United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Health, 

Committee on Ways and Means, House of 

Representatives

MEDICARE

Providing Systematic 

Feedback to Physicians on 

their Practice Patterns Is a 

Promising Step Toward 

Encouraging Program 

Efficiency 

Statement of A. Bruce Steinwald 

Director, Health Care 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, May 10, 2007

 

GAO-07-862T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 10, 2007

MEDICARE

Providing Systematic Feedback to 

Physicians on their Practice Patterns Is a 

Promising Step Toward Encouraging 

Program Efficiency 

Highlights of GAO-07-862T, a testimony 

before the Subcommittee on Health, 

Committee on Ways and Means, House of 

Representatives 

GAO was asked to discuss—based

on Medicare: Focus on Physician 

Practice Patterns Can Lead to 

Greater Program Efficiency, 

GAO-07-307 (Apr. 30, 2007)—the 

importance in Medicare of 

providing feedback to physicians 

on how their use of health care 

resources compares with that of

their peers. GAO’s report discusses 

an approach to analyzing

physicians’ practice patterns in 

Medicare and ways the Centers for 

Medicare & Medicaid Services 

(CMS) could use the results. In a 

related matter, Medicare’s 

sustainable growth rate system of

spending targets used to moderate 

physician spending growth and

annually update physician fees has 

been problematic, acting as a blunt 

instrument and lacking in 

incentives for physicians 

individually to be attentive to the 

efficient use of resources in their 

practices. GAO’s statement focuses 

on (1) the results of its analysis 

estimating the prevalence of 

inefficient physicians in Medicare

and (2) the potential for CMS to

profile physicians in traditional feefor-service Medicare for efficiency

and use the results in ways that are 

similar to other purchasers’ efforts 

to encourage efficiency. 

What GAO Recommends

In its report, GAO recommended

that CMS develop a system that

identifies individual physicians 

with inefficient practice patterns

and, seeking legislative authority as

necessary, uses the results to 

improve program efficiency. 

Having considered efforts of 10 private and public health care purchasers 

that routinely evaluate physicians for efficiency and other factors, GAO 

conducted its own analysis of physician practices in Medicare. GAO focused 

the analysis on generalists—physicians who described their specialty as 

general practice, internal medicine, or family practice—and selected 

metropolitan areas that were diverse geographically and in terms of 

Medicare spending per beneficiary. Although GAO did not include specialists

in its analysis, its method does not preclude profiling specialists, as long as 

enough data are available to make meaningful comparisons across 

physicians. Based on 2003 Medicare claims data, GAO’s analysis found 

outlier generalist physicians—physicians who treat a disproportionate share 

of overly expensive patients—in all 12 metropolitan areas studied. Outlier 

generalists and other generalists saw similar numbers of Medicare patients 

and their respective patients averaged the same number of office visits. 

However, after taking health status and location into account, GAO found 

that Medicare patients who saw an outlier generalist—compared with those 

who saw other generalists—were more likely to have been hospitalized, 

more likely to have been hospitalized multiple times, and more likely to have

used home health services. By contrast, they were less likely to have been 

admitted to a skilled nursing facility. GAO concluded that outlier generalists 

were likely to practice medicine inefficiently. 

CMS has tools available to evaluate physicians’ practices for efficiency,

including a comprehensive repository of Medicare claims data to compute 

reliable efficiency measures and substantial experience adjusting for 

differences in patients’ health status. The agency also has wide experience in 

conducting educational outreach to physicians with respect to improper 

billing practices and potential fraud—providing individual physicians, in 

some cases, comparative information on how the physician varies from 

other physicians in the same specialty or in other ways. A physician 

education effort based on efficiency profiling would therefore not be a 

foreign concept in Medicare. For example, CMS could provide physicians a 

report that compares their practice’s efficiency with that of their peers,

enabling physicians to see whether their practice style is outside the norm. 

As for implementing other strategies to encourage efficiency, such as the use

of certain financial incentives, CMS would likely need additional legislative 

authority. 

