March 31, 2005—Physician care premiums for seniors could rise by $1.50 per month more than expected, the Centers for Medicare and Medicaid Services (CMS) announced Thursday. Medicare beneficiaries had already been expecting a significant 12 percent jump in their Medicare Part B care premiums, from $78.20 to $87.70. The previous year, monthly premiums rose 17 percent. "This is an area of major concern for us," said CMS administrator Mark B. McClellan.

CMS officials said that greater-than-anticipated spending for physician services would drive the number skyward more than they predicted just last week, when the Medicare trustees' report was released. The spending is largely related to an increase in the number and frequency of services such as MRI scans and lab tests that were performed, as well as an increase in the complexity of the tests.

"Continued rapid spending growth strains both beneficiaries' incomes and the federal budget," said Center for Medicare Management director Herb Kuhn in a letter to the panel that advises Congress on Medicare spending, the Medicare Payment Advisory Commission (MedPAC). McClellan emphasized that statement later in a phone call with reporters.

The higher costs for physician services also may complicate efforts to raise payment rates for doctors, acknowledged McClellan. "No question that higher spending levels make it more expensive to implement a legislative change that would increase the physician payment rate," he said.

The current Medicare formula is expected to result in cuts of about five percent per year over the next several years to doctors. Doctors have been pushing Congress for higher payments. Federal officials had been expecting that spending for physician services would be as high as 12 percent more in 2004 than 2003, but it turns out that the spending was actually 15 percent higher.

Much of the spending increase was tied to the "volume and intensity" of the services, which were at least twice as high as typically seen. American Medical Association Board Chair Dr. J. James Rohack said Congress must act now to replace "the flawed" Medicare physician payment formula which he said "penalizes physicians for providing necessary care to Medicare patients."

Conditions that once required hospitalization are now routinely treated in physicians' offices, which saves money for both patients and the government, Rohack said in a statement. "Medicare should recognize and reward these advances rather than penalize physicians for these important improvements in patient care," Rohack said.

Rep. John D. Dingell of Michigan, the ranking Democrat on the House Energy and Commerce Committee, said the CMS letter "shows an 8.5 percent increase in payments to HMOs while the physicians get a 4.3 percent decrease in payments—evidence that our priorities are upside down."

Both physicians and beneficiaries will be hurt, Dingell said. "The physicians lose money, while beneficiaries pay more. And the doctor-patient relationship will go the way of the dodo bird as HMOs, with the help of their Republican friends, grab more and more of Medicare."

Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, said lawmakers must overhaul the way Medicare pays physicians. "We need to find a physician payment system that works. Until then, it'll be increasingly difficult to find the resources needed for a long-term fix, if spending related to the physician fee schedule continues to increase," Grassley said in a statement.

In a House Ways and Means Health Subcommittee hearing two weeks ago, MedPAC Executive Commissioner Mark E. Miller said from 1999 to 2003, Medicare spending for imaging services paid to doctors grew over 60 percent, from $5.7 billion to $9.3 billion. Beneficiaries' spending on the services has increased as well, both directly through co-payments and indirectly through increased premiums for Medicare Part B.

Miller said diagnostic imaging services paid under the Medicare physician fee schedule grew faster than any other type of outpatient service between 1999 and 2003. While the sum of all physician services grew 22 percent in those years, imaging services grew 45 percent.

April 1, 2005—The Centers for Medicare and Medicaid Services posted quality performance data for "nearly all" the nation's hospitals Friday on its new "Hospital Compare" Web site. About 4,200 hospitals have reported data on at least 10 performance measures for posting on the site.

The comparisons also may be found at Medicare's main Web site or obtained by calling 1-800-Medicare.

The data allow consumers to compare local hospitals based on the care they give for heart attacks, heart failure, and pneumonia. Some hospitals are reporting data on up to 17 measures, CMS said. This is not a final product," CMS Administrator Mark B. McClellan emphasized. AFL-CIO lobbyist Gerald Shea, who praised the public-private effort that produced the data, said "another dozen measures are in the pipeline right now" in a phone briefing with reporters to announce the site.

Another participant in the project, American Hospital Association President Dick Davidson, said the comparisons also should eventually include surgical infection rates and mortality rates. McClellan said data on patient satisfaction and on infections acquired in the hospital should be posted within a year.

The intent of the initiative, the Hospital Quality Alliance, is not simply to inform consumers but also to give hospitals an incentive to improve their ratings. The data also are likely to be used as part of a "pay-for-performance" system that rewards higher quality care with higher payments. But McClellan wouldn't predict when such a system would begin.

