CMA Submits Medicare Payment Reform Proposal to Congress
[Posted 04/26/07]

CMA recently submitted to Congress a multipronged plan to overhaul the broken Medicare payment system. The proposal, developed by CMA’s Medicare Technical Advisory committee and approved by the Board of Trustees, would, among other things, eliminate the flawed sustainable growth rate (SGR) formula, provide payment updates based on practice cost increases, and update the geographic payment localities. The proposal also presents credible alternatives to the SGR “spending target” approach to containing costs.

CMA President Anmol S. Mahal, M.D., personally presented CMA’s plan to California Congressman Pete Stark, chairman of the powerful Ways and Means Health Subcommittee, which presides over all Medicare issues. “CMA is the first medical association in the country to present a proactive, long-term plan to Congress to resolve the difficult and expensive SGR problem. Physicians in California cannot sustain future Medicare payment cuts and be at the whim of Congress’s last-minute actions,” says Dr. Mahal. “We have presented Congress with a credible long-term road map to ultimately pay physicians fairly and encourage appropriate medical care. We are asking everyone to give up something in order to achieve long-term reform. Mr. Stark was genuinely appreciative of our efforts to take the lead in developing a plan and he is interested in working very closely with us to achieve reform.”

Below are summaries of the proposal’s major elements:

Medicare Advantage Reform: Key to CMA’s plan is a proposal to equalize Medicare Advantage health plan rates with fee-for-service rates. Currently, Medicare Advantage plans receive 12 to 20 percent more than fee-for-service physicians for providing the same services to Medicare beneficiaries. Bringing plan rates in line with fee-for-service physician rates could save as much as $100 billion. CMA’s proposal would apply this significant savings to fund a switch from the flawed sustainable growth rate formula to a formula based on actual medical practice costs.

The proposal also requires Medicare Advantage plans to spend 90 percent of every premium dollar on medical care. To address the concerns of Permanente physicians and physicians who contract with Medicare Advantage plans, CMA’s plan would phase in the rate reductions over 3 to 5 years to give plans and beneficiaries time to make appropriate adjustments.

Eliminate the SGR: CMA has for years been fighting for a long-term fix to Medicare’s flawed sustainable growth rate (SGR) formula. The formula allows Medicare spending on physician services to grow at the rate of the gross domestic product (GDP), but it actually penalizes physicians because the cost of physician services rises more rapidly than the GDP. The SGR also establishes a national spending target and once that target is reached, physician fees are cut. Physician payments will be cut by 10 percent on January 1, 2008, unless Congress intervenes to stop the cuts.

CMA’s proposal would eliminate the SGR for 2008 and beyond and replace it with a formula based on the Medical Economic Index (MEI), which is a market index of actual medical practice costs.

These CMA-proposed reforms would cost approximately $314 billion. Recognizing that it would be financially and politically impossible to win approval for a proposal that does not also include a plan for reducing costs, CMA’s proposal would offset much of the cost through physician-driven care management programs, Medicare Advantage rate reductions, and cuts to hospital, nursing home, and home health programs (consistent with Medicare Payment Advisory Committee recommendations). CMA is also asking Congress to find some new money to help pay for the reforms.

Care Management/Cost Containment Demonstration Projects: CMA also proposes a number of five-year demonstration projects to study cost-saving mechanisms to coordinate care, manage volume, and reward appropriate use of medical services. Such mechanisms could include quality initiatives, peer comparisons on utilization, chronic disease management, reducing geographic variation in care, and physician-driven accountable health care organizations.

While the demonstration projects are being tested, the CMA proposal would update physician payments each year for five years, according to the MEI minus the MedPAC productivity adjustment. This would result in average physician payment increases of 2 to 2.5 percent a year during that period.

After the demonstration projects are completed, CMA, AMA, and others in organized medicine would work with Congress to implement a long-term payment system that includes automatic payment updates based on the MEI in tandem with a variety of the demonstration project programs that proved to be successful in managing costs and care. Permanent implementation of worthy demonstration programs would replace the SGR spending target as the Medicare physician cost containment mechanism.

The proposal would also apply some of the Medicare Advantage savings to fund the reauthorization of the Healthy Families program that has covered uninsured children in California for nearly a decade.

Contact: Elizabeth McNeil, 415/882-53376 or emcneil@cmanet.org.