finds that under these specifications, about 9 percent of fee-schedule spending would 

be protected from fee reductions each year For eligible primary care practitioners, these 

protected services typically account for the vast majority of their Medicare billing. Payment rates 

for other services-such as laceration repairs and endoscopies-furnished by all fee-schedule 

providers, including primary care practitioners, would be subject to the fee reductions in the first 

three years. 5 

Table 1. Potential update path for fee-schedule services 

Primary care Other services Annual 

Payment rate Conversion Payment rate Conversion payments 

Year change factor change factor (billion) 

Yl 0.0% $33.98 -5.9% $31.99 $64 

Y2 0.0 33.98 -5.9 30.11 66 

Y3 0.0 33.98 -5.9 28.34 68 

Y4 0.0 33.98 0.0 28.34 75 

Y5 0.0 33.98 0.0 28.34 83 

Y6 0.0 33.98 0.0 28.34 91 

Y7 0.0 33.98 0.0 28.34 98 

Y8 0.0 33.98 0.0 28.34 106 

Y9 0.0 33.98 0.0 28.34 113 

Yi0 0.0 33.98 0.0 28.34 121 

Note: The current (2011) conversion factor is S33.98. 

Source: McdPAC anal~isis ofPmi B tcc~for-scrvice spending per beneficiary" enrollment growth, and grmvlh in the volume o1'fceschedule sCf'\'iccs per beneficiary 2004-2009. 

Medicare fees for non-primary care services would be reduced by 5.9 percent each year for 3 

years (Table 1). We arrive at this path after satisfying two requirements: protecting core primary 

care services that are furnished by primary care providers from payment reductions, and 

'Expanded definitions of primary care are possible. For example, the range of specialties could be expanded. 

However, protecting more services from the fcc reduction will result in either a higher cost (and the need for more 

offsets) or a deeper fee reduction for the non-primary care sen·ices. Alternative definitions of protected services are 

also possible, such as using the number of uniqne diagnosis codes that a provider sees over the course of a year to 

distinguish between highly specialized providers and those that provide a more comprehensive range of care. 

'The freeze on payment rates for primary care could be implemented either with a separate conversion factor, or 

with a claims-based payment modifier. If the freeze is implemented with a claims-based payment modifier, a single, 

reduced couversion factor would apply to all sen'ices; but, for eligible primary eare services, the payment modifier 

would increase the fee and effectively reverse the conversion [actor reduction. 

7 
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79793.021

achieving a total estimated lO-year cost that is no more than $200 billion. If the update paths 

depicted in Figure 1 were implemented in 2012, the conversion factor for non-primary care 

would decrease over a period of three years from the current level of$33.98 to about $28.34. It 

would then stay at that level for the remaining seven years of the budget window. By contrast, 

under current law, the conversion factor would be $24.27 at the end of the budget window. 

Taking into account the increase in the number of Medicare beneficiaries over the next 10 years 

and growth in the volume of services provided per beneficiary, total practitioner payments from 

Medicare would rise from $64 billion to $121 billion. On a per beneficiary basis, practitioner 

payments would continue to rise at an average rate of 2.2 percent per year. The $200 billion 

estimated cost of this proposed update path accounts for the cost of eliminating the significantly 

larger SGR cuts and replacing them with the updates specified in Table 1. 

A freeze in payment levels for primary care is not sufficient to support a robust system of 

primary care. Payment approaches that recognize the benefits of non-face-to-face care 

coordination between visits and among providers may be more appropriate for primary care, 

particularly for patients with chronic conditions. The Centers for Medicare & Medicaid Services 

(CMS) is embarking on several projects to examine the results (patient health and total spending 

outcomes) of monthly per-patient payments to primary care providers for their care coordination 

activities. These include the Comprehensive Primary Care Initiative, the Multipayer Advanced 

Primary Care Initiative, and the Federally Qualified Health Center Advanced Primary Care 

Practice Demonstration. Issues that this work will help to inform include patient involvement in 

selecting these providers and effective ways for attributing one eligible provider per patient. 

Recommendation I: 

The Congress should repeal the sustainable growth rate (SGR) system and replace it with a 

10-year path of statutory fee-schedule updates. This path is comprised of a freeze in 

current payment levels for primary care and, for all other services, annual payment 

reductions of 5.9 percent for three years, followed by a freeze. The Commission is offering 

a list of options for the Congress to consider if it decides to offset the cost of repealing the 

SGR system within the Medicare program. 

8 
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79793.022

Collecting dota to improve payment accuracy 

In addition to a conversion factor, the physician fee schedule includes relative value units 

(R VUs). These RVUs account for the amount of work required to provide each service, the 

expenses that practitioners incur related to maintaining a practice, and malpractice insurance 

costs. To arrive at the payment amount for a given service, its RVUs are adjusted for variations 

in the input prices in different markets, and then the total of the adjusted R VUs is multiplied by 

the conversion factor. 

The Secretary lacks current, objective data needed to set the fee schedule's RVUs for practitioner 

work and practice expenses6 The fee schedule's time estimates are an example. The RVUs for 

practitioner work are largely a function of estimates of the time it takes a practitioner to perform 

each service. However, research for CMS and for the Assistant Secretary for Planning and 

Evaluation of the Department of Health and Human Services has shown that the time estimates 

are likely too high for some services. In addition, anecdotal evidence and the experience of 

clinicians on the Commission suggest problems with the accuracy of the time estimates. 

Furthermore, under CMS's recent potentially misvalued services initiative, time estimates for a 

number of services have been revised downward after consultation with the Relative Value Scale 

Update Committee (RUC). These revisions suggest that current time estimates-which rely 

primarily on surveys conducted by physician specialty societies that have a financial stake in the 

process-are subj ect to bias. 

Reliable, objective data are also needed for the fee schedule's practice expense RVUs. CMS's 

methodology for determining these RVUs relies on various types of data: time estimates for 

clinical employees who work in practitioners' offices, prices for equipment and supplies used in 

practitioners' offices, and total practice costs for each physician specialty. The Commission 

questions the accuracy and timeliness of these data7 

The Commission evaluated sources of data the Secretary could consider. Surveys might be an 

alternative, but they are costly and response rates are likely to be low. Time and motion studies 

6Medicare Payment Advisory Commission. 201 L Report to the Congress: Aiedicare and the health care delive~v 

system. WashingtOlL DC: McdPAC. 

'Medicare Payment Advisory Commission. 201 L Report to the Congress: Medicare and the health care delivery 

sYstem. Washington, DC: McdPAC. 

9 
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79793.023

would be costly, too, and they are subject to bias. And mandatory data reporting-analogous to 

the cost reports submitted by institutional providers-would raise issues of administrative burden 

on practitioners. 

Instead of these approaches, the Secretary could collect data on a recurring basis from a cohort of 

practitioner offices and other settings where practitioners work. Participating practices and other 

settings could be recruited through a process that would require participation in data reporting 

among those selected. The cohort would consist of practices with a range of specialties, 

practitioner types, patient populations, and furnished services. Further, the cohort should consist 

of practices with features that make them efficient (e.g., economies of scale, reorganized delivery 

systems). If necessary, practices could be paid to participate. The Commission is working with 

contractors to assess the potential of using electronic health records, patient scheduling systems, 

cost accounting, and other systems as sources of data in physician practices and integrated 

delivery systems. 

Recommendation 2: 

The Congress should direct the Secretary to regularly collect data-including service 

volume and work time---to establish more accurate work and practice expense values. To 

help assess whetber Medicare's fees are adequate for efficieut care delivery, the data 

should be collected from a cohort of efficient practices rather than a sample of all practices. 

The initial round of data collection should be completed within three years. 

Identifying overpriced services 

Moving forward from the SGR could also include a change in the process for identifying 

overpriced services in the physician fee schedule. The current process for identifying potentially 

misvalued services is time consuming, occurring over several years. In addition, the process has 

inherent conflicts. The process relies on surveys conducted by physician specialty societies. 

Those societies and their members have a financial stake in the RVUs assigned to services. 

To accelerate the review process, the Secretary should be directed to analyze the data collected 

under recommendation 2, identify overpriced services, and adjust the RVUs of those services. 

Further, the Congress should direct the Secretary to achieve an annual numeric goal equivalent to 

10 
34 


79793.024

a percentage of fee-schedule spending. This would be a goal for reducing the RVUs of 

overpriced services. These adjustments should be implemented in a budget neutral manner. 

Therefore, while payments could decrease considerably for any given overpriced service, they 

would increase slightly for all other services, 

As mentioned earlier, the RUe and eMS have started a potentially misvalued services initiative, 

and there is some evidence that this effort has drawn attention to inaccurate pricing, As an 

example, for fee schedule payments in 2011, eMS received work R VU recommendations from 

the RUe for 291 billing codes and made decisions after considering all of those 

recommendations g In some cases, comprehensive billing codes were established that bundled 

component services, thereby recognizing that efficiencies can arise when multiple services are 

furnished during a single patient encounter. Other recommendations did not include a change in 

billing codes. Instead, the RUe had addressed the question of whether current RVUs are too high 

or too low for certain services because of a change in technology or other factors, The net effect 

of the increases and decreases in work RVUs-had the changes not been budget neutral, as 

required by statute--would have been a reduction in spending under the fee schedule of 0.4 

percent. Previously, the net effects of work RVU changes had been smaller: 0,1 percent per year 

in both 2009 and 2010, 

The American Medical Association's (AMA's) position is that the process for identifying 

potentially misvalued services has been broader in scope than that suggested by these budget 

neutrality adjustments9 The AMA reports that in addition to about $400 million that was 

redistributed for 2011 due to changes in work RVUs, another $40 million was redistributed due 

to changes in the RVUs for professional liability insurance, and $565 million was redistributed 

due to changes in practice expense RVUs, 

An annual numeric goal for RVU reductions-stated in terms of a percentage of spending for 

practitioner services-could foster further collaboration between the RUe and eMS in improving 

'Centers for Medicare and Medicaid SelViees, Department of Health and Hnman SelViccs, 20 I 0, Medicare program: 

payment policies under the physician fee schedule and other revisions to Part B for CY 2011. Final rule, Federal 

Regisler75, uo, 228 (November 29): 73169-73860. 

9 American Medical Association, uudated, The RUC Relativity Assessment Workgroup Progress Report, 

http://www,ama-assn,orgiresources/doc/rblVs/fivc-ycar-progrcss,pdf. 

11 
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79793.025

payment accuracy. For example, such a goal should focus the effort on high-expenditure services, 

thereby making a time-consuming and resource-intensive review process more efficient. In 

addition, collecting objective data to improve payment accuracy-the data collection addressed by 

recommendation 2-will make the process more effective. As to the level of the numeric goal, 

judgment is required. Tfthe AMA's estimates are accurate, RVU changes for 2011 led to a 

redistribution of payments equaling almost 1.2 percent of total allowed charges. 

Recommendation 3: 

The Congress should direct the Secretary to identify overpriced fee-schedule services and 

reduce their relative value units (RVUs) accordingly. To fulfill this requirement, the 

Secretary could use the data collected under the process in recommendation 2. These 

reductions should he hudget neutral within the fee schedule. Starting in 2015, the Congress 

should specify that the RVU reductions achieve an annual numeric goal-for each of five 

consecutive years-of at least 1.0 percent of fee-schedule spending. 

Accelerate delivery system changes to emphasize accountobility and 

value over volume 

Even with more accurate RVU assignments, the FFS payment system inherently encourages 

volume over quality and efficiency. Indeed, rapid volume growth in the last decade is due, in 

large part, to the underlying volume incentives in FFS reimbursement. New payment models, 

such as the ACO program and new bundled payment initiatives, present an opportunity to correct 

some of the undesirable incentives in FFS and reward providers who are doing their part to 

control costs and improve quality. 

Repealing the SGR provides an opportunity for Medicare to implement policies that encourage 

physicians and other health professionals to move toward delivery models with better 

accountability for quality and value. With this shift, we should see a greater focus on population 

health and care coordination-thereby improving patient experience and aligning incentives for 

beneficiaries to become more engaged with their own care management. Through the ACO 

program and bundled payment approaches, Medicare is taking important steps in this directionembarking on new payment models that can encourage providers to work together across sectors 

to maximize quality and efficiency. 

12 
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79793.026

Within the ACO program, incentives for these improvements are strongest for ACOs which bear 

financial risk, often called two-sided risk ACOs. These ACOs are eligible for both rewards and 

penalties based on their performance on quality and spending measures. In contrast, bonus-only 

ACOs are not subject to performance-based penalties. Therefore, the Commission recommends 

aligning policies related to Medicare's fee schedule with incentives for physicians and health 

professionals to join or lead two-sided risk ACOs. 

Specifically, the Commission recommends that physicians and health professionals who join or 

lead two-sided risk ACOs should be afforded a greater opportunity for shared savings compared 

to those in bonus-only ACOs and those who do not join any ACO. The greater opportunity for 

shared savings would come from calculating the two-sided risk ACO's spending benchmark 

using higher-than-actual fee-schedule growth rates. 

More precisely, assuming the initial reduction in fee-schedule rates outlined in our first 

recommendation, the Commission recommends that the spending benchmarks for assessing the 

performance of two-sided risk ACOs be calculated using a freeze in fee-schedule rates, rather 

than the actual fee reductions. Under this circumstance, two-sided risk ACOs would have a 

greater opportunity to produce spending that is below their benchmark, and thus be more likely 

to enjoy shared-savings payments from Medicare. 10 

This recommendation might increase the willingness of physicians and other health professionals 

to join or lead two-sided risk ACOs. In doing so, it would accelerate delivery system reform 

toward models with greater accountability for health care quality and spending. As ACO models 

develop and make strides in improving quality and efficiency, the volume-based FFS 

environment should be made increasingly less attractive for Medicare providers. Accordingly, 

the advantage offered to the two-sided risk ACOs would increase in the second and third year 

that the fee-schedule reductions are in place. 

100ne issue to examine under this policy would be to monitor the effect of differential payments for services 

provided by ACO and non-ACO providers. The differential shared savings opportunities are intended to hasten 

improvements in our delivery system and shift payments away from FFS. The incentives should be revisited as 

enrollment increases to ensure that ACOs are having the desired effect of encouraging more organized care delivery 

and lowering overall spending growth. 

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79793.027

Final regulations on the ACO program are not yet completed. Therefore, it is difficult to 

determine the effects of this recommendation, relative to current law. Theoretically, by offering 

providers a greater 0ppOliunity to share in Medicare savings, the Commission's recommendation 

could reduce total Medicare savings. However, more importantly, if more providers decided to 

join two-sided risk ACOs as a result of greater shared savings opportunities in this 

recommendation, total Medicare savings could increase over the long term. 

Recommendation 4: 

Under the to-year update path specified in recommendation 1, the Congress should direct the 

Secretary to increase the shared savings opportunity for physicians and health professionals 

who join or lead two-sided risk acconntahle care organizations (ACOs). The Secretary shonld 

compute spending benchmarks for these ACOs nsing 2011 fee-schednle rates. 

The Secretary could also consider developing analogous pricing incentives in Medicare's new 

bundled payment initiatives. That is, in the context of fee-reductions, bundled pricing would assume 

a rate freeze across all fee-schedule services. In testing this approach for improvements in quality 

and efficiency, the Secretary could, at the same time, assess the effect that bundled payments have 

on growth in the total number of episodes. 

Offsetting the cost of the SGR pockage 

The Commission describes a budget-neutral package for repealing the SGR, offsetting the cost 

within the Medicare program (Appendix Table A-4). Under current law, the SGR calls for a very 

large fee reduction (30 percent on January 1,2012) and the budget score associated with 

repealing the SGR has grown exponentially. Given the high cost of repealing the SGR and the 

current economic environment, the Commission's proposal must be fiscally responsible. 

The list of options offered by the Commission spreads the cost of repealing the SGR across 

physicians and other practitioners, as well as other providers and Medicare beneficiaries. Under 

the Commission's approach, physicians and other practitioners who provide non-primary care 

services will experience a series of Medicare fee reductions, followed by a freeze in payment 

14 
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79793.028

rates. Primary care physicians and other primary care practitioners would experience a freeze in 

rates for the primary care services they provide. Through these reductions and freezes, 

physicians and other health professionals are shouldering a large part of the cost of repealing the 

SGR The cost of repealing the SGR and replacing it with a complete freeze in fee-schedule 

payment rates would be approximately $300 billion over ten years, but the Commission's 

approach would cost approximately $200 billion, with most physicians and practitioners 

absorbing $100 billion in the form oflower payments than they would receive under a freeze. 

To offset this $200 billion in higher Medicare spending relative to current law (which applies the 

SGR fee cuts), the Congress may seek offsets inside or outside of the Medicare program. 

Because MedPAC was established to advise the Congress on Medicare policies, we are offering 

a set of savings options that are limited to the Medicare program. We do not necessarily 

recommend that the Congress offset the repeal of the SGR entirely through Medicare. Also, we 

offer this set of options with the express purpose of assisting the Congress in evaluating ways to 

repeal the SGR The steep price of this effort, and the constraint that we are under to offset it 

within Medicare, compels difficult choices, including fee-schedule payment reductions and 

offsets that we might not otherwise support. 

The offset options listed in Appendix Table A-4 would spread the impact of the reductions 

across other providers and Medicare beneficiaries. They are grouped in two categories. Those in 

Tier I- about $50 billion- are MedP AC recommendations not yet enacted by the Congress. 

Those in Tier II-about $168 billion-are informed by analyses done by MedPAC, other 

commissions, and government agencies. Several of the options in Tier II are designed to make 

changes to Medicare payments to encourage the use of more cost effective care. The estimates of 

savings are preliminary staff estimates and do not represent official scores. 

The Commission has not voted on each individual item in the Tier II list, and their inclusion 

should not be construed as a recommendation. Tier II does not include all of the proposals that 

have been offered for reducing long-term Medicare spending-e.g., increasing the age of 

eligibility, or requiring higher contributions from beneficiaries with higher-than-average 

incomes, or premium support. The exclusion of such policies should not be construed as a 

15 
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79793.029

statement ofMedPAC's position on these policies. Such policies raise complex issues that are 

beyond the scope of Tier n offsets. 

To reiterate, we offer the list of offset options to assist the Congress in its deliberations on 

resolving the SGR problem. The Congress could choose different directions to offset the related 

cost-for example, other spending or revenue offsets, even from outside the Medicare program. 

Tn closing, given the urgency of the need to resolve the SGR policy, the Commission is 

submitting this letter to the Congress in advance of our usual March and June publication 

schedule. At a minimum our proposal underscores the exigency of the matter, the complexity of 

deriving any solution, and the degree of sacrifice a resolution entails. If you have further 

questions or otherwise wish to discuss this important issue, please feel free to contact me or 

Mark E. Miller, MedPAC's Executive Director. 

Sincerely, 

Glenn M. Hackbarth, J.D. 

Chairman 

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79793.030

Appendix 

- Commissioners' voting on recommendations 

2 

3 

4 

Yes: Armstrong, Balekel; BehlOozi, &>t<-loson, Butlel; Chemew, Dean, Graaison, Hackbarth, Half, Kvhn, Miller, Naylor, Stuart, Ucceilo 

No: Borman, Castellanos 

compl&l~ within throo yeors. 

Balch",; Bellfoozi, Btiranson, Borman, Butler, Castel/anos, Chernew, Doon, Gmdison, Hackbarth. Hall, Kuhn, Miller, 

Na'y1or, Stuarl, 

No: Borman 

Yes: Armstrong, Baicker, Behmozi, Berenson, Bufler, Castellanos, Dean, Gradis()n, Hackbarth, Hall, Kuhn, Miller, Naylor, Stuart, 

UccelJo 

No: Borman 

Nof voting: Chernew 

17 
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79793.031

j 

I 

i 

E 

a 

Growth in spending for fee-schedule services, 2000-2010 

70 

..... Spending per beneficiary 60 

..... MEI 

50 ....... Fee updates 

40 

30 

20 

10 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 

Spending for fee-schedule services grew from $37 billion in 2000 to $64 billion in 20 I O-an 

increase of 72 percent. 

On a per beneficiary basis, spending grew over this period from $1,200 to $2,000-an 

increase of 64 percent. This increase amounts to an average annual spending increase of 5 

percent per beneficiary, per year. 

Medicare spending on fee-schedule services grew much more rapidly over this period than 

both the payment rate updates and the Medicare Economic Index (MEl). The cumulative 

increase in fee-schedule updates from 2000 to 2010 was 8 percent. The comparable 

cumulative increase in the MEl was 22 percent. 

The growth in spending per beneficiary was due more to growth in the volume and intensity 

of services provided than to fee increases. The volume of imaging, tests, and "other 

procedures" (procedures other than major procedures) grew more rapidly than the volume of 

major procedures and evaluation and management services. 

18 
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79793.032

III Most aged Medicare beneficiaries and older privately insured 

individuals have good access to physician care, 2007-2010 

Medicare Private insurance (age 65 or older) {age 50-64) 

Survey question 2007 2008 2009 2010 2007 2008 2009 2010 

Unwanted delay in getting an appointment: 

Among Ihose who needed ao appointment in the past 

12 months, RHowoften did you hove to wait longer 

than you wonled to get a doctor' s QPpointmenj?~ 

For routine care 

Never 75%" 76%* 77%* 67%* 69%* 71%* 

IS' 17' 17' 24' 24' 22' 21' 

3 3' 2' 3' 4 5' 3' 4' 

Always 2 3 3 

For illness or injwy 

92' 84' S5' S3' 76' 79' 79' SO' 

13' 12' 11' 13' 17' W 17' 15' 

3 I 2 2 3 2 2 2 

2 l' 1 I' 3 2' 2 2' 

looking for a new primary care phY$idam 

"In the post 12 months, hove you tried 10 get 0 new 

primary core doctor?" Y., 6 6 10 

No 91 93 93 93 90 93 92 93 

Looking for a new specialist: "In the post 12 

hove you tried to get 0 new 5poclolist?~ 

14 14' 14' 13' 15 19' 19' IS' 

No 86 85' 86' 87' 84 81' SI' 84' 

Getting a new physician: Among those who 

tried to get on appointment wilh a 

physician or a specialist in the- post 12 

much of a probtem was if finding a primmy care 

doctor! specialist who would treotyou? Was it .. 

Primary care physician 

No problem 70' 71 78 79' 82' 72 69' 

Small problem 12 10 10 8 7 13 12 

Big probJem 17 18 12' 12 10 13 19 

Specialist 

No problem 85 as 8e S7' 79 83 84 82' 

Small problem 6 7 7 6' 11 9 9 11' Big problem 9 4 5 5 10 7 7 6 

Not accessing a doctor for medical problems: 

12 

but did not?" (pe-rcen! answering ~Yes") 10' S' 7' S' 12' 12' 11' 12' 

No. 

Soor~",: Madf'AC"i\pon~ored t .. l$phon" svrvey cOl1duc!<0 in 2007, 2008, 200<;>, (lnd 2010 

19 
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79793.033

Accepting new patients, type of insurance 

Medicaid 

Capitale<:! private insurance 

5alf·poy 

No charge 

Acceptance of new patients is lower among 

primary care physicians, across most insurers 

20 

Primary (ore spe<ialties 

S9S)~ 

83.0 

55.1 

58.3 

76.4 

53.4 

85] 

39.7 

All other specialties 

97,8% 

95,2 

68] 

431 

81.3 

61.2 

95.1 

52.2 
44 


79793.034

Potential Medicare offset options for repealing the SGR system 

Along with the recommendations included in this letter, the Commission is offering a set of 

savings options for the purpose of assisting the Congress in offsetting the budgetmy cost of 

repealing the SGR system. The projected savings amounts are unofficial, based on MedPAC 

staff estimates, and subject to change. 

The options are divided into two tiers. Tier I-about $50 billion-contains proposals that 

have been recommended by the Commission in previous reports or comment letters. Tier Uabout $170 billion-contains options informed by outside (e.g., the Office ofInspector 

General, Department of Health and Human Services; Congressional Budget Office options) 

and MedPAC staff analysis. The Commission has not voted on or recommended the items on 

the Tier II list The exclusion of policies from this list should not be construed as a statement 

of MedP AC' s position on such policies. 

In the statute creating MedPAC, the Congress charges the Commission with reviewing 

Medicare policies, including their relationship to access and quality of care for Medicare 

beneficiaries. Therefore, all of the offset options on this list are Medicare policies; the 

Congress could choose to employ other savings or revenue offsets including those from 

outside of Medicare. 

21 
45 


79793.035

Potential Medicare offset options for repealing the SGR system 

Ticr I: McdPAC '\ork 

Copayment for home health episode 

Hospita! update of I percent tl)f2012 and DCI recover} 

Dialysis update of 1 percent for 2012 

J lospit:e update of 1 percent for 2012 

Rcpeal M/\ qua!it~ bonus demonstration 

Rebase lUi In 2013 and no update In 2012 

9 No IRF update m2012 

10 No LTCII update fl.)!" 2012 

II Raise the <:omphance threshold f()f IRFs to 75 percent 

12 ASC updak 01'0.5 perccnt for 2012 and [cport on cost and quallt~ 

l3 Program integrity. prior authori;,ul1011 1\.)1" imaging by outlier physicians 

Subtotal, :\1 edl~4 C work 

Tier II: Other Medicare 

14 PUli D LIS cost-sharillg polic~' to enconrage SUbSiltutlO[l 

IS Apply an excise tax to medJgap plans (5 percent) 

16 Program I11tegnty. pre-payment revIew of power \\heelchmfs 

17 Rcquire manufacturcrs to pHlvide Mcdicaid-Ic"eI rebatcs for dual eligibles 

I g Bundled payment J()r lwspital and physician dming the admission 

19 ;~~e~!~a~~~b III hospItal olltpatlent departmcnts <1\ ph~slC!an fcc 

20 Reduce payments by 10 percent fbr clinical1ab services 

2t Risk-adjustment validation audits in the MA program 

22 Bring employer group plan bids closer to other MA plan hids 

23 Hold the trust funds harmlcss for MA advance capitation payments 

24 Rcstore the Secretar~' '$ authonty 10 appl\ a least costl~ alternative polk) 

26 Rehasc payments to SNFs 

27 Apply readmissions pO[ICY In SNb, lltL LICHs, and lRFs 

29 Progmm integri!}' validate phY~lciall orders f(ll" higlH.:ost servIces 

SubtotaL Other .Uedicare 

Total. Tier 1 and Tier II 

22 

5~)'car 

sayings 

($ in bil.lions) 

2 

7 

0.1 

25 

5-ycar 

saYings 

(S in billions) 

0.1 

25 

10 

0.5 

M 

89 

to-year 

savings Reference 

($ in billions) 

4 MedPAC March 2011 

14 McdPAC March 2011 

I 

McdPAC Man.::h 2011 

MedPAC JUDe 2003 

MedPAC June 20m· 

McdPAC (omment lct1cr, 

2011 

10 McdPAC Mar.;h 2011 

McdPAC March 2U! J 

McdPACMarch2011 

McdPAC comment !ctter. 

2003 

0,1 MedPAC Man:h 201! 

O,l McdPAC June 20t! 

50 

to-year 

savings Reference 

(S in billions) 

17 Staff 

12 cno: Budget Options 2008 

02 PH 2012.I111S OlC;-

75 CHO: Budget Options 2011 

C130: nudget Optinns 200S 

10 StafT 

10 Staff 

PH 20[2 

Starf 

1l1lSOlG 

Stail 

lUIS OIG 

23 Staff 

Stan 

1l1lSO[G 

PH 2012 

168 

219 
46 

Mr. PITTS. Thank you for your opening statement. Your entire 

written testimony will be made a part of the record. I will begin 

the questioning and recognize myself for 5 minutes for that purpose. 

Mr. Hackbarth, in your testimony you state that the array of 

new models for paying physicians and other health professionals is 

unlikely to change dramatically in the next few years. Yet you advocate rewarding physicians as they shift their practices from openended fee-for-service to accountable care organizations. Are you 

suggesting that ACOs are the only models that physicians should 

shift to or should physicians be able to choose how they practice 

from a wide variety of options? 

Mr. HACKBARTH. A couple points, Mr. Chairman. First of all, we 

focus on ACOs because they are the new model that is already a 

part of the Medicare program. As you know, other models, medical 

homes, bundling around admissions, are being piloted at this point. 

ACOs, however, are the only models that are actually operational 

in the Medicare program. 

The second point I would make is that the ACO model is by design a flexible model. It does not dictate a particular form of medical practice or a particular way for money to be distributed within 

the ACO among clinicians and other types of providers. Let me 

draw an analogy here. In the Medicare Advantage program, we 

have private insurers enrolling Medicare beneficiaries, and they 

deal with physicians in a lot of different practices, some in sole 

practice, others in small groups, others in large multi-specialty 

groups, and they manage to deal with physicians in different settings, often with different payment models, depending on the particular location and type of practice. ACOs can have the same sort 

of flexibility, the principal difference being that ACOs by design are 

provider-governed organizations as opposed to organizations run by 

insurance companies. So we think that there is every possibility for 

the ACO structure to be a flexible one that does accommodate differences in practices and pay physicians in different ways, depending on circumstances. 

Mr. PITTS. Now, you suggest that the fee schedule should be rebalanced to preserve access to primary care, and one way you suggest doing this is by giving a primary care bonus similar to the provision in PPACA. However, according to the Association of American Medical College’s Center for Workforce Studies, there will be 

45,000 too few primary care physicians but also a shortage of 

46,000 surgeons and medical specialists in the next decade. If the 

goal is to increase the primary care workforce by making primary 

care more attractive to medical school graduates, do you think that 

a few years of modest payment increases will do this, and how does 

this address the projected shortage of specialists? 

Mr. HACKBARTH. So let me talk about the steps related to primary care first and then come back to other specialties. We actually think that there is a series of things that should be done to 

improve payment for primary care and increase the likelihood that 

more young physicians in training choose primary care as a career 

and also that older physicians who are nearing retirement continue 

to practice primary care as opposed to elect early retirement. One 

step is to change how the relative value units are calculated in the 

47 

physician fee schedule, and I would be happy to go into detail on 

any of these, if you wish. Second is to add new codes to the physician fee schedule to pay explicitly for activities that are not now 

covered like care coordination and management of transitions in 

care. A third is a bonus of the sort that you referred to in your 

question, Mr. Chairman. A fourth is moving to new payment models as we are piloting with medical home where part of the payment is on a lump-sum-per-patient basis in addition to the fee-forservice payment. And then the last thing is graduate medical education. There is a lot of talk about shortage of physicians and particularly a shortage of primary care physicians and the need to increase the number of Medicare-funded GME slots. If Congress 

takes up that issue of expanding GME funding, we would urge it 

to look in particular at how those physicians are distributed across 

specialties and ensure that an adequate number are devoted to primary care. 

Now, on the issue of other specialties, we are not saying that primary care is the only specialty—or the only—certainly it is not the 

only specialty that matters to Medicare patients. All of the specialties play an important role in high-quality care. We focus on primary care, however, because the evidence that we see that a robust 

system of primary care is especially important to a high-performing 

health care system and so in a time of limited resources, we think 

that that focus on primary care is justified based on system performance. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the ranking member of the subcommittee, Mr. Pallone, for 5 minutes for questions. 

Mr. PALLONE. Thank you, Mr. Chairman. I want to follow up on 

what you were discussing there with primary care. 

Mr. Hackbarth, tell me what is the problem in primary care. In 

other words, what kinds of problems are we facing and why are we 

facing this crisis? Just give me a little idea about what we face and 

what is causing it. 

Mr. HACKBARTH. Well, I think that there are several factors, Mr. 

Pallone. One is the overall level of compensation. As you well 

know, it is significantly lower than many of the subspecialties. In 

fact, if you look at it on an hourly basis under the physician fee 

schedule, the amount we pay for various specialty services is often 

two or three or more times what we pay for primary care services 

on an hourly basis. So there is a significant payment differential 

there. 

In talking to primary care physicians, though, I often hear that 

that is only a piece of the problem. Another problem is that feefor-service as a method of payment is not really well suited to primary care because the fee schedule doesn’t recognize all of the activities that make primary care important for the care delivery system—education of payments and ongoing contact with patients, coordination of care and the like. And often these days where we 

have got a relative shortage of primary care physicians, the practices are frankly overwhelmed with the work they need to do and 

the number of patients they need to see. It is important, therefore, 

to help primary care practices build some of the infrastructure that 

would allow them to better manage larger volumes of patients, and 

48 

that is where the lump-sum payment and the medical home is particularly important. It allows practices to hire additional staff to 

work with patients and some of the educational activities allow 

them to build necessary systems and the like. So we need to make 

the job more doable as well as to increase the average compensation level. 

Mr. PALLONE. All right. Thanks. I wanted to ask about physicians who don’t fit in delivery models. As you know, there is a 

great deal of diversity in the health care system and various specialties and practice patterns, different kinds of markets, some 

dominated by hospitals, some more dominated by plurality of provider groups or individual practitioners. How do you design a reformed Medicare payment system that works for all physicians? In 

other words, how do we address the measurement challenges for a 

myriad of physicians? Are we always going to have some doctors 

that don’t fit into a delivery model? Are we always going to have 

doctors for whom the quality measurement system just doesn’t 

work? How should we deal with this, essentially? 

Mr. HACKBARTH. We may at the end have some physicians that 

are in unique circumstances, for example, very isolated areas that 

we will have to treat as a special case. But as I indicated in my 

response to Chairman Pitts, ideas like the accountable care organization, I don’t see as rigid models that dictate a particular form of 

physician practice. ACOs as defined in the statute and in the regulations are able to accommodate different styles of medical practice—solo practice, group practice and the like. And in fact, if we 

look around the country in terms of how practices deal with managed care organizations. Again, private insurance plans, you see a 

lot of variety. So take a State like California where you have got 

a lot of managed care activity and have for years. Some of the physician practices there are large, multi-specialty groups, but there 

are also independent practice associations where much smaller 

practices are hooked together with one another for purposes of contracting, sharing resources and the like and sharing financial responsibility. So I think that there are opportunities for many different styles of practice. It is not a one-style-fits-all model in the 

ACO. 

Mr. PALLONE. Can I just ask—my time is limited now, but I 

think Medicare needs to make more data available for development 

of models and care improvement. What is MedPAC’s view of CMS’s 

current data policies, and is there some way that the agency and 

Congress can encourage more data availability. 

Mr. HACKBARTH. Well, I don’t consider myself expert, Mr. 

Pallone, on the CMS data systems. Traditionally, it has been a 

struggle for CMS to provide timely data, for example, to physicians 

and in the pilots in the prepaid group practice demonstration 

project. In part, at least, that is a function of resources. The agency 

in our judgment has been chronically underfunded. The tasks that 

it has to carry out are increasingly complicated including on the 

data front and they don’t get the resources they need to do those 

jobs well. And I think we are paying a price. It reduces the appropriation side of the budget but the lack of robust data means that 

we are going to spend more on the entitlement side of the budget. 

Mr. PALLONE. Thank you. Thank you, Mr. Chairman. 

49 

Mr. PITTS. The Chair thanks the gentleman and recognizes the 

vice chairman of the subcommittee, Dr. Burgess, for 5 minutes for 

questions. 

Mr. BURGESS. I thank the chairman for the recognition. 

Mr. Hackbarth, it is good to have you back at the committee. You 

know, the downside of solving the SGR is we won’t get to have 

these visits every couple of years, but I will actually look forward 

to that as well. Maybe we will both find something better to do 

with our time. 

You were just talking to Mr. Pallone about models. Could you 

speak for just a minute about what you have learned from the 

study of Medicare Advantage programs? Some, I understand, have 

worked well, even with the constraints of the SGR, others maybe 

not so well. So are there positives that we can take away from the 

Medicare Advantage experience? 

Mr. HACKBARTH. There are positives. In fact, some Medicare Advantage plans, as you know, perform extremely well on both quality of care measures and cost, and among the plans that perform 

well, there are a variety of different models. Some of them are the 

prepaid group practice model like Kaiser Permanente but there are 

other plans that contract with independent practices and don’t rest 

entirely on large multi-specialty groups. 

Mr. BURGESS. I would just offer an observation, that it is not just 

the satisfaction of the agencies and the people who measure those 

things but it is also satisfaction of patients and satisfaction of physicians, and certainly my experience with a group like Scott and 

Mike down in Temple, Texas, is that this has worked reasonably 

well and it may be something that we certainly want to be careful 

that we don’t damage whatever we do going forward. 

Can you speak to—everyone this morning is kind of focused on 

the fact that the CBO put SGR on sale so let us buy this week 

while it is low. Can you talk just a little bit about why it is low 

and is there a dark side to it being low right now? 

Mr. HACKBARTH. Yes. There are a number of reasons, and understanding all of the magic of the CBO estimation process is not one 

of my strengths and so—— 

Mr. BURGESS. Me neither. 

Mr. HACKBARTH [continuing]. Any detailed accounting you ought 

to get directly from CBO, but the most important factor is that the 

rate of growth in Medicare expenditures, in particular physicians, 

has slowed significantly in the last several years. 

Mr. BURGESS. Let us stay on that for just a minute. Why is that? 

Is that because of the recession? Is that because of physician ownership of some facilities? Can you drill down on that a little bit? 

Mr. HACKBARTH. Well, the short answer is, I don’t think any of 

us really knows. As you well know, there has been some speculation about the effect of the recession, although logically, you would 

think that that would be less of a factor for the Medicare population which by definition had continuous coverage through the recession. There has been some sort of public health factors. A relatively small flu season in recent years has held down utilization. 

We have seen significant slowing of the rate of increase in imaging. 

That could be due in part to changes in payment but also due in 

part to growing concerns about radiation exposure. And finally, it 

50 

could be that some physicians believe the world is changing and 

are preparing for a new world where total cost of care is more important. 

Mr. BURGESS. Yes. Have the new methods of payment been 

around long enough for them to stake any legitimate claim in these 

savings? 

Mr. HACKBARTH. You know, I think the jury is out on that. 

Mr. BURGESS. So the answer is no, the short answer? 

Mr. HACKBARTH. Yes. 

Mr. BURGESS. OK. I will accept that. Let me just ask you this. 

I mean, you talked a little bit about decentralization, and I must 

admit, we have had these discussions before, you hit a nerve with 

me. It is not decentralization, it is recentralization. I mean, you 

take the authority from me as a practicing physician and then you 

are giving it to someone else. It is not that it has gone away and 

magically just been dissipated out into the ether. So it is not decentralization, it is recentralization, and, you know, I think a lot of 

physician groups and certainly patient groups fear that that recentralization will occur somewhere, whether it is in an insurance 

company, whether it is in a hospital, whether it is in the government itself where their interests may not be served. I mean, let us 

remember, an accountable care organization begs the question, accountable to whom, and if the doctor is employed by the hospital, 

if the doctor is employed by the government or an insurance company, then they are probably accountable to their employer, are 

they not? 

Mr. HACKBARTH. Well, I know there is widespread, although not 

universal concern, among physicians about having to work for the 

hospital in an ACO, but in fact, 50 percent of the ACOs that have 

been approved and signed contracts with CMS have been physician-sponsored organizations which, as a former CEO of a physician group, I consider to be a very positive sign. I happen to believe 

that physician-sponsored organizations are the way to go. And so 

I don’t think the ACO model is synonymous with hospital control. 

My fear about fee-for-service is that continuation of fee-for-service combined with the inevitable increase in fiscal pressure from 

the retirement and Baby Boom generation inevitably leads to 

ratcheting down on the rules around fee-for-service payment, more 

intrusion from central locations like Washington and Baltimore 

into clinical decision-making, more detailed rules about what you 

have to do to qualify for this type of payment and what you are 

not allowed to do if you quality for that kind of payment. 

Mr. BURGESS. So we must be concerned about recentralization 

then. 

Mr. HACKBARTH. Yes, but I believe that the ACO model can push 

those decisions out where they belong: in the hands of clinicians. 

Now, the quid pro quo is that the clinician organizations assume 

accountability for overall quality of care and costs for the defined 

population. I think that is a good trade for clinicians. 

Mr. BURGESS. Thank you, Mr. Chairman. We could go on about 

this for quite some time, but I appreciate the chairman’s indulgence. 

51 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentleman from Michigan, Mr. Dingell, for 5 minutes for questions. 

Mr. DINGELL. Mr. Chairman, you are most courteous. I commend 

you and the committee for this hearing. This is something which 

very much needs to be addressed, and I would like to welcome our 

witness. 

The point of this question is, how do we balance quality measure 

development to ensure physicians have a voice in the fixing of fees 

and so forth but also see to it that we have broad enough participation by the public at large in these matters. Now, physicians are, 

as we all know, essential partners in improving quality and accountability. At the same time, there are challenging questions 

that need to be answered regarding their appropriate role. So when 

it comes to performance measurement, especially as it will be used 

to drive new payment systems, don’t we have to have a broad participation by physicians, by patients, by hospitals and by the other 

people in the provider chain? Is that right or wrong? 

Mr. HACKBARTH. I think, Mr. Dingell—— 

Mr. DINGELL. Just yes or no. 

Mr. HACKBARTH. Yes or no. I think it deserves a more robust response. 

Mr. DINGELL. Well, we need broad participation, don’t we? I have 

limited time and I need your cooperation. 

Mr. HACKBARTH. I do in general favor broader participation but 

I really would like the opportunity to—— 

Mr. DINGELL. So everybody ought to have a say, right? 

Mr. HACKBARTH. Pardon me. I am sorry? 

Mr. DINGELL. Everybody ought to have a say. The doctors ought 

to have a say. Their say is going to be very important. Hospitals, 

patients, insurers, the whole works, they ought to have a say. We 

ought not rig this device so it favors one particular participant over 

others. 

Mr. HACKBARTH. I think we want a system that does three 

things. It brings scientific evidence to bear on—— 

Mr. DINGELL. Well, one of the problems I have is, I get witnesses 

down there and they just feel they have to make a speech, and all 

I am really asking for is a yes or no. How many folks do we want 

in this? Do we want enough that we get a clear picture and we get 

an honest answer or do we want to have just one group doing it 

and skewing the result? 

