'Volume, intensity of care' fuels lower Medicare reimbursement

September 1, 2005

Washington — Dermatologists who serve Medicare patients should pay careful attention as the federal government considers changing the way payments for physician services will be determined in the future.

Clearly, there is considerable momentum to reform the current system, which is often discouraging to many physicians and increasingly costly to the government.

Grim situation

The culprit: increases in the "volume and intensity" of physician services under Medicare.

Simply put, as payments are being slashed, physicians are ordering more tests and choosing more expensive care options, thus pushing the program's costs inexorably higher.

For example, even though there was a 1.5 percent payment rate increase in 2004, overall expenditures for physicians' services grew by 13 percent.

"Such a large increase in expenditures has significant ramifications for future Medicare spending, and thus, updates to physician payments," Dr. McClellan warns. "This growth has increased the cost of addressing negative physician updates (reduced payments). These increases strain the federal budget and contribute to annual increases in beneficiary premiums."

Causes

The Center for Medicare and Medicaid Services' (CMS) preliminary analysis of the 2004 increases in spending for physicians' services indicates that major causes included:

In his testimony, Dr. McClellan told the subcommittee that simply adding larger updates to the current payment system in order to avoid seven years of physician payment cuts "would be extremely expensive" without promoting better quality care.

"Under this system, there are significant variations in resources and in spending growth for the same medical condition in different practices and different parts of the country, without apparent difference in quality and outcomes," he says.

Fortunately for physicians, Dr. McClellan says Medicare realizes the potential implications of seven years of Medicare payment reductions (negative updates), and is closely monitoring physician participation in the program as well as any indicators that beneficiaries are having trouble obtaining care.

A key statement in Dr. McClellan's testimony declared: "In addition to providing adequate payments, Medicare's payment system for physicians should encourage and support them to provide quality care and prevent avoidable health care costs."

That statement appears to encompass much of the policy changes that Dr. McClellan hopes to implement.

Good news

The good news is that Dr. McClellan promises to work closely with physicians and physician groups as the new policies are developed.

"I am engaging physicians on issues of quality and performance with the goal of supporting the most effective clinical and financial approaches to achieve better health outcomes for people with Medicare," he says. "Physicians are in the best position to know what can work best to improve their practices, and physician expertise coupled with their strong professional commitment to quality means that any solution to the problems of healthcare quality and affordability must involve physician leadership."

In his presentation to the subcommittee, Dr. McClellan noted that the current system does not reward physicians when they improve the quality of care or prevent acute health problems that require expensive hospital admissions or other complications that lead to higher costs. That appears to be a principle that Dr. McClellan hopes to rectify.