CMS agreed with the need to measure physician resource use in Medicare

but raised concerns about the costs involved in reporting the results and was 

silent on other strategies discussed beyond physician education. GAO 

concurs that resource use measurement and reporting activities would 

require adequate funding; however, GAO is concerned that efforts to achieve 

efficiency that rely solely on physician education without financial or other 

incentives for physicians to curb inefficiencies will be suboptimal. 

www.gao.gov/cgi-bin/getrpt?GAO-07-862T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact A. Bruce 

Steinwald at (202) 512-7101or 

steinwalda@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today as you discuss the importance of physicianfocused strategies to improve efficiency in Medicare. One such strategy 

entails providing feedback to physicians on how their use of health care 

resources compares with that of their peers. We recently issued a report, 

entitled Medicare: Focus on Physician Practice Patterns Can Lead to 

Greater Program Efficiency,

1

 which discusses an approach to analyzing

physicians’ practice patterns in Medicare and ways the Centers for 

Medicare & Medicaid Services (CMS)2

 could use the results of such an 

analysis to modify inefficient physician behavior. In the report, we used 

the term efficiency to mean providing and ordering a level of services that 

is sufficient to meet a patient’s health care needs but not excessive, given a 

patient’s health status. 

The report fulfilled a 2003 mandate that we examine aspects of physician 

compensation in Medicare, pertaining only to physicians serving 

beneficiaries in traditional fee-for-service (FFS) Medicare.3

 This topic has

been of significant interest to the Congress, as Medicare’s current system 

of spending targets used to moderate physician spending growth and 

annually update physician fees has been problematic. This spending target 

system—called the sustainable growth rate (SGR) system—adjusts 

Medicare’s physician fees based on the extent to which actual spending 

aligns with specified targets. If the growth in the number of services 

provided per beneficiary—referred to as volume—and in the average 

complexity and costliness of services—referred to as intensity—is high 

enough, spending will exceed the SGR target. In recent years, the SGR 

system has called for cuts in physician fees to offset volume and intensity 

increases that have exceeded spending targets. Although these cuts have 

been overridden by legislative or administrative action, a sustained period

of declining fees under the SGR system is projected. Policymakers are 

therefore concerned about the appropriateness of the SGR system for 

updating physician fees and about physicians’ continued participation in

the Medicare program. The problem, in part, is that the SGR system acts as 

a blunt instrument in that all physicians are subject to the consequences of

 1

GAO-07-307 (Washington, D.C.: Apr. 30, 2007).

2

CMS is the agency that administers Medicare. 

3

See Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), 

Pub. L. No. 108-173, § 953, 117 Stat. 2066, 2428.

Page 1 GAO-07-862T
excess spending—namely, downward fee adjustments—that may stem 

from the excessive use of resources by only some physicians. In addition, 

under the SGR system, individual physicians have no incentive to be 

attentive to the efficient use of resources in their own practices. 

Policymakers are also concerned that some of the increase in volume and 

intensity that drives spending growth may not be medically necessary. 

Experts agree that physicians play a central role in the generation of 

health care expenditures in total.4

 For example, physicians refer patients 

to other physicians; they admit patients to hospitals, skilled nursing 

facilities, and hospices; and they order services delivered by other health 

care providers, such as imaging studies, laboratory tests, and home health

services. However, some of the spending for services provided and 

ordered by physicians may not be warranted. For example, the wide 

geographic variation in Medicare spending per beneficiary—unrelated to 

beneficiary health status or outcomes—provides evidence that health 

needs alone do not determine spending.5

 Medicare physician payment 

policy does little to change this situation; payments under the Medicare 

program are not designed to foster individual physician responsibility for 

the most effective medical practices. In contrast, some public and private

health care purchasers have initiated programs to identify efficient 

physicians and encourage patients to obtain care from them. 

Against this backdrop, my remarks today will focus on (1) the results of 

our analysis estimating the prevalence of inefficient physicians in 

Medicare and (2) the potential for CMS to profile physicians in traditional 

FFS Medicare for efficiency and use the results in ways that are similar to 

other purchasers’ efforts to encourage efficiency. My remarks are based 

on findings in our report: Medicare: Focus on Physician Practice Patterns

Can Lead to Greater Program Efficiency.

6

 Having considered the efforts 

of 10 private and public health care purchasers that routinely evaluate 

physicians for efficiency and other factors, we conducted our own analysis 

 4

GAO, Comptroller General’s Forum on Health Care: Unsustainable Trends Necessitate 

Comprehensive and Fundamental Reforms to Control Spending and Improve Value, 

GAO-04-793SP (Washington D.C.: May 1, 2004); Laura A. Dummit, Medicare Physician

Payments and Spending, National Health Policy Forum, Issue Brief Number 815 

(Washington D.C.: Oct. 9, 2006). 