Mr. HACKBARTH. I think that we need—— 

Mr. DINGELL. Help me, quickly. 

Mr. HACKBARTH [continuing]. A range of participants. I think we 

need a range of participants, but the objective—— 

Mr. DINGELL. Thank you. Now, what is the appropriate role then 

of physicians in developing performance measurement systems, and 

how do we ensure an appropriate multi-stakeholder process including, again, consumers, purchasers and providers that avoids conflict in interest and gets us the best possible picture? 

Mr. HACKBARTH. The role of physicians is to help bring scientific 

evidence to bear on establishment of standards but that is not the 

only step in the process. To have appropriate standards—— 

52 

Mr. DINGELL. Am I being somewhat unclear? I am just trying to 

get you to tell me how we set this process up so we get the answers 

that are best suited to saving us money and full service, seeing to 

it that everybody participate. How do we do this? 

Mr. HACKBARTH. And that is what I am trying to answer, Mr. 

Dingell. If it were easy and clear, it would have already been done, 

sir. 

Mr. DINGELL. Now, let us go to the next question and hope we 

have the time to do it. Where are the opportunities to reduce unnecessary care, saved wasted dollars and improve the value in the 

current FFS while we are transitioning to new payment models? 

You have 1 minute and 20 seconds. 

Mr. HACKBARTH. There are a number of areas where—— 

Mr. DINGELL. Plead your case. You have a minute and 10 seconds. 

Mr. HACKBARTH. There are a number of areas where we can reduce waste and excess utilization. It is a long list not suited to a 

minute and 10 seconds. 

Mr. DINGELL. Would you like to tell us what they are and relieve 

us of the need to speculate? 

Mr. HACKBARTH. One would be, for example, excess readmissions, avoidable readmissions to the hospital. Another would be—— 

Mr. DINGELL. What are some of the others? 

Mr. HACKBARTH. Every time I try to answer, I am interrupted. 

Another would be—— 

Mr. DINGELL. You have 22 seconds. 

Mr. HACKBARTH. Another would be excess imaging that not only 

is costly but poses a risk for patients due to radiation exposure. So 

those would be two examples. I am trying to stay within your limit, 

sir. 

Mr. DINGELL. My time is exhausted, Mr. Chairman. I thank you 

for your courtesy. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman, Mr. Hall, for 5 minutes for questions. 

Mr. HALL. I thank you, Mr. Chairman. I am a little confused. 

This is the same John Dingell I learned to ask questions and extract answers from. He hasn’t let up at all. Age hasn’t bothered 

him nor lessened his pursuit. 

Mr. DINGELL. I thank my old friend. 

Mr. HALL. And I am a little concerned because I was on this committee for, I think, almost 30 years. Two years ago I took a leave 

of absence, and I find the problem exactly the same almost as it 

was when I left. 

And Mr. Hackbarth, you were right when you said we are at a 

critical juncture for SGR reform, and you pointed out that recently 

the CBO lowered the cost of repeal by over $100 billion. That ought 

to help some. And you added a dimension to the problem that every 

time the pay cut is delayed, the size of the cuts the following year 

is bigger so it is 2 years bigger from the time I left to this day 

when I am back. 

Let me ask you a question that affects my part of the country 

some. The current SGR formula based part of its reimbursement on 

the time it takes to perform a task. Do you believe that this has 

created the right incentives for beneficiary care or do you believe 

53 

a shift away from time and more toward paying for quality would 

be more appropriate for the delivery of beneficiary care? 

Mr. HACKBARTH. We do believe that we need over time to shift 

away from a fee-for-service system to other payment models that 

focus on quality and value for patients. However, the fee-for-service 

system is likely to be with us for still some time, and one of the 

problems that we see in the existing physician fee schedule is that 

these time estimates that you referred to we think are often off by 

a significant amount and that affects the distribution of payments 

within the fee schedule. 

Mr. HALL. We are not lacking for suggestions, and even the Heritage pitched in saying we ought to allow price flexibility among 

specialties, remove the cap on how much a doctor can change and 

enforce price transparency, allow private contracting, on and on, 

but we are here today, and I guess there a number of physician reporting requirements currently in statute. As part of the reform, do 

you think some sort of streamlining of such reporting similar to 

what Mr. Dingell was questioning about is absolutely necessary to 

develop the kind of performance measures that you touched on in 

your testimony? 

Mr. HACKBARTH. Yes, we do think that measures of performance, 

in particular, measures of quality, are an indispensable part of 

both the existing fee-for-service system and any new payment models, and I do have some ideas about what such a system should 

look at to formulate those measures. As I started to say in response 

to Mr. Dingell, I think it should include scientific input. Specialty 

societies have a major role to play there. But our measures also 

ought to be carefully chosen to increase value for Medicare beneficiaries. But anything that is good to do should be rewarded with 

a bonus payment. 

Mr. HALL. I am impressed by the quality of this committee, those 

that you have selected, Mr. Chairman, and I will yield back my 

time. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentlelady from California, Ms. Capps, for 5 minutes for questions. 

Mrs. CAPPS. I want to thank all of our witnesses, both panels, for 

being here today, and thank you, Chairman Pitts and Ranking 

Member Pallone, for holding this very important hearing. 

I have long been a supporter of fixing the SGR. It harms providers and consumers alike, and it keeps us from true innovation 

in the health care sector. But the conversation often stops at the 

crisis point—how to make it to the next paycheck—and rarely 

moves to one where we can discuss our vision for a health care system in the future and how to get there. That is why I am so 

pleased that we are having this forward-looking hearing today. 

There has been a lot of talk about the role of doctors in the 

health care system, but as I have said before and in some respects 

I am following on to our distinguished former chairman, I truly believe that if we are going to really move to a more comprehensive 

prevention-focused system of care, we need to look at the full picture of our health care system. 

Mr. Hackbarth, most of the new delivery models like patient-centered medical homes and accountable care organizations emphasize 

54 

team-based care, and they recognize the critical role and value of 

non-physician providers. As such, I think it is important to acknowledge the role of other health care providers such as nurses, 

nurse practitioners, physician assistants in this conversation as 

well. While physicians and physician payment has always received 

a lot of attention, and rightly so, it is important that non-physician 

providers are also actively engaged in both the development and 

the implementation of these new systems for health care delivery 

and payment. So I have a couple questions on this topic for you. 

First, why do you think there is such a discrepancy, disparity, gap 

between the importance of non-physician providers and the level of 

attention they are receiving in the SGR debate? 

Mr. HACKBARTH. Well, I am not sure why there is that disparity 

in attention. 

Mrs. CAPPS. I mean, do you acknowledge that it does exist? 

Mr. HACKBARTH. I agree, it does exist, and I also agree with your 

statement that we are not going to get where we want to go in 

terms of improved health care delivery without an expanded role 

for other health professionals including advanced practice nurses 

and physician assistants. 

Mrs. CAPPS. Great. So there is no reason, it is just lack of attention? 

Mr. HACKBARTH. I think it is lack of attention and, you know, 

sort of history in terms of how our health care system has evolved. 

When I look at the growing problems that we have in primary care, 

I just don’t see how that is going to be solved without expanded use 

of other health professionals. 

Mrs. CAPPS. Well, and you are representing MedPAC, which is 

a group of people. Has this not come up in your discussions? What 

is your view on the role of non-physician providers in a new valuebased delivery and payment system that is focused on outcomes 

rather than fee-for-service? 

Mr. HACKBARTH. It comes up often, I assure you, and I think I 

speak for the commission as a whole in saying that we think that 

an expanded role for nurses and other health professionals is essential both to deal with short-term problems like access to primary care but also for long-term improved system performance. 

Mrs. CAPPS. Just in your own structure, because you are a 

spokesperson for MedPAC, do you see yourself expanding the commission members, or how is your discussion? 

Mr. HACKBARTH. In fact, over the years, almost always we have 

had one or more nurses. Currently, Mary Naylor from the University of Pennsylvania School of Nursing is a member of MedPAC 

and has been very helpful in talking about the role of nurses, for 

example, in transition care after a hospital admission. 

Mrs. CAPPS. That is just one of the many roles that they can 

play. 

Mr. HACKBARTH. Exactly. 

Mrs. CAPPS. One could say that this is a little bit like a token 

representative. Do you have any discussion of ways to expand it to 

be more inclusive? 

Mr. HACKBARTH. Well, we actually don’t choose our own members. Under the statute that governs MedPAC, GAO actually appoints the membership of the commission. 

55 

Mrs. CAPPS. Do you listen to other organizations, accountable 

care kind of organizations? Maybe this is just a vacuum that needs 

now to be addressed. 

Mr. HACKBARTH. We do. For example, another member of our 

commission is Scott Armstrong, the CEO of Group Health of Puget 

Sound in Seattle, an organization which for many years has made 

a very extensive use of advanced practice nurses and other nonphysician health professionals and team care. So that perspective 

comes into our discussions not just through people who have RN 

after their name but also from other commissioners that deal with 

these systems, that lead these systems. 

Mrs. CAPPS. My time is up, but I do want to tell you that as a 

nurse myself, I guess I am a little bit more sensitive to the fact 

that nurse organizations, and I am sure physicians assistants 

would be the same, are eager. They have been doing a great deal 

of discussion among themselves and ascertaining of patterns that 

they would like to see in an expanded role for how to reach the 

goals of—we are really talking about how to reach the goals of the 

Affordable Care Act, and reimbursement, the fee schedule, is one 

of those—of course, it is clearly a very important aspect of how that 

is functioning. So I would urge you to reach out, and we will try 

to establish some more communications so that this can be a more 

serious part of your agenda. 

Mr. HACKBARTH. I would welcome that. 

Mr. PITTS. The Chair thanks the gentlelady and now recognizes 

the gentleman from Illinois, Mr. Shimkus, for 5 minutes for questions. 

Mr. SHIMKUS. Thank you, Mr. Chairman, and welcome, Mr. 

Hackbarth. I have been interested in the intensity of this first line 

of questioning. I appreciate the work you do. It is very difficult, so 

thank you. 

I am trying to pull up the Web site and the like. I understand 

that on March 7th through 8th you have an open public meeting 

at the Ronald Reagan Building and International Trade Center. I 

imagine that where is you take comments from anyone who may 

be involved so all these groups, all these individuals that are involved with that. Isn’t that kind of why you do that? 

Mr. HACKBARTH. Yes. We have open meetings, but we don’t stop 

there. We reach out to groups that we think have expertise, information to bring to bear on the topics before us. So we don’t want 

for them to come to us. We look for them. 

Mr. SHIMKUS. Thank you. To help Mr. Dingell, I can think of one 

way to address costs, and that is litigation reform, medical liability 

issues. I am from the State of Illinois. If you are from Illinois, you 

know the medical liability crisis that we continue to have with high 

costs. So there is enough, I would consider that low-hanging fruit, 

to help address the cost of bringing down the cost of care so we 

could go through—as you said, there is numerous and it would take 

longer than a 5-minute round of questions. 

But there is also the comment that Mr. Dingell mentioned that 

we do want to make sure a lot of folks are inclusive in these discussions. That is why I focused to the open-meetings aspect. But sometimes there is a feeling that the beneficiary is kind of left out in 

some of these dollars-and-cents care, procedures and debate. So a 

56 

couple of questions that I am going to direct kind of focus on the 

beneficiary. So do you believe that is important for the overall success of reform efforts to find ways to incentivize the individual beneficiary along the way? 

Mr. HACKBARTH. Yes, we do believe that this is a part of what 

needs to be done. 

Mr. SHIMKUS. So if we have new models of care that were developed that involve sharing savings between beneficiaries and government, should the beneficiary share in those savings as well? 

Mr. HACKBARTH. In our comment letters on the development of 

the ACO program, we recommended that in fact beneficiaries had 

the opportunity to share in any savings. It seems to us odd that 

all of the focus should be on how the government and providers are 

going to share and the beneficiary is left out of it. 

Mr. SHIMKUS. Yes, it is just—I have been on the committee a 

long time also, and it is great to have Mr. Hall back because maybe 

we will get this solved now since he has been gone for a while and 

now he is back, and maybe we will get this solved with his expertise. 

But I am still a capitalist, competitive model folk. I do think people shop around based upon dollars and cents and based upon their 

return on dollars, they will make decisions. I also believe the public 

will buy a premium quality if they are given the opportunity to. My 

frustration with the health care delivery system is, they are kind 

of left out. I mean, really. They are not incentivized. They are directed. There is no variability in choices, so I am happy to see that. 

On the other hand, I believe there are some negative incentives 

within the Medicare program that might hurt beneficiaries and endanger reform like a catastrophic cap within Medicare, copays that 

are based upon percentages instead of fixed costs so beneficiaries 

know what they are liable for, and first-dollar coverage that 

incentivizes beneficiaries to use more services when the new models encourage providers to be more efficient with the care provided. 

How important is it for the success of reform that Congress address 

these issues? 

Mr. HACKBARTH. Well, about a year ago, Mr. Shimkus, we made 

a series of recommendations related to reforming the Medicare benefit package, and you touched on some of the critical elements. We 

think that the current structure is antiquated and very difficult for 

Medicare beneficiaries to understand, and so we recommended that 

it be simplified, use fixed dollar copays as opposed to percentage 

coinsurance, which is unpredictable, include catastrophic coverage. 

We also recommended that the Secretary be given broader authority to introduce principles of value-based insurance design by which 

we mean the Secretary should be able to say the evidence is really 

strong that if patients have access to this service, it not only improves their health but it lowers long-run costs. And so they want 

to totally eliminate cost sharing for those really high-value services. On the other hand, there are services that are of lower value 

based on scientific evidence and we may wish to impose more cost 

sharing on those. This is an idea that is being used increasingly 

by private insurers, and we think it makes sense for Medicare as 

well. 

Mr. SHIMKUS. Thank you very much. Thank you, Mr. Chairman. 

57 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from Texas, Mr. Green, for 5 minutes for questions. 

Mr. GREEN. Thank you, Mr. Chairman, and again, Mr. 

Hackbarth, welcome. I appreciate your work over the years. 

The Sustainable Growth Rate formula is broken and must be repealed and replaced with a system that pays doctors fairly for their 

services and ensures that the quality of coverage for seniors and 

reduces the financial burden on taxpayers. One of the ways I want 

to and I understand a lot of folks do want to achieve cost savings 

is through quality improvements. There is a bipartisan agreement 

on this issue broadly but there are disagreements on specifics. I 

want to work toward a bipartisan agreement on measuring quality 

to increase efficiency and quality of care while decreasing the costs. 

We owe it to our seniors today and the future generation of seniors 

to make good on that promise we made for affordable, quality 

health care through Medicare. 

I am going to try to go through a number of questions quickly. 

What is the most effective quality improvement measure with respect to improving health outcomes? 

Mr. HACKBARTH. Well, I would say the single most important 

thing is to move to new form of payment and care delivery where 

clinicians accept ultimate accountability for outcomes that matter 

to patients but also the associated financial responsibility. As I 

have said in response to Dr. Burgess, we think decentralizing decisions to clinicians and provider organizations with increased accountability is the most important thing to do. 

Mr. GREEN. What criteria must be met to realize savings from 

the quality improvement initiatives? 

Mr. HACKBARTH. What criteria must be met? Could you just say 

a little bit more? 

Mr. GREEN. What criteria must be met to realize savings from 

these quality improvement initiatives? 

Mr. HACKBARTH. Well, the most important criteria is that of 

course we want to protect beneficiary access to care and quality of 

care, and that is why having affordability for outcomes is really an 

important part of the system. But while doing that, as I said earlier, what we want to do is not make decisions here in Washington 

but have clinicians who know the patient, who know local circumstances, have increased decision-making authority. 

Mr. GREEN. Is a voluntary adoption of these quality improvements sufficient to yield systemwide savings or does this need to 

be a required practice? And I know your answers earlier were that 

there are some private insurers who are already doing some of 

these. 

Mr. HACKBARTH. We think that a wise course for Medicare would 

be to apply increasing pressure on the fee-for-service system, which 

for the reasons I described at the outset we fear is not consistent 

with quality for Medicare beneficiaries, apply pressure on fee-forservice and create incentives and opportunities for people to move 

into new care delivery models that can deliver higher value. 

Mr. GREEN. And what is the best way to address quality improvement when programs serve such a wide variety of people with 

various health needs, for example, seniors who have disabilities? 

58 

And as we know, as we get senior, we are going to take a lot more 

health care than someone who is not but also low-income earners. 

Mr. HACKBARTH. Yes. Well, having a robust system of adjusting 

payments to reflect the underlying health risk of the patients is 

really important. We don’t want a system where providers avoid 

those complicated patients because they are not paid appropriately 

for them. If a provider assumes responsibility for complicated patients, they ought to get the associated resources to do the job well, 

so what we refer to as risk adjustment is a really important feature. 

Mr. GREEN. In developing quality measures, there has quite correctly been a lot of focus on including physicians and physician 

groups in the discussion, perhaps even having them develop the 

measures for their own specialties, and I would hope that would be, 

you know, the input from our specialty societies. What other entities should be at the table? Specifically, shouldn’t the beneficiary 

somehow be represented in some capacity? 

Mr. HACKBARTH. Yes. As I said in response to Mr. Dingell, we 

think that the physician specialty societies can provide critical 

input but input from others is important as well including from patient organizations. 

Mr. GREEN. My last question in 35 seconds is, I know my seniors 

are worried about changing the SGR and could result in their care 

being diminished, and this is a scary prospect, but I also want, and 

I think a lot of us share in a bipartisan way, you want to make 

sure the system is around for my children and my grandkids. What 

is the best way to ensure that if SGR is repealed and replaced that 

the beneficiaries will have a seat at the table and the changes that 

are made are a positive experience for them? 

Mr. HACKBARTH. So the question is, how do we assure that this 

is a positive experience for Medicare beneficiaries? 

Mr. GREEN. So they know that, you know, they are going to be 

able to have the Medicare that they traditionally feel comfortable 

with. 

Mr. HACKBARTH. Well, we need to take the necessary steps on 

payment to ensure the system is fiscally stable but we also need 

to offer choices to Medicare beneficiaries. As I said in response to 

Mr. Shimkus, having patient choices but also choices that reflect 

the cost of different options is important. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentleman from Louisiana, Dr. Cassidy, for 5 minutes for questions. 

Mr. CASSIDY. Mr. Hackbarth, I will be more polite than Mr. Dingell, but if you could keep your answers concise, I would appreciate 

it. 

Mr. HACKBARTH. I will try. 

Mr. CASSIDY. I understand that, and I think you are doing a fantastic job. 

Listen, I think there is evidence that consolidation is actually 

driving up costs if you look at how hospitals are buying physician 

services. Is this a premonition of what is to come? 

59 

Mr. HACKBARTH. We do worry about a hospital-dominated system. As I said to Dr. Burgess, this is one of the reasons why I think 

having physician-sponsored organizations is very important. 

Mr. CASSIDY. I accept that. I can also see, though, the physiciansponsored Pioneer ACO being purchased by a large hospital, and 

so it almost seems like if you are really good at it, you may get 

bought. 

Let me ask you, some of this diminution and/or decrease in the 

amount of care being delivered through Medicare Part B, I have 

been unable to figure out how much of that is attributable to hospitals purchasing, say, cardiology practices now billing through 

Part A as opposed to Part B. 

Mr. HACKBARTH. Some of it is. 

Mr. CASSIDY. When you say ‘‘some’’, is that 1 percent or is that 

30 percent? 

Mr. HACKBARTH. Well, let us focus on one area where it is a fairly significant factor, the rate of growth in expenditures on imaging 

services. 

Mr. CASSIDY. Did those previously go through B or through A? 

Mr. HACKBARTH. When they were provided in independent practices, cardiology imaging in particular, was in Part B. When it 

moves over to the hospital practice—— 

Mr. CASSIDY. It’s part A. So really, we may not see—this may not 

be something on sale. It may be part of a larger trend where consolidation is shifting costs to A. 

Mr. HACKBARTH. There could be some of that, yes. 

Mr. CASSIDY. But then that in turn will further stress the Medicare trust fund. 

Mr. HACKBARTH. Although if we look at total Medicare expenditures, the growth there has slowed as well. It is not just on Part 

B. 

Mr. CASSIDY. I think statistics show about 25 percent of Medicare beneficiaries don’t have a primary place they go, and the ACO 

relies upon some sort of retrospective kind of statistical analysis— 

you belong there even though you got your liver transplant here. 

Now, Mr. Miller will give testimony suggesting that prospective assignment would be a much more efficient way, better way to approach this as opposed to the retrospective assignment that occurs 

with the ACO model under statute. 

Mr. HACKBARTH. And we favor prospective. 

Mr. CASSIDY. Now, that leads us to MA. It really seems as if MA 

kind of solves this even though there is a prejudice in the Administration against MA. 

Mr. HACKBARTH. Well, as I said earlier, there are some similarities between the two but a critical difference is that by definition, 

the accountable care organizations are controlled by providers as 

opposed to by insurance companies. 

Mr. CASSIDY. Now, we both know of models, you know of models, 

there is the WellMed model down in Texas in which they go a twosided risk with the Medicare Advantage program but effectively 

being a two-sided risk they are now managing. Would you favor 

such models? 

Mr. HACKBARTH. So you are referring to a model where there is 

a partnership between an insurer and—— 

60 

Mr. CASSIDY. I think they now they purchased them, but at some 

point the physician primary care group would contract with whichever MA plan they contracted with, that 85 percent of what the MA 

plan was getting from CMS, and they in turn would be a two-sided 

risk relative to the MA plan. 

Mr. HACKBARTH. Yes. There are a lot of different varieties that 

can work, and as I tried to emphasize, we think that is a good 

thing because the circumstances really differ in places around the 

country. There are different preferences. 

Mr. CASSIDY. Now, let me ask, because again, my concern, as I 

said in my testimony, is that our bias is towards big, and the ACO 

has to have a minimum of 5,000 patients. That means inherently 

it is big. So to what extent can that solo practitioner, how can she 

survive without being absorbed? 

Mr. HACKBARTH. Well, 5,000 patients isn’t all that large. That is, 

several internal medicine practices have 5,000 patients. Well, actually if it is 5,000 Medicare patients, it would have to be a somewhat larger number. But they don’t all have to be under one roof 

and common ownership. 

Mr. CASSIDY. But there would be—— 

Mr. HACKBARTH. You can—— 

Mr. CASSIDY. But to get the economy of scale in terms of marketing, in terms of billing, in terms of data integration, that suggests that you are going to have a certain bigness, correct? 

Mr. HACKBARTH. Well, there is no doubt some scale required, but 

again, those costs can be shared and spread over a larger number 

of practices. 

Mr. CASSIDY. Now, what do you think about an IPA model that 

would contract with an MA-type entity, whether it be prospective 

assignment, and yet you get the advantage of the MA data analysis, et cetera, but nonetheless allow these folks to maintain their 

autonomy. 

Mr. HACKBARTH. It is an entirely legitimate approach that has 

worked in a lot of areas, but you could also have an ACO that contracts with an MA plan just to provide support services, and to buy 

reinsurance and spread risk. 

Mr. CASSIDY. My concern about that is, that when you start 

doing statistical analysis, a small practice won’t really know 

whether that outlier, that 25 percent of patients who are going 

elsewhere, are they getting a square deal from the top dogs or are 

they not. 

Mr. HACKBARTH. Well, in fact, that is the problem when you have 

small practices and small numbers. As you well know, there is a 

lot of statistical variation, random variation in the numbers, and 

that makes assessment more difficult and that is one of the reasons 

that linking practices together and getting larger populations 

makes sense. 

Mr. CASSIDY. You have given great answers. Again, I thank you 

for your courtesy, and I yield back. 

Mr. PITTS. The Chair thanks the gentleman, excellent line of 

questioning. The Chair now recognizes the gentlelady from Florida, 

Ms. Castor, for 5 minutes for questions. 

Ms. CASTOR. Well, thank you, Mr. Chairman. Thank you for calling this hearing. Mr. Hackbarth, welcome. 

61 

Since coming to Congress, I have to say one of the most nonsensical policies that we deal with is how we patch SGR and treat 

Medicare physicians and the patching and discussions that go on 

every year. It is remarkable. It is not reasonable, and colleagues, 

we have got to do something about it finally. And it should not be 

lost on us what this recent CBO score is. You said it is like it is 

on sale now. The CBO score has dropped $107 billion from $243 

to $138 billion. Now is the time to act to solve it, to repeal it, to 

replace it with something that makes better sense for the modern 

health system, especially with the Affordable Care Act. I concur 

with Ranking Member Pallone that it is too important for us to just 

haphazardly steal from other Medicare providers to patch over 

here, and because of this renewed score that is over $100 billion 

lower, we have the ability now to really take a hard look and solve 

this now, and time is of the essence. 

I also supported going to the OCO. I thought that was quite reasonable, and now I don’t even think this would take up what is left 

in OCO savings, so we have an opportunity here in the coming 

months and we should not let it pass. 

But we have larger issues as well, and I think that moving forward, solutions on replacing the SGR with different payment models, I think in Dr. Berenson’s testimony, he laid out, you know, you 

are never going to get away entirely from fee-for-service. There will 

be some medical services that that is how they will have to be compensated, and the difficulty will be carving those out as we move 

to different integrated models. 

So Mr. Hackbarth, I think by this time everyone agrees that we 

need to move the delivery system away from fee-for-service or 

something blended toward integrated delivery systems, that is, systems where physicians work together and share responsibility for 

their patients. While the Centers for Medicare and Medicaid Services has already embarked on a significant testing of these models, 

how do we incentivize more physicians to join these models? 

Mr. HACKBARTH. We think it needs to be a combination of two 

things: some steadily increasing pressure on fee-for-service that 

frankly makes staying in fee-for-service increasingly uncomfortable 

over time while we open the door to new payment models and provide an incentive for physicians to participate in those models. So 

it is a little bit of push and a little bit of pull. 

Ms. CASTOR. And I understand that the popular view is that 

models like accountable care organizations and medical homes and 

bundled payments have the potential to save Medicare money and 

improve patient outcomes but first do we really know yet whether 

they will be successful or what forms of these models will work 

best? And second, in the absence of ironclad answers and evidence, 

how do you recommend we proceed encouraging physicians to embrace new models? 

Mr. HACKBARTH. Well, ACOs are now an operational piece of the 

Medicare program whereas the bundling around hospital admissions and medical homes are still in the pilot phase. We are still 

collecting information. The reason that ACOs are put into the operational mainstream Medicare program at this point is that in fact 

we had done a demonstration, a group practice demonstration, testing basically the ACO-type model, and to make a long story short, 

62 

that demonstration showed some promise for this model to improve 

quality while somewhat reducing costs in some cases. The results 

were not overwhelmingly robust but they were generally positive. 

In making a policy judgment about this, we need to always say 

well, what is the alternative. It is our judgment that the results of 

an ACO were sufficiently strong that when compared to continuing 

fee-for-service, we thought moving towards ACOs made sense. We 

know the record of fee-for-service. We have done a 35-, 40-year experiment with that: high cost, uneven quality. And so that is a 

pretty low standard to beat and we think ACOs can comfortably do 

that. 

Ms. CASTOR. Thank you very much. I yield back. 

Mr. PITTS. The Chair thanks the gentlelady and now recognizes 

the gentleman from Virginia, Mr. Griffith, 5 minutes for questions. 

Mr. GRIFFITH. Thank you, Mr. Chairman. I do appreciate that. 

Mr. Hackbarth, you encourage physicians to switch from openended fee-for-service to accountable care organizations. Do you envision a continued rule for FFS in certain geographic locales? I 

know you have already talked about certain practice types, but 

coming from a district that it takes a long time to get from one end 

to the other and has lots of small, rural communities, do you anticipate that fee-for-service would still be the way to do it there or do 

you think that they can do an ACO with such a small number of 

folks? 

Mr. HACKBARTH. Well, we are still early in the development of 

the ACO model but I would note that about 20 percent of the ACOs 

that have been approved to this point include community health 

centers, rural health clinics or critical access hospitals so there is 

at least some development in rural areas of ACOs. We will have 

to see over time, you know, how well that works and how many 

more develop. So I wouldn’t completely write off the possibility 

right now that the ACO model, which is a very flexible one, can 

work in rural areas. There may at the end of, you know, some period of time be some really isolated geographic areas with very long 

distances where that model simply will not work and we will need 

to take special steps in those areas. 

Mr. GRIFFITH. Where mountains are in the way, because that 

happens a lot of times. It happens in my district from time to time. 

I heard you in one of the other questions, and I apologize, that 

the ACO would need 5,000 patients? 

Mr. HACKBARTH. Yes, that is the minimum, and the reason for 

that is, again, to have numbers that are statistical meaningful and 

not full of just random variation. 

Mr. GRIFFITH. And I also would ask, even with the progressive 

payment models such as the bundled payments, what is there that 

would prevent a delivery system from exploiting a volume-based 

approach with bundled payments? I mean, can’t they still do unnecessary things and run their costs up and overcharge? 

Mr. HACKBARTH. Yes, and that is one of the fears, that if we bundle payment around an episode, a hospital admission, for example, 

one of the fears is well, now that you have aligned physicians, hospitals and other actors, they will say well, let us increase the number of episodes, let us increase the number of admissions, and so 

that is something to monitor and be careful about. That is less of 

63 

an issue in ACOs where there is accountability for total costs, not 

just episode costs. 

Mr. GRIFFITH. I thank you very much and yield back my time, 

Mr. Chair. 

Mr. PITTS. The Chair thanks the gentleman and now recognizes 

the gentleman from Maryland, Mr. Sarbanes, 5 minutes for questions. 

Mr. SARBANES. Thank you, Mr. Chairman. Thank you, Mr. 

Hackbarth. 

So as I understand the SGR formula, basically a number of years 

ago there was kind of projected percentage increasing payments 

that we were prepared to pay, and in the early years, we just went 

ahead and paid it even if it exceeded what that trajectory was supposed to be but the tradeoff was that at some point we had to come 

back and recover it, and that started to kick in in the out years 

and that is the fire drill that we have every year. 

Mr. HACKBARTH. Right. 

Mr. SARBANES. So fixing SGR is really getting rid of SGR. I 

mean, SGR is a design for trying to keep the costs in a sense after 

the fact in line with this original trajectory that was established, 

right? 

Mr. HACKBARTH. That is correct. 

Mr. SARBANES. So all of these other issues about, you know, rebalancing payments and looking at the methodology and, you 

know, whether we adjust the relative value units or add codes that 

better address the needs of primary care and so forth, that discussion can kind of happen alongside of the decision that is being 

made to get rid of this design. 

Mr. HACKBARTH. Correct. Even if we get rid of SGR, we need to 

have that conversation, yes. 

Mr. SARBANES. So just anticipating the kind of legislation that 

we would need to pass here, it could be pretty simple, right? I 

mean, could it basically be a one-page bill saying the SGR system 

is hereby repealed and then these other discussions, which frankly 

have been initiated through the Affordable Care Act, in large measure, can proceed or do you feel that sort of the—you don’t want to 

lose the moment of casting aside SGR to also embed statutorily 

some of these new goals that you want to see? 

Mr. HACKBARTH. Yes. We think it is important to seize the moment of SGR repeal to do three things: one, get rid of SGR, two, 

to advance progress in rebalancing the payment, as I said in my 

opening statement, and third is to create incentives for physicians 

to move towards new payment models. And if the legislation simply 

repealed SGR, we think that would be a lost opportunity. Frankly, 

these other two steps of rebalancing payments and encouraging 

movement to new payment systems, there will be some people who 

will oppose those. 

Mr. SARBANES. So that is kind of my question is, if we are starting to tied in knots over doing these other things, such that that 

begins to impede the opportunity to just get rid of the design, 

where would you come down then? 

Mr. HACKBARTH. Yes. Well, you know, our expertise is not on, 

you know, legislative processes and tactics. We believe that there 

ought to be this quid pro quo. Physicians want to get rid of SGR. 

64 

Mr. SARBANES. OK, so that is fair. So you are saying SGR was 

designed as a kind of cost containment measure, so we are going 

to get rid of one cost containment measure, let us replace it with 

other things that we think are going to help us achieve the same 

goals. 

Mr. HACKBARTH. Yes. 

Mr. SARBANES. OK. I understand that. That makes a lot of sense. 

I will just saying in closing, and then I will yield back, I am not 

a physician but I spent 18 years representing hospitals and physician groups, and for some period of time in which I was practicing 

I managed this fire drill on behalf of clients that was happening 

at the end of every year. In a sense, we have been fixing SGR every 

year, right? Or every 30 days or every 90 days or whatever it is. 

So it is not like not fixing it means we are not going to incur the 

costs because we are probably come back, do a fire drill, patch it, 

incur the costs, and we talk about taking advantage of this sale. 

I mean, it is versus running around on the back end and trying to 

do it. It is really the equivalent in the health care area, and with 

respect to physician payment, it is like a sequester thing. It is an 

arbitrary formula. 

Mr. HACKBARTH. You are absolutely right that what we have 

done is fix it a year at a time or, unfortunately, in some cases, a 

few months at a time. The price we pay for that is that we are undermining the confidence of both physicians and patients in the 

Medicare system. We are destabilizing the system. And our fear is 

that the cumulative effect of these last-minute dramas is now really taking a toll on confidence in Medicare and increasing the risk 

that Medicare beneficiaries will lose access to needed care. It is 

time to do away with it. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentleman from Georgia, Dr. Gingrey, for 5 minutes for questions. 

Mr. GINGREY. Mr. Chairman, thank you. 

Mr. Hackbarth, you just mentioned in responding to Mr. Sarbanes’ line of questioning that three things are important: one, repeal SGR, rebalancing payments I think was the second, and then 

developing new payment models, and indeed, that is what the 

hearing is all about, and of course, we will have a second panel. 

We appreciate your testimony and response to our questions. But 

I think there is a fourth thing here that you might put in the category, the 800-pound gorilla in the room, and that is IPAB, which 

is the IPAB creation under the Affordable Care Act. Now, you, as 

I understand it, have been head of the Independent Payment Advisory Commission ever since its existence, and on a yearly basis or 

twice a year advise, and we have the ability under this system to 

mitigate recommended cuts, and we have done that, and that is 

where we are just today, just as Mr. Sarbanes was saying, and I 

think that if we do these three things, if we repeal SGR, if we rebalance payments and if we develop new payment models that physicians have the ability to choose from and slowly but surely, hopefully they would do that, but if the Independent payment Advisory 

Board is still there in the law, what good is all this going to do unless we get rid of that, I am going to say monster, because it seems 

65 

like to me it really is a monster because it is not advisory. It is 

instructional. So would you touch on that a little bit and tell us—— 

Mr. HACKBARTH. Well, as you indicated, Dr. Gingrey, you know, 

our model, the one that I have participated in, is advisory and the 

ultimate decisions are up to you and your colleagues in the Congress, and we hope that works well for you. We work very hard to 

do our best to advise you on those issues. With regard to IPAB specifically, you know, we haven’t taken a position one way or another 

on IPAB. You know, it is sort of a rival approach to dealing with 

this, and we thought that was more a matter for the Congress to 

decide and not really a matter of Medicare policy where we consider ourselves to have some expertise. So right from the outset, we 

have not taken a position either for or against IPAB. 

Mr. GINGREY. Well, let me just interrupt you just for a second 

and say that this member of the committee, this physician member 

of the Energy and Commerce Health Subcommittee, feels that it 

would be better to continue your commission in an advisory capacity and all that institutional knowledge that you have gained over 

the last 10 years and get rid of the monster that gives us no ability, and indeed, I think it is really unconstitutional to say that 

Congress doesn’t have the ability to mitigate as we do under the 

good advice that you give us. 

Mr. Chairman, the power of the IPAB, we all know, is substantial. Even if the President continues to delay naming members to 

the board, I don’t guess there are any members’ names so far. Fifteen is what is called for. The Secretary, this Secretary, the next 

Secretary, of HHS would have the power to establish these cuts. 

And as we were saying, you read that real carefully, that IPAB section of the Affordable Care Act, up until 2020 hospitals would be 

excluded from any cuts. So the proposed cuts made by IPAB would 

fall particularly on providers during the next 10 years almost, and 

to me, this seems akin to the cuts that SGR has tried to impose 

on doctors. These types of cuts haven’t worked in SGR and they 

surely won’t work with IPAB. I am encouraged that the committee’s proposed framework states that IPAB repeal would be an integral part of SGR reform. So, you know, I think that needs to be 

an important part of the discussion with you, Mr. Hackbarth, and 

also with the second panel. 

My time is expired and I yield back, and I thank you for your 

response. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentlelady, Dr. Christensen, for 5 minutes for questions. 

Mrs. CHRISTENSEN. Thank you, Mr. Chairman, and I thank you 

and the ranking member for this hearing, and welcome again, Mr. 

Hackbarth, because I hope that this year we can finally fix something that all of us agree needs to be fixed and want to fix. As we 

know, the SGR has been the wrong methodology for setting physician reimbursement because it doesn’t reflect the market basket 

value of physician services today, and as you said, the uncertainty 

that we create every year just transfers that uncertainty to the 

Medicare beneficiaries who wonder whether they are ever going to 

get the services that they need. 

In addition to creating new ways of reimbursement, I think it is 

important, as one of the AMA reports says, to establish an accurate 

66 

definition of health care value, rebuild the technological infrastructure to determine episode length payment attribution, improve 

data and other parameters, and as a physician who practiced in a 

fee-for-service model, just for the record, I really don’t believe that 

fee-for-service in and of itself was the problem. It is the way we 

were incentivized, and I can’t say that I was but to utilize certain 

modalities that were expensive and we weren’t paid for other 

things that you are talking about paying for now, and I believe if 

we pay for that kind of management and now with CER and other 

provisions of the ACA, fee-for-service can possibly have a place. 

But lastly, as Dr. Patel said last year in her testimony, whatever 

you do, the path needs to be toward clinician-driven, which you 

have agreed and said many times here this morning, evidencebased medicine that prescribes the autonomy of the physician-patient relationship, even as we move towards more accountability. 

You can imagine what my questions are going to veer towards. 

My colleague, Mr. Green, sort of asked it because we talked about 

poor, minority communities and patients who are affected by many 

of the social determinants of health and lack of access to quality 

health care and some services are not even available in their area, 

and so they suffer poor outcomes. So you did say that we have to 

take that into account and set the baseline and look at—include 

that in the way we measure performance. I was wondering if the 

minority health profession schools, the minority health professional 

organizations, patient advocacy organizations, are they involved in 

providing input as we move forward? Do you know? 

Mr. HACKBARTH. Yes. Well, we work with all of the associations, 

both within the physician world and beyond. I spend a lot of time 

with representatives of safety-net institutions which are, you well 

know, critically important for this population and so absolutely, our 

door is open. We think paying particular attention to those patients, and many of them are Medicare dual eligibles, eligible for 

Medicaid as well as Medicare, they are some of the most vulnerable 

patients in the system, and so we need to take particular care 

when we develop new models that they are not inadvertently 

harmed. 

Mrs. CHRISTENSEN. And you did mention in responding to Mr. 

Green also the issue of adverse selection and cherry-picking. Do 

you see the possibility of setting some kind of incentive payments 

for taking care of patients that may be sicker and coming from 

areas with high health disparities? 

Mr. HACKBARTH. Absolutely. So we think that the payment to the 

organization ought to be commensurate with the responsibility that 

they are taking on, and if you are taking on very high-risk, complicated patients, you ought to be appropriately compensated for 

that. You know, this is an issue, and the still developing demonstrations run dual eligibles, again, one of our most vulnerable 

populations, and so it is one we are fixated on. There will be all 

sorts of bad consequences if we don’t pay a lot of attention to that. 

Mrs. CHRISTENSEN. I am glad that they are really looking at social determinants and looking at health disparities and that we 

were able to include in a lot of the research and provisions of the 

Affordable Care Act that health equity and eliminating health disparities had to be one of the goals. 

67 

Thank you, Mr. Chairman. I yield back. 

Mr. PITTS. The Chair thanks the gentlelady and now recognizes 

the gentlelady from North Carolina, Mrs. Ellmers, for 5 minutes for 

questions. 

Mrs. ELLMERS. Thank you, Mr. Chairman, and thank you, Mr. 

Hackbarth, for being with us today. 

I have been a nurse for over 20 years, and obviously very concerned about the SGR system and understand fully that it is broken. You know, physician practices, you know, hang on to those determinations of when we are going to get paid and when we are 

not, and obviously the breakdown is quality of care for the patients 

and the accessibility moving forward. So keeping those thoughts in 

mind, I am a little concerned. I know Mr. Dingell and my colleague, Dr. Christensen, was just talking about some of the patient 

advocacy groups and patient input. Of course, we want health care 

to be patient-centered. But when we are talking about standard of 

practice, clinical practices and standard of care, where do you 

weight patient satisfaction, so to speak? I know this is going to be 

part of this system, but are we weighting the satisfaction level, you 

know, and determining quality of care that way? 

Mr. HACKBARTH. Yes. Within the ACO system, patient satisfaction is one of the criteria used in evaluating performance, and we 

think that that plays a role. Frankly, we don’t think it should be 

given the same weight as outcomes of care that patients really care 

about. 

Mrs. ELLMERS. So on a percentage basis, what would you say, 

how much are you going to be taking that into consideration? 

Mr. HACKBARTH. I am not sure that off the top of my head I 

could tell you exactly what percentage ought to be given to patient 

satisfaction but ultimately patients go to their physicians and 

nurses because they have a medical problem they want fixed, and 

so the bulk of the focus should be on, are those problems fixed, and 

if the patient in addition to that has a good experience, that is important as well. Probably the element of patient satisfaction that 

I would say is most important is effective communication because 

that also has implications for things like adherence to drug regimens and adherence to follow-up care after hospital admissions 

and the like. I am less interested in putting a lot of weight on, you 

know, sort of the hotel experience, you know, what was the checkin and the like. I am not saying those are totally unimportant but 

less important to me than effective communication and outcomes. 

