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46–971 2009

OPTIONS TO IMPROVE QUALITY AND 

EFFICIENCY AMONG MEDICARE PHYSICIANS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

MAY 10, 2007 

Serial No. 110–39 

Printed for the use of the Committee on Ways and Means 

( 

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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel and Staff Director 

BRETT LOPER, Minority Staff Director 

SUBCOMMITTEE ON HEALTH 

FORTNEY PETE STARK, California, Chairman 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

XAVIER BECERRA, California 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

RON KIND, Wisconsin 

DAVE CAMP, Michigan 

SAM JOHNSON, Texas 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

KENNY HULSHOF, Missouri 

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

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

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

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

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

is further refined. 

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C O N T E N T S 

Page 

Advisory of May 10, 2007, announcing the hearing ............................................. 2 

WITNESS 

A. Bruce Steinwald, Director, Health Care, government Accountability Office . 6 

Herb Kuhn, Acting Deputy Administrator, Centers for Medicare and Medicaid 

Services ................................................................................................................. 25 

Glenn M. Hackbarth, Chairman, Medicare Payment Advisory Commission ..... 37 

Robert A. Berenson, M.D., Senior Fellow, the Urban Institute ........................... 60 

Rick Kellerman, M.D., President, American Academy of Family Physicians, 

Shawnee Mission, KS .......................................................................................... 66 

Anmol S. Mahal, M.D., President, California Medical Association, Freemont, 

CA .......................................................................................................................... 73

John E. Mayer, Jr., M.D President, Society of Thoracic Surgeons ...................... 79 

SUBMISSIONS FOR THE RECORD 

American Academy of Ophthalmology, statement ................................................ 90 

American College of Physicians, statement ........................................................... 92 

American College of Radiology, statement ............................................................ 98 

American Health Information Management Association, statement .................. 100 

American Occupational Therapy Association, statement ..................................... 102 

Renal Physicians Association, statement .............................................................. 103 

University of North Carolina at Chapel Hill, statement ...................................... 105 

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(1) 

OPTIONS TO IMPROVE QUALITY AND 

EFFICIENCY AMONG MEDICARE PHYSICIANS 

THURSDAY, MAY 10, 2007 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:00 a.m., in 

room 1102, Longworth House Office Building, Hon. Fortney Pete 

Stark (Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 

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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

May 10, 2007 

HL–10 

Chairman Stark Announces a Hearing on Options 

to Improve Quality and Efficiency Among Medicare Physicians 

House Ways and Means Health Subcommittee Chairman Pete Stark (D–CA) announced today that the Subcommittee on Health will hold a hearing on options to 

improve quality and efficiency among Medicare physicians. The hearing will take 

place at 10:00 a.m. on Thursday, May 10, 2007, in Room 1100, Longworth 

House Office Building. 

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

hearing will be from the invited witness only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

Medicare spending for physician services will likely exceed $60 billion in 2007, 

more than 14 percent of spending on program benefits. Spending for physician services has grown considerably in recent years, largely due to the 5.5 percent average 

annual increase in the number of services provided per beneficiary (volume) and the 

increase in the average complexity and costliness of services (intensity). Analyses 

by the Medicare Payment Advisory Commission (MedPAC) and the government Accountability Office (GAO) have suggested that some of the higher volume and intensity that drives spending growth may not be medically beneficial. In fact, 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. Furthermore, recent analyses by GAO, MedPAC and others indicate 

the growth in volume and intensity of physician services varies dramatically across 

providers and specialties. Excessive volume and intensity not only increase program 

spending, but also may represent unnecessary services that can put beneficiaries at 

greater risk. 

Strategies to evaluate growth in volume and intensity, and address unnecessary 

spending are currently being explored. One such strategy would bundle services in 

the physician fee schedule to create a global fee for patient care management. Bundled payments are used for most of part A through various Prospective Payment 

Systems that use Diagnostic Related Groups and other similar mechanisms. In Part 

B, Medicare bundles payments for End Stage Renal Disease and for certain surgeries. Bundled payments could facilitate more careful patient management, while 

reducing administrative burden for physicians. 

Another strategy being used to address growth in volume and intensity relies on 

providing feedback to individual physicians about how their practice patterns compare with their peers. This approach is intended to generate dialog so that Medicare 

physicians can learn from each other how to achieve the highest quality outcomes 

with efficient use of resources. Such programs have been used effectively in the private sector. 

In announcing this hearing, Chairman Stark said: ‘‘As Medicare’s steward, 

Congress needs to ensure that Medicare resources are being used effijbell on PROD1PC69 with HEARING

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ciently and effectively to achieve high quality outcomes. This hearing will 

bring out some concrete actions we can take to achieve this important 

goal.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on potential methods to improve efficiency among physicians in Medicare. In particular, witnesses will review the potential of bundling 

services in the physician fee schedule and the effect of providing feedback to physicians on how their clinical practice patterns and resource use compare to their 

peers. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

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

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

http://waysandmeans.house.gov, select ‘‘110th Congress’’ from the menu entitled, 

‘‘Committee Hearings’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). 

Select the hearing for which you would like to submit, and click on the link entitled, 

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

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

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

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

with the formatting requirements listed below, by close of business Thursday, May 

24, 2007. Finally, please note that due to the change in House mail policy, the U.S. 

Capitol Police will refuse sealed-package deliveries to all House Office Buildings. 

For questions, or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

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

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

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

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

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

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

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

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

hearing record. 

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

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

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

by the Committee. 

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

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

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

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

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

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

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

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

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

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Chairman STARK. Good morning. We’ll proceed with a hearing 

that we hoped would build on our recent hearing with MedPAC, 

trying to outline the possibilities to reform or change the physician 

payments in Medicare, and we’ll focus today on possible long-term 

solutions to improve efficiency among the Medicare physicians. 

Hoping, our goal is to move from the sustainable growth rate, 

henceforth SGR, to a more refined system that still contains volume control but may direct us toward improve quality. Physicians 

play a critical role in caring for us seniors and people with disabilities, and paying them appropriately is an important part of I think 

any delivery system such as Medicare. 

When I last chaired this Subcommittee, we created the Physician 

Fee Schedule to replace the cost-based reimbursement for physicians, and I was pleased at that time to work closely with the physician community to find a bipartisan consensus on that approach. 

The system was successful. Many private payers have adopted it 

since. But despite the success of the fee schedule, the solution to 

growth and volume and intensity still eludes us. 

Analysis by GAO, MedPAC and others have shown us that the 

growth in volume and intensity of physician services varies dramatically across regions, providers and specialties. Even worse, we 

find that regional variations in volume and intensity of physician 

services don’t relate to higher quality care or better outcomes. To 

the contrary, beneficiaries may be put at greater risk when they’re 

subjected to more and more complicated procedures. 

These trends should be a cause of serious concern for beneficiaries and taxpayers alike. Unfortunately, as MedPAC testified 

before our Committee in March, the solutions today won’t solve all 

the problems for tomorrow. In 2007, tomorrow is here. There are 

several strategies to revise Medicare physician payment to more efficiently reward appropriate medical care, and that’s what we’re 

here to discuss today. 

We’re pleased to be joined by experts who have spent years 

studying ways to improve physician spending in Medicare as well 

as by practicing physicians who have many years of experience caring for Medicare beneficiaries. Our witnesses will review some tangible steps we can take to improve the current situation. Specifically, we’ll hear testimony about whether Medicare should implement a system to feedback to physicians on how their practice patterns compare with their peers. Witnesses will also discuss whether 

Medicare should develop bundled payments for services in the physician fee schedule, both for coordinated management of chronic illness, such as a medical home, or as well as for episodes of highly 

specialized care. I look forward to working with my colleagues, the 

physician community and other health professionals, the administration and patients in the coming weeks. 

I’d like to make one personal comment. We’ll hear this morning 

from my friend and constituent, Dr. Mahal. He’s here from 

Freemont, California to testify before us on behalf of the California 

Medical Association, and I want to take this moment to welcome 

Dr. Mahal and thank him for all the work that he’s undertaken, 

along with his colleagues in the California Medical Association to 

help us come to a reasonable solution. Mr. Camp, would you like 

to comment? 

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Mr. CAMP. Thank you very much, Mr. Chairman, and thank you 

for holding this hearing. The Medicare payment formula known as 

a sustainable growth rate or SGR, is scheduled to reduce payments 

to physicians by 10 percent in 2008. It will also cause physician 

payments to be reduced by approximately 5 percent for each of the 

next 9 years. The SGR formula is obviously unsustainable. The 

SGR does not reward physicians for high quality or cost effective 

care. Under the SGR, physicians are paid more for the number of 

services they provide. This rewards physicians for the quantity but 

not the quality of their services. 

We know that under the current system that the total number 

of procedures performed and images taken have increased, but it 

cannot tell us if patients are receiving better care. We need a better system that creates incentives for individual physicians to provide comprehensive, efficient and high-quality care. 

In this hearing, we will look into two potential ideas to reform 

the physician payment system. One is the idea to provide resource 

use data to physicians and to compare their practice data with 

their peers. Private plans are already using this data in setting 

payments for physicians. 

The second idea involves the bundling of payments. CMS did a 

demonstration in 1991 on bundling payments for cardiac bypass 

surgery. The demonstration was found to save money, but it was 

discontinued after 5 years. This hearing will hopefully examine 

these and other ideas for reform. I appreciate the witnesses being 

with us today, and I’m interested to know their views on these and 

other possible payment systems. While I’m eager to discuss longterm changes to the SGR, I recognize that we must still solve the 

immediate problem of the impending cuts. 

From past experience, we’ve learned that short-term fixes don’t 

always work. Sometimes they only exacerbate the problem. That 

being said, I look forward to working with the Chairman on an attempt to reform Medicare so that physicians are paid appropriately 

for their services and seniors get access to high-quality, affordable 

care. 

Thank you, Mr. Chairman, and I yield back the balance of my 

time. 

Chairman STARK. Thank you. Any other Members have an urgent statement to make? If not, I’d like to recognize our first panel 

and welcome back A. Bruce Steinwald, the Director of Health Care 

for the government Accountability Office, fondly known as GAO; 

Mr. Herb Kuhn, the Acting Deputy Administrator of the Centers 

for Medicare and Medicaid Services, CMS, and Mr. Glenn 

Hackbarth, Chairman of the Medicare Payment Advisory Commission, again, fondly known as MedPAC. 

I want to first of all thank all of these gentleman for the help 

you’ve given the Subcommittee and the Members. In addition to 

these hearings, I think spending countless hours counseling and 

advising and educating us on the problems of the matter before us 

and other problems in the Medicare arena. We deeply appreciate 

it. There’s a lot of work ahead of us, and the extra time that you 

take has been invaluable to the Members. 

Why don’t we start with Mr. Steinwald and run down the line, 

and you may proceed to inform us. If you care to summarize, we 

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have your written testimony, which without objection will appear 

in the record. If you care to summarize your testimony, we will 

then be able to inquire for more information. Mr. Steinwald. 

STATEMENT OF A. BRUCE STEINWALD, DIRECTOR, HEALTH 

CARE, GOVERNMENT ACCOUNTABILITY OFFICE (GAO) 

Mr. STEINWALD. Thank you, Chairman Stark and Mr. Camp 

and Members of the Subcommittee. Thank you for inviting me here 

today as you consider ways to encourage Medicare’s physician payment system to be more efficient. 

The Medicare Modernization Act required us conduct a study of 

the SGR system that’s used to update physician fees from year to 

year, and to also conduct a study of physician compensation more 

generally. 

Our SGR study concluded that the annual growth over the past 

several years and the volume and complexity of services delivered 

to Medicare beneficiaries has been the underlying reason that the 

SGR system has been, to put it mildly, problematic. This trend generates spending increases that are excessive under the SGR formula, which requires offsetting reductions in physicians fees and 

an annual headache for the Congress. 

The SGR is a blunt instrument that treats every Medicare doctor 

the same, regardless of whether the doctor is conserving of resources or profligate. When we were planning our second MMAmandated study, we wanted to investigate approaches that could 

look at individual doctor behavior, and this led us to profiling. 

Under profiling, the health care resources provided or ordered by 

a physician and consumed by that physician’s patients can be compared to the average for similar doctors and patients. The doctors 

who appear to be practicing an efficient style of medicine can be 

identified individually. 

We conducted an analysis of Medicare claims data pertaining to 

services provided to Medicare beneficiaries in 12 metropolitan 

areas to determine whether we could identify doctors who appeared 

to be practicing medicine inefficiently. I won’t go into the details 

of the study at this time. But it will come as no surprise to you 

that we found evidence of inefficiency in all 12 areas. 

We also concluded that if inefficient doctors’ practices were 

brought into the normal range with their peer groups, Medicare 

could realize substantial savings. We also looked at outside of 

Medicare for other payers who are profiling doctors to see if there 

might be lessons for Medicare in what other organizations are 

doing to improve the efficiency of health care delivery. 

We reported on 10 organizations ranging from traditional insurers to government payers who collect data on patient’s health care 

expenditures at the physician or physician group level, and compared those expenditures to an average for comparable physicians. 

Among other things, we found that nearly all of these organizations 

established standards for quality as well as efficiency. They examined total health expenditures, not just physician service expenditures. The educate doctors about their profiling programs and how 

their performance compares to standards for efficiency and quality, 

and they created financial and other incentives for doctors to 

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change their behavior or for patients to seek care from the more 

efficient doctors. 

Medicare currently has the tools necessary to conduct physician 

profiling on a large scale. It has a comprehensive claims database 

that can be used to calculate individual doctor’s patients expenditures. It has enough physicians participating in Medicare in most 

geographic areas to ensure statistically valid comparisons, and it 

has experience in using methods to account for differences in patient health status, which is a central ingredient for profiling to be 

meaningful. 

Medicare also faces some limitations which will need to be addressed. For example, in its comments on our draft report, CMS 

noted that profiling on a broad scale would be resource-intensive. 

We agree that any effort likely to improve efficiency program-wide 

would have to be adequately funded. 

Second, CMS lacks the authority to use profiling results in some 

of the ways that the 10 payers that we studied to, such as varying 

patient copayments or physicians’ fees, depending on whether quality and efficiency standards are met. Thus, to achieve the full potential that profiling offers to improve program efficiency will almost certainly require Congressional action. 

CMS does have the authority to provide feedback to doctors who 

care for Medicare patients on how their care compares to peer 

groups. Provided that such an effort could get underway soon, 

showing doctors evidence that their practice styles may be inefficient compared to a peer group is a promising step to encourage 

them to conserve Medicare’s resources. Such feedback may, if implemented program-wide, achieve some program savings in its own 

right. 

However, to realize the full potential for profiling to affect physician behavior and to moderate the spending trend, financial incentives will almost certainly have to be imposed. 

Mr. Chairman, this concludes my remarks, and I would be happy 

to answer your questions. 

[The prepared statement of Mr. Steinwald follows:] 

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Chairman STARK. Thank you. 

Mr. Kuhn. 

STATEMENT OF HERBERT B. KUHN, ACTING DEPUTY ADMINISTRATOR, CENTERS FOR MEDICARE & MEDICAID SERVICES 

Mr. KUHN. Chairman Stark, Mr. Camp, Members of the Subcommittee, thank you for inviting me here today to discuss quality 

and efficiency in Medicare physician payment. The fee-for-service 

Medicare Program has largely been a passive payer of health-care 

services. Given the size and impact of Medicare, it is a top priority 

at the Centers for Medicare & Medicaid Services to transform 

Medicare from a passive payer to an active purchaser of high quality, efficient care. 

Medicare payment systems should encourage reliable, high quality and efficient care, rather than payment based simply on the 

quantity of services provided and resources consumed. CMS has 

taken a leadership role in a multi-pronged approach to addressing 

value-based purchasing for physician services. Strategies to measure and encourage quality services, to understand appropriate resource use, and to examine current value-based purchasing models 

are all at the heart of CMS efforts to help modernize the physician 

payment system. 

One such method would be to refine the payment system, including the additional use of bundled payments for physician services. 

As with other payment systems, Medicare supports efforts to identify opportunities for paying physicians and providers a single or 

bundled amount to take care of the patient for the range of services 

that are necessary to manage the patient through an episode of 

care. This contrasts to the current fee schedule and physician payment system where we typically pay for the individual services. 

We have limited experience in this area for physician services. 

Accordingly, it would take additional research and analytical work 

before we could make substantive changes in this area. However, 

we have had experience with bundling, and our results are mixed. 

I’d like to share with you some of those results. 

For example, one, we have established national definitions for 

global surgical packages so that the payment is made consistently 

for all pre-and post-operative visits. We believe this has promoted 

efficiency in the delivery of surgical services and fostered continuity 

of care by the surgeon. It has also led to greater payment predictability for the surgeon and for the Medicare beneficiary in terms 

of their copayments. However, there are issues about how accurate 

we are at estimating the number and the level of services in the 

bundle. 

We also would pay physicians a monthly capitated payment for 

managing the care of ESRD patients receiving dialysis services. At 

one time this was a single payment for the visits and services the 

physician performed during the month of care. However, based on 

concerns that physicians were not performing the visits during the 

month, we split the Codes, and payment now varies depending on 

the number of visits provided. 

In general, bundling works very well, but it’s more problematic 

in the physician payment setting. Bundled payment approaches 

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26 

viders, such as hospitals or large physician groups or clinics, that 

provide a wide range of services for a diverse mix of patients. But 

bundling can be problematic for small physician groups that tend 

to specialize or treat a more limited set of patients. 

While there are certainly limitations to bundling for physician 

services, there are areas where additional research on bundling options could be considered in the physician payment area. One are 

might be to develop a more comprehensive office visit package. Another payment option might allow for bundling to eliminate incentives for physicians to furnish services on different days in order 

to avoid the current Medicare payment discounts for multiple services furnished on the same day. 

It is important, however, as we move in this area of payment reform, that we make sure that we provide the safeguards against 

any misalignments of payment incentives could diminish the level 

of care of Medicare beneficiaries, and this is important to all of us. 

A second area of payment reform deals with the extensive variation of physician use of resources to treat a given condition, particularly geographic variation. Studies show that greater volume of 

services does not appear to correlate with high-quality care or improved outcomes. 

Measuring physician resource use in Medicare is an ambitious 

undertaking. Nearly 700,000 physicians receive Medicare payments, and those physicians submit about 800 million claims per 

year. As with the development of the Medicare payment systems, 

which typically are multi-year, multi-step processes, so too will the 

measurement of physician resource use take some time. 

A tool used in assessing resource use for an episode of care is the 

episode grouper, which organizes the different services furnished to 

the beneficiary into clinical meaningful episodes using the diagnosis and other information that are present on the physician 

claim. When services are grouped, the total cost of all services involved with treating the condition or illness can be compiled and 

then compared. 

CMS is currently evaluating two commercial and proprietary episode grouper software products currently on the market and used 

by other payers. Episode groupers have a great promise as a way 

to organize Medicare data to make meaningful resource use comparisons among physicians. However, there are multiple issues 

that we need to sort through as we look at this to make sure that 

we accurately measure physician resource use. This includes attribution. This includes patient characteristics, such as severity adjustments. Finally, it really is to make sure that we have appropriate comparison groups. 

We have also begun the effort to engage physicians on the use 

of these tools, including asking physician groups to share with us 

clinical scenarios that then we can pass through the groupers to 

see if we come out with the same outcome as they do when they 

do it manually; again, a validation process. Also we’d be taking 

some of the reports we’ve gotten from these groupers and sharing 

them with physicians and focus groups to make sure that they’re 

meaningful, that they’re accurate, and that they can be actionable 

for physicians as they move forward. 

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We hope to have more information for all of you later this year 

in terms of our evaluation. 

Mr. Chairman, thank you again for this opportunity to testify on 

quality and efficiency in Medicare physician payment. We look forward to working with Congress, the physician community, MedPAC 

and other stakeholders as we continue to analyze the various appropriate to physician payment. 

We look forward to answering any questions the Committee 

might have. 

[The prepared statement of Mr. Kuhn follows:] 

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Chairman STARK. Thank you. 

Glenn, would you like to enlighten us? 

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

MEDICARE PAYMENT ADVISORY COMMISSION 

Mr. HACKBARTH. Thank you, Mr. Chairman, Mr. Camp, other 

Members of the Subcommittee. It’s good to see you again. The medical care provided to Medicare patients, indeed, all Americans, is 

often amazing. It saves lives, reduces pain and disability, yet as 

has been alluded to already, there’s growing evidence of uneven 

quality in the care provided. The care is often too fragmented and 

often more expensive than perhaps it needs to be. However, hard 

experience has taught us that the momentum toward more sophisticated, costly and fragmented care is very, very powerful and it 

will not be easily reversed. 

Today we’re discussing a number of polices that hold some promise, we believe, for redirecting the system’s momentum, thus increasing the value that Medicare beneficiaries and taxpayers receive for their substantial investment in the Medicare Program. 

In this opening statement, I want to highlight four policies of 

particular interest to MedPAC. First is profiling physicians, already discussed at some length by Bruce, we refer to it as a measuring resource use. 

In 2005, MedPAC recommended that CMS provide physicians 

with confidential feedback on their practice patterns and how those 

patterns compare with their peers. With additional study over the 

last couple of years, we’re even more convinced that this is a doable 

and worthwhile effort. I might add it’s one that’s enthusiastically 

endorsed by all of the physician members of MedPAC. Like GAO, 

we believe confidential feedback is the first step. Ultimately, the information should be used to adjust payments for physicians based 

on their cost and quality. 

A second policy direction that I want to highlight is improving 

pricing accuracy for physician services meaning doing everything 

we can to get the price right for individual services. Last year 

MedPAC made a series of recommendations about how the current 

process for updating physician relative values might be improved. 

If payments, the prices we pay are too high, a service may be provided too often. On the other hand, if they’re too low, the service 

may be underprovided. If errors persist over long periods of time, 

they may even begin to affect decisions about choice of specialty 

among medical students. 

Getting prices exactly right is impossible, and indeed there are 

some important conceptual issues about how you define what the 

right price is. Nevertheless, MedPAC sees evidence of some fairly 

large errors in the physician payment system that are skewing the 

system toward the production of costly services at the expense of 

basic services of very high value. 

A third policy direction is care management and coordination. 

Medicare patients, especially those with multiple chronic conditions, may see eight, ten, a dozen or more physicians in a given 

year. Without a concerted effort to coordinate and integrate that 

care, there’s a great risk of patient confusion, unnecessary duplication and waste, important matters falling through the cracks, or 

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even dangerous interactions among treatments. Yet Medicare does 

not properly reward physicians for taking the time and effort to 

manage the care of these complex patients. Indeed, Medicare’s payment system is contributing, we fear, to the steady, even accelerating erosion of the nation’s primary care workforce. In our June 

2006 report, we discussed potential models for improving care coordination in Medicare. 

The final policy direction I wanted to mention is comparative effectiveness. As you know all too well, the U.S. spends a very large 

share of its national wealth on health care, yet we often know very 

little about how alternative treatments compare in their effectiveness. There’s too little incentive for private parties to invest in such 

research, and when they do, the results may be compromised by 

proprietary interests. MedPAC believes that knowledge about what 

works in medicine is a public good that will always be underproduced by the private marketplace. Therefore, we believe a significant increase in public investment is required. 

In our June 2007 report, we recommended that Congress charge 

an entity with expanding our knowledge base while taking steps to 

assure the entity’s independence as well as adequate and secure 

funding. 

In conclusion, let me state the obvious. None of these steps is a 

panacea for the problems facing the Medicare program. Some of the 

proposals are technically complex, and all of them are probably politically complex. There is, however, no silver bullet for Medicare’s 

cost and quality problems. There’s much work to be done on many 

fronts. 

CMS has many important projects underway, including several 

important demonstrations and pilots that Congress has specifically 

requested. The problem is that it currently takes too long to develop, implement and refine new payment policies, despite heroic 

efforts by CMS staff. Because there’s so much to be done, and because we feel growing urgency about getting it done, we urge Congress to give serious consideration to a substantial increase in its 

investment in CMS’s capacity for innovation. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Hackbarth follows:] 

Statement of Glenn M. Hackbarth, Chairman, Medicare Payment Advisory 

Commission 

Chairman Stark, Ranking Member Camp, distinguished Subcommittee members, 

I am Glenn Hackbarth, Chairman of the Medicare Payment Advisory Commission 

(MedPAC). I appreciate the opportunity to be here with you this morning to discuss 

ways that Medicare can improve its physician payment system. 

Since 2000, total Medicare spending for physician services has climbed more than 

9 percent per year (Figure 1). Slowing the increase in Medicare outlays is important; 

indeed, it is becoming urgent. Medicare’s rising costs, particularly when coupled 

with the projected growth in the number of beneficiaries, threaten the sustainability 

of the program. The Medicare Trustees’ warn that even their unrealistically constrained estimate of Part B spending growth (due to multiple years of fee reductions 

mandated under current law) will still significantly outpace growth in the U.S. economy. Part B and total Medicare spending growth will continue to put pressure on 

the federal budget. That pressure puts other national priorities, such as homeland 

security and education, at risk. 

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FIGURE 1. FFS MEDICARE SPENDING FOR PHYSICIAN SERVICES, 1996—2006 

Note: FFS (fee-for-service). Dollars are Medicare spending only and do not include 

beneficiary coinsurance. 

Source: 2006 annual report of the Boards of Trustees of the Medicare trust funds. 

Rapid growth in expenditures also threatens to make the program unaffordable 

for beneficiaries. It contributes, directly and indirectly, to higher out-of-pocket costs 

through increased copayments, premiums for Medicare Part B, and premiums for 

supplemental coverage. As beneficiaries receive more services, they are required to 

make more copayments. Growth in copayments, in turn, pushes up the cost of supplemental insurance. In addition, because the monthly Part B premium is determined by average Part B spending for aged beneficiaries, an increase in expenditures affects the premium directly. From 1999 to 2002, the premium grew by an average of 5.8 percent per year, but the cost-of-living increases for Social Security benefits averaged only 2.5 percent per year. Since 2002, the Part B premium has increased even faster—by 13.5 percent in 2004, 17.3 percent in 2005, and 13.2 percent 

in 2006 (Figure 2). 

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FIGURE 2. MONTHLY PART B PREMIUMS, 1999—2007 

Note: Beginning in 2007, monthly Part B premiums are income-adjusted. The standard premium for 2007 is $93.50. 

Source: Congressional Research Service. 2004. Medicare: Part B premiums. Washington, DC: CRS; CMS press release, dated September 12, 2006, Medicare premiums 

and deductibles for 2007; and CMS press release, dated September 16, 2005, Medicare premiums and deductibles for 2006. 

Spending for physician services has grown largely because of increased volume— 

the number of services furnished and the complexity, or intensity, of those services. 

Some observers have hypothesized that new technology, demographic changes, and 

shifts in site of service spur growth in the volume of physician services. Changes 

in medical protocols and a rise in the prevalence of certain conditions may also play 

a role. But analyses by MedPAC and others suggest that much of the rise in volume 

is unexplained. A RAND study found that technological advances and changes in 

medical protocols that are specific to particular illnesses do not fully account for volume growth. Other studies suggest that, after controlling for input prices and health 

status, differences in the volume of physician services are driven in large part by 

practice patterns and physician supply and specialization. As Elliott Fisher and others described in a series of articles, in geographic areas with more health care providers and more physician specialists, beneficiaries receive more services but do not 

experience better quality of care or better outcomes, nor do they report greater satisfaction with their care. John Wennberg identified some discretionary services that 

can be overprovided as preference-sensitive care because they involve significant 

trade-offs and should be selected only by patients capable of making an informed 

decision. This suggests that some services may be unnecessary, exposing some beneficiaries to needless risk and generating unwarranted costs for beneficiaries and the 

program. At the same time, evidence shows that beneficiaries do not always receive 

the care they need, and too often the care they do receive is not high quality. 

To help address Medicare’s growing financial crisis, MedPAC focuses much of its 

work on improving efficiency—getting more in terms of quality and outcomes for 

each Medicare dollar spent. Increasing the value of the program to both beneficiaries and taxpayers will require efforts to improve the incentives inherent in 

Medicare’s fee-for-service (FFS) physician payment system. 

Ideally, payment systems will give providers incentives to furnish better quality 

of care, to coordinate care (across settings, for chronic conditions), and to use resources judiciously. However, Medicare pays its providers the same regardless of the 

quality of their care, which perpetuates poor care for some beneficiaries, misspends 

program resources, and is unfair to providers who furnish high-quality care and use 

resources judiciously. Medicare’s payment system does not reward physicians for coordinating patients’ care across health care settings and providers, and it does little 

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to encourage the provision of primary care services, even though such actions may 

improve the quality of care and reduce costs. Further, inaccurate prices may inappropriately affect physician decisions about whether and what services to furnish. 

And Medicare’s FFS method of paying for physician services contributes to volume 

growth by giving physicians a financial incentive to increase volume. 

As discussed in our March 2007 report on Assessing Alternatives to the Sustainable Growth Rate System, Medicare needs to change the incentives of the payment 

system by ensuring that its prices are accurate, furnishing information to providers 

about how their practice styles compare with their peers’ practice styles, encouraging coordination of care and provision of primary care, and bundling and packaging services where appropriate to reduce overuse. In addition, Medicare should 

promote quality by instituting pay for performance, encouraging the use of comparative-effectiveness information, and, where appropriate, imposing standards for providers as a condition of payment. If Medicare’s FFS program is to function more efficiently, the Congress needs to provide CMS with the necessary time, financial resources, and administrative flexibility. CMS will need to invest in information systems; develop, update, and improve payment systems and measures of quality and 

resource use; and contract for specialized services. 