5

Elliot S. Fisher, et al., “The Implications of Regional Variations in Medicare Spending. 

Part 1: The Content, Quality, and Accessibility of Care,” Annals of Internal Medicine, 

vol. 138, no. 4 (2003): 273-287.

6

GAO-07-307. 

Page 2 GAO-07-862T
of physician practices in Medicare. We focused the analysis on 

generalists—physicians who described their specialty as general practice, 

internal medicine, or family practice—and selected metropolitan areas 

that were diverse geographically and in terms of Medicare spending per 

beneficiary. Although we did not include specialists in the analysis, our 

method does not preclude profiling specialists, as long as enough data are 

available to make meaningful comparisons across physicians. We based 

our analysis on 2003 Medicare claims data. We conducted our work from

September 2005 through May 2007 in accordance with generally accepted 

government auditing standards. 

In summary, we found outlier generalist physicians—physicians who treat 

a disproportionate share of overly expensive patients—in all 12 

metropolitan areas studied. Outlier generalists and other generalists saw 

similar numbers of Medicare patients and their respective patients 

averaged the same number of office visits. However, after taking health

status and location into account, we found that Medicare patients who 

saw an outlier generalist—compared with those who saw other 

generalists—were more likely to have been hospitalized, more likely to 

have been hospitalized multiple times, and more likely to have used home 

health services. By contrast, they were less likely to have been admitted to 

a skilled nursing facility. We concluded that outlier generalists were likely 

to practice medicine inefficiently.

CMS has tools available to evaluate physicians’ practices for efficiency, 

including a comprehensive repository of Medicare claims data to compute 

reliable efficiency measures and substantial experience adjusting for 

differences in patients’ health status. The agency also has wide experience

in conducting educational outreach to physicians with respect to improper 

billing practices and potential fraud—providing individual physicians, in 

some cases, comparative information on how the physician varies from 

other physicians in the same specialty or in other ways. A physician 

education effort based on efficiency profiling results would therefore not

be a foreign concept in Medicare. For example, CMS could provide 

physicians a report that compares their practice’s efficiency with that of 

their peers, enabling physicians to see whether their practice style is 

outside the norm. As for implementing other strategies to encourage 

efficiency, such as the use of certain financial incentives, CMS would 

likely need additional legislative authority. 

Page 3 GAO-07-862T
In our April 2007 report, we recommended that CMS develop a system that 

identifies individual physicians with inefficient practice patterns and, 

seeking legislative changes as necessary, uses the results to improve 

program efficiency. CMS agreed with the need to measure physician 

resource use in Medicare but raised concerns about the costs involved in

reporting the results and was silent on other strategies discussed beyond 

physician education. We concur that resource use measurement and 

reporting activities would require adequate funding; however, we are 

concerned that efforts to achieve efficiency that rely solely on physician 

education without financial or other incentives for physicians to curb 

inefficiencies will be suboptimal. 

Linking efficiency to physician payment policy has been a subject of 

interest among policymakers and health policy analysts. For example, the 

Institute of Medicine has recently recommended that Medicare payment 

policies should be reformed to include a system for paying health care 

providers differentially based on how well they meet performance 

standards for quality or efficiency or both.7

 In April 2005, CMS initiated a 

demonstration mandated by the Medicare, Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 2000 (BIPA) to test this approach.8

Under the Physician Group Practice demonstration, 10 large physician 

group practices, each comprising at least 200 physicians, are eligible for 

bonus payments if they meet quality targets and succeed in keeping the 

total expenditures of their Medicare population below annual targets.9

Background 

Several studies have found that Medicare and other purchasers could 

realize substantial savings if a portion of patients switched from less 

efficient to more efficient physicians. The estimates vary according to 

assumptions about the proportion of beneficiaries changing physicians.10

In 2003, the Consumer-Purchaser Disclosure Project, a partnership of 

consumer, labor, and purchaser organizations, asked actuaries and health 

 7

Institute of Medicine, Rewarding Provider Performance: Aligning Incentives in

Medicare (Pathways to Quality Health Care Series) – Summary (Washington, D.C.: 

2007). 