Mrs. ELLMERS. I also, and this is a little bit off of the focus here 

with this particular question, but I am a little concerned too when 

we are talking about reimbursement and, you know, the more emphasis on different practices and improvements, and you mentioned 

the cutbacks in imaging services. Can you give me two reasons why 

we would consider that, to actually be cutting back on reimbursement to imaging? 

Mr. HACKBARTH. Well, one of the things that we do is look at 

how accurate the level of payment is for individual services and fee 

schedule, and as we have looked at that work and done that work, 

what we have concluded is that in many instances, we are overpaying for imaging services. 

68 

Mrs. ELLMERS. Is it overpaying or are you concerned that imaging is being overused? 

Mr. HACKBARTH. Well, it is some of each, and two are linked. So 

we believe that for some imaging services, not necessarily all of 

them but some imaging services, the payment for each service is 

too high, and it is therefore a very profitable service. That prompts 

people to go out and buy expensive imaging equipment, that once 

the imaging equipment is in place it is used because it is inexpensive at that point, and that results in overutilization of services. 

Mrs. ELLMERS. Well, one thing I would like, there again, based 

on my experience, one of those areas too that I think needs to be 

considered is not so much that the imaging is being overused but 

maybe ordered more frequently by non-physician practitioners. You 

know, in our local area, of course, JCAHO, who has just come 

through and basically one of their determinations where there was 

too many testing ordered, and unfortunately, that is by your nonphysician practitioner, and I think that is an issue that needs to 

be looked at much more effectively because, you know, we want the 

best care for our patients ultimately but at the same time if it is 

just a matter of overutilization, then I think that needs to be 

looked at much more closely. 

Mr. HACKBARTH. I think that may well be an issue. You know, 

we look at the rates of imaging, and there is huge variation, and 

so if you look geographically, you see big differences in both rates 

of imaging and the frequency of reimaging of the same patient, and 

so it is data like that that we look at that suggests to us that there 

is a problem there. 

Mrs. ELLMERS. Thank you. And again, I think efficiency is one 

of the areas that we really need to be looking at, so thank you. 

I yield back the remainder of my time. 

Mr. PITTS. The chair thanks the gentlelady and now recognizes 

the gentleman from New York, Mr. Engel, 5 minutes for questions. 

Mr. ENGEL. Thank you very much, Mr. Chairman. 

There is no question that the Sustainable Growth Rate formula 

is seriously flawed and needs to be permanently replaced. I very 

strongly believe that physicians deserve to be fairly and appropriately compensated for the important work they do and the current SGR formula is failing our physicians and it is failing our 

Medicare beneficiaries. 

I am pleased that the new CBO score estimates that it will cost 

dramatically less to repeal the scheduled SGR cuts and freeze payment rates for the next 10 years. I know the cost of $138 billion 

will be difficult to overcome but now is the time to permanently fix 

the way we reimburse physicians for the care they provide to our 

Medicare beneficiaries. The cost of doing so will probably never be 

lower, so as a Congress, I really believe we must seize the opportunity. 

Let me ask you a couple of questions. In MedPAC’s October 2011 

letter to the chairmen and ranking members of committee with jurisdiction over health care, it was stated, and I quote, ‘‘The greatest 

threat to health care access over the next decade is concentrated 

in primary care services.’’ Recognizing primary care access is critical, as part of the Affordable Care Act Medicare started paying 

primary care physicians a 10 percent incentive payment in 2011. 

69 

It is my understanding that more than 156,000 primary care providers have benefited from these incentive programs. So my question is, does MedPAC intend to analyze the impact of this 10 percent incentive payment on beneficiary access to primary care? If so, 

when do you think it will be possible to gauge this particular incentive’s impact on Medicare beneficiary access to primary care services? 

Mr. HACKBARTH. I am not sure if that is on our near-term analytic agenda. I think it might be a pretty difficult piece of analysis 

to do. What I would ask, Mr. Engel, is let me talk to my colleagues 

about it and get back to you on that. 

Mr. ENGEL. OK. Thank you. MedPAC’s reports and recommendations have consistently recommended moving toward payment models that shift providers away from fee-for-service and its incentives 

driving greater volume and intensity of services to delivery models 

that reward quality and efficiency. The Affordable Care Act has a 

number of provisions supporting new models of care including accountable care organizations, or ACOs, and value-based purchasing. How do we know if these new models are moving or delivering payment in the right direction? I believe they are, but how 

do we really know? 

Mr. HACKBARTH. Well, in the case of ACOs, as I said earlier, that 

was put into the Medicare program without further demonstration 

or pilots because there had been a demonstration done known as 

the group practice demo. The short version of that is that there 

were some positive but not really robust, strong improvements in 

that demo but the results were deemed good enough that it made 

sense to move forward with ACOs. My own belief is that over time 

with more experience, ACOs will be able to improve performance 

even more than happened in the group practice demo. 

Value-based purchasing has also been evaluated, and there too, 

the results were not really robust. There was a demonstration done 

involving hospital value-based purchasing known as the premiere 

demo, and the short version of the story is that there may have 

been some positive results but the effects were not very strong, and 

some of the effects were accomplished by just feeding back information on quality without a payment attached to it. 

Mr. ENGEL. All right. Thank you. Let me ask you this. Several 

of our witnesses in written testimony mention the imperative for 

more data if Medicaid is going to successfully move from a fee-forservice reimbursement system to more quality-driven models. So 

what are some of the steps you would recommend CMS and HHS 

take to ensure our health information technology infrastructure is 

capturing the right data to provide adequate reimbursement for 

quality health care services? 

Mr. HACKBARTH. Well, I am not at all expert, Mr. Engel, on 

health IT so I can’t answer in any detailed way, but I do believe 

that as more and more health care organizations adopt computerized medical records, that that can greatly expand our capacity for 

assessing performance because we will have ready access to clinical 

information, not just claims-based information but clinical information about how well patients are faring in different organizations. 

So this is a very important investment the country is making. I am 

70 

optimistic that it will pay off in the long run, but as I think you 

know, getting to that point is an arduous journey. 

Mr. ENGEL. Thank you. Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman. The gentleman from 

New Jersey, Mr. Lance, is recognized for 5 minutes for questions. 

Mr. LANCE. Thank you, Mr. Chairman, and I will not take the 

full 5 minutes. I apologize for not being here. I was in the Commerce Subcommittee all morning. 

One question. One of the common responses to the letter that our 

committee sent out to physician groups was that they need a period 

of stable payments, and I don’t think anybody disagrees with that. 

However, if we simply stabilize payments, we may not get movement to the kind of payment system we need. In your view, how 

might we incentivize physicians to move away from what they are 

currently doing and toward the payment system based on value 

and not just the volume of their services? 

Mr. HACKBARTH. We take a bit different view on this. It has not 

been a pretty process with lots of sort of last-minute rescue efforts 

but, you know, there has been considerable stability in payments 

in recent years. 

Mr. LANCE. With great angst. 

Mr. HACKBARTH. Great angst, and the angst has caused problems, which I emphasized before you came in, Mr. Lance, and so 

I am not advocating what has happened, far from it. We think that 

if we are going to really accelerate movement to new payment systems, there needs to be some pressure on fee-for-service. Now, exactly how much, how quickly is in part a function of how much 

money there is in the system after you figure out the pay-fors for 

SGR repeal. So there is not a right answer to how to structure 

that, but we do think we need a combination of pressure on feefor-service and then new opportunities and new payment models. 

Mr. LANCE. Thank you very much, Mr. Chairman. I yield back 

the balance of my time. 

Mr. PITTS. The chair thanks the gentleman. That concludes the 

first panel. Excellent testimony, very thoughtful answers. Thank 

you, Mr. Hackbarth. We will excuse panel one and call panel two 

to the witness stand, and I will introduce the second panel as they 

come. 

First of all, I want to thank all of you for agreeing to testify before the subcommittee today and quickly introduce our second expert panel. First, Mr. Howard Miller, Executive Director of the 

Center for Healthcare Quality and Payment Reform. Secondly, Ms. 

Elizabeth Mitchell, CEO of Maine Health Management Coalition. 

Thirdly, Dr. Robert Berenson, Institute Fellow at the Urban Institute. And finally, Dr. Cheryl Damberg, Senior Policy Researcher 

and Professor at the Pardee RAND Graduate School. 

Again, thank you all for coming. We have your prepared statements, which will be entered into the record. And Mr. Miller, we 

will begin with you. You are recognized for 5 minutes to summarize 

your testimony. 

71 

STATEMENTS OF HAROLD D. MILLER, EXECUTIVE DIRECTOR, 

CENTER FOR HEALTHCARE QUALITY AND PAYMENT REFORM; ELIZABETH MITCHELL, CEO, MAINE HEALTH MANAGEMENT COALITION; ROBERT BERENSON, M.D., INSTITUTE 

FELLOW, URBAN INSTITUTE; AND CHERYL L. DAMBERG, 

PH.D., SENIOR POLICY RESEARCHER, PROFESSOR, PARDEE 

RAND GRADUATE SCHOOL 

STATEMENT OF HAROLD D. MILLER 

Mr. MILLER. Thank you, Mr. Chairman. It is a pleasure to be 

here today. 

You have what may seem like an impossible task, to repeal the 

SGR program and save money for the Medicare program and do 

that without harming patients or physicians, but I believe that you 

can do that because of four key facts. 

The first fact is that there are tremendous opportunities to save 

tens of billions of dollars in the Medicare program by helping to 

prevent avoidable admissions to the hospital, readmissions and to 

reduce the incredible rate of infections, complications and other 

kinds of problems that occur to patients, medical errors that exist 

today, and there is no need to deny beneficiary services or to cut 

fees in order to reduce spending. 

The second fact is that the current fee-for-service system actually 

makes it difficult for physicians to help Medicare take advantage 

of those savings opportunities. In fact, under fee-for-service, the 

most desirable outcome of all, which is keeping you healthy, doesn’t 

get paid for at all. 

The third fact is that you can’t fix fee-for-service simply by adding more pay-for-performance bonuses or penalties or created 

shared savings programs. Many current payment reform efforts, I 

think, will have limited success because they leave the current broken fee-for-service system in place, and particularly they force physicians to lose money when they help Medicare reduce spending. 

The fourth fact is that there are better ways of paying physicians 

that give them the flexibility to both improve patient care and reduce Medicare spending without having to take financial losses 

themselves. I have outlined these in my testimony, and there are 

reports available on our Web site that describe these in significant 

detail. 

What I wanted to focus on is how to actually get these accountable payment models in place. I believe that more is needed than 

the traditional top-down approach where CMS develops all new 

payment models. Because the specific opportunities and barriers 

differ from community to community and because different physicians will have different levels of willingness and ability to participate, many different solutions will be needed. 

Most payment models today are focused on primary care hospitals and large ACOs but we need to also give every physician specialty the opportunity to improve care and reduce costs within its 

own sphere of influence. To do this, I recommend that Congress 

also establish a bottom-up approach whereby physicians, provider 

organizations, medical specialty societies and regional multi-stakeholder collaboratives are invited to develop payment models that 

will work well for individual physician specialties and the realities 

72 

of their own communities. If any of these groups bring CMS a payment model that is specifically designed to improve patient care 

and save Medicare money, CMS should not only have the power 

but the obligation to approve it. CMS should then also make that 

same payment model available to any physician who wants to participate and has the capabilities to do so. Moreover, if a physician 

is participating in such a model, they shouldn’t be subject to 

threats of SGR-type payment reductions. This kind of bottom-up 

approach is not as radical as it might seem. The CMS Innovation 

Center has been doing something just like this for the past 2 years 

through programs such as the Innovation Awards and the Bundled 

Payments for Care Improvement Initiative. 

But I think there are five policies that Congress needs to establish if you are going to have a truly successful process for developing and implementing new payment models as quickly as possible. 

The first policy is that new payment models should be able to be 

proposed to CMS at any time and there should be no limit on how 

many different proposals can be improved as long as they improve 

care and save Medicare money. Proposals also need to be reviewed 

quickly, and as I mentioned, CMS should have the obligation to approve a proposal if it improves patient care and saves Medicare 

money. 

The second policy is that there should be frequent opportunities 

for physicians to apply to participate in the already approved payment models. Every physician should be permitted to participate in 

an approved accountable payment model whenever they are ready 

to do so. 

The third policy: Physicians need to be given access to Medicare 

claims data so that they can actually determine where the opportunities for savings are, how care will need to be redesigned to 

achieve those savings, and how payment will need to change to 

support better care at a lower cost. I can’t even begin to describe 

to you what a barrier it is moving forward on this because of the 

lack of information that physicians have available to them. 

Fourth policy: Once a physician is participating in an accountable payment model, they should have the ability to continue participating as long as they wish to do so if the data shows the quality of care is high and Medicare spending is being controlled. Most 

innovative payment models today are explicitly time limited, and 

no physician or other health care provider is going to make significant changes in the way care is delivered if they might be forced 

to revert to the traditional fee-for-service system within a few 

years. We need to stop doing demonstration projects and start implementing broad-based payment reforms. 

Fifth policy: Funding should be made available to medical specialty societies and multi-stakeholder regional health improvement 

collaboratives so that they can provide technical assistance to physicians. Most physicians don’t have either the time or the training 

to determine whether and how a new payment model will work for 

them. If organizations that they trust, though, can help them analyze data and redesign the way they deliver care, I think physicians are far more likely to both embrace new payment models and 

to be successful in implementing them. 

73 

Finally, I must note that I think that payment reforms will be 

much easier to implement and far more successful if you also take 

steps to proactively involve the patients, the beneficiaries. Many of 

the existing payment models are forced to use complicated statistical attribution methodology to determine which physicians are accountable for which patients. It would make far more sense to simply ask the beneficiaries to designate which physicians they want 

to be in charge of each of their conditions. 

I would be happy to answer questions that you may have. 

[The prepared statement of Mr. Miller follows:] 

74 


79793.036

Testimony of Harold D. Miller 

Executive Director, Center for Healthcare Quality and Payment Reform 

President & CEO, Network for Regional Healthcare Improvement 

to the 

Subcommittee 011 Health, Committee on Energy and Commerce, U.S. House of Representatives 

February 14,2013 

SUMMARY OF KEY POINTS 

• The Sustainable Growth Rate fonnula should be repealed. 

• Fundamental changes in the fee-for-service system are necessary in order to control the growth 

of Medicare spending and to improve the way care is delivered to Medicare beneficiaries. 

Congress will have limited success in controlling Medicare spending and providing tnIly highquality care to Medicare beneficiaries if it merely uses quality-based pay-for-perfonnance or 

shared savings programs built on top of the dysfunctional fee-for-service system. Fortunately. 

there are better ways of paying physicians that can enable them to make more significant 

improvements in patient care and achieve greater savings for Medicare. 

Accountable payment models need to be designed and implemented as quickly as possible in 

ways that will work for every specialty and every part of the country. To do this. Congress 

should establish a new. bottom-up approach to payment reform. whereby physicians. provider 

organizations, medical specialty societies. and regional multi-stakeholder collaboratives are 

invited to develop payment models that will work well for individual physician specialties in the 

realities of their own communities. This process should include the following elements: 

~ New payment models should be able to be proposed to CMS at any time, with no limit on 

how many different proposals can be approved as long as they will improve care and reduce 

costs. Proposals must be reviewed quickly and CMS should have the obligation to approve a 

proposal ifit is specifically designed to improve patient care and save Medicare money. 

;.. There should be frequent opportunities for physicians to apply to participate in alreadyapproved payment models. Every physician should be pennitted to participate in an 

accountable payment model whenever they are ready to do so. If a physician is participating 

in such a model, they shouldn't be subject to threats of SGR-type payment reductions. 

~ Physicians need to be given access to Medicare claims data so they can detennine where the 

opportunities for saving are, how care will need to be redesigned to achieve those savings, 

and how payment will need to change to support better care at a lower cost. 

~ Once a physician is participating in an accountable payment model, they should have the 

ability to continue participating as long as they wish to do so if the data show that the quality 

of care is high and Medicare spending is being controlled. 

~ Funding should be made available to medical specialty societies and multi-stakeholder 

Regional Health Improvement Collaboratives to provide technical assistance to physicians. 

To help new payment models be as successful as possible, Congress should ask Medicare 

beneficiaries to designate which physician(s) they want to be in charge of care for each of their 

conditions, so that there is no need to use complicated. inaccurate statistical attribution 

methodologies to detennine which physicians are accountable for which patients. 
75 


79793.037

Testimony of Harold D. Miller, February 14,2013 Page 2 

Mr. Chainnan and Members of the Subcommittee on Health: 

I commend you for working to repeal the Sustainable Growth Rate formula and to reform 

physician payment systems, and I appreciate the oppottunity to provide input to your deliberations. 

The Need to Repeal the Sustainable Growth Rate 

Patients' lives depend on having good doctors who are paid adequately to deliver good quality 

care. We will not be successful in transforming our healthcare system to deliver higher-quality, more 

affordable care if physicians have to wonder every year whether the major payment cuts required by the 

Sustainable Growth Rate formula will go into effect or not. 

There is no other industry in the U.S. where the key professionals on whom that industry 

depends are told that their pay will be cut by 27% at the end of the year regardless of whether they are 

doing a good job or not. We shouldn't do that with physicians in the health care industry, either. 

Temporary fixes aren't enough. The law has never made sense, and it needs to be repealed. 

Controlling Medicare Spending Without Harming Beneficiaries 

The broader challenge that Congress faces is controlling the growih in Medicare spending 

without harming beneficiaries. The way to do this is remarkably simple: tens of billions of dollars in 

Medicare spending could be saved every year by avoiding unnecessary tests, procedures, emergency 

room visits, and hospitalizations, and by reducing 

infections, complications, and errors in the tests 

and procedures which are performed. For 

example: 

Millions of hospital stays, costing 

billions of dollars, are potentially 

preventahle. AHRQ data show that 17% 

of hospitalizations of Medicare 

beneficiaries are potentially preventable. 1 

The frequency of these preventable 

hospitalizations can be dramatically 

%ofHospltaiStaysThatWerePotentialiyPreventable,200S 
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79793.038

Testimony of Harold D. Miller, February 14, 2013 Page 3 

reduced; for examples, studies have shown that rates of emergency room visits and 

hospitalizations for many patients with chronic disease and other ambulatory-sensitive conditions 

can be reduced by 20-40% or more through improved patient education, self-management 

support, and access to primary care 2 If the 2.4 million potentially preventable hospitalizations 

for Medicare beneficiaries each year were reduced by 25%, Medicare savings would range from 

$3 billion per year (assuming spending of only $5,000 per hospitalization) to nearly $10 billion 

per year (based on more typical total spending of $15,000 for an episode of hospitalization for 

chronic disease, including post-acute care, readmissions, etc.). Bigger reductions in 

hospitalizations would lead to even greater savings. 

• Hundreds of thousands of infections, complications, and errors occur every day, costing 

billions of dollars. On average, in every minute of every day, 3 new avoidable errors, 

infections, and 

complications 

occur somewhere 

in the U.S. A 

study a few years 

ago estimated the 

cost of those 

problems at $20 

billion per year 

for all payers. J 

Although Source: The Economic ,1feasuremcnt of.\1edical Errors, Millinmu anu the Society ofActnarit'!s, 20 I 0 

progress is being made in reducing the rate of these complications, far more can be done. Work 

pioneered by the Pittsburgh Regional Health lnitiative and replicated in other parts of the country 

has proven that such events can be dramatically reduced or even eliminated through low-cost 

techniques' 

Reducing avoidable hospitalizations and improving the quality of the remaining hospitalizations 

not only can save money for Medicare, they improve outcomes for patients, too. Too much time is spent 

debating whether to deny patients coverage for expensive treatments in order to reduce spending, when 

our focus should be on how to keep patients healthy, avoid unnecessary hospitalizations, and reduce the 

infections, complications, and readmissions which harm patients and cost billions of dollars. 
77 


79793.039

Testimony of Harold D. Miller, February 14,2013 Page 4 

The Fee for Service System is a Major Barrier to Higher Value Health Care 

A major reason we're still spending tens ofbillions of dollars on unnecessary and harmful care is 

because of the way we pay for healthcare today. The current fee-for-service system makes it difficult or 

impossible for physicians to help Medicare take advantage of these opportunities to improve care for 

patients and reduce healthcare spending. For example: 

Many of the types of services that have been shown to prevent emergency room visits and 

hospitalizations are not paid for adequately or at all. Medicare does not pay primary care 

practices for care coordination services for complex patients, to engage in shared decisionmaking processes with patients facing important choices about tests or procedures, or even to 

answer a phone call from a patient Similarly, specialists are only paid for seeing patients in 

person, not for advising primary care physicians on care management, for time spent 

coordinating services with the primary care physician, or for responding to patient calls for 

assistance. A physician who deals with an urgent patient problem over the phone isn't paid even 

if that call prevented an unnecessary emergency room visit A physician who hires a nurse to 

assist with patient education typically cannot be reimbursed for the cost of that nurse, even if the 

nurse helps the patient avoid a hospitalization. All of these things limit the ability of physicians 

to flexibly design services to best meet a patient's needs, resulting in unnecessary illnesses, 

treatments, and spending. 

Physicians and hospitals can be financially penalized for reducing uunecessary services and 

providing better quality services. For example, reducing errors and complications during 

hospital stays can not only reduce both physicians' and hospitals' revenues, but also reduce 

hospital profits and their ability to remain financially viable 5 Physicians lose revenue if they 

perform fewer tests and procedures, even if their patients are better off without the tests or 

procedures. 

Perhaps most fundamentally, under the fee-for-service payment system, physicians don't get 

paid at all when their patients stay well. 

Pay-for-Performance and Shared Savings Won't Solve the Problem 

Although there is widespread agreement now that the fee-for-service system is broken, it is 

essential to understand the specific problems with fee-for-service payment described above in order to 
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Testimony of Harold D. Miller, February 14,2013 Page 5 

ensure that payment reforms actually solve these problems. In fact, most so-called "payment reforms" 

don't solve the problems because they don't actually change the fee-far-service system. 

For years, health plans and Medicare have been trying to fix the problems of the fee-far-service 

system by adding bonuses and penalties on top of it. However, most pay-far-performance (P4P) 

programs have had very little impact, and the reason is simple: a small P4P bonus or penalty can't 

overcome the significant weaknesses of the underlying fee-far-service payment system. Merely tying 

payment to a large number of quality measures doesn't necessarily result in better quality care, since you 

can't expect healthcare providers to measure, report, and improve on a large number of quality measures 

if the quality measures demand changes in care that aren't paid for under the current payment system. 

Although "shared savings" sounds like an innovative new approach to payment, in reality, it is 

nothing more than a new fOlm of pay-far-performance. Shared savings programs and similar payment 

reform efforts will likely have limited impact because they leave the current, broken fee-far-service 

system in place, and in particular, they force physicians and hospitals to lose money when they help 

Medicare reduce spending. For example: 

• Pay-far-performance and shared savings programs don't change the fact that Medicare pays 

physicians only for office visits, not for phone calls or for hiring a nurse to help patients manage 

their conditions. If a physician can respond to a patient's health problem over the phone, thereby 

avoiding the need for the patient to make a visit to the office, the physician will still lose 

revenue. lfthe physician hires a nurse to help the patient, the physician's costs will increase but 

he or she will receive no additional payment. Giving the physician a small bonus or reimbursing 

the physician for a portion of the lost revenue through a shared savings program still penalizes 

the physician's practice (recouping only a portion of the loss still results in a loss) and also 

creates a cash flow problem, since pay-far-performance and shared savings payments typically 

aren't made until a year or more after the losses occur. 

• If better coordination of a patient's care can avoid an emergency room visit or hospital 

admission, the hospital will lose all of the revenue for that visit or admission, but it will still have 

to cover the costs of having the emergency room or hospital bed available. Giving the hospital a 

bonus or shared savings payment for lower admission rates can still penalize the hospital, since 

the portion of the lost revenues offset through the shared savings payment may be less than the 

fixed costs the hospital must continue to cover. 
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Congress will have limited success iu improving the quality of health care for Medicare 

beneficiaries and coutrolliug the growth in Medicare spending if it merely adds more pay-forperformance programs, shared savings programs, or "value-based purchasing" programs on top 

of the current fee-for-service system. The fee-for-service system must be replaced. 

Accountable Payment Models Can Help Improve Quality and Lower Costs 

Fortunately, there are better ways of paying physicians than fee-far-service that give them the 

flexibility to both improve patient care and reduce Medicare spending without having to take financial 

losses themselves. Accountable payment models can: 

give physicians the flexibility to deliver the type of care that patients need without having to 

worry about whether that particular combination of services is going to be reimbursed 

adequately. 

give individual physicians accountability for the kind5 oj costs they can col1tralor h!fluence, not 

for things they cannot reasonably affect. 

• separate insurance risk and performance risk, so that physicians are not penalizedjinanciallyfiJr 

taking care (!/sicker patients or those with unusually complex conditions. 

Building Blocks of Accountable Payment Models 

Accountable Payment Models are created using one or more of the following building blocks: 

• Bundled Payment: Instead of paying physicians and hospitals separately for each service 

associated with the hospitalization or procedure, a bundled payment gives them a single amount 

for the procedure that they can divide up on their own. Under bundled payment, if a physician 

helps a hospital reduce the cost of a procedure, the physician can share in the savings the hospital 

achieves, and both the hospital and physician can then offer a lower price to Medicare for the 

newly redesigned care. 

Warrantied Payment: Under a warrantied payment, the physician is paid more for a procedure 

than they are today, but they are no longer paid more for treating any infections or complications 

related to the procedure that the patient experiences. The physician is thereby rewarded for 

providing safer, higher-quality care, and Medicare saves money by not having to pay to treat 

expensive complications. 
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Condition-Based Payment: Bundled payments and warrantied payments can help improve the 

quality and efficiency of care for a particular procedure, but they don't remove the disincentives 

for reducing unnecessary procedures. A condition-based payment solves that problem by paying 

for care of the patient's health condition, regardless of what procedure is used. 

BUILDING 

BLOCKS OF 

PAYMENT 

REFORM 

Bundled 

Payment 

Warrantied 

Payment 

ConditionBased 

Payment 

ITWORKS 

care. no payment for 

correcting preventable 

errors and complications 

Payment based on the 

patients condition. rather 

than the used 

HOW PHYSICIANS 

AND HOSPITALS 

CAN BENEFIT EXAMPLE 

The advantage of all of these payment approaches is that they give physicians greater flexibility 

to decide which services should be provided to a patient (rather than being restricted by the services 

specifically authorized under a fee-for-service system) and they remove the disincentives to eliminate 

unnecessary services, so that Medicare or other health care payers spend less money to get higher-quality 

care for their patients. 

These approaches - a single payment for a complete product or service, with a warranty to 

correct defects at no charge - are how most other industries are paid for their products and services, and 

it makes sense to use them in healthcare, too. 

Creating Accountable Payment Models Using Different Combinations of the Building Blocks 

Most of the successful payment reforms you typically hear about are simply combinations of 

these building blocks. "Episode payments" include some combination of bundled payment and 

warrantied payment. "Risk-adjusted global payment" is, in effect, a broad set of condition-based 

payments, each with elements of bundling and warranties. 
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Thinking in terms of the building blocks of payment reform is important because there is no 

single "best" way to define an episode payment or global payment. The CMS Innovation Center has 

recognized this, and so its Bundled Payments for Care Improvement (BPCI) Initiative is offering four 

different payment models for 48 different patient conditions. Each model has a different combination of 

bundling and warranties; some apply to conditions and others apply to particular procedures. 

But despite this diversity - as many as 144 different payment models in total the BPCI doesn't 

go nearly far enough, because all of the BPCI payment models are limited to patients who have been 

hospitalized. Although we certainly want to improve the quality and efficiency of hospital care and to 

reduce the high cost of complications, readmissions, and post-acute care for patients who are 

hospitalized, patients should not have to be hospitalized in order to get better quality care. We also 

need to have payment reforms that help to keep patients healthy and avoid needing to go to the 

hospital ill the first place. 

Examples of Successful Accountable Payment Models Using the Building Blocks 

Where these building blocks have been used to create appropriate accountable payment models, 

providers, payers, and patients have all henefited. For example: 

in the Medicare Acute Care Episode (ACE) Demonstration, which "bundles" physician and 

hospital payments (i.e., it makes a single payment to both providers, rather than separate 

payments to each), Medicare has saved money, physicians have received higher payments, 

hospitals have been able to reduce their costs and improve their operating margins, and patients 

have received better care at lower cost'" 

• the Geisinger Health System in Pennsylvania, through its ProvenCare"r system, provides a 

"warranty" that covers any follow-up care needed for avoidable complications within 90 days at 

no additional charge. The system was started for coronary artery bypass graft surgery, and has 

been expanded to hip replacement, cataract surgery, angioplasty, bariatrics, low back pain, 

perinatal care, and other areas. 7 Offering the warranty led to significant changes in the processes 

used to deliver care, and Geisinger has reported dramatic improvements on quality measures and 

outcomes. 8 

The Alternative Quality Contract implemented by Blue Cross Blue Shield ofMassachusetls in 

2009 defines a single payment to a physician practice or health system for a group of patients to 
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cover all care services delivered to those patients (including hospital care, physician services, 

pharmacy costs, etc.). The payment amount is determined based on the health conditions of the 

patients, not based on what tests or procedures the providers use. The physician practice or 

health system can earn a bonus payment for achieving high performance on clinical process, 

outcome, and patient experience measures. Evaluations of the early results show that 

participating healthcare providers achieved better quality, better patient outcomes, lower 

readmission rates, and lower utilization of emergency rooms 9 

Accountable Payment Models Are Needed for Every Specialty 

To date, most payment reform efforts have been focused narrowly on a subset of physicians, 

particularly primary care physicians and surgeons, or they have required physicians to participate in 

large health systems or Accountable Care Organizations that are willing to take accountability for the 

total costs of care for a population of patients. These initiatives are desirable, but insufficient. If we are 

going to successfully control healthcare costs and improve the quality of care for all patients, we 

need to make payment reforms available to every specialty and to independent pbysicians as well 

as those who are part of large systems. 

There are many examples of significant improvements in the quality and cost of care that could 

be achieved by paying individual specialties under accountable payment models. For example: 

Coronary Artery Disease. A condition-based payment for coronary artery disease would 

enable cardiologists (potentially in collaboration with cardiac surgeons and/or primary care 

physicians) to redesign the way care is delivered to patients with newly diagnosed coronary 

artery disease, regardless of what type of treatment is used (medical management, PCI, or 

CABG) or where the treatment is provided (hospital, ambulatory surgery center, or office). 

Congestive Heart Failure. A condition-based payment for patients with congestive heart 

failure (CHF) would enable cardiologists and/or primary care physicians to provide better care 

management for patients and reduce the rate of emergency room visits and hospitalizations for 

exacerbations of their CHF. 

Chronic Obstructive Pulmonary Disease. A condition-based payment for patients with 

chronic obstructive pulmonary disease (COPD) would enable pulmonologists and/or primary 

care physicians to provide better care management for patients with COPD and reduce the rate of 

ER visits and hospitalizations for exacerbations of their COPD or for pneumonia. 

Inflammatory Bowel Disease. A condition-based payment for inflammatory bowel disease 

would enable gastroenterologists (potentially in collaboration with primary care physicians) to 

better manage all of the care needs of patients with this condition, reducing unnecessary 

hospitalizations and emergency room visits. 
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Epilepsy. A condition-based payment would enable neurologists (potentially in collaboration 

with primary care physicians) to better manage all of the care needs of patients with epilepsy, 

including their preventive care. 

• Colon Cancer Prevention. Gastroenterologists (potentially in collaboration with oncologists) 

could receive a global payment for colon cancer screening and treatment of colon cancers within 

a population of patients. More effectively targeted, high quality colon cancer screening would be 

designed to reduce the frequency oflate stage colon cancer treatments, while eliminating 

unnecessaIily frequent colonoscopies. 

Transient Ischemic Attack and Stroke. An episode payment would enable neurologists and 

vascular surgeons to provide the most effective short-term management and treatment of patients 

who experience a transient ischemic attack (TIA), regardless of what type of treatment is used 

(e.g., endarterectomy, tPA, antiplatelet therapy). A longer-term condition-based payment could 

be made to neurologists and cardiologists to support comprehensive strategies to prevent both 

strokes and myocardial infarction in patients who have experienced a T1A. 

Childbirth. A single payment to obstetricians/gynecologists for labor and delivery would 

enable the mother and physician to choose the best method of delivery (vaginal delivery or 

cesarean section) and the best location for the delivery (e.g., a hospital or birth center). The 

payment could be limited to normal pregnancies in low-risk women, or applied to a broader 

population with the payment amount risk-adjusted based on the mother's characteristics. This 

could be very helpful to state Medicaid programs. 

In order to move away from fee-for-service, each physician specialty will need payment models 

that are (a) customized to the specific types of patients they care for and (b) focused on the types of costs 

they can control or significantly int1uence. A weakness of many cnrrent efforts at payment reform is 

that they try to make physicians accept accountability for the total costs of all care their patients 

receive, even thongh the physician can only expect to have an impact on a subset of those costs. 

Physicians and other healthcare providers are far more likely to be willing to accept responsibility for 

the utilization and cost of services they deliver or prescribe themselves than services chosen by other 

providers. (For example, primary care physicians can int1uence the rate at which their patients go to an 

emergency room, but not the number oftests that are ordered once the patient anives; emergency room 

physicians can influence the number oftests ordered in the emergency room, but not how many patients 

come to the emergency room for conditions that could have been treated by their primary care provider.) 

To address this, payment to physicians in a particular specialty should be designed to only include the 

costs of the services that these physicians control or can significantly int1uence, while exeluding the 

costs of other services. (Medicare would continue to pay for the excluded services on either a fee-forservice basis or through separate payment reforms designed for the other specialties). 10 
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Accountable Payment Models Can Also Help ACOs Be Successful 

Accountable payment models for each specialty not only can help independent physicians 

improve care and control costs, they can help create more successful Accountable Care Organizations 

(ACOs). If every specialty participating in the ACO is paid in a way that enables it to achieve savings 

of 2% within its own sphere of influence, the ACO as a whole will be far more likely to achieve the 

minimum 2% savings Medicare is seeking from the ACO than if the ACO tries to achieve a similar 

amount of savings with a few care improvement programs focused on a small number of patients. 

Although there are many opportunities to save money in healthcare without harming patients, there are 

no "silver bullets" that can achieve dramatic savings in anyone area. 

Accountable payment models will even be helpful for health systems with employed physicians, 

because they will provide a model for improving the compensation structure for physicians inside the 

health system. Most physician compensation systems today, even for physicians who are "on salary," 

are based on fee-for-service, i.e., the physician gets paid in part or in whole based on the number of 

visits they have or the number of procedures they perform. These compensation structures will need to 

change if a health system wants to be a successful Accountable Care Organization, and accountable 

payment models can help them do so. 

How an Accountable Payment Model Can Improve Patient Care and Save Money 

Without Harming the Financial Viability of Physicians or Hospitals 

Here is an example of how more accountable payment models can improve care for patients and 

save money for Medicare without financially harming physicians or hospitals. Assume that during the 

course of a year, a physician practice or health system sees 300 Medicare patients who have a particular 

health condition (e.g., heart disease). One approach to treating the condition is an expensive hospital 

procedure (e.g., placement of a stent in a coronary artery) that could help the patients, but the procedure 

also carries a risk of infection or death, and it is not appropriate for all patients. The physicians in the 

practice evaluate the patients to determine whether to do the procedure, and they decide to perform the 

procedure for 200 of the 300 patients who are evaluated. The physicians are paid $150 for the office 

visit to evaluate each patient and they are paid $850 for each procedure. The hospital is paid $11,000 

for each procedure the physicians perform. In total, Medicare is spending $2.4 million per year on these 

patients. 
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Testimony of Harold D. Miller, February 14,2013 

Now, assume further that a study 

shows that 10% of the procedures being 

perfonned are either inappropriate or 

unnecessary. If the physician practice 

simply reduced the number of 

procedures by 10%, Medicare would 

save $240,000, but the revenue to the 

physician practice would decrease by 

10% and the hospital's revenue would 

also decrease by 10%, causing a 

financial problem for each of them. 

But if the physician practice is 

Page 12 

given a condition-based payment for the 300 patients it is seeing, it can redesign both care and payment 

in a way that can reduce Medicare spending without financially hanning either the practice or the 

hospitaL The payment would no longer depend on what procedures the physicians do or whether they 

do a procedure at all, so there would be no financial penalty for doing fewer procedures, nor any 

financial reward for doing more; the focus would be on achieving good outcomes for the patient. 

Assume that the physician practice works with the hospital and detennines that they can jointly give 

good quality care to the 300 patients with a budget of $2,348,000, which is a 3% savings for Medicare. 

The physician practice not only redesigns the care for the patients, but it also redesigns the way 

everyone is paid. The physicians in the practice will now get paid more for the patient evaluation visits, 

so they have time to spend doing a shared decision-making process with the patients, and as a result, 

10% fewer patients decide they want to receive the procedure. The physicians will also get paid more 

for each procedure, but since they will now be doing fewer procedures, this does not result in a 

significant increase in revenues for the practice (indeed, they cannot get more revenue than the overall 

budget allows). The hospital determines what its fixed and variable costs are so that it can be paid 

enough for each procedure to still cover its costs even with fewer procedures. 
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CONDITION-BASED PAYMENT: 

Ability to Redesign Payment and Care to Save Money 

Without Hurtiug Providers or Patieuts 

Page 13 

The net result is that the patients get better care, the physician practice receives slightly more 

revenue, and the hospital actually sees an increase in its margin, all while saving Medicare money. 

Why Shared Savings Won't Achieve the Same Results 

This kind of significant redesign of care needs a completely new payment model; it cannot be 

done under fee-far-service or even in an ACO in the Medicare Shared Savings Program. Under the 

Medicare Shared Savings Program, the physicians and hospitals are still paid under the fee-far-service 

system, so they still lose money when they do fewer procedures. The arbitrary formula for awarding 

shared savings may not provide enough money back to the physicians and hospital to cover their losses, 

and even if it does, the payment will come a year later, forcing the physicians and hospital to incur 

losses in the short run. Moreover, there may be no shared savings payment at all if the savings they 

achieve for this particular set of patients is not enough to allow the ACO to qualify for a shared savings 

payment 
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Testimony of Harold D. Miller, February 14,2013 Page 14 

SHARED SAVINGS: 

Shared Savings Payment Is Not Enongh To Offset Provider Losses 

Separating Performance Risk from Insurance Risk 

To enable physicians to be successful in accountable payment models and to attract physician 

participation, the payment models must be structured to ensure that they only require physicians to take 

accountability for perjiJrmallce risk, i.e., for their ability to manage their patients' conditions in a highquality and efficient manner, but not for insllrance risk, i.e., whether a patient has an illness or other 

condition requiring care. In contrast, traditional (non-risk-adjusted) capitation systems transferred all 

cost risk to the provider. Insurance risk is what health insurance is designed to address, and so Medicare 

needs to retain insurance risk. Jl 

There are several ways to structure payment systems to give providers accountability for the 

costs they can control, without asking them to take on insurance risk that they cannot control: 12 

Risk Adjustment: Higher payments should be made for those patients who have more health 

conditions or more serious health problems. The payment should only be higher if the patient is 

sicker, not simply because the provider decides to do more tests or procedures. In the example 

given earlier, if the physicians and hospital had sicker patients who were more likely to need 

expensive procedures, then their budget would increase. But this would not mean Medicare 
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would not still receive savings, because Medicare would have had to pay even more for those 

patients under the fee-for-service system. 

Risk Limits: Since no risk adjustment formula could ever he 100% accurate in predicting 

legitimate variations in costs, risk adjustment should be supplemented with risk limits, such as 

outlier payments to cover unusually high costs for specific patients and "risk corridors" that 

require Medicare to provide additional payments to providers when the total cost of treating a 

group of patients significantly exceeds the agreed-to payment level. The sizes and cost-sharing 

parameters for these risk corridors could vary from provider to provider, since larger providers 

will be better able to manage variation in costs, and the parameters could also be changed over 

time as providers become more experienced in managing costs. 

Risk Exclusions: In some cases, it is clear that certain kinds of costs cannot reasonably be 

controlled by a provider, and rather than using risk adjustment formulas or other complex 

calculations to adjust for them, they should simply be excluded from accountability altogether. 

For example, the costs associated with patients who are seriously injured in accidents could 

simply be excluded entirely from a global payment model for a small group of physicians, and be 

paid for separately on an episode-of-care basis or under traditional fee-for-service. 

Contract Adjustments: It is impossible for anyone to predict exactly what will happen when 

Medicare and physicians move to completely different payment models, particularly in the early 

phases of implementing new payment models. New drugs, new medical devices, and new ways 

of delivering care are being developed at a rapid pace, and these can either help or hurt 

providers' ability to control costs and improve quality. Rather than taking years to design and 

negotiate payment reform contracts that try to anticipate all possible contingencies, eMS should 

make a commitment to make adjustments to contracts with providers to deal with unexpected 

events. 

Ensuring Quality of Care for Patients 

A common concern about payment reforms that are designed to increase incentives for providers 

to control costs is that they will also create incentives for providers to withhold care that patients need or 

to deliver lower-quality care in order to reduce costs. It is important to recognize, however, that even 

fee-for-service payment, with its inherent incentives to deliver more services to patients, does not 

guarantee the delivery of higher quality care. Implementing the accountable payment models described 
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earlier will make it easier for physicians and other providers to improve quality because they will 

remove the barriers and disincentives that exist in the fee-for-service system today. However, no 

payment system will, in and of itself, guarantee higher quality care unless the quality of care is explicitly 

measured and mechanisms are established for rewarding higher quality care and/or penalizing lower 

quality care. 

