Solving the "Unsustainable" Physician-Pay Problem: Perspectives From the ACP, ACS, and ACC

Robert L. Lowes


September 15, 2009

Much of organized medicine applauds a healthcare reform bill in Congress that defuses a Medicare time bomb next year -- namely, an overall 21.5% pay cut.

But can that legislation defuse an even bigger time bomb: the growth in Medicare and Medicaid spending that threatens to put the federal budget "on an unsustainable path," according to the Congressional Budget Office (CBO)?

The bill's provisions to scrap the Sustainable Growth Rate (SGR) formula in Medicare that triggered the pay cut would seem to expand the federal deficit, not shrink it. However, the bill also funds experiments to pay physicians on the basis of quality and cost-effectiveness and to wean them from the more expensive fee-for-service model, which motivates physicians to pump up the volume of services rendered. In the words of the Medicare Payment Advisory Commission (MEDPAC), this piecemeal approach "has created a rate of volume growth that is unsustainable."

Supporters of the legislation acknowledge the need to pull the plug on the traditional fee-for-service model. "We believe in moving to a model that gives doctors a financial incentive to provide good care -- it's quality, not quantity," said internist Joseph Stubbs, MD, of Albany, Georgia., president of the American College of Physicians (ACP) and one of several leaders in organized medicine that Medscape Medical News interviewed on healthcare reform and physician compensation.

HR 3200 Eliminates "Flawed" SGR Formula

The House has beaten the Senate to the punch in producing the first full-fledged legislation this year to overhaul the healthcare system. It's HR 3200, otherwise titled "America's Affordable Health Choices Act." The bill has won the endorsement of the ACP, the American Medical Association (AMA), the American Academy of Family Physicians (AAFP), and the American College of Surgeons (ACS), among other medical societies (see "Debate on Healthcare Reform is Monumental, Historic, and Sometimes Hysterical" These groups chose to tolerate perceived flaws, such as a lack of any tort reform provisions (though amendments may change that), in large part because the bill addressed the nagging problem of the SGR and the massive pay cut scheduled for 2010.

Designed to rein in runaway costs, the SGR sets a target each year for Medicare expenditures on physician services on the basis of the Gross Domestic Product (GDP). Organized medicine views this GDP benchmark as unfair because healthcare inflation and a physician's practice expenses sometimes grow at a higher rate. If actual expenditures surpass the target -- which they've done each year since 2002 -- the SGR triggers a corresponding pay cut for physicians the following year.

With organized medicine warning that slashed Medicare reimbursements would cause physicians to close their doors to seniors, Congress has always cancelled these scheduled reductions. However, the difference between targeted expenditures and actual expenditures continues to accumulate, making the next reduction even deeper. As of last December, the SGR debt topped $300 billion, according to the CBO.

HR 3200 eliminates the accumulated SGR debt and scraps the SGR formula itself, substituting another for 2010 on the basis of inflation in physician-practice costs. In 2011, yet another formula goes into effect that establishes 2 separate spending targets for physician services. One target, for evaluation and management services and preventive care, is based on GDP plus 2%. The other target, encompassing all other physician services, is based on GDP plus 1%. A Medicare proposal (not part of the bill) to remove physician-administered drugs from the equation would help doctors avoid overshooting these targets, since drugs are a big contributor to medical service inflation, according to healthcare analysts.

Did Organized Medicine Sell Out?

Like other physician leaders, Dallas general surgeon John Preskitt, MD, who sits on the ACS Board of Regents, considers the SGR fix extremely important. According to Dr. Preskitt, "The SGR is a flawed formula that creates instability in fee schedules among private insurers." Some plans, he explained, set their rates as a percentage of Medicare. So if Medicare rates fall, other rates fall, too.

However, medical societies that support HR 3200, particularly the AMA, have been criticized as acting only in their financial self-interest. One group called the Association of American Physicians and Surgeons calls the AMA's endorsement a sell-out, a view echoed by Stanford University economist Alain Enthoven. "It's not an honorable story," Dr. Enthoven told Medscape Medical News. "It says that Medicare prices are being set by politics, and not supply and demand."

Leaders of organized medicine disagree. "We wouldn't feel like winners if HR 3200 eliminated the SGR but did nothing to reduce the number of uninsured or lower costs," said Dr. Stubbs, and Dr. Preskitt added, "The bill is about more than increasing the pay of surgeons."

