Statement of Robert Berenson, M.D., Senior Fellow, Urban Institute
Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means
September 29, 2005
I would like to thank Chairman Johnson and members of the Subcommittee on Health of the Ways and Means Committee for the opportunity to testify on the Chairman’s Medicare Value-Based Purchasing of Physicians’ Services Act of 2005. For over two decades, I have followed the evolution of Medicare’s policies for compensating physicians under part B – as a practicing internist, a medical director of a preferred provider organization responsible for the physician fee schedule, a senior official in the Centers of Medicare and Medicaid Services overseeing payment policy for all providers, and a policy analyst and commentator.
I have had the opportunity of looking at the issues that H.R. 3617 raises from virtually all sides and conclude that although pay-for-performance efforts are important and show promise, they should not be viewed as a substitute for the flawed sustainable growth rate mechanism for controlling physician spending. There are important and largely overlooked issues in the underlying payment system that have been all but ignored in this debate and which are long overdue for attention.
First Steps on Pay-For-Performance
I have written approvingly of pay-for-performance (P4P) as a new departure for Medicare and other purchasers and plans to promote improved quality of care. Given the disappointing state of quality, where it can be measured, providing incentives for physicians to do better seems an appropriate response. As the payer that often influences market directions, Medicare can play a uniquely important role in leading this activity in collaboration with other purchasers. Indeed, two years ago a group of highly respected health care leaders from across the ideological spectrum agreed in an open letter in Health Affairs that Medicare should lead on P4P. A particularly desirable attribute of P4P is holding providers accountable against validated measures of performance, rather than just paying claims for services rendered.
The presence of validated and useful measures, as well as an evolving culture that has accepted the desirability of meeting objective performance measures, means that certain providers are ready to participate in such a system. For health plans, the nearly two decades old work on HEDIS and CAHPS measures and the tedious but essential implementation work under the leadership of the National Committee for Quality Assurance suggests that P4P can be a useful approach to rewarding performance and improvement by Medicare Advantage plans. In addition, ESRD providers are ripe for P4P because of the presence of widely accepted process measures that are good predictors of the outcomes of dialysis. In fact, MedPAC recommended that P4P commence in Medicare with these two provider categories.
I have mixed views about the readiness of hospitals for P4P, but the Premier demonstration seems to be off to a good start, and, importantly, the expectations of what P4P can accomplish in the hospital sector are appropriately limited; that is, the marginal incentive for hospitals to meet explicit performance on the core CMS measures are not integral to hospitals’ basic reimbursement. Importantly, the basic approach to hospital payment relies on prospective payment through case rates – diagnosis related groups (DRGs). Although, as we all learned through the MedPAC study of specialty hospitals, DRG payments can be skewed and create distorted incentives for hospitals to emphasize certain services at the expense of others, nevertheless, the hospital prospective payment system creates the basic incentives for hospitals to improve efficiency, at least in caring for the patients that enter through their doors. P4P is not looked to for the purpose of improving hospital efficiency.
Physician Pay-For-Performance
Which brings me to the subject of today’s hearing – pay-for-performance for physicians in Medicare. Here, I would make a point about terminology. I have chosen to use the term pay-for-performance rather than value-based purchasing, the term that the Chairman has adopted to title the proposed bill. I believe value-based purchasing is a much broader concept than pay-for-performance, which is but one of many strategies that a value-based purchaser might adopt.
I generally applaud the goal of measuring physician performance, holding physicians accountable for deviations from desired performance, and through publication of performance, helping Medicare beneficiaries make informed choices about which physicians they should seek care from. However, there are formidable barriers to assessing performance at the individual physician level. Further, in the crucial areas of overuse and inefficient provision of services and in misuse, that is, errors of commission and faulty judgment, measures are in their infancy.
Physician pay-for-performance faces unique barriers in Medicare because of certain characteristics of the Medicare beneficiary population. In an important article that appeared last month in the Journal of the American Medical Association, a group at Johns Hopkins cogently argued that most clinical practice guidelines (CPGs) and performance measures focus on single conditions, failing to recognize that many Medicare beneficiaries have multiple chronic conditions, not just a single one for which most guidelines and measures are directed. The authors concluded, “Basing standards for quality of care and pay for performance on existing CPGs could lead to inappropriate judgment of the care provided to older individuals with complex comorbidities and could create perverse incentives that emphasize the wrong aspects of care for this population and diminish the quality of their care.”[1] It will take years to develop validated measures relevant to the large number of beneficiaries with complex comorbidities.