Consequently, accountable payment models should be accompanied by (a) requirements 

for measurement and public reporting on the quality of care, and (b) bonuses or penalties for the 

aspects of quality which are not directly encouraged by the payment model itself. Different types 

of quality measures will be important under accountable payment models than under fee-for-service; for 

example, if a provider accepts a payment with a warranty for errors, infections, or complications 

occurring during treatment, there is no need to have a separate quality bonus/penalty for such errors, 

infections, and complications, because there is a built-in penalty for the provider if such events occur, 

namely, it has to correct the problems with no additional compensation. In the absence of such a 

warranty, however, a separate bonus/penalty component would need to be added to the payment system 

to provide similar incentives. Quality measurement focused on preventive care where problems will 

often not manifest themselves until many years in the future - will be important to include in 

accountable payment models. Fortunately, this is the area where most community-based public 

reporting programs now focus their efforts. 

A more fundamental problem is that most ofthe measures that are being used by Medicare and 

other payers today are process measures, not outcome measures, e.g., they measure whether a patient 

received a specific set of medications, not whether they avoided another heart attack, and they measure 

whether appropriate surgical procedures were used in the hospital, not whether the patient experienced 

an infection or was able to walk again. Not only is there evidence that good performance on many types 

of process measures does not necessarily improve outcomes, I3 process measures could actually impede 

efforts to reduce costs and improve quality by locking in less-than-optimal approaches to care. 

Congress needs to support the development and testing of new quality measnres, particularly 

outcome measures appropriate for the kinds of patient conditions managed by specialty 

physicians. 

It is desirable to use common, nationally endorsed quality measures and requirements for quality 

improvement activities wherever possible, but there should also be the flexibility to use different quality 
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measures and quality improvement programs where appropriate to respond to state and regional 

priorities. In addition, in selecting national quality measures and requirements for quality improvement 

strategies, preference should be given to those quality measures and quality improvement strategies that 

are already being used in multiple regions and states. 

How Congress Can Quickly Implement Accountable Payment Models 

The nation needs to implement these types of accountable payment models as broadly and 

quickly as possible, both in the Medicare program and for all types of payers. Every month of delay 

means that more patients will be harmed, more patients will continue to receive less-than-optimal care, 

and the federal deficit will be harder to solve. 

Weaknesses of the Current Approach for Designing and Implementing Payment Reform 

The traditional approach that has been used for payment reform in the Medicare program is a 

top-down approach, where Congress directs CMS to develop a better payment model, CMS tests one or 

more alternative approaches, and then it decides on a single approach that has to apply to every 

physician and every community. This approach is not working as quickly or effectively as we need it to, 

because it has two fundamental flaws: 

There cannot be a one-size-fits-all approach to payment reform. Because the specific 

opportunities and barriers differ from community to community, and because different 

physicians have different types of patients and different levels of ability to change care delivery, 

many different payment reform models will be needed. Any single payment reform model may 

work for some physicians in some parts of the country, but it will likely not work for others, and 

that means the impact on cost and quality will be far less than we want or need. 

• We will never be able to "prove" that a payment model works before making it broadly 

available. Although it would seem desirable to have "evidence" that a payment reform will be 

successful before making it broadly available, this will never happen, for two simple reasons. 

First of all, payment reform itself does not improve quality or reduce costs, physicians do that. 

Payment reform removes the barriers that fee-for-service payment create for better quality, 

lower-cost care, but no payment reform will be successful ifthe physicians being paid that way 

don't actually use the payment to improve care. Second, because the opportunities and barriers 

differ dramatically from community to community and provider to provider, the fact that one 
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physician successfully used a payment reform model to improve care does not f,'Uarantee that 

other physicians will be able to do so. This is particularly true if the payment reform model itself 

does not incorporate any explicit accountability for cost. For example, even if dozens of studies 

show that spending is lower for patients who receive care from medical homes that get higher 

payments, there is no guarantee that future medical home projects will have the same results if 

they aren't explicitly taking accountability for doing so. 

A Bottom-Up Approach for Faster, More Successful Paymeut Reform 

We wouldn't expect centrally-developed solutions in other industries to be the ideal approach, 

and we can't expect that in healthcare, either. So in addition to the cUlTent, "top-down" approach, I 

recommend that Congress establish a "bottom-up" approach, whereby physicians, provider 

organizations, medical specialty societies, and multi-stakeholder Regional Health Improvement 

Collaboratives are invited to develop payment models that will work well for individual physician 

specialties in the realities of their own communities. 

If any of these groups brings CMS a payment model that is ,Ipecifically designed to improve 

patient care and save Medicare money, CMS should have not only the power, but the obligation to 

approve it and implement it. CMS should then also make that same payment model available to any 

physician who wants to participate and has the capabilities to do so. Moreover, if a physician is 

participating in such a model, they shouldn't be subject to threats of SGR-type payment reductions. 

This kind of bottom-up approach is not as radical as it might seem: 

• For the past two years, the CMS Innovation Center has been inviting providers and other 

organizations to submit proposals for innovative ways to deliver care and save money, through 

programs such as the Innovation Awards and the Bundled Payments for Care Improvement 

Initiative. The fact that CMS received 8,000 applications for the Innovation Awards program 

demonstrates the broad interest there is around the country in changing care delivery; it also 

demonstrates the ability ofCMS to review large volumes of proposals in a short period of time. 

• CMS has implemented significant payment reforms in the past without waiting for evaluation 

studies to prove that they will work. For example, the Inpatient Prospective Payment System 

(the DRG payment system for hospitals) was designed and implemented in the fall of 1983, 

barely a year after it was authorized by Congress, despite the fact that there was no formal 
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demonstration program to prove it would work eMS has regularly modified the program to 

improve it, but it did not wait for the perfect program to be designed before moving ahead to 

implement it 

There are five things that I believe Congress needs to do to create a truly successful process 

for developing and implementing new payment models as qnickly as possible: 

1. New payment models should be able to be proposed to CMS at any time, and there should 

be no limit on how many different proposals can be approved as long as they are designed 

to improve care and save Medicare money. Proposals also need to be reviewed quickly, 

and CMS should bave the obligation to approve a proposal if it demonstrates how it will 

improve patient care and save Medicare money. 

2. There should be frequent opportunities for physicians to apply to participate in alreadyapproved payment models. Every physician should be able to participate in an approved 

accountable payment model whenever they are ready to do so. 

3. Physicians need to be given access to Medicare claims data so they can determine where the 

opportunities for saving are, how care will need to be redesigned to achieve those savings, 

and how payment will need to change to support bettel' care at a lower cost. Specialty 

societies and Regional Health Improvement Collaboratives should be empowered to assist 

physicians to do the necessary analyses of these data. 

4. Once a physician is participating in an accountable payment model, they should have the 

ability to continue participating as long as they wish to do so if the data show that the 

quality of care is high and Medicare spending is being controlled. Most innovative 

payment models today are explicitly time-limited, and no physician or other healthcare 

provider is going to make significant changes in the way care is delivered if they might be 

forced to revert to traditional fee-for-service payment within a few years. We need to stop 

doing demonstration prfljects and start implementing more broad-based payment reforms. 

5. Funding should be made available to medical specialty societies and multi-stakeholder 

Regional Health Improvement Collaboratives so they can provide technical assistance to 

physicians. Most physicians don't have either the time or training to determine whether 

and how a new payment model will work for them. If organizations that they trust can 
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help them analyze data and redesign the way they deliver care, they are far more likely 

both to embrace new payment models and to be snccessfnl in implementing them. 

CMS could give priority to reviewing payment reform proposals from communities that have 

already developed multi-payer payment reforms involving all or most of the commercial insurance plans 

in the community and Medicaid programs. The biggest problem the physicians who are participating in 

these programs have faced is that Medicare does not participate, meaning that 30-40% or more of a 

physician practice or hospital's patients are not included in the payment reforms. If Congress creates a 

process througb which these communities can bring these payment approaches to CMS and have them 

approved, the providers in those communities will be better able to change care, and the Medicare 

program will be able to quickly achieve savings. 

The Need to Engage Beneficiaries 

Payment reforms will be far easier to implement and far more successful if Congress also takes 

steps to encourage Medicare beneficiaries to be actively engaged with their physicians in managing their 

care. One simple change would make a huge difference: asking beneficiaries to designate which 

physician they want to be in charge of care for each of their conditions. 

Most payment reforms that are being implemented in traditional Medicare or in commercial PPO 

insurance plans are forced to use complicated statistical attribution methodologies to determine which 

physicians are accountable for which patients. These methodologies are retro.ll'ectil'e, i.e., Medicare 

looks back over the claims it paid for the patient over the past year or two to identify which providers 

the patient actually saw, uses statistical analyses to determine which, if any, physician delivered the 

majority of the patient's care, and if there is such a physician, assigns the patient to that physician. But 

using retrospective statistical attribution rules to assign patients to providers means that neither the 

provider nor the patient knows they are part of the new payment system until after the care is delivered, 

potentially a year a more later. 14 If providers and payers only find out retrospectively that they are in a 

new payment system, it will be difficult for them to work together prospectively to change care and 

prevent unnecessary costs from occurring. 

The problems caused by retrospective attribution go far beyond mere uncertainty by providers 

and patients regarding whether they are in a payment model or not The attribution models actually 

reinforce the problems of the fee-for-service system. For example, in various medical home programs, 
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Testimony of Harold D, Miller, February 14,2013 Page 21 

the primary care physician gets an additional, non-visit-based payment for each patient who is attributed 

to him or her based on whether the patient made a billable office visit to the PCP, But PCPs who 

redesign their practices to reduce the emphasis on office visits for healthy patients in favor of phone 

calls and emails, while providing longer office visits for more complex patients, will be harmed 

financially under this system, since they will not only lose fee revenue by having fewer office visits, 

they may also not receive any additional payment for the patients who do not have the recent office 

visits that are required to trigger the attribution calculation, 

Attribution systems also make physicians reluctant to participate because if the attribution rules 

assign patients whose care the provider cannot influence, the provider can be inappropriately penalized 

when costs for those patients increase (or inappropriately rewarded if costs decrease), If the attribution 

rules fail to assign a patient even though the provider was responsible for improving the efficiency of 

care for that patient, the provider would fail to receive credit for the savings or quality improvements 

they achieved,15 

There is an easy solution to this: Simply ask beneficiaries to designate which physician(s) they 

want to be in charge of care for each of their conditions, Asking patients to designate who their 

physicians are does not mean that the patient has to be "locked in" to those physicians or that any 

physician must serve as a "gatekeeper" for the patient's care (i,e" that Medicare will not pay for the 

patient to receive care from any specialist or other provider that is not approved in advance by the 

physician), It merely means that the patient needs to choose their physicians and notify both the 

physicians and Medicare about that; if they wish to change physicians at any point, they would be free to 

do so, as long as they notify the physicians and Medicare about the change, 

Do We Need Incentives or Penalties to Get Physicians to Participate? 

Some people have suggested that we need to make the fee-for-service system less attractive, e,g" 

by cutting payment levels, in order to encourage or force physicians to engage in new payment models, 

r think this is both unnecessary and inappropriate, 

Most physicians will find a properly designed new payment model to be more attractive than the 

fee-for-service system, because it will give them the flexibility to redesign care for their patients, the 

opportunity to be rewarded for delivering higher quality care, and the ability to help the nation control 

healthcare costs in a way that doesn't harm patients or cause financial problems for their practice, 
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Testimony of Harold D. Miller, February 14,2013 Page 22 

Under the fee-far-service system, physicians typically lose money themselves when they change care in 

ways that generate savings for Medicare. However, Medicare payments to physicians represent less 

than 20% of total Medicare spending. Since physicians prescribe, control, or influence most of the 

remaining 80% of spending, under a properly designed payment model, physicians can help Medicare 

reduce spending significantly without cutting their own revenues. 

Making fee-for-service less attractive in order to get physicians to participate in new payment 

models implies that the new payment models are worse than fee-for-service, which is simply not true. 

Moreover, since not every specialty or physician will be able to participate in an appropriate payment 

model right away, making fee-for-service more onerous will penalize physicians who have no other 

alternative available to them. 

I tind that most physicians are frustrated with the current fee-far-service system and want to 

participate in better payment models. However, many physicians have been burned in the past by 

payment changes that are badly designed, e.g., by shifting unmanageable levels of risk to them, 

demanding betler quality care without giving them the resources or flexibility to deliver it, or cutting 

payment levels below the achievable cost of care. If Congress and CMS can offer physicians payment 

models that avoid these problems and provide the help they need to succeed, I believe physicians across 

the country will not only participate voluntarily, but enthusiastically. 

How Congress Can Help Ensure the Success of New Payment Models 

Many people believe that the only way that physicians can succeed under accountahle payment 

models is to work for large integrated health systems. Nothing could be further from the truth. 

Experience has sho"m that small, independent physician practices can also use better payment models to 

deliver higher-quality, lower-cost care. For example, the earliest known example of someone offering a 

warranty in healthcare was not a large health system, but a single physician. In 1987, an orthopedic 

surgeon in Lansing, Michigan collaborated with his hospital to offer a fixed total price for surgical 

services for shoulder and knee problems, including a warranty for any subsequent services needed for a 

2-year period, including repeat visits, imaging, rehospitalization, and additional surgery. A study found 

that the payer paid less and the surgeon received more revenue by reducing unnecessary services such as 

radiography and physical therapy and reducing complications and readmissions. 16 
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Testimony of Harold D. Miller, February 14,2013 Page 23 

In many cases, small physician practices may need to join together through Independent Practice 

Associations (JP As) or other structures to achieve the necessary economies of scale to manage 

accountable payment models. However, physicians do not need to be employed by hospitals or join 

large group practices in order to do so. There are many examples of how physician practices, including 

very small practices, are successfully managing these new payment models. 

Just like in every other industry, where small businesses are often the innovators, small 

healthcare providers can be more eftldent and innovative than large systems, if we give them the 

opportunity to do so without imposing unnecessary and expensive regulatory requirements. 

However, physicians, particularly those in small practices, will need help both to design and 

implement new payment models. As noted earlier, two kinds of assistance are particularly important: 

Access to Data and Analysis on Cost and Quality 

Training and Coaching in Process Improvement 

Access to Data and Analysis on Cost and Qnality 

It is impossible for physicians, hospitals, and other providers to identify where opportunities for 

cost reduction exist or how to capitalize on them without access to Medicare claims data. Physicians 

need information on current utilization patterns and analyses of the likely impact of interventions in 

order to construct a feasible business case for the investment of resources in new care processes and to 

evaluate the feasibility of participating in a new payment model. 

For example, in order for a physician practice or health system to accept an episode of care 

payment for the type of treatment it delivers, it needs to know about all of the services that those types 

of patients have been receiving from the hospital, other physicians, and post-acute care providers, how 

much all of those providers are being paid, the frequency with which adverse events occur, and the 

extent to which any of those elements can be changed. Differences in the types of services needed for 

patients with different types of health conditions need to be identified, and the impacts of risk 

adjustment and risk limits need to be determined. Medicare will need to have matching data so it can be 

sure the total episode price is lower than the average amount being paid today. 
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Testimony of Harold D. Miller, February 14,2013 Page 24 

Once a physician practice is participating in an accountable payment model, timely access to 

data is critical if the practice is going to be held accountable for costs and quality, particularly if this 

includes services delivered by hospitals or other providers. 

It is not enough simply to have access to data or even to traditional quality measures that are 

produced by Medicare and commercial health plans; physicians need useful analyses of those data to 

identify where opportunities exist for quality improvement and cost reduction. 

Medical specialty societies and Regional Health Improvement Collaboratives can provide this 

kind of assistance to physician practices, but they will need financial support to do so. In particular, 

there is currently no federal funding program that provides support for the work that multi-stakeholder 

Regional Health Improvement Collaboratives do to analyze data or do public reporting of quality 

measures. 

Training and Coaching in Process Improvement 

Data can show where opportunities exist to reduce utilization and costs, but physicians also need 

training and coaching in how to restructure their practices in ways that can take advantage of these 

opportunities. Not only is this re-engineering not taught in medical school, it is hard for physicians to do 

it and still keep up with the demands of ongoing patient care. Moreover, it will be challenging for 

physicians and other health care providers who have been operating under the fee-for-service payment 

system for many years to suddenly switch to operating under accountable payment systems that require 

greater accountability for cost and quality. 

Physicians cannot change the way they deliver care unless payment systems are implemented 

that support those changes. However, once a better payment model is made available, they will need to 

change care delivery in order to succeed. Here again, medical specialty societies and Regional Health 

Improvement Collaboratives can provide assistance to physician practices, but they will need financial 

assistance to do so. Successfully transforming local healthcare delivery will require many years of 

persistent effort, and so reliable, multi-year funding will be needed to support these efforts. 
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Testimony of Harold D. Miller, February 14,2013 Page 25 

Thank you again for the opportunity to testify. I would be pleased to provide any additional 

detail about these recommendations that would be helpfuL 

Sincerely, 

Harold D. Miller 

Executive Director, Center for Healthcare Quality and Payment Reform 

and 

President and CEO, Network for Regional Healthcare Improvement 

320 Fort Duquesne Boulevard, Suite 20-J 

Pittsburgh, PA 15222 

803-3650 
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Testimony of Harold D. Miller, February 14,2013 Page 26 

REFERENCES 

! Potentially Preventable Hospitalizations for Acute and Chronic CondWollS. 2008. AHRQ HCUP Statistical Brief #99. 

2 Sec. for example. BombcauJ. lulienM. Mnltais F, Rouleau M. Beaupre A Begin R. cta1. RcducliOll of hospital utilization 

in patients \"ith chronic obstmctivc pulmonary disease: a disease-specific self-management intervention. Arch Intern Med. 

2003 Mar 10:163(5):585-91: Cordisco ME. Benjaminovitz A. Hammond K. Mancini D. Use oftelemonitoring to decrease 

the rate of hospitalization in patients "jth severe congestive heart failure. Am J Cardie1. 1999 Oct 1 :84(7):860-2, A8; and 

GadoUl)" MA. Schwartzrnan K. Rouleau M, Maltais F, Julien M, Beaupre A. et at Self-management reduces both short- and 

long-tcnu hospitalisation in COPD. Eur Respir 1. 2005 Nov~26(5):853-7. 

'1 The Economic Measurement of Medical Errors, Milliman and the Society of Actuaries, 2010. 

j Sec. for example. Shannon RP. Patel B. CUlmnins D. Shmlllon AH. Gan.bruli G. Lu Y. Economics of centralline--associated 

bloodstream infections. Am J Med QU<lL 2006 Nov-Dec;21(6 Suppl):7S-16S. and Pronovost P. Interventions to decre<lse 

catheter-related bloodstream infections in the ICU: the Keystone Intensive Care Unit Project. Am J Infect ControL 2008 

Dec:36(1O):SI71 el-5. 

5 Becker C. Profitable complications. Modern Healthcare, December 17, 2007. 

For more information, see h1w.;.LLl:l \'\ \\. ocj.-?i.ugQ.L.Q[&lli:.oYcncar<i. 

8 Casale AS. Paulus RA. Sclml MJ. Doll MC Bothe AE. Jf.. McKinley KE. et a1. "ProvenCareSM": a provider-drivcn payfor-performance program for acute episodic cardiac surgical care. AlUl Surg. 2007 Oct:246( 4):613 -2 L discussion 21-3. 

9 Chernew:ME. Mechanic RE. Landon BE. Safran DG. Private-payer innovation in Massachusetts: The' Alternative Quality 

Contract' Health Afr (Millwood). 201 1 Jannary. 30(1): 51-6 L The Alternativc QU ALITY Contract: Y car One Resnlts. Blue 

Cross Blue Shield of Massachusetts. 2011. available at Jut}"!:/!,;..,'..,,",, ,hluccrossma,com!\"isitor!pdf!.a(]c-rcsults-wllitc~papcr.pdf. 

1lI For episode paymcnts, the [ntegrated Hcalthcare Association and the Health Care Incentivcs Improvcment Institute have 

both devcloped detailed specifications as to which services will be included and which will not, as well as risk adjustments. 

risk exclusions, ctc. For more information. sec hHp:!!\\ \\'\\ .iha.orgli2.Ri.sodcpm mcnLhlml mld 

m;;~;jt~~~~~:~~:~~:;'SiF~:o~:rt~gIObal payments. the Integratcd Healthcare Association has developed a st that can be used by providers and payers to clearly define the costs for 

[or ,yhich the payer will retain accountability. For more information. see 

11 MillerHD. From volume to value: Better ways to pay for health care. Health Aff(Millwood). 2009 Scpt-Oct: 28(5): 

1~18-28. 

12 For a more detailed discussion of methods of controlling provider risk, see Miller HD. Tmnsitioning to Accountable Care 

Centcrfor HeaHhcarc Quality and Payment Refonn: 2011. Available from: 

13 Sec, for example. Nicholas LR Osborne NH. Birkmeycr JD. Dimick JE. Hospital process compliance and surgical 

outcomes in Medicare beneficiaries. Arch Surg 20 10 October: 1.5(10): 999-1004. 

J.1 For example. under the Medicare Shared Savings Program, a patient is assigned to an Accountable Care Organization 

(ACO) if the patient had more charges for primary CHfe services in the previous 12 months from physicians associated with 

the ACO than from physicians not associated with the ACO. Federal Register 76 (212): 67802-67990. Even if attribution 

calculations are done frequently, a patient who changes physicians may not be assigned to the ne,y physician until they h,1ve 

enough visits ,,,jlh thc llC',", physician to represcnt a mftiority of tIle charges over a 12 month period. 

1 ~ For example. if a patient is admitted frequently to the hospital during the year for various problems, but makes his first visit 

to the PCP near the end of the year. the patient could be attributed to the PCP for the entire year. thereby making the PCP 

accountable for all of the hospital visits that occurred before the patient first smy the PCP. 

16 Johnson LL, Becker RL. An alternative health-carc reimbursement systcm--application of arthroscopy and financial 

warranty: results of a 2-ycar pilot study. Arthroscopy. 199. Aug: 10(4):462-70: discussion 71-2. 
100 

Mr. PITTS. Thank you, Mr. Miller. 

Ms. Mitchell, you are recognized for 5 minutes for your opening 

statement. 

STATEMENT OF ELIZABETH MITCHELL 

Ms. MITCHELL. Thank you, Mr. Chairman and members of the 

committee. My name is Elizabeth Mitchell. I am the CEO of the 

Maine Health Management Coalition, and I want to start by 

thanking you for taking on this issue. As I am sure you well know, 

employers and State governments can no longer afford cost increases, our employees can’t go further years without wage increases, and our providers are increasingly burdened in a system 

that does not reward high performance and creates daily barriers 

to improving care for patients, largely due to current payment systems and a lack of data. 

Thank you for also hearing from a regional health improvement 

collaborative. We are an employer-led multi-stakeholder collaborative based in Maine. We have been around for 20 years and we 

include employers from the State employees to L.L. Bean to the 

Medicaid program, large multi-specialty groups, academic medical 

centers and primary care physicians. We work together in a partnership to improve quality and reduce cost. 

Maine has been very successful in addressing quality. We have 

some of the best health care quality in the country. We know that 

our efforts in data sharing measurement and public reporting have 

been key to achieving those gains. However, despite these achievements, quality and safety failings continue, and more discouraging 

is that the quality improvements have not reduced the costs of care 

for purchasers and patients. 

Costs and quality vary by region as do opportunities for improvement. Maine is the birthplace of the Dartmouth Atlas, where Dr. 

John Wennberg first observed vast differences in maternity care 

within Maine with no correlation to demographics, patient acuity 

or patient preference. He also noted that his kids would have received vastly different treatment for their tonsillitis if they lived 

one county away. Variation in cost is even more pronounced. 

Just as there is no single problem facing health care, there is no 

single one-size-fits-all national solution. I believe with adequate 

data and support, regions are well positioned to not only identify 

but help solve their own problems. Data is necessary to identify regional improvement opportunities and to engage stakeholders in 

improvement. The Dartmouth Atlas would never have been possible without good data. But data is necessary but insufficient. 

Once opportunities are identified, stakeholders, particularly physicians, must be actively engaged to change current practice. We 

must now be equally effective using data to engage physicians, purchasers and patients in care improvement. Data is essential for 

many, many reasons: identifying priority costs and quality improvement opportunities, enabling performance measurement and 

public reporting, establishing cost and quality performance targets, 

informing choice by consumers, engaging physicians and managing 

population health. The premise of medical homes and ACOs is better management of population health but it is both unreasonable 

101 

and unfair to ask physicians to assume risk without adequate, 

timely data. 

States and communities face different challenges and physicians 

need local, timely data to direct their work. To direct physicians to 

focus improvement efforts on non-priority areas is a sure way to 

frustrate them when they are not even paid for this improvement 

work. But they know where care can be improved if you ask. Significant savings are also possible through readmission reduction, 

through improved C-section rates. There are opportunities around 

the country if you have the right data to target them. 

You rightly recognize the central role of measurement in both 

improvement and accountability. A key barrier to addressing cost 

in ways that were equally successful to addressing quality is the 

lack of nationally endorsed cost measures. Without measures endorsed by the National Quality Forum, we found it impossible to 

reach consensus on relevant metrics. Regardless of the payment 

system, appropriate and transparent measurement is required to 

understand how patients fare in new models. Good outcome and 

patient experience measures will also support more flexible payment models. New models and incentives to reduce costs must be 

balanced by ongoing measurement. 

You referenced physician-endorsed measures but we would urge 

you to consider multi-stakeholder-endorsed measures as those who 

pay for and receive care, purchaser and patient voice, are crucial 

to identifying the right performance indicators together with physicians. Whether measurement or population health management, 

none of this work is possible without data. 

Unfortunately, multi-payer data is very hard to obtain. Many 

health plans consider it proprietary. Many provider-run data organizations are reluctant to share it publicly, but as Dr. David 

Howes, the president of Martin’s Point Health Care summed up 

our challenge, ‘‘The age of competing for market share by controlling access to data is over. Transparent all-payer data should be 

made widely available and competition should be based solely on 

performance.’’ 

Medicare’s Qualified Entity program is an important step toward 

giving communities and providers the information they need to improve care. The Qualified Entity program is a strong signal of partnership and support for local innovation and endorsement for use 

of integrated data. CMS should not only continue to enable qualified groups to share data but they should accelerate it with financial support and greater flexibility. 

Regional health improvement collaboratives are stewards of 

multi-payer data and experienced leaders using the data for improvement. We may be your innovation infrastructure and partners 

for implementation on the ground. 

[The prepared statement of Ms. Mitchell follows:] 

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Testimony of Elizabeth Mitchell 

CEO, Maine Health Management Coalition and Foundation 

and 

Board Chair, Network for Regional Health Improvement 

to the 

Subcommittee on Health, Committee on Energy and Commerce 

U.S. House of Representatives 

February 14, 2013 

Key Points: 

1. Change is urgently needed. Patients, employers, communities and states face 

unsustainable healthcare cost increases that are hurting job growth, wages, and 

siphoning needed funds from other priorities including education and 

infrastructure. They are unable to continue to absorb increases in costs. 

2. High costs do not correspond to high quality. Though some care is excellent, 

our current system is inefficient, ineffective and in many cases makes it more 

difficult for providers to deliver optimal care. Over 30% of care provided in the 

US today does not improve patient health or is not provided efficiently. 

Improvement opportunities must be successfully identified to be addressed. 

3. There is no 'one size fits all' solution. Quality and costs vary dramatically 

across the country and across communities. This has been documented for over 

30 years. Given regional variation, there is no single solution to improving care 

and reducing costs- improvement opportunities and priorities vary by region. 

4. Data is essential to improvement. Data plays many critical roles in healthcare 

improvement including: 

1. Identifying priority cost and quality improvement opportunities; 

2. Enabling performance measurement and public reporting; 

3. Establishing cost and quality performance targets; 

4. Informing choice by consumers; 

5. Engaging physicians and other stakeholders in care 

improvement; and 

6. Managing population health. 

5. Multipayer data is very difficult to obtain. 

6. Medicare's Qualified Entity program is an important step toward giving 

communities and providers the information they need to improve care and 

value. CMS should not only continue to enable qualified groups to share data for 

improvement, but should consider accelerating that work with financial 

resources and greater flexibility. 

7. Data is valuable only if it is used effectively. Despite decades of research on 

unwarranted variation and failures in care, data has rarely been effectively used 

for improvement. 

S. Regional Collaboratives should be considered key implementation 

partners in care improvement. Regional Health Improvement Collaboratives 

are capable stewards of multi payor data and are experienced leaders using data 

with physicians and community stakeholders to improve care. 

1 
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Testimony of Elizabeth Mitchell 

CEO, Maine Health Management Coalition and Foundation 

and 

Board Chair, Network for Regional Health Improvement 

to the 

Subcommittee on Health, Committee on Energy and Commerce 

U.S. House of Representatives 

February 14, 2013 

Mr. Chairman and members of the Subcommittee on Health, my name is Elizabeth 

Mitchell and I am the CEO of the Maine Health Management Coalition and 

Foundation. Thank you for the opportunity to speak today because, speaking on 

behalf of my members and my state, the urgency of the problems you have 

committed to address could not be overstated. State government and employers 

cannot absorb ever increasing costs without any corresponding increase in quality 

and value, employees and unions cannot go additional years without pay increases 

or even jobs, and our provider members are increasingly burdened in a system that 

does not reward high performance and creates daily barriers to improving care for 

patients. In short, we need to dramatically transform care and payment. Thank you 

for taking on this challenge. 

Thank you also for soliciting input from a Regional Health Improvement 

Collaborative. The Maine Health Management Coalition is an employer-led regional 

health improvement collaborative whose mission is to improve the quality and 

value of health care services for our members. The Maine Health Management 

Coalition Foundation is a SOl©3 public charity whose mission is to bring the 

purchaser, provider and consumer communities together in a partnership to 

2 
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measure and publicly report on the quality and cost of health care and to educate 

the public to use information on cost and quality to make informed decisions. The 

Coalition, and collaboratives like us around the country, are solely dedicated to 

improving the quality and value of health care and representing all stakeholders in 

the community- including employers, unions, health plans, patients and providers. 

Not unlike serving in Congress, representing diverse stakeholders can be 

challenging, but in my view, may be the best hope to truly change care through 

coordinated and aligned changes in care delivery, measurement and payment. 

Regional collaboratives are not new. The Maine Health Management Coalition was 

formed in 1993- 20 years ago this year: 

'(1) To assist the Members in the process of sharing and analyzing data 

("Health Data"), related to the provision of health and related services to the 

Members, and their employees and health insurance plan participants 

("Health Services")'; and 

(2) To foster research, education and coordination among the Members 

with regard to Health Services, and to act as a forum to promote solutions to 

Health Services issues' 

Our Foundation was established in 2002 to use data to evaluate the quality, safety 

and cost of health care services. For over a decade we have used a multistakeholder 

consensus process to publicly report variations in quality and safety across 

providers and hospitals to the public free of charge. I am here to talk with you today 

about the role of data and multistakeholder collaboration in transformation- the 

role that was recognized by my members over 20 years ago at the Coalition's 

founding and has only proven more critical over time. 

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Today the Coalition has over 60 members representing the largest public and 

private employers in Maine including State Employees, the University of Maine 

System, Bath Iron Works, Delhaize America and LLBean. Our largest member is a 

union, the Maine Education Association Benefits Trust. Our members also include 

large health systems such as MaineHealth and Eastern Maine Health Systems (now a 

Pioneer ACO) and smaller hospitals including Mercy in Portland and St. Joseph's in 

Bangor as well as primary care and multispecialty groups from Martin's Point 

Health Care to Penobscot Community Health Center. Collectively we represent over 

40% of the commercial market in Maine and spend well over $1 billion per year on 

health care services. Maine's Medicaid program is also a member of the Coalition. 

The one notable absence at the table is CMS- who would be a welcome partner. 

While we are significant in Maine, our real significance lies in the relevance and 

replicability of our work nationally. There are strong and effective collaboratives 

around the country using data with employers, patients and physicians and 

collectively we may be able to partner with national policymakers to implement 

change on the ground. We have the tools, abilities and relationships with all 

stakeholders to do the hard work of transforming care. We may be the 'innovation 

infrastructure' needed to transform US healthcare. 

4 
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Change is Urgently Needed 

The MHMC's 'value equation' is one of improved quality, improved care outcomes, 

improved population health and reduced costs. After nearly two decades Maine has 

achieved some of the best healthcare quality in the nation. We are consistently 

ranked in the top 3-5 states in the country for our quality as measured for Medicare 

patients. In 2010, the Agency for Healthcare Research and Quality found that Maine 

showed the biggest improvement in quality in the country. From our own 

measurement efforts we know that we have gone from poor medication safety 

practices to some of the most robust medication safety results nationally. The 

University of Southern Maine conducted an evaluation of practices participating in 

our measurement and reporting program that showed higher scores across our 

measures and qualitative evidence of greater commitment to quality improvement 

among providers.1 While MHMC in no way takes full credit for these gains, we know 

that our work on measurement, data sharing and public reporting has been a key 

driver of these improvements. 

Despite significant quality achievements, significant quality and safety failings 

continue. More discouraging for us is that quality improvement has not reduced the 

costs paid by purchasers and patients. After 18 years of focusing almost exclusively 

on quality improvement, cost pressures on our members have forced us to prioritize 

cost measurement and cost reduction efforts. Maine employers are struggling to 

1 Jablow, p, Studying Maine's Pathways to Excellence Program: Improving the impact ofpubJic 

performance reports and the quality of primary care, OS/20/2011 

5 
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remain competitive with their national counterparts due in part to very high health 

care costs. Maine employers, public and private, have been clear that they cannot 

continue to pay the ever-escalating costs of care that are limiting job growth, 

expansion and business viability. Key examples of the growing challenges include: 

• In 2011 the State employee health plan was flat-funded by the Legislature for two 

years. In Year One (FY2012), the State Employee Health Commission 

implemented benefit requiring employees to absorb over $13 

million in cost sharing. For Year Two (FY 2013), the State Employee Health 

Commission forecast a $22 million gap between projected expenses and flat 

funding, due primarily to price inflation . 

• The University of Maine System was charged with reducing $24 million in health 

care spending over five years as budget pressure from soaring health care 

costs forced several years of freezes, layoffs, hiring freezes and began 

to eclipse in the budget. 

Health care cost growth has implications that extend far beyond health care, 

including impacts on the US debt, wage growth and unemployment. Excessive 

growth in health care expenditures has serious economic implications for Maine and 

the country, with the ultimate burden falling on those who use and pay for health 

care services.2 Arnie Milstein, MD, of Stanford University, concluded that ten years 

of wage growth in the US has been effectively eliminated by the increase in health 

care costs. Effects are felt workers in industries where wages tend to 

be low. Some counter these concerns by noting that the health care sector has been 

an engine of economic growth and job creation. However, recent research from 

2 Haviland AM, RD, Saod N. Growth in consumer directed health plans to onehalf of all employer-sponsored insurance could billion annually, Health Affairs (Millwood) 

2012 

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RAND Corporation shows that every new job added to the health care sector results 

in .85 fewer jobs in the rest of the economy.3 For every job created, the costs of 

running this health care system grow and eventually 'result in layoffs in other 

sectors unable to manage the growing burden of the cost of health insurance 

premiums for employees'.4 To grow Maine's non-health care economy requires us to 

address health care costs and reduce the burden of these costs on our businesses 

and families. The burden on private and public employers, patients and state 

government is now too great to ignore and we need your support to be successful. 

Given the urgency of the need for change and the challenge of identifying a single 

national solution, we need to start accelerating transformation by empowering 

regions with adequate data and effective measures to identify and address their 

local priorities. 

Cost and Quality Vary by Region as Do Opportunities for Improvement 

Health care performance and opportunities vary across the country. Maine is the 

birthplace of the Dartmouth Atlas where Dr. John Wennberg first observed vast 

differences in maternity care within Maine with no correlation to demographics, 

patient acuity, or patient preference. He also noted that his kids would have 

received vastly different treatment for their tonsillitis if they lived one county away. 

3 Scad N, Ghosh A, Escarce JJ. Employer-sponsored insurance, health care cost growth, and the economic 

performance of U.S. industries. Health Serv Res 2009 Oct; 44:5, Part I: 1449-64. 

4 Murray Rand DelBanco 

Impact and Looking 

Power the US Care 

Reform, November 2012 

Assessing its 

7 
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This 'unwarranted variation' in both cost and quality of care is alive and well- and 

well documented- 30 years later. Just as there is no single problem facing 

healthcare, there is no one size fits all national solution. I believe regions are well 

positioned to not only identify but solve their own healthcare problems. 

In 2009, using Maine's All-Payer Claims Database analysts replicated the Dartmouth 

Atlas work and were able to quantify over $350 million in savings if all regions of 

the state practiced at the best practice level already achieved within Maine. This 

level of performance was clearly achievable but it was not consistent. Through 

reductions in potentially avoidable hospital admissions and in high variation-high 

cost outpatient services, this study identified savings of over $350 million in annual 

health care expenditures in Maine.5 The report went on to quantify savings by 

service type including savings from potentially avoidable admissions in cardiac care, 

musculoskeletal, gastroenterology and others. These findings not only make a 

compelling case for change but make the information increasingly actionable. The 

Dartmouth Atlas and the profound learnings that have come from it would not have 

been possible without good data. We must now be equally effective using data to 

engage physicians, purchasers and patients in care improvement. 

5 All-Payer Analysis of Variation in Healthcare in Maine Conducted on behalfofDirigo 

Health Agency's Maine Quality Forum and The AdVisory Council of Health Systems 

Development, Health Dialog, April 2009 

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Data is Necessary to Identify Regional Improvement Opportunities and Engage all 

Stakeholders in Improvement 

Data plays many critical roles in healthcare improvement: 

• Identifying priority quality improvement opportunities and cost 

drivers; 

• Enabling performance measurement and public reporting; 

• Establishing cost and quality performance targets; 

• Engaging physicians and other stakeholders in care 

improvement; and 

• Managing population health. 

But despite over 30 years of research documenting variations in care, not enough 

has been done to effect those variations. States and communities face very different 

challenges related to quality and costs of health care. Some states may have much 

higher rates of readmissions, C-sections or hospitalization for diabetes, or overuse 

of imaging. To direct physicians to focus their improvement efforts on areas that 

will not have a significant impact on their patients or the community's costs is not 

only unnecessary but a sure way to frustrate a physician who is already consumed 

with patient care and not paid for improvement work. Targeted improvement 

efforts reflecting population or community need is a much better use of time, energy 

and resources. 

To identify those opportunities in Maine, in 2012 we led a Health Care Cost 

Workgroup to collectively and quantify cost reduction opportunities in the 

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state. The Workgroup first identified opportunities by soliciting input from 

members, including clinicians, plans and purchasers. All members had ideas about 

ways to reduce costs, ranging from reduced administrative costs to improving 

medication adherence. Providers provided key insights into current practices that 

are not optimal for patients, are not good uses of resources, but are difficult to 

change given financial incentives, organizational structures and/or culture. This was 

reinforced by a separate but related meeting held by the MHMC and the Maine 

Medical Association with physicians, who identified multiple savings opportunities 

through practice improvement. 

Working with members, Coalition staff then worked to quantify achievable savings 

related to each area through available data. We then calculated the likely impact of 

achievable change, in mind that in some cases other costs may increase to 

reduce unnecessary spending - investment in the medical home pilot to reduce 

avoidable hospital admissions being an example. 

The most notable conclusion of the series was that sig;nil'ic2mt savings are 

IJ"",,,..,,,,,.As an 

'-"'"'''!;''' Commercially insured people with chronic illness are hospitalized 

at a rate 3.2 times that of the total commercially insured population in 

Maine22. According to a recent analysis of MHMC data applying Prometheus 

algorithms,23 potentially avoidable complication rates for diabetes ranged 

from 10-40% across These complications should be 

with optimal care management and if best practice standards are met. 

• Potential n .... , ... ",rh.niihy· Admission and readmission rates and 

costs were analyzed for MHMC plan sponsor insured members. The portion 

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of the inpatient PMPM attributable to members with chronic conditions 

ranged from 46-77% in this commercially insured population. The 

workgroup suggested targeting a 20% reduction in admissions and 

readmissions. A 20% reduction admissions and readmissions 

for with chronic illness would result in savings of up to $32 

million yearly for Coalition employers/plan sponsors and their 

members. 

The results begin to identify and quantify significant opportunities for reduced 

health care costs based on best practice in Maine and nationally. 

The results were also notable because the series demonstrated that with 

transparent data, analytic support and neutral facilitation, parties can come 

together to collectively identify, understand and address health care cost drivers. 

This is an approach that is both effective and replicable in other communities. 

Further, it was concluded that only with all parties at the table will system 

transformation be achieved. Doctors and other providers must transform how they 

deliver care to patients, but they need changes in payment, patient engagement and 

additional data to better manage population health. Patients need more and better 

transparent and shared information on their care, and different incentives to better 

manage utilization. These coordinated and aligned 

from aU so that payment can support optimal care delivery, 

incentives can support optimal utilization and that reliable information is available 

for all parties to make improvements. A multistakeholder forum where transparent 

data can be shared with all stakeholders is an important forum to both and 

understand opportunities for improvement, and to work together effectively for its 

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achievement. 

Using Data for Improvement 

Access to data is necessary but insufficient. Once opportunities are identified, 

stakeholders- particularly physicians- must be actively engaged to change current 

practice. Data is foundational to that work but analysis, technical assistance, 

measurement and transformation support are also needed. Mechanisms for 

transparent accountability will be key for sustained change. Fortunately there are 

examples of this happening across the country. 

In addition to using multipayer data to measure and report on the performance of 

practices and hospitals, and the use of data by ACOs to manage population health, 

there are several innovative efforts underway in Maine and nationally to use data 

for improvement. Here I only cite Maine examples though it is important to know 

that several Regional Health Improvement Collaboratives including the Pittsburgh 

Regional Health Initiative, Oregon Health Care Quality Corporation, Puget Sound 

Health Alliance, Minnesota Community Measurement and Institute for Clinical 

Systems Improvement and many others have innovative programs driving and 

supporting improved care. 

Using Data for Improvement: Examples: 

Multipayer Advanced Primary Care Pilot and Learning Collaborative. 

