Medicare: Providing Systematic Feedback to Physicians on their Practice Patterns Is a Promising Step Toward Encouraging Program Efficiency
Published: 2007-05-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO was asked to discuss--based on Medicare: Focus on Physician Practice Patterns Can Lead to Greater Program Efficiency, GAO-07-307 (Apr. 30, 2007)--the importance in Medicare of providing feedback to physicians on how their use of health care resources compares with that of their peers. GAO's report discusses an approach to analyzing physicians' practice patterns in Medicare and ways the Centers for Medicare & Medicaid Services (CMS) could use the results. In a related matter, Medicare's sustainable growth rate system of spending targets used to moderate physician spending growth and annually update physician fees has been problematic, acting as a blunt instrument and lacking in incentives for physicians individually to be attentive to the efficient use of resources in their practices. GAO's statement focuses on (1) the results of its analysis estimating the prevalence of inefficient physicians in Medicare and (2) the potential for CMS to profile physicians in traditional fee-for-service Medicare for efficiency and use the results in ways that are similar to other purchasers' efforts to encourage efficiency.
section_title: What GAO Found
paragraphs: Having considered efforts of 10 private and public health care purchasers that routinely evaluate physicians for efficiency and other factors, GAO conducted its own analysis of physician practices in Medicare. GAO focused the analysis on generalists--physicians who described their specialty as general practice, internal medicine, or family practice--and selected metropolitan areas that were diverse geographically and in terms of Medicare spending per beneficiary. Although GAO did not include specialists in its analysis, its method does not preclude profiling specialists, as long as enough data are available to make meaningful comparisons across physicians. Based on 2003 Medicare claims data, GAO's analysis found outlier generalist physicians--physicians who treat a disproportionate share of overly expensive patients--in all 12 metropolitan areas studied. Outlier generalists and other generalists saw similar numbers of Medicare patients and their respective patients averaged the same number of office visits. However, after taking health status and location into account, GAO found that Medicare patients who saw an outlier generalist--compared with those who saw other generalists--were more likely to have been hospitalized, more likely to have been hospitalized multiple times, and more likely to have used home health services. By contrast, they were less likely to have been admitted to a skilled nursing facility. GAO concluded that outlier generalists were likely to practice medicine inefficiently. CMS has tools available to evaluate physicians' practices for efficiency, including a comprehensive repository of Medicare claims data to compute reliable efficiency measures and substantial experience adjusting for differences in patients' health status. The agency also has wide experience in conducting educational outreach to physicians with respect to improper billing practices and potential fraud--providing individual physicians, in some cases, comparative information on how the physician varies from other physicians in the same specialty or in other ways. A physician education effort based on efficiency profiling would therefore not be a foreign concept in Medicare. For example, CMS could provide physicians a report that compares their practice's efficiency with that of their peers, enabling physicians to see whether their practice style is outside the norm. As for implementing other strategies to encourage efficiency, such as the use of certain financial incentives, CMS would likely need additional legislative authority. CMS agreed with the need to measure physician resource use in Medicare but raised concerns about the costs involved in reporting the results and was silent on other strategies discussed beyond physician education. GAO concurs that resource use measurement and reporting activities would require adequate funding; however, GAO is concerned that efforts to achieve efficiency that rely solely on physician education without financial or other incentives for physicians to curb inefficiencies will be suboptimal.

section_title: Letter
paragraphs: I am pleased to be here today as you discuss the importance of physician- focused strategies to improve efficiency in Medicare. One such strategy  entails providing feedback to physicians on how their use of health care  resources compares with that of their peers. We recently issued a report,  entitled Medicare: Focus on Physician Practice Patterns Can Lead to  Greater Program Efficiency, which discusses an approach to analyzing  physicians’ practice patterns in Medicare and ways the Centers for  Medicare & Medicaid Services (CMS) could use the results of such an  analysis to modify inefficient physician behavior. In the report, we used  the term efficiency to mean providing and ordering a level of services that  is sufficient to meet a patient’s health care needs but not excessive, given a  patient’s health status.