Examples of the measures include the percentage of heart attack patients who get aspirin on arrival at the hospital, the percentage who receive angioplasty within 90 minutes of arrival, and the percentage of pneumonia patients who receive oxygen assessment tests.

Data submission is voluntary, but nearly all eligible hospitals reported data on at least 10 measures in order to qualify for higher payment increases this year.

April 1, 2005—Republicans are deeply divided over the tough trade-offs they must make among tax cuts, popular spending programs and deficit reduction as leaders begin trying this week to strike a bicameral budget deal. Conservatives view entitlement programs, such as Medicaid, as prime targets to help scale back government spending. However, when the Senate debated its budget blueprint (S Con Res 18) on the floor last month, senators voted to strike a chunk of the spending cuts the document called for, and also to dramatically increase its tax cut proposal.

Those two impulses—to avoid politically painful benefit reductions while also calling for more tax cuts—put the budget on a collision course with a faction of the Republican party deeply concerned about the deficit.

"Conservatives are split on whether the problem is big government or budget deficits," said Brian Riedl, a federal budget analyst at the conservative Heritage Foundation. "Both philosophies argue for spending cuts. But the deficit hawks see tax increases as an option as well, while those concerned with big government see spending cuts as the only real option."

The House fiscal 2006 budget resolution (H Con Res 95) called for $68.6 billion in cuts to mandatory spending programs over five years, a large number that is still not as aggressive as some conservatives would like.

But moderate Senate Republicans roundly rejected sizable spending cuts—and the politically risky reduction in services that would likely ensue. The Senate's budget blueprint hit the floor with $32 billion in proposed spending cuts. But senators voted to strike $15 billion in proposed cuts, most of which was expected to come from Medicaid, leaving only $17 billion in mandatory spending cuts.

If they are to resolve their differences in conference, Republicans will have to agree on how much they are willing to cut programs for the poor, while calling for tax cuts amid continuing deficits.

With expanded majorities in both chambers, President Bush in his second term and the next congressional election more than a year away, conservatives know that this may be their best chance to begin chipping away at entitlement programs. But those cuts depend upon adoption of a budget, which would provide protection from Senate filibusters, through the reconciliation process, for subsequent legislation to implement the cuts.

"The costs of not getting resolution are very high because that would kill reconciliation," said Riedl. Seven Republican senators joined all 44 Democrats and Sen. James M. Jeffords, I-Vt., in voting to cut instructions to the Senate Finance Committee to find $15 billion in savings through 2010, most of which would have come from Medicaid, the federal-state health insurance program for the poor and disabled.

Senators are under heavy pressure from governors of both parties to block any efforts to deeply cut the program.

Still, conservatives hope that senators like Gordon H. Smith, R-Ore., who sponsored the Senate amendment stripping Medicaid cuts from the budget proposal, will not oppose a budget conference report if some of the proposed cuts are restored.

Even after the Smith amendment was adopted, Senate GOP leaders were able to muster just 51 votes for final adoption of the budget on March 17. Advocates for Medicaid beneficiaries are pushing to keep the seven Republicans on their side.

"We are working hard in the states where senators voted for the Smith amendment, first to make sure that people in those states recognize and thank the senators for their vote, and secondly to urge them to . . . [tell] the leadership that it would be unacceptable to impose cuts in Medicaid," said Ron Pollack, executive director of Families USA.

For any proposed spending cut—including those cuts envisioned in Agriculture Committee programs, like the food stamp program—there is a clear constituency ready to battle in its defense. Further complicating efforts to cut spending are the recent enactment of a Medicare prescription drug law (PL 108-173) and the president's efforts to overhaul Social Security, which appear to have taken those enormous entitlement programs off the list of potential targets for savings.

Offsetting Tax Cuts
Last year, the budget process fell apart over Senate moderates' insistence on a pay-as-you-go requirement that tax cuts be offset, essentially a variation on the same rift that threatens this year's budget. After last year's failed efforts to reinstate the pay-as-you-go rules, GOP supporters of the rules appear disinclined to revive that debate. That means it probably will be easier for Republicans to strike a budget deal this year, said Allen Schick, a budget expert and a professor of public policy at the University of Maryland.

Reviving the pay-as-you-go rules is controversial within the party because it would have restrained lawmakers' ability to enact tax cuts for years to come. "A number is easier to resolve and on taxes they're not that far apart," Schick said. "I don't know that Republicans in the House will fall on their sword to insist on spending cuts. They haven't in recent years, so why would they this year?"