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In November 2010, Maine was selected as one of eight states to participate in 

the Medicare Multi-Payer Advanced Primary Care Practice (MAPCP) 

demonstration, Medicare's major PCMH demo. In January 2012, Medicare 

joined the private purchasers and Medicaid as a payer in the Maine Patient 

Centered Medical Home (PCMH) Pilot. Within this demo, Medicare is 

providing Maine PCMH Pilot practices with a new care management fee -

estimated to a total up to $28 million over the next three years-for 

providing medical home services to their Medicare patients. Because of 

Medicare expectations for budget neutrality, CMS has set an expectation that 

Pilot practices will demonstrate improvements in clinical care and efficiency; 

to that end, the Maine PCMH Pilot has targeted decreases in several areas of 

high-cost utilization that could be reduced as a result of improved 

coordination of care, including 4-5% decreases in avoidable inpatient 

admissions, 9% decrease in avoidable emergency department visits, and 5% 

decreases in specialty consultations and imaging. These targets were set 

using data made available to Maine by Medicare. 

As practices seek to transform to become medical homes, significant 

technical assistance and support is required. Maine Quality Counts, another 

Regional Health Improvement Collaborative in Maine provides targeted and 

intensive support to these practices based on their performance against key 

metrics. Maine Quality Counts offers outreach, support, and collaborative 

learning methods to PCPs, helping them transform to a more patientcentered model of care and provides !HI model learning collaborative opportunities for PCPs transitioning to PCMH and MaineCare Health Home 

status. 

Community Care Teams and "Hot-Spotting' 

The MAPCP demonstration also provided the Pilot with an opportunity to 

introduce Community Care Teams (CCTs) as a new component of care for 

high-needs patients. CCTs recognize that many patients have needs and 

barriers to care that can reach beyond the capacity of even the most robust 

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primary care physician practice. CCTs are multi-disciplinary, communitybased, practice-integrated care management teams that will work closely 

with PCMH Pilot practices to provide enhanced services for the most 

complex, most high needs patients in the practice. Maine has worked with 

Dr. Jeffrey Brenner of New Jersey whose 'hot-spotting' techniques were 

highlighted in The New Yorker by Dr. Atul Gawande. By identifying and 

targeting high need patients who utilize disproportionate resources, Dr. 

Brenner and his team were able to make substantial improvements in 

utilization and costs through intensive and targeted interventions. Early 

results are showing as much as 40% decline for some patients in the use of 

hospital services when appropriate supports are provided. The CCT model 

had been established and found to be highly successful in other communities 

and states, like North Carolina, New York and Vermont. 

Under the MAPCP demo, Medicare, Medicaid, and commercial payers have 

agreed to provide payment to a set of eight sites_that support the 26 PCMH 

Pilot practices and patients. CCTs are a vital strategy for improving quality 

and reducing costs, decreasing avoidable hospital admissions, readmissions 

and Emergency Department visits. 

Practice Reports for Patient Centered Medical Homes and Health Homes 

To support the Multipayer Patient Centered Medical Home and Medicaid 

Health Home pilot practices, the Maine Health Management Coalition has 

developed practice performance reports using claims based quality, cost and 

utilization metrics. Not only will the reports be populated with all payer 

claims data, we intend to integrate clinical data from our Health Information 

Exchange to track clinical outcomes measures. We developed these reports 

working directly with physicians to ensure meaningful measurements. After 

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initial private reporting, a subset of the report will be publicly reported to 

recognize good performance and facilitate consumer choice. 

In 2010 Maine Quality Counts, the Maine Quality Forum and the Maine 

Health Management Coalition developed and disseminated reports on 

comparative practice performance across the state and held regional forums 

with providers to understand and use the data. High levels of participation in 

the regional meetings and ongoing dialogue with the practices indicate 

strong demand for this type of information that is otherwise unavailable. 

Risk Based Contracts 

In some communities across Maine, large public and private purchasers are 

working directly with practices and health systems to establish risk-based 

contracts for population health management. The Maine Health Management 

Coalition and its analytic staff are key participants in these pilots to enable 

transparent, neutral and reliable data sharing. The MHMC identifies 

aggregate trends for each employer popUlation and works with the parties to 

establish appropriate performance benchmarks given demographics and 

trends. Participating providers can then access identified data on this same 

population in order to immediately impact areas of care that may need better 

management. Enabling two parties to use the same data with appropriate, 

role-based access, enables important transparency and avoids problems of 

competing, inconsistent data. Even more importantly this enables providers 

to address priorities by population and enables purchasers to understandand address - barriers providers face in current payment systems and 

benefit designs. Purchasers are well positioned to make critical payment and 

benefit changes to support care redesign when there is common 

understanding of the need and impact, and there is clear accountability 

through transparent data sharing. 

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Assuring that Clinical Coordination is Facilitated by Data 

Maine has one of the most robust query-based centralized health information 

exchanges in the nation (HealthlnfoNet). Today, over 90% of all hospital data 

and 55% of all ambulatory data flows into the exchange. All Maine hospitals 

will be participating in the exchange by the end of 2013, and 80% of all 

Maine ambulatory providers will be participating by the end of 2015. This 

data infrastructure will: 

• Make clinical notifications available in real-time when patients enter 

the health care system; 

• Advance the electronic capture of behavioral health and other "highrisk" clinical data 

• Give patients access to their statewide clinical information so that 

they can be better informed when making medical decisions and hold 

their providers accountable for the care that is delivered 

Data and Measurement Must Include Multiple Stakeholders and Reflect 

Community Priorities 

You rightly recognize the central role of measurement in both improvement and 

accountability. A key barrier to addressing costs in ways similar to our successful 

work in quality was the lack of cost measures. Until very recently, there were no 

reliable, nationally endorsed measures of cost and resource use. Without measures 

endorsed by the National Quality Forum, we found it impossible to identify 

measures deemed relevant by purchasers and consumers and fair and acceptable to 

providers. With no ability to measure or report on cost and no visibility into cost 

drivers, large employers and purchasers have had to accept rates set by providers 

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and health plans through private negotiations. And we have paid a high price. 

Maine's commercial premiums are among the highest in the country. 

No payment system will be successful without appropriate and transparent 

measurement New incentives to reduce costs must be balanced by ongoing 

measurement of access, patient experience and outcomes to ensure that patients are 

protected and access is preserved in this transition to new models. Measures that 

are developed and selected for use in payment systems and programs will drive 

change. It is essential that this change is towards our collective aims. 

While clinician leadership is key to improving care, measurement must also reflect 

the needs and priorities of consumers, communities and those paying for care- both 

employers and government. You note that: 

• 'physician fee schedule payment updates will be based on performance on 

meaningful, physician-endorsed measures of care quality and participation in 

clinical improvement activities (e.g., reporting clinical data to a registry or 

employing shared- decision making tools). 

• Medical specialty societies will develop meaningful quality measures and clinical 

improvement activities using a standard process.' 

Physician input is critical to the measure development and selection process but 

measures must reflect all of our values. Multi-stakeholder endorsed measures with a 

clear standard of evidence are the foundation of care and value improvement. A 

process that includes physicians, purchasers and patients will identifY measures of 

improvement that meet the needs of all stakeholders. As an example, we know from 

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extensive consumer research that measures of patient experience are most 

important to patients but, despite having a nationally endorsed valid patient 

experience measurement tool (CG-CAHPS) available for many years, providers have 

not prioritized or widely used this survey. Without the 'healthy tension' that results 

from bringing the parties together it is unlikely that we would have complete and 

robust measures for patient experience, outcomes, cost or resource use or other 

areas important to communities. As those who pay for and receive care, the 

employer and patient voice are crucial to identifying the right indicators of 

performance together with physicians. 

Data is a Resource that is Only Valuable when it is Accessible and Used 

Effectively. If Available, Data Can Be Used Effectively By Communities 

Not unlike out national peers, in order to meet our mission the Coalition and 

Foundation together have a broad portfolio of initiatives that include performance 

measurement and public reporting; consumer engagement; value based purchasing 

and payment reform to support clinical care redesign. While each initiative is 

important, it is the combination of these data-driven efforts and the active 

engagement of all stakeholders that is impactful. None of this work is possible 

without access to data. 

Despite our track record and years of experience working with data, obtaining 

multipayor data is remarkably difficult- and expensive. Many commercial health 

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plans view the data as proprietary and many provider-based organizations are 

reluctant to share data publicly. Many state-based all payer claims databases place 

such onerous restrictions on data use that its value is dramatically diminished. Dr. 

David Howes, President and CEO of Martin's Point Health Care, summed up our 

challenge eloquently, 'The age of competing for market share by controlling access 

to data is over. Transparent all-payer data should be made widely available and 

competition should be based solely on performance'. 

The Qualified Entity Certification Program is an important step to enable 

improvement in communities. The Maine Health Management Coalition was the 

fourth organization in the country to receive Qualified Entity status to receive 

identified Medicare data to measure and report performance to physicians. We will 

integrate this into our multi payer claims database including data from commercial 

insurers and soon to include Medicaid. This will enable phYSicians to better 

understand their performance relative to peers and to improve care across their 

entire patient population. It will also facilitate reporting to inform consumers about 

provider performance, meeting the needs of multiple stakeholders. This program is 

an important step to empowering physiCians and communities to use data 

effectively. The Qualified Entity Certification Program is a strong signal of 

partnership and support for local innovation and an endorsement for use of 

integrated data. As experience grows with the program, it could be even more 

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effective with fewer restrictions on data use and resources available to communities 

to support improvement. 

Maine is fortunate that it has the improvement resources it does. Our success is 

entirely replicable if these resources are more widely available. In our view, to 

transform care and payment and engage providers, employers, and consumers, 

communities need the following: 

• A common, shared data source of integrated clinical and claims data for all 

parties to use - with appropriate privacy, security and legal safeguards and 

role-based access - to serve as the foundation for system and payment 

reform. All approved users should have fair, affordable and equitable access 

to the data for the purposes of care improvement. 

• Timely access to all payer data is necessary to support system transformation. 

Data on a subset of patients is insufficient to facilitate population health 

management. Data that is not current does not allow for effective and timely 

interventions to change care. 

• Patient identified data must be included but identifiable only at the 

patient/provider level to allow providers to effectively improve care for 

their patients. Identified data enables the combining of different data sources 

to allow a meaningful and longitudinal understanding of utilization, care 

patterns, and outcomes. 

• Resources should be used effectively and care should be taken to avoid 

unnecessary duplication of data systems and the resources needed to 

support them. Current duplication of proprietary data systems drive 

additional costs to employers and patients. 

• Data users- including consumers- should have input into the structure, 

design, and purpose of data systems to maximize use for and by all 

stakeholders, including the public. 

Integrated clinical data, claims, health risk, and outcomes data is the 

optimal source of information for care improvement and high value. 

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• Information created from healthcare data should be made transparent and 

publicaUy available in aggregate with the appropriate safeguards, 

processes, and criteria for reliability. 

Once this data infrastructure is established, with leadership and support 

stakeholders can put the information to work improving care and reducing costs. 

Regional Collaboratives May Serve as Key Implementation Partners 

With the best data and measurement, care will only be improved if providers lead 

care transformation and are supported by reformed payment. We share your 

priorities and urgency for a transformed healthcare system that delivers value for 

our significant investment. As you take on the challenge of care redesign, 

measurement and payment reform, use regional collaboratives to truly understand 

which measures are meaningful to communities, to physicians and to improvement. 

This cannot be done solely from Washington. National organizations can and must 

respond to community need for measure development but measures can only be 

implemented at the community level. Providers must use data to change practice, 

data must be collected and reported, consumers must understand and engage in 

change- all of which is facilitated by local relationships and support. As you set the 

national direction, we can serve as implementation partners. 

Thank you again for this opportunity and thank you for addressing these urgent 

issues. 

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Mr. PITTS. Thank you, Ms. Mitchell. 

Dr. Berenson, you are recognized for 5 minutes to summarize 

your testimony. 

STATEMENT OF ROBERT BERENSON 

Dr. BERENSON. Thank you, Chairman Pitts, Mr. Pallone and 

members of the committee. I very much appreciate the opportunity 

to provide testimony as the committee attempts to identify how to 

achieve higher value of physician services for Medicare beneficiaries and taxpayers. It is a subject that I have been deeply involved with through most of my professional career as a practicing 

general internist, practicing just a few blocks from here for over a 

decade, a medical director of managed care plans, a senior official 

at CMS, and Vice Chair of MedPAC until this past May. As an Institute Fellow at the Urban Institute, I am currently involved in 

a project to improve how services and the Medicare fee schedule 

are valued for payment. 

While there is broad agreement on the need to move from volume-based to value-based payment, the current emphasis assumes 

that measuring a few quality measures and somehow attributing 

costs generated by many providers to an individual physician can 

produce accurate estimates of a physician’s value. Measurement is 

more difficult than some policymakers assume while the evidence 

on pay-for-performance for hospitals frankly is not encouraging. 

For physicians, behavioral economics suggest that pay-for-performance can crowd out professionals’ intrinsic motivation to help 

their patients and can actually worsen performance. What has been 

lost in equating value-based payment with pay-for-performance is 

the recognition that value can be fostered not only by improving 

how well particular services are performed but also by improving 

the kind and mix of services beneficiaries receive. The Medicare fee 

schedule for physicians and other health professionals produces too 

many technically oriented services including imaging tests and procedures and not enough patient-clinician interaction to diagnose accurately, to develop treatment approaches consistent with the patient’s values and preferences and continuing engagement to assure 

implementation of a mutually agreed-upon treatment plan, nor 

does the fee schedule emphasize care coordination and other patient-centered activities that would actually improve patient outcomes. 

However, the price distortions that plague the current fee schedule are not inevitable. Even in fee-for-service, Medicare can buy a 

better mix of services by altering the prices paid for services, balancing considerations of beneficiary access to care with reducing 

overuse of services caused at least in part by inordinately high payment for some services. We can improve the fee schedule over the 

short term even if the ultimate goal is to reduce its importance or 

eliminate it altogether. In fact, in my view, it is necessary to improve the fee schedule to be able to successfully implement new 

payment models. 

First, the migration to new payment approaches will take years. 

Even then, fee-for-service may be part of new payment approaches 

and also may need to be retained for certain regions and particular 

specialties. Second, fee schedules are the building blocks for virVerDate Nov 24 2008 11:10 Feb 25, 2014 Jkt 037690 PO 00000 Frm 00130 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-6 CHRIS
125 

tually all the new payment models, most notably, bundled episodes. 

Errors in fee schedules would therefore be carried over into errors 

in the calculations of the new payments. Third, many prototypical 

ACOs, which I agree with Chairman Hackbarth is the most promising new delivery model, use relative value units from the Medicare fee schedule as the basis for determining productivity for their 

member physicians. Again, because fee schedule prices are distorted in relation to resource costs, their assessments can be inaccurate, leading specialists to be valued by the ACOs as more productive than primary care physicians or one kind of specialist more 

productive than another kind of specialist simply because of errors 

in relative value units. 

As we think about moving to new payment models through the 

kind of activities that are going on with the Innovation Center at 

CMS, I would recommend the following immediate agenda for improving Medicare payment to physicians. I would suggest repealing 

the Sustainable Growth Rate for the reasons that have come up already, especially now that the score is only $138 billion over 10 

years. I would not implement a new volume control formula at this 

time, especially given that volume and intensity of services is remarkably low, at least at this moment, but rather permit CMS to 

more affirmatively modify prices to try to influence volume and intensity of services. I would consider narrowing or eliminating the 

in-office ancillary services exception to the Stark self-referral regulations if the volume of particular services grows unabated. I would 

revise the definitions of evaluation and management service codes 

to better describe the work physicians perform, especially for patients with chronic conditions and functional limitations, and also 

to decrease the current epidemic of up-coding that is taking place. 

And finally, I would reduce or eliminate the site-of-service differential, which pays hospitals much more for physician services than 

are paid to independent practices, separately recognizing the costs 

of unique hospital obligations and services hospitals uniquely provide. 

Thank you very much. 

[The prepared statement of Dr. Berenson follows:] 

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Testimony of Robert A. Berenson, M.D. 

Institute Fellow, the Urban Institute 

Before 

Energy and Commerce Committee 

U.S. House of Representatives 

SGR: Data, Measures and Models; Building a Future Medicare Physician 

Payment System 

Thursday, February 14, 2013 
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Chairman Pitts, Representative Pallone, and members of the Committee: 

I very much appreciate the opportunity to provide testimony to the Committee as it attempts 

to identify how to achieve higher value for physician services for Medicare beneficiaries and 

taxpayers. It is a subject that I have been deeply involved with through most of my professional 

career. I have had a diversified career as a general internist, practicing just a few blocks from 

here, a medical director of a preferred provider organization and two independent practice 

associations, a senior official at CMS in the Clinton Administration, and Vice-Chair of MedPAC 

until this past May. As an Institute Fellow at the Urban Institute, I have been studying the 

effects of the Medicare Physician Fee Schedule and am involved now with colleagues from UI 

and two other policy research organizations in trying to develop improved methods for 

improving the valuation of services in the fee schedule. 

I understand and support the Committee's interest in moving from volume-based to valuebased payment. However, I think in some ways the value-based payment concept has gotten 

off track. I want to focus my testimony on some misconceptions inherent in current policy 

discussions and also offer some specific recommendations in this area that in my opinion have 

not received enough attention by policymakers. 

The challenges of performance measurement and pay-for-performance 

The current approach to value-based payment basically attempts to measure what all 

physicians do and provide financial rewards or penalties physicians based on their performance 

on a few particular clinical activities. The approach assumes we have robust quality measures 

that are a fair representation of a physician's clinical activities and that providing financial 

incentives to the physicians based on these measures will improve the quality of their 

professional activities to benefit their patients. I would point to a number of concerns with this 

formulation. 

First, the available process measures that CMS has adopted in the Physician Quality Reporting 

System (PQRS) program for most physicians capture very little of their professional activities. To 

illustrate, MedPAC data show that family physicians, general practitioners, and general 

internists treat nearly 400 different diagnostic categories in a year, with about 70 categories 

making up 80 percent of their clinical episodes. 1 Basing a payment modifier on performance on 

as few as three PQRS measures, the current plan, will therefore not provide a meaningful 

assessment of the quality of a clinician's care. 

1 Medicare Payment Advisory Commission, 1I0utlier Alternative/' Report to Congress: Assessing Alternatives to 

Sustainable Growth Rate System (Washington, DC: MedPAC, March 2007). 

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Further, there are major gaps in available performance measures, some of which are unlikely to 

be filled, even with information from electronic health records. For example, the core of what 

we want to measure for many specialties-making correct diagnoses-is not measured now nor 

easily measurable, even from medical records. Nor, for the most part, can we measure from 

administrative claims data whether a particular intervention was appropriate based on the 

patient's clinical circumstances and preferences. Yet, overuse of services remains a major 

problem in the provision of physician services. Given the inherent lack of face validity for 

physicians of this particular measurement exercise and the reporting burden created for 

practices, it is not surprising that participation in the PQRS has attracted fewer than 30 percent 

of physicians who have billed Medicare since the program was launched in 2007. 2 

The technical issues in assigning a cost measure to physicians are similarly difficult. Physicians 

not only provide services for which they are paid directly, they are also responsible for ordering 

services across the continuum of care-care provided by other physicians, hospitals, clinical 

labs, post-acute care facilities, and so on. Yet, the problems inherent in attributing costs 

generated by many clinicians and institutional providers to a single physician are daunting in 

the full freedom-of-provider-choice, traditional Medicare program. In short, while I give CMS 

great credit for trying to accomplish what Congress has mandated, the mission of creating a 

physician-specific, value-based payment modifier is too ambitious; the numerator of the value 

equation-quality-captures too little of any physician's performance on quality, while the 

denominator-cost-cannot be accurately attributed to an individual physician. CMS has 

correctly started with valuing the performance of large groups, a more promising approach 

than focusing on individual physicians. 

Rather than attempting to provide a "value-index" for each physician, CMS should focus it use 

of measures derived from quality and cost data on outlier physicians-those who are overtly 

abusing the fee-for-service system for personal reward or simply not practicing acceptable 

quality or reasonably prudent care. Performance against available measures would not be 

sufficient to make a correct assessment of any physician's performance, but would point the 

way to those for whom more targeted evaluation, including clinical records review, should be 

conducted. 

Second, recent research studies are finding that pay-for-performance as adopted in Medicare 

has not been particularly successful. The major demonstration-the Premier Hospital Quality 

Incentive Demonstration Project-did not actually produce better results than other hospitals, 

which with a short lag demonstrated comparably improved scores on what were mostly 

2 Iglehart, J.K., and Robert Baron. "Ensuring Physicians' Competence-Is Maintenance of Certification the 

Answer?," New England Journal of Medicine 367:26, 2012. 

3 
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process measures of quality.3,4 ,5 Perhaps most troubling, the evaluations have found little 

evidence that improving the mostly process measures used in CMS's core measure set actually 

produce better patient outcomes, which after all is the objective. In responding to incentives to 

improve their measured performance on a relatively few quality process measures, clinicians 

and hospital staff may well be diverting their attention from other activities to improve quality, 

much of which would involve developing detailed work process routines to increase the 

reliability of service delivery. An example would be adoption and deployment of evidencebased checklists providing straightforward activities that doctors, nurses, and other hospital 

personnel need to consistently follow to achieve good clinical outcomes. Work process 

improvements have led to major reductions in hospital infections, yet are activities carried out 

by quality improvement teams within hospitals and not readily amenable to performance 

measurement using process measures. Stimulating such quality improvement to actually 

improve outcomes is best supported by a move from measuring and publicly reporting a 

relatively few processes of care to reporting important outcomes. In the context of hospital 

value-based payment, CMS indicates that it needs to strengthen its portfolio of hospital 

measures, especially outcome measures, such as by emphasizing measures of 30-day mortality, 

hospital-acquired infections, cost, and patients' experiences with care. 

For physicians, we know even less about whether reporting and performing well on a handful of 

process measures makes much difference to patients. Even in the United Kingdom, which in its 

Quality and Outcomes Framework provided bonuses of as much as 25 percent to general 

practitioners based on performance on more than a hundred primary care measures, the 

evidence is mixed on whether patient outcomes have improved meaningfully despite major 

improvements on the reported measures. 6

,7 

I am not questioning the importance of the goal of improving physician performance on process 

activities that are clearly associated in clinical research studies with better outcomes. Clearly, 

control of blood pressure in diabetics would reduce disabling complications, such as renal 

failure and heart attacks. We know that having patients with cardiovascular disease take a small 

aspirin tablet daily would decrease subsequent cardiac events. What I am questioning is the 

3 Werner, R.M. and Dudley Adams, "Medicare's New Hospital Value-Based Purchasing Program Is Likely to Have 

Only a Small Impact on Hospital Payments," Health Affairs 31:1932-40, 2012. 

4 Andrew M. Ryan, "Effects of the Premier Hospital Quality Incentive Demonstration on Medicare Patient Mortality 

and Cost," Health Services Research 44(3):821-42, 2009. 

5 Jha A.K., K.E. Joynt, E.J. Orav, et aI., "The Long-Term Effect of Premier Pay for Performance on Patient Outcomes," 

New England journal of Medicine 366(17):1606-15, 2012. 

6 Sutton M., S. Nikolova, R. Baoden, et aI., "Reduced Mortality with Hospital Pay for Performance in England," New 

England journal of Medicine 367 (19): 1821:28,2012. 

7 Campbell, S.M., D. Reeves, E. Kontopantelis, et aI., "Effects of Pay for Performance on the Quality of Primary Care 

in England," New England journal of Medicine 361(14): 368-73, 2009. 

4 
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strategy of burdensome and error-prone reporting and pay-for-performance as the dominant 

approaches to achieving greater success on fostering evidence-based medicine. 

Behavioral economics offers insights into why, despite intuitive appeal, pay-for-performance 

may have a limited-or even adverse-impact on improving quality of care. Economic 

incentives seek to change behavior through extrinsic motivation, yet most clinicians want the 

best outcomes for their patients based on an intrinsic motivation to act in their patient's best 

interests. And even when motivation is lacking, money may not be the solution, since the 

behavioral economics literature shows that performance bonuses often backfire, particularly 

for cognitively challenging activities performed by highly skilled persons needing to muster their 

skills to manage complexity and creatively solve problems.8

•

g Experimental data demonstrate 

that financial incentives often "crowd out" intrinsic motivation. If intrinsic motivation is high 

and crowding out is strong, payment incentives may actually worsen performance. 

Value-based payment has been too narrowly conceived 

What has been lost in equating value-based payment with pay-for-reporting and pay-forperformance is the recognition that value can be improved not only by improving how well 

particular services are provided but also by improving the kind and mix of services that 

beneficiaries are receiving. The Medicare Fee Schedule for physicians and other health 

professionals produces too many technically oriented services, including imaging, tests, and 

procedures, and not enough patient-clinician interaction to diagnose and develop treatment 

approaches consistent with a patient's values and preferences, and continuing engagement to 

assure implementation of mutually agreed upon treatment plans. Similarly, the fee schedule 

does not encourage care coordination and other patient-centered activities that would actually 

improve patient outcomes, including their own sense of well-being. 

In urging more attention to modifying payments and payment methods to obtain a better mix 

of clinician services, I want to emphasize that while I agree with the conventional policy wisdom 

that fee-for-service as a payment method has substantial, inherent flaws and over time needs 

to be replaced-mostly-fee-for-service gets an undeservedly bad reputation because of its 

flawed implementation in Medicare and by private payers, which largely rely on the Medicare 

Fee Schedule in setting their own fee schedules. 

The resource-based relative value schedule that was implemented beginning 20 years ago was 

a definite improvement over the prior system but has not achieved its intended purpose of 

reorienting payment-and care-away from technical services toward primary care and what 

8 Cassel, C.K., and 1. Jain Sachin, "Assessing Individual Physician Performance: Does Measurement Suppress 

Motivation?" Journal o/the American Medical Association 307(24):2595-96, 2012. 

9 Daniel H. Pink, Drive: The Surprising Truth about What Motivates Us. New York; Riverhead Books, 2011. 

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are called evaluation and management services, such as office visits. That objective has not 

been achieved for a few reasons. Current estimates of the relative resource costs associated 

with each of the 7,000+ individual services that Medicare pays for are flawed. The resultant 

payment distortions lead physician practices to emphasize services with remarkably high profit 

margins, leading to the proliferation of a raft of tests and procedures, while skimping on 

activities that might actually help patients more, including longer office visits, more frequent 

communication with patients outside office visits, and better care coordination. 

Although fee-for-service payment often is criticized for providing incentives for excessive 

volume of services, regardless of need, in fact, fee-for-service does not reward all volume 

equally. It does not reward provision of services that are not on the fee schedule at all nor does 

it promote volume for services that are not particularly profitable. The policy wisdom that 

physicians respond to a reduction of fee schedule prices by increasing their volume does not 

hold for many services, as recent research and natural experiments demonstrate. In short, a 

"smarter" fee schedule can increase the volume of desired physician activities and depress 

overproduction of profitable services being provided to excess. 

Indeed, one the positive attributes of fee-for-service is that payers and clinicians can identify 

clinical activities that need financial support, develop the necessary payment codes that 

describe the activity, and then pay enough so that physicians will perform the services, 

especially iftheir intrinsic motivation to help patients is supported. Yet, until very recently, 

there has been little interest in identifying and paying for activities needed for an aging 

Medicare population, many of whom now live longer but with multiple chronic conditions and, 

in many cases, serious functional limitations. 

The changing demographics call for much more attention to evaluation and management 

broadly conceived; it includes attention to shared patient-clinician decisionmaking, teaching 

patient self-management skills, greater attention to medication management, counseling, care 

coordination, and other activities that currently do not receive explicit attention in fee 

schedules. The result is that physicians continue to perform lucrative, but often unneeded, tests 

and procedures while skimping on various activities that are not able to be done in an 

occasional 15 or 20 minute office visit. Here, fee-for-service is a problem in that it is hard to pay 

for some of these desired evaluation and management activities a 10 carte. However, a fee 

schedule can accommodate monthly care management fees for high-risk patients and can 

develop and recognize for payment other codes that would alter the current mix of services 

beneficiaries receive. The result would be more value-based payment in a volume-based 

payment system. 

Price distortions are not inevitable 

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Or at least they can be reduced significantly. A clear example is the natural experiment that 

resulted from Congress's reduction in overpriced advanced imaging services in the Deficit 

Reduction Act of 2005. The policy to pay physician practices no more for advanced imaging 

services, like CT and MRI, than what is being paid for the same services when provided by a 

hospital outpatient department produced significant program savings directly from the price 

reduction. In addition, the rate of increase in the performance of these imaging services 

declined, although still positive.lO Now years later, the volume of advanced imaging services are 

pretty flat, in marked contrast to the double-digit rates of increase that occurred through the 

first part of the last decade. It is not clear that the significant reductions in prices for many 

advanced imaging tests led to the moderation in volume growth-volume growth has 

decreased as well for imaging services whose prices were not reduced. However, the price 

reductions did not generate volume increases to make up for the price reductions. 

Anecdotally, at least some of the decline in the growth of advanced imaging services resulted 

from mid-sized medical practices no longer finding it fiscally prudent to purchase these 

scanners as highly profitable ancillary services, given the reduction in fees. What the experience 

suggests it is that physicians do not necessarily respond to fee reductions by increasing the 

volume and intensity of the services receiving the cuts. Their behavior is more nuanced and 

varies by their circumstances and the nature of the particular services under consideration. The 

clear policy implication is that Medicare can buy a better mix of services by altering the prices 

paid for services, balancing considerations of assuring good beneficiary access to care and 

reducing overuse of services produced partly from inordinately high payments. 

Fee-for-service: end it or mend it? 

I share the broad policy community sentiment for moving away from fee-for-service to new 

payment models involving some amount of physician risk-taking. Even if the current distortions 

in the Medicare Fee Schedule were reduced substantially, not an easy achievement, fee-forservice nevertheless retains inherent incentives for raising the volume and intensity of services. 

Further, separate fee-for-service revenue streams reinforce siloed clinical practice at a time 

when the current challenges of health care delivery demand much greater cooperation and 

coordination across the numerous sites of health care services provision and community 

resources. Nevertheless, there are several reasons to improve the Medicare Fee Schedule over 

the short to medium term, even if the ultimate goal is to reduce its importance or eliminate it 

altogether. 

10 Government Accountability Office, Trends in Fees, Utilization, and Expenditures for Imaging Services before and 

after Implementation of the Deficit Reduction Act of 2005 (Washington, DC: Government Accountability Office, 

2006) GAO-08-1102R. 

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In fact, I believe it is necessary, if seemingly paradoxical, to take firm steps to improve the fee 

schedule in order to implement new and improved payment reform models for a number of 

reasons. First, the migration to new payment models that better reward prudent care will not 

be easy or quick. Despite hopes for a fast track to new payment approaches, it will take years 

for the Medicare payment pilots to be tested, refined, and then scaled up to be implemented 

on a widespread basis. Second, fee schedule prices are building blocks for virtually all of the 

payment reform approaches being tested, most notably bundled episodes, but also shared 

savings and global payments for accountable care organizations (ACOs). Errors in individual fees 

in the Medicare Fee Schedule would therefore be carried over into the bundled episodes and 

shared savings calculations. 

Third, entities like ACOs will work best when formed around multispecialty group practices and 

independent practice associations, which would be well positioned to accept care responsibility 

for a population and to organize needed services across the spectrum of providers. But 

specialties that continue to be generously rewarded from distorted prices under current public 

and private fee schedules, such as cardiology and radiology, prefer to continue in large single 

specialty practices or to cash out and accept hospital employment rather than join with primary 

care physicians to form and maintain the medical group. Perpetuating the current, nearly 3:1 

compensation differences between important specialists and primary care will frustrate the 

transition to ACO-like delivery systems, even if they are supported by new payment 

approaches. Narrowing the compensation differentials that the Medicare Fee Schedule 

produces now would help create the environment in which ACOs can become established and 

dowell. 

For better or worse, organizations we consider as prototypical ACOs often use Medicaredetermined relative value units as the basis for determining their internal compensation 

approaches. It is informative that many of these groups take advantage of one of the positive 

attributes offee-for-service payment-to reward industriousness. Even if the groups 

themselves receive global payments, they may turn around and reward physicians for 

productivity, as measured by "work RVUs" (work relative value units) generated. But again, if 

the RVU valuations are off, the organization's assessment of productivity will be off as weiland an ACOs may find it unwittingly is perpetuating the income disparities that plague current 

fee-for-service payment. 

Finally, some better functioning payment approaches actually retain an element of fee-forservice because, as I have emphasized, fee-for-service does have certain positive attributes. My 

personal choice for payment reform would be moving toward global payment approaches to 

support ACOs, but using risk-sharing with Medicare rather than full risk for many ACOs. One 

way to moderate risk and protect against stinting on services is through what is called partial 

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capitation-a combination of fee-for-service and per member per month payment for a 

population. Mixed payment approaches also work well for supporting individual physicians as 

well. A few European countries use an approach of mixing fee-for-service for visits with a 

monthly fee to support primary care physicians, one of the approaches that is being tested in 

CMS's advanced primary care demonstrations. In short, there are many good reasons to 

continue and improve the Medicare Fee Schedule as we test improved payment models for 

future adoption. 

Moving to new payment approaches: the role of demonstrations 

An important way to obtain higher value for beneficiaries is to adopt new payment approaches 

with better incentives for prudent use of resources, even if we back off the commitment to 

measuring and publicly reporting individual physician performance, as I am suggesting. Rather 

than assuming that a limited and intrusive portfolio of measures will improve value, the new 

payment methods are promising because they embed the incentives for better care into the 

payment model itself; then targeted quality measures can complement the new payment 

method by focusing on particular activities, some of which might be adversely affected by the 

altered payment incentives. That is the approach CMS is taking under the Shared Savings 

Program for ACOs. Incentives for more prudent use of resources derive from the fully 

implemented shared savings payment approach. And the quality of certain activities that might 

be compromised in the zeal to contain costs are being measured to help guard against stinting 

on care. 

A range of payment methods and new organizational delivery structures are being tested, from 

Independence at Home practices providing "house calls" for frail seniors and disabled to 

bundled payments for acute care events around a hospitalization to ACOs responsible for 

populations' health care. I have my own views on which of these and other approaches offer 

the greatest potential, but here I want to make some general points about the purpose and 

nature of demonstrations, based partly on my experience as responsible for many of the 

demonstrations CMS was running when I was there 10+ years ago. 

First, it is important not to draw early-often premature-conclusions from demonstrations, 

sometimes based on partial information or claims of success by self-interested parties. For 

example, the declared, early success of the Premier Hospital Demonstration of pay-forperformance was not corroborated in subsequent, careful external evaluations, yet the early 

claims contributed to Congress's formation of Medicare value-based purchasing program for 

hospitals. 

Currently, some are claiming success for the ACEs (Acute Care Events) demo testing bundled 

episode payment for joint replacements and cardiac procedures. In this demo, Medicare 

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obtains a small payment discount off the top, while in early findings the "bundled" hospitals 

and physicians apparently have saved money by agreeing to combine their bargaining power to 

obtain substantial discounts on equipment and supplies related to these particular 

procedures.ll Further, the bundled payment for a discrete episode of care provides the 

hospital-physician collaboration a concrete, financial reason to get together to improve quality 

and efficiency, offering the possibility of savings beyond obtaining lower prices for joint 

appliances and coronary artery stents. 

However, it is also plausible that the new financial alignment could stimulate efforts for the 

physician-hospital collaboration to brand, market, and otherwise attempt to induce demand for 

these services, which already are examples of services that research shows are significantly 

overused. 12 After all, bundled episodes remain a form of volume-based payment, even if the 

approach varies from traditional fee-for-service. Only a comprehensive, external evaluation of 

the ACEs demo will reveal whether the likely per case savings attained will be offset by an 

increase in service volume. 

The second caution is that the behavior that is seen in a demonstration may not be the same as 

what would occur if the payment or organizational innovation is adopted broadly in Medicare. 

Demonstrations sites usually are not typical providers. They may be "early adopters" of a 

particular approach that is being tested-with an interest in demonstrating success. Further, in 

a demonstration the sites are under a spotlight, and their behavior is not necessarily reflective 

of what would take place once the spotlight is turned off. 

I am not raising this concern about generalizability from demonstrations to dismiss the 

desirability of doing demonstrations to inform policy. Rather, I would emphasize that a major 

purpose of demonstrations is to test operational feasibility of a new approach to payment or 

delivery for CMS, its contractors, providers, and beneficiaries. There may be important lessons 

learned that inform how policy might proceed, even if the overall impact of the demonstration 

cannot be characterized as a "success" or "failure." For example, the Physicians Group Practice 

Demonstration was not a success overall,13.14 yet the operational lessons and observations 

about medical group behavior importantly led to the Affordable Care Act's adoption of the 

Shared Savings Program and what has become the Pioneer ACO Demonstration. 

11 Medicare Payment Advisory Commission, Report to Congress: Medicare and the Health Care Delivery System 

(Washington. DC: MedPAC, June 2011). 

12 Berenson, R.A., and Elizabeth Docteur, Doing Better by Doing Less: Approaches to Tackle Overuse of Services 

(Washington, DC: Urban Institute, January 2013). 

13 Gail Wilensky. "Physician Group Practice Demonstration-A Sobering Reflection," New England Journal of 

Medicine 10(1056): 1-3, October 2011. 

14 Robert A. Berenson, "Sharing Savings Program for Accountable Care Organizations: A Bridge to Nowhere?" 

American Journal of Managed Care 16 (10): 721-26, October 2010. 

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At some point, the decision on whether to adopt a new payment approach broadly into the 

Medicare program is a judgment call about which the demonstrations can be informative but 

not decisive. I believe we are a number of years away from being able to make good policy 

decisions about which new payment methods to adopt and whether to make them available as 

options for practices along with a legacy fee schedule available for those who opt to not play or 

to make them mandatory as an no-choice substitute for fee-for-service. 

Fortunately, the remarkable recent moderation in service volume and intensity growth in 

Medicare generally and for physicians in particular offers the opportunity to take the necessary 

time to learn from the many demonstrations being tested in Medicare, from the experience 

with other payers' similar initiatives, and experience from other countries, about how best to 

proceed to replace or complement a physician fee schedule. My estimate is that five or more 

years will be needed to achieve some consensus on a major reformulation of payment for 

physicians. In the meantime, many physicians already have the opportunity to opt into ACOs, 

which is the most important and far-reaching approach being tested or to participate in some 

of the other promising demonstrations. 

Improving value in the short term 

For the short term, I would offer the following list of immediate steps Congress should consider 

to support an improved physician payment system. 

1. With the CBO score for repeal of the Sustainable Growth Rate (SGR) now down to $138 

billion, it is time to eliminate it once and for all. MedPAC proposed elimination when the score 

was $300 billion and produced a balanced portfolio of payment reductions to physicians and 

other Medicare providers and suppliers to offset the cost. Given the new circumstances, I 

believe a balanced approach would still be the best way to proceed, with a much smaller, but 

real, reduction in payments for non-primary care services in the Medicare Fee Schedule. CMS 

has started more actively to correct misvalued services, as MedPAC has recommended for a 

few years and as the Affordable Care Act mandated. This activity would redistribute relative 

value units and dollars to produce a different mix of services, which among other things would 

help address the current and growing shortage of primary care workforce. I understand that in 

difficult budget times, it is difficult to find new money for the substantial administrative work to 

accomplish the needed, major recalibration of the Medicare Fee Schedule. Yet, attention to 

misvalued codes now would more than pay for itself in reduced health spending in the future. 

2. For now, I would not replace the SGR mechanism with a different volume control mechanism 

to automatically reduce fees for volume growth that exceeds a target amount. Rather, I would 

aggressively work to improve the accuracy of the fees-that is, payment in relation to the 

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resource costs of production-to alter the incentives for volume growth rising primarily as a 

source of windfall profits for certain specialties. 

3. I would specifically target services that are provided in accordance with the In-office Ancillary 

Services (IGAS) Exception to the Stark self-referral regulations to target these for specific fee 

cuts if analysis shows, as I expect, that many are overvalued. In addition, consideration should 

be given to narrowing or eliminating the IGAS exception for those services that are rarely 

performed during the same visit it is ordered. Imaging, pathology, and physical therapy are 

among the services that have grown inappropriately from self-referral abuse. 15,16 The more 

general policy guidance is to rely on discrete policy interventions to reduce volume growth for 

particular services rather than rely on across-the-board fee cuts, as under the SGR. 

4. As part of a thorough review ofthe Medicare Fee Schedule, it is time to redefine the core 

evaluation and management, visit codes that in aggregate represent almost 4S percent of 

spending under the fee schedule. Among other problems with the current codes and their 

definitions, recent research shows there is an epidemic of office visit up-coding-physicians and 

hospitals providing outpatient services.17,18 While I argued earlier that there is relative 

underpayment of evaluation and management services in comparison to tests, imaging, and 

procedures, that unfortunate reality does not provide an excuse for physicians to abuse the 

payment system by up-coding to make up for what they consider insufficient payment rates. 

Still, the code definitions need to change so that there is less ambiguity about how physician 

practices should correctly code. We need to explore whether the decision made two decades 

ago to have a single set of visit codes for all specialties and for all patients needs to be revisited, 

given growing patient heterogeneity. Further, the current evaluation and management 

definitions and accompanying documentation guidelines have a highly negative impact on the 

potential use of electronic health records, which have been developed and implemented more 

to permit easy compliance with CMS documentation requirements than to promote decision 

support to physicians to improve their care. Clearly, the current documentation requirements 

are having a detrimental effect on the value of care beneficiaries receive. 

15 Government Accountability Office, "Higher Use of Advanced Imagine Services by Providers Who Self-Refer 

Costing Medicare Millions" (Washington, DC: Government Accountability Office, September 2012) GAO-12-966. 

16 Medicare Payment Advisory Commission, Report to Congress: Aligning Incentives In Medicare, "Chapter 8: 

Addressing the Growth of Ancillary Services in Physicians' Offices" (Washington, DC: MedPAC, June 2011). 