The report fulfilled a 2003 mandate that we examine aspects of physician  compensation in Medicare, pertaining only to physicians serving  beneficiaries in traditional fee-for-service (FFS) Medicare. This topic has  been of significant interest to the Congress, as Medicare’s current system  of spending targets used to moderate physician spending growth and  annually update physician fees has been problematic. This spending target  system—called the sustainable growth rate (SGR) system—adjusts  Medicare’s physician fees based on the extent to which actual spending  aligns with specified targets. If the growth in the number of services  provided per beneficiary—referred to as volume—and in the average  complexity and costliness of services—referred to as intensity—is high  enough, spending will exceed the SGR target. In recent years, the SGR  system has called for cuts in physician fees to offset volume and intensity  increases that have exceeded spending targets. Although these cuts have  been overridden by legislative or administrative action, a sustained period  of declining fees under the SGR system is projected. Policymakers are  therefore concerned about the appropriateness of the SGR system for  updating physician fees and about physicians’ continued participation in  the Medicare program. The problem, in part, is that the SGR system acts as  a blunt instrument in that all physicians are subject to the consequences of  excess spending—namely, downward fee adjustments—that may stem  from the excessive use of resources by only some physicians. In addition,  under the SGR system, individual physicians have no incentive to be  attentive to the efficient use of resources in their own practices.
Policymakers are also concerned that some of the increase in volume and  intensity that drives spending growth may not be medically necessary.  Experts agree that physicians play a central role in the generation of  health care expenditures in total. For example, physicians refer patients  to other physicians; they admit patients to hospitals, skilled nursing  facilities, and hospices; and they order services delivered by other health  care providers, such as imaging studies, laboratory tests, and home health  services. However, some of the spending for services provided and  ordered by physicians may not be warranted. For example, the wide  geographic variation in Medicare spending per beneficiary—unrelated to  beneficiary health status or outcomes—provides evidence that health  needs alone do not determine spending. Medicare physician payment  policy does little to change this situation; payments under the Medicare  program are not designed to foster individual physician responsibility for  the most effective medical practices. In contrast, some public and private  health care purchasers have initiated programs to identify efficient  physicians and encourage patients to obtain care from them.
Against this backdrop, my remarks today will focus on (1) the results of  our analysis estimating the prevalence of inefficient physicians in  Medicare and (2) the potential for CMS to profile physicians in traditional  FFS Medicare for efficiency and use the results in ways that are similar to  other purchasers’ efforts to encourage efficiency. My remarks are based  on findings in our report: Medicare: Focus on Physician Practice Patterns  Can Lead to Greater Program Efficiency. Having considered the efforts  of 10 private and public health care purchasers that routinely evaluate  physicians for efficiency and other factors, we conducted our own analysis  of physician practices in Medicare. We focused the analysis on  generalists—physicians who described their specialty as general practice,  internal medicine, or family practice—and selected metropolitan areas  that were diverse geographically and in terms of Medicare spending per  beneficiary. Although we did not include specialists in the analysis, our  method does not preclude profiling specialists, as long as enough data are  available to make meaningful comparisons across physicians. We based  our analysis on 2003 Medicare claims data. We conducted our work from  September 2005 through May 2007 in accordance with generally accepted  government auditing standards.
In summary, we found outlier generalist physicians—physicians who treat  a disproportionate share of overly expensive patients—in all 12  metropolitan areas studied. Outlier generalists and other generalists saw  similar numbers of Medicare patients and their respective patients  averaged the same number of office visits. However, after taking health  status and location into account, we found that Medicare patients who  saw an outlier generalist—compared with those who saw other  generalists—were more likely to have been hospitalized, more likely to  have been hospitalized multiple times, and more likely to have used home  health services. By contrast, they were less likely to have been admitted to  a skilled nursing facility. We concluded that outlier generalists were likely  to practice medicine inefficiently.
CMS has tools available to evaluate physicians’ practices for efficiency,  including a comprehensive repository of Medicare claims data to compute  reliable efficiency measures and substantial experience adjusting for  differences in patients’ health status. The agency also has wide experience  in conducting educational outreach to physicians with respect to improper  billing practices and potential fraud—providing individual physicians, in  some cases, comparative information on how the physician varies from  other physicians in the same specialty or in other ways. A physician  education effort based on efficiency profiling results would therefore not  be a foreign concept in Medicare. For example, CMS could provide  physicians a report that compares their practice’s efficiency with that of  their peers, enabling physicians to see whether their practice style is  outside the norm. As for implementing other strategies to encourage  efficiency, such as the use of certain financial incentives, CMS would  likely need additional legislative authority.