Still, conferees will have to carefully gauge how much deficit-conscious Republicans in the Senate will accept in tax cuts this year. The tax cut targets written into the budget's reconciliation instructions will shape the debate for tax writers for the rest of the year.

Efforts to smooth those differences could be complicated by the surprise adoption of an amendment by Sen. Jim Bunning, R-Ky., raising the amount of tax cuts that would be protected from a Senate filibuster this year by $63.9 billion.

That amendment left the Senate with a larger overall tax cut target—$129 billion—than the more conservative House, which called for $106 billion in tax cuts.
Some popular tax legislation, like an extension of modifications to the alternative minimum tax, could move outside of the reconciliation process.

Judd Gregg, R-N.H., chairman of the Senate Budget Committee, initially set his tax cut figure at $70 billion, which he said would take care of extending several tax provisions set to expire in the next five years, including the 15 percent rates on dividends and capital gains.

The chambers' differences on both mandatory spending levels and tax cuts should come into sharper focus when Gregg and his House counterpart, Jim Nussle, R-Iowa, begin their discussions.

"That's where I think they get down to brass tacks," said Nussle spokesman Sean Spicer.

Deadline Approaching
The statutory deadline for adoption of the budget—which is not signed by the president—is April 15. There is no penalty for failing to meet the deadline.

"That remains Chairman Gregg's goal—to complete the budget on time," said Gayle Osterberg, Gregg's spokeswoman. However, she acknowledged "that is a rare occurrence." Conferees have not yet been named.

Spicer declined to offer a timeline for an agreement.

"The hope is to get it done and get it done right," he said.

Efforts to cut mandatory spending could face a parliamentary problem in the Senate. Both chambers have called for increased pension premiums for the Pension Benefit Guaranty Corporation.

But the premium increases would affect both spending and revenues, perhaps creating parliamentary issues for Republican leaders.

At least in part, the desire to move separate reconciliation bills for tax and spending cuts reflect unease with cutting taxes and entitlement programs at the same time.

March 30, 2005—House Ways and Means Committee Chairman Bill Thomas, R–Calif., has asked the Government Accountability Office (GAO) to compile information about hospitals' uncompensated medical care for a hearing to be scheduled possibly in May.

Jon Ratner, assistant director of Medicare payment issues at GAO, said the agency is gathering data that individual states have collected on hospitals' uncompensated care, which includes "charity care" and bad debt. Depending on the state, the entity contacted could be a health department or another agency that deals with Medicaid, the shared federal-state health care program for the poor.

"We're looking at their provisions of uncompensated care, their charity care and bad debt, and the extent that differs between different types of hospitals: non-profit, for-profit, government," Ratner said in an interview. "You're looking at dollar amounts. That's what you're interested in." Ratner said the GAO is not contacting individual hospitals.

Ratner said the investigation was not about hospital pricing matters or about the class action lawsuits against non-profit hospitals over claims that they charge uninsured patients more for medical care than what insurers would pay for the same services. He declined to release Thomas' written request and would provide limited details about it. Ways and Means also did not release the letter.

Last summer, the Ways and Means Oversight Subcommittee held a hearing on the pricing practices of tax-exempt and for-profit hospitals. The session sent shock waves through the non-profit hospital sector, which fears such probes could lead to the loss of tax-exempt status. The House Energy and Commerce Committee has also conducted its own investigation.

Eighty-five percent of hospitals in the country are not-for-profit, and Thomas has questioned whether the type of care they provide to the poor is any different than care provided by for-profit hospitals.

"If in fact there are as many for-profits than can be (shown) to give a break to low-income as not-for-profits, then that's not really a difference for receiving that tax benefit," Thomas said at the June 22 hearing. "What is it that they do differently than people who pay taxes? I think we owe it to the tax payers to explore that question."

GAO investigators are also trying to talk to hospital groups about the charity care issue.

"Generally, we would like to learn about your data categories and definitions (such as what is included in uncompensated care); the process of data collection and review; the availability of hospital identifiers (e.g. Medicare provider number or other identifier), and the availability of other descriptive information (tax-exempt status during the given reporting year)," reads an e-mail from Mary Giffin, senior health policy analyst at GAO.

Ratner said Thomas made his request in November and that GAO personnel have been working with staff of the Ways and Means Oversight Subcommittee on the matter.

Ratner said GAO was in "mid-stream" with its investigation and has had "ongoing conversations" with committee staff. "We anticipate a hearing in May. We don't have details," he said.