Ensuring accurate prices 

Misvalued services can distort the price signals for physician services as well as 

for other health care services that physicians order, such as hospital services. Some 

overvalued services may be overprovided because they are more profitable than 

other services. Conversely, some providers may opt not to furnish undervalued services, which can threaten access to care, or they may opt to furnish other, more profitable services instead, which can be costly to Medicare and to beneficiaries. 

A service can become overvalued for a number of reasons. For example, when a 

new service is added to the physician fee schedule, it may be assigned a relatively 

high value because of the time, technical skill, and psychological stress that are required to perform it. Over time, the time, skill, and stress involved may decline as 

physicians become more familiar with the service and more efficient at providing it. 

The amount of physician work needed to furnish an existing service may decrease 

when new technologies are incorporated. Services can also become overvalued when 

practice expenses decline. This can happen when the costs of equipment and supplies fall, or when equipment is used more frequently, reducing its cost per use. 

Likewise, services can become undervalued when physician work increases or practice expenses rise. CMS—with the assistance of the American Medical Association/ 

Specialty Society Relative Value Scale Update Committee (RUC)—reviews the relative values assigned to some physician services every five years. But many services 

likely continue to be misvalued. 

In recent years, per capita volume for different types of services has grown at 

widely disparate rates, with volume growth in imaging and non-major procedures 

(e.g., endoscopies) outpacing that for office visits and major procedures. Volume 

growth differs across services for several reasons, including variability in the extent 

to which demand for services is discretionary and subject to the judgment of a physician or beneficiary, as well as advances in technology that expand access and can 

improve patient outcomes. The Commission and others have voiced concerns, however, that differential growth in volume is due in part to differences in the profitability of furnishing services. One reason that different services have varying opportunities for profit is their prices. In some instances, prices for services have been 

set too high relative to costs. For example, MedPAC and CMS have raised issues 

about the equipment use rate assumptions for imaging services. This rate may be 

set too low for some imaging services, meaning that Medicare’s payment rate is set 

too high for these services. 

To the extent that the Medicare’s sustainable growth rate (SGR) system limits 

growth in aggregate physician spending, differences in the rate of volume increases 

across services mean that certain types of services—such as imaging—are capturing 

a growing portion of Medicare physician spending at the expense of other services. 

As discussed below, the Commission has expressed particular concern about the 

tendency of primary care services to become undervalued relative to procedural 

services over time. This creates disincentives to furnish primary care services and 

over time can affect the willingness of physicians to enter the primary care specialties. (For more discussion of this issue, see p. 13.) Based on the 

RUC’s recommendation, CMS recently increased the work relative values of many 

evaluation and management services. Because the fee schedule changes are implemented in a budget-neutral manner, their impact is partially limited. 

Given the importance of accurate payment, the Commission concluded in the 

March 2006 report to the Congress that CMS must improve its process for reviewing 

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the work relative values of physician services. CMS looks to the RUC to make recommendations about which services should be revalued. But the RUC’s three reviews—completed in 1996, 2001, and 2006—recommended substantially more increases than decreases in the relative values of services, even though one might expect many services to become overvalued over time. We have noted that physician 

specialty societies have a financial stake in the process and therefore have little incentive to identify overvalued services. Although we recognize the valuable contribution the RUC makes, we concluded in our 2006 report that CMS relies too heavily 

on physician specialty societies, which tend to identify undervalued services without 

identifying overvalued ones. We found that CMS also relies too heavily on the societies for supporting evidence. 

To maintain the integrity of the physician fee schedule, we recommended that 

CMS play a lead role in identifying overvalued services so that they are not overlooked in the process of revising the fee schedule’s relative weights; we also recommended that CMS establish a group of experts, separate from the RUC, to help 

the agency conduct these and other activities. This recommendation was intended 

not to supplant the RUC but to augment it. To that end, the new group should include members who do not directly benefit from changes to Medicare’s payment 

rates, such as physicians who are salaried, retired, or serve as carrier medical directors and experts in medical economics and technology diffusion. The Commission 

has also urged CMS to update the data and some of the assumptions it uses to estimate the practice expenses associated with physician services. 

In addition, we recommended that the Secretary, in consultation with the expert 

panel, initiate reviews of services that have experienced substantial changes in volume, length of stay, site of service, and other factors that may indicate changes in 

physician work. For example, when a service becomes easier, quicker, or less costly 

to perform, physicians may be able to provide more of it. Rapid growth in volume 

for a specific service may therefore signal that Medicare’s payment for that service 

is too high relative to the time and effort needed to furnish it. The Secretary could 

examine services that show rapid volume increases per physician over a given period. Volume calculations would need to consider changes in the number of physicians furnishing the service to Medicare beneficiaries and in the hours those physicians work. CMS could use the results from these analyses to flag services for closer 

examination (by CMS or by the RUC) of their relative work values. The RUC could 

also conduct such volume analyses when making its work value recommendations 

to CMS, but its current process (every five years) may not be timely enough to capture services with rapid increases in volume. 

Alternatively, the Secretary could automatically correct such misvalued services, 

and the RUC would review the changes during its regular five-year review. In this 

scenario, CMS would identify specific service codes with volume increases exceeding 

a standard, such as average historical growth. The Secretary of Health and Human 

Services would then automatically adjust work values for these codes down. The 

RUC would consider the changes as part of their next five-year review. 

Corrections to the practice expense values may also be in order. MedPAC is currently studying the impact of CMS’s recent changes to the fee schedule practice expense calculation, including the use of newer practice cost data from some, but not 

all, specialties. We are also analyzing equipment pricing assumptions that are used 

to derive the practice expense values, particularly for imaging services. Ensuring 

that practice expense values are accurately priced reduces market distortions that 

make some services considerably more profitable than others, thus creating financial incentives to provide some services more than others. 

Finally, revisiting the conceptual basis of the resource-based Relative Value Scale 

system may be in order. Some observers suggest that the pricing of individual services should account not just for time, complexity, and other resources but also for 

the value of the service and the price needed to ensure an adequate supply. 

Measuring resource use and providing feedback 

Elliott Fisher and others have found that Medicare beneficiaries in regions of the 

country where physicians and hospitals deliver many more health care services do 

not experience better quality of care or outcomes, nor do they report greater satisfaction with their care. Thus, the nation could spend less on health care, without 

sacrificing quality, if physicians whose practice styles are more resource intensive 

reduced the intensity of their practice. 

In the March 2005 report to the Congress, the Commission recommended that 

CMS measure physicians’ resource use over time and share the results with physicians. Physicians would then be able to assess their practice styles, evaluate whether they tend to use more resources than their peers or what evidence-based research 

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over, when physicians are able to use this information in tandem with information 

on their quality of care, they will have a foundation for improving the value of care 

beneficiaries receive. 

Private insurers increasingly measure physicians’ resource use to contain costs 

and improve quality. Evidence on whether measuring resource use contains private 

sector costs is mixed and varies depending on how the results are used. Providing 

feedback on use patterns to physicians alone has been shown to have a statistically 

significant, but small, downward effect on resource use. However, John Eisenberg 

found that, when feedback is paired with additional incentives, the effect on physician behavior can be considerably larger. 

Medicare’s feedback on resource use has the potential to be more successful than 

previous experience in the private sector. As Medicare is the single largest purchaser of health care, its reports should command greater attention. In addition, because Medicare’s reports would be based on more patients than private plan reports, 

they might have greater statistical validity and acceptance from physicians. Confidential feedback of the results to physicians might induce some change. Many physicians are highly motivated individuals who strive for excellence and peer approval. 

If identified by CMS as having an unusually resource-intensive style of practice, 

some physicians may respond by reducing the intensity of their practice. However, 

confidential information alone may not have a sustained, large-scale impact on physician behavior. 

Using results for physician education would provide CMS with experience using 

the measurement tool and allow the agency to explore the need for refinements. 

Similarly, physicians could review the results, make changes to their practice as 

they deem appropriate, and help shape the measurement tool. Once greater experience and confidence were gained, Medicare could use the results for payment—for 

example, as a component of a pay-for-performance program (which rewards both 

quality and efficiency). Alternatively, Medicare could use the results to create other 

financial incentives for greater efficiency or could make the results public to enable 

beneficiaries to identify physicians with high-quality care and more conservative 

practice styles. Eventually, collaboration between the program and private plans 

could result in the development of a standard report card. 

MedPAC has been conducting research using episode grouping tools for the past 

two years and has found that they may be a promising tool for measuring resource 

use among physicians. We have found that the vast majority of Medicare claims can 

be assigned to an episode, and that most episodes can be attributed to a responsible 

physician. Once episodes are assigned to a responsible physician, each physician’s 

spending for a given episode can be compared to that of his or her peers and the 

results aggregated into an overall ‘‘score.’’ Episode groupers also permit analysis of 

the reasons for higher or lower resource use: Each episode can be subdivided into 

its component costs (e.g., hospital inpatient admissions, diagnostic testing, physician 

visits, post-acute care). 

Additional research remains, however, to ensure that resource use measurement 

consistently groups claims into episodes and attributes episodes to physicians in a 

manner that correctly classifies physicians as high, average, or low users of resources. We also want to integrate quality measures into our comparisons of resource use. Adequate risk adjustment is crucial to ensure that episode grouping 

tools are measuring actual variation in resource use rather than variation in the 

health status of the beneficiaries being treated. Further, we and others have found 

significant variations in practice patterns for some conditions across the nation. As 

a first step it may be prudent to hold physicians to a local standard (e.g., metropolitan statistical area or state) rather than a national one and to compare physicians 

only to others in the same specialty. For example, in our March 1 report to the Congress on the SGR, we compare a selected cardiologist in Boston to his local peers 

for his treatment of a specific condition (Table 1). In this way, we control for some 

of the differences in practice patterns and patient health status that can drive resource use. 

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TABLE 1. HYPERTENSION EPISODE RESOURCE USE AND SCORES BY TYPE OF SERVICE

Note: E&M (evaluation and management). Stage indicates the progression of the 

disease, with 1 being the mildest form. Resource use score is the ratio of the cardiologist’s resource use to the average for cardiologists in Boston. 

Source: MedPAC analysis of 100 percent sample of 2001—2003 Medicare claims 

using the Medstat Episode Group grouper from Thomson Medstat. 

Encouraging coordination of care and the use of care management processes 

The Commission has explored multiple strategies to provide incentives for highquality, low-cost care and thus improve value in the Medicare program. However, 

even if individual providers are efficient, a beneficiary may still receive less-thanoptimal care if providers do not communicate well with each other or if they do not 

monitor patient progress over time. To address this problem, we have considered 

ways to promote care coordination and care management by creating incentives for 

providers to share clinical information with other providers, monitor patient status 

between visits, and fully communicate with patients about how they should care for 

themselves between physician visits. 

While many patients could benefit from better coordination of care and care management, the patients most in need are those with multiple chronic conditions and 

other complex needs. Gerard Anderson found that, in 2001, 23 percent of Medicare 

beneficiaries had five or more chronic conditions and accounted for 68 percent of 

program spending. But according to researchers at RAND, beneficiaries with chronic 

conditions do not receive recommended care and may have hospitalizations that 

could have been avoided with better primary care. Studies attribute this problem 

to poor monitoring of treatment—especially between visits—for all beneficiaries and 

to a general lack of communication among providers. Physician offices, on their own, 

struggle to find time to provide this type of care, and few practices have invested 

in the necessary tools—namely, clinical information technology (IT) systems and 

care manager staff. At the same time, beneficiaries may not be educated about steps 

they can take to monitor and improve their conditions. Coordinated care may improve patients’ understanding of their conditions and compliance with medical advice and, in turn, reduce the use of high-cost settings such as emergency rooms and 

inpatient care. Ideally, better care coordination and care management will improve 

communication among providers, eliminating redundancy and improving quality. 

Research suggests that, without the support of IT and nonphysician staff, physicians can only do so much to improve care coordination. Individual physicians may 

not have the time or be well suited to provide the necessary evaluation, education, 

and coordination to help beneficiaries, especially those with multiple chronic conditions. One study found that older patients with select conditions that require timeconsuming processes, such as history taking and counseling, are at risk for worse 

quality of care. Further, physicians may lack training or resources that would allow 

them to educate patients about self-care or to set up systems for monitoring between 

visits. Physicians’ use of basic care management tools is low, even in group practices 

where building the infrastructure for care coordination, including the use of clinical 

IT, may be more feasible. 

Care coordination is difficult to accomplish in the FFS program because it requires managing patients across settings and over time, neither of which is supported by current payment methods or organizational structures. Further, because 

patients have the freedom to go to any willing physician or other provider, it is difficult to identify the practitioner most responsible for the patient’s care, especially 

if the patient chooses to see multiple providers. The challenge is to find ways to create incentives in the FFS system to better coordinate and manage care. 

In our June 2006 report to the Congress, the Commission outlined two illustrative 

care coordination models for complex patients in the FFS program: (1) Medicare 

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grating the IT and care manager infrastructure into patient clinical care, and (2) 

CMS could contract with stand-alone care management organizations that would 

work with individual physicians. In the second model, the care management organization would have the IT and care manager capacity. 

In either model, payment for services to coordinate care would depend on negotiated levels of performance in cost savings and quality improvements. Given that 

Medicare faces long-term sustainability problems and needs to learn more about the 

most cost-effective interventions, the entities furnishing the care managers and information systems should initially be required to produce some savings as a condition of payment. However, demonstrating continued savings may not be necessary 

or feasible once strategies for coordinating care are broadly used. 

To encourage individual physicians to work with care coordination programs, 

Medicare might pay a small monthly fee to a beneficiary’s personal physician or 

medical group for time spent coordinating with the program. As with other fee 

schedule services, these expenditures would be accommodated by reallocating dollars among all services in the fee schedule. 

In either model, patients would volunteer to see a specific physician or care provider (e.g., a medical group or other entity) for their care. CMS could help beneficiaries identify the physician or physicians who provide most of their care. Beneficiaries could then designate the practitioner they wanted to oversee most aspects 

of their care to be the contact with the care management program. The physician 

and the beneficiary would agree that the beneficiary would consult first with that 

physician but would not be restricted to seeing only that physician. The physician, 

or the medical group on behalf of the practitioner in the case of a provider-based 

program, would receive the monthly fee when the beneficiary enrolls in the care 

management program. This designated physician (which need not be a primary care 

physician, because a specialist might be the appropriate person for patients with 

certain conditions) would serve as a sort of medical home. 

These models do not represent the only ways care coordination might work in 

Medicare. The American College of Physicians recently advocated using advanced 

medical homes. In addition, other strategies, such as pay for performance, complement care coordination models by focusing on improving care. In addition, adjusting Medicare’s compensation to physicians to reflect the longer time spent caring for 

patients with complex issues may be warranted if the current fees do not compensate for this extra time. (For example, CMS could apply a multiplier to the relative value of certain services for identified patients with multiple chronic conditions.) Medicare could also establish billing codes to enhance payments for chronic 

care patients for services such as case management. The Medicare Health Care 

Quality Demonstration, which tests the ability of innovative payment arrangements 

for providers in integrated delivery systems to improve quality, may provide further 

models for improving coordination of care. 

Evidence shows that care coordination programs improve quality, particularly as 

measured by the provision of necessary care. Evidence on cost savings is less clear 

and may depend on how well the target population is chosen. When cost savings 

are shown, they are often limited to a specific type of patient, the intervention used, 

or the time frame for the intervention. Indeed, researchers at Mathematical have 

suggested that cost and quality improvements are more likely to be achieved if programs are specifically targeted and the interventions are carefully chosen to benefit 

the targeted patient group. If care coordination programs work, annual spending 

may decrease, but beneficiaries may live longer with a better quality of life—a positive outcome for Medicare beneficiaries, but the Medicare program may not spend 

less than it otherwise would have. This possibility argues for assessing programs 

on the basis of whether they provide the interventions known to be effective or 

achieve certain quality improvements rather than on the basis of cost savings. 

Promoting the use of primary care 

Research shows that geographic areas with more specialist-oriented patterns of 

care are not associated with improved access to care, higher quality, better outcomes, or greater patient satisfaction. Cross-national comparisons of primary care 

infrastructures and health status have demonstrated that nations with greater reliance on primary care have lower rates of premature deaths and deaths from treatable conditions, even after accounting for differences in demographics and gross domestic product. Increasing the use of primary care in the United States, therefore, 

and reducing reliance on specialty care, could improve the efficiency of health care 

delivery without compromising quality. 

But many observers worry that the United States is not training enough primary 

care physicians. Indeed, the growth in the supply of physicians in recent decades 

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ply of generalists—family physicians, general practitioners, general internists, and 

pediatricians—has remained relatively constant. A study by Perry Pugno and others 

found that the share of U.S. medical graduates choosing family medicine fell from 

14 percent in 2000 to 8 percent in 2005. A 2006 study by Colin West and others 

found that 75 percent of internal medicine residents become subspecialists or 

hospitalists. There are many reasons why an increasing number of physicians 

choose to specialize, but one factor may be differences in the profitability of services. 

Historically, Medicare’s payment system has valued primary care services less 

highly than other types of services. For example, according to a recent Annals of 

Internal Medicine article by Thomas Bodenheimer and others, the 2005 fee for a typical 30-minute physician office visit in Chicago was $90 while the fee for an outpatient colonoscopy, also about 30 minutes, was $227. In addition, primary care 

services also may be more likely than other services to become undervalued over 

time. While other types of services become more productive with the development 

of new techniques and technology, primary care services do not lend themselves as 

easily to these gains. Primary care is largely composed of cognitive services that require that the physician spend time with the beneficiary. In addition, many beneficiaries have multiple chronic conditions and a compromised ability to communicate 

with and understand their physician, both of which increase the time required for 

visits. It is difficult to reduce the length of these visits without reducing quality. 

(For that reason, physicians also find it difficult to increase the volume of primary 

care services furnished in a work day.) Over time, the specialties that perform those 

services may become less financially attractive. 

Some Commissioners have argued that the relative value units of the physician 

fee schedule should be at least partly based on a service’s value to Medicare. Such 

an approach would focus on primary care services as well as other valuable services. 

For example, if analysis of clinical effectiveness for a given condition were to show 

that one service were superior to an alternative service for a given condition, then 

Medicare’s process of setting relative values might reflect that. This process would 

be a significant departure from the established method of setting relative values 

based only on the time, mental effort, technical skill and effort, psychological stress, 

and risk of performing the service. 

In the longer term, the Commission is concerned that the nation’s medical schools 

and residency programs are not adequately training physicians to be leaders in 

shaping and implementing needed changes in the health care system. Physician 

training programs must emphasize a new set of skills and knowledge. For example, 

programs need to train residents to measure their performance against quality 

benchmarks, use patient registries and evidence-based care guidelines, work in multidisciplinary teams, manage the hand-off of patients, and initiate improvements in 

the process of caring for patients to reduce medication and other costly errors. Policymakers may want to consider tying a portion of the medical education subsidy 

to specific programs or curriculum characteristics that promote such educational improvements. In addition, policymakers may want to consider policies that promote 

the education of primary care providers and geriatricians. Bear in mind that physicians’ motivations to enter certain specialties go beyond income, including lifestyle 

concerns and professional interests. 

Medicare’s cost-sharing requirements provide no encouragement for beneficiaries 

to seek services, when appropriate, from primary care practitioners instead of specialists, unlike most cost sharing in the under-65 market, where primary care copayments are often lower than those for specialists. Medicare’s payment policies and 

cost-sharing structure need to be aligned to encourage the use of primary care. The 

Commission’s pay-for-performance and care coordination recommendations could 

also encourage the use of primary care. 

Bundling to reduce overuse 

A larger unit of payment puts physicians at greater financial risk for the services 

provided and thus gives them an incentive to furnish and order services judiciously. 

Medicare already bundles preoperative and follow-up physician visits into global 

payments for surgical services. Candidates for further bundling include services 

typically provided during the same episode of care, particularly those episodes for 

conditions with clear guidelines but large variations in actual use of services, such 

as diabetes treatment. 

Bundled payments could lead to fewer unnecessary services, but they could also 

lead to stinting or unbundling (e.g., referring patients to other providers for services 

that should be included in a bundle). Medicare should explore options for increasing 

the size of the unit of payment to include bundles of services that physicians often 

furnish together or during the same episode of care, similar to the approach used 

in the hospital inpatient prospective payment system. 

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The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 

(MMA) changed the way Medicare pays for dialysis treatments and dialysis drugs. 

However, the MMA did not change the two-part structure of the outpatient dialysis 

payment system. One part is a prospective payment called the composite rate that 

covers the bundle of services routinely required for dialysis treatment; the other 

part includes separate payments for certain dialysis drugs, such as erythropoietin, 

iron, and vitamin D analogs that were not available when Medicare implemented 

the composite rate. Providers receive the composite rate for each dialysis treatment 

provided in dialysis facilities (in-center) or in patients’ homes. 

The Commission has recommended that the Congress broaden the payment bundle to modernize this payment system. Medicare could provide incentives for controlling costs and promoting quality care by broadening the payment bundle to include 

drugs, laboratory services, and other commonly furnished items that providers currently bill separately and by linking payment to quality. 

A bundled rate would create incentives for providers to furnish services more efficiently. For example, a bundled rate would remove the financial incentive for facilities to overuse separately billable drugs under the current payment method. In addition to an expanded bundle, changing the unit of payment to a week or a month 

might give providers more flexibility in furnishing care and better enable Medicare 

to include services that patients do not receive during each dialysis treatment. 

MedPAC is examining bundling the hospital and physician payments for a selected set of diagnosis related groups (DRGs), which could increase efficiency and 

improve coordination of care. This approach to bundling could be expanded in the 

future to capture periods of time (e.g., one or two weeks) after the admission but 

likely to include care (e.g., post-acute care, physician services) strongly related to 

the admission, further boosting efficiency and coordination across sites of care. Bundled payments could be adjusted to provide incentives for hospitals and physicians 

to avoid unnecessary readmissions. Bundling services could be structured so that 

savings go to the providers, the program, or both. The Commission is also examining 

bundling physician payments with payments for other providers, such as hospital 

outpatient departments and clinical laboratories. In addition, MedPAC plans to examine the physician services furnished to patients before, during, and after inpatient hospitalizations for medical DRGs to assess whether a global fee should be applied to these services, as it is for surgical DRGs. 

Hospital readmissions are sometimes indicators of poor care or missed opportunities to better coordinate care. Research shows that specific hospital-based initiatives 

to improve communication with beneficiaries and their other caregivers, coordinate 

care after discharge, and improve the quality of care during the initial admission 

can avert many readmissions. Medicare does not reward these efforts. In fact, the 

program generally pays for readmissions, creating a disincentive to avoid them. To 

encourage hospitals to adopt strategies to reduce readmissions, policymakers could 

consider requiring public reporting of hospital-specific readmission rates for a subset 

of conditions and adjusting the underlying payment method to financially encourage 

lower readmission rates. 

Episode grouper software, which is used to measure physician resource use and 

was discussed earlier, could also serve as a platform for bundling services for selected conditions. 

Linking payment to quality 

Medicare, the single largest payer in the U.S. health care system, pays all health 

care providers without differentiating on the basis of quality. Those providers who 

improve quality are not rewarded for their efforts. In fact, Medicare often pays more 

when poor care results in complications that require additional treatment. 

To rectify this situation, MedPAC has recommended that Medicare change the incentives of the system by basing a portion of provider payment on performance. We 

recommended that CMS start by collecting information on structural measures associated with use of IT, such as whether a physician’s office tracks whether patients 

receive appropriate follow-up care, and claims-based process measures for a broad 

set of conditions important to Medicare beneficiaries. At the outset, CMS should 

base rewards only on the IT structural measures, with claims-based process measures being added to the pay-for-performance program within two to three years. Two 

other structural measures—certification and education—could become part of a 

measure set, but the link with improved care would need to be clear. The program 

should be funded initially by setting aside a small portion of budgeted payments— 

for example, 1 percent to 2 percent. The program should be budget neutral; all monies set aside would be redistributed to those providers who perform as required. 

The Institute of Medicine (IOM) and MedPAC have stated that, ideally, pay-forperformance measures should be developed and used for all physician service projbell on PROD1PC69 with HEARING

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viders to create incentives to provide better quality care. However, currently we do 

not have well-established measures for all providers of physician services. Thus, initially, policymakers might consider prioritizing the implementation of some pay-forperformance measures over others. Focusing measures on high-cost, widespread, 

chronic conditions (e.g., congestive heart failure) might be a good short-term strategy that will maximize benefits to the Medicare program and to beneficiaries. Further, measures that reflect coordination between health sectors will encourage and 

reward communication between providers, which may improve patient outcomes and 

reduce Medicare costs. The Commission considers that pay-for-performance initiatives would be implemented in a budget-neutral manner. 

IOM and MedPAC assessments of the current state of quality measurement are 

similar. The indicators that are available now could form a starter quality measurement set. However, the measures that are currently available are fragmented across 

different users for different purposes and cannot be tied explicitly to the overarching, national goals laid out by IOM. Composite scores that could bring together 

multiple measures of different aspects of quality into a meaningful summary are 

needed, but judging the relative value of competing goals that would underpin such 

a summary is a challenge. 

Both IOM and MedPAC have recommended that a national entity is needed to: 

• set and prioritize the goals of the health care system; • monitor the nation’s progress toward these goals; • ensure the implementation of data collection, validation, and aggregation; • coordinate public and private efforts at local, state, and national levels; • establish public reporting methods; • identify and fund development of the measures; and • evaluate the impact of quality improvement initiatives. 

Encouraging the use of comparative-effectiveness information 

Increasing the value of the Medicare program to beneficiaries and taxpayers requires knowledge about the costs and health outcomes of services. Comparative-effectiveness information, which compares the outcomes associated with different 

therapies for the same condition, could help Medicare use its resources more efficiently. Comparative effectiveness has the potential to identify medical services that 

are more likely to improve patient outcomes and discourage the use of services with 

fewer benefits. CMS already assesses the clinical effectiveness of services when 

making decisions about national coverage and paying for certain services. But to 

date FFS Medicare has not routinely used comparative information on the costs of 

services, although Medicare Part D plans and other payers and providers, such as 

the Veterans Health Administration, do use comparative information (e.g., in drug 

formulary decision-making processes). 

Medicare could use comparative-effectiveness information in a number of ways to 

improve the quality of care beneficiaries receive. Medicare could use such information to inform providers and patients about the value of services, since there is some 

evidence that both might consider comparative-effectiveness information when 

weighing treatment options. Medicare might also use the information to prioritize 

pay-for-performance measures, target screening programs, or prioritize disease management initiatives. In addition, Medicare could use comparative-effectiveness information in its rate-setting process or in coverage decisions. 

Given the potential utility of comparative-effectiveness information to the Medicare program, an increased role of the Federal Government in sponsoring the research is warranted. In our forthcoming June report, MedPAC will recommend that 

the Congress should establish an independent entity whose sole mission is to 

produce and provide information about the comparative effectiveness of health care 

services. The entity should set priorities and standards for new clinical- and costeffectiveness research, examine comparative effectiveness of interventions over time 

and disseminate information to providers, patients, and federal and private health 

plans. The entity could be funded jointly by the Federal Government and the private 

sector, with an independent board of experts overseeing the development of research 

agendas and ensuring that research is objective and methodologically rigorous. 

Using standards to ensure quality 

CMS has set standards to ensure minimum qualifications for various types of providers (e.g., hospitals and skilled nursing facilities), but there are few examples of 

federal standards that apply to physician offices. The Commission has recommended 

that such standards be implemented for physicians who perform and interpret imaging studies. This recommendation was motivated by rapid growth in the volume of 

imaging. This growth was driven in part by imaging being increasingly provided in 

physician offices rather than in facility settings. (The growth is not fully offset with 

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a corresponding decrease in imaging use in facilities.) The lack of quality standards 

for imaging conducted in physician offices raises a number of quality concerns. 

Therefore, the Commission recommended standards for physicians, facilities, and 

technicians that perform imaging studies. In the future, other types of services may 

be candidates for such standards. 

f 

Chairman STARK. Thank you all. If I can divide this discussion 

into two parts. We have the question of the payment per procedure 

and then volume. Glenn, you suggested that if we had the wrong 

payment for a procedure we can influence volume up or down, depending on where it is. Mr. Steinwald talks about whether we have 

enough information to really identify individual physician’s behavior relative to volume. Is that what you told us? 

Mr. STEINWALD. Yes, sir. Primarily through the 800 million 

claims that Herb Kuhn referred to earlier. 

Chairman STARK. Now, Mr. Kuhn, are those 800 million 

claims—that’s a year? 

Mr. KUHN. That is correct. Every year. 

Chairman STARK. Are they all digitized? I mean, can you slice 

and dice those on your laptop so you could give me all kinds of information in specifics, down to specific physicians in specific neighborhoods? Is it a pretty comprehensive database? 

Mr. KUHN. It is that comprehensive, and we hope to be able to 

do exactly what you said, be able to get it down by physician and 

area. 

Chairman STARK. Then let me make a suggestion and see 

whether you agree or disagree. I think we’re a lot closer to identifying or being able to accept both by the providers and us and CMS 

and the taxpayers the individual procedure payments, recognizing 

that we may get it wrong. But there’s been a lot more agreement— 

what disagreement comes, and we can let physicians fight that out 

among themselves. Certainly we’re not capable of deciding that. 

That the bigger problem that has occurred me is how do we control 

what’s referred to as volume? 

So, I guess I’d start with Mr. Steinwald. Do we have enough information and do we have the mechanical or computer ability to actually adjust volume on a basis of individual practitioners? Can we 

get down that fine? 

Mr. STEINWALD. My first response is yes, I think we have sufficient information certainly to begin a process of providing feedback 

to physicians. And—— 

Chairman STARK. I didn’t say the feedback. How about money? 

Mr. STEINWALD. Well, the first question is, will the feedback 

in itself create a behavioral response that will achieve program 

savings? I’d like to think that if the program were rolled out in 

large scope and conducted properly that it would. But I think the 

other shoe that has to drop is that if you want to get the full benefit, there need to be incentives that go with the profiling. 

