A lesser known aspect of the Deficit Reduction Act of 2005 (DRA) required the Medicare Payment Advisory Commission (MedPAC) to explore alternative mechanisms for controlling physician costs under Medicare. Everyone agrees that the sustainable growth rate (SGR) is not working.

Critics charge that the SGR—a spending target tied to the gross domestic product (GDP) designed to determine an annual update to the physician payment rate—fails to reward physicians who restrain growth, or punish those who do not. In fact, the commission points out that a target like the SGR might contribute to overutilization by physicians seeking to recoup lost income. Nonetheless, whenever the Centers for Medicare and Medicaid Services (CMS) prepares to initiate physician fee schedule cuts consistent with the SGR, the almighty physician lobby prevails in Congress—a game unlikely to repeat itself indefinitely.

MedPAC failed to come to a consensus on whether a replacement spending target should be established. However, the need for investing in Medicare’s ability to develop a payment system that will reward quality and efficient use of resources was undisputed.

Alternative Targets

The DRA required MedPAC to investigate alternative targets to control volume. However, MedPAC’s suggestions are aimed intentionally at controlling expenditures, not volume. Each alternative has significant drawbacks:

  • The geographic area alternative would set different fee updates by region. MedPAC notes that this may improve equity across the country and reduce geographic variation—but physicians in high-volume regions who practice conservatively would be penalized.
  • The type-of-service alternative would set expenditures for different types of services, as done under the volume-performance standards that preceded the SGR, enabling Congress to curtail quickly growing costs. This bodes ill for imaging due to its change in volume per beneficiary (8.7% from 2004 to 2005) and its growing share of the total spend (16% in 2004 and 2005). It also would undermine the resource-based relative value system. This approach would require Congress to determine the optimal level and mix of service—a moving target, MedPAC acknowledged.
  • The multispecialty group practice alternative was of interest to Congress because some studies suggest that physicians in multispecialty practices have lower overall resource use. However, as MedPAC notes, this practice model accounts for only 20% of physicians in the United States. Separate targets for group and nongroup physicians could be viewed as inequitable, and rural physicians would have few chances to participate in a multispecialty practice.
  • The hospital medical staff alternative would use Medicare claims to assign physicians and beneficiaries to an accountable care organization based on the hospitals they use most. The intention here is to induce physicians to practice more as a system to optimize care. MedPAC saw few barriers to this model, except for physicians who were in competitive positions with a hospital and those who rarely refer to hospitals. It is not hard to imagine resistance from radiologists or imaging centers—and justifiably so. The freestanding outpatient model has contributed to lower-cost imaging in many markets. This alternative would grant greater powers to the hospitals, of which there are both nonprofits and for-profits, as well as add cost to the hospital system.
  • The outlier alternative would provide that Medicare identify physicians with very high resource use relative to their peers. MedPAC noted that this would encourage accountability in a system that currently has little; however, it also acknowledged the difficulty of getting physician buy-in if they did not accept the validity of episode groupers.

Two Pathways

Because the report is the opening salvo in the bid to scrap the SGR, it bears close scrutiny by all providers—not just those paid under the Medicare Physician Fee Schedule. One of the commission’s messages is that any new payment system should apply to all providers, hospitals included.

The commission was divided on using any of the expenditure targets described here, but MedPAC did suggest that Congress pursue one of two recommended pathways:

  • Path 1 would repeal the SGR and offer no new system of target expenditures. Instead, it would change payment incentives to reward quality and reduce inappropriate use; invest in the ability to collect and disseminate information regarding appropriateness of care; develop and build consensus around authoritative guidelines; and intensify efforts to identify and prevent fraud, abuse, and misuse of resources.
  • Path 2 would pursue the suggestions in Path 1, but include one of the alternative target expenditure approaches described above. To that end, MedPAC recommends that all fee-for-service Medicare be included, that pressure be highest in the regions where service usage is highest, that providers be given the opportunity to share savings from improved efficiency, that efficient physicians are rewarded, and that feedback be provided via state-of-the-art communications tools and in collaboration with private payors.

Both James Moser, senior director of economics and health policy for the American College of Radiology, and the National Equipment Manufacturing Association expressed concern that the MedPAC report designated imaging as a fast-growing health care service but did not make mention of imaging’s ability to reduce total health care costs. “Our members are troubled by the continual [designation] of imaging volume growing rapidly,” Moser says. “It’s possible that some of the growth is inappropriate; yet, none of the alternatives seem to really get at ferreting out inappropriate imaging.”

The potential for mistakes here is tremendous, and the need for radiology to participate in these discussions in critical. For example, the report’s discussion of the outlier alternative concludes with a case study that compares the average per-episode cost of coronary artery disease in Minneapolis and Miami. MedPAC attributed the surprisingly higher cost per episode in Minneapolis to a higher hospitalization rate—neglecting to note that in Miami, imaging contributed double the percentage of the total cost that it did in Minneapolis. Clearly, a higher rate of imaging does not necessarily translate into a higher total cost to the taxpayer.

Cheryl Proval is the former editorial director of Axis Imaging News and a contributing writer. For information, contact .