Surgeons Respond to MedPAC Reports, Propose Solution to
Medicare Physician Payment Problem

WASHINGTON, DC—With eight years of payment cuts looming overhead and Medicare patient access in jeopardy, the Medicare Payment Advisory Commission (MedPAC) today released a Congressionally-mandated report on alternatives to the sustainable growth rate (SGR) formula. The SGR sets payment levels for physician services provided under Medicare Part B. In five of the past six years, Congress overrode the SGR formula at the last minute to prevent payment cuts and preserve beneficiary access. With bi-partisan, bi-cameral support, Congress asked MedPAC to propose solutions to this ongoing problem.

“Congress has studied this problem, asked for and received reports, and heard hours of testimony,” said Dr. Thomas R. Russell, executive director of the American College of Surgeons. “It is now time to take action. Medicare’s unstable and unpredictable payment system is causing a crisis in American healthcare, and we cannot continue to punt this problem to another year.”

Instead of proposing a solution, MedPAC opines on the negative and positive aspects of eight possible solutions and, finding none perfect, lays out two possible paths Congress may want to follow. Under the first alternative, MedPAC recommends repealing the unworkable SGR and replacing it with an inflation-based update while simultaneously making adjustments to the overall payment system, including implementing quality improvement programs and policies targeting spending outliers. MedPAC acknowledges this option would be very expensive and would not provide any sort of control on overall spending. Under the second option, MedPAC suggests expanding the idea of an expenditure target to all healthcare providers and setting up geographically based target areas.

“We, of course, support repeal of the SGR,” Dr. Russell said. “We are perplexed as to why MedPAC would one minute state the SGR is broken and unsustainable and in the next breath recommend extending it to all healthcare providers. If it is broken, fix it; don’t expand it. We also have considerable reservations about a geographically based payment system. Anytime a policy diverts money from one part of the country to give to another, it becomes a political nightmare. In addition, while the comprehensive program MedPAC lays out is interesting, if not appealing, it is overwhelmingly complex, will require a complete overhaul of the entire U.S. healthcare system and will take decades to implement. Surgeons and their patients cannot wait that long.”

In the event Congress insists on keeping some kind of expenditure target system for physician services, the American College of Surgeons (ACS) and the American Osteopathic Association (AOA) are proposing an alternative solution to the toxic SGR formula. The proposal – dubbed the Service Category Growth Rate (SCGR) – would divide physician services into six distinct categories with their own growth allowances and payment structures. The proposal is aimed at alleviating the payment cuts that plague the system year after year while allowing for flexibility in controlling spending and implementing value-based purchasing.

“Everyone acknowledges that the current SGR formula is broken and unsustainable,” Dr. Russell said. “Congress has asked for solutions and the ACS and AOA have developed a solution that addresses the one-size-fits-all approach taken by the SGR. This system acknowledges that growth in some areas like preventative services, disease management and follow-up care is good for patients and good for the overall health of the Medicare program. Right now, the SGR treats all volume growth as bad. If one area grows, all physicians must pay. The SGR is indiscriminate, unrealistic and untenable.”

Under the SGR, Medicare physician reimbursement was cut 5.4 percent in 2002 and Congress overrode the formula and prevented additional cuts in 2003, 2004, 2005, 2006 and 2007. A payment cut of 10 percent will go into effect on January 1, 2008, with additional cuts of 40 percent predicted by 2015. Approximately 50 percent of the cuts are caused by increases in the volume of services being provided to Medicare beneficiaries, with large increases in office visits, imaging and lab tests driving the increased utilization. The remainder of the reductions is related to the action Congress took to prevent cuts in 2004-2006.

Unlike the SGR, the SCGR proposal would allow Congress and the Medicare program to analyze and control volume growth for specific services. For example, under the proposal, evaluation and management services would be allowed to grow at a rate double that of other service areas like surgery.

In order to bring more stability to the system, the proposal includes a floor and ceiling on the yearly updates each of the Part B service areas can sustain in a given year. The six service categories include: evaluation and management services; major procedures and related anesthesia; minor procedures; radiology and diagnostic tests; diagnostic lab tests; and physician-administered drugs. This structure would also allow for flexibility in implementing value-based purchasing, or pay-for-performance programs.

“The College supports quality initiatives. Right now I think performance measurement is having trouble getting off the ground because we are trying to stick a bunch of different size square pegs into one large hole,” Dr. Russell said. “There is no one set of common performance measures that cover every service provided under Medicare Part B. For primary care, the quality focus is often on patient management and process while in surgery it is on outcome and the surgical team and for labs it is on efficiency and accuracy. Under the SCGR, each category can have its own set of performance measures and even its own structure for implementing value-based purchasing.”

The proposal would allow the Medicare program to set aside funds for pay-for-performance incentive payments. The specific amount could vary by service category. While the proposal has not been scored, it is expected to cost considerably less than current proposals to repeal the SGR and replace it with an update based on the Medicare Economic Index. In addition, the SCGR includes a volume control mechanism, something both Congress and MedPAC have recommended.

Together, ACS and AOA represent more than 125,000 physicians, including both surgeons and primary care physicians.

“We believe this a viable option to the SGR, and we look forward to working with Congress, the Medicare program and other medical societies to implement legislation, prevent the upcoming payment cuts and lay the groundwork for an effective performance measurement program,” Dr. Russell said.

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The American College of Surgeons is a scientific and educational organization of surgeons that was founded in 1913 to raise the standards of surgical practice and to improve the care of the surgical patient. The College is dedicated to the ethical and competent practice of surgery. Its achievements have significantly influenced the course of scientific surgery in America and have established it as an important advocate for all surgical patients. The College has more than 71,000 members and is the largest organization of surgeons in the world. 

Online March 1, 2007

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