Medicare Spending
Preliminary Findings Regarding an Approach Focusing on Physician Practice Patterns to Foster Program Efficiency Gao ID: GAO-07-567T March 6, 2007Medicare's current system of spending targets used to moderate spending growth for physician services and annually update physician fees is problematic. This spending target system--called the sustainable growth rate (SGR) system--adjusts physician fees based on the extent to which actual spending aligns with specified targets. In recent years, because spending has exceeded the targets, the system has called for fee cuts. Since 2003, the cuts have been averted through administrative or legislative action, thus postponing the budgetary consequences of excess spending. Under these circumstances, policymakers are seeking reforms that can help moderate spending growth while ensuring that beneficiaries have appropriate access to care. For today's hearing, the Subcommittee on Health, House Committee on Energy and Commerce, which is exploring options for improving how Medicare pays physicians, asked GAO to share the preliminary results of its ongoing study related to this topic. GAO's statement addresses (1) approaches taken by other health care purchasers to address physicians' inefficient practice patterns, (2) GAO's efforts to estimate the prevalence of inefficient physicians in Medicare, and (3) the methodological tools available to identify inefficient practice patterns programwide. GAO ensured the reliability of the claims data used in this report by performing appropriate electronic data checks and by interviewing agency officials who were knowledgeable about the data.
Consistent with the premise that physicians play a central role in the generation of health care expenditures, some health care purchasers examine the practice patterns of physicians in their network to promote efficiency. GAO selected 10 health care purchasers for review because they assess physicians' performance against an efficiency standard. To measure efficiency, the purchasers we spoke with generally compared actual spending for physicians' patients to the expected spending for those same patients, given their clinical and demographic characteristics. Most purchasers said they also evaluated physicians on quality. The purchasers linked their efficiency analysis results and other measures to a range of strategies--from steering patients toward the most efficient providers to excluding a physician from the purchaser's provider network because of poor performance. Some of the purchasers said these efforts produced savings. Having considered the efforts of other health care purchasers in evaluating physicians for efficiency, GAO conducted its own analysis of physician practices in Medicare. GAO used the term efficiency to mean providing and ordering a level of services that is sufficient to meet patients' health care needs but not excessive, given a patient's health status. GAO focused the analysis on generalists--physicians who described their specialty as general practice, internal medicine, or family practice--and selected metropolitan areas that were diverse geographically and in terms of Medicare spending per beneficiary. GAO found that individual physicians who were likely to practice medicine inefficiently were present in each of 12 metropolitan areas studied. The Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare, also has the tools to identify physicians who are likely to practice medicine inefficiently. Specifically, CMS has at its disposal comprehensive medical claims information, sufficient numbers of physicians in most areas to construct adequate sample sizes, and methods to adjust for differences in beneficiary health status. A primary virtue of examining physician practices for efficiency is that the information can be coupled with incentives that operate at the individual physician level, in contrast with the SGR system, which operates at the aggregate physician level. Efforts to improve physician efficiency would not, by themselves, be sufficient to correct Medicare's long-term fiscal imbalance, but such efforts could be an important part of a package of reforms aimed at future program sustainability.
GAO-07-567T, Medicare Spending: Preliminary Findings Regarding an Approach Focusing on Physician Practice Patterns to Foster Program Efficiency
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Testimony:
Before the Subcommittee on Health, Committee on Energy and Commerce,
House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 9:30 a.m. EST:
Tuesday, March 6, 2007:
Medicare Spending:
Preliminary Findings Regarding an Approach Focusing on Physician
Practice Patterns to Foster Program Efficiency:
Statement of A. Bruce Steinwald:
Director, Health Care:
GAO-07-567T:
GAO Highlights:
Highlights of GAO-07-567T, a testimony before the Subcommittee on
Health, Committee on Energy and Commerce, House of Representatives
Why GAO Did This Study:
Medicare‘s current system of spending targets used to moderate spending
growth for physician services and annually update physician fees is
problematic. This spending target system”called the sustainable growth
rate (SGR) system”adjusts physician fees based on the extent to which
actual spending aligns with specified targets. In recent years, because
spending has exceeded the targets, the system has called for fee cuts.