8

Pub. L. No. 106-554, app. F, § 412(a), 114 Stat. 2763, 2763A–509-515. 

9

We are currently conducting a study of the demonstration, as required by BIPA 

(Pub. L. No. 106-554, app. F, § 412(b), 114 Stat. 2763, 2763A–515). 

10See Consumer-Purchaser Disclosure Project, More Efficient Physicians: A Path to 

Significant Savings in Health Care (Washington, D.C.: July 2003). 

Page 4 GAO-07-862T
researchers to estimate the potential savings to Medicare if a small 

proportion of beneficiaries started using more efficient physicians. The 

Project reported that Medicare could save between 2 and 4 percent of total 

costs if 1 out of 10 beneficiaries moved to more efficient physicians. This 

conclusion is based on information received from one actuarial firm and 

two academic researchers. One researcher concluded, based on his 

simulations, that if 5 to 10 percent of Medicare enrollees switched to the 

most efficient physicians, savings would be 1 to 3 percent of program 

costs—which would amount to about $5 billion to $14 billion in 2007. 

The Congress has also recently expressed interest in approaches to 

constrain the growth of physician spending. The Deficit Reduction Act of 

2005 required the Medicare Payment Advisory Commission (MedPAC) to 

study options for controlling the volume of physicians’ services under 

Medicare.11 One approach for applying volume controls that the Congress 

directed MedPAC to consider is a payment system that takes into account 

physician outliers. 

In our report on which this statement is based, we sought information 

about other purchasers’ profiling efforts designed to encourage physicians 

to practice efficiently. We selected 10 health care purchasers that profiled 

physicians in their networks—that is, compared physicians’ performance 

to an efficiency standard to identify those who practiced inefficiently.12 To 

measure efficiency, the purchasers we spoke with generally compared 

actual spending for physicians’ patients to the expected spending for those 

same patients, given their clinical and demographic characteristics.13 Most 

purchasers said they also evaluated physicians on quality. The purchasers 

linked their efficiency profiling results and other measures to a range of 

physician-focused strategies to encourage the efficient provision of care.

Some of the purchasers said their profiling efforts produced savings. 

 11MedPAC is an independent federal body established by the Balanced Budget Act of 1997 

to advise the Congress on payment, access, and quality issues affecting the Medicare 

program.

12In our report we used the term purchaser to mean health plans as well as agencies that 

manage care purchased from health plans; one of the entities we interviewed is a provider 

network that contracts with several insurance companies to provide care to their enrollees. 

13Generally, estimates of an individual’s expected spending are based on factors such as

patient diagnoses and demographic traits. 

Page 5 GAO-07-862T
Having considered the efforts of other health care purchasers in profiling 

physicians for efficiency, we conducted our own profiling analysis of 

physician practices in Medicare and found individual physicians who were 

likely to practice medicine inefficiently in each of 12 metropolitan areas 

studied. We selected areas that were diverse geographically and in terms 

of Medicare spending per beneficiary.14 We focused our analysis on 

generalists—physicians who described their specialty as general practice, 

internal medicine, or family practice. Although we did not include 

specialists in our analysis, our method does not preclude profiling 

specialists, as long as enough data are available to make meaningful 

comparisons across physicians. 

Through Profiling, We

Found That 

Physicians Likely to 

Practice Inefficiently 

in Medicare Were 

Present in All Areas 

Selected for Study 

Under our methodology, we computed the percentage of overly expensive 

patients in each physician’s Medicare practice. To identify overly 

expensive patients, we grouped the Medicare beneficiaries in the 12 areas 

according to their health status, using diagnostic and demographic 

information. We classified beneficiaries as overly expensive if their total 

Medicare expenditures—for services provided by all health providers, not 

just physicians—ranked in the top fifth of their health status cohort for 

2003 claims.15

Within each health status cohort, we observed large differences in total 

Medicare spending across beneficiaries. For example, in one cohort of 

beneficiaries whose health status was about average, overly expensive 

beneficiaries—the top fifth ranked by expenditures—had average total 

expenditures of $24,574, as compared with the cohort’s bottom fifth, 

averaging $1,155.16 (See fig. 1.) 

 14The 12 metropolitan areas were Albuquerque, N.M.; Baton Rouge, La.; Des Moines, Iowa; 

Phoenix, Ariz.; Miami, Fla.; Springfield, Mass.; Cape Coral, Fla.; Riverside, Calif.; Pittsburgh,

Pa.; Columbus, Ohio; Sacramento, Calif.; and Portland, Maine. 

