November 30, 2007

1. Senate Attempts Action on Physician Pay Cut as Effective Date Nears

2. CMS Proposes Hospital Payment Plan Tied to Quality Measures

1. Senate Attempts Action on Physician Pay Cut as Effective Date Nears

The Senate Finance Committee is considering legislation to reverse the 10% Medicare physician pay cut scheduled to take effect January 1, 2008. The bill is slated to be marked up during the first week of December.

The measure, drafted over the Thanksgiving break by staff members from the offices of Senate Finance Committee Chair Max Baucus (D-MT) and ranking Republican member Senator Charles E. Grassley (R-IA), would provide either a one- or two-year postponement in cuts to Medicare reimbursements to physicians. Financing under this measure is expected to come from a cut in payments to Medicare Advantage, the Medicare capitated plan. Depending on the size of the physician pay package, payments to other Medicare providers might also be reduced.

While Senator Baucus is pushing for a two-year delay, most Republicans are voicing support for a one-year delay in reluctance to cut payments for private insurers. Representatives from the medical community have made it clear that they are not interested in addressing this issue annually. According to American College of Physicians President David C. Dale, MD, another one-year payment cut reversal is not good enough. “We have been fighting this annual battle over and over again. The Senate needs to join the House in passing legislation that will pay for positive updates in the next two years.”

For now, the House of Representatives continues to stand by provisions to address the physician pay cut that were included in August in its State Children’s Health Insurance Program reauthorization bill (HR 3162). The House provisions would increase reimbursement by 0.5% in both 2008 and 2009.

2. CMS Proposes Hospital Payment Plan Tied to Quality Measures

The Centers for Medicare & Medicaid Services (CMS) presented a proposal to Congress Monday, November 26, 2007, that would alter the Medicare hospital payment system by tying payments to quality of care. The proposal—presented in a congressional report mandated by the Deficit Reduction Act of 2005 (PL 109-171)—would cut Medicare hospital payments by 2 to 5% to create an incentive fund to reward hospitals that meet quality standards or show significant improvement in quality of care measures. According to the report, “value-based purchasing, which links payment to performance, is a key policy mechanism that CMS is proposing to transform Medicare from a passive payer of claims to an active purchaser of care.”

According to the proposal, CMS would award incentive funds to hospitals based on their “total performance scores.” The scores would track patient outcomes, compliance with clinical practices in treating certain conditions, patient satisfaction, and other measures. The proposal also includes a public reporting provision; information on hospital quality of care assessments would be posted on Medicare’s hospital compliance website. The finalized plan would have to garner congressional approval and would take approximately three years to implement.

Senate Finance Committee Chair Charles Grassley (R-IA) commented on the proposal, stating that value-based payment structures are the “kind of reform that every branch of our government ought to go after with full force.” However, while representatives of the hospital system support CMS’ efforts to improve the quality of care patients receive, some are concerned about the particular approach the agency is taking. According to Jayne Hart Chambers, Senior Vice President for the Federation of American Hospitals, “The Federation really believes there needs to be a new pool of money for the incentive payments and that the funds not come out of the base [diagnostic refuted group] DRG rate because you’re injuring the hospitals that need the funds to do the improvement.”

In a press release, the American Hospital Association (AHA) agreed that the across the board cut in payments could potentially harm many hospitals financially. AHA would prefer if CMS used new funds to create the incentive pool; however, the CMS report states that pay-for-performance measures must not increase Medicare spending.

The Alliance for Academic Internal Medicine—the nation’s largest academically focused specialty organization—consists of the Association of Professors of Medicine, the Association of Program Directors in Internal Medicine, the Association of Subspecialty Professors, the Clerkship Directors in Internal Medicine, and the Administrators of Internal Medicine.

Please contact AAIM Vice President for Policy Charles P. Clayton (cclayton@im.org), AAIM Policy Associate Nicole V. Baptista (nbaptista@im.org), or AAIM Policy Assistant Allison L. Haupt (ahaupt@im.org) at (202) 861-9351 with questions or comments about this week’s Merlin.