Since 2003, the cuts have been averted through administrative or
legislative action, thus postponing the budgetary consequences of
excess spending. Under these circumstances, policymakers are seeking
reforms that can help moderate spending growth while ensuring that
beneficiaries have appropriate access to care. For today‘s hearing,
this subcommittee, which is exploring options for improving how
Medicare pays physicians, asked GAO to share the preliminary results of
its ongoing study related to this topic. GAO‘s statement addresses
(1) approaches taken by other health care purchasers to address
physicians‘ inefficient practice patterns, (2) GAO‘s efforts to
estimate the prevalence of inefficient physicians in Medicare, and (3)
the methodological tools available to identify inefficient practice
patterns programwide. GAO ensured the reliability of the claims data
used in this report by performing appropriate electronic data checks
and by interviewing agency officials who were knowledgeable about the
data.
What GAO Found:
Consistent with the premise that physicians play a central role in the
generation of health care expenditures, some health care purchasers
examine the practice patterns of physicians in their network to promote
efficiency. GAO selected 10 health care purchasers for review because
they assess physicians‘ performance against an efficiency standard. To
measure efficiency, the purchasers we spoke with generally compared
actual spending for physicians‘ patients to the expected spending for
those same patients, given their clinical and demographic
characteristics. Most purchasers said they also evaluated physicians on
quality. The purchasers linked their efficiency analysis results and
other measures to a range of strategies”from steering patients toward
the most efficient providers to excluding a physician from the
purchaser‘s provider network because of poor performance. Some of the
purchasers said these efforts produced savings.
Having considered the efforts of other health care purchasers in
evaluating physicians for efficiency, GAO conducted its own analysis of
physician practices in Medicare. GAO used the term efficiency to mean
providing and ordering a level of services that is sufficient to meet
patients‘ health care needs but not excessive, given a patient‘s health
status. GAO focused the analysis on generalists”physicians who
described their specialty as general practice, internal medicine, or
family practice”and selected metropolitan areas that were diverse
geographically and in terms of Medicare spending per beneficiary. GAO
found that individual physicians who were likely to practice medicine
inefficiently were present in each of 12 metropolitan areas studied.
The Centers for Medicare & Medicaid Services (CMS), the agency that
administers Medicare, also has the tools to identify physicians who are
likely to practice medicine inefficiently. Specifically, CMS has at its
disposal comprehensive medical claims information, sufficient numbers
of physicians in most areas to construct adequate sample sizes, and
methods to adjust for differences in beneficiary health status.
A primary virtue of examining physician practices for efficiency is
that the information can be coupled with incentives that operate at the
individual physician level, in contrast with the SGR system, which
operates at the aggregate physician level. Efforts to improve physician
efficiency would not, by themselves, be sufficient to correct
Medicare‘s long-term fiscal imbalance, but such efforts could be an
important part of a package of reforms aimed at future program
sustainability.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-567T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact A. Bruce Steinwald at
(202) 512-7101 or steinwalda@gao.gov.
[End of figure]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today as you discuss options for improving how
Medicare pays physicians. Your task is not simple, as you seek reforms
that can help moderate spending growth while ensuring that
beneficiaries have appropriate access to high-quality physician
services and physicians receive fair compensation for providing those
services. Medicare's current system of spending targets used to
moderate spending growth and annually update physician fees is
problematic.
This spending target system--called the sustainable growth rate (SGR)
system--adjusts Medicare's physician fees based on the extent to which
actual spending aligns with specified targets. If the growth in the
number of services provided per beneficiary--referred to as volume--and
in the average complexity and costliness of services--referred to as
intensity--is high enough, spending will exceed the SGR target. From
1999--the first year that the SGR system was used to update physician
fees--through 2001, physicians received fee increases annually. Since
2002, actual Medicare spending on physician services has exceeded SGR
targets, and the SGR systems has called for fee cuts to offset the
excess spending. In 2002 the SGR system reduced physician fees by
nearly 5 percent. Fee declines in subsequent years were averted only by
administrative and legislative actions that modified or temporarily
overrode the SGR system.[Footnote 1] In the absence of additional
administrative or legislative action, the SGR system will likely reduce
fees by about 5 percent a year for the next several years.
The potential for a sustained period of declining fees has raised
policymakers' concerns about the appropriateness of the SGR system for
updating physician fees and about physicians' continued participation
in the Medicare program. A particular concern is that the SGR system
acts as a blunt instrument in that all physicians are subject to the
consequences of excess spending--namely, downward fee adjustments--
that may stem from the excessive use of resources by only some
physicians. However, as we have discussed in our prior work, the SGR
system serves an important role in alerting policymakers to the need
for fiscal discipline.[Footnote 2] Specifically, fee cuts under the SGR
system signal to physicians collectively and to the Congress that
spending due to volume and intensity has increased more than allowed.
Some of the higher volume and intensity that drives spending growth may
not be medically necessary. In fact, the wide geographic variation in
Medicare spending per beneficiary--unrelated to beneficiary health
status or outcomes--provides evidence that health needs alone do not
determine spending.[Footnote 3] Medicare physician payment policy does
little to change this situation; payments under the Medicare program
are not designed to foster individual physician responsibility for the
most effective medical practices. In contrast, some public and private
health care purchasers have initiated programs to identify efficient
physicians and encourage patients to obtain care from these physicians.
With these circumstances in mind, and in fulfillment of a 2003 mandate
to examine aspects of physician compensation in Medicare,[Footnote 4]
we conducted a study focusing on efficiency with respect to physician
practices. In our study, we use the term efficiency to mean providing
and ordering a level of services that is sufficient to meet a patient's
health care needs but not excessive, given a patient's health status.
My remarks today will address (1) physician-focused approaches taken by
other health care purchasers to address inefficient medical practices,
(2) our efforts to estimate the prevalence of inefficient physicians in
Medicare, and (3) the methodological tools available to the Centers for
Medicare & Medicaid Services (CMS) to identify inefficient physician
practice patterns programwide. My remarks today are based on our
study's preliminary findings.
In conducting our study, we interviewed representatives of 10 health
care purchasers,[Footnote 5] including 5 commercial health plans, 1
provider network, 1 trust fund jointly managed by employers and a
union, and 3 government agencies--2 in U.S. states and 1 in a Canadian
province. We selected these purchasers because their programs that
examine physician practices explicitly assess efficiency--unlike many
such programs that assess quality only. We also estimated the
prevalence in Medicare of physicians likely to practice inefficiently.
To do this work, we examined 2003 Medicare claims data from 12
metropolitan areas. We ensured the reliability of the claims data used
in this report by performing appropriate electronic data checks and by
interviewing officials at CMS who were knowledgeable about the data. In
addition, we discussed the facts contained in this statement with CMS
officials. The study on which these remarks are based has been
conducted beginning September 2005 in accordance with generally
accepted government auditing standards.
In summary, the health care purchasers we studied examined the practice
patterns of physicians in their networks and used the results to
promote efficiency. They adopted a range of incentives--from steering
patients toward the most efficient providers to excluding a physician
from the network--to encourage physicians to provide care efficiently;
some reported savings as a result of these efforts. Using our own
methodology to analyze the practice patterns of physicians in Medicare,
we found that physicians who were likely to be practicing medicine
inefficiently were present in all 12 of the metropolitan areas studied.
CMS also has the tools to identify physicians in Medicare who are
likely to practice medicine inefficiently, including comprehensive
claims information, sufficient numbers of physicians in most areas to
construct adequate sample sizes, and methods to adjust for differences
in beneficiary health status.
Some Health Care Purchasers Use Physician Profiling Results to
Encourage Efficient Medical Practice:
Consistent with the premise that physicians play a central role in the
generation of most health care expenditures, some health care
purchasers employ physician profiling to promote efficiency. We
selected 10 health care purchasers that profiled physicians in their
networks--that is, compared physicians' performance to an efficiency
standard to identify those who practiced inefficiently. To measure
efficiency, the purchasers we spoke with generally compared actual
spending for physicians' patients to the expected spending for those
same patients, given their clinical and demographic
characteristics.[Footnote 6] Most purchasers said they also evaluated
physicians on quality. The purchasers linked their efficiency profiling
results and other measures to a range of physician-focused strategies
to encourage the efficient provision of care. Some of the purchasers
said their profiling efforts produced savings.