15Expenditures identified were for services from inpatient hospital, outpatient, skilled 

nursing facility, physician, hospice, durable medical equipment, and home health providers.

16See GAO-07-307, appendix I, for a depiction of beneficiary expenditures at the 20th, 50th, 

and 80th percentile for each health status cohort. 

Page 6 GAO-07-862T
Figure 1: Average Medicare Expenditures, by Quintile, for Beneficiaries of Nearly 

Average Health Status

0

5

10

15

20

25

Average Medicare expenditures (dollars in thousands)

Source: GAO analysis of 2003 Medicare claims and enrollment data.

Expenditure quintile

Highest

quintile

Fourth

quintile

Third

quintile

Second

quintile

Lowest

quintile

Note: Beneficiaries who died during 2003 are excluded. 

This variation may reflect differences in the number and type of services 

provided and ordered by these patients’ physicians as well as factors not 

under the physicians’ direct control, such as a patient’s response to and 

compliance with treatment protocols. Holding health status constant, 

overly expensive beneficiaries accounted for nearly one-half of total 

Medicare expenditures even though they represented only 20 percent of 

beneficiaries in our sample. 

Once these patients were identified and linked to the physicians who 

treated them, we were able to determine which physicians treated a 

disproportionate share of these patients compared with their generalist 

peers in the same location. We classified these physicians as outliers—that 

is, physicians whose proportions of overly expensive patients would occur 

by chance less than 1 time in 100. Notably, all physicians had some overly 

expensive patients in their Medicare practice, but outlier physicians had a 

Page 7 GAO-07-862T
much higher percentage of such patients. We concluded that these outlier 

physicians were likely to be practicing medicine inefficiently.17

Based on 2003 Medicare claims data, our analysis found outlier generalist 

physicians in all 12 metropolitan areas we studied. The Miami area had the 

highest percentage—almost 21 percent—of outlier generalists, followed by

the Baton Rouge area at about 11 percent. (See table 1.) Across the other 

areas, the percentage of outliers ranged from 2 percent to about 6 percent. 

Table 1: Percentage of Outlier Physicians in 12 Metropolitan Areas, 2003 

Metropolitan area Percentage of outlier physicians

Miami, Fla. 20.9

Baton Rouge, La. 11.2

Cape Coral, Fla. 6.3

Portland, Maine 5.8

Riverside, Calif. 5.8

Phoenix, Ariz. 5.2

Sacramento, Calif. 5.2

Des Moines, Iowa 4.8

Columbus, Ohio 4.6

Pittsburgh, Pa. 3.8

Springfield, Mass. 2.9

Albuquerque, N. Mex. 2.0

Source: GAO analysis of 2003 CMS claims and enrollment data. 

Note: Outlier percentages greater than 1 percent indicate that an area has an excessive number of 

outlier physicians. 

In 2003, outlier generalists’ Medicare practices were similar to those of 

other generalists, but the beneficiaries they treated tended to experience

higher utilization of certain services. Outlier generalists and other 

generalists saw similar average numbers of Medicare patients (219 

compared with 235) and their patients averaged the same number of office 

visits (3.7 compared with 3.5). However, after taking into account 

beneficiary health status and geographic location, we found that 

beneficiaries who saw an outlier generalist, compared with those who saw 

 17Our approach to estimating outlier physicians was conservative in that it captured only

the most extreme practice patterns; therefore, our analysis does not mean that all 

nonoutlier physicians were practicing efficiently. 

Page 8 GAO-07-862T
other generalists, were 15 percent more likely to have been hospitalized, 

57 percent more likely to have been hospitalized multiple times, and 

51 percent more likely to have used home health services. By contrast, 

they were 10 percent less likely to have been admitted to a skilled nursing 

facility.18

Medicare’s data-rich environment is conducive to identifying physicians 

who are likely to practice medicine inefficiently. Fundamental to this 

effort is the ability to make statistical comparisons that enable health care 

purchasers to identify physicians practicing outside of established 

standards. CMS has the tools to make statistically valid comparisons, 

including comprehensive medical claims information, sufficient numbers 

of physicians in most areas to construct adequate sample sizes, and 

methods to adjust for differences in patient health status. 