Chairman STARK. Okay. Let me just say it a little bit different 

way. We could probably go back to the old volume performance, 

and let’s assume that we’re about close enough for government 

work to the procedural payment, per procedure. So, that if volume 

is our big—and particularly in things like diagnostic imaging, 

things like that, which seem to go off the charts, we could take 

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groups, physicians in a state—let’s take radiologists, across the 

country. We could narrow it, I suppose, to statistical areas. Or we 

could drill down to the individual radiologist. My guess is that 

we’re not quite ready to do that in the next few months for us to 

legislate. 

But would it make sense to—are we at a place where we could 

start that? Get out immediately the information to groups of physicians such as peers are doing in terms of volume, and then begin 

to refine that to see whether we could get a more sophisticated 

method than just every radiologist in the country, if they go above 

a certain amount, cutting the fees by a certain amount, perhaps adjusting that so that those who are—become outliers get a large reduction than those who perhaps are judicious in their utilization? 

Is that—do we have the data and the technical ability to approach 

that? 

Mr. STEINWALD. I believe we do. There are those who will 

argue that our system for adjusting for patient health status is imperfect and needs to be improved. But our position is that there is 

sufficient data and tools there to begin the process. 

Chairman STARK. Mr. Kuhn, can—are you ready to do that for 

us next week? 

Mr. KUHN. We’ve been doing a lot of work in this area and on 

evaluation, and I would like to think that, with the proper authority and resources, we could be in a position sometime mid-’08 to 

begin putting that kind of information—— 

Chairman STARK. You’re kidding? 

Mr. KUHN. Yeah. I don’t want to have a sense of bravado here 

that, you know, we can perform miracles, but I think—— 

Chairman STARK. What kind of resources would you need from 

us—— 

Mr. KUHN. I’m not sure—— 

Chairman Stark [continuing]. Or legislation even? 

Mr. KUHN. I’m not sure of the resources. I think that’s something we’d like to talk to the Committee, about but to give you a 

sense here, I mean, to churn the data is probably the smallest part. 

Really, we’ve got to clean the data and make sure it’s good. It’s the 

old issue of ′′garbage in, garbage out. So, we’ve got to make sure′′ 

it’s good, clean data and it works. 

The fact that we’ve got 700,000 physicians, depending on how 

fast and how frequently we want to give reports—is it monthly, is 

it quarterly? That cost to get the resources out to them, and then, 

ultimately, get it in the hands of physicians. You just don’t want 

to drop it at their doorstep. There’s got to be some kind of educational program around that. 

It’s what Bruce—and I think, Glenn—have both talked about— 

How do they compare to their peers, and what kind of program. 

Are there educational tools we can provide? Are there educational 

tools that will help facilitate data exchange and physician specialists can provide? Do we engage the QIOs, for example, to come in 

and work with physicians so they can understand it so that it’s actionable once they are able to receive it? 

So, I think we’re talking a package like that, and that’s something we’d like to talk further with you and the Committee about. 

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Chairman STARK. Glenn, I know you’re not in as much—in 

terms of volume containment, but how does this strike you? 

Mr. HACKBARTH. Well, we did recommend a couple of years 

ago now that Medicare move down this path of using tools that are 

widely used in the private sector to assess physician practice patterns. We think they can be an effective tool for altering those patterns, both initial information feedback, but ultimately through 

changes in payment. So I largely agree with what Bruce and Herb 

have said on that. 

The other point that I would like to raise, Mr. Chairman is that 

looking at price adjustments can be an important tool in addressing 

the volume issue. Let me take the area of imaging. As you well 

know, as the Committee well knows, a lot of the growth in imaging 

is great stuff. It’s improving care for patients, and for sure we don’t 

want to stop that. On the other hand, there is some reason for concern that some of the growth is not very high value care. 

There are ways that we might approach the pricing of imaging 

services that would automatically result in some price reductions 

on rapidly growing services and create a rebuttal presumption, if 

you will, that the costs of providing those services are falling with 

the rapid growth. That’s what happens in most parts of the economy. What happens now in Medicare is prices are set at a given 

level for new stuff, and they often stay at a high level and they’re 

never adjusted downward. 

So, building some mechanisms into the program that would facilitate price adjustment, and there is a rapid growth and rapid 

dispersion of new technology, we think would be the fairer system 

in relative prices and help address volume. 

Chairman STARK. Do you have the resources at MedPAC to 

monitor this as—enough to create a system. I know you can study 

it from time to time, but do you have the resources to continuously 

monitor that and adjust for what I would call productivity gains in 

areas where we should be getting a lower price because it takes 

less time or it’s done? 

Mr. HACKBARTH. Well, ultimately, we think that the responsibility for ongoing monitoring needs to reside in CMS. 

Chairman STARK. Yes. 

Mr. Hackbarth. We’ve made some proposals, in fact, on how to 

augment their resources and their process, bring in some experts 

to help them do that. 

Chairman STARK. I thank you. I thank all of you. Mr. Camp? 

Mr. CAMP. Well, thank you, Mr. Chairman. Again, thank you all 

for coming. Obviously, Mr. Steinwald, you’ve said that health needs 

alone haven’t been determining spending, and clearly with Medicare spending on physicians increasing at 9 percent per year and 

certain distortions based upon the value of services occurring in the 

market, you’re suggesting that an analyzation of claims data will 

help address this issue. 

I guess my question for all of you is if you look at claims data 

alone, that can tell us the volume of services provided certainly, 

but how do we address the issue of medical necessity? If you each 

want to answer that. 

Mr. STEINWALD. It’s essential in a profiling system to recognize 

variations in patient needs. But the point that we made in our rejbell on PROD1PC69 with HEARING

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port and the testimony to you is that there are tools that enable 

one to do that. In a study that we conducted, for example, we divided patients into 30 cohorts based on their health status. Their 

health status was measured in terms of their diagnoses, their 

chronic diseases and some demographic characteristics. 

So, when we examine—we identified physicians who appear to be 

practicing medicine inefficiently, we were attempting to hold health 

status constant. Health status is our measure of the degree of patient need. So, we think that the tools are there and sufficient to 

at least go forward with a feedback program, and then during the 

time that the feedback program is in effect, these tools can be refined. 

Mr. CAMP. All right. Mr. Kuhn. 

Mr. Kuhn. I agree with Bruce. I think the necessity issue is there 

in terms of the Codes that we use, the Codes that we have, and 

the way we have to go back and look at the claims that come 

through the system. 

Obviously, we have opportunities with both the QIOs and with 

our contractors to go back and follow up with providers to make 

sure that the care that is given appropriate and necessary. But I 

agree with him. The fact that once you begin to put together these 

episodes and begin to look at them, I think that it gets to the core 

function of—Are we having a lot of overuse of services here, and 

do we have people who are operating outside the norm? I think 

that would give us additional tools to be able to look at that. 

Mr. CAMP. You’re really thinking of practice patterns here, I 

think, is what I hear you saying? 

Mr. KUHN. I think, it’s kind of a two-part. One would be on evidence-based guidelines and certainly practice patterns based on 

good evidence. But at the same time, you don’t want to be so restrictive that you eliminate the art of medicine and don’t allow 

physicians to deal with different patients who have different characteristics. So, finding that fine line is going to be key for us here, 

but I think we could do that. 

Mr. CAMP. All right. Mr. Hackbarth. 

Mr. HACKBARTH. Yeah. I have a couple of points, Mr. Camp. 

One is that what MedPAC envisions, recommends is that the system look not just at the cost of the care provided, but also integrate 

into the system quality measures. So, what we want to do ultimately is to award physicians who are truly efficient; namely, providing high quality care at a lower cost. So, we need to have both 

cost and quality in the analysis. 

Second, as an initial step, what we envision is that the comparison could be to peers by specialty within their geographic area to 

increase the comfort level among physicians that they’re being compared to a reasonable target. So, it would be a cardiologist in Boston compared to other cardiologists in Boston. Here’s how you fare. 

We’ve actually provided some examples of how those data look in 

some of our reports. 

The third point I make is that we do need to, for the long run, 

find research on what works so we can better evaluate practice patterns so we know what’s good and what’s bad. That’s a long-term 

project, and that’s why we think it’s important to increase funding 

for that effort as soon as possible. 

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Mr. CAMP. All right. Thank you. Mr. Kuhn, where is the CMS 

physician quality reporting initiative implementation going? How is 

that going? 

Mr. KUHN. We’re moving along very well on that. As I think 

people know, it begins in July and will allow physicians to report 

quality measures. We have 74 measures that we’ve posted on the 

website already, with good descriptors on each, and we’re ahead of 

the timeline on that. Physicians will be reporting in July for the 

6 months till the end of the year, and then with a payment differential of up to 1.5 percent in the next year. 

So far, I think development of the measures, the good collaboration of the physicians has gone well. Where we’re spending most 

of our time right now is in developing good educational information 

and outreach to the physician community. We don’t want anybody 

to be left behind or to not understand how to participate in this 

program. So we think with our ten regional offices, good support 

from the AMA and the other physician specialty groups out there, 

we’ve done some extensive outreach. So I feel pretty good about 

where we are at this stage. As the issues come up, we try to address them. I think the real test will probably be in September or 

October when we start to get the initial reports back and see how 

many physicians are reporting and whether we have any glitches 

in system. But for right now, we feel very secure about where we 

are in the development and implementation. 

Mr. CAMP. Thank you. Thank you very much. Thank you, Mr. 

Chairman. 

Chairman STARK. Ms. Tubbs Jones, would you like to inquire? 

Ms. TUBBS JONES. Mr. Chairman, yes I would. Thank you very 

much. Good morning, gentlemen. This is my first service on the 

Subcommittee on Health, and I’m reading through one of the reports. It, for some reason, some of this stuff seems to make it out 

like it’s rocket scientist. We all understand that primary care to a 

senior is what will make them hopefully live longer and the coordination of their benefits will hopefully make the dollar go through— 

stretch out or have greater value. Is this rocket scientist you’re putting forth in this report or is it something that we’ve always known 

but we’ve not been able to reach it in the Medicare Program? 

Mr. Hackbarth, I think this is your report I’m referring to. 

Mr. HACKBARTH. Yeah. Well, I suppose sometimes we do try 

to make things complicated, but we try to be precise and analytic. 

There is a lot of evidence that good primary care improves results 

to patients and perhaps even saves money. I think the real challenge is how to operationalize that. 

Ms. TUBBS JONES. Would you say, then, that in the United 

States where we have the greatest health care in the world, is it 

the delivery of the health care that we’re not able to put our arms 

around to provide the kind of health care that people need in the 

United States? 

Mr. HACKBARTH. Yeah. American health care is wonderful in 

its sophistication, the technology that’s used to provide it. But 

there are large-scale problems in the delivery of services, problems 

in getting the right services to the right patients at the right time, 

large problems with equity and access and the like. So, yeah, our 

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problems are delivery problems. The financing system often shapes 

delivery. 

Ms. TUBBS JONES. Obviously. My next question is, there is a 

discussion of a lot of friends that are physicians, a lot of friends 

that are dentists, and on and on and on, who are saying that the 

undervaluation of their services is driving them away from rendering care to Medicare beneficiaries. What are we doing to address that particular area? Anybody can answer that question. Mr. 

Kuhn, I didn’t mean that leave you all out. 

Mr. KUHN. No, not a problem. You’re right. The undervaluation 

of services also creates a real severe problem in terms of making 

sure physicians get the correct resources they need and beneficiaries have access to those services. 

What happened was—— 

Ms. TUBBS JONES. Say that again? 

Mr. KUHN.One of the things we did last year is that every 5 

years by statute, we’re supposed to go back and look at the physician payment system to make sure that the relative values are set 

appropriately. It’s called the 5-year review. It’s managed by the 

AMA’s Relative Value Update Committee, also known as the RUC. 

The good thing and the exciting thing that happened last year 

is they came back with a set of recommendations that we had 

never seen before to actually reward what we call E&M codes or 

evaluation and management codes—basically, those used predominately by primary care physicians, people who are doing family 

medicine and others. We increased those substantially, basically 

saying ′′let’s pay physicians more for spending time with the patients, talking with the patients, meeting with them.′′ And we accepted 100 percent of those recommendations as we went forward. 

So, I hope that we’ll see this year and next year—we’ll move forward the results of that charge because it was probably one of the 

most significant changes out there in terms of payment in the last 

decade. It represented real realignment. So, we’re making those 

changes. They’re probably not as aggressive as some probably 

thought they were or should be. But that was a good, significant 

move and one we were happy to adopt and implement last year. 

Ms. TUBBS JONES. Mr. Steinwald, I don’t want to leave you. 

I have one little other area I want to go real quick so we’ve got 

probably seconds. So, go ahead. 

Mr. STEINWALD. Yes ma’am. In general, the number of services 

performed for Medicare beneficiaries is up in almost every specialty 

area and in every part of the country. The trend over this decade 

has been for more beneficiaries to receive services and each beneficiary getting more services in a period of time. 

I won’t dispute what Glenn said about the relative valuation of 

primary care versus specialty care. But the data generally shows 

that Medicare beneficiaries are receiving services and there are 

very few places where you can identify what you would regard as 

an access problem. 

Ms. TUBBS JONES. But the real problem, however, may well be 

the coordination of the services. You’ve got seniors and doctors who 

are not talking to one another, and delivery of service is a real 

problem. I’m probably out of time, but I think—my biggest concern 

is that we do all this research and all these studies, which are real 

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important to me, and my seniors are not getting the services that 

they need. So, somehow I’m asking you to do both. Study but deliver. 

Chairman STARK. Mr. Ramstad, would you like to inquire? 

Mr. RAMSTAD. Thank you, Mr. Chairman. Chairman 

Hackbarth, both in your written testimony and in your colloquy 

today with Mr. Camp, you mentioned—discussed what I think is 

the obvious, that Medicare does not pay providers based on quality 

or efficiency of care. 

I’d like to ask you to elaborate or the other two distinguished 

panelists, this is nowhere better exemplified than in my home state 

of Minnesota where physicians provide some of the highest quality 

and lowest priced, lowest cost care in the country, and instead of 

being rewarded for providing high quality and low cost care, they’re 

penalized consistently through inequitable payments pursuant to 

the archaic, arcane, outrageous and unfair AAPCC formula for 

managed care, and also the geographic adjustments in traditional 

fee-for-service Medicare. 

In my judgment, this—well, both payment systems are perverse, 

because they perversely reward high cost and inefficiency. Isn’t it 

time—and, again, I welcome your input, Chairman Hackbarth, and 

you, Mr. Kuhn, and you, Mr. Steinwald—isn’t it time to scrap this 

arcane payment system? Isn’t it time for Congress, working with 

experts like you, to develop a system where we finally are able to 

reward providers for high quality and lower cost care? 

Mr. HACKBARTH. Absolutely. We’ve over the years proposed a 

lot of different ways that you might go about doing that. We talked 

about several of them this morning. 

I would say, Mr. Ramstad, though, that given Medicare’s longterm financing issues, what we need to do is not bring the low cost, 

high quality areas up in terms of their expenditure, but rather 

bring the high cost areas down to where they are. It’s an understandable reaction for people to say, well, we’re being efficient with 

the low cost and high quality and those other guys are getting all 

the money, and we should be getting that money. But a terrible 

long-term financing problem requires that we move down and not 

go up. 

Mr. RAMSTAD. Recognizing that—pardon my interruption. Recognizing that fact, on that point, there isn’t enough money—God 

doesn’t have enough money to do it that way. Certainly Medicare 

doesn’t. So, my fundamental question, the only way we’re going to 

resolve this, isn’t it true to say, isn’t it fair to say, is by scrapping 

the present system? We can’t do it pursuant to the current system. 

Mr. HACKBARTH. Which system? 

Mr. RAMSTAD. The AAPCC formula for managed care and the 

geographic adjustments in traditional fee-for-care. 

Mr. HACKBARTH. Well, the Medicare Advantage issue is a separate topic that we’ve discussed a lot. Again, the basic point that 

MedPAC made, for example, in our report on the SGR in March, 

is that if we’ve got geographic disparities in aggregate expenditures, what we need to do is squeeze the high-cost states down, not 

bring the low-cost states up. That’s what the long-term financing 

does. 

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Mr. RAMSTAD. But how do we do that short of scrapping the 

present formula? How do we do that? That’s what I’ve heard for 12 

years here, and then I’ve heard we can’t scrap the present formula 

because there are more Members, more votes from Florida and 

New York and California than there are from Minnesota and Iowa 

and North Dakota and Wyoming, the states that are penalized. So, 

how we do that short of scrapping the formula? 

Mr. HACKBARTH. Well, it would involve scrapping the formula 

and making significant changes, yes, absolutely. 

Mr. RAMSTAD. That’s the answer I was looking for, and I appreciate your candor and your recognition of that fact. Do either of you 

have anything to add? 

Mr. KUHN. Just one thing I’d add to that, Mr. Ramstad, is 

you’re absolutely right. The judicious use of resources is absolutely 

essential to the Medicare Program and how we can put together 

payment systems that drive us in that direction is key. The issue 

of the wage index that you raised, one of the things for this Committee to look forward to which will be arriving soon, is that part 

of the tax relief bill was passed last year was a mandate for a report to Congress on how we develop other alternatives to the wage 

index. 

MedPAC has taken the lead on that. They’re going to produce a 

report I think in June that will be handed off to us, and then we 

will take that work that they’ve done and subsequently give a report to Congress. So, the opportunity for further dialog on that 

issue with some options coming forward is near. 

Mr. RAMSTAD. Thank you. Briefly. 

Mr. STEINWALD. Back to fee-for-service Medicare. The blunt instrument I referred to earlier that the SGR system poses. If we 

were able to replace that with programs that recognize individual 

doctor’s adherence to the practice standards, those doctors who do 

adhere to practice standards will be better off than those that are 

costing us these big payment increases. 

Mr. RAMSTAD. Well, thank you for your expertise, and thank 

you for your candor. Thank you, Mr. Chairman. 

Chairman STARK. Mr. Becerra, I think we’ll have time for two 

more Members to inquire before we have to go vote. Would you like 

to inquire? 

Mr. BECERRA. Yes, Mr. Chairman. Thank you. Gentlemen, 

thank you for your testimony. Let me step back a second ask you 

to help me compare what we do in this country with other countries that offer their seniors a universal system of health care. 

Tell me what you see as the differences between our system from 

its initial starting point versus another system that’s perhaps comparable. I’m not sure what country would have a system comparable in terms of its population profiles and it’s way of administering services and its level of sophistication in services. 

So, let’s say whether it’s Great Britain or Canada, are there any 

countries that you can use as a base model to compare both our 

population and our system for providing health care to our seniors? 

I’d ask you to be as brief as possible so I can then follow up. 

Mr. HACKBARTH. Yeah. I’d hesitate to choose any one particular country. I can make some general statements. As is well 

known, we tend to spend significantly more per capita than even 

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other wealthy countries. The growth in expenditures, though, tend 

to be about the same. So, it’s not like we’re growing dramatically 

faster than others. They’re pretty similar. 

There has been some research that shows the major reason for 

the difference in cost in the U.S. versus other countries is the 

prices paid for services, prices paid for physician services and hospitals and drugs and the like, tend to be significantly higher, and 

those translate into a higher income for physicians and all health 

care professionals in the U.S. than in foreign countries. 

Mr. BECERRA. Utilization rates, are they similar? 

Mr. HACKBARTH. You know, they vary somewhat. The research 

I was just referring to about price differences says that, you know, 

on most important issues of utilization, access to the care and the 

like, lower-cost countries compare favorably to the U.S. They get 

access to new technology, et cetera. The big difference is price differentials. 

Mr. BECERRA. Mr. Hackbarth, my understanding is, it’s sort of 

what you’ve just said, is that we typically start our baseline at a 

higher level than other advanced countries do when it comes to 

what they’re paying for a service. We seem to have a higher utilization rate in some cases of some of the more expensive services that 

are provided than do other countries. So, we start off already, before the first dollar is out the door, paying more than other advanced countries do for health care for seniors, and we seem to find 

that the more expensive services are used more often in this country. 

Mr. HACKBARTH. Yeah. Perhaps—— 

Mr. BECERRA. Perhaps our seniors are no better off, in some 

cases worse off, than the population of seniors in those other countries. 

Mr. HACKBARTH. Yeah. We’re really generalizing here, and 

there’s always risks in doing that. But often, the U.S., there will 

be faster access to the new technology, lower thresholds on who 

qualifies for an expensive new technology, and in many cases, 

that’s a difference and it increases costs in the Medicare system. 

Mr. BECERRA. I thank you for that. I hope we explore more 

what other countries are doing, because other countries have had 

long-term experience in the ways we have to some degree, in providing universal health care to our seniors. But they certainly seem 

to do it for a lot less and in many cases, they’re outcomes seem to 

be as good if not better than ours. So, they’re getting far more bang 

for the buck for our seniors. 

The other question is, this whole description of the primary physician, gatekeeper, or what’s the other term, home? 

Mr. HACKBARTH. Medical home. 

Mr. BECERRA. The medical home. I know when you talk to 

some physicians, especially the specialists and they hear the word 

′′gatekeeper,’’ they get somewhat concerned about what—or how we 

describe that primary care physician, and they tend to think more 

in terms of a gatekeeper versus a medical home. 

Can you give us a sense of how you get the physician community 

to feel comfortable that we may move more toward a system of a 

medical home or gatekeeper? 

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Mr. KUHN. I’m not sure. You know, this is going to be a maturation process for all of us as we go forward here. We are trying to 

put together a demonstration on a medical home model right now, 

and we’ve been meeting with a lot of the physician groups to help 

them help us describe what a medical home is. I’ll tell you, every 

physician group you talk to has a different idea. As some people 

describe it, it almost sounds like a medical lean-to. On the other 

side of the spectrum, it’s almost a medical mansion. But what is 

a ′′medical home′′? It’s somewhere in the middle. How can you get 

a good description of that so that you have the coordination of care 

that you’re after? 

Mr. BECERRA. Let me ask one last question. My time has expired. Do any of you believe that we can move forward in a productive way with Medicare without coming up with some definition of 

a ′′medical home′′ or a gatekeeper system? 

Mr. KUHN. I think the ′′medical home′′ as Glenn laid out 

through, in his opening remarks, about four different initiatives. 

It’s going to be one of many things we’re going to need to explore. 

I don’t think there’s a silver bullet here anywhere. But it’s one of 

many things that I think will be helpful to us. 

Mr. BECERRA. Thank you very much. Thank you, Mr. Chairman. 

Chairman STARK. Ron, do you want to ask a question? 

Mr. KIND. Yes. Thank you, Mr. Chairman. We just have a few 

minutes before we have to run to vote, but we appreciate your testimony today. I personally kind of went through medical home type 

of process myself, having walked through with my older sister, 

breast cancer treatment in my hometown in La Crosse. They called 

it the integrated team approach, but it sounds very comparable 

where the patient is taken and then instead of just being handed 

off to physician to physician, there was that team that was formed 

around her so there was no slipping through the cracks. Let me tell 

you, for her confidence and reassurance and the whole family, it 

worked marvelously. Of course the quality of care standards have 

improved dramatically as well. It’s been a real model that they’re 

trying to help other providers throughout the country. 

But I just echo and ditto what my friend from Minnesota said 

earlier in regards to the high quality, low reimbursed areas and 

the frustration many of our providers have over that. I assume 

you’re all looking at states to see what type of innovative practices 

they’re making to improve quality and reporting requirements. In 

Wisconsin, for instance, we have since 2004, hospital quality reporting program called Checkpoint. It’s a voluntary consortium of 

providers throughout the state and 128 hospitals are participating. 

This reflects 99 percent of the hospital admissions, and it’s getting 

information out to the public, and they’re holding themselves to 

some very high standards of care. 

Then a year earlier in 2003, Wisconsin formed for the Collaborative for Health Care Quality, which again is another voluntary 

consortium on establishing quality standards and then a self-reporting mechanism that’s available to the public. It seems to be 

helping drive competition but increasing quality of care. So, I’m 

hoping that we’re paying very close attention to what states are 

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doing innovatively and creatively to come up with some of the solutions themselves. 

The question I have for you, however, and taking a step back 

from this conversation, something a little more fundamental, because, again, a lot of my providers back home are doing it, is 

they’re instituting lean programs in their hospitals to increase efficiency. Because as I visited a lot of them, and as they tell me, 

there’s a lot of low-lying fruit out there just to increase the way 

service is being provided and getting doctors to think more efficiently in how they’re handling their own practice areas. 

Are we looking at that? Or perhaps the better question is, what 

can we do to incentivize that so more providers are implementing 

or instituting programs like lean, which seems to be easier to do 

than Six Sigma, which requires a few more hurdles to do? 

Mr. HACKBARTH. Yeah. Actually, we had panel on that very 

topic I guess a year or so ago and heard from some people actively 

involved in trying to streamline their system, and heard a couple 

of things. They think is a potential for both improving quality and 

patient satisfaction while reducing cost is very large. A significant 

barrier that they run into, however, is the payment system, not 

just the one used by Medicare, payment systems used by private 

payers as well. 

Often if you change, you make the system more efficient over 

here, you may increase costs somewhat over there, and the payment systems don’t really properly adjust. So what you end up with 

is you don’t reap rewards of your efforts to improve efficiency. 

A generic approach, a generic way of thinking about how to create stronger incentives, is increase the size of the bundles. The 

larger the bundle the provider has responsibility for, the more flexibility they have to change the mix of inputs, change their processes 

and still benefit from improvements in efficiencies. If you have narrow bundles, then there’s a lot of leakage, and they’re not rewarded 

for their efforts. 

Mr. KIND. Well, I’d like to—given the time, we’ve got to run and 

go to vote—just follow up with you on that. I’m very interested in 

trying to pursue it. So, the problem with the reimbursement system that creates disincentives for them to increase their own efficiency, we’ve got to address that as well. Because the feedback 

we’re getting from our providers who do institute these programs 

is they are efficient, more efficient. It frees up physician time. 

They’re able to spend more time with their patients, see more patients. The quality of care is being increased, because medical errors are also being reduced at the same time. 

So, I think there’s a lot of win-win-win as to why we should be 

doing this. But if there is a disincentive in the reimbursement system, we need to be taking a look at that, too. So, I’d like to just 

follow up with you at some point, probing this conversation. 

Thank you again for being here. Thank you, Mr. Chairman. 

Chairman STARK. I want to thank the panel. I’m sorry to rush 

off. I wish we could—well, I know we’ll be back talking with each 

of you and all of you some more as we try to resolve this. We will 

recess, subject to the call of the chair, it will be another 20 minutes 

I guess, and then we’ll, for the benefit of the second panel, we’ll reconvene. 

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Thank you very much, gentlemen. We’re in recess 

[Recess until 12:20 p.m.] 

AFTERNOON SESSION 

Chairman STARK. Thank the panel for their patience as we proceed to salvage small business from bankruptcy. We’ll proceed. 

We’re pleased to have you here. Bob Berenson, Dr. Bob Berenson 

from the Urban Institute. Dr. Rick Kellerman from the American 

Association of Family Physicians. Dr. John—you got out of order 

there, didn’t you? Dr. John Mayer, and Dr. Anmol Mahal, my constituent and neighbor in Freemont, California, who is President of 

the California Medical Association and the Society of Thoracic Surgeons represented by Dr. John Mayer. 

If you gentleman would like to proceed to, starting with Dr. 

Berenson, summarize your printed testimony, I’d ask unanimous 

consent that your entire testimony will appear in the record. If 

you’d summarize it in any way you care, and my colleagues will try 

and weasel more information out of you in the questioning period. 

Bob. 

STATEMENT OF ROBERT A. BERENSON, M.D., SENIOR FELLOW, 

THE URBAN INSTITUTE 

Dr. BERENSON. Thank you, Mr. Stark, Mr. Camp and Members—well, no other Members of the Committee. 

[Laughter.] 

Dr. BERENSON. I appreciate the opportunity to provide testimony to the Subcommittee on Health on a subject I have been 

deeply involved with through most of my professional career as a 

practicing internist, medical director of a PPO, a senior official at 

TMS, and now as a researcher and policy analyst. 

I believe that this is an important hearing because the focus of 

the hearing is not on how to use marginal dollars, 1 to 2 percent, 

to try to influence physician performance, or on paying third-party 

disease management organizations that are separate from the physicians actually providing the medical care to beneficiaries with 

chronic conditions, but rather explores how the program might better spend 100 percent base of physician spending to include quality 

and efficiency. 

Many policymakers still use the—or commonly use the term ′′feefor-service Medicare’’ to designate the original Medicare Program 

and to distinguish it from the various kinds of Medicare Advantage 

products. However, this convenient shorthand actually 

mischaracterizes how the traditional Medicare Program pays providers. In fact, the physician fee schedule is one of the last payment approaches in Medicare that remains truly fee-for-service. Accumulated evidence documents that prospective payments based on 

episodes of care have moderated cost increases in the traditional 

Medicare Program. 

In contrast, the physician payment system remains fee-for-service, although even the fee schedule, there are significant examples 

of bundled or packaged payments, as Herb Kuhn discussed in his 

testimony earlier. These longstanding approaches to bundling can 

be looked to for guidance on how to expand episode-based payments to physicians. 

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The program is now experiencing an explosion of volume and intensity growth in some clinical areas. For the first decade or so of 

the Medicare fee schedule, the evolving expenditure target approach has actually worked reasonably well to constrain spending 

growth. The situation has clearly changed in the last 6 years, and 

Congress, with the exception of 2002, has acted to override the 

across-the-board fee reductions called for under the SGR mechanism. 

Because of the volume growth of services that are inherently discretionary in nature and increasingly where physicians have a financial interest, in my opinion there is little question that bundling payments for episodes of care needs to be a primary objective 

of physician payment reform, just as it has been successful when 

applied to other providers in Medicare. 