In our April 2007 report, we recommended that CMS develop a system that  identifies individual physicians with inefficient practice patterns and,  seeking legislative changes as necessary, uses the results to improve  program efficiency. CMS agreed with the need to measure physician  resource use in Medicare but raised concerns about the costs involved in  reporting the results and was silent on other strategies discussed beyond  physician education. We concur that resource use measurement and  reporting activities would require adequate funding; however, we are  concerned that efforts to achieve efficiency that rely solely on physician  education without financial or other incentives for physicians to curb  inefficiencies will be suboptimal.
subsections: section_title: Background
paragraphs: Linking efficiency to physician payment policy has been a subject of  interest among policymakers and health policy analysts. For example, the  Institute of Medicine has recently recommended that Medicare payment  policies should be reformed to include a system for paying health care  providers differentially based on how well they meet performance  standards for quality or efficiency or both. In April 2005, CMS initiated a  demonstration mandated by the Medicare, Medicaid, and SCHIP Benefits  Improvement and Protection Act of 2000 (BIPA) to test this approach.  Under the Physician Group Practice demonstration, 10 large physician  group practices, each comprising at least 200 physicians, are eligible for  bonus payments if they meet quality targets and succeed in keeping the  total expenditures of their Medicare population below annual targets.
Several studies have found that Medicare and other purchasers could  realize substantial savings if a portion of patients switched from less  efficient to more efficient physicians. The estimates vary according to  assumptions about the proportion of beneficiaries changing physicians.  In 2003, the Consumer-Purchaser Disclosure Project, a partnership of  consumer, labor, and purchaser organizations, asked actuaries and health  researchers to estimate the potential savings to Medicare if a small  proportion of beneficiaries started using more efficient physicians. The  Project reported that Medicare could save between 2 and 4 percent of total  costs if 1 out of 10 beneficiaries moved to more efficient physicians. This  conclusion is based on information received from one actuarial firm and  two academic researchers. One researcher concluded, based on his  simulations, that if 5 to 10 percent of Medicare enrollees switched to the  most efficient physicians, savings would be 1 to 3 percent of program  costs—which would amount to about $5 billion to $14 billion in 2007.
The Congress has also recently expressed interest in approaches to  constrain the growth of physician spending. The Deficit Reduction Act of  2005 required the Medicare Payment Advisory Commission (MedPAC) to  study options for controlling the volume of physicians’ services under  Medicare. One approach for applying volume controls that the Congress  directed MedPAC to consider is a payment system that takes into account  physician outliers.
In our report on which this statement is based, we sought information  about other purchasers’ profiling efforts designed to encourage physicians  to practice efficiently. We selected 10 health care purchasers that profiled  physicians in their networks—that is, compared physicians’ performance  to an efficiency standard to identify those who practiced inefficiently. To  measure efficiency, the purchasers we spoke with generally compared  actual spending for physicians’ patients to the expected spending for those  same patients, given their clinical and demographic characteristics. Most  purchasers said they also evaluated physicians on quality. The purchasers  linked their efficiency profiling results and other measures to a range of  physician-focused strategies to encourage the efficient provision of care.  Some of the purchasers said their profiling efforts produced savings.
section_title: Through Profiling, We Found That Physicians Likely to Practice Inefficiently in Medicare Were Present in All Areas Selected for Study
paragraphs: Having considered the efforts of other health care purchasers in profiling  physicians for efficiency, we conducted our own profiling analysis of  physician practices in Medicare and found individual physicians who were  likely to practice medicine inefficiently in each of 12 metropolitan areas  studied. We selected areas that were diverse geographically and in terms  of Medicare spending per beneficiary. We focused our analysis on  generalists—physicians who described their specialty as general practice,  internal medicine, or family practice. Although we did not include  specialists in our analysis, our method does not preclude profiling  specialists, as long as enough data are available to make meaningful  comparisons across physicians.
Under our methodology, we computed the percentage of overly expensive  patients in each physician’s Medicare practice. To identify overly  expensive patients, we grouped the Medicare beneficiaries in the 12 areas  according to their health status, using diagnostic and demographic  information. We classified beneficiaries as overly expensive if their total  Medicare expenditures—for services provided by all health providers, not  just physicians—ranked in the top fifth of their health status cohort for  2003 claims.
Within each health status cohort, we observed large differences in total  Medicare spending across beneficiaries. For example, in one cohort of  beneficiaries whose health status was about average, overly expensive  beneficiaries—the top fifth ranked by expenditures—had average total  expenditures of $24,574, as compared with the cohort’s bottom fifth,  averaging $1,155. (See fig. 1.)
This variation may reflect differences in the number and type of services  provided and ordered by these patients’ physicians as well as factors not  under the physicians’ direct control, such as a patient’s response to and  compliance with treatment protocols. Holding health status constant,  overly expensive beneficiaries accounted for nearly one-half of total  Medicare expenditures even though they represented only 20 percent of  beneficiaries in our sample.