CMS Has Tools 

Available to Profile 

Physicians for 

Efficiency 

Among the resources available to CMS are the following: 

• Comprehensive source of medical claims information. CMS maintains a 

centralized repository, or database, of all Medicare claims that provides a 

comprehensive source of information on patients’ Medicare-covered 

medical encounters. Using claims from the central database, each of which

includes the beneficiary’s unique identification number, CMS can identify

and link patients to the various types of services they received and to the

physicians who treated them. 

• Data samples large enough to ensure meaningful comparisons across 

physicians. The feasibility of using efficiency measures to compare 

physicians’ performance depends, in part, on two factors: the availability 

of enough data on each physician to compute an efficiency measure and 

numbers of physicians large enough to provide meaningful comparisons. 

In 2005, Medicare’s 33.6 million FFS enrollees were served by about 

618,800 physicians. These figures suggest that CMS has enough clinical

and expenditure data to compute efficiency measures for most physicians 

billing Medicare. 

 18These findings were derived from logistic regressions in which health status, geographic 

area, and beneficiary contact with an outlier generalist were the explanatory variables used

to predict whether a beneficiary was hospitalized, used home health services, or was

admitted to a skilled nursing facility. 

Page 9 GAO-07-862T
• Methods to account for differences in patient health status. Because 

sicker patients are expected to use more health care resources than 

healthier patients, the health status of patients must be taken into account 

to make meaningful comparisons among physicians. Medicare has 

significant experience with risk adjustment, a methodological tool that 

assigns individuals a health status score based on their diagnoses and 

demographic characteristics. For example, CMS has used increasingly 

sophisticated risk adjustment methodologies over the past decade to set

payment rates for beneficiaries enrolled in managed care plans. On the 

related topic of measuring resource use, CMS noted in comments on a 

draft of our report that emerging “episode grouper” technology was a 

promising approach to measuring resource use associated with a given 

episode of care. We agree, but we also consider our measurement of 

resource use on a per capita basis, capturing total health care 

expenditures for a given period of time, equally promising. 

To conduct profiling analyses, CMS would likely make methodological

decisions similar to those made by the health care purchasers we 

interviewed. For example, the health care purchasers we spoke with made 

choices about whether to profile individual physicians or group practices; 

which risk adjustment tool was best suited for a purchaser’s physician and

enrollee population; whether to measure costs associated with episodes of

care or the costs, within a specific time period, associated with the 

patients in a physician’s practice; and what criteria to use to define 

inefficient practice patterns. 

As for ways CMS could use profiling results, actions taken by other health 

care purchasers we interviewed may be instructive in suggesting future 

directions for Medicare. For example, all purchasers in our study used 

physician education as part of their strategy to change behavior. 

Educational outreach to physicians has been a long-standing and 

widespread activity in Medicare as a means to change physician behavior 

based on profiling efforts to identify improper billing practices and 

potential fraud. Outreach includes letters sent to physicians alerting them 

to billing practices that are inappropriate.19 In some cases, physicians are 

given comparative information on how the physician varies from other 

physicians in the same specialty or locality with respect to use of a certain

service. 

 19Other forms of physician education include face-to-face meetings, telephone conferences, 

seminars, and workshops. 

Page 10 GAO-07-862T
A physician education effort based on efficiency profiling would therefore 

not be a foreign concept in Medicare. For example, CMS could provide 

physicians a report that compares their practice’s efficiency with that of 

their peers. This would enable physicians to see whether their practice 

style is outside the norm. In its March 2005 report to the Congress,20

MedPAC recommended that CMS measure resource use by physicians and

share the results with them on a confidential basis. MedPAC suggested 

that such an approach would enable CMS to gain experience in examining

resource use measures and identifying ways to refine them while affording 

physicians the opportunity to change inefficient practices.21 In commenting 

on a draft of our report, CMS noted that the agency would incur significant 

recurring costs in developing reports on physician resource use and 

disseminating them nationwide. We agree that any such undertaking 

would need to be adequately funded.

Another application of profiling results used by the purchasers we spoke 

with entailed sharing comparative information with enrollees. CMS has 

considerable experience comparing certain providers on quality measures 

and posting the results to a Web site. Currently, Medicare Web sites with 

comparative information exist for hospitals, nursing homes, home health 

care agencies, dialysis facilities, and managed care plans. In its March 2005 

report to the Congress, MedPAC noted that CMS could share results of 

physician performance measurement with beneficiaries once the agency

gained sufficient experience with its physician measurement tools. 

