My name is Hugh H. Trout III, MD, FACS, and I am here today representing the American College of Surgeons. The College represents 66,000 surgeons of all specialties. I am a vascular surgeon in private practice in Bethesda, Maryland. Today I want to present the College's positions on the sustainable growth rate (SGR) and medical liability premiums.
Sustainable Growth Rate
The SGR is a growth rate intended to control the growth in Medicare physician spending. The SGR is equal to the product of the following factors:
- The estimated change in fees for physician's services
- The estimated change in beneficiaries enrolled in Medicare's fee-for-service program
- The estimated growth in real gross domestic product (GDP) per capita
- The estimated change in expenditures due to law and regulation.
If actual spending is less than the SGR, physicians receive a positive update but if actual spending is more than the SGR, physicians receive a lower update of that can be up to seven percentage points below the Medicare Economic Index (MEI).
The College continues to stand by all of its previous statements regarding the many areas where CMS has discretion in constructing the SGR. Today, however, the College wants to concentrate on two things: administratively removing drugs from the SGR and legislatively adjusting the SGR to account for the 1.5 percent increase in the conversion factor.
The SGR calculation includes not only physicians' services but also services and supplies furnished incident to a physicians' services, such as drugs. According to the final rule for the Medicare Fee Schedule (published in the Federal Register of November 11, 2003), drugs make up 12.3 percent of allowed charges included in calculating the SGR for 2004.
Furthermore, drug spending is increasing rapidly. Drug spending was 8.7 percent of Medicare spending that was used in calculating the SGR for 2002, meaning that there was a 41 percent increase in two years. It is worth noting that in 2002, the last year for which data is available, there were 20 drugs in the 100 fastest growing services. This growth was greater than the other two categories of SGR spending—laboratory services and physician services. Furthermore, spending for major procedures has remained constant.
The growth in drug utilization has been largely a result of the introduction of new and generally very expensive drugs. New drugs are going to continue to be introduced and with life expectancy continuing to grow, people will use drugs for chronic conditions longer. With all of these factors taken together, we believe the spending on drugs is likely to continue to grow for many years.
Finally, the use of drugs varies significantly by specialty. According to the Federal Register of January 7, 2004, six specialties received more than 40 percent of their Medicare income from drugs. Those specialties were gynecology/oncology, rheumatology, urology, hematology, hematology/oncology and medical oncology. Sixteen specialties, including the large specialties of internal medicine, family practice, general practice, obstetrics-gynecology, and general surgery, had five percent or less of their Medicare income from drugs. Thus the administration of drugs by a few specialties of small size has the unintended consequence of reducing payment for all specialties.
CMS clearly has the authority to remove drugs from the SGR calculation. At one time two different definitions of "physicians' services" appeared in statute—one that applied generally to the fee schedule and one that only applied to computing the SGR. The one that applied generally to the fee schedule permitted the Secretary some discretion to define in regulation what to include. In the final fee schedule regulation for 1992, drugs were excluded from the definition of "physicians' services" The other definition, the one that applied to computing the SGR, did include drugs. However, the Deficit Reduction Act of 1997 deleted the section containing that reference. Consequently, many would argue that CMS must remove drugs from the SGR calculation.
Our second concern with the SGR involves the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) which contained a provision giving physicians a positive update of 1.5 percent in 2004 and 2005. Ironically, the law went on to say this modification is not to be reflected in the SGR calculation as a change in law. No rationale is offered in the report language. This sabotages the point of the SGR by keeping it from rising to reflect legitimate increases in spending originating in the law. By not adjusting the SGR to account for this increase in spending, expenditures will far exceed the SGR and the result will be years of negative updates. On the other hand, if fundamental changes in the update can be agreed to, the cost of making the changes will be artificially inflated by not including the updates in 2004 and 2005 in the SGR. It is entirely possible that this "cliff" will be so great that it will cause the defeat of a proposal which is otherwise acceptable.
In summary, we have a situation where drugs represent 12.3 percent of the SGR, spending is growing very rapidly, and it will continue to rise for the foreseeable future. In addition the SGR operates in such a way that all physicians stand to loose for the actions of a few. We believe that the best solution is to take drugs out of the SGR and would appreciate a discussion of this in the proposed notice to be published later this year. In addition, the College believes that a legislative fix is urgently needed to adjust the SGR for the 1.5 percent update in 2004 and 2005, and urges PPAC to recommend that CMS join us in seeking to change this unfortunate and misguided provision of the legislation.
Medical Liability
A year ago when I appeared before PPAC, one topic I addressed was the liability crisis that was spreading rapidly. I said at that time
In a growing number of states, surgeons are having difficulty obtaining medical liability insurance, and for those who are able to find coverage the cost is often prohibitively high. The large premium increases and declining number of liability insurance carriers are forcing many surgeons to make difficult decisions about limiting the scope of their practice, moving to other states, or retiring early.
That is still true, with 19 states in crisis and insurers in state after state raising their rates or ceasing to offer certain kinds of coverage.
Last year I asked, and PPAC recommended to CMS, that we take up the refinement of the malpractice relative value units (RVUs) in 2004 rather than 2005. Unfortunately, CMS did not respond to that request. However, they did review and adjust the malpractice Geographical Practice Cost Index (GPCI), using 2002 actual premiums for most states and estimates based on historical data for the remainder. We want to thank CMS for doing that.
As we move toward re-basing of the malpractice RVUs, we cannot emphasize enough how important it is for CMS to ensure that the resource-based payment system reflects the costs involved. Since the Medicare fee schedule is used as the basis for determining payments for many insurers, it is critical for the entire health care system—not just Medicare—that these costs be accounted for appropriately.
The College believes it is important that CMS and the specialty societies put a great deal of work into the 5-year review of malpractice RVUs. We need to consider whether the current method of allocating RVUs is appropriate or whether some alternative would better meet physicians' needs. Toward this end, we believe the agency should present options and invite public comment on various approaches to refinement in the proposed notice for 2005. For example, CMS said in the final rule for 2000 that it will consider the alternative methodology suggested by the neurosurgeons during future refinement of malpractice RVUs.
We urge PPAC to recommend that the proposed rule for 2005 include a more detailed description of the neurosurgeons' option and the other alternatives that are being considered for the malpractice RVUs. We also urge PPAC to recommend that specialties be invited to submit alternative methodologies in the proposed rule.
Thank you for the opportunity to provide testimony. I will be happy to answer any questions you have.