I will provide one important example of why moving to bundled 

payments for physicians, in contrast to fee-for-service, makes good 

policy sense. The work of Dr. Edward Wagner at the MacColl Institute in Seattle makes this clear. He describes a chronic care model 

in which the proper management of patients with one or more severe chronic conditions, such as diabetes and congestive heart failure, involves lots of communication with patients outside of standard office visits by phone, and possibly e-mail, care by multidisciplinary professional teams, active use of patient registries and enhanced coordination among professionals and providers practicing 

in many locations. 

In my view, for reasons that are in my written statement, it 

would be foolhardy to try to pay for most of these additional services on an a la carte basis as fee-for-service does. Episode-based 

payment not only for primary care physicians but specialists caring 

for a variety of acute and chronic health care medical problems has 

an inherent appeal. There will be important in implementation 

issues that will need be worked through. 

I think it is time to recognize that a one-size-fits-all physician 

payment system may no longer work properly to support the increasing diversity of physician activity that has resulted from subspecialization. Medicare should develop and maintain different payment approaches for real and virtual multi-specialty groups able 

and willing to believe accountable for cost and quality, rather than 

pay them on the lowest common denominator approach that would 

apply to a solo practitioner. 

At the same time, fee-for-service will be with us a long time, for 

those physicians unable or unwilling to accept bundled places that 

places them at significant financial risk and for physicians outside 

of large groups who provide specialized, one-time services. 

Therefore, I would like to make a couple of comments about 

Medicare physician fee schedule. The Resource-Based Relative 

Value Scale approach first implemented in 1992 and still a work 

in progress, is a marked improvement over the charge-based use 

schedule that preceded it in Medicare. For all of RBRVS’s complexity, the right institutions are in place to make important and 

overdue improvements to the fee schedule refinement process. To 

use a sports metaphor, attempting to get the prices right is the 

blocking and tackling of a fee schedule. Yet in recent years, fee 

schedule prices have become distorted, but without much notice. 

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1 Rick Mayes and Robert A. Berenson, Prospective Payment and the Shaping of U.S. Health 

Care, (Baltimore: Johns Hopkins University Press, 2006) 

These pricing distortions have occurred in Medicare but even more 

so in most commercial health plan fee schedules which are based 

on Medicare’s. Prices have been allowed increasingly to deviate 

from the underlying costs of production, producing unfortunate behavioral responses by physicians, contributing to the explosion in 

volume of services in areas such as imaging. 

In my view, it would be relatively straightforward technically to 

correct many of these distorted prices, if there were the political 

will and support to do so. Correcting distorted prices would help 

control the utilization of services that are leading to the expenditure problems and the need for an SGR fix. 

With that, I will pass it on to the next witness. Thank you. 

[The prepared statement of Dr. Berenson follows:] 

Statement of Robert A. Berenson, M.D., Senior Fellow, the Urban Institute 

Chairman Stark, Mr. Camp, and members of the Committee: 

I appreciate the opportunity to provide testimony to the Health Subcommittee on 

a subject I have been deeply involved with through most of my professional career. 

I practiced internal medicine for over twenty years, twelve of which were in a group 

practice just a few blocks from here. I was the first representative of the American 

College of Physicians to the American Medical Association’s Resource-Based Relative Value Scale (RBRVS) Update Committee (RUC). In the last part of the Clinton 

Administration, I had operational responsibility for the Medicare Physician Fee 

Schedule at the Centers for Medicare and Medicaid Services (CMS). Finally, in recent years as a Senior Fellow at the Urban Institute, I have had a chance to study 

how well the Medicare Physician Fee Schedule has worked and what might be done 

to improve it. 

I believe that this is an important hearing—because the focus of the hearing is 

not on how to use marginal dollars—1–2 percent—to try to influence physician performance or on paying third-party disease management organizations that are separated from the physicians actually providing the medical care to beneficiaries with 

chronic conditions—but rather explores how the program might better spend the 

100 percent base of physician spending, which is now approaching $60 billion. It is 

important to explore the likely effects of these newer approaches to improving quality and efficiency on beneficiaries, physicians, and the Medicare program overall. 

The hearing is also important because it signifies that the budgetary pressure of 

finding a solution to the shortfall created by the cumulative deficit produced by the 

sustainable growth rate (SGR) formula should not occupy all of the time and attention of health policy makers. Indeed, as I will try to make clear, I believe that greater attention to how we spend the base of $60 billion can provide both short-term 

and long-term improvement to the financial bottom-line and ease off some of the 

SGR pressure that currently exists. In recent months, very constructive ideas, including some presented at today’s hearing, have been raised. I hope to contribute 

to that discussion in my remarks today. 

Many policy makers use the term ‘‘fee-for-service Medicare’’ to designate the original Medicare program and to distinguish it from the various kinds of Medicare Advantage products. However, this convenient short-hand actually mischaracterizes 

how the traditional Medicare program pays providers. Indeed, in a book on Medicare 

prospective payment that I co-authored with Rick Mayes last year, I emphasize that 

the Medicare Fee Schedule (MFS) is one the last payment approaches in Medicare 

that remains truly fee-for-service (FFS).1 Initially, with the Hospital Inpatient Prospective Payment System and then subsequently with a series of prospective payment systems created in the Balanced Budget Act of 1997 and later legislation, providers typically receive bundled payments for an episode of care, appropriately casemix adjusted to take into account patient severity. Under these bundled payment 

approaches, providers have an incentive to provide services more efficiently, for less 

than the average costs on which payment amounts are based. Accumulated evidence 

documents that prospective payments based on episodes of care have moderated cost 

increases in the traditional Medicare program. 

In contrast, the physician payment system remains FFS, although even in the fee 

schedule there are significant examples of bundled or packaged payments, most nojbell on PROD1PC69 with HEARING

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2Goroll, HA, Berenson RA, Schoenbaum SC, Gardner, LB. Fundamental Reform of Payment 

for Adult Primary Care: Comprehensive Payment for Comprehensive Care. Journal of General 

Internal Medicine, 22(3):410–415, 2007. 

tably the 90-day global fees for surgical procedures under which routine pre- and 

post-operative services are included into the global payment amount, and the 

monthly payment to renal physicians overseeing renal dialysis for patients with End 

Stage Renal Disease. These long-standing approaches to bundling can be looked to 

for guidance on how to expand episode-based payments to physicians. 

Because the physician payment system is almost purely FFS, it was understandable that Congress, in OBRA 1989, placed a volume expenditure target—then called 

the Volume Performance Standard—as an admittedly crude approach to containing 

spending growth under the MFS that began in 1992. It is interesting to note that 

the 1989 Physician Payment Review Commission Report thought that the expenditure target mechanism could work only for a few years and that organized medicine 

needed to actively develop clinical practice guidelines, with accompanying physician 

education efforts, as a needed long-term solution to constrain volume growth. Unfortunately, efforts to find alternatives to the top-down expenditure target approach 

were not sustained. And the program is now experiencing an explosion of volume 

and intensity growth in some clinical areas. 

Yet, for the first decade or so of the MFS, the evolving expenditure target approaches actually worked reasonably well to constrain spending growth. The situation has clearly changed in the past 6 years, and Congress, with the exception of 

2002, has acted to override the across-the-board fee reductions called for under the 

SGR mechanism. In the absence of broad-based clinical practice guidelines and because of the volume growth of services that are inherently discretionary in nature 

and, increasingly, under physicians direct control, in my opinion there is little question that bundling payments for episodes of care needs to be a primary objective of 

physician payment reform, just as it has been successful when applied to other providers in Medicare. 

Examples of Bundled Services 

I will provide one important example of why moving to bundled payments for physicians, in contrast to fee-for-service, makes good policy sense. The work of Dr. Edward Wagner, at the MacColl Institute for Healthcare Innovation in Seattle, Washington, on what he calls the Chronic Care Model makes clear that the proper management of patients with one or more severe chronic conditions, such as diabetes 

and congestive heart failure, involves lots of communication with patients outside 

of standard office visits by phone and, possibly, email; care by multi-disciplinary 

professional teams; active use of patient registries; and enhanced coordination 

among professionals and providers practicing in many locations. In my view, it 

would be foolhardy to try to pay for most of these additional services on an a la 

carte basis, as FFS does. 

Consider, as an example, phone calls. The transaction costs of billing and collecting would be more than the reimbursement for most of the individual services; 

program integrity concerns would abound; and the inevitable explosion of volume on 

easily provided and well-appreciated phone calls would become financially prohibitive. The alternative that MedPAC and others have discussed is a chronic care management fee for primary and principal care physicians who would agree to be accountable for providing the array of services in the Chronic Care Model, much as 

the American Academy of Family Practice, the American College of Physicians and 

others have envisioned in the patient-centered medical home. My own preference 

would be to provide a ‘‘per beneficiary per month’’ fee not only for care coordination 

but also for some or all of the actual medical services provided by the same practice.2 The right approach, which should be tested in multi-payer demonstrations, 

might actually be a mixture of reduced fee-for-services combined with monthly fees 

for specified bundles of services. 

The medical home concept presents a number of specific operational challenges, 

which I am prepared to discuss, but the main point to make is that it is the conceptually right thing to do. The approach not only should improve the care provided 

to beneficiaries with chronic health problems, but importantly, would provided involved practices with improved incentives to avoid unnecessary downstream utilization by other providers. In this context, pay-for-performance to reward efficiency and 

to protect against under-provision of important primary and secondary preventive 

services might play a useful, supportive role. 

Episode-based payment not only for primary care physicians but also for specialists caring for a variety of acute and chronic health care medical problems has inherent appeal. There, are, however, important implementation issues regarding spejbell on PROD1PC69 with HEARING

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3 Bodenheimer T, Berenson RA, and Rudolf P. The Primary Care-Specialty Income Gap: Why 

It Matters, Annals of Internal Medicine 146(4):301–306, 2007; Ginsburg PB and Berenson RA. 

Revising Medicare’s Physician Fess Schedule—Much Activity, Little Change. New England 

Journal of Medicine 356(12):1201–1203, 2007; Maxwell S, Zuckerman, S, and Berenson RA. Use 

of Physicians’ Services Under Medicare’s Resource-Based Payments, New England Journal of 

Medicine 356(18):1853–1861, 2007. 

cialist bundling as well. In particular, given the documented problem of inappropriate procedures producing unjustifiable and costly practice variations, any episode-based payment system should not incorporate an inherent bias for performance 

of procedures, as already exists in the RBRVS-based fee schedule. Although the 

costs of an episode need to recognize that there are direct physician expenses associated with the procedure provision itself, the valuation of condition-specific episodes 

should minimize payment differentials that reward clinical decisions to provide the 

procedural intervention. 

Further, as with all episode or period of time based payment approaches, clinically sophisticated case-mix adjustment is needed to prevent perverse effects, such 

as physicians giving preference to less severe patients within a cohort with a particular condition or over-diagnosing relatively minor complaints to generate compensable episodes. All payment systems offer ‘‘gaming’’ opportunities. The work on developing payment bundles and episodes needs to protect against such behavior. Fortuitously, in recent years, we now have much more sophisticated approaches to casemix adjustment such that payment approaches, such as capitation, that often 

foundered when used by private health plans in the past, now might be much more 

successful. 

One size no longer fits all 

It is time to recognize that a ‘‘one size fits all’’ physician payment system may 

no longer work properly to support the increasing diversity of physician activity that 

has resulted from sub-specialization. Primary care physicians and particular subspecialists typically care for patients over many years, and much of their value derives from continuity and consistency. As already noted, an immediate Medicare 

challenge is to develop a payment approach to support robust chronic care coordination and management. At the other end of the physician spectrum, some physicians, 

including radiologists, pathologists, anesthesiologists, and emergency room physicians, mostly provide one-time, discrete services and typically do not have ongoing 

responsibilities regarding individual patients. For these physicians, FFS would seem 

to be an appropriate reimbursement mechanism for a third-party payer, such as 

Medicare, which does not employ physicians and thus are unable to pay a salary. 

In the middle of the spectrum, many physicians provide both discrete, one-time 

services and have ongoing care responsibilities. 

Ideally, all specialties would work together, either in real multi-specialty group 

practices or in virtual multi-specialty collaborations, with payment made to the organization on a per beneficiary per month basis for ‘‘medical home’’ services, with 

payment adjustments for episodes of illness that require highly specialized services. 

The current physician group practice demonstration is a very important one in recognizing the opportunity to compensate large real and virtual groups differently 

from the payment approaches that apply to individual physicians or single specialty 

groups. Further, physician pay-for-performance, generally should attempt to measure group-level, rather than individual, physician performance. 

In sum, Medicare should develop and maintain different payment approaches for 

multi-specialty groups and collaboratives able and willing to be accountable for costs 

and quality, rather than pay them on the lowest common denominator approach 

that would apply to a solo practitioner. At the same time, FFS will be with us for 

a long time—for those physicians unable or unwilling to accept bundled payments 

that places them at significant financial risk and for physicians outside of large 

groups who provide specialized, one-time services. 

Improving the RBRVS System to Promote Efficiency 

I have recently co-authored medical journal articles critiquing recent implementation of the MFS, especially the RBRVS component.3 But I do not want these published comments and concerns to be misunderstood. The RBRVS approach, first implemented in 1992 and still a work in progress, was a marked improvement over 

the charge-based fee schedule that preceded it in Medicare. And for all of RBRVS’s 

complexity, the right institutions are in place to make important and overdue improvements to the fee schedule refinement process. Unfortunately, the MFS, I believe, has suffered from a relative lack of attention in recent years by Federal policy 

makers—at CMS, at MedPAC, and in Congress, as policy interest has focused elsewhere. As a result, the program has spent unnecessarily because of a failure to anticipate and guard against highly inflationary increases in the volume and intensity 

of many physician services. 

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4Ginsburg and Berenson 

5 Berenson RA, Bodenheimer T and Pham, HH. Specialty-Service Lines: Salvos in the New 

Medical Arms Race, Health Affairs 25:w337-w343, 2006. 

To use a sports metaphor, attempting to get the prices right is the blocking and 

tackling of a fee schedule. Yet, in recent years, fee schedule prices have become distorted, but without much notice. These pricing distortions have occurred in Medicare 

but even more so in most commercial health plan fee schedules, which are based 

on Medicare’s. Prices have been allowed, increasingly, to deviate from the underlying costs of production, producing unfortunate behavior responses by physician, 

which I will detail in a moment. Yet, in my view, it would be relatively straightforward technically to correct the distorted prices, if there were the political will and 

support to do so. 

In the recent articles, colleagues and I have attempted to explain some of the 

technical reasons why the prices became distorted. I will emphasize two issues here. 

Keeping the relative values accurate requires an effective process that reflects 

changes in medical practice and trends in physician productivity. But, for the most 

part, relative values have defied gravity—going up or staying the same but rarely 

coming down.4 Because physician time spent is a crucial element in estimating both 

the work and practice expense components that make up the RBRVS approach, it 

is time to base time elements for high frequency services on objective time data, 

rather than on surveys of self-interested specialty groups. In that way, time estimates can be kept more current and accurate than under the five-year review process that is now used. 

Second, problems with accurate estimation of relative values for practice expenses 

have worsened as physicians in some specialties have billed for more ancillary services associated with high equipment expenses. CMS has used unrealistically low assumptions about rates of use if equipment and unrealistically high assumptions 

about amortization rates for large equipment purchases. Furthermore, the payment 

of average costs for services whose variable costs are low encourages physicians to 

order more services and to view the services as profit centers. These services include 

imaging and clinical tests, which are among the fastest growing services in Medicare. In short, because of the failure to consider that the cost of providing a service 

such as an MRI scan is reduced with every scan performed, Medicare’s reimbursements overpay and create an incentive for ordering and providing too many such 

scans. 

During site visits to twelve nationally representative metropolitan areas through 

work conducted by the Center for Studying Health System Change, my colleagues 

and I have observed increasing numbers of physicians building capacity to compete 

with hospital outpatient departments by offering these lucrative services.5 Indeed, 

such market-based developments provide a direct signal to policy-makers of distorted payment levels, pointing to priority targets for price error corrections. 

It is not by simple chance that CMS and MedPAC find the volume and intensity 

of imaging, tests, and minor procedures—all discretionary services which ostensibly 

produce little or no patient harm—are growing much faster than the categories of 

major surgical procedures and evaluation and management services. The latter services provide much less opportunity for physician-induced demand. 

We now see that single specialty groups are merging to have the size and scope 

to purchase or lease imaging equipment, such as MRI and PET scans. This behavior 

suggests that the prices for advanced imaging services, such as MRI and PET scans 

are too high and can be safely reduced without compromising patient access to these 

important services. (Conversely, other imaging services, such as screening mammograms and DEXA scans for osteoporosis, where access problems appear to exist are 

likely under-priced.) 

There are many technical reasons for why the RBRVS system has gotten off track. 

The Congress can play an important role in assuring that the technical experts 

within organized medicine, at MedPAC, and at CMS make the needed corrections 

to currently distorted prices. And while work proceeds to adopt bundled-based payments for physician services, in my opinion there remains a strong policy rationale 

for expenditure targets, but specifically targeted to discretionary services that are 

growing rapidly. In sum, in the long-term we need fundamental reform of how physicians are paid in traditional Medicare. In the short-term, greater attention to correcting incorrect prices and more carefully targeting expenditure targets can 

produce savings and produce the climate needed to accomplish the needed fundamental reforms that the witnesses have discussed at this hearing. 

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Chairman STARK. Thank you. 

Dr. Kellerman. 

STATEMENT OF RICK KELLERMAN, M.D., PRESIDENT, 

AMERICAN ACADEMY OF FAMILY PHYSICIANS 

Dr. KELLERMAN. Chairman Stark and Mr. Camp, I’m Dr. Rick 

Kellerman of Wichita, Kansas, and I am president of the American 

Academy of Family Physicians representing 93,800 members nationwide. On behalf of the Academy, thank you for this opportunity 

to discuss proposals that we believe are important elements of physician payment reform under Medicare. 

The Academy appreciates the work that the Subcommittee has 

undertaken to examine how Medicare pays for the services physicians deliver to Medicare beneficiaries, and we share the Subcommittee’s concerns that the current system is inefficient, inaccurate and outdated. For those reasons, the Academy supports the 

restructuring of Medicare payments to reward coordination of 

health care and quality improvement. 

Medicare should focus attention on how a coordinated physician 

can integrate the health care patients receive from different providers in different settings with the goal of preventing duplication 

of tests and procedures and assuring comprehensive patient care, 

not unlike a network administrator keeps a computer system functioning efficiently. 

More than 20 years of evidence shows that having a health care 

system based on primary care reduces costs and benefits the patient’s health. By using a system of health care that is not predicated on primary care physicians coordinating patients’ care, the 

U.S. health care system pays a steep economic price, and our Medicare beneficiaries pay a steeper price in terms of their quality of 

care. 

Currently, 82 percent of the Medicare population has at least one 

chronic condition, and two-thirds have more than one chronic condition. Moreover, 20 percent of beneficiaries have five or more 

chronic conditions and account for two-thirds of all Medicare spending. 

There is strong evidence that adopting the chronic care model 

that Dr. Berenson referred to would improve health care quality 

and cost effectiveness, integrate patient care and increase patient 

satisfaction. This well known model is based on the fact that most 

health care for the chronically ill takes place in primary care settings such as the offices of family physicians. 

The chronic care model focuses on several essential components: 

Enhanced self-management by patients of their disease; 

An organized and sophisticated delivery system; 

Evidence-based support for clinical decisions; 

Information systems; and 

Links to community support organizations. 

This model with its emphasis on care coordination, has been tested in dozens of studies and has repeatedly shown its value. Because of the prevalence of chronic disease among the elderly, applying the chronic care model to Medicare is appropriate. Thus the 

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Academy proposes a new Medicare physician payment system that 

includes: 

Application of the chronic care model through adoption 

of the patient-centered medical home; 

Provision of a monthly care management stipend for recognized physician practices designated by beneficiaries as their 

medical home; 

Continued use of the resource-based relative value scale using 

a conversion factor updated annually by the MEI; and 

Creation of an oversight entity to make recommendations to 

the Secretary about the appropriate value of services. 

Medicare should compensate physicians for coordinating care, a 

concept supported by both the Institute of Medicine and MedPAC. 

In addition, this concept is supported by ample literature and is 

being advanced jointly by the AAFP, the American Academy of Pediatrics; the American College of Physicians; and the American Osteopathic Association. 

In order to be recognized as a medical home, practices would submit to a voluntary recognition process by an appropriate nongovernmental entity to demonstrate that they have the capability 

to provide patient-centered services consistent with the model. Currently, the Academy and other primary care specialty societies are 

in discussion with the National Committee for Quality Assurance 

on creating such a recognition program for the patient-centered 

medical home. 

Herb Kuhn characterized in his testimony, testimony that the 

medical home has been defined. I want the Subcommittee to know 

that the four medical societies that I mentioned have agreed on the 

principles of a patient-centered medical home. Payment of a monthly stipend to the medical home for care coordination and other designated activities would reflect the value of work that falls outside 

of face-to-face visits, such as ongoing coordination of care within a 

given practice, as well as with consultants, ancillary providers and 

community resources. 

In conclusion, the Academy believes it is time to stabilize and 

modernize Medicare by recognizing the importance of appropriately 

valuing primary care, and by embracing the patient-centered medical home model as an integral part of the Medicare program. 

[The prepared statement of Dr. Kellerman follows:] 

Statement of Rick Kellerman, M.D., President, American Academy of 

Family Physicians, Shawnee Mission, KS 

Chairman Stark, and members of the subcommittee, I am Dr. Rick Kellerman of 

Wichita, Kansas, and I am president of the American Academy of Family Physicians 

representing 93,800 members nationwide. On behalf of the Academy, thank you for 

this opportunity to share with the subcommittee the proposals that AAFP believes 

to be important elements of physician payment reform under Medicare. 

The AAFP appreciates the work this subcommittee has undertaken to examine 

how Medicare pays for services physicians deliver to Medicare beneficiaries and we 

share the subcommittee’s concerns that the current system is inefficient, inaccurate 

and outdated. Finding a more efficient and effective method of reimbursing physicians for services delivered to Medicare beneficiaries with a large variety of health 

conditions is a necessary but difficult endeavor, and one that has tremendous implications for millions of patients and for the Medicare program itself. 

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We particularly appreciate your asking us to discuss what we are calling the Patient-Centered Medical Home as a component of a Medicare program that offers better health care more efficiently. Family physicians believe that the restructuring of 

Medicare payment should be done with the needs of Medicare patients foremost in 

mind. Since most of these patients have two or more chronic conditions that call for 

continuous management and that depend on differing pharmaceutical treatments, 

Medicare should focus on how physicians integrate the health care these patients 

receive from different providers and settings, with the goal of preventing duplicative 

tests and procedures and assuring the availability to each provider of the most accurate and complete information regarding each patient. We do not believe that the 

Patient Centered Medical Home is business as usual, but rather a significant step 

toward added value for the patient, for the complex array of health care providers 

and for the Medicare program. 

Current Payment Environment 

The environment in which U.S. physicians practice and are paid is challenging at 

best. Medicare has a history of making disproportionately low payments to family 

physicians, largely because its payment formula is based on a reimbursement 

scheme that rewards procedural volume and fails to foster comprehensive, coordinated management of patients. This formula has produced payment rates that have 

declined, except for Congressional intervention, by 5–7 percent annually for the last 

five years. As a result, the Medicare payment rate for physicians has fallen to the 

2001 level. These steep annual cuts resulting from the flawed payment formula 

serve to undermine confidence in the Medicare program. In this current environment, physicians know that, without annual Congressional action, they will face a 

10-percent cut in the Medicare payment rate for 2008 and cuts in the 5-percent 

range annually thereafter. Clearly, the Sustainable Growth Rate (SGR) formula belies its name and simply is not sustainable. 

Primary Care Physicians in the U.S. 

This persistent payment imbalance has led to a decline in the numbers of graduates from U.S. medical schools choosing primary care medicine. As a result, while 

other developed countries have a better balance of primary care doctors and subspecialists, primary care physicians make up less than one-third of the U.S. physician workforce. Compared to those in other developed countries, Americans spend 

the highest amount per capita on healthcare but have some of the worst healthcare 

outcomes. 

However, more than 20 years of evidence shows that having a health care system 

based on primary care benefits the economy and the patients’ health. Three years 

ago, a study comparing the health and economic outcomes of the physician workforce in the U.S. reached this conclusion (Health Affairs, April 2004). By using a 

system of health care that is not predicated on primary care physicians coordinating 

patients’ care, we the U.S. health care system pays a steep economic price and our 

Medicare beneficiaries pay a steeper one in terms of their quality of life. 

The businesses that purchase health insurance for their employees are recognizing the value of a health care system based on primary care. For example, Martin-Jose Sep veda, MD, who is the Vice President for Global Well-being Services and 

Health Benefits for IMB, Corp., recently wrote ‘‘Why should major companies support patient-centered primary care? Because research shows that patient-centered 

primary care results in better health care, lower costs, greater satisfaction with the 

health-care system and more equal access to health care for all citizens.’’ 

A Chronic Care Model in Medicare 

If we do not change the Medicare payment system, the aging population and the 

rising incidence of chronic disease will overwhelm Medicare’s ability to provide 

health care. Currently, 82 percent of the Medicare population has at least one 

chronic condition and two-thirds have more than one illness. However, the 20 percent of beneficiaries with five or more chronic conditions account for two-thirds of 

all Medicare spending. 

There is strong evidence the Chronic Care Model (Ed Wagner, Robert Wood Johnson Foundation) would improve health care quality and cost-effectiveness, integrate 

patient care, and increase patient satisfaction. This well-known model is based on 

the fact that most health care for the chronically ill takes place in primary care settings, such as the offices of family physicians. The model focuses on six components: 

• self-management by patients of their disease 

• an organized and sophisticated delivery system 

• strong support by the sponsoring organization 

• evidence-based support for clinical decisions 

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• information systems; and 

• links to community organizations. 

This model, with its emphasis on care-coordination, has been tested in some 39 

studies and has repeatedly shown its value. While we believe reimbursement should 

be provided to any physician who agrees to coordinate a patient’s care (and serve 

as a medical home), generally this will be provided by a primary care doctor, such 

as a family physician. According to the Institute of Medicine, primary care is ‘‘the 

provision of integrated, accessible health care services by clinicians who are accountable for addressing a large majority of personal health care needs, developing a sustained partnership with patients, and practicing in the context of family and community.’’ Family physicians are trained specifically to provide exactly this sort of coordinated health care to their patients. 

The AAFP advocates for a new Medicare physician payment system that embraces 

the following: 

• Adoption of the ‘‘Medical Home’’ model which would provide a per month care 

management fee for physicians whom beneficiaries designate as their ‘‘Patientcentered Medical Home;’’ 

• Continued use of the resource-based relative value scale (RBRVS) using a conversion factor updated annually by the Medicare Economic Index (MEI); 

• No geographic adjustment in Medicare allowances except as it relates to identified shortage areas; 

• A phased-in voluntary pay-for-reporting, then pay-for-performance system consistent with the IOM recommendations. 

Care Coordination and a Patient-Centered Medical From the outset, the 

Medicare program has based physician payment on a fee-for-service system. As a 

result, Medicare currently is a system of misaligned incentives which rewards individual physicians for ordering more tests and performing more procedures. The system provides no incentive for physicians to coordinate the tests, procedures, or patient health care generally and it puts very little emphasis on preventive services 

and health maintenance. This payment method has produced an expensive, fragmented Medicare program. 

To correct these inverted incentives, the AAFP recommends that beginning in 

2008, Medicare compensate physicians for care coordination services The Institute 

of Medicine (IOM) has repeatedly praised the value of, and cited the need for, care 

coordination as has the Medicare Payment Advisory Commission (MedPAC). And 

while there are a number of possible methods to build this into the Medicare program, AAFP recommends a blended model that combines fee-for-service with a perbeneficiary, per-month stipend for care coordination in addition to meaningful incentives for delivery of high-quality and effective services in the Patient-Centered Medical Home. 

The patient-centered, physician-guided medical home is being advanced jointly by 

the AAAFP, the American Academy of Pediatrics (AAP), the American College of 

Physicians (ACP) and the American Osteopathic Association (AOA). This model 

would include the following elements: 

• Personal physician—each patient has an ongoing relationship with a personal 

physician trained to provide first contact, continuous and comprehensive care. 

• Physician directed medical practice the personal physician leads a team of 

individuals at the practice level who collectively take responsibility for the ongoing care of patients. 

• Whole person orientation—the personal physician is responsible for providing for all the patient’s health care needs or taking responsibility for appropriately arranging care with other qualified professionals. This includes care for 

all stages of life; acute care; chronic care; preventive services; and end of life 

care. 

• Care is coordinated and/or integrated across all providers and settings of the 

health care system (e.g., subspecialty care, hospitals, home health agencies, 

nursing homes) and the patient’s community (e.g., family, public and private 

community-based services) facilitated by registries, information technology, 

health information exchange and other means to assure that patients get the 

indicated care when and where they need and want it in a culturally and linguistically appropriate manner. 

• Quality and safety are hallmarks of the patient-centered medical home. 

Evidence-based medicine and clinical decision-support tools guide decision making. Physicians in the practice accept accountability for continuous quality improvement through voluntary engagement in performance measurement and improvejbell on PROD1PC69 with HEARING

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ment. Patients actively participate in decision-making and feedback is sought to ensure patients’ expectations are being met. 

Information technology is utilized appropriately to support optimal patient care, 

performance measurement, patient education, and enhanced communication. 