A related issue is that most CPG and P4P measures are relevant to younger populations. For an 85 year-old, measures that focus on primary and secondary prevention are not particularly relevant, whereas measures appropriate to geriatric syndromes, e.g. reducing falls, addressing incontinence and chronic pain, deserve priority. I recognize that H.R. 3617 calls for measures that address issues related to frail elderly and those with multiple chronic conditions, but the work to develop age-relevant performance measures is just beginning.
One P4P initiative that seems to be on the right track is the California-based activity under the auspices of the Integrated Healthcare Association. However, it is important to identify the unique aspects of IHA that suggest to me it will not be simple to replicate the approach in Medicare. The IHA initiative assigns accountability to relatively large multi-specialty medical groups contracting with health plans under capitation arrangements that, similar to DRGs for hospitals, transfers financial risk to the provider group. The fundamental approach to promoting cost conscious physician behavior resides in the basic professional capitation payment to the groups. In this context, P4P provides an important complement by looking for and measuring possibly substantial under-use of services, which is a potential byproduct of incentives that could lead to withholding needed care. Importantly, there are reasonable process measures of under-use for certain important diseases that also supports the goals of the IHA initiative.
In contrast, the Medicare physician payment system and, outside of California and a few other places, the physician payment system used by most private insurers based on a fee-for-service (FFS) model. The payments reimburse for transactions, not for population-based health care, and the powerful, inherent incentives in FFS reimbursements are to drive up volume. Recent data from both Medicare and private payers document that that is exactly what is happening – to unsustainable levels. In this fee-for-transactions environment, the validated P4P measures that mostly address primary and secondary prevention services and patient experiences likely will have little effect on utilization and spending even as they improve patient outcomes. Further, where patients have free choice of physician at the point of service, as in Medicare, PPOs and, now, many HMOs, patients obtain care in an a la carte fashion, providing no easy way to assign the responsibility for performance. It is far easier to attribute performance against specified measures to multi-specialty groups that assume responsibility for individuals who designate them as their source of care than to independent physicians who take patients one by one and face no incentives to conserve resources. Physicians are supposed to meet the standards of care of their specialty, not assure that patients actually have good outcomes at a reasonable cost. Thus, pay for performance offers some promise as a tool to move physician orientation to actually meeting patients’ needs. We will see.
In short, physician P4P faces formidable barriers in Medicare, as it does for most private plans. For all the P4P talk, the current round of Center for Studying Health System Change (HSC) Community Tracking Study site visits found that physician P4P was underway robustly only in 2 of the 12 metropolitan areas that it tracks – in Orange County, in the heart of the delegated capitation model of care and in Boston, where there are large physician groups, often attached to the major teaching hospitals.[2] Although Medicare surely could lead on P4P, I doubt that P4P is ready for the decisive role envisioned for it under the Chairman’s proposed legislation, a role that sees it as a substitute for the flawed sustainable growth rate (SGR) formula for holding down Part B expenditures.
P4P is Not a Substitute for the Troubled SGR Mechanism
The SGR needs to be reformed or replaced. While significant changes are needed, current P4P measures that focus on under-use of preventive services simply will not serve as a substitute for the SGR mechanism for constraining physician spending in Medicare. The well-intentioned attempt, unfortunately, strikes me as a classic example of the “tail wagging the dog.” By that I mean that the engine that drives physician behavior is the financial incentive to increase volume. Physicians, especially those who may be knowingly taking advantage of the system, will surely ignore any marginal payment incentive of 1 or 2 percent if the behavior to gain the marginal income conflicts fundamentally with the underlying incentives in the payment system. It would be much easier to do an extra test, see an extra patient, or – of most concern – upcode visits to make up for what otherwise might be lost under such a scenario. While there is no conflict between the underlying payment incentives and a P4P approach that rewards more care, that won’t contain costs or limit inappropriate utilization. To the contrary, it might increase spending, albeit for desired activities.
But on issues of overuse, I suggest that the conflict does exist. For example, in Medicare spending for advanced imaging services increased last year by 25 percent. Because much of the costs associated with imaging services are fixed and able to be spread over the number of imaging services provided, those providing these services have every incentive to suggest the need for additional, discretionary imaging services. And referring physicians, for various reasons, face no constraint on ordering imaging services that, importantly, do no harm, except to taxpayers and the relatively few beneficiaries without supplemental insurance who actually have to pay a co-payment. Thus, even if we could reliably measure overuse, I am skeptical that physicians will markedly change their behavior to respond to a modest 1-2 percent change in payment.
In short, pay-for-performance is a worthy initiative and I applaud the goal of trying to produce relevant and validated measures for each specialty. However, I expect that this objective done correctly would take many years. The current state of measurement and structural impediments to P4P effectiveness does not constitute an acceptable substitute for the SGR, which I think we all agree needs to be replaced.