17 Abelson, R., J. Creswell, and Griff Palmer, "Medicare Bills Rise as Records Turn Electronic." New York TImes, 

September 21, 2012. 

18 Shulte, F., and David Donald. "How Doctors and Hospital Have Collected Billions In Questionable Medicare Fees" 

(Washington, DC: Center for Public Integrity, September 2012), 

http://www.publicintegrity.org/2012/09/15/1081O/how-doctors-and-hospitals-have-collected-billionsquestionable-medicare-fees 

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5. Any overdue correction of misvalued services will be counterproductive unless the current 

site-of-service differential is corrected. In accordance with that differential, "provider-based 

payment" pays as much as two times more for physician services when provided in an 

outpatient department than in an independent physician's practice. There was a reasonable 

rationale for the site-of-service differential when outpatient departments were appendages of 

the main hospital, which, in contrast to physician practices, have obligations to have "stand-by 

capacity" and offer 24/7 access to emergency departments, accompanied by some amount of 

uncompensated care. However, in recent years, provider-based payment has become a primary 

reason for hospital employment of physicians. But now, the newly employed physicians usually 

do not move their practices to the main hospital campus and participate in the broad mission of 

the hospital related to access to care. Rather, they maintain their established practice locations 

and rarely change the payer mixes of their patients. Yet, the combined hospital facility fee and 

physician's professional fee adds up to a doubling of the payment-and a commensurate 

doubling of the patient's co-insurance obligation. 

A few years ago, eMS reasonably reduced the overpayment for cardiac imaging tests performed 

in physician offices; yet, the correction initiated a hospital employment frenzy of cardiologists 

to take advantage of the higher outpatient payment rates. The result is that Medicare 

perversely wound up paying more for the same services to the same patients. Hospitals do have 

costs that independent practices do not face, but these costs should not be reflected in services 

that do not reflect hospitals' unique obligations. The site-of-service differential for physician 

services should be significantly reduced or eliminated, while the costs that hospitals do bear for 

their unique obligations should be paid for but through other means, possibly through increases 

in inpatient, emergency department and other unique hospital services. 

13 
139 

Mr. PITTS. The chair thanks the gentleman, and Dr. Damberg, 

you are recognized for 5 minutes to summarize your testimony. 

STATEMENT OF CHERYL L. DAMBERG 

Ms. DAMBERG. Thank you. I want to thank the committee for inviting me here today. I am a Senior Researcher at the RAND Corporation, and the focus of my work over the past decade has been 

looking to evaluate pay-for-performance or performance-based payment models. 

My remarks today address issues related to measuring the performance of physicians under these new payment models that will 

incentivize or tie payment to performance, and there are a number 

of issues or measurement issues that I want to call to your attention. 

Issue number one: Existing performance measures are not suitable for newer models that emphasize the delivery of efficient, 

high-quality care across a continuum of time and health care settings. Current measurement focuses on discrete events in single 

settings of care or silos rather than looking longitudinally across an 

entire episode of care. The portfolio of measures that exist today 

were not developed or envisioned to be used in the types of accountability and payment applications that are emerging nor is the 

portfolio necessarily focused on the right measures. Measurement 

needs to migrate away from a siloed approach which further perpetuates a lack of coordination to quality assessment that encompasses all care delivered to patients across an entire episode. 

Issue number two: When we ask health care providers to devote 

resources to measurement, it is critical that we focus on the important aspects of care that matter most to patients and which providers can most readily influence. Patients care most about outcomes such as whether a chronic illness like type 2 diabetes was 

prevented or for a patient with diabetes whether the physician and 

his or her care team helped the patient manage the condition to 

prevent complications and premature death. Patients also care 

about whether they can access care when they need it, whether 

their care is coordinated. They also want to know about how well 

they are treated in the system and whether their preferences are 

considered in treatment decisions. And lastly, patients care about 

the cost of treatment. Regardless of the payment model used, the 

true north and holy grail of performance-based accountability and 

payment is measurement of outcomes. 

Issue number three: Outcome measures are currently lacking in 

many instances or in a nascent state of development. For example, 

there are a small number of measures of cost or efficiency and 

many are poorly constructed and have not been fully tested for 

their validity or reliability. Measures that assess change over time 

and important intermediate outcomes such as blood pressure control and that influence long-term outcomes such as heart attack 

and stroke do not yet exist. The United States could learn from efforts in Great Britain. Since 2009, the United Kingdom’s national 

health system has invited all patients who are having a variety of 

surgeries to fill in patient-reported outcome questionnaires and has 

generated comparative statistics to incentivize improvements and 

140 

help patients understand performance differences across different 

sites of care. 

Issue number four: As we transition to a performance dashboard 

with more emphasis on outcomes, there is work that can be done 

immediately to strengthen the types of measures that are currently 

used. For example, we can shift away from focusing on discrete 

clinical services toward longitudinally measuring the management 

of a patient. In addition, the HIT infrastructure may enable the 

creation of new, novel measures. For example, EHRs and health information exchange audit trails could be used to construct indirect 

measures of quality. A specific example is medication reconciliation 

and hospital discharge. In lieu of a checkbox in the HER, the audit 

trail could provide an indirect measure to determine whether the 

physician accessed the patient medication list and made any modifications prior to discharge. 

Issue number six: We must focus efforts on strengthening data 

systems to facilitate delivery of high-quality care by physicians and 

the construction of performance measures. We cannot expect physicians to coordinate care, avoid duplicative use of services and manage total cost of care when they are flying blind. I commend to you 

a paper that was written by a colleague of mine, Eric Schneider. 

It was actually written in 1999 but is still highly relevant, and this 

paper lays out a roadmap for an integrated health information 

framework and identifies seven features the framework should possess. I won’t go into those. They are in my written testimony. 

Issue number seven: We have to enlist physicians as true partners in the process of defining measures for which they will be held 

accountable as individuals and more broadly as care teams and 

systems of care. They have a vitally important role to play in the 

selection of measures and choosing concepts that will be measured 

weighing the scientific evidence, specifying the measures and assessing the feasibility and practice and then ultimately endorsing 

the measures that will be used once developed. Lastly, because 

much of the current measure development is occurring using federal tax dollars, there is a clear need to coordinate these efforts to 

better deploy scarce resources and minimize burden on providers. 

In conclusion, I would like to summarize the actions that could 

be taken. I think there is more federal leadership that could happen to develop a robust measurement strategy and shift the focus 

and resources towards a greater emphasis on defining and measuring outcomes. Secondly, support the development of the robust 

health information framework that is integrated and will allow 

data sharing across providers and payers. Third, continue efforts to 

coordinate measurement development within and outside the federal government. Fourth, use a rigorous and transparent and inclusive process to develop measures. And I would just leave you with 

the thought that in addition to paying providers differentially, it is 

important to note that public transparency or public reporting can 

be a powerful incentive. 

Thank you very much. 

[The prepared statement of Ms. Damberg follows:] 

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Testimony 

Efforts to Reform Physician Payment 

Tying Payment to Performance 

Cheryl L Damberg 

RAND Office of External Affairs 

CT-381 

February 2013 

Testimony presented before the House Energy and Commerce Committee, Subcommittee on Health on February 14, 2013 

This product is part of the RAND Corporation testimony series, RAND testimonies record testimony presented by RAND assoc1ates 

to federal, state, or local legislative committees; government¥apPointed commissions and panels; and private review and oversight 

bodies. The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address 

the challenges facing the publlc and private sectors around the world. RAND's publications do not necessarily reflect the opinions of 

its research clients and sponsors. RAN O® is a registered trademark. 
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Published 2013 by the RAND Corporation 

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To order RAND documents or to obtain additional information, contact 

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Cheryl L. Damberg 1 

The RAND Corporation 

Efforts to Reform Physician Payment: 

Tying Payment to Performance2 

Before the Committee on Energy and Commerce 

Subcommittee on Health 

February 14,2013 

Chairman Pitts, Ranking Member Pallone, and distinguished Members of the Subcommittee, 

thank you for inviting me here today. My name is Cheryl Damberg and I am a senior health 

policy researcher at the RAND Corporation. I appreciate the opportunity to appear before you to 

discuss physician payment reform. My remarks today address issues related to measuring the 

performance of physicians and organizations of providers, which is a core component of new 

payment models that tie payment to performance. My comments derive from research my 

colleagues and I have conducted that examines the use of financial incentives tied to 

performance and my experience working with provider organizations over the past decade to 

measure health care quality and costs. 

Congress is considering ways to revise the physician fee schedule so that payment policy 

supports the delivery of high quality care and efficient use of resources. Performance-based 

payment, which refers to a broad class of value-based purchasing models that use financial 

incentives tied to performance on a set of defined measures, is one reform mechanism that can 

support achievement of these goals. The application of value-based purchasing (VBP) 

approaches to physician payment reform is already taking shape as called for under the 2010 

Patient Protection and Affordable Care Act (ACA). Examples include the Medicare hospital 

value-based purchasing program, the Medicare physician value-based payment modifier 

starting in 2015, the Bundled Payments for Care Improvement demonstrations, and the 

Accountable Care Organization (ACO) shared savings programs and demonstrations. 

Measuring the performance of physicians and provider organizations on their quality and 

resource use or costs is at the heart of these various reforms to care delivery and payment. It is 

vitally important to signal to providers what patients and payers expect them to be working 

1 The opinions and conclusions expressed in this testimony are the author's alone and should not be 

interpreted as representing those of RAND or any of the sponsors of its research. This product is part of the 

RAND Corporation testimony series. RAND testimonies record testimony presented by RAND associates to 

federal, state, or local legislative committees; government-appointed commissions and panels; and private 

review and oversight bodies. The RAND Corporation is a nonprofit research organization providing objective 

analysis and effective solutions that address the challenges facing the public and private sectors around the 

world. RAND's publications do not necessarily reflee! the opinions of its research clients and sponsors. 

2 This testimony is available for free download at http//www.rand.org/pubs/testimonies/CT381.html. 
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towards, and explicit measures-when tied to payment-help focus and redirect physicians and 

physician organizations towards redesigning care processes and how they coordinate actions 

with other care providers in order to deliver better value. Value is defined as the outcomes 

(outputs) achieved divided by the cost or resources used (inputs) to generate those outcomes. 

Value-based payment models are very new to the health system and represent a work in 

progress. Public and private sector purchasers are actively working to design VBP programs to 

achieve the stated goals of improved quality and more efficient use of health care resources. 

How these programs are designed is a complex undertaking and one that will determine the 

likelihood of their success. Two central design features are the payment structure (Le., size of 

incentive, how it is distributed across providers, and whether it rewards absolute levels of 

performance, relative performance, or improvement) and the measures that are the basis for 

determining payments (Mehrotra et aI., 2010; Stecher et aI., 2010; Schneider and Hussey, 

2012). The pay-for-performance experiments of the last decade offer some useful lessons 

(Pearson et aI., 2008; Damberg et aI., 2009a; Damberg et aI., 2011; Stecher et ai., 2010). 

Performance measures are a foundational element of value-based payment models and our 

ability to advance the implementation of these models requires having a set of measures that 

will be used to determine differential payments to providers. 

(1) What is our current state of readiness to measure physician performance? 

Over the past two decades, we have significantly advanced our ability to measure the 

performance ofthe health system at various levels-health plan, hospital, nursing home, and 

physician or physician group. Most available measures assess processes of care that measure 

whether patients are receiving clinically-indicated care, such as whether a patient who has 

experienced a heart attack received aspirin at the emergency room. Such measurement 

focuses on discrete events in a single setting of care or "silo" (e.g., hospital) rather than looking 

longitudinally across an entire episode of care for a patient (Hussey et aI., 2009; Schneider et 

al.,2011). 

The portfolio of measures that exist today were not developed or envisioned to be used in the 

types of accountability and payment applications that are emerging-such as bundled 

payments, ACOs, and patient-centered medical homes (PCMHs)-nor are these portfolios 

necessarily focused on the right measures. Existing measures are not suitable for newer models 

that emphasize the delivery of efficient, high quality care across a continuum of time and health 

care settings, aligning the actions of multiple providers to achieve optimal outcomes for the 

patient. Measurement needs to migrate away from a siloed approach which further perpetuates 

a lack of coordination, to quality assessment that encompasses all care delivered to patients 

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within a given health episode. We have much more work to do to define and measure quality in 

health care (Reinhart, 2013). 

Although performance measurement initially focused on evaluating whether patients received 

evidence-based processes of care, the tide is shifting. Newer value-based payment initiatives, 

such as the Massachusetts Blue Cross Blue Shield Alternative Quality Contract and the 

Califomia Integrated Healthcare Association's value-based pay-for-performance (P4P) initiative, 

include measures that capture outcomes of care. Health outcomes look at the impact of medical 

interventions on patient's health and well being (e.g., pain, functioning), avoidance of 

complications from chronic illness, and for some types of interventions like surgery, infection 

rates, occurrence of other adverse events, and mortality rates. The Massachusetts and 

Califomia programs are measuring a variety of outcomes including "intermediate" or near-term 

outcomes that influence longer term outcomes (such as blood pressure contrOl), patient 

experience with receiving care, avoidance of hospital acquired infections, and total cost of care. 

Similarly, the Veterans Administration's quality measurement initiative holds physicians in the 

VA accountable for intermediate outcome measures (e.g., blood pressure control, lipid control, 

blood sugar control). 

Our collective thinking about what is important to measure is evolving, as reflected in the 

National Quality Strategy (2011), which created national aims and priorities to guide quality 

improvement efforts. The three aims are better care, better health, and lower cost. These same 

aims are at the heart of new delivery and payment models. Although the aims have been 

defined, the measures that will be used to determine whether we have been successful in 

achieving these aims have not. 

When we ask health care providers to devote resources to measurement, it is critical that we 

focus on the important aspects of care-those that matter most to patients and that providers can 

most readily influence. Patients care most about outcomes-such as whether a chronic illness 

like Type 2 diabetes was prevented or, for a patient with diabetes, whether the physician and 

his/her care team helped the patient manage the condition (i.e., by keeping lipids, blood sugar, 

and blood pressure under control) to prevent complications and premature death. Patients also 

care about whether they can access care when they need it and whether their care is coordinated 

across the many providers who treat them. They also care about how they are treated, whether 

they feel heard, whether their preferences are considered, and whether they are treated with 

respect. Lastly, patients care about the cost of treatment. How physicians deploy resources 

drives costs that are borne not only by patients and their families, but by society more broadly. 

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Regardless of the payment model used, the "true North" and Holy Grail of performance-based 

accountability and payment is measurement of outcomes. A focus on outcomes applies whether 

you are measuring individual providers or models of care-such as ACOs, PCMHs, or bundled 

payments. 

The 2011 National Quality Strategy provides an important framework for the nation, but it is now 

time to get specific and define exactly what should be measured in terms of outcomes and then 

have physicians and other health care providers focus their energies on working to achieve 

those outcomes. Outcome measures employed under the National Quality Strategy to measure 

provider performance should: 

• adequately adjust for differences across physicians in the patients they treat that 

influence the outcome (Le., risk adjustment) in order to create a level playing field in 

comparing performance and to avoid unintended consequences (such as avoidance of 

high risk patients). 

• be near-term or proximate events (such as within one year of treatment) such that the 

actions taken or not taken by the physician are likely to have had some influence in 

determining the outcome. For example, it is preferable to hold physicians accountable 

for blood pressure control, not stroke (which may have involved the actions of many 

physicians over many years). 

aggregate processes or outcomes to a level (physician, practice site, medical group or 

integrated delivery system) to ensure that there are an adequate number of patient 

events to reliably measure perfonnance. 

Unfortunately, outcome measures are currently lacking in many instances or are in a nascent 

state of development. For example, there are a small number of measures of cost or efficiency, 

however many are poorly constructed and have not been fully tested for their validity or reliability. 

Measures that assess change over time in important intennediate outcomes (such as blood 

pressure control) and that influence longer-term outcomes (e.g., heart attack and stroke) do not 

yet exist. Functional status measures or patient-reported outcomes measures (PROMs) were 

developed in the context of research studies but have not been widely implemented in the context 

of performance-based accountability and payment programs. However, it is interesting to note 

that since 2009, the United Kingdom's National Health System has invited all patients who are 

having hip or knee replacements, varicose vein surgery or groin hernia surgery to fill in patientreported outcome (PROMs) questionnaires and has generated comparative statistics to 

incentivize improvements and help patients understand performance differences across different 

sites of care. 

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(2) How to advance measure development moving forward? 

In the foreseeable future, the dashboard of measures that are used will likely continue to be a 

mix of measures that address structural elements that influence the delivery of care (e,g" HIT 

capabilities), care processes, and outcomes. As we transition to a performance dashboard with 

more emphasis on outcomes, there is work that can be done immediately to strengthen the 

types of measures that are currently used. For example, a shift away from focusing on 

delivering discrete clinical services towards longitudinally measuring the management of a 

patient can shift the focus towards a more integrated, patient-centered way of providing care 

(Hussey et aI., 2009; Schneider et aI., 2011). In addition, the HIT infrastructure that the federal 

govemment has been developing through the Office of the National Coordinator for Heatth 

Information Technology (ONC), and incentivizing through the Medicare program, may enable 

the creation of new, novel measures. For example, new measures could be developed in the 

context of ONC's efforts to identifying high priority quality improvement targets that clinical 

decision support features in EHRs could address (Damberg et aI., 2012) or through leveraging 

electronic health records (EHR) or health information exchange (HIE) audit trails (i.e., access 

logs) to construct "indirect" measures of quality. A specific example is medication reconciliation 

at hospital discharge. In lieu of a check box in the EHR (which could be easily "gamed" by 

physicians), the EHR audit trail data could provide an indirect measure to determine whether the 

physician accessed the patient's medication list and made any modifications to it on the day of 

discharge. The current measurement dashboard also could be enhanced through the 

development of measures of care coordination (care transitions), patient and caregiver 

engagement, structure (management, health IT utilization), efficiency, and composite measures 

that combine outcome, process, patient experience, and cost measures (Schneider et aI., 

2011). Composite measures will be critical for evaluating the performance of individual 

physicians, where a small number of patient events can lead to measures that do not provide a 

reliable signal on a provider's performance. As new measures are developed and implemented, 

we can rebalance the portfolio of measures and eliminate many of the process measures that 

physicians currently are asked to report. The federal government (AHRQ, CMS, and ONC) has 

an opportunity to lead through choice of measures to fund for development and specifying 

outcome measures as the priority for performance programs in Medicare. 

(3) What is the process for measure development? 

Development of measures needs to occur using a scientifically rigorous process that is 

transparent, inclusive of physicians and other stakeholders, and ensures the reliability and validity 

of measures that become the basis of payment. To engage providers to achieve the three aims of 

the National Quality Strategy, we must enlist them as true partners in defining the measures for 

which they will be held accountable as individuals, and more broadly, as care teams and systems 

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of care. Physicians have a vitally important role to play in the selection of measure concepts, 

weighing the scientific evidence related to specific actions providers can take to influence the 

process or outcome, specifying measures (including how to adjust for differences in the patient 

populations they treat and which patients to exclude), assessing the feasibility of a measure in 

practice, and ultimately endorsing the measures once developed. Some physician specialty 

organizations have taken steps to identify measures and create registries containing process and 

outcome measures. These measures and data sources could provide a starting point. For 

example, the American College of Surgeons National Surgical Quality Improvement Program 

(ACS NSQIP~ generates validated, risk-adjusted, outcome measures to help surgeons improve 

the quality of surgical care. 

Although value as a metric is intrinsically appealing, the challenge before us is defining and 

constructing the measures that comprise the value equation (defined earlier in my statement) 

and ensuring that the measures deployed in high stakes applications (such as payment and 

public reporting) are valid and reliable. 

A valid measure is one that measures what it claims to measure (e.g., mortality 

resulting from how a surgical procedure was performed) rather than something else 

(e.g., how sick the patient undergoing the procedure was). Valid measures are those 

over which the provider has some control and, in the case of outcomes, account for 

differences across provider in the patients being treated in order to provide fair 

comparisons (Le., by adjusting for different patient risk factors that affect the outcome). 

A reliable measure is one that allows you to accurately differentiate performance 

between providers. The baseball analogy is if you only observe a batter at bat 3 times 

and they hit a home run all 3 times, would you say that baUer's batting average was 

1.00 (100%)? Likely not-you'd need to observe many more attempts at bat before you 

could reliably say whether that baUer's average is .250, .333, or .500. 

• In health care, it is hard to get a reliable estimate of a single physician's 

performance if only looking at a few events, which commonly occurs at the level of 

the individual physician. The reliability of the estimate of performance can be 

improved by aggregating data across multiple providers, such as the practice site or 

physician group, aggregating a physician's data over multiple years, or by 

constructing a composite measure that aggregates a physician's data over multiple 

measures. Reliability is important because if the measure is not reliable, you 

increase the chance of making incentive payments based on noise or random 

variation in performance rather than true signal. 

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The National Quality Measures Clearinghouse underscores that the requirements for validity and 

reliability are higher when using measures for payment and public reporting, necessitating that 

each provider collects data in the exact same way through standardized and detailed 

specifications (NQMC, 2012). 

Finally, ifthe approach to performance-based payment embodies quality improvement, then 

physicians and other health care providers are more likely to engage. To improve, physicians 

need to see comparative data on performance variation. Federal efforts to measure providers' 

performance should include real-time feedback outside any annual reporting and payment 

adjustment activities to support providers in their work to achieve the specified targets. 

(4) How do we improve efficiencies in measure development efforts? 

Numerous public and private sector entities are engaged in measure development, including the 

Joint Commission, the National Committee for Quality Assurance (NCQA), employer coalitions, 

community collaboratives, federal agencies (CMS, AHRQ, HRSA, CDC), state agencies, 

private/commercial firms, health plans, and consumer groups. The Centers for Medicare and 

Medicaid Services (CMS) alone uses approximately 800 measures across its various programs, 

of which 300 were developed and are now being maintained by the agency. With the passage of 

the ACA, measurement development efforts have intensified and there is little to no coordination 

of this activity. 

Historically, there has been poor coordination among the measure developers and those who 

finance measure development. The net result has been overlapping investments and 

development efforts that generate duplicative or very similar ("me too") measures. Additionally, 

there is a lack of coordination in the application of measures, with multiple parties measuring the 

same provider on similar concepts with slightly different measure specifications or thresholdscreating undue provider burden and confusion. Because much of the current measure 

development is occurring using federal tax dollars, there is a clear need to coordinate these 

efforts to better deploy scarce resources and minimize burden on providers. 

Aware of the need for alignment and coordination, the U.S. Department of Health and Human 

Services and the Center for Medicare and Medicaid Services (CMS) have recently begun work 

to coordinate efforts within and across the federal agencies that are engaged in measure 

development and implementation (i.e., the HHS Measures Policy Council, the HHS Measures 

Coordination Work Group, the CMS Quality Measures Task Force, and the CMS Measures 

Coordination Work Group). Additional steps should be taken to coordinate federal measure 

development with measure developers outside the federal government. Many state 

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collaboratives and physician professional societies that are actively engaged in performance 

measurement and federal efforts should seek to coordinate with these efforts. To that end, eMS 

recently released a request for information (RFI) on the use of clinical quality measure data 

reported to specialty boards, specialty societies, regional health care quality organizations and 

other non-federal reporting programs. The focus of this inquiry is to understand how such data 

might be used to report for the Physician Quality Reporting System (PQRS) and the Electronic 

Health Record (EHR) incentive program. These are much needed and welcome first steps. 

(5) How do we advance our data systems to enable performance measurement and quality 

improvement? 

To enable the construction of performance measures that new payment and delivery models 

emphasize, we must focus efforts on strengthening data systems. How can we expect physicians 

to coordinate care, avoid duplicative use of services/procedures, and manage total cost of care 

when they are flying blind? In most cases, physicians only see the care they themselves provide, 

given the lack of interconnectivity and information exchange with other providers, such as 

hospital, or with the payers, who often have data that the providers need. One example is 

pharmacy data that capture whether a patient filled a prescription based on a physician's orderdata that resides with the payer and not the physician. If a patient is admitted to a hospital or 

emergency department, their physician generally does not know this absent a health information 

exchange (HIE) or data sharing arrangement with the hospital. In addition to the lack of 

information exchange, there are other deficits in our data systems that will continue to hinder our 

ability to measure performance unless they are addressed. 

A must read paper regarding what we can do to strengthen data systems to enable performance 

measurement, and more importantly enable providers to manage care delivery was published in 

1999 by my RAND colleague Eric Schneider (1999). This paper lays out a road map for an 

integrated health information framework, and identifies seven features that an integrated health 

information framework should possess: 

1. specified data elements; 

2. established linkage capability among data elements and records; 

3. standard data element definitions; 

4. automated data capture; 

5. procedures for continually assessing data quality; 

6. strict controls for protecting security and confidentiality of the data; and 

7. protocols for sharing data across institutions under appropriate and well-defined 

circumstances. 

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CMS, as one of the nation's most influential health care payers, has an important role to play in 

strengthening our nation's health data systems. Implementation of an integrated health 

information framework can be catalyzed if the federal government leads by (1) requiring its 

provider partners to capture detailed, accurate data and to share data across providers, (2) 

defining the data elements that should be captured and standardizing data definitions, and (3) 

setting policies that allow for sharing of data across institutions in ways that protect the security 

and confidentiality of the data. 

Conclusion 

In surnrnary, revising physician payment is a daunting challenge, but one that is absolutely 

necessary. Perforrnance-based payment reforrn is vital to driving improvements in health care 

delivery. The ability to move forward with new performance-based payment rnodels is 

predicated on having (1) a robust set of measures and (2) an integrated health information 

infrastructure that supports phYSicians in their quality improvement efforts and performance 

measurement. 

As Congress considers policy changes to provider payment, there are several areas where 

federal leadership and investment could facilitate and support the transition to value-based 

payrnent models. 

1. Provide federal investment in and leadership related to developing a robust 

measurement strategy by: 

o defining the performance measure concepts that should be the focus of 

accountability and payment, 

o developing the concepts into actual performance measures using a rigorous 

development and testing process that ensures that measures are valid, reliable, 

and represent important areas for phYSicians to focus their attention and 

resources on, and 

o providing resources to update measures (or retire them) to incorporate changes 

in the scientific evidence. 

2. Shift the focus and resources towards a greater emphasis on defining and 

measuring outcomes. The federal government can lead through the types of 

measures it chooses to fund for development. Work to specify and develop outcome 

measures should be a top priority for CMS and AHRQ, and physicians should be 

strategic partners in this work. 

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3. Support the development of a robust integrated health IT framework for quality 

improvement and reporting. Federal investment in the national health information 

infrastructure can contribute substantially to our ability to assess the performance of 

physicians, and, more importantly enable physicians to improve quality and be more 

efficient in how they use resources. The ONC, working in coordination with CMS and 

AHRQ, should focus on standardizing data elements and definitions and faCilitating data 

sharing across providers and payers to enable better management and coordination of 

patient care and the ability to track longitudinal outcomes. Enhancing requirements that 

providers move to report on certain types of measures (such as PROMs) will drive 

delivery organizations to invest in the information infrastructure that will support quality 

improvement. 

4. Continue efforts to coordinate measurement development within the federal 

government and expand those efforts to coordinate with measure development 

parties outside government. The federal govemment should continue to coordinate its 

measure development and measure applications across the various federal agencies, 

and actively work to engage in coordination with the external community of measure 

developers. 

o To reduce redundancy offederal investments, federal agencies should be required 

to search existing measure databases (the National Quality Measures 

Clearinghouse, National Quality Forum) before letting contracts for new measure 

development to assess whether measures already exist. 

o Coordination should also occur between measure development work at AHRQ and 

CMS and ONC's efforts to advance the HIT infrastructure in order to support the 

development of new, novel measures that HIT may enable. New measures could 

occur in the context of identifying high priority targets for clinical decision support 

(Damberg et aI., 2012) or through leveraging EHR or HIE audit trails (i.e., access 

logs) to construct "indirect" measures of quality. 

5. Use a rigorous, transparent and inclusive process to develop measures. Because 

performance measurement will affect the behavior of physicians and the organizations in 

which they work, it is important that what we ask them to focus on is based on scientific 

evidence related to actions they can take to influence the outcomes of interest. While 

CMS may fund or lead efforts to develop measures, physicians should be actively 

involved in these efforts, could lead such efforts, and existing physician-led data 

registries that track processes and outcomes could be leveraged. The development 

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process should ensure that the measures that will be applied in high stakes applications 

are valid and reliable. Results from testing of measures should be publicly available for 

physicians to review; such transparency will build confidence in the measurement 

system. 

6. Support providers in their efforts to improve. Medicare can work collaboratively with 

physicians to support improvement by making performance results available in a timely 

fashion and showing them comparative statistics on their performance. 

7. Recognize that in addition to paying differentially for performance, public 

reporting of comparative performance scores (i.e., transparency) is a powerful 

incentive to prompt physicians and the organizations in which they work to improve 

quality (Lindenauer et ai, 2007). 

8. Guard against unintended consequences. Paying providers differentially based on a 

set of performance measures can potentially lead providers to respond in unintended 

ways. 

o First, physicians may seek to avoid more challenging patients who will bring 

their scores down. Measures need to be designed (such as adjusting for 

differences in the mix of patients) to minimize the likelihood that physicians will 

avoid sicker patients. VBP programs can also use other adjustments, such as 

holding the mean incentive payout to be equal across pre-defined groups of 

providers (e.g., defined by the socioeconomic status of their patients) to avoid 

redistribution of payment in ways that harm disadvantaged providers and 

patient populations (Damberg and Elliott, 2010). To mitigate these effects, 

Medicare will need clinical and sociodemographic information on the patients 

cared for by each physician to enable front-end risk adjustment or postmeasurement adjustments, as well as access and other measures to determine 

whether providers are avoiding high-risk patients (Schneider et aI., 2011). 

o Second, measures dictate the things that providers will focus their attention 

on-"what gets measured is what gets done." Incentive programs often address 

only a narrow portion of a physician's outputs or the processes that contribute 

to outputs. To avoid encouraging physicians to focus on a narrow set of items 

that are measured and neglecting other important outputs that are not being 

measured, it will be important to apply a broad dashboard of performance 

measures. 

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RAND researchers have developed performance measures (McGlynn et aI., 1995; Wenger et aI., 

2003; Asch et aI., 2004), evaluated the impact of pay-for-performance (Damberg et aI., 2009), 

and more recently value-based purchasing programs, helped to define alternative measurernent 

approaches that can support new payment models (Hussey et aI., 2009), and assessed the 

implications of alternative incentive designs and scoring systems to reward perforrnance 

(Schneider et aI., 2012; Mehrotra et aI., 2010; Damberg et aI., 2009; Stecher et aI., 2010; 

Friedberg and Darnberg, 2012). We are happy to work with Comrnittee rnernbers to share the 

work we have done in this area to inform policy making. 

Again, let me thank you Mr. Chairman, Mr. Ranking Member, and members of the Subcommittee 

for allowing me to appear before you today to discuss this important issue. I would be happy to 

take your questions. 

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McGlynn, Elizabeth A., Cheryl L. Damberg, Eve A. Kerr, and Mark A. Schuster (eds.), Qua/ityof 

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Mr. PITTS. The chair thanks the gentlewoman, and that completes the opening statements of the second panel. I will now begin 

questioning and recognize myself for 5 minutes for that purpose. 

Dr. Damberg, we will start with you. You state that the single 

most important factor in facilitating or impeding the use of measures was the availability of data to construct performance measures. Can you describe a strategy for bridging this data gap? Is the 

current HIT legislative and regulatory climate facilitating or impeding this effort? If the latter, what changes do you suggest to 

remedy the current shortcomings? 

Ms. DAMBERG. While there have been significant investments in 

the health information structure, I don’t think that what is occurring currently is going to help us ultimately with performance 

measurements, and that is in part because we have not identified 

the specific data elements, come up with standardized data definitions for those, and I think we are still a significant ways off from 

data sharing among the different partners, in part because of 

issues around security, privacy issues and confidentiality of the 

data. So I think those are several areas where attention needs to 

be focused. 

Mr. PITTS. Thank you. 

Ms. Mitchell, can physicians in smaller practices be adequately 

measured for quality and efficiency? I understand that one problem 

in terms of measuring smaller-sized practices is the limitations of 

small sample sizes. Is there a way to aggregate data from a number of smaller practices to overcome this barrier? 

Ms. MITCHELL. I think it is incredibly important that we ensure 

that all measures are reliable and valid, and there will be samplesize challenges to that. We could also look to patient-reported outcomes, however, functional status measures, patient experience 

measures. There are measures that can be used for smaller practices that are very relevant to other consumers but it will be critical that all measures, especially if they are publicly reported or 

used for payment, are valid and reliable. 

Mr. PITTS. Mr. Miller, there are a number of new payment reform models being developed, and as policymakers, we obviously 

can’t incorporate all current possible future models into one piece 

of legislation. Yet one lesson from the ACO experience is that if you 

make the model too prescriptive, it may preclude many providers 

from participating. Have you given thought as to how you might 

develop a policy to approve new payment reform models that has 

the proper balance of detail and flexibility? 

Mr. MILLER. As I outlined in my testimony, I think that if we 

have both a top-down and a bottom-up approach, we will be able 

to get a much richer set of models that are workable much more 

quickly than we do today. The problem that you saw with the ACO 

regulations was, it was designed to be a one-size-fits-all approach, 

and so naturally there were a lot of concerns about how well it was 

going to work in all circumstances but basically in the end it was 

one approach. And I think that what you need to distinguish is 

that it was one approach to payment called the Shared Savings 

program. There are many different ways that you could create an 

accountable care organization, which I think is a very important 

158 

model to think about, but you don’t necessarily—the best model is 

not to do it through a Shared Savings program. 

So for example, there are many physician groups and IPAs 

around the country that did not want to participate in that particular program because they felt they were still being paid by feefor-service with simply a Shared Savings add-on but they did want 

to participate in the Pioneer ACO model because they had the capability to actually accept a risk-adjusted global payment and be 

able to significantly change care that way. So I think that is an example where if you actually let the providers come forward and define what they are willing and able to do, you will be able to get 

a set of models, not in theory that you would say we have to create 

a dozen models that maybe nobody wants but you would actually 

have people coming forward saying I know that I can improve care 

for beneficiaries and I can save money if you change the payment 

model in the following way. 

Mr. PITTS. Thank you. 

Dr. Berenson, given the fact that fee-for-service will be around 

and may even play a prominent role in future payment systems, at 

least for the foreseeable future, how do we deal with spending in 

the fee-for-service segment of the system? In other words, how do 

we control for increases in the volume and intensity of services? 

Will we still need a system of spending targets and possible cuts, 

and if so, how should the targets be structured. 

Dr. BERENSON. Yes, that is a very interesting question. I would 

point to the results of what happened when the Congress in the 

Deficit Reduction Act of 2005 correctly, in my opinion, reduced dramatically the spending for advanced imaging services like MRIs 

and CTs and PET scans. For reasons I don’t quite understand, we 

were actually paying physician practices more than we were paying 

outpatient departments for those services. As part of the doc fix for 

that year, those payments were reduced, and what happened in addition to the savings from the prices coming down significantly, volume of those services over the subsequent years has actually moderated, and what I hear anecdotally is a lot of midsized practices 

that really had no business purchasing their own MRI machines 

and were doing so because of its profitably suddenly decided this 

was no longer a profitable thing to do. 

So what I have suggested in my testimony is that the Secretary 

should have somewhat greater authority to affect prices where they 

also affect volume of services. I mean, physicians do respond. There 

is this notion that physicians simply respond to price reductions by 

increasing volume. That is too simplistic a notion. It varies by the 

service. I think we need to be much more sophisticated about seeing the relationship between price and volume. 

Mr. PITTS. The chair thanks the gentleman and now yields to the 

ranking member 5 minutes for questions. Mr. Pallone. 

Mr. PALLONE. Thank you, Mr. Chairman. 

My question is to Dr. Berenson. While there is a consensus regarding the need to move to more value-based payment systems, no 

one seems to have a clear idea how far or, you know, how we got 

from our current fee-for-service system or how we go from our current fee-for-service system to some of the new payment reform 

models like the accountable care organizations, and as you point 

159 

out in your written testimony, fee-for-service is actually the foundation for many of these new payment models. So I wanted to ask, 

if we want to improve the way we pay for fee-for-service at the 

same time we are creating incentives for providers to move into 

new delivery and payment models, what would this transitional period look like? 

Dr. BERENSON. Well, I pretty much think we are in the transitional period now, even if we can’t recognize it, because of all of the 

experimentation that is now going on. As Mr. Miller pointed out, 

we have both shared savings ACOs and risk-bearing ACOs that are 

being tested. We have got various models for bundled episodes 

being tested, the Independence at Home, which I think is a very 

important aspect, which would emphasize home care for frail, elderly, medical homes, et cetera. I think what I said in my testimony is that it is going to take us a number of years to sort it out. 

I think we should be doing robust experimentation now. I support 

Harold’s notion of having some bottom-up approaches that we 

would test. I also would endorse Chairman Hackbarth’s notion that 

as we go through this transition, we need to make it very—we need 

to put pressure on the fee-for-service reimbursements, and part of 

what I suggested is in shifting more reimbursement to primary 

care or away from tests and procedures, we would be putting that 

pressure. Ultimately, we want to be in a place where physicians 

find it is in their own interest to want to move into a new organizational structure or accept new payments rather than stay in feefor-service. 

I think most docs know that sort of unfettered fee-for-service 

with no incentives for collaboration and coordination probably is 

not the right payment model. So I think we are in the transition 

now and happily the volume and intensity of services and therefore 

CBO’s estimates of future spending in Medicare has moderated significantly, so I think we can take the time to really do what is necessary to understand where we want to go at some point. I don’t 

know if that is 5 years from now, 7 years from now. We would have 

to at least on a regional basis, possibly on a national basis, say we 

now have enough confidence in an alternative payment model that 

we are really going to expect doctors to move to that with the feefor-service as sort of a legacy system for those who can’t make the 

adjustment. 

Mr. PALLONE. All right. Thanks. I am going to try to get one 

more question in here for you and also for Ms. Mitchell, and Mr. 

Chairman, for this purpose I wanted to ask unanimous consent to 

introduce into the record this letter from the National Partnership 

for Women and Families, which I think you have. 

Mr. PITTS. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. PALLONE. Thank you, Mr. Chairman. 

There has been a significant movement over the past decade towards the establishment of multi-stakeholder consensus processes 

for health care quality and performance measurement, and Mr. 

Chairman, this letter references the SGR proposal being circulated 

by the Republican Ways and Means as well as Energy and Commerce staff, and in that letter, the National Partnership raises a 

number of concerns about the role medical specialty societies are 

160 

being given to develop and select quality and performance measures that would be the basis of their payment and the apparent exclusion of other stakeholders including consumers. They are concerned that this appears to reverse the positive trend over a number of years towards including a broader group of stakeholders in 

the process. 

So Dr. Berenson and Ms. Mitchell, over recent years there has 

been a lot of work developing consensus processes for development 

of quality and performance measures. What are your views regarding the appropriate roles for physicians, and how important is it to 

have consumers and other stakeholders involved in this process? 

And you have got 28 seconds. 

Dr. BERENSON. Twenty-eight seconds? I will be very quick. I am 

a believer in multi-stakeholder participation but ultimately I think 

Dr. Damberg would agree that the measures that we come up with 

need to be valid and reliable and need to pass sort of scientific 

muster from an organization like the National Quality Forum. So 

I would have consumers at the table and I wouldn’t simply defer 

to what the specialty societies would prefer in terms of how they 

would be measured. 

Mr. PALLONE. Ms. Mitchell, quickly. 

Ms. MITCHELL. Well, having run a multi-stakeholder process for 

over a decade in Maine to include physicians, unions, employers 

and consumers at the table to select measures, I can tell you it is 

possible, and it is very important. We have measurements now 

available that would not be if it were just for one stakeholder 

group. So it is challenging but it is extremely important, and I 

think it absolutely can be done and I think the National Quality 

Forum and their multi-stakeholder approach is very important. 

Mr. PALLONE. Thank you. Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the vice chairman, Dr. Burgess, for 5 minutes for questions. 

Mr. BURGESS. Thank you, Mr. Chairman. I want to thank our 

panelists for sticking with us through what has been a long but important hearing. 

Dr. Berenson, I was hoping you could help me with a couple of 

the points that you made, specifically point three and point five, 

point three being the in-office ancillary services where you said you 

would target those. I presume that means reduce those, and you 

would target those for fee reductions. 

Dr. BERENSON. I would want to see whether the reason that a 

lot of—there is abuse in the in-office ancillary exception. We now 

have physicians like dermatologists and gastroenterologists who 

used to send their specimens out to an independent pathology lab 

that are now doing those in-house under this exception, but at least 

some articles have described instead of doing the specimen to confirm that the biopsy is not malignant, they are now doing multiple 

slices, getting multiple payments, clearly abusing the opportunity 

to do those services themselves. Imaging has been a major concern 

about the in-office exception with practices that are buying machines and then supplying them. So what we learned with the imaging example if we reduce the overgenerous payment, we reduce 

the incentive to do some of these services. So that is what I had 

in mind. 

161 

Mr. BURGESS. I appreciate you paying attention when we were 

doing the Deficit Reduction Act in 2005 because that was the work 

of this committee that led to that. But then point five, the counterproductive nature of the correction of misvalued services, and this 

one based on the site-of-service differential, which really has led to 

almost the destruction of office-based cardiology in favor of hospital-based cardiology, and we literally watched that happen over 

the last 3 or 4 years, and I really think it is to the detriment of 

patient service. But nobody is getting a better deal because those 

services are now performed in the hospital. In fact, it was probably 

a better deal for the patient regardless of the pricing structure. It 

was a better deal for the patient to be seen in the cardiologist’s office, have the tests done, have it read and treatment rendered and 

judgment rendered at that point rather than multiple trips back 

and forth to the hospital to have the procedure done and then the 

consultation with the cardiologist. Can you speak to that? 