Medical Homes and Accountable Care Organizations

Drs. Preskitt and Stubbs also agree that the proposed replacement for the SGR should give way to a new compensation scheme that rewards physicians for the quality and cost-effectiveness of their care. HR 3200 envisions 2 ways to do that. First, it allocates $1.8 billion to expand an 8-state Medicare pilot project for the patient-centered medical home to establish it nationwide. In this experiment, primary care doctors would receive a monthly fee to coordinate the overall care of their patients -- trips to specialists, for example -- in addition to their customary fees. The hope is that better coordination of care (shades of HMO gatekeeping) will reduce overall Medicare spending.

The second compensation experiment funded by HR 3200 is the so-called accountable care organization (ACO). As described by MEDPAC, an ACO is a collection of primary care and specialist physicians and at least 1 hospital that takes joint responsibility for meeting performance measures for quality and cost. Quality measures might include preventable hospital readmissions; clinical outcomes, such as blood-pressure control; and patient satisfaction. A cost measure might be keeping medical expenditures under a certain growth rate. ACOs would either earn bonuses or incur pay cuts depending on how they perform as a group.

To Philadelphia cardiologist Alfred Bove, MD, president of the American College of Cardiology (ACC), ACOs seem to be a promising alternative to pure fee-for-service medicine. However, accountability might be painful for individual members, said Dr. Bove. "The ACO would have the right to kick somebody out if they weren't performing well. Or you could reimburse the poor performers so badly that they'd learn how to do their job right."

ACOs, he said, would resemble integrated health systems that own hospitals and physician practices. In an ACO, however, hospitals shouldn't be allowed to run the show, warned Dr. Bove. "Their outcome goals are different from physicians," he said.

Primary Care Raises Don't Depend on Specialist Pay Cuts

In addition to extending insurance coverage and curbing the abusive practices of private insurers, HR 3200 amounts to a life preserver for the field of primary care, considered underpaid and in short supply. The new formula for Medicare spending, after all, gives an edge to evaluation and management services and preventive care, the bread and butter of internists and family physician. Likewise, the medical-home experiment puts extra money in their pockets.

In addition, HR 3200 raises Medicare rates for primary care physicians by an extra 5%-10% in underserved areas. Both the AAFP and the ACP are asking lawmakers to increase the base raise to 10% for the sake of attracting more medical students to primary care. "We think 5% won't cut it," said Dr. Stubbs of the ACP, "particularly when medical students are graduating with $150,000 in debt."

HR 3200 would raise the notoriously low Medicaid fees for primary care doctors to Medicare levels by 2012. Right now, they're at 66% of Medicare fees on average, according to the nonprofit Kaiser Family Foundation. Lawmakers hope that this raise will persuade more primary care physicians to treat Medicaid recipients instead of turning them away.

These pay increases in HR 3200 are coupled with provisions to reduce the educational costs of primary care trainees, another enticement to choose the field. They all reflect the widespread belief that an expanded primary care workforce is the key to improving the quality of care as well as curbing costs.

Specialists have understandably wondered whether HR 3200 reduces their compensation in order to enrich their primary care colleagues. The answer is "no," said Dr. Preskitt of the ACS, whose interpretation of the legislation is shared by other medical societies. The raises for primary care physicians, they contend, will instead come out of system-wide cost reductions resulting from fewer laboratory tests, fewer computed tomography scans, shorter hospital stays, and fewer trips to the emergency department. "We like the principle of shared savings, as opposed to just reduced fees for surgeons," said Dr. Preskitt.

The issue of pay inequity isn't disappearing, however. Apart from HR 3200, the Medicare rate proposal for 2010 modifies reimbursement upward or downward for individual specialties in addition to the 21.5% reduction mandated by the SGR. Primary care specialties would experience upticks (8% percent for family physicians, for example). In contrast, cardiologists would incur an 11% decrease, just one of several procedure-oriented groups of specialists taking a hit. If the SGR stays in effect, these adjustments would either add to or subtract from the 21.5% cut, says Christian Shalgian, director of advocacy and health policy for the ACS. In this scenario, family physicians would have a 13.5% reduction. But if the SGR is eliminated, these specialty adjustments would still kick in, plumping up compensation for family physicians and shrinking it for cardiologists.

Medical societies on the losing side of the math are asking the Centers for Medicare & Medicaid Services (CMS) to recalculate its numbers. In a 24-page letter to CMS, the ACC stated that "Some of the proposals contained within this rule would have a devastating impact on the practice of cardiology...perhaps leaving patients searching long and hard for valuable cardiology services."

ACC president Dr. Bove, whose society hasn't endorsed HR 3200, said Medicare pay policies fracture the house of medicine. Nevertheless, he doesn't begrudge primary care receiving financial favors. "Primary care doctors need a boost," he said. "Their backs are against the wall. Some of them are really desperate."


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