Practices go through a voluntary recognition process by an appropriate non-governmental entity to demonstrate that they have the capabilities to provide patientcentered services consistent with the medical home model. To this end, the AAFP, 

AAFP, ACP and AOA are in discussions with the National Committee for Quality 

Assurance (NCQA) on creating such a recognition program for the Patient-Centered 

Medical Home. 

• Enhanced access to care through systems such as open scheduling, expanded hours and new options for communication between patients, their 

personal physician, and office staff. 

A reimbursement system with appropriate incentives for the patient and the physician recognizes the time and effort involved in ongoing care management. 

The AAFP commends the Congress for incorporating the medical home demonstration into the Medicare physician payment provisions of the Tax Reform and 

Health Act. However, the statutory composition of the provision including the requirement of the development of a procedural code and establishing a value for 

same, will unduly delay the implementation of the medical home. Code development 

and valuation alone can take two plus years. Thus the results from a three-year 

demonstration will not be available until well beyond 2011. Because of the strength 

of the existing literature describing the effectiveness (both health and economic) of 

the medical home, AAFP would urge the committee to authorize the Centers for 

Medicare and Medicaid Services (CMS) to adopt the Patient-centered Medical Home 

as an interim component of physician payment while awaiting the implementation 

of and results from the demonstration project. 

Payment of the care management fee for the medical home would reflect the value 

of physician and non-physician staff work that falls outside of the face-to-face visit 

associated with patient-centered care management, and it would pay for services associated with coordination of care both within a given practice and between consultants, ancillary providers, and community resources. 

Patient-Centered Medical Home: A Gateway, not a ‘‘Gatekeepter’’ 

It is important to note that the patient-centered Medical Home differs from the 

so-called ′′gatekeeper’’ model employed in the ?80s and ?90s. The PC–MH model expands access rather than decreases it as a capitated gatekeeper model could. The 

PC–MH model does not interfere with patient choice or patient self-referral but it 

offers appropriate incentives for physicians and patients to use resources more appropriately. The Academy believes this is what patients want and need and the 

mechanism that can improve quality of care and quality of life for beneficiaries and 

increase cost-effectiveness for the Medicare program. 

In fact, patients and payers alike want a medical ‘‘network administrator’’ for 

their employees, beneficiaries and patients. AAFP, AAP, ACP and AOA have also 

conferred with major employers, like IBM, in determining what these employers envision as an appropriate medical home for their employees. The primary care physician organizations have been working with IBM in Austin, Texas, to create a demonstration project for their employees that will examine the characteristics of a successful patient-centered medical home. And AAFP, ACP, AOA and the National Association of Community Health Centers have joined with the ERISA Industry Committee, the National Business Group on Health and several major employers to form 

the Patient Centered Primary Care Collaborative to advance the medical home as 

a way to improve the health care system generally. 

The Cost-Effectiveness of the Medical Home 

We understand the very difficult budget constraints that Congress faces as you 

try to determine how to improve Medicare. The restructuring of payment that we 

are suggesting will include an additional investment in the short term. But there 

is ample evidence already that the potential savings are large and near-term. Community Care of North Carolina (CCNC) is a state-wide health care delivery program 

developed by Allan Dobson, MD, Assistant Secretary for the North Carolina Department of Health and Human Services. The program provides a primary care medical 

home for all the Medicaid recipients in the state. It joins health care providers, like 

hospitals and nursing homes, and necessary social service providers, like substance 

abuse and mental health services, with the local physicians. The system pays the 

physician practice an additional per-patient, per-month fee to coordinate the care of 

the Medicaid patients, while also paying a regional network administrator, who 

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makes sure the necessary technical and ancillary services (like transportation, 

health education counselors and trained translators) are available within the region. 

The state legislature has received a report from an independent audit by Mercer 

that showed from July 1, 2003 to June 30, 2004 the state spent $10.2 million on 

the CCNC program, but saved $124 million compared to the previous fiscal year and 

$225 million if the same population was served by the fee-for-service only system. 

The conclusion is that for every Medicaid dollar spent on the medical home in North 

Carolina, the state is saving $8. We realize that the Congressional Budget Office 

is reluctant to include savings in how it calculates the cost of a program, but a realistic view of what Medicare patients need shows that a medical home will provide 

them their health care at less cost to them and to the system. Somehow, CBO 

should take that into account. 

Information Technology in the Medical Office Setting 

An effective system emphasizing coordinated care is predicated on the presence 

of health information technology, i.e., the electronic health record (EHR) in the physician’s office. Using advances in health information technology (HIT) also aids in 

reducing errors and allows for ongoing care assessment and quality improvement in 

the practice setting—two additional goals of recent IOM reports,. We have learned 

from the experience of the Integrated Healthcare Association (IHA) in California 

that when physicians and practices invested in EHRs and other electronic tools to 

automate data reporting, they were both more efficient and more effective, achieving 

improved quality results at a more rapid pace than those that lacked advanced HIT 

capacity. 

Family physicians are leading the transition to EHR systems in large part due 

to the efforts of AAFP’s Center for Health Information Technology (CHiT). The 

AAFP created the CHiT in 2003 to increase the availability and use of low-cost, 

standards-based information technology among family physicians with the goal of 

improving the quality and safety of medical care and increasing the efficiency of 

medical practice. Since 2003, the rate of EHR adoption among AAFP members has 

more than doubled, with over 30 percent of our family physician members now utilizing these systems in their practices. 

In an HHS-supported EHR Pilot Project conducted by the AAFP, we learned that 

practices with a well-defined implementation plan and analysis of workflow and 

processes had greater success in implementing an EHR. CHiT used this information 

to develop a practice assessment tool on its Web site, allowing physicians to assess 

their readiness for EHRs. 

In any discussion of increasing utilization of an EHR system, there are a number 

of barriers, and cost is a top concern for family physicians. The AAFP has worked 

aggressively with the vendor community through our Partners for Patients Program 

to lower the prices of appropriate information technology. The AAFP’s Executive 

Vice President serves on the American Health Information Community (AHIC), 

which is working to increase confidence in these systems by developing recommendations on interoperability. The AAFP sponsored the development of the 

Continuity of Care Record (CCR) standard, now successfully balloted through the 

American Society for Testing and Materials (ASTM). We initiated the Physician 

EHR Coalition, now jointly chaired by ACP and AAFP, to engage a broad base of 

medical specialties to advance EHR adoption in small and medium size ambulatory 

care practices. In preparation for greater adoption of EHR systems, every family 

medicine residency will implement EHRs by the end of this year. 

To facilitate accelerate care coordination, the AAFP joins the IOM in encouraging 

federal funding for health care providers to purchase HIT systems. According to the 

U.S. Department of Health & Human Services, billions of dollars will be saved each 

year with the wide-spread adoption of HIT systems. While the Federal Government 

has already made a financial commitment to this technology, only a few dollars 

trickle down to where the funding, unfortunately, is not directed to these systems 

that will truly have the most impact and where ultimately all health care is practiced—at the individual patient level. We encourage you to include funding in the 

form of grants, low interest loans or tax credits for those physicians committed to 

integrating an HIT system in their practice. 

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

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

should be directly involved in determining the measures used for assessing their 

performance. 

Aligning Incentives 

In replacing the outdated and dysfunctional SGR formula, Congress should look 

to a method of determining physician reimbursement that is sensitive to the costs 

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of providing care, creates a stable and predictable economic environment, and aligns 

the incentives to encourage evidence-based practice and foster the delivery of services that are known to be more effective and result in better health outcomes for 

patients. Just as importantly, the reformed system should facilitate efficient use of 

Medicare resources by paying for appropriate utilization of effective services and not 

paying for services that are unnecessary, redundant or known to be ineffective. Such 

an approach is endorsed by the IOM in its 2001 publication Crossing the Quality 

Chasm. 

Another IOM report released in autumn of 2006 entitled Rewarding Provider Performance: Aligning Incentives in Medicare states that aligning payment incentives 

with quality improvement goals represents a promising opportunity to encourage 

higher levels of quality and provide better value for all Americans. The objective of 

aligning incentives through pay-for-performance is to create payment incentives that 

will: (1) encourage the most rapidly feasible performance improvement by all providers; (2) support innovation and constructive change throughout the health care 

system; and (3) promote better outcomes of care, especially through coordination of 

care across provider settings and time. The Academy concurs with the IOM recommendations that state: 

• Measures should allow for shared accountability and more coordinated care 

across provider settings. 

• P4P programs should reward care that is patient-centered and efficient. And 

they should reward providers who improve performance as well as those who 

achieve high performance. 

• Providers should be offered (adequate) incentives to report performance measures. 

• Because electronic health information technology will increase the probability of 

a successful pay-for-performance program, the Secretary should explore ways to 

assist providers in implementing electronic data collection and reporting to 

strengthen the use of consistent performance measures. 

Aligning the incentives requires collecting and reporting data through the use of 

meaningful quality measures. AAFP is supportive of collecting and reporting quality 

measures and has demonstrated leadership in the physician community in the development of such measures. It is the Academy’s belief that measures of quality and 

efficiency should include a mix of outcome, process and structural measures. Clinical 

care measures must be evidence-based and physicians should be directly involved 

in determining the measures used for assessing their performance. 

Quality Reporting 

AAFP is supportive of collecting and reporting quality measures and has led the 

physician community in the development of meaningful measures. Consistent with 

the philosophy of aligning incentives, the reward for collecting and reporting data 

must be commensurate with the effort and processes necessary to comply and must 

be sufficient to obtain the desired response from providers. The Academy is skeptical that the incentive of 1.5 percent of a physician’s covered charges for collecting 

and reporting quality measurement data will be sufficient to cover the actual cost 

of operationalizing such a program. However, we are generally and conceptually 

supportive of the policy and will monitor its implementation closely. 

A Framework for Pay-for-performance 

The following is a proposed framework for phasing in a Medicare pay-for-performance program for physicians that is designed to improve the quality and 

safety of medical care for patients and to increase the efficiency of medical practice. 

• Phase 1 

All physicians would receive a positive update in 2008, consistent with recommendations of MedPAC. Congress should establish a floor for such updates in subsequent years. 

• Phase 2 

Following the implementation of the Physician Quality Reporting Initiative, 

Medicare would encourage structural and system changes in practice, such 

as electronic health records and registries, through a ‘‘pay for reporting’’ incentive system such that physicians could improve their capacity to deliver 

quality care. The update floor would apply to all physicians. 

• Phase 3 

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Pay-for-reporting transitions to pay-for performance and particular effort is 

made to ensure that the quality bonus is sufficient to cover the costs of administration as well as providing sufficient incentive to participate. Medicare continues to encourage reporting of data on evidence-based performance measures that have been appropriately vetted through mechanisms 

such as the National Quality Forum and the Ambulatory Care Quality Alliance. The update floor would apply to all physicians. 

• Phase 4 

Contingent on repeal of the SGR formula and development of a long term 

solution allowing for annual payment updates linked to inflation, Medicare 

would encourage continuous improvement in the quality of care through incentive payments to physicians for demonstrated improvements in outcomes 

and processes, using evidence-based measures. 

This type of phased-in approach is crucial for appropriate implementation. While 

there is general agreement that initial incentives should foster structural and system improvements in practice, decisions about such structural measures, their reporting, patient registries, threshold for rewards, etc., remain to be determined. 

The program must provide incentives—not punishment—to encourage continuous 

quality improvement. For example, physicians are being asked to bear the costs of 

acquiring, using and maintaining health information technology in their offices, 

with benefits accruing across the health care system—to patients, payers and insurance plans. Appropriate incentives must be explicitly integrated into a Medicare 

pay-for-performance program if we are to achieve the level of infrastructure at the 

medical practice to support collection and reporting of data. 

Conculsion 

It is time to stabilize and modernize Medicare by recognizing the importance of, 

and appropriately valuing, primary care and by embracing the patient-centered 

medical home model as an integral part of the Medicare program. 

Specifically, the AAFP encourages Congressional action to reform the Medicare 

physician reimbursement system in the following manner: 

• Repeal the Sustainable Growth Rate formula at a date certain and replace it 

with a stable and predictable annual update based on changes in the costs of 

providing care as calculated by the Medicare Economic Index. 

• Adopt the patient-centered medical home by giving patients incentives to use 

this model and compensate physicians who provide this function. The physician 

designated by the beneficiary as the patient-centered medical home shall receive a per-member, per-month stipend in addition to payment under the fee 

schedule for services delivered. 

• Phase in value-based purchasing by starting with the Physician Quality Reporting Initiative. Analyze compensation for reporting and ensure that it is sufficient to cover costs associated with the program and provide a sufficient incentive to report the required data. 

• Ultimately, payment should be linked to health care quality and efficiency and 

should reward the most effective patient and physician behavior. 

The Academy commends the Subcommittee for its commitment to identify a more 

accurate and contemporary Medicare payment methodology for physician services. 

Moreover, the AAFP is eager to work with Congress toward the needed system 

changes that will improve not only the efficiency of the program but also the effectiveness of the services delivered to our nation’s elderly. 

f 

Chairman STARK. Thank you. 

Dr. Mahal. 

STATEMENT OF ANMOL S. MAHAL, M.D., PRESIDENT, 

CALIFORNIA MEDICAL ASSOCIATION 

Dr. MAHAL. Chairman Stark, Mr. Camp, I am Anmol Mahal, 

the president of the 150-year-old California Medical Association, 

representing 35,000 physicians dedicated to the health of Californians. 

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Thank you for this opportunity to testify on this most important 

issue, the issue of having a viable health care system for the most 

treasured part of our society, our elderly. The Chairman and his 

staff and I have had the privilege of engaging in discussions, as 

Mr. Stark is my congressman, and he has requested me to comment on a profiling system that is used in my community that I 

participate in in Northern California that compares my practice 

pattern to that of my peers in my community. 

Providing for the purposes of comparative effectiveness is a program that I participate in in my community. This is a rather comprehensive program that has multi—or elements, and is a multipronged program. Very briefly, sir, there are six elements to the 

program. 

There is a utilization profile that the program uses that not only 

looks at professional services, but I have to stress also importantly 

looks at ancillary services and pharmacy costs and also looks at facility costs and hospital services as an overall cost of care. 

It looks at clinical profiles, mostly using HEDA’s criteria. For example, breast cancer screening, diabetic and cholesterol screening. 

It uses the participation profile criteria, which includes regular 

participation in educational sessions held by the group. It looks at 

prescribing, et cetera. 

There is a satisfaction profile that is added on to the profiling 

criteria that looks at results from a patient survey that is very well 

crafted to meet some minimum thresholds. 

It looks at patient risk adjustment, so that physicians are not 

averse to taking care of the sickest and the most elderly folks with 

the most chronic conditions. 

Finally, a very important aspect of this program is a stop loss adjustment so that a physician who desires to take care of patients 

with HIV/AIDS, oncology patients, patients on dialysis and expensive procedures like colonoscopy are all bundled in and spread the 

risk in the entire group rather than the risk being adjusted to the 

individual physicians. 

In summary, the physicians in my community, Mr. Chairman, 

I’m certain in California and indeed in the entire United States, do 

what they think is right in their hearts and in their experience and 

training as to what is required for their given patients. 

Physicians are constantly enhancing their education, and I feel 

that education based on profiling and peer comparison provided in 

a confidential way would be received well by physicians. It would 

result, in my case, in my personal case, perhaps even increased utilization in some areas where I may not be doing appropriate studies compared to my peers, and in other areas, more modulation of 

utilization where I’m out of the bell curve when compared to my 

peers for similar patient mix. 

But the key, sir, is to have risk adjustment and to have stop loss 

adjustment to have the total cost of care looked at. Because a majority of the cost of care, while it’s ordered by physicians, it’s really 

not in the physician’s hands. It’s on pharmaceutical, it’s on hospitals, it’s on devices, and all of that should be taken into consideration as we put a profiling educational program together. 

Done in the way that I have mentioned, we have to be careful 

that we craft this program so that we do not incentivize physicians 

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to withhold care, but rather to do what’s right for their patients. 

We do not want to take the art form of medicine, at least the way 

I practice medicine, Mr. Chairman, today, I think it’s as much of 

art as delivery of technology and science to my patients. We need 

to maintain that element. Physicians in my community will look 

positively at peer data provided for educational purposes, provided 

in a confidential way, and we look forward to working with you on 

such a program. 

Thank you. 

[The prepared statement of Dr. Mahal follows:] 

Statement of Anmol S. Mahal, M.D., President, California Medical 

Association, Freemont, CA 

Mr. Chairman and Members of the Committee, on behalf of the California Medical 

Association, I want to thank you for inviting me to testify before the Committee on 

the important Medicare issues facing our nation. I hope to provide some insights 

about our California experiences to help the Committee in its deliberations. 

I also want to extend a special greeting to my Congressman, Mr. Stark. Mr. 

Chairman, we sincerely appreciate your efforts to work with us to design a Medicare 

physician payment system that will appropriately reimburse physicians and ensure 

the highest quality medical care for our Medicare patients. 

I. Introduction 

Mr. Chairman and Members of the Committee, California physicians are keenly 

aware that Medicare is in precarious financial condition and we are extremely concerned about the program’s ability to continue fulfilling its mission. We understand 

that Congress faces competing goals for the Medicare program. The government 

must rein-in Medicare spending at a time when the baby boomers will begin enrolling in the program—thereby increasing the volume of services. But Congress must 

also fix the physician payment system to ensure those same baby boomers have access to doctors in the future. 

Physicians face similar challenges on an individual level. Eighty-three percent of 

Medicare patients have chronic conditions and the numbers are growing. In ten 

years, physicians will spend nearly half their time treating Medicare patients with 

multiple chronic conditions. Physicians are concerned about their capacity to appropriately treat these increasingly sick patients with diminishing resources and reimbursement. 

As California physicians, we agree we must do our part to provide the highest 

quality care in the most efficient possible manner. We must join Congress in being 

responsible stewards of the Medicare program, just as we are stewards and advocates for our patients. We at the CMA are committed to working with Congress to 

improve the Medicare program by sharing our knowledge of evidence-based medicine and our experience with programs that attempt to manage costs and care— 

such as the physician peer comparison programs in California. 

II. California Medical Association SGR Overhaul Plan 

To that end, the California Medical Association recently unveiled a long-term plan 

to overhaul the SGR system. Included in the plan are recommendations for Congress to establish a series of demonstration projects that would test different systems for appropriately managing costs, incenting the efficient use of resources, and 

better coordinating patient care. Ultimately, the successful programs would replace 

the SGR as the volume control mechanism. We fully understand that the Committee 

is searching for better tools to control the growth in the volume of physician services, such as the physician peer comparison programs. 

The Chairman has asked me to comment on a program in which I participate in 

Northern California, which compares my practice patterns to my peers. The program is educational in nature and physician performance on utilization, quality and 

patient satisfaction are rewarded through bonus payments. Many safeguards would 

be necessary before such a complex program could be considered in the Medicare 

fee-for-service system. 

I also should make clear at this point that the California Medical Association has 

not yet taken a position regarding physician peer comparison programs. We are currently in the process of thoroughly evaluating the peer comparison programs operating in California. We certainly believe that peer comparison information provided 

to physicians on a confidential basis for educational purposes would be beneficial 

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to physicians and the Medicare program in general. However, peer comparison programs that tie reimbursement to utilization performance should be examined 

through Medicare demonstration projects because of their complexity and potential 

impact on patient care. 

III. A California Physician Peer Comparison Program 

As a primary care physician, I participate in a physician peer comparison program 

through a large Independent Practice Association (IPA) in northern California. The 

IPA provides confidential comparative information to individual doctors on how 

their quality, utilization, and patient satisfaction compare to their peers. The IPA’s 

program is called the Primary Care Management Program. 

Many California medical groups and IPAs who run sophisticated managed care 

systems employ utilization profiling methods, but the vast majority of these groups 

use them only for educational purposes. The educational aspect of comparative information is vital to the success of these programs. Such information has helped physicians better understand their practice patterns compared to their peers and allowed 

many physicians to improve their practice. 

Overall, the group in which I practice employs two tools to manage the care of 

its patients. The first tool is a physician peer comparison tool that fosters self-improvement. The second tool is a financial reward for meeting quality measures and 

utilizing services consistent with one’s peers. Such financial incentives have proven 

crucial to maintaining access to primary care physicians in my community and in 

helping physicians begin to invest in health information technology. 

Compensation—Primary care physicians (PCPs) affiliated with the group receive 

compensation in two distinct ways. They receive fees for the services they provide 

to patients (fee-for-service payments), and also receive a quarterly fee that rewards 

the effective management of their patient population. As for the fee-for-service payments, PCPs are paid for the services they actually provide, so there is no incentive 

to underutilize, and they also receive a per member payment that is based on their 

performance on specific metrics. 

The quarterly fee for effective management is called the Primary Care Management Fee (PMF), and is based on many different metrics specific to the physician’s 

practice. These metrics reside in one of four profiles: The Utilization Profile, the 

Clinical Profile, the Participation Profile, and the Satisfaction Profile. I will describe 

each of the four. 

Utilization Profile—The Utilization Profile measures the cost of all health care 

services used by the group’s physician members. Its components include physician 

professional services, pharmacy and facility costs. PCPs with fewer than 200 adjusted members are not considered statistically relevant and are excluded from the 

calculation. 

The Pharmacy component of the Utilization Profile includes a synopsis of the 

PCP’s prescribing patterns and resulting PMPM costs. The cost reported here represents 50 percent of the actual total pharmacy costs. By contrast, facility costs are 

reported at the group level due to statistical unreliability at the individual level. 

The facility costs assigned to each physician represent 50 percent of the total facility 

cost. Admission rates and lengths of stay are included in the calculation. The total 

cost figure is the sum of professional, pharmacy and facility costs, and the final calculation shows where the physician’s utilization costs stand relative to the panel average. 

Clinical Profile—The second profile—the Clinical Profile—measures the group’s 

clinical initiatives. These metrics report individual performance against that of the 

physician’s panel, region and system, and holds the physician to the system average. 

There are currently eight clinical measures included in the profile. They are designed to maintain a high standard of care and to improve patient outcomes. The 

eight measures include: Breast Cancer Screening, Cervical Cancer Screening, Diabetes HbA1c, Use of Appropriate Asthma Medication, Childhood Immunizations, 

Comvax and Pediatric Use, Cholesterol Screening, and Chlamydia Screening. 

Participation Profile—With respect to the Participation Profile, physicians earn 

points for participating in the group’s activities. 

Satisfaction Profile—The fourth and final profile is the Satisfaction Profile. As its 

name suggests, the Satisfaction Profile is based on a Patient Assessment Survey in 

which physicians are rated by their patients. Patients are randomly selected to participate in the survey. In order for a physician’s scores to be counted, at least 20 

surveys must be returned. The most heavily weighted question asks the patient if 

he or she would recommend the doctor to family or friends. 

Patient Calculations—Because the costs associated with treating patients in a 

given practice are calculated on a per-member basis, it is essential to acknowledge 

that not all members are the same. Accordingly, the program makes adjustments 

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based upon the demographics of the physician’s patient population, including an adjustment based upon the number of Medicare patients the physician is treating. On 

this last point I think it is important to note that Medicare patients are weighted 

as four commercial private patients. Adjustments for age and sex are computed 

based on system wide data. 

Stop Loss Adjustment—There are some costs that are shared among an entire region rather than assigning them at the physician level. Maternity, HIV/AIDS, 

wellness (i.e., screenings and immunizations) dialysis, oncology, colonoscopy, and 

ophthalmology costs are allocated to all PCPs equally. This Stop Loss Adjustment 

was created to prevent a few very costly patients from inappropriately overstating 

the total cost in a PCP’s profile. 

IV. Recommendations for Physician Peer Comparison Programs 

Based on California physician experiences, I would like to offer the Committee a 

few recommendations to consider when implementing a Physician Peer Comparison 

Program. 

I would also like to differentiate between a physician peer comparison program 

that provides confidential, educational feedback to physicians as a tool for self-improvement and a comparison program that ties reimbursement to efficiency. CMA 

physicians are interested in self-improvement and we believe that the educational 

aspects of peer comparison can be extremely helpful to physicians and effective in 

improving practice patterns. We would support such programs. 

However, as you can see from the background we provided to the Committee, comparison programs are extremely complex if implemented appropriately. Therefore, 

we would prefer to see any comparison programs that are tied to performance payments to be examined in a Demonstration Project environment before being adopted 

by Medicare. 

The CMA recommendations for Peer Comparison Programs are set forth below: 

1. Overall, Physician Peer Comparison Programs are not a panacea for Medicare’s financial problems. However, they could be an effective tool for identifying outliers and encouraging the efficient use of resources. These programs 

can also produce accountability at the individual physician level, which has 

been a source of criticism for the SGR. Some California programs have produced a savings and allowed physicians to further invest in meeting quality 

measures and adopting health information technology. 

The Medicare program should not focus myopically on whether physicians 

are doing too much. Instead, it should assess whether they are doing enough 

of the right things, such as providing evidence-based care and preventive care. 

If physicians are providing preventive care, hospitalizations will be reduced, 

patient outcomes will improve, and Medicare will gain significant savings. 

2. Physician education must be the focus of the program. Comparative information is a strong tool to foster self-improvement. California peer comparison 

programs have been effective in educating physicians and helping them to improve. 

3. Programs that provide positive incentives are the most effective. Medicare’s 

goal should be to encourage all physicians to participate. In many communities, Medicare cannot afford to lose primary care physicians. 

4. Paramount to a successful program is reliable data that can be verified. The data must also be statistically valid based on the number of patients 

per physicians. 

5. The program must couple utilization and clinical/quality criteria. An extremely important and positive component of the California program 

is that it combines utilization criteria with clinical/quality measures. Physicians should not be inappropriately incented to withhold preventive care 

merely because it would drive up their utilization scores. Physicians providing 

more preventive services will have higher utilization, but their overall hospital costs will be less. This is a major point on which we disagree with the 

GAO. Utilization and efficiency cannot be viewed independent of clinical quality. It is important to note that in California, preventive quality measures are 

the general focus of all physician profiling programs and their associated 

bonus payments. 

6. The program must examine the total cost of care provided to a patient—facility 

costs, pharmacy costs and physician services—for both primary care and specialty care. 

An important component of the California program in which I participate 

is that it calculates the total cost of care for each patient. Lower physician 

utilization is not necessarily better for the patient and—ultimately—may not 

save money. For instance, patients with asthma should see a doctor often to 

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manage their disease. As physician office visit utilization goes up, the total 

cost of care goes down by reducing unnecessary ER visits and hospitalizations. 

On the other hand, many physicians have criticized the profiling program 

in which I participate because it is difficult to hold a primary care physician 

responsible for the services provided by a specialist to whom they referred a 

patient, or a hospitalist caring for a patient upon admission to the hospital 

or during home health visits. Primary care physicians cannot control patient 

care beyond their practice and, therefore, it is not appropriate to hold them 

accountable for such utilization. 

The utilization to which a physician is held accountable requires precise and 

complex evaluation tools. Nonetheless, the educational aspects of such information is extremely beneficial. 

7. All data must be risk-adjusted for age, sex and health status. 

However, it is important to note that risk adjustment methods are still inadequate to fully capture differences in patient health status. Patient compliance issues must also be considered. Most sophisticated managed care groups 

in California only do risk adjustment for age and sex. It is important to note 

that my IPA attributes four commercial patients to one Medicare patient. 

8. There must be a ‘‘stop-loss’’ type of adjustment for HIV/AIDS, oncology, maternity, screenings and immunizations, dialysis, colonoscopy so the costs are 

spread out across the entire system. It would be truly perverse to penalize 

individual physicians for treating seriously ill patients. 

9. Patient Satisfaction Surveys are an important component of any program. 

10. Specialty Referral Issues Must Be Carefully Considered 

The Specialty Referral tracking system in my group is controversial. The 

group tracks referrals to specialists and accounts for those referrals in a physician’s overall score. Some specialty referrals are more ‘‘costly’’ to the primary 

care physician than others. In some instances, referrals to specialists are appropriate and result in lower costs. In other instances, they may be unnecessary. But some physicians and patients have questioned whether the specialty 

referral incentive system has inappropriately denied patient access to specialists. One positive aspect of the program is that primary care physicians receive credit for referring patients to specialists to receive treatments included 

in the set of clinical/quality measures. This sort of primary care gatekeeper 

approach would be extremely difficult to replicate in the Medicare Fee-forService program, where patients can directly access specialists. 

11. Physician-Designed and Directed 

Programs that involve clinical utilization and quality information must be 

designed and directed by physicians to ensure that the highest quality care 

is provided. 

12. Demonstration Programs To Protect Patients 

For all of the reasons I have discussed, CMA would support programs that 

soley focus on confidential education. However, programs that financially reward certain practice patterns must include safeguards against incentives 

that would reward physicians for withholding care to the detriment of their 

patients. Therefore, efficiency programs tied to payment should be tried on a 

Demonstration basis first. 

V. Geographic Variation 

One further note, the CMA recommends that the Committee not only examine 

practice variations between individual physicians, but also variations in care between geographic regions. There are dramatic and costly variations in care across 

the country. We need to better understand why this occurs through careful demonstration programs, and work together to reduce inappropriate differences. 

VI. Conclusion 

Physician Peer Comparison Programs can work if the emphasis is on confidential 

physician education and self improvement. Such programs must couple both utilization and clinical/quality criteria. They must also examine the total costs of providing 

care to patients—physician, hospital and pharmacy—and should be risk-adjusted. 

While the CMA has not officially endorsed peer comparison programs that tie payment to efficiency, we support the educational aspects of such programs. If Congress 

is interested in going one step further by adopting pay-for-performance based on utilization, we would recommend demonstration programs. Because of the sophisticated quality and clinical issues, it is essential that physicians are involved in the 

design and implementation. Many safeguards must be included to protect appropriate patient care. 

