January 15, 2007
Even before officially taking control of the 110th Congress, Democratic leaders promised to give priority to a broad range of healthcare issues, including coverage of an estimated 47 million uninsured Americans, expanded stem cell research, and changes to the Medicare prescription drug benefit and Medicare managed care program.
Quick action on two of these issues came soon after Congress opened January 4. As part of her "first 100 hours" must-do agenda, House Speaker Nancy Pelosi (D-CA) scheduled votes on bills to expand stem cell research and to allow Medicare to negotiate directly with drug companies for discounts under the Part D benefit. Medicare was barred from direct negotiations when the GOP-run Congress enacted the benefit in 2003. At press time, both measures were expected to easily pass the House, where the Democrats hold a comfortable majority.
Different political dynamics come into play in the Senate. Democrats have a majority of one, and this, combined with the threat of a filibuster or presidential veto, will give the GOP a major say in what legislation gets enacted. Also, with Democrats pledged to reduce federal spending, new Medicare and other health initiatives could be constrained by pay-as-you-go rules, which require that new spending be offset by reductions elsewhere in the budget.
Physician Fee Fix
Replacing the current Medicare physician fee update system is the top priority for pathology and other physician groups, and, as in the last Congress, bipartisan agreement is expected. Physicians staved off a 5% cut in 2007 fees, but under the statutory SGR (sustainable growth rate) formula, a 10% cut is projected for 2008.
The SGR formula has triggered cuts since 2000, though Congress has blocked them. But because the targets have not changed, the action has only delayed the negative updates. "As a result, the cumulative SGR formula calculates even larger payment cuts and a longer period of negative updates," said Dana Kelley, an analyst with the Medicare Payment Advisory Commission (MedPAC) during a January 9 briefing of the panel.
Absent an alternative to the SGR, even steeper cuts are ahead, physician groups warn––about 37% by 2015, while physician practice costs increase by 20%, the American Society for Clinical Pathology says. The ever-deeper cuts will result in more physicians pulling out of Medicare and threatening beneficiary access to care, says the American Medical Association.
The SGR formula is based on a target rate of growth for Medicare spending for physicians’ services. It ties reimbursement to a number of factors, including growth in the volume of services relative to growth in the national economy. The SGR compares actual spending to target spending and adjusts the update. When actual physician spending exceeds a target rate, the update is negative.
One overriding concern in enacting a new physician payment system is how to pay for it. Any fix, even a zero update or a modest multi-year increase tied to quality reporting, would be costly. A one-year fix would cost $13 billion over five years, the Congressional Budget Office has estimated, while replacing the SGR system would cost $218 billion over 10 years.
Democratic health leaders have indicated they prefer to wait to consider an SGR overhaul until Congress receives a report on SGR alternatives it requested from MedPAC. The report is due March 1. MedPAC staff have floated several options they say would be "less aggressive" in cutting physician fees, though all would increase spending in the range of 4.2% to 7.3%. MedPAC is not likely to recommend one course of action, chairman Glenn Hackbarth has publicly cautioned. Instead, the report will present a series of changes that could be phased-in over several years, including the advantages and disadvantages of different options, he said.
In advance of the report, MedPAC commissioners aired disagreements at their January 9 meeting about the value of holding down growth in physician services through expenditure targets. While the goal of the SGR was to control the volume of services through targets, it had the opposite effect, as physicians found other ways to maintain or increase their service volume and income—for example, through financial investments in imaging equipment or ambulatory surgical centers.
MedPAC analyst Kevin Hayes noted that the report to Congress will include several options to consider. One would be to repeal the SGR, not replace it with targets, and develop new approaches such as linking payment to quality. Another option would be to use targets but reconfigure the SGR to apply to all of Medicare, be adjusted by region, and give providers an array of options for sharing in gains that result from their improved efficiency.
Bonus Payments & Pay-for-Performance Plans
Any reform of Medicare physician payments is expected to be tied to expanded quality reporting requirements. Congress already has required that a pay-for-performance (P4P) system be implemented to reward doctors who voluntarily report certain quality measures to Medicare. As a first step, Medicare is to begin making bonus payments of 1.5% to reporting physicians, starting July 1 of this year and running through December 31.
Physicians who report quality data will receive about $300 million in bonus payments, according to the CBO. Doctors who account for about two-thirds of Medicare physician spending will qualify. At this point, pathologists are not included, according to the College of American Pathologists.
The increased spending under this and other Medicare changes will be offset in part by cutting back the Medicare managed care stabilization fund included in the 2003 Medicare reform law, saving $6.5 billion, said the CBO.
Competitive Bidding
The Clinical Laboratory Coalition has been lobbying legislators and regulators on the controversial Medicare competitive bidding demonstration for independent lab services. Coalition members unanimously oppose the idea of applying competitive bidding to lab services, saying it treats the services as a commodity rather than a complex service. ACLA, which is part of the coalition, would like to see legislation to stop CMS from going ahead with the lab bidding demo, its president Alan Mertz told NIR.
At press time, the last official word from CMS was that the demo design was still awaiting final clearance from the Office of Management & Budget. The proposed sites had yet to be announced. The demo is still set for an April 2007 launch, as CMS noted in instructions to contractors, but this timeframe could be pushed forward if more time is needed to solicit bids and choose winning labs.
Lab groups expect a sympathetic ear on Capitol Hill to their concerns about Medicare competitive bidding. Both Reps. Charles Rangel (NY), head of the House Ways & Means Committee, and Pete Stark (CA), head of its health subcommittee, have said they think competitive bidding for lab services is a bad idea. What this might mean for the current CMS project is unclear. The leaders could use their oversight authority to revisit the issue or at least extend the rollout of the lab bidding demo while lab industry concerns are addressed.
Expanded Controls on ‘Home Brew’ Tests
In this area, laboratory and pathology groups are keeping an eye on two fronts––the Food & Drug Administration and the office of Sen. Edward Kennedy (D-MA), who chairs the Health, Education, Pensions & Benefits (HELP) Committee.
The FDA announced last September that it was tightening the rules for in-house developed (home brew) lab tests and will require premarket review for new types of DNA tests that combine assays and algorithms to produce results tailored to a specific patient. In draft industry guidance, the FDA said it will regulate tests known as In Vitro Diagnostic Multivariate Index Assays (IVDMIAs), and most will be subject to class II and III special controls. Examples include proprietary tests to diagnose and guide treatment for breast and other cancers, cardiovascular disease, and Alzheimer’s disease, among others.
The FDA requested public comment on the guidance and recently extended the deadline to March 5, 2007. The agency also has scheduled a public meeting on February 8 to solicit more input.
Meanwhile, Kennedy’s office continues to work on a draft bill to regulate home brew tests. A draft that surfaced last year would have defined virtually all home brews as class II devices, requiring labs to submit a 501(k) application for each test developed in-house. In other provisions, FDA review would proceed on a volume basis, rather than a risk basis, and tests in the lowest 20% of volume would be exempt from FDA review (molecular diagnostics would fall in this category).
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January 15, 2007 - Table of Contents
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