Several structural features of the Medicare program would appear to pose 

challenges to the use of other strategies designed to encourage efficiency.

These features include a beneficiary’s freedom to choose any licensed 

physician permitted to be paid by Medicare; the lack of authority to 

exclude physicians from participating in Medicare unless they engage in

unlawful, abusive, or unprofessional practices; and a physician payment 

system that does not take into account the efficiency of the care provided. 

Under these provisions, CMS would not likely be able—in the absence of 

additional legislative authority—to assign physicians to tiers associated 

 20MedPAC, Report to the Congress: Medicare Payment Policy (Washington, D.C.: March 

2005). 

21In several testimonies before the Congress in the last half of 2005, CMS officials said that 

they were taking steps to implement this recommendation. See Value-Based Purchasing for

Physicians Under Medicare: Hearing Before the House Subcommittee on Health, 

Committee on Ways and Means, 109th Cong. (2005) (statement of Mark B. McClellan, MD, 

Ph.D., Administrator of CMS).

Page 11 GAO-07-862T
with varying beneficiary copayments, tie fee updates of individual 

physicians to meeting performance standards, or exclude physicians who 

do not meet practice efficiency and quality criteria. In commenting on our

draft report, CMS was silent with regard to the need for legislative 

authority. The agency noted that it is studying and implementing initiatives 

that link assessment of physician performance to financial and other 

incentives, such as public reporting.

Regardless of the use made of physician profiling results, the involvement 

of, and acceptance by, the physician community and other stakeholders of 

any actions taken is critical. Several purchasers described how they had

worked to get physician buy-in. They explained their methods to 

physicians and shared data with them to increase physicians’ familiarity 

with and confidence in the purchasers’ profiling. CMS has several avenues

for obtaining the input of the physician community. Among them is the 

federal rule-making process, which generally provides a comment period 

for all parties affected by prospective policy changes. In addition, CMS 

forms federal advisory committees—including ones composed of 

physicians and other health care practitioners—that regularly provide it 

with advice and recommendations concerning regulatory and other policy 

decisions. 

Having considered the tools CMS has available and the structural 

challenges the agency would likely face in seeking to implement certain

incentives used by other purchasers, we recommended in our April 2007 

report that the Administrator of CMS develop a profiling system—seeking 

legislative authority, as necessary—that includes the following elements:

• total Medicare expenditures as the basis for measuring efficiency, 

• adjustments for differences in patients’ health status, 

• empirically based standards that set the parameters of efficiency, 

• a physician education program that explains to physicians how the 

profiling system works and how their efficiency measures compare with 

those of their peers, 

• financial or other incentives for individual physicians to improve the 

efficiency of the care they provide, and 

• methods for measuring the impact of physician profiling on program 

spending and physician behavior. 

Page 12 GAO-07-862T
Policymakers have expressed interest in linking physician performance to 

Medicare payment so that incentives under FFS for physicians to practice 

inefficiently can be reversed. In our view, Medicare should adopt an 

approach that relies not only on physician education but also financial or 

other incentives—such as discouraging patients from obtaining care from 

physicians who are determined to be inefficient. A primary virtue of 

profiling is that, coupled with incentives to encourage efficiency, it can 

create a system that operates at the individual physician level. In this way, 

profiling can address a principal criticism of the SGR system, which only 

operates at the aggregate physician level. Although any savings from 

physician profiling alone would clearly not be sufficient to correct 

Medicare’s long-term fiscal imbalance, it could be an important part of a 

package of reforms aimed at future program sustainability. 

Mr. Chairman, this concludes my prepared remarks. I will be pleased to 

answer any questions you or the Subcommittee Members may have. 

For future contacts regarding this testimony, please contact A. Bruce 

Steinwald at (202) 512-7101 or at steinwalda@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found on

the last page of this statement. Other individuals who made key 

contributions include Phyllis Thorburn, Assistant Director; Todd 

Anderson; Hannah Fein; Richard Lipinski; and Eric Wedum. 

Concluding 

Observations 

GAO Contacts and 

Acknowledgments 

(290637) Page 13 GAO-07-862T
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER