Last week the House Committee on Ways and Means, Subcommittee on Health held a hearing on reforming Medicare' physician fee for service system. Chairman Pete Stark (D-CA) and the Subcommittee reviewed possible solutions to the current fee schedule so that physicians are encouraged to furnish the appropriate amount of care while also improving the quality of care. The goals of the committee were to determine reforms that Congress could consider prior to January 2010.

In announcing the hearing Chairman Stark stated, "The SGR formula is clearly broken and needs to be fixed. But the problem is bigger than the SGR alone. The current payment system rewards physicians who increase the number or intensity of the services that they provide, irrespective of what is needed. This drives up spending. Unfortunately, spending growth has not been matched by an equivalent improvement in outcomes. Our recently enacted legislation provides a window of opportunity to look at how physician payment rates are updated. We need to use this time to examine payment system reforms that encourage better care coordination, higher quality care, and more efficient use of resources. This hearing will be an important step in that process."

Since 1997, annual updates to payment rates for the physician fee schedule have been determined by a formula known as the Sustainable Growth Rate (SGR). The formula sets target amounts for overall spending under the fee schedule, and the growth in target amounts is tied to growth in gross domestic product (GDP). If Medicare expenditures for services exceed the target, payment rates are reduced. If Medicare expenditures for services are less than the target, payment rates are increased.
According to the Subcommittee, the volume of services paid for under the fee schedule has consistently grown at a rate higher than GDP, and the SGR formula has frequently called for reductions to payment rates. However, since 2003, legislation has effectively overridden SGR suggested payment cuts. The recent Medicare Improvements for Patients and Providers Act (MIPPA) contained a provision to delay SGR formula rate cuts for 2008 and 2009. Nonetheless, without further legislation, Medicare's payment rates will fall by more than 20 percent in January 2010.

Experts providing testimony to the Subcommittee included Bruce C. Vladeck, Executive Director and Senior Health Policy Advisor for Ernst and Young, LLP, New York, NY. Vladeck testified that the current SGR system "serves no one's interests very well," and went on to say that fixing the effects of the SGR diverts attention from more deserving issues needing attention such as reallocation of funds from primary care services to specialty services.

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