Health Care Purchasers Profiled Physicians across Several Dimensions to
Evaluate Physician Performance:
The 10 health care purchasers we examined used two basic profiling
approaches to identify physicians whose medical practices were
inefficient. One approach focused on the costs associated with treating
a specific episode of illness--such as a stroke or heart attack. The
other approach focused on costs, within a specific period, associated
with the patients in a physician's practice. Both approaches used
information from medical claims data to measure resource use and
account for differences in patients' health status. In addition, both
approaches assessed physicians (or physician groups) based on the costs
associated with services that they may not have provided directly, such
as costs associated with a hospitalization or services provided by a
different physician.
Although the methods used by purchasers to predict patient spending
varied, all used patient demographics and diagnoses. The methods they
used generally computed efficiency measures as the ratio of actual to
expected spending for patients of similar health status. In addition,
all of the purchasers we interviewed profiled specialists and all but
one also profiled primary care physicians. Several purchasers said they
would only profile physicians who treated an adequate number of cases,
since such analyses typically require a minimum sample size to be
valid.
Health Care Purchasers Linked Physician Profiling Results to a Range of
Incentives Encouraging Efficiency:
The health care purchasers we examined directly tied the results of
their profiling methods to incentives that encourage physicians in
their networks to practice efficiently. The incentives varied widely in
design, application, and severity of consequences. Purchasers used
incentives that included:
* educating physicians to encourage more efficient care,
* designating in their physician directories those physicians who met
efficiency and quality standards,
* dividing physicians into tiers based on efficiency and giving
enrollees financial incentives to see physicians in particular tiers,
* providing bonuses or imposing penalties based on efficiency and
quality standards, and:
* excluding inefficient physicians from the network.
Physician Profiling Has Potential for Savings:
Evidence from our interviews with the health care purchasers suggests
that physician profiling programs may have the potential to generate
savings for health care purchasers. Three of the 10 purchasers reported
that the profiling programs produced savings and provided us with
estimates of savings attributable to their physician-focused efficiency
efforts. For example, 1 of those purchasers reported that growth in
spending fell from 12 percent to about 1 percent in the first year
after it restructured its network as part of its efficiency program,
and an actuarial firm hired by the purchaser estimated that about three
quarters of the reduction in expenditure growth was most likely a
result of the efficiency program. Three other purchasers suggested
their programs might have achieved savings but did not provide savings
estimates, while four said they had not attempted to measure savings at
the time of our interviews.
Through Profiling, We Found That Physicians Likely to Practice
Inefficiently in Medicare Were Present in All Selected Areas:
Having considered the efforts of other health care purchasers in
profiling physicians for efficiency, we conducted our own profiling
analysis of physician practices in Medicare and found individual
physicians who were likely to practice medicine inefficiently in each
of 12 metropolitan areas studied. We focused our analysis on
generalists--physicians who described their specialty as general
practice, internal medicine, or family practice. We did not include
specialists in our analysis. We selected areas that were diverse
geographically and in terms of Medicare spending per beneficiary.
Under our methodology, we computed the percentage of overly expensive
patients in each physician's Medicare practice. To identify overly
expensive patients, we grouped the Medicare beneficiaries in the 12
locations according to their health status, using diagnosis and
demographic information. Patients whose total Medicare expenditures--
for services provided by all health providers, not just physicians--far
exceeded those of other patients in their same health status grouping
were classified as overly expensive. Once these patients were
identified and linked to the physicians who treated them, we were able
to determine which physicians treated a disproportionate share of these
patients compared with their generalist peers in the same location. We
classified these physicians as outliers--that is, physicians whose
proportions of overly expensive patients would occur by chance less
than 1 time in 100. We concluded that these outlier physicians were
likely to be practicing medicine inefficiently.[Footnote 7]
Based on 2003 Medicare claims data, our analysis found outlier
generalist physicians in all 12 metropolitan areas we studied. In two
of the areas, outlier generalists accounted for more than 10 percent of
the area's generalist physician population. In the remaining areas, the
proportion of outlier generalists ranged from 2 percent to about 6
percent of the area's generalist population.
CMS Has Tools Available to Profile Physicians for Efficiency:
Medicare's data-rich environment is conducive to identifying physicians
who are likely to practice medicine inefficiently. Fundamental to this
effort is the ability to make statistical comparisons that enable
health care purchasers to identify physicians practicing outside of
established standards. CMS has the tools to make statistically valid
comparisons, including comprehensive medical claims information,
sufficient numbers of physicians in most areas to construct adequate
sample sizes, and methods to adjust for differences in patient health
status.