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Mr. Chairman and Members of the Committee, I hope this California information 

will prove helpful to the Committee. On behalf of the California Medical Association, 

I thank you for your time. We look forward to working with you. Thank you. 

f 

Chairman STARK. Thank you very much. 

Dr. Mayer. 

STATEMENT OF JOHN E. MAYER, JR., M.D., PRESIDENT, 

SOCIETY OF THORACIC SURGEONS 

Dr. MAYER. Chairman. Stark, Mr. Camp, thank you for inviting 

me to testify. My name is John Mayer. I’m a heart surgeon at the 

Children’s Hospital in Boston and Professor of Surgery at Harvard 

Medical School, and the current president of The Society of Thoracic Surgeons. 

I wish to begin with the fundamental concept that if we are to 

succeed in addressing our health care cost and quality problems, 

physicians must be engaged not just with economic incentives, but 

for the first time, as a profession. From this perspective, I want to 

emphasize four main points: 

First, measurement and feedback of performance to physicians is 

the most effective way of improving physician performance; 

Second. feedback and profiling are really two very different concepts, with differing goals and effects; 

Third, bundling of payments is a critical step toward aligning incentives for better quality and more appropriate care; and 

Fourth, if we measure both patient outcomes and the cost of care 

in the right way, we can rapidly improve quality while simultaneously reducing cost. 

We base these recommendations on our specialty’s experience 

with the use of outcomes data to drive improvements in quality. 

We’ve been willing to invest our volunteer time and resources in 

these efforts as part of our professional responsibility to our patients. However, you should recognize that physicians are being 

pulled in opposite directions by their professional responsibilities 

on the one hand, and the perverse incentives in the current reimbursement system on the other. You have already heard how Medicare still pays more if we perform more services but does little to 

support quality improvement. 

The two mechanisms you’re investigating today, information 

feedback to physicians and bundling payments to align incentives 

with patient needs, can help resolve these conflicts. Collection and 

analysis of data on the quality of care, patient outcomes, is what 

should drive the health care system. 

There are many examples of how this works from our cardiac 

surgical experience, including programs in the veterans hospitals 

in Northern New England, Virginia, as well as Michigan, and at 

the national level using the STS database. In each case, collection 

of outcomes data, risk adjustment and feedback to the local level 

has resulted in lower mortality rates, less variation and fewer complications. The American College of Cardiology has developed a 

heart cath outcomes registry, and we are working with them to 

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ness of interventions in patients with coronary disease. We think 

this is the way of the future. 

However, there is a critical distinction between feedback and 

profiling. Feedback is the use of data by the profession to improve 

physician performance. Profiling uses data to steer patients, assuming that economic carrots and sticks can best change physician 

behavior. We believe that professional feedback, not profiling, will 

be most likely to improve care on a systemwide basis. 

Bundling of payments is a critical step toward aligning incentives for better quality and more appropriate care. Surgeons have 

always been paid this way, which includes both the surgical procedure and the post-operative care. As noted earlier, major procedures accounted for only a very small percentage of Medicare physician spending growth. 

I agree with Dr. Berenson that bundled payments reward more 

effective care, not just more care. Any system that pays a la carte 

for each service or test only encourages more to be performed. A 

single payment for the care of a patient’s condition for a defined 

period of time would free physicians to practice their profession in 

the most efficient and effective way. It would provide incentives to 

keep patients more involved in their own care; would allow physicians to use e-mail, telephone or home monitoring, physician extenders or whatever other methods resulted in better outcomes. In 

high-cost conditions, this approach should be the norm. 

You have heard a little bit about the concerns about under-utilization. We think that if you couple bundled payments with outcome 

measurement, we can help prevent under-utilization and encourage 

efficiency and innovation. 

Finally, combining information on quality and cost can save 

money. Our Virginia cardiac surgeons merged their STS clinical 

outcomes data with hospital cost data, worked together to identify 

and adopt best practices and reduced complications that save literally millions of dollars in Virginia every year. 

We are currently trying to combine our outcomes and quality 

data with cost data from private health insurers and with Medicare, and if we can do this, we’ll have a more powerful tool to improve quality and reduce costs for treating heart disease, which is 

still the number one killer in the United States. 

In conclusion, I wish to recommend four steps that Congress 

could take to allow and encourage the medical profession to fulfill 

our responsibilities to patients and our responsibility to self-regulate: 

First, recognize that the medical profession must be an integral 

part of any solution; 

Second, provide Medicare support for the development of specialty or condition-based clinical electronic databases which are focused on patient outcomes; 

Third, provide bonuses for measuring and analyzing patient outcomes to improve quality; and 

Fourth, realign the reimbursement system to focus on integrated 

care based on specific patient needs by bundling payment for treatment of the conditions. 

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If these options are implemented carefully, they could be a major 

step toward improving quality and reducing costs in Medicare, and 

in health care nationwide. 

Thank you for the opportunity to share my views with you. 

[The prepared statement of Dr. Mayer follows:] 

Statement of John E. Mayer, Jr., M.D President, Society of Thoracic 

Surgeons 

Chairman Stark, Ranking Member Camp, members of the Subcommittee, thank 

you for inviting me to testify before you today regarding methods to improve both 

quality and efficiency among physicians treating Medicare beneficiaries. I am a 

heart surgeon at Children’s Hospital in Boston and Professor of Surgery at Harvard 

Medical School, and I currently serve as the President of the Society of Thoracic 

Surgeons. 

I’d like to make four main points for you here today which have a unifying theme 

of engaging medicine as a profession in addressing our healthcare cost and quality 

problems: 

Measurement and Feedback of performance to physicians is the most effective way of improving physician performance, and we have many examples. 

Feedback and profiling are two very different concepts, with differing goals 

which must be understood to achieve desired results. Bundling of payments 

is a critical step toward aligning incentives for better quality and more appropriate care. The ultimate goal is to measure both patient outcomes and 

cost of care, which will rapidly improve quality while simultaneously reducing cost. 

Feedback as the most effective way to change how physicians make decisions 

Cardiothoracic surgeons have an extensive history and culture of focusing on and 

improving the clinical outcomes of our patients, and based on our 3 million patient 

cardiac surgical database, we believe that we can legitimately claim to have prolonged millions of lives. We have done this because we believe that this is part of 

our professional responsibility without resorting to profiling, public reporting, or 

monetary incentives. We also have data indicating that improvements in clinical 

outcomes, such as reducing complications, result in cost reductions as well. However, as I will outline for you in a moment, physicians are now being pulled in opposite directions by our professional responsibilities to our patients and to society on 

the one hand and by the perverse incentives in the current reimbursement system 

in the other. We believe that the two main mechanisms you are investigating 

today—information feedback to physicians and bundling to align payment incentives 

with patient need, can help to address these conflicts. These two changes, if implemented correctly and executed carefully, can realign the incentives to enlist the 

medical profession in a rapid and continuous quality improvement cycle that can 

drive down costs while treating patients better. We believe our experience can serve 

as a guide for the Medicare program and physicians to get there. 

To date, physician payment in Medicare has been set based on budget targets. 

Whether it is the ‘‘Sustainable’’ Growth Rate (SGR), or the Volume Performance 

Standards (VPS) before it, budget targets can look good to CBO or on a balance 

sheet. But budgetary targets don’t help patient care. What’s worse, the looming 

SGR-mandated payment reductions do not affect individual physician decision-making. And perhaps most tragic, budget driven reductions put off the more important 

work of replacing poor care with high quality care, avoiding unnecessary treatments, and preventing expensive complications. 

What does help patients is clinical expertise, technical skill, and physician responsibility—and these are the province of the Profession of Medicine. The incentives in 

the Medicare program today are perverse, and are contrary to our professional responsibility as doctors. Medicare currently pays more if you perform more services, 

order more images, schedule more office visits. Hospitals are paid more if patients 

have more complications, and more ER visits. The primary care physician who does 

the best at keeping his or her patients healthy struggles because prevention is not 

rewarded at all. So in a sense, the Medicare reimbursement system encourages 

worse outcomes for patients. Our professional responsibility to society as physicians 

dictates otherwise. 

We believe the changes in policy you are examining have been successful because 

they align with one very powerful motivator for all physicians: their responsibility 

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herding scarce resources. I strongly believe changes in policy must be made to reengage medicine as a profession in helping to solve some of the major quality and 

financial issues facing healthcare in the U.S., in general, and the Medicare program, 

in particular. 

You may be thinking that we are simply saying ‘‘Trust us, leave it to the professional responsibility of physicians and all will be well,’’ but what we are really suggesting is a ‘‘trust, but verify’’ scenario. Collection of data on quality of care—patient 

outcomes—is what should drive the healthcare system. We believe that a system of 

bundled payments coupled to feedback of outcomes information to physicians will 

help to do so. So trust physicians, but we also need to collect the data. 

In surgery, we have historically focused primarily on quality improvement because our professional responsibility is foremost to improve patient care. However, 

we now recognize that this focus on quality can also reduce costs and that our professional responsibility to society requires that we wisely use societal resources. 

The impact of feedback to physicians—of both the quality of their outcomes 

and their resource use—will be helpful. It has been said that, ‘‘You will improve 

that which you measure.’’ We have found this to be true. If we measure process compliance, process compliance improves. If we measure patient results—or outcomes— 

that is what will improve. We should avoid measuring only cost, for the cheapest 

care is no care, and the least costly outcome may be death. Though feedback of data 

on resource utilization is likely to improve those utilization rates, we must be very 

careful in doing so. We believe that cost is most appropriately measured only in conjunction with outcomes so that we can provide care that is of value to the patient. 

The STS experience with 18 years of quality measurement in cardiac surgery 

shows that feedback to physicians on both quality and efficiency may well be the 

most effective means of changing physician behavior to improve patient care and increase efficiency. 

Perhaps the earliest example of feedback improving quality and reducing variation was the Northern New England Cardiovascular Study Group project in the 

late 1980’s—using variation in outcomes as a tool for improvement, not as a means 

to profile. The surgeons in those states met to discuss results and implement the 

best practices. The mortality rate in cardiac surgery became the lowest in the country in those states, and variation among institutions disappeared. This is the goal 

of feedback. 

In the VA system, cardiothoracic surgeons have been using an outcomes measurement/feedback system and have evaluated the observed-to-expected mortality rates 

in open heart surgery for two decades. While patients have been arriving older and 

much more ill, the results have steadily improved. Thus the ratio of the observed 

mortality rate to the expected mortality rate has declined continuously. The American College of Surgeons has adopted the VA methodology for their National Surgical Quality Improvement Program (NSQIP). These exemplify the type of Continuous Quality Improvement we could expect in Medicare if all of medicine could 

measure results and feed the data back to physicians. 

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It was an STS leader who performed the landmark clinical trial based upon the 

STS database with a grant from AHRQ. This was the largest Continuous Quality 

Improvement (CQI) trial in medicine where Dr. Bruce Ferguson was able to document that intervention in the form of education and formal CQI led to changes in 

physician practice that produced rapid improvements in care. Within 18 months of 

receiving feedback and education on two practices that improved outcomes in heart 

surgery patients, we saw a dramatic improvement. 

The recently completed second part of this study focused on how surgeons can prevent further heart disease following bypass surgery (CABG). Basically answering 

‘‘Can the STS influence our surgeons to use the ′′teachable moment′′ of hospitalization to get patients on correct medications following CABG?’’ And once again, there 

were no incentives other than the knowledge that it is probably the right thing to 

do. 

This was a huge trial with 234 Control Sites, and 224 Treatment sites across the 

country. They measured the rates at which four separate medications were prescribed at discharge after coronary surgery. Every treatment site showed a significant increase in the rate these medicines were prescribed vs control groups in 18 

months. They even created a patient web site created with ′′steerage′′ of patients 

at discharge to the Web site for additional information. This is an example of physicians taking responsibility for managing patient care beyond the treatment period. 

This national RCT demonstrated that a professional society CQI program could 

speed adoption of these prevention therapies. Patients as well as physicians were 

successfully engaged in the CQI process and the results will improve the long-term 

patient outcomes following contemporary CABG. 

Feedback and Profiling are two distinct concepts and will achieve vastly 

different results 

This distinction is one that will be critical for all to understand. Feedback is the 

use of data to improve physician behavior, while profiling is use of data to discriminate among physicians and steer patients—without affecting the behavior of the 

provider. Physicians who may have had patients steered away from them by managed care, but have not improved their performance through feedback will continue 

to treat patients in the same way, and that benefits neither patients nor Medicare. 

The quality improvement driven by data collection and feedback promotes systemwide quality improvement and is not focused at the care of a single patient. 

To take it one step further, and really achieve costs savings, we must bring costs 

of care into the equation with quality, and determine the ‘‘value’’ of care provided. 

In Virginia, cardiothoracic surgeons matched their STS quality data with Medicare’s 

cost data, and calculated the value that each hospital and practice was delivering. 

But rather than using this information for profiling and competition, they shared 

the data, shared the methods for improving complication rates, and saved millions 

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of dollars each year by producing better outcomes for patients statewide. This is the 

best way to save money in Medicare—through higher quality results. The most recent results here show that doctors in Virginia reduced the incidence of sternal 

wound infections by 67 percent below the historically expected rates. Each prevented infection of this type saves $73,000.00. Rates of heart arrhythmia (each occurrence costing over $3,000) have been reduced statewide by 5 percent. Together 

these two improvements save millions of dollars each year, not to mention saving 

hundreds of lives. 

In Michigan, all cardiothoracic surgeons in the state and all 31 hospitals (that 

perform cardiac surgery) voluntarily submit data to the STS database for analysis. 

Blue Cross/Blue Shield of Michigan has agreed to fund this data collection for not 

only their covered patients, but for all Medicare, Medicaid, and uninsured patients. 

The data are audited and fed back to the surgeons. The surgeons have shared results, and discuss with the top performers how they achieved their results. This 

Michigan QI project has reduced variation between sites in the most critical outcomes including mortality, atrial fibrillation, and kidney failure. Participants know 

that it has improved quality of care for the patients, and are confident that it will 

also save money. Moreover, focus on outcomes accelerates improvement well beyond 

what you would achieve from rewarding static process measures. In fact, the focus 

on measurement and improvement in outcomes has caused them to seek out and 

find new innovative processes worldwide that improve quality and reduce complications. By focusing on outcomes, they found discrete new methods in use in Australia 

that they are now implementing in Michigan. If they had focused solely on compliance with static process measures, these innovations may not have been sought nor 

found. 

STS believes that similar approaches in other specialties will work in most areas 

of medicine and will help improve the quality and appropriateness of care and 

thereby reduce costs. STS is now teaming up with the American College of Cardiology (ACC) who have built their own database of 5 million patients undergoing 

heart catheterization. By doing so, we will measure the quality of care in patients 

with cardiovascular disease over the patient’s entire history of the disease. We are 

beginning to work with health plans and payers, including United, Wellpoint, Blue 

Cross, and Aetna to combine the robust STS–ACC quality data with the plans’ cost 

data including treatments, drug costs, and hospital costs. These efforts are not 

for the primary purpose of profiling, and steering patients, but to actually 

improve the care provided while reducing costs. We are asking Medicare to 

work with us to combine Medicare’s claims data with our clinical data. If we can 

do this, we will have the total picture of what quality delivered at what cost in the 

treatment of heart disease—the number one killer of Americans, and by far the 

major cost center for Medicare. 

All physicians believe they are giving the highest quality, most efficient care— 

until they are shown otherwise. The critical issues are high quality clinical data, 

a statistically valid method for risk-adjustment, and feedback of data to the local 

institution or practice level. We are all trained in science, and data doesn’t just talk, 

it speaks very loudly. Once professionals know the truth, behavior shifts easily. 

Bundling of payment is a critical step toward aligning incentives for better 

quality and more appropriate care. 

The second focus of this hearing is on how bundled payments in Medicare might 

realign incentives from rewarding ‘‘more care’’ to rewarding ‘‘more effective care’’. 

To align payment with quality and efficiency, care delivery must be focused on patient need. Which is to say, payment should be organized around the disease or condition of the patient. 

In my field of pediatric heart surgery, interdisciplinary teams of specialists come 

together for the benefit of children with congenital heart disease. This needs to be 

the norm in medicine, particularly in the high intensity, high risk areas of medical 

care. 

Care delivery teams should be organized around major conditions, as well as 

around wellness and prevention. In the future, I believe we will have teams of providers who are expert in caring for specific conditions, as well as experts in keeping 

patients healthy. The question is, when will that future be realized? 

Payment for treatment of Medicare beneficiaries ultimately should be made on the 

basis of a period or episode for treating each condition. Most in medicine are far 

from that point today, but there are areas of Medicare where it is working well to 

control spending growth and encourage only the most appropriate care. In 

cardiothoracic surgery, as well as nearly all major surgical procedures under Medicare, physicians are paid one fixed fee (in a bundle) for the care they provide. If 

I perform open heart surgery for a Medicare beneficiary, Medicare pays me one fee 

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for the procedure, patient visits, intensive care, and recovery care for 90 days regardless of what additional needs arise. If the patient requires me to spend more 

time with them, if I need to speak with the family and meet with the patient, or 

if the procedure requires more time in the operating room or more time in the intensive care unit, and there are other costs involved in the treatment of that specified 

condition, so be it. Medicare only pays one fixed fee. This may well be the reason 

why, in 2003, office visits in Medicare accounted for 29 percent of increased physician spending, minor procedures that are not paid in a bundle accounted for 26 percent of growth, and imaging (also not paid in a bundle) accounted for 18 percent 

of spending growth. Major procedures, frequently paid under bundled (or global) 

payments, were the smallest contributor to growth, accounting for only 3 percent of 

Medicare physician spending growth. 

A bundled payment for treatment of many medical conditions under Medicare 

would shift the incentives from the current system that pays ‘‘a la carte’’ for each 

service or test, thus encouraging ever more to be performed; to an incentive to keep 

the patient healthy while performing only the most appropriate and helpful tests 

or procedures. Medicare should seriously consider a bundled payment model for the 

care of beneficiaries with the most costly diseases—especially chronic conditions. 

The current incentive under a la carte Medicare fee for service payment urges 

professionals to perform as many services on each patient as possible, when instead, 

we should have a system that enables professionals to regulate themselves based 

upon what is most effective and most appropriate for the patient. 

Exercise caution however, as a bundled payment without a measure of patient 

outcomes (or results), could reward underutilization. The coupling of outcome measures with bundled payment would align incentives, prevent underutilization, and 

encourage efficiency and innovation. 

Conclusion 

If we are able to successfully implement a system of measurement of results, outcome data feedback loops to physicians, and aligned incentives through bundled 

payment, we will have made major strides toward a system that will improve care 

continuously, and drive dramatic costs reductions. 

So, how can such a system be operationalized? What can the Congress do now to 

allow and encourage the medical profession to help solve the current healthcare 

problems? We recommend four steps: 

1. Recognize that the medical profession must be an integral part of any solution. 

2. Provide Medicare support for the development of specialty or condition-based 

electronic clinical databases focused on patient outcomes, building on the efforts of groups such as the STS, the ACS, and the ACC. 

3. Provide bonuses for the very difficult work of measuring the actual patient outcomes. This will become a critical check against underprovision of services in 

a bundled payment environment. 

4. Realign the reimbursement system to focus on integrated care based on specific 

patient needs by bundling payment for treatment of the condition. 

The options you are exploring today are important pieces of realigning incentives 

in Medicare. If they are implemented carefully, they could be a major step toward 

improving quality for patients while reducing costs in not only Medicare, but in our 

health care system nationwide. 

Thank you for the opportunity to share my views and experience with you today. 

f 

Chairman STARK. I want to thank you. We have about 15 minutes till our rent expires on the room at one o’clock. I’ve talked 

with Mr. Camp, and if we are not able to let you expand in the 

time remaining, we might meet informally with any of you who 

have some time who aren’t starving to death to talk a little more. 

But I wanted to just cover a couple of points here. Dr. Berenson, 

you point out that 80 percent of what we spend in Medicare is on 

chronically ill, and by that I assume you mean they’ve got a couple 

of diseases and they are much sicker than average. 

To the extent that, as Dr. Mayer said, you can quantify some research for cost, we have a problem in that if there’s evidence—we 

have a problem getting the Congressional Budget Office often to 

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score savings for us, prospective savings, and particularly in new 

programs. 

To the extent that you can help us, any of you, in providing empirical data that would help us convince the Congressional Budget 

Office where we talk about plans that save, that would be helpful 

to what we have to do in this pay-as-you-go problem in planning 

reimbursement for physicians. 

But another comment is that it seems to me, and for those of you 

who are primary care docs, a primary care doc gets paid for basically face-to-face encounters. It would seem to me that at some 

point it’s just simpler for the primary care doc to refer me off to 

a bunch of specialists than get involved with having to do research 

and get back to me and get me back again for another $65 encounter when you’ve got a waiting room full of people who’ve got flu and 

my incipient heart attacks. We’re just not set up to reimburse the 

family care physicians. 

I was importuned recently by a group that shall remain nameless 

who said they’ve got a business that will take care of managing 

care, or individual care, disease management. They are in an ancillary business. They said that the real reason they wanted to be 

identified as somebody providing disease management is that their 

stock would go from 10 times earnings to 20 times earnings by the 

New York analyst because they find that disease management is 

far sexier than providing home health care, which I think was their 

underlying business. 

I would be leery of sort of putting this idea of bundling or management or the medical home out into the marketplace with people 

with less than the training that you gentlemen have had. But—and 

I get to a question—on the other hand, I wonder how many of you, 

particularly those of you in primary care, have the training in management programs and information technology, kind of business 

management, if you will. 

It isn’t necessarily—I mean, once you’ve determined that you 

want to check my weight and am I taking my Zocor and am I exercising, then the question becomes more like bill collectors. Do you 

call me at home during dinnertime to make sure, just before I’m 

about to have that second dessert? Or do you—once a month, do 

you check to make sure I’ve filled by Zocor prescription? Also it 

seemed to me to be unique to medical schools, that’s the question, 

is do they train you in medical schools today, those of you who 

would go into family practice or internal medicine, to manage 

through the use of nurses and other practitioners, are you guys 

ready to do this? 

Dr. KELLERMAN. Well, I think that’s part of the medical home 

concept. For example, with our medical school, we have a rotation 

in ambulatory care geriatrics to try to teach some of those principles. But I think you’re making a good point that right now we’re 

paid fee-for-service to see somebody face-to-face, and the idea of the 

medical home is to look at information and better manage the patient. 

Let me give you an example of something that we could do with 

health information technology. If I have an electronic health record 

in my office, some people think, well, that’s a paperless office. The 

real value is a registry where I can see who my hundred patients 

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are with diabetes. I’ve got these fifty over here that are under good 

control. I don’t need to worry about them as much. But what about 

these twenty-five over here that under poor control, and maybe I 

do want to call them at lunchtime and see if they’re having the 

extra dessert? Or work with my team, which could be my nurses, 

potentially a social worker with community support organizations. 

So that’s the thing that we need to get to with the medical home. 

Right now we don’t have a reimbursement system that incentivizes 

me to do that. 

Chairman STARK. Bob. 

Dr. BERENSON. You’ve asked a very good question. Dr. Wagner, 

who I referred to, wrote one of the best articles I’ve ever read about 

10 years ago in Millbank why primary care physicians don’t do 

these activities now, and describes things like the tyranny of the 

urgent, when you’ve got a waiting room full of people who are sick, 

dealing with an elderly person with chronic problems, none of 

which seem to be urgent today, is pushed to the side. He does refer 

to the problems in medical education which focuses on solving 

problems rather than managing problems. So, there is an education 

element here to physicians to want to take this on. So, that is a 

challenge. 

The other challenge I guess I would make is if a typical small 

practice, I was in a practice at the time of four internists. We had 

maybe 20 or 25 percent of our patients were Medicare patients, and 

let’s say we picked 10 or 15 percent of those patients were in this 

category of needing chronic care management, you’re now down to 

2 or 3 percent of a patient population for whom this special care 

management would be needed, and are doctors going to redesign 

how they patient for that subpopulation? Which is why I’m persuaded we need to maybe consider a new payment model for that 

Medicare and private payers do for medical homes, that don’t just 

focus on the small percentage of patients but large percentage of 

dollars represented by the Medicare population. 

I actually think in this area if we had new payment models, you 

could—this isn’t rocket science for physicians. They understand if 

they were in an environment that paid for these activities, the role 

of teams, I think primary care physicians are pretty accustomed to 

working in teams if that becomes the norm. So I think while there 

would be an education process, it’s something that has to be taken 

on. 

Chairman STARK. Are we just in effect trying to make each of 

you as primary care docs a little bit of a staff model managed care 

plan? In other words, are you going to be a one doc or a small 

group managed care plan with the same kinds of resources let’s say 

in our are, Dr. Mahal, that Kaiser has with hundreds of thousands 

of people in our county, they had teams of people to call and get 

people back into see whomever they should see. But for a small office to do that takes, I would think, some kind of a—— 

Dr. BERENSON. Let me—could I take the first shot at that one? 

Chairman STARK. Yeah. 

Dr. BERENSON. I think it would be desirable if more physicians 

did go into multi-specialty group practices, and I think it’s reasonable to try to figure out a tilt in payment policy to encourage that. 

But most physicians won’t be in those practices. So, one of the injbell on PROD1PC69 with HEARING

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teresting models in the physician group practice demonstration 

that Medicare is—CMS is sponsoring right now in it’s either Middlesex or Middletown, Connecticut. I keep for getting the name. 

The physicians are in ones and twos practices, but the care coordination is done in the local level by what used to be a physician hospital organization that was formed for managed care contracting. 

It is now the entity that provides the nurse support, the computer 

support, a lot of the activities. Case finding is in the hospital. 

There’s a referral. In some cases, the nurse goes with the patient 

to the doctor’s office. 

So, the infrastructure is not in the doctor’s office. It’s a different 

model. But it’s also not with some third-party disease management 

company two states over. It is community-based. I actually think 

that is a model that has some potential for what’s—for small practices that really don’t have the scale to take this on themselves. 

Dr. MAHAL. Congressman, I’m a solo practitioner, and I have 

been coordinating the care of my patients for the 30 years that I’ve 

been in practice in our community in Freemont. It is possible to coordinate care. It is a question of the priorities that we set for ourselves. I totally agree with my two colleagues who have spoken earlier that advancing information technology for which a practicing 

doctor needs assistance in would advance the care coordination. 

I think a vast majority of care should be coordinated through a 

primary care physician. There are some exceptions to that. As a 

gastroenterologist as well, I feel that I do a lot better at coordinating the care of the patient with active ulcerative colitis. For example, I have developed intuitions over the years by doing so much 

work with these patients that I catch their problems, if you may, 

with that sixth sense, the art form that I referred to earlier, Congressman, to keep them out of the hospital. I can really take care 

of my ulcerative colitis patients, seeing them very frequently, their 

emotional needs, their medical needs, their social needs, and reduce the hospitalization. 

Another example would be a patient who is going through an 

oncological treatment. They’re going through a six to 8 month 

chemotherapy period. Their best medical home, their best family 

care source at that time, is the oncologist that they are seeing, not 

me, who referred them to the oncologist. 

So, there are several permutations of this process. Kaiser does a 

wonderful job of coordinating care, but from time to time, I see Kaiser patients who come over to get a second opinion because they 

are not getting what they think. So, you know, Americans will have 

their special needs, that—some of them are medical, some of them 

are emotional. But I think a multi-pronged approach to finding a 

mental home for patients is a good idea. 

Dr. KELLERMAN. I just wanted to mention that what you’re 

talking about also applies in the rural areas where resources are 

somewhat limited, but—and we have a lot of elderly patients in 

rural areas, but with the physician working with the hospital, with 

the home health agency, and, again, working as a team, we can 

better provide that than the current system. 

Chairman STARK. With modern technology, you can really scan 

images 100 miles away over the Internet. But I want to let Mr. 

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Camp have a chance. I want to talk to Mayer about what the thoracic surgeons are doing, but Dave? 

Mr. CAMP. Thank you, Mr. Chairman. Thank you all for your 

testimony. Dr. Mayer, there was a bundled payment demonstration 

in the early ’nineties, and can you tell me the reaction of thoracic 

surgeons to that demonstration? 

Dr. MAYER. Well, there were obviously a number of centers that 

did apply and did find some advantages of being involved in that 

sort of thing, in that sort of program. There were the concerns that 

if you got better that you might actually be penalized for it because 

the reimbursement came down. I think if there was any complaint 

about the program it was probably that.I think all of us would like 

to get a reward on expenditure of intellectual capital, and I think 

in most of those situations, those were surgeon-led efforts, with the 

help of the hospital administration and the nursing, et cetera. 

So, I think it was a reasonable notion to do that. We’ve recently 

proposed to do something similar in Virginia, again. It’s the same 

group that I mentioned earlier where they actually looked at and 

they were proposing what was termed quality sharing, so that if 

the surgeons and everyone else involved in the care of post-coronary bypass patients could reduce complications and acquire savings for the institution, some of that ought to be shared with the 

surgeons who were leading that effort. That actually got hung up 

in CMS with worries about problems with Stark violations and 

other issues and that initiative has died. 

Mr. CAMP. The Society actually has worked hard to encourage 

surgeons to improve quality and health outcomes, but the Society 

also has its national adult cardiac surgery database. Are surgeons 

participating in that? 

Dr. MAYER. Yes. There are over 800 cardiac surgical units in 

the country that are participating. We estimate that that’s over 75 

percent of the cardiac surgical programs in the country. I think this 

has been embraced not only—primarily as a quality improvement 

tool. There is nothing more powerful than having your data fed 

back to you and see how you compare with everyone else. 

We’re a pretty competitive lot, and we certainly work pretty hard 

when we’re not doing as well as our peers. 

Mr. CAMP. Right. Thank you. I just have one last question. I appreciate all of your testimony. Dr. Berenson, obviously we’re here 

to try to make sure that services are appropriately compensated. 