The RBRVS System Needs A Comprehensive Review
I am concerned that the attention on P4P is distracting both policy makers and the medical profession from addressing what are increasingly apparent flaws in the resource-based relative value scale (RBRVS)-based payment system that controls physician payment in Medicare and, in somewhat altered forms, in private health plans.
As suggested earlier, a value-based purchaser asks whether it is obtaining the right kind and mix of services, of acceptable quality, for the right cost. For example, a value-based purchaser would not simply defer to the medical profession to determine the mix and relative value of services provided by the profession, the explicit concept that underlies the RBRVS-based payment system. Further, a value-based purchaser would feel no obligation to provide payment bonuses to all specialties if the areas of that need improvement could be affected by a subset of physicians. The goal of value-based purchasing, with P4P as but one strategy, should be to provide greater value for beneficiaries and taxpayers, not to promote equitable access to bonus payments for physicians, which seems to be the American Medical Association’s position. Thus, P4P should be seen a means to the end of getting greater value for money spent and not as an end in itself, that is, to measure and reward for the sake of measuring and rewarding.
Given the problems in the Medicare physician payment approach that preceded RBRVS, basing payment on dollar estimates of work and practice overhead, rather than historic charges, was a clear improvement. And in the first decade of implementation beginning in 1992, the volume control mechanisms that limited spending functioned reasonably well. Unfortunately, those days are over.
Briefly, Medicare’s physician payment system is facing fundamental problems that pay-for-performance alone will not address and to which few policymakers seems to have paid attention in recent years.
- Disconnect between costs and payments. For many services, payments bear poor relation to underlying cost of production. The MedPAC finding that skewed DRG payments were distorting market behavior in relation to specialty hospital development is surely also true in relation to physician payments. Recently, Paul Ginsburg and Joy Grossman of the Center for Studying Health System Change wrote about this phenomenon of distorted payments in relation to hospital and ambulatory care based upon recent findings from the 12 HSC Community Tracking Sites.[3] I am currently reviewing HSC interviews from the fifth round of site visits that demonstrate that physician behavior too often reflects a strong bias toward performing procedures, even leading them to be unavailable to perform the consultative role that specialists traditionally have performed. For example, in some sites, gastroenterologists have stopped caring for complex hospitalized patients, preferring to perform routine endoscopies in ambulatory endoscopy suites in which they are likely to have ownership interests. In short, physicians respond to economic incentives, which has distorted physician behavior, resulting in the provision of an inappropriate mix of services. MedPAC has identified the issue of mispricing of physician services and plans to study it in detail in the near future.[4]
One of the explicit objectives of the RBRVS system based on work performed by William Hsiao and colleagues, was to redistribute from procedural and technical services to what were then called “cognitive” services and now “evaluation and management” services. Although there was initial redistribution in implementing the RBRVS system in 1992, a preliminary Urban Institute study I helped produce for MedPAC demonstrated that desired redistribution progress has stopped for a number of reasons.[5]
Compounding the problem within the physician fee schedule is the apparent overpayment in facility fees, which are paid separately from the physician fee schedule, As a result, many physicians now invest in ambulatory surgery centers, endoscopy suites, and diagnostic imaging and testing centers. In short, to make up for what they consider inadequate professional fees, in particular for their time associated with patient visits and consultations, physicians increasingly are becoming entrepreneurs, able to self-refer to increase volume and revenues. Thus, in any serious attempt to fix the SGR mechanism, consideration should be given to redirecting savings from reducing overly generous facility fees to the pool of dollars that physicians can receive for their professional services, so that physicians can again resume their roles of acting in their patients’ best interests and performing services they have been trained for, rather than feel a need to self-refer to support their investments. Again, MedPAC is doing some work in this area, at least with respect to examining site-of-service differentials.
- Volume or cost control. Many have described the problems of the SGR as the mechanism for controlling physician expenditures. Preceding the SGR was the Volume Performance Standard (VPS), which had problems as well, but was reasonably successful in the face of the daunting volume incentives that fee-for-service provides. I believe one of the problems in both approaches is that the volume control is applied at a national level. When prices are cut as a result of national volume controls, an individual physician’s incentive is to increase services that do no harm to patients, of which there are many. Thus, prudent physicians are penalized and profligate ones are rewarded. This reality does provide a strong rationale for individual level assessments of utilization as performance measurement attempts to do. But again, the physician who is increasing volume to increase revenues that go to the bottom line is unlikely to respond to a P4P incentive of a percentage point or two to restrain volume.