Among the resources available to CMS are the following:
* Comprehensive source of medical claims information. CMS maintains a
centralized repository, or database, of all Medicare claims that
provides a comprehensive source of information on patients' Medicare-
covered medical encounters. Using claims from the central database,
each of which includes the beneficiary's unique identification number,
CMS can identify and link patients to the various types of services
they received and to the physicians who treated them.
* Data samples large enough to ensure meaningful comparisons across
physicians. The feasibility of using efficiency measures to compare
physicians' performance depends, in part, on two factors: the
availability of enough data on each physician to compute an efficiency
measure and numbers of physicians large enough to provide meaningful
comparisons. In 2005, Medicare's 33.6 million fee-for-service enrollees
were served by about 618,800 physicians. These figures suggest that CMS
has enough clinical and expenditure data to compute efficiency measures
for most physicians billing Medicare.
* Methods to account for differences in patient health status. Because
sicker patients are expected to use more health care resources than
healthier patients, the health status of patients must be taken into
account to make meaningful comparisons among physicians. Medicare has
significant experience with risk adjustment. Specifically, CMS has used
increasingly sophisticated risk adjustment methodologies over the past
decade to set payment rates for beneficiaries enrolled in managed care
plans.
To conduct profiling analyses, CMS would likely make methodological
decisions similar to those made by the health care purchasers we
interviewed. For example, the health care purchasers we spoke with made
choices about whether to profile individual physicians or group
practices; which risk adjustment tool was best suited for a purchaser's
physician and enrollee population; whether to measure costs associated
with episodes of care or the costs, within a specific time period,
associated with the patients in a physician's practice; and what
criteria to use to identify inefficient practice patterns.
Concluding Observations:
Our experience in examining what health care purchasers other than
Medicare are doing to improve physician efficiency and in analyzing
Medicare claims has enabled us to gain some insights into the potential
of physician profiling to improve Medicare program efficiency. A
primary virtue of profiling is that, coupled with incentives to
encourage efficiency, it can create a system that operates at the
individual physician level. In this way, profiling can address a
principal criticism of the SGR system, which only operates at the
aggregate physician level. Although savings from physician profiling
alone would clearly not be sufficient to correct Medicare's long-term
fiscal imbalance, it could be an important part of a package of reforms
aimed at future program sustainability.
Mr. Chairman, this concludes my prepared remarks. I will be pleased to
answer any questions you or the subcommittee members may have.
GAO Contacts and Acknowledgments:
For future contacts regarding this testimony, please contact A. Bruce
Steinwald at (202) 512-7101 or at steinwalda@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this statement. Other individuals who made
key contributions include James Cosgrove and Phyllis Thorburn,
Assistant Directors; Todd Anderson; Alex Dworkowitz; Hannah Fein;
Gregory Giusto; Richard Lipinski; and Eric Wedum.
FOOTNOTES
[1] For example, the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) specified a minimum update of 1.5
percent for both 2004 and 2005. Pub. L. No. 108-173, § 601(a)(1), 117
Stat. 2066, 2300.
[2] GAO, Medicare Physician Payments: Trends in Service Utilization,
Spending, and Fees Prompt Consideration of Alternative Payment
Approaches, GAO-06-1008T (Washington, D.C.: July 25, 2006) and Medicare
Physician Payments: Concerns about Spending Target System Prompt
Interest in Considering Reforms, GAO-05-85 (Washington, D.C.: Oct. 8,
2004).
[3] Elliot S. Fisher, et al., "The Implications of Regional Variations
in Medicare Spending. Part 1: The Content, Quality, and Accessibility
of Care," Annals of Internal Medicine, vol. 138, no. 4 (2003): 273-287.
[4] MMA, Pub. L. No. 108-173, § 953, 117 Stat. 2066, 2428.
[5] In our study, we use "purchaser" to mean health plans as well as
agencies that manage care purchased from health plans; one of the
entities we interviewed is a provider network that contracts with
several insurance companies to provide care to their enrollees.
[6] Generally, estimates of an individual's expected spending are based
on factors such as patient diagnoses and demographic traits.
[7] Our approach to estimating outlier physicians was conservative in
that it captures only the most extreme practice patterns; therefore,
our analysis does not mean that all nonoutlier physicians were
practicing efficiently.
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