Several physician services are overvalued, but they’re only reevaluated on an every 5-year period, and rarely are they decreased in 

price. So, what can we do to make sure that services are appropriately valued and reimbursed? 

Dr. BERENSON. Yeah. Well, first go more than every 5 years. 

But this current process still basically requires specialty societies 

to survey members to estimate the time, and then the associated 

sort of difficulty associated with time, to determine the relative values. I think we’ve a major stake at this point in getting objective 

data. There’s I think plenty of evidence that many of those prime 

estimates are overestimates. I was talking to Dr. Mayer earlier. 

The STS actually came forward in that process with actual objective data and recommended some devaluation of services. 

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I think either the AMA’s ROC or the CMS should have the ability to actually for the top 50 or 100 procedures, that’s where I 

would start, to actually get objective data, to get other sources of 

input from the NIH, from VA doctors, from others, so that we actually identify overpriced procedures. 

Overpricing can happen because, as I’ve said in some of my articles, because CMS has some unrealistic values for how to—for 

practice expenses, and I can get into those details, because specialty societies don’t come forward to identify their overpriced—the 

work value in their procedures. It would be a new approach, but 

I think it’s one that is doable if there were some prodding from the 

Congress to make it happen. 

Mr. CAMP. All right. Thank you. Thank you all for your testimony. Thank you, Mr. Chairman. 

Dr. MAYER. Well, I would just say it’s one of those other spinoff 

things from having this 3 million patient record database. We actually use data on operative time, how long patients were in the hospital, how long they were in the ICU, how long they were on the 

ventilator. That was the basis for our submission. We submitted all 

the cardiac surgical codes to the five-year review. As Bob described, 

most went up but actually some went down. We think that’s the 

way it ought to work. But it’s based on objective data. It’s not a 

subjective opinion sort of thing. I think there’s a great opportunity 

for trying to use that kind of approach throughout the rest of the 

Codes. 

Chairman STARK. Well, I want to thank all of you. I’m sorry 

again that we didn’t have more time, but I know we’ll be seeing 

a lot of you again as we wind through this and try and come, one, 

to basically a short-term solution to a problem facing physicians, 

and build into that a longer term program that may be a better solution than just the 1-year fixes we’ve been doing in the past. 

Thank you all very much, and the Committee will adjourn. 

[Whereupon, at 1:00 p.m., the hearing was adjourned.] 

[Submissions for the Record follow:] 

Statement of American Academy of Ophthalmology 

Introduction 

Recent studies by the Government Accountability Office (GAO) and MedPAC 

raised valid issues about how to reform Medicare as an alternative to the sustainable growth rate (SGR) used in fee for service Medicare. Our statement focuses on 

two major recommendations they discussed at the May 10 hearing—that Medicare 

should move to profile physicians and to bundle or group services to beneficiaries. 

Policy leaders say that to make these tools effective, they must be tied to physician 

payment under Medicare. 

Profiling 

The GAO report released this month called for a link of Medicare physician pay 

to efficiency—defined as providing and ordering a level of services that meets the 

patient’s health care needs, but is not excessive, given the patient’s health status. 

The document claims the Centers for Medicare and Medicaid Services (CMS) has 

the tools available today to profile physician practices for efficiency. 

Profiling is the collection of data to compare doctors on their costs of providing 

services and to rate them on the basis of the ratio of their actual costs to the expected costs for delivering a specified service or the care of a patient’s condition over 

a defined period of time. Private purchasers have had recent experience with 

profiling. 

Key problems with profiling are: 1) who defines the ‘‘expected’’ costs 2) how is the 

patient population risk adjusted and 3) what is the appropriate number of episodes 

of care required to evaluate efficiency 

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GAO says that if CMS had additional authority, it could pay physicians similarly 

to private sector plans which use profiling. A recent report conducted for the Massachusetts Medical Society on a recent private sector experience, gives us concern 

about the real value of linking Medicare payment to profiling. The Massachusetts 

study found questions about the accuracy of the data particularly related to patient 

diagnosis which is critical to determining patient risk or severity of illness. In addition, the report found that physician profiling at the individual level caused increased administrative burdens for insurers and unintended consequences for both 

physicians and their patients that affected quality of care. • Profiles must differentiate between sub-specialists and patients severity of illness 

While we acknowledge the increased demand by consumers and payers for more 

transparency in order to enable them to value the delivered services, the use of billing profiling by CMS is today unable to differentiate sub-specialists from generalists 

and among patients with differing co-morbidities. Grouper software often used in 

profiling, which purports to be able to compare doctors on the basis of cost on similar patient populations, makes assumptions of risk adjustment on the basis of administrative claims data which have never been validated because they are proprietary. 

In particular, there needs to be adjustments for age, case mix and levels of chronic or acute conditions within the practice’s patient population. Many ophthalmologists treat a high percentage of elderly patients with diabetes and the eye conditions associated with the disease. The number of years with the disease should be 

taken into account when formulating any profile. Furthermore, within the specialty 

of ophthalmology, those who are further trained within a subspecialty will likely see 

more severe or chronic patients. 

In December 2006, CMS provided the first confidential feedback reports containing reporting and performance rates to the physicians who submitted reports on 

measures in early 2006. CMS also intends to give physicians who participate in its 

new Physicians Quality Reporting Initiative (PQRI), a larger bonus reporting program, confidential feedback on their performance on quality measures. This early 

attempt at profiling will be received by the individual physicians in mid 2008. At 

that time, the Academy and other medical groups will work with CMS to analyze 

the usefulness of the data. 

• CMS data will need significant refinement and validation before linking payment to profile 

Strategies to measure and encourage quality services and understand resource 

use must be crafted carefully to avoid serious unintended consequences. We applaud 

CMS’s goal of encouraging physicians to provide the right care at the right time and 

in the right setting. Demonstrations that are underway through CMS will give us 

much of the analysis we need in order to proceed correctly. Congress should keep 

in mind that CMS is in the very early stages of an effort to properly measure physician resource use. 

• Even as a feedback mechanism, after data issues have been addressed, 

impact and value should be evaluated. 

Data used as part of a quality improvement program for educational purposes or 

feedback on review of medical record documentation should be presented to physicians in a user-friendly manner. The methods for collecting and analyzing the profile data must be fully disclosed to both the physician and the consumer. The methodology for determining the profiles must be explained to both providers and consumers in easily understandable language, because complex statistical analysis is 

the methodology often used. 

Any established norms should be based on valid data collection and profiling 

methodologies, and must use a sample size that is of sufficient statistical power. Interpreting results that are based on insufficient sample size may lead to erroneous 

conclusions and inappropriate actions. 

Data sources used to develop profiles of physicians have many limitations. This 

is especially true of surveys, medical records, and claims data because of their limited ability to assess patients’ health status and wellness. These limitations must 

be clearly identified and acknowledged by Medicare or any other payer and other 

reviewers to itself, its patients, and its enrollees. Additionally, standards, guidelines, or practice parameters used for any physician profiling must be derived from 

the evidence-based publications that are developed and approved by the specialty 

organization that is the primary specialty of that physician. 

Bundling to Reduce Overuse 

MedPAC proposes payment reform that puts physicians at greater financial risk 

for services—giving physicians incentives to furnish and order services more effijbell on PROD1PC69 with HEARING

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ciently. Medicare already bundles preoperative and follow-up physician visits into 

global payments for surgical services. Specifically, MedPAC suggests a bundled rate 

that includes separately billable drugs and laboratory services under the current 

payment method. In fact, MedPAC is in the process of examining bundling the hospital and physician payments for a selected set of diagnostic related groups (DRGs) 

to increase efficiency and coordination of care. For example, they plan to examine 

the physician services furnished to patients before, during and after inpatient hospitalizations for medical DRGs to assess whether a global fee should be applied, 

similar to surgical DRGs. 

The Academy, as a surgical specialty, has a lot of experience with bundling payment for surgical services and the disincentives under this approach for over utilization of ancillary services and visits related to a surgery. Bundling an episode of care 

for medical diagnoses can be done if the tools are there—Ophthalmologists have 

done that for diabetic retinopathy laser surgery with a global fee. 

The Academy, however, has concerns about linking physician payments to hospital services because of adverse experience physicians have with the way hospitals 

allocate costs for the provision of services. Furthermore, it is unclear about how 

such a payment would work and whether or not it would place physicians at financial risk when it comes to allocation of payments. 

Conclusion 

We do not believe Medicare should move at this time to tie payment to physician 

profiles and efficiency measures. Data issues and the lack of adequate severity of 

illness adjustment currently threaten the relevance and the accuracy of a physician 

profile under Medicare. Because of this, we suggest pilot testing before proceeding 

on linking payment to profiles and measures. Even as a feed back mechanism, the 

impact and unintended consequences need to be studied before devoting significant 

resources to this endeavor. 

For more information go to the Academy’s Web site at www.aao.org 

f 

Statement of American College of Physicians 

ACP strongly believes that Medicare and other health plans should be reformed 

to advance the patient-centered medical home, a model of health-care delivery that 

has been proven to result in better quality, more efficient use of resources, reduced 

utilization, and higher patient satisfaction. The College greatly appreciates Subcommittee Chairman Stark and Ranking Member Camp convening today’s hearing 

which will provide an opportunity to focus on key advantages of the patient-centered 

medical home. 

In March, 2007, ACP, the American Academy of Family Physicians, American 

Academy of Pediatrics, and the American Osteopathic Association released a joint 

statement of principles that defines the characteristics of a patient-centered medical 

home. These four organizations represent 333,000 physicians and medical students. 

The joint principles are attached to this statement. 

As described in the joint principles, a patient-centered health care medical home 

is a physician practice that has gone through a voluntary qualification process to 

demonstrate that it: 

• Provides continuous access to a personal primary or principal care physician 

who accepts responsibility for treating and managing care for the whole patient 

through an a patient-centered medical home, rather than limiting practice to a 

single disease condition, organ system, or procedure, 

• Supports the specific characteristics of care that the evidence shows result in 

the best possible outcomes for patients. 

• Recognizes the importance of implementing systems-based approaches that will 

enable physicians and other clinicians to manage care, in partnership with their 

patients, and to engage in continuous quality improvement, 

• Introduces transparency in consumer decision-making and accountability for 

getting better results by reporting on evidence-based quality, cost and patient 

experience measures of care. 

The patient-centered medical home has the support of a broad collaborative of 

physician organizations, employers and other stakeholders. The Patient-Centered 

Primary Care Collaborative, of which ACP is a founding member, has submitted a 

statement to the record of this hearing that endorses the patient-centered medical 

home. The Collaborative includes employers that collectively employ more than 50 

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1Dartmouth Atlas of Health Care, Variation among States in the Management of Severe 

Chronic Illness, 2006 2Starfield, presentation to The Commonwealth Fund, Primary Care Roundtable: Strengthening Adult Primary Care: Models and Policy Options, October 3, 2006 3 Commonwealth Fund, Chartbook on Medicare, 2006 

million Americans and primary care organizations that represent the physicians 

that provide primary care to the vast majority of Americans. Representatives of consumer organizations have been participating in the Collaborative’s ongoing discussions and are expected to endorse and join the Collaborative in the near future. The 

Collaborative’s joint statement of support for the patient-centered medical home has 

been submitted separately for the record of this hearing. 

Evidence that a Patient-Centered Medical Home Will Improve Quality and 

Lower Costs 

There is substantial and growing evidence that a health care system built upon 

a foundation of patient-centered medical home will improve outcomes, result in 

more efficient use of resources, and accelerate systems-based improvements in physician practices. 

According to an analysis by the Center for Evaluative Clinical Sciences at Dartmouth, States that relied more on primary care: 

• have lower Medicare spending (inpatient reimbursements and Part B payments), 

• lower resource inputs (hospital beds, ICU beds, total physician labor, primary 

care labor, and medical specialist labor) 

• lower utilization rates (physician visits, days in ICUs, days in the hospital, and 

fewer patients seeing 10 or more physicians), and 

• better quality of care (fewer ICU deaths and a higher composite quality score).1

Starfield’s review of dozens of studies on primary-care oriented health systems 

found that primary care is consistently associated with better health outcomes, 

lower costs, and greater equity in care. 

• Primary care oriented countries, such as Australia, Canada, New Zealand, and 

the United Kingdom are rated higher than the United States on many aspects 

of care, including the public’s view of the health care system not needing complete rebuilding, finding that the regular physicians’ advice is helpful, and coordination of care. ‘‘The United States rates the poorest on all aspects of experienced care, including access, person-focused care over time, unnecessary tests, 

polypharmacy, adverse effects, and rating of medical care received.’’ An orientation to primary care reduces sociodemographic and socioeconomic disparities. 

• Overall, primary care-oriented countries have better care at lower cost. 

• Within the United States, adults with a primary care physician rather than a 

specialist had 33 percent lower cost of care and were 19 percent less likely to 

die, after adjusting for demographic and health characteristics. 

• Primary care physician supply is consistently associated with improved health 

outcomes for conditions like cancer, heart disease, stroke, infant mortality, low 

birth weight, life expectancy, and self-rated care. 

• In both England and the United States, each additional primary care physician 

per 10,000 population is associated with a decrease in mortality rates of 3 to 

10 percent. 

• In the United States, an increase of one primary care physician is associated 

with 1.44 fewer deaths per 10,000 population. 

• The association of primary care with decreased mortality is greater in the African-American population than in the white population.2

Another analysis found that when care is managed effectively in the ambulatory 

setting by primary care physicians, patients with chronic diseases like diabetes, congestive heart failure, and adult asthma have fewer complications, leading to fewer 

avoidable hospitalizations.3

Patient-centered primary care will also accelerate the transformation of physician 

practices by making the business case for physicians, including those in small practice settings, to acquire and implement health information technologies and other 

systems-based improvements that contribute to better outcomes. 

‘‘Patient-centeredness, shared decision-making, teaming, group visits, open access, 

outcome responsibility, the chronic care model, and disease management are among 

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4Sidorov, Health Affairs, Volume 25, Number 4, 2006 

5 Commonwealth Fund study, ‘‘Adoption of Patient-Centered Care Practices by Physicians: Results from a National Survey’’ (Archives of Internal Medicine, Apr. 10, 2006) 

the proposals intended to transform medical practice. The electronic health record’s 

greatest promise arguably lies in the support of these initiatives. . .’’ 4

Reform of Medicare Payment Policies to Support a Patient-Centered Medical Home 

Many physicians would like to redesign their own practices to become a patientcentered medical home, but are discouraged by doing so by Medicare payment policies that reward physicians for the volume of services rendered on an episodic basis, 

rather than for comprehensive, longitudinal, preventive, multi-disciplinary and coordinated care for the whole person. The authors of a recent survey found that ‘‘a 

gap exists between knowledge and practice—between physicians’ endorsement of patient-centered care and their adoption of practices to promote it. Physicians reported 

several barriers to their adoption of patient-centered care practices, including lack 

of training and knowledge (63 percent) and costs (84 percent). Education, professional and technical assistance, and financial incentives might facilitate broader 

adoption of patient-centered care practices. With the right knowledge, tools, and 

practice environment, and in partnership with their patients, physicians should be 

well positioned to provide the services and care that their patients want and have 

the right to expect.’’ 5

Congress should enact legislation that leads to a fundamental redesign of Medicare payment policies to support a patient-centered medical home. Such redesign 

should include the following five key elements: 

1. Eliminate the SGR and provide stable, positive and predictable updates combined with performance-based additional payments for reporting on quality 

measures relating to care coordination and patient-centered care. 

The sustainable growth rate (SGR) formula must be eliminated. Unless Congress 

acts, the SGR will cause a cut of almost 10 percent in physician services in 2008, 

and a cut of almost 40 percent over the next several years. Cuts of this magnitude 

will make it impossible for physicians to invest in the systems and technologies 

needed to become a patient-centered medical home, will accelerate the trend of physicians turning away from primary care medicine, and create access problems as primary care physicians leave medicine in increasing numbers and fewer young physicians go into primary care. 

Specifically, Congress should enact legislation that would lead to elimination of 

the SGR and replace it with an alternative update framework that will: 

• Assure stable, positive and predictable baseline updates for all physicians. 

• Set aside funds for a separate physicians’ quality improvement pool that would 

allocate dollars to support voluntary, physician-initiated programs that have the 

greatest potential impact on improving quality and reducing costs, and allow for 

a portion of savings in other parts of Medicare (such as reduced hospital expenses under Part A) that are attributable to programs funded out of this pool 

to be allocated back to the physicians’ quality improvement pool. Congress 

should direct that priority be given to those applications for funding under the 

quality pool that are most likely to improve care quality and efficiency by accelerating and supporting the ability of physicians to organize care processes to 

deliver patient-centered services through a medical home. Priority would also 

be given to programs that address regional variations in quality and cost of 

care. Our specific recommendations for revamping Medicare’s Physician Quality 

Reporting Initiative are presented below. Revamp the Physicians Quality Reporting Initiative to focus on clinical and structural measures related to coordination of chronic diseases and other ‘‘high impact’’ interventions. 

2. Revamp the Physicians Quality Reporting Initiative to focus on clinical and 

structural measures related to coordination of chronic diseases and other ‘‘high 

impact’’ interventions. 

The PQRI pays physicians a ‘‘performance bonus’’ of up to 1.5 percent for reporting on measures of care that are applicable to their specialty and practice. Physicians will receive the same reporting bonus without regard to the impact of the 

measures on quality or cost of care, the costs to the practice associated with reporting on the measures, or the number of measures that apply to their specialty or 

practice. ACP believes that Congress should redesign the PQRI to: 

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• Assure that funding for the program is sufficient to offset the costs to physicians for reporting on the measures. • Focus on structural (health information technologies) measures associated with 

patient-centered care through a medical home. • Place priority on clinical measures for chronic diseases. • Pay physicians on a ‘‘weighted basis’’ for reporting on structural and clinical 

measures that will have the greatest potential impact on quality and cost, so 

that physicians who are reporting on measure that will have a greater impact, 

or that require a greater investment in health information technologies, will receive a proportionately higher payment than physicians who report on lower impact measures that do not require a substantial investment in HIT. 

3. Create incentives for physicians to acquire the health information technologies 

and systems to support patient-centered care in a medical home. 

Medicare should create payment incentives to encourage physicians to acquire 

specific structural enhancements and tools that are directly related to care management in the ambulatory setting, such as patient registry systems, secure email, and 

evidence based clinical decision support, which can be measured and reported on. 

(That is, paying doctors for acquiring the systems needed to become medical homes). 

This recommendation would be implemented by the National Health Information Incentive Act of 2007, H.R. 1952, introduced on April 19, 2007 by Representatives 

Charles Gonzalez and Phil Gingrey. The bill has been referred to the Ways and 

Means Committee. ACP urges the Health Subcommittee and full Committee to report the bill favorably. This legislation is based on the Bridges to Excellence program, which uses a scoring system that provides higher payments for having a fully 

functional EMR system than having a very basic registry system, and a similar 

scoring model, with tiered payments, could be used for Medicare: 

• Tier 1—the reporting on evidence-based standards of care; the maintenance of 

patient registries for the purpose of identifying and following up with at-risk 

patients and provision of educational resources to patients; • Tier 2—the use of electronic systems to maintain patient records (EHRs); the 

use of clinical-decision support tools; the use of electronic orders for prescriptions and lab tests (e-prescribing), the use of patient reminders; use of econsults (communication between patient/physician or other provider) when an 

identifiable medical service is provided; and managing patients with multiple 

chronic illnesses; [Practices can qualify that utilize three or more incentives]. • Tier 3—whether a practice’s electronic systems interconnect and whether they 

are ‘‘interoperable’’ with other systems; whether it uses nationally accepted 

medical code sets and whether it can automatically send, receive and integrate 

data such as lab results and medical histories from other organizations’ systems. 

Such tiered payments for systems improvements could either be in the form of a 

tiered ‘‘add on’’ to the Medicare office visit payment that would increase as the practice achieves a higher tier, or in the form of a la carte coding and payment mechanisms to allow physicians to report when they use individual elements inherent to 

patient-centered care, such as use of a registry and use of clinical decision support. 

Congress should allocate funding to pay physicians when they appropriately use and 

report these tools and/or direct HHS to exempt the expenditures associated with 

these tools from the budget neutrality requirement pertaining to payments for Medicare Part B services. 

4. Provide oversight of the Medicare Demonstration Project on Patient Centered 

Medical Homes 

The Tax Relief and Health Care Act of 2006 mandates that CMS implement a 

demonstration project of a Medicare medical home in up to eight states nationwide. 

ACP supports and appreciates Congress’s support for the Medicare Medical Home 

demonstration project but urges this Subcommittee to exercise oversight to assure 

that CMS implements it in a timely manner and provides sufficient funding for physician practices that choose to participate. 

5. Require that CMS develop and implement additional changes in Medicare payment methodologies to support patient-centered primary and principal care for 

(a) practices that qualify as patient-centered medical homes and (b) practices 

that are not fully qualified as PC–MHs but are able to provide defined services, 

supported by systems improvements, associated with patient-centered care. 

Physicians in practices that qualify as a patient-centered medical home should be 

given the option (based on standards to be established in statute) of being paid 

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under an alternative to traditional Medicare fee-for-service. This alternative model 

would consist of the following: 

• Bundled, severity-adjusted care coordination fee paid on a monthly basis for the 

physician and non-physician clinical staff work required to manage care outside 

a face-to-face visit and the health information technology and system redesign 

incurred by the practice. 

• This bundled payment would be combined with per visit FFS payment for office 

visits and performance based bonus payments based on evidence based measures of care 

Yesterday, Representative Gene Green and Senator Blanche Lincoln introduced 

the Geriatric Care Improvement Act of 2007, which will create a new Medicare benefit for geriatric assessments of patients with multiple chronic disease and/or dementia and monthly care management fees to physicians who enter into an agreement with HHS to provide ongoing care coordination services to such patients. ACP 

strongly supports this bill and urges that it be reported out favorably by the Subcommittee. 

For physicians who are not practicing in a qualified patient-centered medical 

home, Medicare should be directed to pay separately for the following CPT/HCPCS 

codes that involve coordinating patient care for which Medicare currently does not 

make separate payment. 

• Physician supervision of nurse-provided patient self-management education 

• Physician review of data stored and transmitted electronically, e.g. data from 

remote monitoring devices 

• Care plan oversight of patient outside the home health, hospice, and nursing 

facility setting—this is reported through CPT 99340, which is described in item 

#3, ‘‘Create a specific, new alternative and optional patient centered medical 

home benefit. . .’’ 

• Anticoagulant therapy management 

• New physician team conference codes 

• New telephone service codes (scheduled to appear in CPT in 2008) 

Conclusion 

The 110th Congress has an historic opportunity to join with ACP, other physician 

organizations, employers, and health plans to redesign the American health care 

system to deliver the care that patients need and want, to recognize the value of 

care that is managed by a patient’s personal physician, to support the value of primary care medicine in improving outcomes, and to create the systems needed to 

help physicians deliver the best possible care to patients. The College’s policy recommendations and implementation road map are offered today as a comprehensive 

plan for Medicare to realign payment policies to support comprehensive, coordinated, and longitudinal care for beneficiaries through a physician-directed, patientcentered medical home. 

American Academy of Family Physicians (AAFP) 

American Academy of Pediatrics (AAP) 

American College of Physicians (ACP) 

American Osteopathic Association (AOA) 

Joint Principles of the Patient-Centered Medical Home 

March 2007 

Introduction 

The Patient-Centered Medical Home (PC-MH) is an approach to providing comprehensive primary care for children, youth and adults. The PCMH is a health care setting that facilitates partnerships between individual 

patients, and their personal physicians, and when appropriate, the patient’s family.The AAP, AFFP, ACCP, and AOA, representing approximately 

333,000 physicians, have developed the following joint principles to 

describew the characteristics of the PC-MH. 

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Principles 

Personal physician—each patient has an ongoing relationship with a personal 

physician trained to provide first contact, continuous and comprehensive care. 

Physician directed medical practice —the personal physician leads a team of individuals at the practice level who collectively take responsibility for the ongoing 

care of patients. 

Whole person orientation—the personal physician is responsible for providing for 

all the patient’s health care needs or taking responsibility for appropriately arranging care with other qualified professionals. This includes care for all stages 

of life; acute care; chronic care; preventive services; and end of life care. 

Care is coordinated and/or integrated across all elements of the complex health 

care system (e.g., subspecialty care, hospitals, home health agencies, nursing 

homes) and the patient’s community (e.g., family, public and private communitybased services). Care is facilitated by registries, information technology, health 

information exchange and other means to assure that patients get the indicated 

care when and where they need and want it in a culturally and linguistically 

appropriate manner. 

Quality and safety are hallmarks of the medical home: 

• Practices advocate for their patients to support the attainment of optimal, patient-centered outcomes that are defined by a care planning process driven by 

a compassionate, robust partnership between physicians, patients, and the patient’s family. 

• Evidence-based medicine and clinical decision-support tools guide decision making 

• Physicians in the practice accept accountability for continuous quality improvement through voluntary engagement in performance measurement and improvement. 

• Patients actively participate in decision-making and feedback is sought to ensure patients’ expectations are being met 

• Information technology is utilized appropriately to support optimal patient care, 

performance measurement, patient education, and enhanced communication 

• Practices go through a voluntary recognition process by an appropriate non-governmental entity to demonstrate that they have the capabilities to provide patient centered services consistent with the medical home model. 

• Patients and families participate in quality improvement activities at the practice level. 

Enhanced access to care is available through systems such as open scheduling, expanded hours and new options for communication between patients, their personal physician, and practice staff. 

Payment appropriately recognizes the added value provided to patients who have 

a patient-centered medical home. The payment structure should be based on the 

following framework: 

• It should reflect the value of physician and non-physician staff patient-centered 

care management work that falls outside of the face-to-face visit. 

• It should pay for services associated with coordination of care both within a 

given practice and between consultants, ancillary providers, and community resources. 

• It should support adoption and use of health information technology for quality 

improvement; 

• It should support provision of enhanced communication access such as secure 

e-mail and telephone consultation; 

• It should recognize the value of physician work associated with remote monitoring of clinical data using technology. 

• It should allow for separate fee-for-service payments for face-to-face visits. (Payments for care management services that fall outside of the face-to-face visit, 

as described above, should not result in a reduction in the payments for faceto-face visits). 

• It should recognize case mix differences in the patient population being treated 

within the practice.It should allow physicians to share in savings from reduced 

hospitalizations associated with physician-guided care management in the office 

setting. 

• It should allow for additional payments for achieving measurable and continuous quality improvements. 

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Background of the Medical Home Concept 

The American Academy of Pediatrics (AAP) introduced the medical home concept 

in 1967, initially referring to a central location for archiving a child’s medical record. 

In its 2002 policy statement, the AAP expanded the medical home concept to include 

these operational characteristics: accessible, continuous, comprehensive, family-centered, coordinated, compassionate, and culturally effective care. 

The American Academy of Family Physicians (AAFP) and the American College 

of Physicians (ACP) have since developed their own models for improving patient 

care called the ‘‘medical home’’ (AAFP, 2004) or ‘‘advanced medical home’’ (ACP, 

2006). 

For More Information: 

American Academy of Family Physicians 

http://www.futurefamilymed.org 

American Academy of Pediatrics: http://aappolicy.aappublications.org/policy_statement/index.dtl#M 

American College of Physicians 

http://www.acponline.org/advocacy/?hp 

American Osteopathic Association 

f 

Statement of American College of Radiology 

The American College of Radiology (ACR) representing more than 32,000 radiologists, radiation oncologists, and medical physicist members is pleased to submit this 

statement for the record regarding the hearing on options to improve quality and 

efficiency among Medicare physicians. 

Fundamental First Steps 

There are fundamental steps that need to be taken as Medicare strives to achieve 

the level of efficiency needed in order to maintain solvency into the future. First, 

the Federal Government must encourage and provide incentives for physicians to acquire the necessary health information technology systems in order to deliver integrated care across multiple provider settings. The upfront expense for many physician practices to purchase, integrate, and operate these systems is often too great 

an undertaking, resulting in little or no financial benefit for the physician compared 

to the benefit realized by Medicare and other insurers. In addition, while Medicare 

takes steps toward greater efficiency in the delivery of physician services, it must 

move away from the current methodology for reimbursing physicians under the Sustainable Growth Rate (SGR) formula. However, we caution Congress not make 

major changes to the payment system without solid evidence-based solutions that 

have been proven to resolve the existing problems. Only with stable and predictable 

payments can doctors begin to invest resources in the technology and processes that 

lead to greater efficiency. 

Growth in Volume of Imaging Services 

The ACR believes that as the stewards of the Medicare program, Congress must 

ensure that beneficiaries continue to have access to the highest quality physician 

care and that this care is delivered in an efficient and safe manner. In the case of 

diagnostic imaging and image-guided therapy, increased volume and intensity has 

been shown, in specific clinical circumstances, to lower overall cost by reducing unnecessary hospital admission and surgery. Overall growth in volume and intensity 

of imaging in the 21st century is appropriate, and may be appropriate at a higher 

level as compared to the average growth of all medical services, because that growth 

represents a natural evolution of health care delivery in which diagnosis and treatment is made more rapidly and more accurately. (See Attachment A) 

Accreditation Requirement and Standards for Physicians Performing Imaging 

There is no doubt that inappropriate growth of imaging exists and we share 

Congress’s desire to make certain that the Medicare dollar is spent wisely. The 

Medicare Payment Advisory Commission (MedPAC) has put forth numerous recommendations over the years on ways to improve quality and efficiency in the delivery of medical imaging services. In 2005 the Commission recommended that standards be implemented for physicians who perform and interpret imaging studies. 