Dr. BERENSON. Yes. There may be reasons for hospitals to employ physicians if they have a commitment to become an integrated 

delivery system and potentially an ACO but a good reason is not 

to take advantage of the provider-based payments that provide, I 

would call windfall revenues for the hospital. It raises the cost to 

Medicare, raises the cost-sharing obligations to beneficiaries, does, 

as you point out, sometimes lead to greater inconvenience. The hospitals say that they do have obligations that practices don’t have— 

stand-by capacity, 24/7 stand-by capacity, running emergency departments, seeing uninsured. I want to recognize those costs but I 

want to recognize those costs and services, inpatient services or ED 

services, not in an outpatient service that can be done just as well 

at roughly the same cost in a doctor’s office. 

So I agree with you. I think it is unfortunate that we have had 

a huge migration of cardiologists out of office to become hospital 

employees, not to be providing higher quality or efficiency but to 

take advantage of this site-of-service payment anomaly. 

Mr. BURGESS. Well, we have come to an unfortunate place in our 

country where it is prohibited for a doctor to own a hospital but 

hospitals can own doctors, and that to me has put entirely the 

wrong incentives out there. 

Dr. BERENSON. Well, we do have some multi-specialty group 

practices that own the hospital so—— 

Mr. BURGESS. But under the Affordable Care Act, as far as generating and developing a new facility, that can’t happen, which 

really seems unfortunate because of the fact that you and I hold 

a professional degree, we are precluded from entering a business 

practice. 

Dr. BERENSON. The issues there relate to whether the physicianowned hospitals were in a position to cherry-pick the patients and, 

you know, MedPAC and others provided reports. It is a difficult 

issue. 

Mr. BURGESS. It is not as clear-cut as that. I read a very clear 

article on that written in Health Affairs in March of 2008 by me 

which said the most valuable thing I have is my time, and if I have 

got an uninsured patient and I can take care of them at an outpatient surgery site and my time is valued by that outpatient surgery site, I am actually ahead even though I didn’t make any 

162 

money that day and the facility didn’t make any money. It didn’t 

cost me the vast investment of time that it would cost me to wait 

in line behind a hospital surgery schedule. A separate point. I 

didn’t mean to bring that up but you forced me. 

Dr. Damberg, let me ask you a quick question. You just referenced that patients care about the cost of care. Did I hear you 

right when you said that? 

Ms. DAMBERG. That is correct. 

Mr. BURGESS. Well, now, the Commonwealth folks came out just 

earlier this month and said that activated patients cared about the 

cost of their care, and while I don’t really want to get into the nuances of what an activated patient is, certainly that patient who 

has a financial interest, a health savings account owner, for example, in my estimation would be an activated patient. So that would 

be a patient who cared about the cost of care. In my experience as 

a physician, when someone came in and I recommended a test or 

procedure, the next question was, doctor, is it really necessary; doctor, is it safe. The next question was, doctor, does my insurance 

cover it. If the answer to that question was yes, there was very little other curiosity about anything else. So am I wrong in thinking 

that way? 

Ms. DAMBERG. So let me give you a little story from California 

from where I hail. So—— 

Mr. BURGESS. Let us do real life, not California. 

Ms. DAMBERG. Well, I think the example holds the rest of the 

country. So someone that I know needed to have cataract surgery, 

and he looked within a particular zip code and found variation in 

terms of the amount of money it would cost to do this procedure 

ranging from $3,500 to $11,000, and given that he is financially at 

risk for a portion of that payment—— 

Mr. BURGESS. Correct. 

Ms. DAMBERG [continuing]. That starts to have significant implications. 

Mr. BURGESS. And it is the activated-patient concept. 

Ms. DAMBERG. Right, and I think what you see on the private 

sector side now is movement toward what is called referencedbased pricing, and so what health plans are doing on behalf of employers is going out and doing that work to try to understand these 

pricing differentials, make that available to consumers—— 

Mr. BURGESS. And it is probably better if the patient is involved 

in that, not the employer, and perhaps I will generate a written 

question for the record that I will ask you on that. Thank you. 

Mr. CASSIDY [presiding]. The chair recognizes Mr. Sarbanes. 

Mr. SARBANES. Thank you, Mr. Chairman. 

Dr. Berenson, when do you think we realized, had this epiphany 

or it has been a slow process of gaining realization that we needed 

to start moving from this fee-for-service system to something different? I mean, how long have been kind of trapped in this old system even though we have been able to see that we have to move 

in a different direction? 

Dr. BERENSON. Well, what is interesting is in fact two decades 

ago, it didn’t have the label value-based payment but the system, 

when I was practicing medicine in the 1980s and into the 1990s, 

we had global payments as a common payment method. The U.S. 

163 

health care model that HMOs were paying doctors on the East 

Coast basically had pay-for-performance but with shared savings. 

Twenty-five percent of my capitation was withheld and I got it 

back only if the costs of my patients, all of their costs, were below 

a certain amount. So in fact, we have been doing these new payment models. I think it came a cropper because of the managedcare backlash and some problems. We then reverted back, I think, 

to the early part of the last decade to sort of traditional fee-forservice, traditional freedom of choice, and then once we got over 

that backlash and began to look again and said costs are really 

going up, there were a couple of seminal articles suggesting that 

quality wasn’t terrific, I think we came back to those models. 

Mr. SARBANES. I mean, one difference now is that the better 

management that you are trying to incentivize is going into the 

hands of the providers, or at least that is the hope and expectation 

here. 

Dr. BERENSON. Well, I think that is right, although I would point 

to the California delegated capitation model has been alive and 

reasonably well—it had problems in the 1990s—for over two decades where providers, doctors, mostly, in control. That is what we 

are now trying to do in Medicare with ACOs, and I think that is 

a good idea. What is new, I think, in the last couple of decades is, 

we have much better data systems now to track performance and 

we actually do have the beginnings of quality measurement and beginning to focus on outcomes, which we did not have. One of the 

reasons for the managed-care backlash was the perception that atrisk medical groups had an incentive to stint on care and patients, 

members of health plans were concerned that they would get shortchanged. We now have some ability to monitor that that is not 

going on. So I think we are in a better position to do what was 

tried a couple of decades ago. 

Mr. SARBANES. Let me ask you this question. Obviously this 

transition is going to be a heavy lift and there is going to have to 

be a lot of research behind it in terms of changing these RVUs and 

coming up with new codes and everything, but if we could snap our 

fingers and know tomorrow what that new methodology would be 

based on all the research and everything, so you said we know 

what it is, now we have to deploy it, how long do you think it is 

going to take for that phase just to kind of—as a practical matter 

implement something if you already knew what it was today? 

Dr. BERENSON. I see. I guess one of the decisions—there are a 

couple of sort of core decisions that would have to be made. One 

is, do we put in a payment system nationally that everybody is 

going to participate in or can we roll this out by region as different 

regions demonstrate an ability to move. If we have the flexibility 

to do the latter, I think then it is much easier to do. Some States 

and areas within States are really ready, I would argue, for really 

new payment models and new delivery. Other places are not. So 

that is one issue. 

Another is the threshold question of whether we are providing 

options for physicians to opt into or whether we are going to make 

it mandatory. I think the different payment models probably call 

for a different answer to that one and maybe—in fact, I don’t think 

ACOs should be required to have every physician in the commuVerDate Nov 24 2008 11:10 Feb 25, 2014 Jkt 037690 PO 00000 Frm 00169 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-6 CHRIS
164 

nity. They would have credentialing criteria as to who really meets 

the expectations of the ACO. Maybe some docs would not be in. 

Other payment models like a bundled episode, I have trouble imagining that that would be sort of voluntary. I think if we find that 

it works, we are going to implement it. I don’t know, 3 to 5 years 

would be my guess. If we knew today that this is where we wanted 

to go, I would say something like 3 to 5 years to put it in with— 

I would much prefer to do it on a regional rollout basis than on a 

national all at once. 

Mr. SARBANES. That is helpful. Thank you. I yield back. 

Mr. CASSIDY. Thank you, Mr. Sarbanes. The chair yields to Mr. 

Hall. 

Mr. HALL. Mr. Chairman, thank you. I have been in another 

meeting and I don’t know what questions have been asked, but I 

understand you usually allow us to write questions to them and 

ask them to answer them at a reasonable time. 

Mr. CASSIDY. Yes, sir. 

Mr. HALL. Two or three weeks? 

Mr. CASSIDY. Correct. 

Mr. HALL. Thank you, Mr. Chairman. 

Mr. CASSIDY. The chair yields to Dr. Gingrey. 

Mr. GINGREY. Mr. Chairman, thank you. I also have had to step 

out, and I apologize for that, but in the last panel with Mr. 

Hackbarth, I asked him about burdens to real reform, specifically 

IPAB, and I look to engage this panel on the same question. What 

administrative and legislative burdens are in place today, IPAB obviously a legislative burden as I see it, hinder the development of 

lasting reform and how can we proactively work to remove these 

barriers to achieve better patient outcomes at a lower cost? Let me 

start from right to left. Dr. Damberg, would you start? And then 

each one of you can respond to that in regard to specifically IPAB. 

I want you to address that. 

Ms. DAMBERG. I am not sure I am qualified to talk about IPAB 

but in terms of other areas where I think federal regulations are 

getting in the way, I do think going back to the health information 

infrastructure, issues around privacy security, data sharing, having 

standardized data elements including a patient identifier are really 

handicapping our ability to measure patient care across providers 

longitudinally in the system. 

Mr. GINGREY. Yes? 

Dr. BERENSON. Well, I have—I am not quite sure I agree with 

you on IPAB. I agree to the extent that I don’t think we need 

15—— 

Mr. GINGREY. You heard my conversation with Mr. Hackbarth on 

the first panel? 

Dr. BERENSON. Right. I don’t think we need 15 experts from the 

outside who bring some special wisdom, but the concept of having 

the Secretary have the authority to—it is essentially putting Medicare on a budget and giving somebody the authority to recommend 

how to—where to cut mostly payment rates to accommodate those 

limits for some action, and I think more discrete action than just 

across-the-board arbitrary cuts, which will occur if a sequester goes 

in or which would have occurred under an SGR implementation, 

just we are going to whack all prices equally. Part of my testimony 

165 

was to make the point that I believe there are areas in the physician fee schedule to take that specific example where the prices far 

exceed the resource costs of production. I think there is an opportunity to do that. I think as a matter of normal business, CMS 

should be doing that, but if in fact we had to live within a budget 

limitation, I think it is not unreasonable that the Secretary would 

have the authority to—— 

Mr. GINGREY. Thank you. I didn’t mean to cut you off, but Ms. 

Miller, did you have a response on that? Ms. Mitchell. I am sorry. 

Ms. Mitchell. 

Ms. MITCHELL. I am also not prepared to comment on IPAB but 

I will tell you that what we—— 

Mr. GINGREY. Pull your mike a little closer, if you don’t mind. 

Ms. MITCHELL. Well, what we need most, I think, on the ground 

are resources, resources to actually support a data and measurement infrastructure and to support multi-stakeholder work, and 

the easy ability to integrate multi-payer, all-payer claims data with 

clinical data to give that feedback to physicians and to share that 

information with—— 

Mr. GINGREY. Well, I think you kind of avoided my question in 

regard to IPAB. I will let Mr. Miller have a shot at it. 

Mr. MILLER. Well, I will not avoid your question, Dr. Gingrey. I 

think the fundamental fact that you have to keep in mind is that 

only 17 percent of Medicare spending actually goes to physicians. 

You can cut physician spending by 27 percent as was proposed to 

do in the SGR and you would only save a few percent for Medicare. 

But if you can actually have the physicians helping you save the 

rest of the other 83 percent, you can save an extraordinary amount 

of money in Medicare, and that is where I talked about at the beginning is all of those preventable hospitalizations, unnecessary 

procedures and tests can be saved. And I think the problem is, we 

continue to try to fix a broken system by trying to either we have— 

Congress has two choices. If spending is controlled by utilization 

times price, then you say, oK, we can either take things away from 

beneficiaries—we don’t want to do that—or somehow we are going 

to cut the amount we pay to providers. Neither of those is a desirable approach, but if you can actually change the way that you pay 

physicians and ask them to come forward and say where can we 

save money without hurting patients, I think you can find tremendous opportunities. 

When I go around and talk around the country, I give talks to 

physicians, and when I ask them, I say can you tell me where you 

can save money in Medicare, and I brought along examples. They 

all give me examples. I have pages and pages of examples from 

Maine, from Virginia, from Seattle telling me, and I can give you 

examples from other States where physicians tell me all the places 

where there are opportunities to be able to save money, and then 

I say and why aren’t we taking advantage of those now, and they 

describe the barriers in the current payment system. So there are 

physicians I have found all over the country who would actually 

come forward and be able to significantly reduce Medicare spending if we give them the opportunity to do that. We are not going 

to achieve that by cutting their payment rates. If you thought that 

166 

a price of an airline ticket was too high, would you solve that by 

cutting the salary for the pilot? I don’t think so. 

Mr. GINGREY. Thank you, and thank you, Mr. Chairman, for your 

patience. 

Mr. CASSIDY. The chair recognizes Mr. Griffith. 

Mr. GRIFFITH. Thank you, Mr. Chairman. I like that point, Mr. 

Miller, that you made about bringing forward the physicians because oftentimes the people in the system can tell you how to solve 

those problems, and so I forward to working on that as one of the 

solutions. 

I am going to switch to you, Ms. Mitchell. You described geographic disparities in quality and cost of care within your own 

State of Maine with vast potential for qualitative gains and cost 

savings if best practices are widely adopted, and I guess I am curious, how do you describe or how would you suggest that we achieve 

this geographic parity, and keeping in mind that I am also looking 

not just at specialties but the fact that I have a large rural district 

with lots of small communities. Some of my counties, you know, 

have less than the 5,000 people necessary to do one of those new 

bundling formats that we were talking about with the previous 

speaker. 

Ms. MITCHELL. Well, I think the good news is that you don’t need 

a lot of people to do this. Maine is equally rural, as I am sure you 

know, and what we were able to do was bring physicians, employers, patients together to look at the data and really look at the variation. We found opportunities to reduce, for instance, cardiac 

spending by $35 million just by getting to current best-practice levels within the State. This is not unattainable. It is actually being 

done. So when you facilitate not only that information being shared 

but then bringing those best practices to the other areas, there is 

a lot of learning. You need technical support. You need information. You need feedback loops. All of those can be done at the local 

level. We also found massive variation in early induction, and just 

by sharing that data statewide, we saw up to a 20 percent reduction in those rates because they understood that that needed to 

change and that what best-practice targets were. So sharing information in and of itself is a very powerful practice. It does not require an ACO to do that. It requires engagement and data with the 

physicians. 

Mr. GRIFFITH. Which would be an amplification of what Mr. Miller was saying. 

Ms. MITCHELL. Absolutely. 

Mr. GRIFFITH. OK. And Mr. Miller, how do you encourage the 

physician buy-in, particularly in rural areas where you may not 

have sufficient numbers of docs to begin with? 

Mr. MILLER. Well, I think there is two ways. First of all, you 

have to spend the time to help physicians understand the model 

and to be able to get the data that they need to understand how 

this will work for them. I found when I have done programs—and 

I did a program last fall for the Medical Society of Virginia. We had 

physicians from all over the State that came in and spent a day 

actually working through the payment models, episode payments, 

comprehensive care payments for chronic disease, and after they 

had a chance to work through them, we took a little straw poll at 

167 

the end and said so which model would you rather be in, the current model or this model, and almost unanimously they said the 

new model. 

But then the question is, how will that work for me because it 

does come down to what is the price, and nobody actually knows 

today. They don’t have the data to be able to do that. So if we can 

get them the data—and it is not just the data, it is actually turning 

it in to information. So simply handing a physician, you know, 

seven multimillion claim record files from Medicare is not the answer. They are going to need help and they need to get that help 

from some trusted local entity. The kind of thing that Elizabeth 

Mitchell runs in Maine is a place where physicians have a seat at 

the table and have the access to technical assistance that they 

trust, and then some assistance in being able to transform the way 

they deliver care. 

And I think that if you then go to a rural area and you say, well, 

how will this work here and what tweaks do we need to be able 

to make in that model to make sure that it does work here, given 

that patients may have longer travel time, etc., but the flexibility 

of the model means that you can actually design a different system 

in a different place. You may say in a rural area we need to be able 

to do more telemedicine to be able to bring resources into unpopulated areas, then we can do something different in urban areas. So 

I think that is the real advantage of these flexible payment models 

is, they would actually give physicians the flexibility to design different care delivery systems that work in different communities. 

Mr. GRIFFITH. Well, I appreciate that, and I would have to tell 

you that I am not surprised that if you went to talk with the Medical Society of Virginia that you got some interesting ideas. I served 

in the State legislature for 17 years and worked with them on a 

regular basis on a number of issues, and it is a good group of people who are out to solve problems, not just—they are looking out 

for their territory but they are also out to solve problems and they 

have always been that way. I appreciate it very much, and I yield 

back, Mr. Chairman. 

Mr. CASSIDY. Thank you, Mr. Griffith, and the chair recognizes 

Ms. Capps. 

Mrs. CAPPS. Thank you, Mr. Chairman. 

I am going to pose my first question to Ms. Mitchell. Maybe there 

is time to have others weigh in on it because this topic has come 

up today with the previous person on the panel. Delivering highvalue patient- or person-centered health care seems to be moving 

away from the traditional physician-based model to one involving 

a health care team including both physicians and non-physician 

providers. Arguably, too much of our discussion tends to be focused 

on doctors and SGR topics and not enough on the other professionals, and we know how critical they are to achieving high-value 

care. As we debate what comes next after SGR—I think we are all 

in agreement that we need to focus on what will come after it— 

their voices, the voices of these other providers I believe are critical 

to ensuring an efficient and effective model of care or models of 

care that take care of the whole person with that being our focus. 

So my question is—and I can see others nodding so if you could 

go quickly and each make a short response to this, I would like to 

168 

have you all be on the record on this topic if possible. So the question is, how do we ensure that non-physician providers are appropriately engaged and appropriately valued as we move forward 

with new delivery and payment systems? I will start with you, Ms. 

Mitchell, because I had directed it to you, and then Mr. Miller, Dr. 

Berenson and Dr. Damberg if you would like to comment too. 

Ms. MITCHELL. I think one of the most promising developments 

in any of these new models is the patient-centered medical home, 

as I am sure you know. 

Mrs. CAPPS. Yes, I am a big champion of it. 

Ms. MITCHELL. That is absolutely about team-based care. 

Mrs. CAPPS. In fact, some have said it should not be a medical 

home, it should be a health home because it is positive. 

Ms. MITCHELL. I like that. And I will say that one of the most 

effective members of that team is the care manager based in the 

practice, not a physician, usually a nurse but another key team 

member who actually makes sure care is coordinated and managed. 

We are also—— 

Mrs. CAPPS. Over time, you mean? 

Ms. MITCHELL. Over time, absolutely, and in the community. We 

are also implementing community care teams for high-needs patients. We work with Dr. Brenner on hot-spotting. Who are these 

people? What supports do they need? Early, early anecdotal evidence, well, actually data-driven evidence is showing 40 percent reductions in some of their spend if they get the right care at the 

right time. These are not physicians. These are community-based 

multi—— 

Mrs. CAPPS. I can only imagine there might be some resistance 

from some, so let me hear a quick comment from Mr. Miller. 

Mr. MILLER. Congresswoman, I ran a project in Pittsburgh to try 

to reduce readmissions for chronic-disease patients, and we made 

a variety of changes in the hospital and physician practices but the 

most critical change by far was, we hired a nurse who could actually follow the patients and go and make home visits to them, and 

we had a 44 percent reduction in chronic-disease readmissions to 

the hospital. 

Mrs. CAPPS. I am so glad we are getting this on the record. 

Mr. MILLER. But the only way we were able to actually hire 

those nurses is, we got a grant from a local foundation to pay for 

them, and at the end of the project we had to lay off one of the 

nurses because no health plan would pay for it. Medicare does not 

pay for it. We were fortunate enough that in one case, the hospital 

was willing to pick up that nurse to be able to continue to work 

with the PCPs and the patients. That is the issue, flexibility of the 

models. I think when I talk to physicians all over the country, they 

would love to be able to hire a nurse to be able to do this work. 

They are not reimbursed for it. 

Mrs. CAPPS. Mr. Chairman, in response to this, I surely hope this 

is a topic that we can continue to engage in. I don’t pretend to have 

the answers, and just because I am a nurse and certainly do appreciate your comment, Mr. Miller, it isn’t just about nurses, and you 

being a doctor, I know you can understand that it is really about 

who we are focusing on in this kind of model. 

169 

Mr. MILLER. I would also just add quickly, the nurse worked 

with the physician. 

Mrs. CAPPS. Of course. 

Mr. MILLER. The nurse did not work for a health plan, was not 

working on some disconnected basis. They were working as part of 

a team with the physician so they added that critical element that 

the physicians could not do on their own. 

Mrs. CAPPS. And reduce the cost that much. Wow. Dr. Berenson? 

Dr. BERENSON. Three quick points. One is that fee-for-service is 

really a problem because if somebody has to make a rule as to a 

nurse practitioner working incident to or independently and they 

are arbitrary and they don’t work. 

Mrs. CAPPS. There is a lot to work out. That is why this is going 

to take even from us, and there are other people who will want to 

weigh in, a lot of discussion, many hearings hopefully on this topic. 

Dr. BERENSON. Secondly, I have just completed doing a number 

of interviews around advanced primary care. Some people prefer 

that term to either health home or medical home. There was a 

focus group that said—a woman said let’s see, medical home, funeral home, is that what you are talking about? Nursing home, funeral home. So there is a labeling issue I don’t think we have to 

get into, but the docs all said the real advantage that they have 

gotten as part of the multi-payer advance primary care was being 

able to hire a care manager/nurse to work with the really frail seniors and keep them out of the hospital. And the final thing, very 

simply is if we have a global payment to an organization, they can 

decide who the personnel should be, and I think nurses and other 

non-physicians will do very well in that calculation. It is not somebody in Baltimore or Washington telling them what their mix of 

staffing would be. 

Ms. CAPPS. And I might even say maybe that person is the right 

one to decide it but there might be somebody else too, but certainly 

local rather than some other place. 

And I know I am out of time but because I think I might be the 

last person to ask questions, would you mind? I would just love to 

get the fourth viewpoint on this. Thank you. 

Ms. DAMBERG. I would echo Mr. Miller’s comments. One of the 

things that I have seen in California, there is the Center for Medicare and Medicaid Services Innovation Grants going on. 

Mrs. CAPPS. Yes. 

Ms. DAMBERG. Some of those involve the use of nurse case managers and other personnel, and one of the things—those models are 

supposed to be kind of self-sustaining over time. 

Mrs. CAPPS. That is the challenge. 

Ms. DAMBERG. I think the focus right now in those projects is, 

you know, is Medicare going to change its payment policy such that 

we can continue to hire these personnel beyond the life of this 

project. 

Mrs. CAPPS. That might be the very next subject for a hearing, 

not that it would be my decision but it might be a suggestion that 

is coming apparently from this team, so I yield back my time. 

Thank you. 

Mr. CASSIDY. Dr. Gingrey has a quick question or comment. 

170 

Mr. GINGREY. Mr. Chairman, a unanimous consent request to 

briefly ask of Mr. Miller. At the end of my line of questioning, you 

had indicated there were some barriers to these multitude of ideas 

that you have showed us in your legal papers in regard to physicians not being able to share that information that you have 

gleaned. If you would submit to the committee maybe a list of some 

of those impediments to them being able to share that information 

because I think it would be very, very helpful to us as we go forward? 

Mr. MILLER. Well, the barriers are for them to actually implement the changes that would be necessary but I would be happy 

to share those. I think you would find it very insightful to see the 

range of different opportunities for savings the physicians identify, 

but it all comes back in many cases to the payment system that 

does not actually allow that to happen. It is not an issue of incentives, it is the fact that there are genuine barriers and restrictions 

like the fact that a nurse does not get paid for today. That is a barrier. 

Mr. GINGREY. Yes, and so within a week or two if you could do 

that, I would appreciate it. 

Mr. Chairman, thank you very much. 

Mr. CASSIDY. Thank you. The chair recognizes Mr. Bilirakis. 

Mr. BILIRAKIS. Mr. Chairman, I appreciate it very much, and I 

want to thank Chairman Pitts and Chairman Upton for giving me 

the opportunity to serve on this very important committee. 

I have a couple questions. The first one would be for Mr. Miller. 

I know you touched on this somewhat, but discuss the importance 

of defining special, specific outcome-based quality measures. What 

strategies do you propose to determine these measures? 

Mr. MILLER. You are directing that to me? 

Mr. BILIRAKIS. Yes. 

Mr. MILLER. So I think that as the committee has recommended, 

I think that physicians are in the first, best position to be able to 

identify what some of those outcome measures should be. I think 

then there should be a multi-stakeholder process for looking at that 

and saying are those the right things to ask consumers whether 

that deals with the kind of things that they are looking at. I do 

think that what we have to do is to start moving more to outcome 

measures and particularly to patient-reported outcome measures. 

Dr. Damberg talked about that in her testimony. But in order to 

be able to do that, you have to have some infrastructure in a local 

community to be able to actually survey the consumers and ask 

them, and that is where is having a trusted entity, a multi-stakeholder collaborative in the community that can actually do that 

work, to be able to do the surveying of the patients, to be able to 

do it reliably and then be able to report that in an accurate and 

objective fashion I think is critical to being able to assure everybody that in fact the care is improving and that you are getting the 

value for what you are paying for. 

Mr. BILIRAKIS. Thank you very much. 

Next question for Ms. Mitchell. Can you discuss the opportunities 

for better care and financial savings through use of the community 

care teams and the hot-spotting that you mentioned in your testimony? Is this a strategy that you foresee being scalable to different 

171 

community demographics such as rural, urban and suburban, et 

cetera? 

Ms. MITCHELL. Certainly, I think it is imminently scalable and 

it is probably not even that expensive because these are teams of 

nurses or even laypeople at some times. But what we are finding 

is that the key drivers for the heavy, heavy utilization are often 

mental health issues and substance abuse issues and other social 

determinants of health. So to be in the community and understand 

what the barriers are to these people actually getting better and 

not having to return to the hospital over and over again, it is not 

high tech, it is really working with the individuals, and I think it 

is not only scalable but really urgent to do exactly that. 

Mr. BILIRAKIS. Very good. Thank you. 

Thank you, Mr. Chairman, I yield back the balance of my time. 

Mr. CASSIDY. The chair recognizes Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. Again, I want to thank 

the entire panel for being here today, and some of you may have 

heard my questions earlier of our first panel, and I would like to 

hear both from Ms. Mitchell and Dr. Berenson if there would be 

anything different. How do we measure the quality accurately in 

a way that avoids a one-size-fits-all approach and put the patients 

first and avoids the endless complexity that could develop if we 

build too much flexibility into a system? 

Ms. MITCHELL. Thank you. I think you have heard repeatedly, 

and I certainly concur that outcome measures are the holy grail, 

but also we really need to think about functional status measures: 

is someone healthy, can they participate in their daily life effectively. So functional status measurement absolutely needs to be 

further developed and disseminated. Patients really care about patient experience, and that is somewhat different than patient satisfaction. It is really, did they get the care they needed, did they understand their role in continuing to manage their own health. So 

patient experience is equally important. I really have to say, 

though, that cost and resource use are equally important. We need 

to understand, are resources being used effectively for patients and 

for communities. So I think it is a combination of all of those different types of measures that really get a view at an accountable 

system. 

Mr. GREEN. Dr. Berenson? 

Dr. BERENSON. I would make a different point, which was in my 

testimony. I was emphasizing that there are some major gaps in 

what we measure and what I would argue that we can potentially 

measure in terms of at the individual physician level of what we 

want to measure. So, for example, for a surgeon, I think what we 

really care about is technical skill and judgment in deciding when 

a patient needs to go to the OR and what procedure they might 

need. I mean, we don’t have measures of that so what we do measure is relatively small stuff—did the hospital give antibiotic prophylaxis before surgery. I think we have to recognize that there are 

some very important things we can’t measure. We will get a much 

better job if we move towards outcomes rather than just relying on 

these kinds of processes. 

And the other point I would make, I think in agreement with everybody here, is the one thing that is ubiquitous in all physician 

172 

or hospital experiences is the patient’s experience with care, and I 

think we can be—I think while we have these large gaps in what 

we can measure and while we are working on an outcomes agenda, 

I think patient-reported outcomes and patient experience is really 

the one thing that applies across the whole system, and that is 

where I would be putting my emphasis at this point. 

Mr. GREEN. It seems like, you know, I know we have discussed 

this for a number of years and we have some almost laboratories 

in certain areas, whether it be in Pennsylvania where the chair of 

the subcommittee is from and Geisinger and Kaiser Permanente in 

California, are we actually learning now from their experiences on 

moving to that outcome-based in some of those? I know there are 

other ones in the country. Those are the two that come to mind. 

Seeing some of those indicators that we would need to do, what 

Congress needs to do, you know, to put into law so we could do it 

with that experience we are hearing, is that positive or negative 

or—— 

Mr. MILLER. Well, I would just say, you mentioned Geisinger, for 

example. There is a perfect example of a provider organization that 

agreed to take accountability for outcomes and said that we will 

have a single price for all the costs of care associated with a particular procedure or condition including maternity care. What they 

did was, they developed themselves a whole series of quality measures internally to look at, but they controlled them because they 

were accountable for the outcome. It wasn’t some external entity 

saying here is what you should do to make the cardiac bypass surgery work well, and because they were in control of them, they 

could manage them, they could decide which of them did not work 

and did work and adapt them. 

The problem that we have and one of my great fears is that 

when we start to create more and more and more quality measures, particularly process measures that are imposed by payers or 

by Medicare or whatever as part of pay-for-performance, we are 

locking in the old style of practice, and in fact what we want to do 

is to be able to unleash the creativity and the judgment of physicians to be able to say if it isn’t working, what do we need to 

change to be able to make it better. People talk about evidencebased medicine but where did the evidence come from in the first 

place but some physician who actually figured out how to be able 

to make it work, and we shouldn’t then say that whatever they discovered 10 years ago is as best as it is ever going to be. We should 

say if you can continue to improve, and I think that is what these 

different kind of payment models will allow is the flexibility to actually continue to improve rather than being locked into the old 

way of doing things. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. CASSIDY. Thank you, and the chair now recognizes himself. 

I have incredibly enjoyed this testimony. Mr. Miller, we are intellectual brothers from a different mother, and so I just want to tell 

you—— 

Mr. MILLER. I am delighted to hear that. 

Mr. CASSIDY [continuing]. Each of you have a standing invitation 

to call me for dinner and I will treat because I would just love to 

pick your brain. 

173 

Let me go a little bit. I couldn’t find it in your testimony but I 

think I recall you saying that these models that we should allow 

to bubble up should also include specialty societies. Frankly, the 

paradigm most speak of is primary care. It is a little bit threatening, though, to the neurosurgeon that thinks that she may be 

doing a great job but maybe iced out because of whatever reason. 

How in your thinking could a specialty society evolve into one of 

these models? 

Mr. MILLER. Well, I did not say that the primary care should be 

threatening. I think that the issue is that we are in fact putting 

excessive burden on primary care physicians to somehow fix everything about the cost and quality of health care when we do these 

models. I have talked to specialty physicians all over the country 

in a variety of different specialties and these examples that I cited 

have examples from every specialty—gastroenterology, infectious 

disease—— 

Mr. CASSIDY. Let me ask you, if there is going to be a global payment for population, then that almost implies that there has got 

to be somebody—— 

Mr. MILLER. I think you are jumping too quickly to saying it is 

only global payment. My point is in fact that I think that there 

should be different payment models that are specialty specific so if 

a gastroenterologist says I can do a better job of managing inflammatory bowel disease, they should be able to do that if they can 

improve quality and reduce costs. 

Mr. CASSIDY. And they would in turn contract with either the 

primary care or with someone—— 

Mr. MILLER. With whoever would be appropriate. I mean, in 

many cases I think gastroenterologists, to take the inflammatory 

bowel disease example, would be ones they would actually serve as 

the medical home for those patients because that is such a dominant condition. 

Mr. CASSIDY. Yes, I understand that. 

Mr. MILLER. Then what you can do is, you can—— 

Mr. CASSIDY. Let me pause you for a second because I get that, 

and you may know I am a gastroenterologist, so you just hit my 

sweet spot. 

So next, now, Dr. Damberg, you mentioned that there is difficulty coming up with meaningful measures, and both you and Mr. 

Miller comment on how we are currently measuring processes, but 

it really seems to me that if you give somebody a global payment, 

as an example, and they know that in order to improve outcomes 

and increase profit, they should reduce hospitalizations, as long as 

you have the kind of quality measures Dr. Berenson spoke of which 

keeps them from skimping on care almost by judging them on that 

outcome, you are going to get a better product. Does that make 

sense? Will it take care of itself if we go to the correct payment 

model? 

Ms. DAMBERG. So my remarks, if you look at my longer testimony, really focus on getting to a set of defined outcome measures, 

that that should be the focus to the extent that you are going to 

devise a new system of payment for providers that holds some portion of it at risk for performance on a set of indicators. Outcome 

measures are going to be more stable over time but it is going to 

174 

be critical to get physicians at the table to define what those outcome measures are. 

Mr. CASSIDY. I accept that, but on the other hand, if you know 

that the hemodialysis patient who doesn’t crash into dialysis but 

glides past down, who gets their thrombosis removed as an outpatient as opposed to an inpatient—we could go through other examples—is actually going to have better care and is going to be 

lower-cost care, as long as we know that they are actually getting 

dialyzed, they are not skimping and we have some audit—Dr. 

Berenson, you had mentioned this—it seems as if by judging that 

outcome, you almost take care of the processes. 

Ms. DAMBERG. I think that that is right because what you are 

letting the system do is self-correct. So one of the things that I 

have observed under the Medicare Advantage program because 

they are getting ready for 2015, the quality bonus payments that 

are kicking in, that will only reward health plans that have four 

or five stars, there is a huge amount of what I am calling anticipatory behavior going on where the health plans and the physician 

groups are working very proactively to ensure—— 

Mr. CASSIDY. To get their stars up. 

Ms. DAMBERG. Exactly. And so—— 

Mr. CASSIDY. I get that. Can I move on? 

Ms. DAMBERG. It is to that north star. They will work toward it. 

Mr. CASSIDY. Now, let me ask Miller or Mitchell, if you will, you 

mentioned this regional coordinating thing, which really seems 

really good but it is going to take—you all took a lot of effort to 

put that together. I keep on thinking that you have this MA set 

of systems and the MA plans actually have all this data—they 

know how to market, they know how to bill, they know how to coordinate care, and they know from what bundle of care somebody 

is going to give you a certain quality and cost. It almost seems like 

you could allow that small group to contract with them to provide 

those services, not in a traditional MA plan but rather mainly as, 

you know, a management program, if you will, a data management 

program and perhaps a provider of reinsurance. Any thoughts on 

that? 

Mr. MILLER. I think what you will see increasingly in the future 

is a complete flip. You will not have doctors being subcontractors 

to health plans but health plans being subcontractors to physicians 

to provide the services that they need. In fact, if you look around 

the country, there is only 11 Medicare Advantage plans in the 

country that are five stars, 10 of them are provider owned, and 

most of the 4.5- star plans are also provider owner. So I think there 

is that opportunity to do that, and I would say that the Louisiana 

Health Care Quality Forum is a multi-stakeholder collaborative in 

Louisiana that is working on trying to do this. What all the 

collaboratives have is the problem of getting any recognition from 

the federal government that they exist and to be able to give them 

the support to be able to work with physicians. 

Mr. CASSIDY. Now, if you do the subcontracting with the MA 

plan, it almost seems as if you supplant the need for a public entity 

but rather you have a private entity that can then take that role. 

Mr. MILLER. You could conceivably have a situation in the future 

where you have provider-driven plans selling policies to patients 

175 

and you would not have a traditional Medicare fee-for-service at all 

anymore. 

Mr. CASSIDY. OK. You all have been very helpful. Let me dig out 

and say what I am supposed to say at the very end. 

Thank you all. At this time I would like to ask unanimous consent to have a statement from the American Medical Association 

and the American College of Physicians included in the record. 

Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. CASSIDY. I remind members that they have 10 business days 

to submit questions for the record, and I ask the witnesses to respond to the questions promptly. Members should submit their 

questions by the close of business on Thursday, February 28. 

Without objection, the subcommittee hearing is adjourned. Thank 

you again. 

[Whereupon, at 1:32 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

176 


79793.113

~."... national partnership 

for women & families 

February 13, 2013 

The Honorable Joe Pitts 

Chair 

House Energy and Commerce Health Subcommittee 

U.S. House of Representatives 

Washington, DC 20510 

Dear Chairman Pitts; 

On behalf of the National Partnership for Women & Families I am writing to express concern 

about the provision in the SGR replacement proposal being circulated by the Committee that 

would base Medicare performance payment on physician-endorsed measures of quality 

without any role for a multi-stakeholder consensus process. The National Partnership 

represents women across the country who are the health care decision-makers for their 

families and as such want to ensure that the care they and their families receive is of the 

highest quality. Key to achieving this is ensuring that quality measures are developed with 

input from a broad array of stakeholders - including consumers. 

The National Partnership, along with a number of other consumer organizations, has been 

consistently engaged in multi-stakeholder collaborative processes to develop, evaluate, 

endorse, and recommend performance measures for use in CMS quality reporting and payment 

programs. We have worked tirelessly with purchasers, payers, providers, consumers and other 

stakeholders to support efforts to improve health care quality and outcomes while at the same 

time getting better value for the health care dollar. The goals and priorities outlined in the 

National Quality Strategy reflect the multi-stakeholder consensus that a patient-centered 

health care system will lead to improved health, improved care delivery, and lower costs. 

We support a number of elements in the Committee's SGR reform proposal, including 1) 

rewarding physicians who deliver high quality and efficient care, rather than continuing the 

current system that encourages volume and unnecessary spending; and 2) providing timely 

feedback and data to physicians to allow for quality improvement. We are extremely 

concerned, however, that the proposal would give sole responsibility to medical specialty 

societies to develop and select quality measures, and base payment on measures of 

performance that do not reflect the concerns and needs of patients for whom we need to 

improve care and outcomes. This reliance on specialty societies would be a huge step 

backwards in our efforts to engage consumers in making effective decisions and supporting 

high value care. It also places a significant burden on the medical community, given the 

expensive and time-consuming nature of measure development. Currently both the Medicare 

1875 connecticut avenue, nw N suite 650 N washington, de 20009 N phone: 202.986.2600 N fax: 202.986.2539 

email: info@nationalpartnership.org N web: www.nationalpartnership.org 
177 


79793.114

and Medicaid programs use measures that have been developed by a range of entities - NCQA, 

the VA, the CDC, the Joint Commission, AMA-PCPI, various physician and health professional 

organizations, research institutions and others. Limiting the measures CMS can use in the 

Medicare program only to those developed by the medical societies would reduce our ability to 

foster alignment between the public and private health care sectors. 

Rather than create more consistency of measurement across providers and settings, this 

approach will likely result in other payers, plans and purchasers implementing their own 

measures, thereby creating a cacophony of measurement that increases the burden for 

clinicians, increases the cost of data collection, impedes systemic improvement in quality and 

resource use, and increases confusion for consumers. 

It is critical that the process for creating, evaluating, recommending, and implementing quality 

metrics for the purposes of improving care and tying payment to quality include a broad range 

of health care stakeholders, including consumers. The National Quality Forum consensus 

development process for evaluating and endorsing quality measures, and the pre-rulemaking 

advisory process enabled by the Measure Applications Partnership, reflect strong multistakeholder efforts and consensus building. These processes permit wide vetting of the 

measures by multiple stakeholders based on criteria for importance, validity, solid evidentiary 

base, and usability. Involving these multiple stakeholders in the approval process helps assure 

the broad acceptance of the measures for use by both public and private payers and by 

consumers. 

We believe there is a way to include all stakeholders in this process and I would be happy to 

talk with you further. Thank you for the opportunity to provide input on this proposal. 

Sincerely, 

~~dc' 'r;:.r~">--------

Debra L. Ness 

President 

National Partnership for Women & Families 
178 


79793.115

STATEMENT 

of the 

American Medical Association 

for the Record 

House Energy and Commerce Committee 

Subcommittee on Health 

RE: SGR: Data, Measures and Models; 

Building a Future Medicare Physician Payment 

System 

February 14,2013 

Division of Legislative Counsel 

202789-7426 
179 


79793.116

Statement of the 

American Medical Association 

for the Record 

House Energy and Commerce Committee 

Subcommittee on Health 

RE: SGR: Data, Measures and Models; 

Building a Future Medicare Physician Payment System 

February 14,2013 

The American Medical Association (AMA) is thankful to Chairman Pitts, Ranking Member 

Pallone, and all of the Members of the Subcommittee for holding this hearing today on SGR: 

Data, Measures and Models; Building a Future Medicare PhYSician Payment System. We 

applaud your leadership in advancing Medicare physician payment and delivery reform efforts. 

The AMA also appreciates the opportunity to present our views to the Subcommittee today. We 

now have a unique opportunity to improve and restructure care delivery and payment policy for 

patients across the country. Many ground-breaking innovations are already underway, and it is 

critical that we continue on this path. Yet, successful reforms must rest on a strong Medicare 

physician payment foundation. Therefore, it is imperative that the flawed Medicare physician 

payment fonnula, known as the sustainable growth rate (SGR), be repealed and replaced with an 

alternative, more viable system. The SGR has been plaguing patients and physicians in 

Medicare and the TRICARE military health program for over a decade, and its repeal is long 

past overdue. Now is the time to end this failed policy once and for all and protect access to care 

for seniors now and in the future. The Congressional Budget Office (CBO) recently estimated 

that the cost of pennanentiy replacing the SGR has decreased dramatically. The new cost of 

freezing payments for ten years is $138 billion, more than $100 billion less than the previous 

projection. The rate of Medicare spending growth declined compared to historical trends, and 

spending for physician services affected by the SGR is projected to be far less than previously 

estimated. We urge the Subcommittee and Congress to take advantage of the fact that the 

cost of repealing the SGR is lower than it has been in many years and move promptly to 

replace the formula with a new system that encourages quality care while reducing costs. 