Once these patients were identified and linked to the physicians who  treated them, we were able to determine which physicians treated a  disproportionate share of these patients compared with their generalist  peers in the same location. We classified these physicians as outliers—that  is, physicians whose proportions of overly expensive patients would occur  by chance less than 1 time in 100. Notably, all physicians had some overly  expensive patients in their Medicare practice, but outlier physicians had a  much higher percentage of such patients. We concluded that these outlier  physicians were likely to be practicing medicine inefficiently.
Based on 2003 Medicare claims data, our analysis found outlier generalist  physicians in all 12 metropolitan areas we studied. The Miami area had the  highest percentage—almost 21 percent—of outlier generalists, followed by  the Baton Rouge area at about 11 percent. (See table 1.) Across the other  areas, the percentage of outliers ranged from 2 percent to about 6 percent.
In 2003, outlier generalists’ Medicare practices were similar to those of  other generalists, but the beneficiaries they treated tended to experience  higher utilization of certain services. Outlier generalists and other  generalists saw similar average numbers of Medicare patients (219  compared with 235) and their patients averaged the same number of office  visits (3.7 compared with 3.5). However, after taking into account  beneficiary health status and geographic location, we found that  beneficiaries who saw an outlier generalist, compared with those who saw  other generalists, were 15 percent more likely to have been hospitalized,  57 percent more likely to have been hospitalized multiple times, and   51 percent more likely to have used home health services. By contrast,  they were 10 percent less likely to have been admitted to a skilled nursing  facility.
section_title: CMS Has Tools Available to Profile Physicians for Efficiency
paragraphs: Medicare’s data-rich environment is conducive to identifying physicians  who are likely to practice medicine inefficiently. Fundamental to this  effort is the ability to make statistical comparisons that enable health care  purchasers to identify physicians practicing outside of established  standards. CMS has the tools to make statistically valid comparisons,  including comprehensive medical claims information, sufficient numbers  of physicians in most areas to construct adequate sample sizes, and  methods to adjust for differences in patient health status.
Among the resources available to CMS are the following:    Comprehensive source of medical claims information. CMS maintains a  centralized repository, or database, of all Medicare claims that provides a  comprehensive source of information on patients’ Medicare-covered  medical encounters. Using claims from the central database, each of which  includes the beneficiary’s unique identification number, CMS can identify  and link patients to the various types of services they received and to the  physicians who treated them.
Data samples large enough to ensure meaningful comparisons across  physicians. The feasibility of using efficiency measures to compare  physicians’ performance depends, in part, on two factors: the availability  of enough data on each physician to compute an efficiency measure and  numbers of physicians large enough to provide meaningful comparisons.  In 2005, Medicare’s 33.6 million FFS enrollees were served by about  618,800 physicians. These figures suggest that CMS has enough clinical  and expenditure data to compute efficiency measures for most physicians  billing Medicare.
Methods to account for differences in patient health status. Because  sicker patients are expected to use more health care resources than  healthier patients, the health status of patients must be taken into account  to make meaningful comparisons among physicians. Medicare has  significant experience with risk adjustment, a methodological tool that  assigns individuals a health status score based on their diagnoses and  demographic characteristics. For example, CMS has used increasingly  sophisticated risk adjustment methodologies over the past decade to set  payment rates for beneficiaries enrolled in managed care plans. On the  related topic of measuring resource use, CMS noted in comments on a  draft of our report that emerging “episode grouper” technology was a  promising approach to measuring resource use associated with a given  episode of care. We agree, but we also consider our measurement of  resource use on a per capita basis, capturing total health care  expenditures for a given period of time, equally promising.
To conduct profiling analyses, CMS would likely make methodological  decisions similar to those made by the health care purchasers we  interviewed. For example, the health care purchasers we spoke with made  choices about whether to profile individual physicians or group practices;  which risk adjustment tool was best suited for a purchaser’s physician and  enrollee population; whether to measure costs associated with episodes of  care or the costs, within a specific time period, associated with the  patients in a physician’s practice; and what criteria to use to define  inefficient practice patterns.
As for ways CMS could use profiling results, actions taken by other health  care purchasers we interviewed may be instructive in suggesting future  directions for Medicare. For example, all purchasers in our study used  physician education as part of their strategy to change behavior.  Educational outreach to physicians has been a long-standing and  widespread activity in Medicare as a means to change physician behavior  based on profiling efforts to identify improper billing practices and  potential fraud. Outreach includes letters sent to physicians alerting them  to billing practices that are inappropriate. In some cases, physicians are  given comparative information on how the physician varies from other  physicians in the same specialty or locality with respect to use of a certain  service.