A Ways and Means spokeswoman said the panel has not scheduled any hearings in May.

April 1, 2005—Thursday's announcement that Medicare spending on physician care is accelerating much more rapidly than expected will intensify efforts to measure the quality and efficiency of treatment by doctors, according to a Centers for Medicare and Medicaid Services (CMS) official.

But how Medicare payment policy otherwise will be affected by the doubling of the spending growth rate in 2004 was not immediately clear.

Physicians' organizations are growing more nervous about whether Congress will act this year to erase a projected cut of 4 to 5 percent in their 2006 Medicare payments. And a House aide said news that Medicare physician spending was up 15 percent in 2004 compared to 2003 "changes the dynamic." Physicians should show greater willingness to switch to a payment system tied to quality and efficiency, he said.

CMS official Herb Kuhn said in a March 31 letter to the Medicare Payment Advisory Commission (MedPAC) that his agency backs the panel's recommendation to develop measures related to the quality and efficiency of care by individual physicians and physician groups.
"We are already engaged with the physician community in developing useful measures, and we expect to intensify these efforts given the rapid growth in spending," Kuhn said. CMS is exploring the possibility of sharing with physicians on an individual basis data showing their level of resource use and the quality of care they provide. "Such data would not be released publicly except in aggregate," he said.

Kuhn appears to be referring to "profiling," which some private insurers use to tell doctors how their use of tests and procedures compares with that of their peers. The method has proven to be effective in curbing excessive treatment, analysts say. "Some measures can be derived from claims data with little or no data collection burden," Kuhn said. As examples, he listed "information on the frequency and complexity of minor therapy procedures, imaging procedures, lab tests, and visits for their patients with chronic illnesses."

"We look forward to working with you, the medical community, and Congress on improvements in our physician payment system that lead to equitable payments to ensure access to high quality and affordable health care, without increasing overall Medicare costs," the letter said.

Kuhn added that CMS is exploring administrative changes in the "Sustainable Growth Rate" (SGR) formula that aims to restrain physician spending growth. Those changes would bring down the costs of preventing the projected payment cut, but CMS has questioned in the past whether it has the statutory authority to act on its own.

"The rapid increases in physician fee schedule spending in 2004 make these collaborative efforts even more urgent," Kuhn emphasized.

MedPAC has called not only for the development of measures, but also for tying superior performance on those measures to higher payments. Some physician organizations say "pay-for-performance" should be tested on a voluntary basis over several years before any discussion of making it mandatory, however.

But key lawmakers are likely to express greater urgency about switching to such a system, and CMS may, too. The agency's administrator, Mark B. McClellan, said in an interview last week that "we do want to be careful and to be deliberate." But physician pay-for-performance systems are "well-established" in the private sector, he said.

McClellan said an approach in which doctors all have the same financial incentives is probably needed.

Until now, analysts have viewed congressional action this year to erase a projected cut as a virtual certainty, but a physician lobbyist said that congressional leaders have given no assurances that is the case. The new spending data heighten that uncertainty, he said.

The House aide said the new data showing that doctors are providing a much greater volume of tests and services to Medicare patients mean that the cost of preventing the cut will be much higher. The Congressional Budget Office has estimated that the five-year cost of changing the cut in 2006 to an increase of 1.5 percent is $9.7 billion.

But the new data on volume mean that figure will be "dramatically" higher, he said. It also means that fundamental change to adopt efficiency incentives is essential.

Prospects for a fix were uncertain to begin with and the new data make it "a lot harder," he said. It also shows that the pattern of temporary fixes must end and be replaced with fundamental changes in payment that give doctors incentives to be efficient, he said. The current system for restraining spending is "out of control."

The 2004 figure of 15 percent compares to 8.1 percent in 2003, 7 percent in 2002, and 14.2 percent in 2001, a CMS spokesperson said. Kuhn said that 29 percent of the spending growth in 2004 stemmed from a shift toward "longer and more intensive" office visits. Greater use of "minor procedures" such as physical therapy and other "manual therapy" techniques, "eyelid dermabrasion," and "chemosurgery" accounted for 26 percent of the spending growth.

More frequent and complex imaging accounted for 18 percent. Much of that increase stemmed from greater use of magnetic resonance imaging (MRI) scans. Growth exceeded 25 percent "for advanced imaging procedures such as MRI scans," Kuhn said. More lab and other tests accounted for 11 percent of the overall spending growth, and more use of prescription drugs in doctors' offices for 11 percent.