As the Subcommittee explores effective options for new payment and delivery reform models 

that can form the basis for a new Medicare physician payment system, the AMA is pleased to 

submit to the Subcommittee the attached white papers developed by the AMA's Innovators 

Committee. Formed in June 2011, the Innovators Committee is a group of innovative physicians 

tasked with developing resources to help their colleagues from various specialties implement 

effective delivery and payment reforms that are applicable to their practice setting and service 

mix. Two early resources developed by the Innovators Committee to facilitate payment and 

delivery reform models include: 

2 
180 


79793.117

• The Case for Delivery Reform-Implementing Innovative Strategies in Your Practice, 

which offers practical guidance to physicians on how to implement delivery reforms by 

describing their own experiences in the form of case studies. 

• Physician Payment Reform-Early Innovators Share What They Have Learned, which 

assesses the strengths and weaknesses of various payment models and offers practical 

implementation guidance for physicians. 

The Innovators Committee will continue its important work and outreach to physicians across 

the country by sponsoring a series of seven webinars (see below) that will offer practical 

guidance to physicians on how to implement payment and delivery reforms. These webinars, the 

first two of which were held in 2012, will continue through the first halfof2013. 

1. Here It Comes ... Delivery Reform, Payment Reform, and Everything In between 

(November 27,2012). Archived at 

https:llcme.ama-assn.org/Activitv/I263282IDetaiJ.aspx 

2. You Can't Do It All So Don't Try: Optimizing Practice Workflow to Increase Value 

(December 11, 2012). Archived at 

https:llcme.ama-assn.org/Activitv/I284669IDetail.aspx 

3. Is Employment the Only Alternative? Improving Care Coordination through Clinical 

Integration (January 31, 2013) 

4. Do I Need a Statistician? Benchmarking Practice Performance to Achieve Value 

(February 27,2013) 

5. Delivery Reform Implemented? Payment Models that Reward Your Performance 

(April 2, 2013) 

6. Building New Payment Models and Getting Paid (TBD) 

7. The Final Piece of the Puzzle: Customizing the Payment Model to Fit Your Practice 

(TBD) 

The AMA appreciates the opportunity to provide our comments on these critical matters, and we 

look forward to working with the Subcommittee to repeal the flawed SGR formula and assist in 

the transition to a new health care payment and delivery system that provides more coordinated 

care, improves health outcomes, and slows the growth of costs in the Medicare program. 

3 
181 


79793.118

Summary of Statement for the Record 

American College of Physicians 

Hearing hefore the House Energy & Commerce Suhcommittee on Health 

"SGR: Data, Measures and Models; Building a Future Medicare Physician Payment System" 

February 14,2013 

A FRAMEWORK TO REPEAL THE SGR AND PROGRESS TO BETTER MODELS 

ACP supports a two-phased approach to eliminate the SGR and tnmsition to better payment and delivery systems that are 

aligned with value. During phase one, repeal the SGR formula, provide at least 5 years of stable physician payments, with 

positive increases for all physician services, and higher payments for primary care, preventive and care coordination 

services; and in phase two establish a process for practices to tnmsition to new, more effective, models of care by a date 

certain. ACP is encouraged that this committee's SGR proposal, as released jointlY with the Ways & Means Committee 

on February 7th, is largely consistent with this approach. 

REFORMING FEE FOR SERVICE AND TRANSITIONING TO V ALUE-BASIj:D PAYMENT 

ACP supports shorter term reforms to start more physicians on the road to better payment models, and reward "early 

adapters" who already have taken the leadership to participate in payment programs focused on higher quality, improved 

patient experience, and greater value. This includes development and recognition under Medicare fee-for-service payment 

polices of two new sets of CPT codes for transition care following a facility-based discharge and for chronic, complex 

care. These code sets are designed to allow physicians to report their non-face-to-face time, and the clinical staff (team) 

time spent on patient cases. 

Create opportunities for performance based payment updates based on successful participation in an approved tnmsitional 

value-based payment program initiative that meets standards relating to the effectiveness of each program, building on 

successful models in the public and private sectors. 

THE ROLE OF PERFORMANCE ASSESSMENT IN A REFORMED HEALTH CARE SYSTEM 

Existing Quality Improvement (QI) programs such as Medicare PQRS, e-RX, and meaningful use prognuns must be 

better aligned with each other, with private payer initiatives, or with specialty boards' maintenance of certification 

programs. While strides have been made in aligning the measures, at a high level, the technical requirements within each 

of the programs are different enough that dual processes must be undertaken. 

Improve CMS's ability to provide timely data to participating physicians and practices, which is critical to enable 

physicians to make adjustments to improve patient care. 

In 2012, ACP released a paper titled, The Role of Performance Assessment in a Reformed Health Care System, 1 in which 

we laid out a series of policy statements focused on the evolving roles of performance assessment efforts within the realm 

of medical care, including programs linking payments to reporting and performance on specific quality measures. 

SPECIFIC PAYMENT AND DELIVERY REFORMS THAT CAN SERVE AS THE BASIS FOR A NEW 

MEDICARE PAYMENT SYSTEM 

The patient-centered medical home (PCMH) should be scaled up for broad adoption within Medicare. The PCMH model 

is an approach to providing comprehensive primary care in a setting that focuses on the relationships between patients, 

their primary care physician, and other health professionals involved in their care. Key attributes of the PCMH promote 

health care delivery for all patients though all stages of life. Other promising care coordination models include: medical 

home "neighborhoods," Accountable Care Organizations (ACOs), and bundled payments. 

A LEGISLATIVE PATHWAY TO ACHIEVING COMPREHENSIVE PAYMENT AND DELIVERY SYSTEM 

REFORMS 

ACP supports bipartisan legislation, the Medicare Physician Payment Innovation Act (H.R. 574), that has been introduced 

in the 113w Congress that provides a reasonable pathway toward achieving a phased-in approached to repealing and 

reforming the SGR, permanently. 

I This paper can he accessed at: http://www.acponline.orgiadvocacv/where we stand/policv/perfonnance assessment.pdf. 
182 


79793.119

Mr. Glenn 1\1. Hackbarth 

Chairman 

Medicare Payment Ad\ is,,,.y Commission 

425 Eye Street. N,W., Suite 7()1 

\Vashington. D,C, 2(JOOI 

Dear 1\1L Hackbarth: 

1\larch 13, 2(JU 

at the Subcommittee on Health b";1fing entitled "SnR: Data, 'Vkasures. 

and 1\lodels; Ph)sician PUYlTll'llt System," 

Pursuant to the Rules of the CommitWe on Energy and Conlln"r".;;. the hearing record remains 

open for 10 husiness to permit Members to submit additional questions to witnesses. which arc 

attached. rl1c fhrmat to th"se questions ,hol1ld be [ollm,,: (!) the uame "flhe 

Member Whll'" question you arc (2l1hc complcl" text of the qucsliun )'OU arc nddrl'-;sing in 

o"ld, and (3) your anSllcr to tilat question plain text 

To facilitate the printing orliJe hearing n:cord, plcase c-mail your in \Vord or PDF 

l()l'flllll. to £m:!Y,J)],\\,j,ilillm.;;:itmniLllQ\ill;dlo'}: by the close PI' business on Wll'ill1eI,llil\ "'larch 2013. 

Thank you again for your time and effort preparing and delivering testimony hel!)r" the 

Snbcommillee. 

c(:; Fr:mk Pallone. Jr.. Ranking Member. Subcommittee on Health 

;\ttachment 
183 


79793.120

Responses to Questions for the Record 

Committee on Energy and Commerce-Health Subcommittee 

Hearing on "SGR: Data, Measures, and Models; Building a Future Medicare Physician 

Payment System." 

February 14,2013 

Question from the Honorable Joseph R. Pitts 

We understand that in developing the Medicare Advantage (MA) rates each year, CMS 

assumes that the SGR will produce a physician fee cliff in the coming year. The agency 

does not take into consideration that the Congress takes action every year to eliminate the 

cliff. This policy has negatively impacted MA rates and the benefits and premiums plans 

can offer to beneficiaries. From your understanding, is there a statutory reason that 

compels CMS to make this assumption? 

MedPAC does not have expertise in interpreting legal language, and thus we cannot opine on the 

statutory requirements that CMS must follow in setting the Medicare Advantage (MA) rates each 

year. 

Along with physicians and other health professionals, MA plans experience great uncertainty in 

their payment rates as a result of the SGR fonnula. This uncertainty of rates is yet another reason 

that the Congress should immediately repeal the SGR. 

Questions from the Honorable Renee Ellmers 

1. During the question posed to you by Representative John Dingell (D-MI), yon indicated 

that curbing excessive imaging is one of short-term ways to improve care and reduce 

waste in the Medicare system. In light of the fact that advanced diagnostic imaging 

services have been cut 12 times since 2006, what further imaging reimbursement 

policies would you reduce to curb "unnecessary imaging procedures?" What specific 

data (please include line-by-line or specific code analyses) can you provide in support of 

such policies? Would MedPAC consult with practicing radiologists and include their 

input when developing these policies? 

Despite decreases in 2011 and 2010, the use of imaging services remains much higher than a 

decade ago. l Cumulative growth in the volume of imaging from 2000 through 2009 totaled 85 

percent, compared with a cumulative decrease in imaging volume in 2010 and 20 II of less than 

4 percent. From 2000 through 2009, imaging volume grew more than twice as fast as evaluation 

and management (E&M) services and major procedures. Meanwhile, physicians and others 

continue to raise concerns about overuse of imaging2

,3,4,5,6,7,8, and the risks associated with 

unnecessary imaging.9,lo,ll,l2 

The Commission believes that reducing waste in Medicare requires implementing delivery 

system refonns that move away from fee for service (FFS) and encourage high quality, and more 

efficient provision of care. These refonns include medical homes, bundling, and accountable 

care organizations (ACOs) under which provider organizations assume clinical and financial 

responsibility to care for a defined population. 
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Responses 10 Questions for the Record 

Page 2 of5 

Recognizing that Medicare is likely to continue using its current flawed FFS payment system for 

some years in the future, the Commission has also made several recommendations to improve 

payment accuracy for imaging services and ensure that they are used appropriately. Some of 

these recommendations-<liscussed below-have not yet been implemented. 

First, CMS should work with the American Medical Association/Specialty Society Relative 

Value Scale Update Committee to accelerate and expand ongoing efforts to combine into a single 

payment rate multiple discrete services often furnished together during the same encounter. 13 

This recommendation applies to the physician fee schedule (PFS). For example, 

radiopharmaceuticals could be combined with their associated imaging services into a single 

code, as is done in the outpatient prospective payment system. The payment rate for these 

comprehensive codes should reflect efficiencies that occur when two or more services are 

provided together. In 2011, for example, CMS adopted relative value units (RVUs) for new 

comprehensive computed tomography (CT) codes that included CT of the abdomen and CT of 

the pelvis. The RVUs for the comprehensive codes accounted for efficiencies in physician work 

and practice expenses that occur when the component CT studies are performed at the same time. 

Second, the Commission recommended that the multiple procedure payment reduction (MPPR) 

policy under the PFS apply to both the technical component and professional component of all 

imaging services. 14 The MPPR accounts for efficiencies in practice expense and physician work 

that occur when multiple services (such as MRI of the head and MRI of the neck) are performed 

in the same session. In response to our recommendations, CMS has developed MPPR policies for 

the technical and professional components ofCT, MRI, certain ultrasound, and nuclear medicine 

studies. The analyses conducted by CMS to support these payment reductions are discussed in 

the proposed and final rules for the physician fee schedule for 2006 and 2012. The Commission 

supports expanding the MPPR to additional imaging services to account for efficiencies that 

occur when multiple studies are performed in the same session. Given that there are efficiencies 

when CT, MRI, certain ultrasound, and nuclear medicine studies are provided together, it is 

reasonable to expect that similar efficiencies occur when other imaging services (e.g., other 

ultrasound, X-rays, and fluoroscopy) are furnished in the same session. 

Third, Medicare should reduce payment rates for imaging and other diagnostic tests paid under 

the PFS when the same practitioner orders and performs the test because there are some 

efficiencies that occur in these cases. 15 The work involved in interpreting a test may duplicate 

activities that have already been performed by the referring practitioner, such as reviewing the 

patient's history, medical records, symptoms, medications, and the indications for the test. Ifthe 

physician who performs the test is the same one who ordered it, the physician should have 

already obtained and reviewed much of this information during an E&M service. Accounting for 

these efficiencies should reduce the financial incentive for physicians to self-refer for imaging. 

Fourth, Medicare should establish a prior authorization program for practitioners who order 

substantially more advanced diagnostic imaging services than other physicians who treat similar 

patients. 16 The rapid volume growth of advanced imaging services (MRI, CT, and nuclear 

medicine) over the past decade and questions about appropriate use justify the development of a 

targeted prior authorization program in Medicare. Such an approach would ensure that outlier 

physicians are using advanced imaging services appropriately without subjecting all practitioners 

to prior authorization. A prior authorization program should target advanced imaging services 

that account for a significant share of spending and volume, have evidence-based standards for 

appropriate use, and exhibit variations in utilization among providers and geographic areas. 
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79793.122

Responses to Questions for the Record 

Page 3 of5 

Finally, we frequently meet with associations representing radiologists and other physicians who 

use imaging services, such as the American College of Radiology and the American College of 

Cardiology. We consider their input in developing our recommendations. 

2. You consistently cite that the primary reason behind high imaging utilization rates is 

that these services are overpriced. How could advanced imaging services still be 

overpriced when these services have been cut 12 times since 2006 through such policies 

as the Deficit Reduction Act of 2005, the CMS Physician Practice Information Survey 

(PPIS), the professional component multiple procedure payment reduction, and the 

increase in the equipment utilization assumption rate as stipulated by the recently 

enacted American Taxpayer Relief Act? Is the ultimate goal of MedPAC to eliminate 

in-office imaging, thus forcing all Medicare patients to receive imaging services in the 

hospital setting? 

In addition to mispricing of services, many factors appear to be driving the growth of imaging: 

• technological innovation and new clinical applications, 

• changes in the population and disease prevalence, 

• incentives in Medicare's fee-for-service payment system to increase volume, 

• defensive medicine, 

• consumer demand, 

• physician self-referral, and 

• the increase in hospital employment of physicians, which has contributed to the growth of 

imaging in hospital outpatient departments (OPDS).17 

Between 2005 and 2012, the Congress and CMS made several changes to PFS payment rates for 

imaging services. Nevertheless, the Commission believes there are still opportunities to improve 

payment accuracy for several reasons. For example, the PFS does not account for certain 

efficiencies that occur when certain imaging services are provided during the same encounter or 

when the same practitioner orders and performs an imaging study. Payment rates should be 

adjusted to reflect these efficiencies (see the recommendations discussed in response to question 

1 above). MedPAC's goal is not to eliminate in-office imaging. Rather, our goal is to improve 

the overall accuracy and equity of the PFS, and reduce financial incentives for physicians to 

order imaging inappropriately. 

We are also concerned about the migration of cardiac imaging services from physicians' offices 

to the higher-paid OPD setting, caused in part by the growth in hospital employment of 

cardiologists. This shift towards OPDs results in higher program spending and beneficiary cost 

sharing without significant changes in patient care. From 2010 to 2011, for example, the share of 

echocardiograms provided in OPDs increased by about 13 percent and the share of nuclear 

cardiology tests provided in OPDs increased by about 15 percent. If these services continue to 

migrate to OPDs at the same rate from 2011 to 2021, Medicare spending would be $1.1 billion 

higher per year by 2021 and beneficiary cost sharing would be $290 million higher per year. 
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79793.123

Responses to Questions for the Record 

Page 4 of5 

3. You mentioned numerous times in your oral and written testimony that the relative 

value units (RVUs) for physician work within the Medicare Physician Fee Schedule are 

incorrect and, in direct response to a question posed by Representative Ralph Hall (RTX), that the time estimates are "off by a significant amount." What specific data can 

you provide to justify this statement (please include line-by-line or multiple code 

analyses)? 

The Secretary of Health and Human Services lacks current, ob~ective data needed to set the fee 

schedule's RVUs for practitioner work and practice expenses. 8 The fee schedule's time 

estimates are an example. The RVUs for practitioner work are largely a function of estimates of 

the time it takes a practitioner to perform each service. However, research for CMS and for the 

Assistant Secretary for Planning and Evaluation of the Department of Health and Human 

Services has shown that the time estimates are likely too high for some services. 19 In addition, 

anecdotal evidence and the experience of clinicians on the Commission suggest problems with 

the accuracy of the time estimates. 

Other evidence of errors in the time estimates comes from CMS' s potentially misvalued services 

initiative. Without direction on the number of services to review or the level of savings to 

achieve, the initiative in 2011 led to revaluation of a number of services and a redistribution of 

payments equivalent to 0.4% offee schedule spending (about $260 million). As part of the 

initiative, the time estimates for services have been revised downward. These revisions suggest 

that current time estimates-which rely primarily on surveys conducted by physician specialty 

societies that have a financial stake in the process-are often incorrect. 

4. In the past, MedPAC has recommeuded Congress and CMS apply multiple procedure 

payment reductions (MPPR) to the professional and technical components (pcrrq of 

advanced diagnostic imaging services. Do you believe these MPPR policies should be 

based on detailed data analyses indicating what efficiencies exist when interpreting 

multiple imaging studies on the same patient? Do you believe that random application 

of 25 or 50% reductions are justified especially in light of the fact that a line-by-line 

analysis to determine efficiencies within the professional component hasn't been 

released for public review, to date? 

The MPPR's percent reduction should be based on an analysis of the average efficiencies that 

occur when multiple services are performed in the same session. This reduction could vary for 

different types of services, such as surgical procedures, imaging, and outpatient therapy, 

depending on the extent of the efficiencies associated with each type of service. CMS has 

conducted analyses to support the MPPR reductions for the technical and professional 

components of certain imaging studies, which are discussed in the proposed and final rules for 

the physician fee schedule for 2006 and 2012. For example, when developing the MPPR policy 

for the professional component of imaging, CMS analyzed 12 pairs of high volume advanced 

imaging codes and found duplications in the pre-service work, intra-service work, and postservice work components (this analysis is described in the proposed and final rules for the 

physician fee schedule for 2012). These efficiencies justified work RVU reductions ranging from 

27 to 43 percent for the lower-paid code within the pair. CMS adopted a 25 percent reduction for 

all ofthe imaging services included in the policy, which is below the bottom end of this range. 
187 


79793.124

References 

Responses to Questions for the Record 

Page 5 of5 

1 Medicare Payment Advisory Commission. 2013. Report to the Congress: Medicare Payment Policy. Washington, 

DC: MedPAC. 

2 Baker, L.C. 2010. Acquisition ofMRl equipment by doctors drives up imaging use and spending. Health Affairs 

29, no. 12 (December): 2252-2259. 

3 Hughes, D.R., M. Bhargavan, and J.H. Sunshine. 2010. Imaging self-referral associated with higher costs and 

limited impact on duration of illness. Health Affairs 29, no. 12 (December): 2244·2251. 

4 Welch. H.G., K.J. Hayes, and C. Frost. 2012 Rcpeat testing among Medicare beneficiaries. Archives of internal 

lvfedicine 172, no 22 (December 10): 1745·1751. 

5 Hendel, R.C., M. Cerqueira, P .S. Douglas, ct a!. 20 I O. A multicenter assessment of the use of single-photon 

emission computed tomography myocardial perfusion imaging with appropriateness criteria. Journal of the 

American College of Cardiology 55, no. 2 (January 12): 156·162. 

6 Mehta, R., R.P. Ward, S. Chandra, et aJ. 2008. Evaluation fo the American College of Cardiology 

Foundation! American Society of Nuclear Cardiology appropriateness criteria for SPECT myocardial perfusion 

imaging. Journal of Nuclear Cardiology 15. no. 3 (May-June): 337-344. 

7 Gibbons, R.J., T.D. Miller, D. Hodge, et al 2008. Application of appropriateness criteria to stress single·photon 

emission computed tomography sestamibi studies and stress echocardiograrns in an academic medical center. 

Journal of the American College of Cardiology 51, no. 13 (April I): 1283·1289. 

8 Pham, H.H., B.E. Landon, J.D. Reschovsky, et a!. 2009. Rapidity and modality of imaging for acute low back pain 

in elderly patients. Archives of internal Medicine 169, no. 10 (May 25): 972-981. 

9 Baras, J.D., and L.C. Baker. 2009. Magnetic resonance imaging and low back pain for Medicare patients. Health 

Affairs 28, no. 6 (November·December): wi 133·1 140. 

10 Centers for Medicare and Medicaid Services, Department of Health and Human Services. 2011. Outpatient 

imaging efficiency (OlE) measures. Listening session background paper. Baltimore, MD: CMS. 

11 Andrus, B.W., and H.G. Welch. 2012. Medicare services provided by cardiologists in the United States: 1999-

2008. Circulation: Cardiovascular Quality and Outcomes 5, no. 1 (January 1): 31-36. 

12 Hoffman, J.F., and RJ. Cooper. 2012. Overdiagnosis of disease: A modem epidemic. Archives of internal 

Medicine 172, no. 15 (August 13): 1123·1124. 

13 Medicare Payment Advisory Commission. 2011. Report to the Congress: Medicare and the Health Care Delivery 

System. Washington, DC: MedPAC. 

14 Medicare Payment Advisory Commission, 2011. Medicare Payment Advisory Commission. 2005. Report to the 

Congress: Medicare Payment Policy. Washington, DC: MedPAC. 

15 Medicare Payment Advisory Commission, 20 II 

16 Medicare Payment Advisory Commission, 20 J J. 

17 Medicare Payment Advisory Commission. 2010. Report to the Congress: Aligning incentives in Medicare. 

Washington, DC: MedPAC. 

18 Medicare Payment Advisory Commission, 2011. Medicare Payment Advisory Commission. 2005. Report to the 

Congress: Medicare Payment Policy. Washington, DC: MedPAC. 

19 Cromwell, .I., N. McCall, K. Da1ton~ et al. 2010. Missing productivity gains in the Medicare physician fee 

schedule: Where are they? Medical Care Research and Review 67, no. 6 (December): 676·693. 
188 


79793.125

Mr. Harold J). Miller 

Executive Director 

C('nt~r fl)r Hcallhcarc Quality and Payment Rcfi:mn 

320 I'ort Duquesne BOlllcyanJ, Suite 20·J 

Pittshurgh. l' A 15222 

DcaI' Mr. 'd iller: 

I hank you fhr appearing at the Subcommittee on Health hearing cnlitlt'd "SGR: Data. Measures. 

iIlld Models: Building a Future Medicare Physician Paymcill System:' 

During the hearin~ you were asked to pro\'ide information fllr the record. and those requests are 

attached. The format nfynur reSI)()l1SeS to these requests should be as folJows: (I) the Ilame of the 

"'!ember whose question you are addres.sing. (2) the completc Ie:>;! oftne question you arc addressing in 

bold, and (3) your ,1I1imer to that question in plain Ie:>;!. 

1'0 iilcilitate the printing of the hearing record. please e,mail your responses, in Word 01' PDF 

j(lrmat. TO £:JriUlll.:,\yiilll!l11sifjnaiLh<,11lse.go'i hy the cil)SC or business on Wednesday, March 27. 2013. 

lhank you again for ~ our time ,l!1d effort pr<'paring and ddiH'ring teslimony hdhre the 

Subcommittee. 

cc: FranJ.. Pallom:. Jr .. Ranking M0mber. Subcol111nitke ()nllcalth 

Attachment 
189 


79793.126

The Honorable Joseph R. Pitts, Chainnan 

Subcommittee on Health 

Committee on Energy and Commerce 

House of Representatives 

Congress of the United States 

2125 Rayburn House Office Building 

Washington, DC 20515-6115 

Dear Representative Pitts: 

March 24, 2013 

Thank you for the opportunity to appear at the Subcommittee on Health's February 14 

hearing on "SGR: Data, Measures, and Models: Building a Future Medicare Physician Payment 

System." 

Attached is my response to the question that Representative Gingrey asked during the 

hearing. 

Please let me know if you or Representative Gingrey need any additional infonnation or 

ifI can be of further assistance to the Subcommittee Members or staff. 

Attachment 

Sincerely, 

Harold D. Miller 

President and CEO 
190 


79793.127

Fr. 

\l;'v,'\r.(H(trR.UR(: 

Response to tbe Honorable Pbil Gingrey's question: "You bad indicated tbere were some 

barriers to tbis multitude of ideas tbat you bave sbown us in your legal papers in regard to 

pbysicians not being able to sbare tbat information tbat you bave gleaned. If you would 

submit to the committee maybe a list of some of tbose impediments to them being able to 

glean tbat information because I think it would be very. very helpful to us as we go 

forward?" 

In meetings and workshops around the country, I ask physicians "In your practice, how could 

health care costs be reduced without hanning patients, if current barriers were removed?" In 

response, hundreds of physicians from dozens of specialties have given me specific examples of 

savings opportunities as well as the barriers they face in pursuing those opportunities on behalf 

of their patients and payers. For example: 

• A radiologist said "I have zero control over utilization or studies ordered. I don't get paid 

for calling a referring doctor and telling himlher the imaging test is worthless." 

• An orthopedist said "Patients often need to be in extended care to receive antibiotics 

because Medicare doesn't pay for home IV therapy. The patient has to stay in the 

hospital for 3 days to justifY a nursing home/rehab stay." 

• An internist said "I strongly suspect overutilization of abdominal CT scans in the ER and 

in the hospital; CT scans lead to filrther CT scans to follow up lung and adrenal nodules. 

The hospital focuses on length of stay, but never looks at appropriateness of radiologic 

studies." 

• A gastroenterologist said "I do many unnecessary colonoscopies on young men, because 

primary care physicians don't have time to allow diagnosis of bleeding hemorrhoids in 

the office." 

In the attached table, I've summarized a sampling of the specific opportunities that 

physicians have identified as well as the kinds of barriers that prevent them from being pursued. 

Analyses I have done indicate that Medicare and other payers could see tremendous savings if 

we could enable physicians to overcome these barriers. 

By far, the most common barrier that physicians cite is the current Medicare payment 

system. There are two fundamental ways in which current payment systems prevent the delivery 

of higher-quality, lower-cost care: 

• Medicare does not pay at all for many kinds of services tbat would be better for the 

patient and save money for payers. For example, for many patients experiencing an 

acute problem, a phone call or email to their primary care physician is the best first step 

to determine how serious the problem is and how to address it. But primary care 

physicians don't get paid by Medicare to answer phone calls or emails from patients, and 
191 


79793.128

2 

ifthey spend a lot of time answering calls or emails, they won't be able to see as many 

patients in the office and as a result, they will not have enough revenue to cover their 

practice costs. However, if the patient goes to an emergency room instead, Medicare will 

pay for that and spend a lot more money. 

• Under Medicare payment systems, a physician loses revenue by doing fewer tests or 

procedures, even though most ofthe savings to Medicare is not coming from the 

physician's fee. Physician payments only represent 16% of total Medicare spending, and 

for many types of physicians, their payments represent 10% or less of the total costs 

associated with the tests they order or procedures they perform. Yet if the physician finds 

a less costly way of treating a patient, the physician is financially penalized by losing all 

or part of their small share of the total Medicare payment. 

These two characteristics of fee for service payment are serious barriers to improving 

care for patients and reducing spending for Medicare and other payers. Physicians are often 

reluctant to talk about the kinds of savings opportunities I described above and in the attached 

table because they then get pressure from payers and patients to make the changes, even though 

doing so could bankrupt the physicians financially. 

Unfortunately, most of the "payment reforms" that Medicare and other payers are 

pursuing, such as pay-for-performance, value-based payment, and shared savings do not solve 

these problems. In my testimony to the Subcommittee, I described in detail how different 

approaches called Accountable Payment Models can benefit patients and save money for 

Medicare by directly solving the barriers described above. Even more detail on the barriers 

preventing higher-value care and the ways that the right kinds of payment reforms can overcome 

them is available in two free publications from the Center for Healthcare Quality and Payment 

Reform (www.chqpr.org/reports.html): 

• Ten Barriers to Healthcare Payment Reform and How to Overcome Them 

• Transitioning to Accountable Care: Incremental Payment Reforms to Support Higher 

Quality, More Affordable Health Care 

Sincerely, 

Harold D. Miller 

President and CEO 

Center for Healthcare Quality and Payment Reform 

Center for Healthcare Quality and Payment Reform (www.CHQPR.org) 
192 


79793.129

3 

EXAMPLES OF SAVINGS OPPORTUNITIES AND BARRIERS IN 

CURRENT HEALTHCARE PAYMENT AND DELIVERY SYSTEMS 

SPECIALTY SAVINGS OPPORTUNITY BARRIERS 

Cardiology Follow-up visits could be curtailed or No reimbursement for 

eliminated and replaced with telephone or contacts outside of face-toemail contact face office visits 

Reduce duplicative testing Lack of communication 

among electronic medical 

records 

Dermatology Improve skin cancer screenings and reduce No payment to spend 

the number of biopsies used to diagnose a adequate time on patient 

melanoma or skin cancer examination to identifY 

suspicious lesions; it's safer 

to do a biopsy than to use 

clinical judgment about the 

nature of a lesion 

Family Medicine Increase access to primary care by handling PCPs are not paid for 

many patient visits over the phone and telephone consultations 

freeing office visits for those who need them with patients 

Gastroenterology Spending on treatment of colon cancer could There is no payment for 

be reduced through more effective colon extra time needed for 

cancer screening outreach to high-risk 

patients; the same payment 

is made for colonoscopies 

regardless of the risk to the 

patient or the 

appropriateness of the 

procedure 

Infectious Disease More aggressive outreach to patients who No payment for telephone 

miss follow-up appointments to prevent follow-up with patients 

complications Cultures are not paid for if 

Reduce hospital-acquired infections through done within 5 days of 

pre-admission screening for MRSA, etc. admission 

Prevent admissions and readmissions with Poor laboratory support for 

accurate antibiotics rapid turnaround cultures 

Use oral antibiotics instead of administering Significant nursing time 

IV antibiotics in ER needed to get authorization 

for use of oral antibiotics 

Orthopaedics Order fewer MRls and rely more on history Health system would 

and physical examination for diagnosis receive less revenue if 

fewer MRls are ordered; 

patients expect an MRl 

Better orthopaedic care by primary care Lower revenues for 

physicians orthopaedic surgeons from 

Center far Healthcare Quality and Payment Reform (www.CHQPR.arg) 
193 


79793.130

4 

SPECIALTY SAVINGS OPPORTUNITY BARRIERS 

fewer referrals 

Pediatrics Reduce emergency room visits and No payment for telephone 

unnecessary office visits consultations 

Reduce the number of CT scans to diagnose Malpractice liability from 

appendicitis not doing tests 

Pulmonology/Critical Care Limit futile end-of-Iife care Family usually incurs no 

financial cost by prolonging 

treatment 

Discourage use of emergency room for non- Many individuals use the 

critical care emergency room as their 

first resort for medical care, 

and many hospitals 

encourage this 

Radiology Reduce inappropriate imaging through There is no payment for the 

integration of appropriateness criteria into extra time spent with a 

CPOE systems patient to make a 

determination that a test is 

not needed 

Center for Healthcare Quality and Payment Reform (www.CHQPRorg) 
194 


79793.131

Iv1r. R(lb~lt Berenson, M.D. 

lnstitul<! Fell(lw 

The t irbanlnSlilutc 

2100 :'vI Slre'cl, N.W. 

W;hhinglon, I).c. 20037 

D,'ar Dr. Berenson: 

March 13, 20D 

!mn"nrtl1n at the Sllbcol11millDC on I !ealth bearing clll it led "SGR: DaJa, :'vlcasllres. 

and 1\1<.ocI5: Medicare l'hysidan Payment System:' 

Pursuant 10 the Rules of the Committee on Energy and Commeret', the hearing record remains 

open for 10 business to permit Members to submit additional questions to \·\itnesses, which arc 

attached. The i(ll'Intl! loth .. ,,,:, qu('srions should be 3S lollows: {I} the name "fth,' 

Memo,:r ,,!to$<' question )Ot! (Ire the complete text ofthc question you are addressing in 

bold, und (3) } our answer to that question lext 

To lileililate the printing of the hearing record, please e-mail )'('ur in Wnrd or PDF 

f(mnRl, to ;;.w:lYcW<:.\\ i l!iml1'i@11WLbJ,hls.;g9, by the close of hu,;iness on w '~(!!K's;aay_ March :27. 2013, 

Thank you again for your lime and d1i:>rt preparing and delivering testimon), before the 

Subcommittee. 

cc: Frank Pallone, Jr., R;mkillg :'v1cmber, Subcommittee on Health 

AltachmcI11 
195 


79793.132

IITHE URBAN INSTITUTE 2100 M STREET, N.W. / WASHINGTON D.C. 20037 

Robert A. Berenson, M.D. 

Institute Fellow 

phone: 202-261-5886 

fax: 202-223-1149 

e-mail: RBerenson@urban.org 

Responses to questions posed by the Honorable Renee Ellmers 

Robert A. Berenson, M.D. 

28 March 2013 

la. What specific [overvalued] services are you referencing? 

lb. What specific data can you provide to justiJY this statement? 

There is growing recognition by policy makers that many services in the Medicare 

Physician Fee Schedule are misvalued .- mostly overvalued -- because of inflated time estimates 

which are essential data elements in determining the calculation of work and allocation of 

indirect practice expenses at a CPT code level. The Medicare Payment Advisory Commission 

(MedPAC) in their March, 2007 Report to the Congress described the problem, made a number 

of policy recommendations then and has reiterated its concern about overvalued codes every year 

since. The Congress in the Affordable Care Act instructed CMS to take a more active role in 

identirying and correcting misvalued service codes. 

MedP AC's policy judgment apparently was influenced by studies that identified 

numerous specific over-valued codes in some clinical areas. These include: 

McCall, Cromwell, and Braun. Validation of Physician Survey Estimates of Surgical Times 

Using Operating Room Logs, Medical Care Research and Review, 63:1-14, 2006. 

Cromwell, et aI., Missing Productivity Gains in the Medicare Physician Fee Schedule: Where 

Are They?, Medical Care Research and Review, 67:676-693, 2010. 

Cromwell at aI., Validating CPT Typical Times for Medicare Office Evaluation and 

Management (ElM) Services. Medical Care Research and Review, 63:236-55, 2006 

In addition to these important but admittedly limited formal studies, there are numerous 

overvalued services for which the current times assumed in the CMS data base as the basis for 

establishing work and practice expense relative value units simply lack face validity. If the time 

estimates for these common services, which virtually all health professionals and many patients 

have personally experienced, are substantially overvalued, it is likely that less well-known 

services are as well. As examples, I refer to the established time estimates for interpreting 

electrocardiograms, destruction of skin lesions by freezing with liquid nitrogen, ear wax 
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removal, and colonoscopies. I draw on my own experience as a primary care physician and a 

patient who has personally experienced these services. 

Electrocardiograms - with automated EKG interpretations, the physician work of 

interpreting and reporting the EKG now takes a matter of the few seconds it takes to confirm, or 

occasionaJly, alter the automated interpretation. Yet, the time estimate used by CMS is that the 

physician takes either four or five minutes to interpret and report a typical EKG (there are two 

different codes for EKGs). 

The CPT code for destruction of a benign skin lesion is a bit complicated because it 

includes a range of treatment modalities, including laser surgery, electrosurgery, and cryosurgery 

and treatment of benign or pre-malignant skin lesions. But the code is commonly used by 

physicians for freezing actinic keratoses and other small benign lesions with liquid nitrogen. The 

time estimate that is the basis for the payment is that it takes 3 minutes for the first and 2 minutes 

for each additional lesion one up to 15 total. As a physician, I applied liquid nitrogen to many 

skin lesions and have had some of mine frozen. The application again takes seconds, not 

minutes, including the pre- and post-application time to inform the patient of what the freezing 

will consist of and what to look for after in subsequent days. 

Ear wax removal using a bulb syringe and water or solvent typically takes much less than 

the 19 minutes assigned to it in the CMS data base. In my experience, it takes about five to seven 

minutes from beginning to end for the typical patient. It would be desirable to know more 

systematically whether my experience is consistent with those from others - perhaps ENT 

physicians see different patients than primary care physicians with more tenacious ear wax? 

Systematically obtaining empirical data could settle the issue or at least provide a more objective 

basis for discussing time variations. Regardless, the 19 minutes that is the basis for the current 

payment level lacks face validity. 

There are numerous colonoscopy codes and some confusion exists because some assert 

there is a major difference in time between screening colonoscopy and diagnostic colonoscopy. 

The intra-service time estimates for common diagnostic and screening colonoscopies in the CMS 

data base range from 30 minutes to 51.5 minutes, and total times (the physician time spent 

outside of the actual scoping) range from 73 to 118.5 minutes for a colonoscopy with a biopsy. 

A study looking at the association between time and finding polyps in screening colonoscopies 

published in the New England Journal of Medicine found that the actual intraservice times for 

over 2000 screening colonoscopies was 13.5 minutes when no polyps were found and about 18 

minutes when polyps were removed, not 30 or 43 minutes, respectively. I In fact, the working 

CMS assumption is that a physician spends nearly 2 hours for the activities associated with a 

colonoscopy with a biopsy of one or more biopsies but 41 minutes less when a polyp is removed. 

Whatever the nuances of marginaJly more or less time associated with screening vs. diagnostic 

I Barclay et a!. Colonoscopy Withdrawal Times and Adenoma Detection During Screening Colonoscopy. N Eng!. J 

Med 355:2533-41, 2006 
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colonoscopies and doing a biopsy vs. a polyp removal, it is common for colonoscopies of most 

varieties to be scheduled every 30 minutes, as in the study cited. Simply, the times used by CMS 

to value the range of different colonoscopies are exaggerated. 

Ie. What practicing physicians were consulted when formulating these policies? 

The current process for establishing time estimates is based on consulting practicing 

physicians. The AMA-supported Resource-Based Relative Value Scale Update Committee 

(RUC) uses a process in which specialty societies survey at least 30 practicing physicians who 

are familiar with the service under consideration. Those surveys produce time and work intensity 

estimates on which the specialty society committee bases a time recommendation to the RUC, 

who mostly also are practicing physicians, but from specialties that do not necessarily have any 

familiarity with the service under consideration. The RUC reviews the survey results and makes 

a recommendation to CMS about the time and associated work for the service. Physicians may 

also comment directly to CMS through public rule-making. In short, there is plenty of 

consultation with practicing physicians. 

The primary concern with this process is that those who best know how long it takes to 

perform a CPT defined activity also may have a bias to possibly exaggerate the time -- longer 

time estimates produce higher fees. The process and concerns is described in a recent report for 

MedPAC and available on the MedPAC web site: Braun and McCall, Methodological Concerns 

with the Medicare RBRVS Payment System and Recommendations for Additional Study, Dec. 

2011, a report by staff from RTI International for the Medicare Payment Advisory Commission. 

It is my view that rather than relying on imperfect, and possibly biased, estimates from practicing 

physicians, the time component of the relative value units should be based on empirical data 

about how long it actually takes practicing physicians to perform services. 

2. Given the increased authority under the PPACA to set Medicare payment rates for 

physicians, what further authority does the Secretary need? 

The Secretary's authority is to create a fee schedule that reflects the relative resource 

costs of the thousands of services that are paid under the Medicare Fee Schedule. That authority 

does not give the Secretary the ability to be value-based purchaser, that is, modifYing fees to 

accomplish policy objectives, such as providing a better mix of services for Medicare 

beneficiaries, reduced spending for taxpayers, and a more appropriate specialty distribution of 

physicians. Many policy experts and at least some physicians agree that Medicare beneficiaries 

receive enough maybe too many - technologically oriented services, such as imaging and tests, 

but not enough time with their primary care and principal care clinicians and their care teams. So 

in addition to working aggressively to correct current mis-valuations, the Secretary should be 

given limited authority to modifY fees up or down to support an expedited redistribution of 

services that are provided to Medicare beneficiaries. 
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This is not a new idea. A colleague and I proposed this model over 25 years ago in 

Hadley and Berenson. Seeking the Just Price: Constructing Relative Value Scales and Fee 

Schedules, Annals of Internal Medicine, 106:461-466, 1987. 

3. Would advocating for payment reduction instead of removing the abused services from 

[the in-office ancillary services] exception to the self-referral law unfairly penalize the 

rendering physician? Wouldn't simply advocating for removing the abused service from 

the IOAS exception be the most effective way to prevent overutilization of the affect 

procedures? 

1 agree that for some abused, self-referral services, reducing payments might not be 

appropriate. My point was that a high and growing volume of particular self-referred services 

can be a signal that the fees are too high and should be reduced to better reflect relative resource 

costs. That apparently was the situation with overpriced advanced imaging services, which was 

addressed in the Deficit Reduction Act of2005. For other self-referral services, it might be that 

the unit price in the fee schedule correctly reflects the relative resource cost, but that the 

marginal cost of generating more units for payment is so low that physicians are inducing 

demand for unneeded services. In this case, as the question posits, reducing the unit price would 

unfairly penalize the rendering physician who is not abusing the privilege of self-referral. 

Another approach, as recommended by MedPAC, would be selective application of prior 

authorization for services subject to inappropriate self-referral. 

In short, 1 don't disagree that removing the abused services from the IOAS exception 

should apply in some cases. However, in others, price changes or other policy initiatives might 

make more sense. The lOAS exception exists because patients may benefit to some extent in 

terms of continuity of care from having their own physicians oversee provision of self-referral 

services. A decision to take away the exception is not an easy one. That is why I suggest that the 

first step be to review to make sure the fee is not much too high, therefore producing the abusive 

physician ordering.