Interestingly, in recommending a national volume control mechanism that was subsequently adopted in statute as the VPS, the Physician Payment Review Committee (PPRC) understood that a control mechanism applied nationally was a crude approach. In 1989, the PPRC expressed hope that organized medicine would step up to the challenge of developing clinical practice guidelines, enhanced peer review and other professionally-grounded approaches to reducing excessive volume. That never happened. PPRC also discussed moving to specialty specific and geographic volume performance standards to target price cuts to where the excessive volume was taking place. That never happened either.
And now, more than fifteen years later, we understand through the work of Jack Wennberg, Elliot Fisher and their colleagues that geographic variations in volume of physician services do not produce important differences in quality. We are spending too much in particular geographic areas, but the volume controls are being applied nationally. Further, not all services are rising at unacceptable rates. The volume of major surgical procedures is not rising out of control; nor are doctor visits. Yet, the SGR spreads the pain of price cuts indiscriminately. In short, the SGR mechanism is broken, but as long as Medicare reimburses for professionally-determined transactions, there needs to be more targeted volume control mechanisms to address inflationary spending. We are asking too much of P4P to do the job of controlling volume increases and the accompanying unsustainable spending increases.
- Lack of care coordination for beneficiaries with chronic conditions. The current physician payment system does virtually nothing to promote care coordination by physicians and their offices for the increasing numbers of beneficiaries with multiple chronic conditions. These patients typically see numerous unconnected physicians and other health professionals and may take ten or more prescription and OTC drugs without supervision. The Chairman knows of my interest in this area. I have had the privilege of testifying here on how to improve the provision of services to beneficiaries with chronic illnesses, and I applaud the Chairman for her interest in helping enact important pilots and demonstrations in the Medicare Modernization Act that are now proceeding. Nevertheless, I continue to believe that physicians have a crucial role to play in being part of teams that address the care for patients with multiple chronic conditions. To achieve that objective, basic payment policy must provide incentives for physicians to spend some of their professional time and to allow others working under physician supervision to take part in care coordination activities.
Simply, the Current Procedural Terminology (CPT) coding system that Medicare and private payers use does not address care management and care coordination. Frankly, care coordination is not an easy thing to define and pay for. Nevertheless, a value-based purchaser would ask how to promote the set of activities that Ed Wagner and colleagues have delineated to constitute good chronic care management. At the same time a value purchaser would try to offset that new spending by reducing the volume of services that are serving no useful purpose, such as intensive care unit stays for many patients in their last weeks and months of life.
I am not recommending arbitrarily limits on what services patients are eligible for. But I am suggesting that relative values that determine physician payments should be adjusted to try to accomplish policy goals, such as reorienting the care of those with end-stage chronic conditions to palliation and caring, rather than curative interventions. Pay- for-performance might be able to contribute to achieving this reorientation. But the real action is in the nitty-gritty coding and payment policy that has seemed on automatic pilot for the past decade.
Conclusion
In summary, I think measuring physician performance and moving to greater accountability for that performance is a desirable goal. But I am concerned that inflated expectations about what pay-for-performance can achieve has diverted attention from the increasingly evident problems with many aspects of the basic physician payment system. In particular, P4P currently does not provide a plausible mechanism for controlling the volume of or spending on physician services. The RBRVS-based payment approach has been a very important alternative to what came before and worked well initially. But a number of problems with the RBRVS conceptual foundation and its implementation have now become apparent. MedPAC has identified some of the issues that I have briefly discussed above, with tentative plans to explore them in greater detail.
Measurement of physician performance and attempts to pay differentially for performance should proceed, but P4P currently will not address soaring volume increases of certain physician services in particular geographic areas. P4P should not distract the committee from a long overdue look at the basic payment system. As part of that review, I believe better alternatives to the SGR will be found. And until we have a solution, I think it unwise to simply repeal the SGR.
[1] Cynthia M. Boyd, et al., Clinical Practice Guidelines and Quality of Care for Older Patients With Multiple Comorbid Diseases. JAMA 294(6): 716-723.
[2] Cara S. Lesser, Paul B. Ginsburg and Laurie E. Felland, Initial Findings from HSC’s 2005 Site Visits: Stage Set for Growing Health Care Cost and Access Problems. Center for Studying Health System Change, Issue Brief 97, August 2005.
[3]Paul B. Ginsburg and Joy M. Grossman When The Price Isn’t Right: How Inadvertent Payment Incentives Drive Medical CareHealth Affairs Web Exclusive, August 9, 2005
[4] Chapter 9: Review of CMS’s Preliminary Estimate of the Physician Update for 2006 in “Report to the Congress: Issues in a Modernized Medicare Program” MedPAC, June 2005.
[5] MedPAC Report, June 2005.