MedPAC mentions how much of the recent growth in imaging has taken place in 

physician offices where there is less quality oversight than in the hospital or Indejbell on PROD1PC69 with HEARING

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pendent Diagnostic Testing Facility (IDTF) setting. The ACR believes that in order 

to ensure that imaging services provided outside the hospital are appropriate, safe 

and cost effective, Medicare should require that complex procedures such as those 

in nuclear cardiology, MRI, CT, and PET are performed by experienced and qualified physician specialists working with well trained technical staff in an accredited 

facility or physician office. Private insurers requiring accreditation for facilities providing advanced diagnostic imaging have witnessed an increase in quality of care 

and patient safety, as well as a reduction in repeat tests that have led to cost savings for their programs. In fact, UnitedHealthcare has recently announced that beginning in March of 2008 all beneficiaries receiving advanced medical imaging 

(MRI, CT, PET, nuclear medicine, and nuclear cardiology) must go to an accredited 

facility for those services. 

Use of Appropriateness Criteria and Feedback for Physicians Ordering Imaging 

Beyond patient safety and quality measures such as accreditation, Medicare 

should implement programs to ensure that seniors are receiving appropriate imaging—the right test, at the right time, for the right reason. Private insurers have 

found that a disproportionate number of imaging studies are being ordered by a relatively small number of physicians. To that end, the ACR encourages the consultation of Appropriateness Criteria when determining if and when a patient should receive an imaging study. Over the years, the ACR has developed Appropriateness 

Criteria for use by primary care physicians as well as specialists consisting of evidence-based, expert criteria for selecting the most appropriate imaging for patients 

depending on the symptoms they present and their medical history. Programs developed by Medicare should include a reporting and feedback component where referring physicians can see how their ordering patterns compare to their colleagues. 

When using Appropriateness Criteria within a program such as a Radiology Order 

Entry system (ROE), the ordering patterns of referring physicians can be successfully shifted through educational feedback reports, with the potential to result in 

savings for the payer. In the end, timely and appropriate imaging can produce better patient outcomes, through more precise treatment and lowered morbidity and 

mortality. 

Bundled Payments 

In its mandated report to Congress on alternatives to the SGR, MedPAC presented the option of bundling physician payments in order to reduce overuse of services. The Commission’s logic is that a larger unit of payment puts physicians at a 

greater financial risk and provides the incentive to order services judiciously. However, the ACR believes the strategy of bundling payments to physicians has the potential to lead to more problems than it would solve as was witnessed when the private sector experimented with capitation in the 1990s. Questions remain as to how 

services rendered by a physician in a consulting role, such as is the case with diagnostic radiology, would fit into the concept of bundling. It is not clear that the incentive for a physician to judiciously order images is provided under this option, and 

in fact it may have the opposite effect. Furthermore, to extend the concept of bundled payments beyond a single episode of care and fully integrate it into the general 

population of outpatients, in the multitude of complex patient care situations occurring over variable time courses, at multiple locations and involving multiple and 

often independent provider decision makers would require a system design so complex that it would likely be administratively unmanageable. The ACR asks that the 

Health Subcommittee explore this alternative only after careful evidence-based deliberation and in consultation with all provider stakeholders. It is our belief that improving health care efficiencies must be approached from the standpoint of quality 

with a focus on utilization controls based on appropriateness of care and physician 

collaboration, with the ultimate goal of improving outcomes, rather than having the 

primary focus on achieving savings. 

The ACR looks forward to working with Congress this year towards the shared 

goals of improving quality and efficiency through ensuring that Medicare pays for 

the safest, highest quality, appropriate imaging services for beneficiaries. 

Attachment A 

1. Rao PM, Rhea JT, Novelline RA, Mostafavi AA, McCabe CJ. Effect of 

computed tomography of the appendix on treatment of patients and use 

of hospital resources. NEJM. 1998;338(3):141–146. 

The authors evaluated 100 patients who had CT for suspected appendicitis. Fiftythree had appendicitis; 47 did not. After the cost of CT, overall savings was $447 

per patient ($44,731). 

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2. Jordan JE, Donaldson SS, Enzmann DR. Cost effectiveness and outcome 

assessment of magnetic resonance imaging in diagnosing cord compression. Cancer. 1998;75(10):2579–2586. 

This article is both a retrospective review and literature review. The authors 

found that with the use of MR in imaging patients with diagnosed cord compression, 

costs were reduced by 65 percent. Imaging studies utilized prior to MRI for diagnosis included myelography, CT, plain film and nuclear medicine. The average cost 

for diagnosis in these groups dropped from $3664/patient to $2283/patient. The lack 

of hospitalization costs with myelography contributed significantly to the reduced 

cost with MRI diagnosis. 

3. Garcia Pena BM, Taylor GA, Lund DP, Mandl KD. Effect of computed 

tomography on patient management and costs in children with suspected 

appendicitis. Pediatrics. 1999:104:440–446. 

CT was obtained with three strategies: 1) obtain on all patients and discharge if 

nl, 2) obtain on all pts and admit all, 3) selectively obtain CT if wbc>10,000. 

All strategies decreased the number of hospital days, negative laparotomies and the per patient cost. Savings for strategy 1 was $2018/patient, for strategy 2 $554/ 

patient, and for strategy 3 $691/patient. 

4. Rhea JT, Rao PM, Novelline RA, McCabe CJ. A focused appendiceal CT 

technique to reduce the cost of caring for patients with clinically suspected appendicitis. AJR. 1997;169:113–118. 

Use of focused CT reduced both variable and total cost by $23,030 and $ 45,556 

respectively per 100 patients. Costs were reduced through decreased number of negative laparotomies and decreased number of hospital days (cost of one negative appendectomy equals the cost of 18 appendiceal CT scans). 

5. Rosen MP, Sands DZ, Longmaid HE 3rd, Reynolds KF, Wagner M, 

Raptopoulos V. Impact of abdominal CT on the management of patients 

presenting to the emergency department with acute abdominal pain. 

AJR. 2000;174:1391–1396. 

This is a review of fifty-seven patients who presented to the emergency room with 

acute abdominal pain of a nontraumatic origin. CT added significantly to the confidence level of the emergency room physician’s diagnosis evaluated subjectively. 

The use of CT averted the admission of ten of 42 of these patients, approximately 

24 percent. Furthermore, patient management was altered in 60 percent of patients. 

6. Rosen MP, Siewert B, Sands DZ, Bromberg R, Edlow J, Raptopoulos V. 

Value of abdominal CT in the emergency department for patients with 

abdominal pain. Eur Radiol. 2003;13:418–424. 

Patients with abdominal pain who presented to a teaching facility were evaluated 

with CT when appropriate. This article demonstrated that 17 percent of hospitals 

admissions and 62 percent of surgeries were avoided based on the CT findings. 

There was also a significant benefit derived by the treating physician markedly improving their confidence level with their diagnoses. 

f 

Statement of American Health Information Management Association 

Chairman Stark and Members of the Ways and Means Subcommittee on Health, 

thank you for holding a hearing on ‘‘Options to Improve Quality and Efficiency 

Among Medicare Physicians.’’ This is a critical issue and the American Health Information Management Association (AHIMA) is honored to provide the subcommittee 

with information that we believe directly impacts the questions noted in your hearing announcement. 

As you know, the emergence of health information technology as a key policy 

issue has helped move the healthcare quality issue to the forefront of healthcare policy discussions. To obtain more information for quality monitoring, healthcare 

claims forms have been changed to collect more information on the care provided 

to individuals. This has been done to improve the delivery of quality healthcare and 

to insure fair and equitable reimbursement for services provided. 

As the Subcommittee considers the hearing testimony, we urge you to consider 

how upgrading the ICD–9-CM classification system to ICD–10–CM and ICD–10– 

PCS could improve the information and knowledge contained in the Medicare system, improve the efficiency of data collection and therefore reduce the cost of obtainjbell on PROD1PC69 with HEARING

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ing the information needed for Medicare processes. This will also reduce the costs 

incurred by the providers who must supply data to various contractors of the Centers for Medicare and Medicaid Services (CMS) for healthcare claims and other 

healthcare reporting requirements. 

In 2005, AHIMA testified before the Ways and Means Health Subcommittee on 

the need for and advantages of U.S. adoption and implementation of the ICD–10– 

CM (diagnoses) and ICD–10–PCS (inpatient procedures) classification systems. 

These systems were designed and produced by the Department of Health and 

Human Services (HHS) in the mid 1990’s and are still awaiting formal adoption and 

implementation. To date, neither the Congress nor the Secretary has taken action 

that would result in the actual implementation and use of these classification systems. Yet, in the case of physicians and in contrast to ICD–9-CM, ICD–10–CM 

adoption would provide the government with more accurate information to determine quality, severity, and payment. In addition, if quickly adopted, ICD–10–CM 

would allow physicians to implement new health information technology without the 

threat of having to make retroactive changes (much more expensive) to their HIT 

systems at some undetermined time in the future. 

Briefly, adoption of ICD–10–CM now would improve the situation for Medicare 

and its physicians by: 

• Providing the detail related to diagnoses that would allow CMS to judge the severity of the patient, which in turn would better identify the proper Evaluation/ 

Management (E/M) level of care reported on the Medicare claim. 

• Providing the detail related to diagnoses that would point to the necessary medical services not easily identified in the very vague and incomplete descriptions 

provided by ICD–9-CM, due to the rationing of ICD–9-CM codes that has had 

to occur in recent years because of the limited number of codes remaining. If 

CMS accepted all diagnoses codes that can be submitted electronically, then in 

many complicated situations—generally higher cost encounters and admissions—complications and co-morbidities could be identified without the need to 

request additional information from the provider (usually in paper form)This 

would also alleviate the need to review such data manually. 

• Providing the detail necessary to identify not only complications, co-morbidities, 

or present on admission diagnoses, but also enough detail to permit more automated processing. The additional detail provided in ICD–10–CM will actually 

make it easier to identify fraud and abuse than currently because coders will 

not have to guess on what codes to enter and the additional detail will more 

clearly support or not support other codes and items on the claim form. 

• Providing more detail in the claim so that physicians will incur less costs by 

not having to provide additional information, either with the claim or in response for more information from the Medicare contractor. 

As members of the Health Subcommittee recognize, the detail behind the ICD– 

9-CM upgrade and the need to implement the ICD–10–CM and ICD–10–PCS, is significant. Had ICD–10–CM and ICD–10–PCS been implemented, the changes now 

being made to the Medicare inpatient prospective payment system would have been 

significantly easier for Medicare and the provider community to adopt. Costs will 

continue to increase for the Medicare program each year the implementation of 

ICD–10–CM and ICD–10–PCS is delayed. In 2002, CMS testified to the National 

Committee on Vital and Health Statistics (NCVHS) that it desired to move to ICD– 

10 as soon as possible. The NCVHS in turn recommended adoption at the end of 

its hearing review of the Rand study on the issue in 2003. The subcommittee needs 

to consider that our nation has dedicated funding to maintain ICD–10–PCS and 

ICD–10–CM since the mid 1990’s—CMS maintains ICD–10–PCS while the CDC has 

responsibility for ICD–10–CM—and yet we have received no benefit from the detail 

because of the implementation delays. 

The ICD–10 codes possess many additional and beneficial uses beyond the subcommittee’s current discussion. AHIMA would be happy to respond to questions on 

these uses as well as address any questions or concerns the subcommittee members 

might have with our comments. We urge the subcommittee to consider recommending the adoption and implementation of the ICD–10 classifications either as 

a stand alone legislation, or as a part of any health information technology or Medicare legislation Congress may consider. It is also important that the subcommittee 

ensure the adoption and implementation of the upgraded versions of the HIPAA 

transactions necessary to insure that such data can be carried in the claims system. 

Again, additional detail can be provided if the committee needs it. 

Action by the subcommittee and the Congress before the fall recess will allow the 

U.S. to make the conversion to ICD–10 classifications by October 1, 2011. Moving 

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to ICD–10–CM and ICD–10–PCS is already long overdue. Please take the necessary 

steps to ensure this date is not delayed any further. 

f 

Statement of American Occupational Therapy Association 

The American Occupational Therapy Association (AOTA) submits this statement 

for the record of the May 9, 2007 hearing. While the hearing is focused on potential 

methods to improve efficiency among physicians in Medicare, AOTA appreciates the 

opportunity to provide comment on what AOTA is doing in order to improve efficiency among occupational therapists in Medicare. As the Committee looks at alternatives within the physician fee schedule, AOTA would also like to highlight some 

areas in Medicare where the Committee should focus, particularly in regard to 

AOTA’s efforts relating to the physician quality reporting initiative (PQRI) and the 

Medicare Part B outpatient therapy caps. 

The Balanced Budget Act of 1997 [Public Law 105–33] moved outpatient rehabilitation services, including occupational therapy, to the physician fee schedule. Occupational therapists and occupational therapy assistants are subject to yearly proposed cuts to the physician fee schedule. AOTA applauds past congressional action 

to avoid the proposed cuts to the physician fee schedule and is committed to working with Congress to avoid the proposed 10 percent cut for 2008. Simultaneously, 

therapists must also confront the uncertainty of the arbitrary therapy cap which literally prohibits care for high cost patients. 

Physician Quality Reporting Initiative (PQRI) 

The Tax Relief and Health Care Act (TRHCA) of 2006 included a provision that 

directed the Secretary of Health and Human Services to implement a system for the 

reporting by ?eligible professionals’ of data on quality measures. CMS has recognized occupational therapists as professionals eligible to participate in the system, 

and AOTA is working diligently to address new quality and payment options for 

Medicare Part B outpatient therapy, which take effect July 1, 2007. 

AOTA is positioned to begin participation in the deliberations of the Ambulatory 

Care Quality Alliance (AQA), the National Quality Forum (NQF), and the Physician 

Consortium. These three consensus organizations recognized by Congress in the 

TRHCA inform the physician quality reporting initiative at CMS. 

AOTA is also developing outcomes measures for occupational therapy as part of 

its Centennial Vision and Strategic Plan. A committee of distinguished occupational 

therapy practitioners with experience in outcomes measures has been formed and 

is in the process of examining existing outcomes measurement tools and determining the most appropriate measures for occupational therapy. 

AOTA continues to rely on the work done as part of its Evidence-Based Literature 

Review Project. AOTA offers a series of Evidence Briefs to inform the practice of 

occupational therapy. These summaries of articles selected from scientific literature 

cover a wide variety of areas of occupational therapy practice including: attention 

deficit/hyperactivity disorder, brain injury, cerebral palsy, children with behavioral 

and psychosocial needs, chronic pain, developmental delay in young children, multiple sclerosis, older adults, Parkinson’s disease, school-based interventions, stroke, 

and substance use disorders. 

These documents offer a bridge between scientific research and clinical practice 

to aide occupational therapy practitioners in providing therapy that is based on evidence in order to provide efficient and effective care and to improve patient outcomes. 

Therapy Caps 

The annual cap on outpatient rehabilitation, commonly referred to as the ‘‘$1,500’’ 

cap, imposed by the Balanced Budget Act of 1997 and currently under an exceptions 

process through Congressional action, would, if implemented, limit access to occupational therapy that would enable an individual to fully recover from a stroke, to 

overcome limitations resulting from severe burns, or to achieve independence in selfcare to enable living at home among other illnesses or injuries. AOTA has worked 

for many years to repeal this cap and appreciates Congress’ willingness to stop implementation. Most recently, a 1-year extension of the exceptions process was included in the Tax Relief and Health Care Act of 2006 [P.L. 109–432], however, that 

will expire on December 31, 2007 unless Congress takes action this year. 

MedPAC has expressed concerns with the therapy caps because they do not discriminate between necessary care and unnecessary utilization. AOTA remains committed to working with Congress and CMS to deter unnecessary care or overutilizajbell on PROD1PC69 with HEARING

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tion. AOTA has held discussions with Congress, CMS, and other provider and consumer groups to determine ways to refine the exceptions process to ensure that patients continue to receive appropriate care. Efficient and effective delivery of therapy services is also about ensuring access to services that have a proven impact on 

lifestyle choices, healthy living, and avoiding illness and injury (such as those resulting from falling, poor driving, or limits in self-care). 

AOTA strongly supports the Medicare Access to Rehabilitation Services Act of 

2007 (S. 450/H.R. 748). AOTA supports passage of legislation that would repeal the 

caps, and is dedicated to working with CMS, Congress, and other provider and consumer groups to find an appropriate long-term solution. Financial limitations to 

proper therapy services impede the therapists’ ability to care for their patients appropriately and use professional judgment effectively, and ultimately hinder the 

ability of a therapist to provide high-quality, efficient care to Medicare beneficiaries. 

AOTA is the nationally recognized professional association of 36,000 occupational 

therapists, occupational therapy assistants, and students of occupational therapy. 

Occupational therapy is a health, wellness, and rehabilitation profession working 

with people experiencing stroke, spinal cord injuries, cancer, congenital conditions, 

developmental delay, mental illness, and other conditions. It helps people regain, develop, and build skills that are essential for independent functioning, health, and 

well-being. Occupational therapy is provided in a wide range of settings including 

day care, schools, hospitals, skilled nursing facilities, home health, outpatient rehabilitation clinics, psychiatric facilities, and community programs. 

Occupational therapy professionals assist those with traumatic injuries—young 

and old alike—to return to active, satisfying lives by showing survivors new ways 

to perform activities of daily living, including how to dress, eat, bathe, cook, do laundry, drive, and work. It helps older people with common problems like stroke, arthritis, hip fractures and replacements, and cognitive problems like dementia. In addition, occupational therapists work with individuals with chronic disabilities including mental retardation, cerebral palsy, and mental illness to assist them to live 

productive lives. Occupational therapy practitioners also provide care to Veterans 

who suffer from traumatic brain injuries, post-traumatic stress disorder, spinal cord 

injuries, and other conditions. By providing strategies for doing work and home 

tasks, maintaining mobility, and continuing self-care, occupational therapy professionals can improve quality of life, speed healing, reduce the chance of further injury, and promote productivity and community participation for Veterans. 

f 

Statement of the Renal Physicians Association 

The Renal Physicians Association (RPA) is the professional organization of 

nephrologists whose goals are to ensure optimal care under the highest standards 

of medical practice for patients with renal disease and related disorders. RPA acts 

as the national representative for physicians engaged in the study and management 

of patients with renal disease. RPA greatly appreciates the interest of Ways and 

Means Health Subcommittee Chair Pete Stark and Ranking Minority Member Dave 

Camp in exploring new methodological options for enhancing the quality and efficiency of care delivered by Medicare physicians. Further, we appreciate the Subcommittee’s efforts to exercise its oversight authority as the Centers for Medicare 

and Medicaid Services carries out its fiduciary responsibility to maximize the effectiveness of Medicare program spending. 

RPA believes it has a unique perspective to offer on the issues being considered 

by the Subcommittee, as nephrologists have been reimbursed through the use of a 

monthly capitated payment (MCP) system for the bundle of physicians’ services associated with the care provided to patients with end stage renal disease (ESRD) for 

over thirty years. Further, nephrologists have been involved in the gathering and 

reporting of clinical performance measure (CPM) data since 1994 through the CMS 

Core Indicators Project. As a result, provision of care to chronically ill patients 

under bundling and quality measurement structures that are just now being proposed broadly across all specialties has been a way of life for nephrologists for many 

years, and thus RPA believes our insights would be of use to the Subcommittee. 

In this collaborative spirit, we offer the following recommendations for consideration in the development of new methodologies to improve the quality and efficiency 

of the care provided by Medicare physicians. These recommendations are organized 

into two sections, the first addressing quality related issues and the second relating 

to the reimbursement structure issues involved in the development of bundled payment systems and similar models. 

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Quality Issues 

• RPA believes that in order to develop an effective and workable payment methodology linking reimbursement to quality, Congress, CMS, MedPAC and other 

policymakers must actively involve and draw on the intellectual resources and 

experience of the physician community throughout the process. This will help 

to ensure that the development and final products emphasize the expected benefits of a modified payment methodology and minimize negative unintended 

consequences. • RPA supports the development of performance-based payment system that considers and separately rewards both high quality patient care and measurable 

improved performance. • RPA believes that for such a revised payment methodology to be effective longitudinally, the system must not disrupt the resource-based relative value scale 

(RBRVS) system, and must for the purposes of the incentive payments have 

budget neutrality waived. Incentive payments should not be derived by decreasing usual payments or establishing a withhold from the usual payments. • RPA believes that to effectively implement a payment methodology linking reimbursement to quality, Congress must consider fundamental change to the policy structure underlying the Medicare program, specifically assessing the desegregation of the Medicare Part A and Part B funding pools. RPA believes that 

the artificial separation of inpatient and outpatient reimbursement does not 

allow for enhanced Medicare program cost efficiency through the investment of 

Part A savings in outpatient care services.. Physician activities that improve 

quality and produce savings by decreasing hospitalizations ought to be accounted for in the adjudication of the funds available for physician incentive reimbursement. • RPA believes that Congress must support substantial research in both the pertinent basic science and health services arenas, especially related to outcomes research, in order to strengthen the essential and necessary scientific evidence 

supporting a transition to a performance-based payment system. 

Reimbursement Structure Issues 

• RPA supports the use of bundled payment systems to provide medically appropriate care to specific patient sub-populations, and to promote efficient use of 

Medicare program resources. RPA believes that the reimbursement for bundled 

payment systems must not only cover the services included in the bundle but 

also be sufficient to promote the use of electronic medical records, integration 

of emerging technologies, and other innovations in medical practice. Further, 

RPA believes that a mechanism for periodic review of the bundle must be included when the bundle is developed, with review of the reimbursement for the 

bundle being required if and when services are added to or removed from the 

bundle. 

• RPA believes that physician reimbursement system revisions should include assurance of reasonable payment that encourages the medically appropriate site 

of care to be utilized, including payment at all sites of care where services are 

provided. Such a policy revision would address situations where the patient is 

admitted to the hospital for services that are medically appropriate to be provided in the outpatient setting but are often provided in the inpatient setting 

due to the absence of a payment mechanism in the outpatient setting. For example, in renal care, patients with acute kidney failure who are expected to regain their renal function often cannot be dialyzed in the outpatient setting because of the difficulty that dialysis facilities and outpatient hospital departments experience in being reimbursed for the facility services related to dialysis. Review and revision of such seemingly arbitrary reimbursement guidelines 

would facilitate more efficient use of Medicare program resources. 

• RPA believes that expanded coverage for medically appropriate utilization of 

services to maintain and improve quality of care should be provided. While the 

expansion of covered preventive services in the Medicare program in areas such 

as diabetes treatment represents a significant step forward, the potential for 

achieving greater cost-efficiency in this area is profound. For example, in kidney 

care there are a variety of interventions and treatment modalities specific to the 

ESRD patient population that would enhance the quality of care provided but 

for which there currently is either no Medicare reimbursement or such reimbursement is extremely difficult to obtain. Examples of these services include 

certain procedures related to monitoring and maintaining the patient’s vascular 

access, use of essential oral medications including phosphate binders and multivitamins, and provision of nutritional supplements. Coverage of these services 

over time will likely lead to decreased per-patient costs over time. 

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• RPA believes that reimbursement for effort and practice costs associated with 

required quality improvement and patient safety services should be accounted 

for as payment system revisions are developed. Recognizing that programs such 

as the Physicians Quality Reporting Initiative (PQRI) and other CMS managed 

demonstration projects are currently only voluntary, before these programs are 

made mandatory, there should be corresponding consideration of the expenses 

to the physician’s practice of providing these services. In renal care, while it is 

appropriate that nephrologists should be expected to lead continuous quality 

improvement (CQI) processes in dialysis facilities and their own practices, assuming responsibility for the full cost of these services should not be part of 

that expectation. 

Conclusion 

RPA supports Congress’ efforts to seek improvement in the quality and efficiency 

of the care provided by Medicare physicians to program beneficiaries. We urge Congress to approach these issues thoughtfully and deliberately in order to minimize 

the impact of any unforeseen negative consequences. In the area of quality improvement, we urge Congress to (1) continue its efforts to include physicians in the development of such a system; (2) direct CMS to develop a performance-based system 

that rewards both high performance and measurable improved performance; (3) ensure that such a system does not disrupt the RBRVS system and identifies separate 

funding for incentive payments; (4) assess desegregation of the Medicare Part A and 

Part B funding pools; and (5) support the basic research and health services research necessary to make such change evidence-based. With regard to reimbursement structures, Congress should (1) require periodic review of any bundled payment, and the bundle of services itself; (2) provide reasonable payment that encourages the medically appropriate site of care to be utilized; (3) expand coverage for 

medically appropriate preventive services, especially in the treatment of chronic diseases; and (4) account for the effort and practice costs associated with enhanced 

quality improvement and patient safety services. Once again, RPA appreciates the 

opportunity to provide our perspective on these issues to the Committee, and we 

make ourselves available as a resource to the Committee in its future efforts to ensure the best possible health outcomes and quality of life for all Medicare beneficiaries, and especially those with kidney disease. 

f 

Statement of University of North Carolina at Chapel Hill 

In 1999, the state of North Carolina enacted landmark legislation, which licensed 

Clinical Pharmacist Practitioners as mid-level pharmacist practitioners with the 

North Carolina Medical Board. The Medical Practice Act (G.S. 90–18.4) states (a) 

any pharmacist who is approved under the provision of G.S. 90–18(c) 3a to perform 

medical acts, tasks, and functions may use the title ‘‘Clinical Pharmacist Practitioner.’’ It further states that a CPP may implement drug therapy and order laboratory tests pursuant to a drug therapy agreement. The NC Pharmacy Practice Act 

90–85.3 defines CPP’s as having the authority to collaborate with physicians in determining the appropriate health care for a patient. 

In order to qualify as a CPP, a pharmacist is required to complete advanced training and certification and be approved by both the NC Board of Pharmacy and Board 

of Medicine. This expands the scope of practice of a clinical pharmacist to allow for 

prescriptive authority and complex medical decision-making. This legislative action 

in the North Carolina General Assembly, allowed CPP’s to establish their own practices, often within a physician’s office or clinic, focusing only on the provision of clinical services in collaboration with physicians. CPP’s deliver care and function as 

mid-level providers in a manner equivalent to nurse practitioners and physician assistants. In all cases, CPP’s provide very detailed evaluation and management of extremely high risk patients with multiple co-morbidities who are at risk for bad outcomes (i.e. hospitalization, ER visits, etc.) unless their clinical status for diabetes, 

CHF, COPD, anticoagulation, etc. is closely monitored. The attending physician provides direct oversight as required by the incident-to guidelines. 

Clinical Pharmacist Practitioners (CPPs) are North Carolina registered pharmacists who have an advanced scope of practice, similar to Nurse Practitioners, who 

via collaborative practice agreements with supervising physicians, provide direct patient care under the supervision of a physician. Accordingly, CPPs are considered 

mid-level providers, however, pharmacists, at any practice level, are the only health 

care practitioners who are not recognized under Part B of the Social Security Act. 

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Why is that the case? Consequently, CPPs are not allowed to bill for seeing Medicare-eligible patients for provision of clinical care. Thousands of high-risk patients 

(i.e., hypertension, diabetes, CHF, anticoagulation, chronic pain) in North Carolina 

(and beyond) risk a critical interruption in care when they are not allowed access 

to the entire spectrum of health care providers. 

In 2004, HR 4724, which was intended to cover a higher level of a collaborating 

pharmacy practitioner which largely exists only in North Carolina and New Mexico 

at present. This piece of legislation, submitted in 2004 by then-Representative Richard Burr as a stand-alone bill, went nowhere, even though it was supported by all 

of the national pharmacy organizations and the American Medical Association. Such 

legislation, had it passed, would not have enabled all pharmacists, such as dispensing pharmacists, to receive reimbursement for Part D-related activities, but 

only for those advanced practice pharmacists who provide patient care activities 

under Part B, such as through a collaborative agreement with a physician. At 

present, there are at least 41 states that have state legislation approved for expanded clinical roles for pharmacists, such as noted above. The only barrier is our 

Federal government. 

In reading your e-mail message, we noticed that Rep. Stark suggested that a review of the payment systems for fee-for-service providers, and that the majority of 

Medicare beneficiaries and payments are under the fee-for-service system. If you are 

looking for efficient and appropriate health care provision, then we would submit 

that you also take a look at the use of advanced practice pharmacists, to provide 

health care, decrease medication costs through application of pharmacotherapy, and 

monitor for and reduce the risk of adverse drug events. The attached document outlines the benefits of clinical pharmacists in managing care and it attendant costs, 

and while it is several years old, it delineates the value, both in patient outcomes, 

and in cost savings (e.g., $14 to $17 saved for each dollar spent) in the Medicare 

population. 

We have also noticed that the Chair of the Medicare Payment Advisory Commission testified at your hearing. We would respectfully suggest that you review the 

MedPAC report on Clinical Pharmacists, produced in 2002. 

We would love to talk to anyone who is interested in improving health care for 

our nation’s seniors, with a potential cost savings to the system. The Medicare recipients in our state, and all others for that matter, depend upon your support of 

this request to consider including advanced practice pharmacists as approved health 

care providers under Medicare Part B. Just ask yourself one question: If the Federal 

government will not let pharmacists take care of America’s prescription drug use 

problem, then who will? Physicians are too overloaded to work on this issue, and 

there is a national shortage of nurses. Imagine how you could start to fix the Medicare Part D problems if you truly let pharmacists come to the table and do it. Most 

often, your best solutions are not related to more technology or regulations, but actually are right in front of you, in the communities across the country, where problems can be dealt with face-to-face. Please support advanced practice pharmacists, 

the most accessible health care provider in the community. 

Please enter these comments into the record, but more importantly, please call 

upon us to continue the conversation. 

Sincerely, 

Timothy J. Ives, Pharm.D., M.P.H., BCPS, FCCP, CPP 

Robb Malone, Pharm.D., CDE, CPP 

Betsy Bryant Shilliday, Pharm.D., CDE, CPP 

Æ 

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