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MedPAC also warned that continued increases in healthcare costs, the retirement of the baby boomers and Medicare's new prescription drug benefit will cause Medicare spending to skyrocket.
If Congress follows the recommendations of an independent advisory panel, physicians who serve Medicare patients, including dermatologists, will receive an overall payment increase of an estimated 2.8 percent, rather than reductions that are currently on tap.
The recommendation came from the Medicare Payment Advisory Commission (MedPAC) in its 2006 Medicare Payment Policy Report to Congress March 1. The report also urges elimination of the controversial sustainable growth rate (SGR) formula, which is responsible for the recommended fee reductions through 2011.
MedPAC warned that policymakers must immediately act to slow Medicare spending growth and encourage greater efficiency from healthcare providers. It urged policymakers to establish a pay-for-performance policy that would serve to increase provider efficiency.
"Policymakers need to take steps to slow growth in Medicare spending sooner rather than later because taking measures earlier would permit more gradual changes to the program," the report states.
Strategies to achieve that include cutting provider payments, reducing benefits, increasing program financing and encouraging greater efficiency, it added, contending that the option of increasing efficiency would make best use of Medicare resources.
2007 payment levels
Regarding 2007 payment levels, MedPAC recommended that Congress update payments by the projected change in "input prices" - the cost of providing service - minus the commission's established goal of increasing productivity by 0.9 percent for 2007. CMS has projected that "input prices" will increase by 3.7 percent. Thus, the net increase would be 2.8 percent.
The commission's recommendation followed enactment of the Deficit Reduction Act of 2005 in January, which wiped out a projected 4.4 percent reduction in overall Medicare payment levels for 2006.
"Although the recent Deficit Reduction Act overrode the cut that the SGR called for in 2006, it does not address payment levels for 2007 - the year for which we are making our recommendation - and beyond," MedPAC noted. "Under current law, the SGR continues to call for substantial negative updates for 2007 through 2011.
"The commission does not support these impending fee cuts," MedPAC says. "We are concerned that such consecutive annual cuts would threaten access to physician services over time, particularly primary care services."
MedPAC Chairman Glenn M. Hackbarth, in testimony before the House Ways and Means Health Subcommittee March 1, said Medicare payment rates to healthcare providers should be set so the government benefits from productivity gains the same as "private purchasers of goods in competitive markets benefit from the productivity gains of their suppliers."
"In developing its payment recommendations, MedPAC expects improvements in productivity consistent with the productivity gains achieved by the firms and workers who pay the taxes and premiums that support Medicare," Mr. Hackbarth said.
While Medicare already has some programs in place to improve quality, the effort needs to systemwide, he stressed.
"Medicare should start differentiating among providers by paying more for higher quality performance and less for poor quality," he declared. "This change to Medicare's payment systems is urgently needed."
Congress, he said, should direct the agency to set quality standards for all providers who bill Medicare for performing and interpreting diagnostic imaging studies.
"While some providers have raised concerns about aspects of a pay-for-performance program, these concerns must be weighed against the costs of not moving forward: allowing the program to reward poor care and not recognize quality care," Mr. Hackbarth said, noting that Medicare can "be very influential" in transforming the incentives to the broader healthcare system.
In its report, MedPAC pointed out that its recommendation for 2007 would increase federal program spending by more than $1.5 billion in the first year and $5 billion to $10 billion over five years, relative to current law.