A physician education effort based on efficiency profiling would therefore  not be a foreign concept in Medicare. For example, CMS could provide  physicians a report that compares their practice’s efficiency with that of  their peers. This would enable physicians to see whether their practice  style is outside the norm. In its March 2005 report to the Congress,  MedPAC recommended that CMS measure resource use by physicians and  share the results with them on a confidential basis. MedPAC suggested  that such an approach would enable CMS to gain experience in examining  resource use measures and identifying ways to refine them while affording  physicians the opportunity to change inefficient practices. In commenting  on a draft of our report, CMS noted that the agency would incur significant  recurring costs in developing reports on physician resource use and  disseminating them nationwide. We agree that any such undertaking  would need to be adequately funded.
Another application of profiling results used by the purchasers we spoke  with entailed sharing comparative information with enrollees. CMS has  considerable experience comparing certain providers on quality measures  and posting the results to a Web site. Currently, Medicare Web sites with  comparative information exist for hospitals, nursing homes, home health  care agencies, dialysis facilities, and managed care plans. In its March 2005  report to the Congress, MedPAC noted that CMS could share results of  physician performance measurement with beneficiaries once the agency  gained sufficient experience with its physician measurement tools.
Several structural features of the Medicare program would appear to pose  challenges to the use of other strategies designed to encourage efficiency.  These features include a beneficiary’s freedom to choose any licensed  physician permitted to be paid by Medicare; the lack of authority to  exclude physicians from participating in Medicare unless they engage in  unlawful, abusive, or unprofessional practices; and a physician payment  system that does not take into account the efficiency of the care provided.  Under these provisions, CMS would not likely be able—in the absence of  additional legislative authority—to assign physicians to tiers associated  with varying beneficiary copayments, tie fee updates of individual  physicians to meeting performance standards, or exclude physicians who  do not meet practice efficiency and quality criteria. In commenting on our  draft report, CMS was silent with regard to the need for legislative  authority. The agency noted that it is studying and implementing initiatives  that link assessment of physician performance to financial and other  incentives, such as public reporting.
Regardless of the use made of physician profiling results, the involvement  of, and acceptance by, the physician community and other stakeholders of  any actions taken is critical. Several purchasers described how they had  worked to get physician buy-in. They explained their methods to  physicians and shared data with them to increase physicians’ familiarity  with and confidence in the purchasers’ profiling. CMS has several avenues  for obtaining the input of the physician community. Among them is the  federal rule-making process, which generally provides a comment period  for all parties affected by prospective policy changes. In addition, CMS  forms federal advisory committees—including ones composed of  physicians and other health care practitioners—that regularly provide it  with advice and recommendations concerning regulatory and other policy  decisions.
Having considered the tools CMS has available and the structural  challenges the agency would likely face in seeking to implement certain  incentives used by other purchasers, we recommended in our April 2007  report that the Administrator of CMS develop a profiling system—seeking  legislative authority, as necessary—that includes the following elements:  total Medicare expenditures as the basis for measuring efficiency,    adjustments for differences in patients’ health status,    empirically based standards that set the parameters of efficiency,    a physician education program that explains to physicians how the  profiling system works and how their efficiency measures compare with  those of their peers,  financial or other incentives for individual physicians to improve the  efficiency of the care they provide, and    methods for measuring the impact of physician profiling on program  spending and physician behavior.
section_title: Concluding Observations
paragraphs: Policymakers have expressed interest in linking physician performance to  Medicare payment so that incentives under FFS for physicians to practice  inefficiently can be reversed. In our view, Medicare should adopt an  approach that relies not only on physician education but also financial or  other incentives—such as discouraging patients from obtaining care from  physicians who are determined to be inefficient. A primary virtue of  profiling is that, coupled with incentives to encourage efficiency, it can  create a system that operates at the individual physician level. In this way,  profiling can address a principal criticism of the SGR system, which only  operates at the aggregate physician level. Although any savings from  physician profiling alone would clearly not be sufficient to correct  Medicare’s long-term fiscal imbalance, it could be an important part of a  package of reforms aimed at future program sustainability.
Mr. Chairman, this concludes my prepared remarks. I will be pleased to  answer any questions you or the Subcommittee Members may have.
section_title: GAO Contacts and Acknowledgments
paragraphs: For future contacts regarding this testimony, please contact A. Bruce  Steinwald at (202) 512-7101 or at steinwalda@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. Other individuals who made key  contributions include Phyllis Thorburn, Assistant Director; Todd  Anderson; Hannah Fein; Richard Lipinski; and Eric Wedum.
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