Major Government Report Scores Healthcare Reform Specifics

WASHINGTON, Dec. 19 -- Stepping away from the fee-for-service model governing federal physician reimbursements may save the government about $5 billion in the next 10 years, according to a report by the Congressional Budget Office (CBO).

Conversely, tampering with the sustainable growth rate (SGR) -- the mechanism nominally governing physician reimbursements in Medicare -- could cost the government hundreds of billions of dollars, said the special report.

The findings were included in a fiscal impact study analyzing 115 different scenarios involving changes to federal health programs.

Potential reforms to existing federal healthcare programs were the report's primary focus, but it also analyzed some new proposals such as a national high-risk insurance pool.

Normally, such evaluations are part of the budget office's biennial analysis of the entire federal budget.

Because healthcare reform is expected to be at the top of the congressional agenda this year, however, the CBO decided to give healthcare its own analysis.

It was intended to "help policymakers better understand the tradeoffs and choices inherent in making changes, large or small, to the American healthcare system and to federal healthcare programs," according to the report's introduction.

Of special interest to physicians were several scenarios examining federal reimbursements to providers under Medicare and other programs.

The scenarios were drawn from proposed legislation, recommendations from federal agencies, discussions with House and Senate staff, and private proposals, the budget office said.

One involved a hybrid physician payment system under which primary care physicians would be paid 75% of the fee schedule, plus a "per beneficiary, per month" fee. It would increase their total payments by $9.2 billion over the next ten years, through 2019.

Meanwhile, other providers would see payment cuts of around $14.4 billion by 2019, leaving a net saving to the government of $5.2 billion.

Other scenarios involved changes to the SGR mechanism, which sets a target for spending for physicians' services and is updated annually. If actual spending grows faster than the target, payments to physicians are reduced for that year.

For the past seven years, Congress has overridden it annually to stave off scheduled cuts in physician payments. Consequently, policy-makers have been considering overhauls to the formula.

According to the budget office, the SGR scenario with the smallest impact on the federal budget would essentially leave the mechanism alone, while breaking down payment rates into five service-specific categories: anesthesia, evaluation and management, imaging and testing, major procedures, and minor procedures. This approach would cost the government $184 billion by 2019.

If payment rates were frozen at their current levels from 2010 to 2019, it would cost the government $318 billion in 10 years.

Another option, repealing the SGR altogether and basing payments on the Medicare Economic Index -- a medical price index that reflects both cost and productivity changes -- would cost the government $439 billion by 2019.

A third option of freezing payments, replacing the SGR with the Medicare Economic Index, and disconnecting Part B premiums from program costs would result in $556 billion of extra federal spending.

Lastly, if payment rates for evaluation and management were calculated using the Medicare Economic Index, and the SGR was used for the remaining four categories, the government would spend $253 billion more by 2019.

The budget office said that total spending on healthcare, now about 16% of the gross domestic product, will become a quarter of the nation's economy by 2025 if federal law is unchanged.

Current payment to physicians doesn't take into account productivity gains that occur as a physician becomes more efficient throughout the year. Reducing annual Medicare fee-for-service payments to physicians and other caregivers to account for expected productivity gains could save the government up to $201 billion by 2019.

Among the report's other estimates of 10-year federal costs or savings associated with various proposals:

* Cutting Medicare payments for hospitals with readmission rates above the 50th percentile could save $9.7 billion.

* Allowing providers to form work groups for patient care with one primary care physician acting as manager -- a version of the "medical home" model -- would save $5.3 billion, largely by eliminating inefficiencies.

* Requiring Medicare carriers to provide information about peer profiling is predicted to save $1.7 billion. According to the report, if specialists knew their peers' average spending, they could better keep their own costs in check.

* Requiring prior authorization for medical imaging services would save $1.1. billion.

* Funding research to compare the effectiveness of various treatments is predicted to increase the federal deficit by $860 million to pay for studies. Ultimately, however, the program would save about $1.3 billion for federal health insurance programs over the period by focusing coverage on the most cost-effective treatments.

* Creating incentives in Medicare for widespread health information technology implementation could save $4.4 billion. Under this scenario, CMS would pay primary care physicians who use qualifying records system 5% extra and a 2% bump to other physicians, with additional bonuses for early adopters. Payments could be reduced 5% for physicians without the systems.

* A Medicare requirement of health information technology among all providers could save $22.8 billion.

Two reforms that many thought would have huge financial implications -- expanding the State Children's Health Insurance Program (SCHIP) and denying payment for hospital-acquired conditions -- actually would barely affect the federal budget.

Extending SCHIP, set to expire on March 31, 2009, and expanding eligibility to children in families at 400% of the poverty level would cost the federal government an extra $80.3 million through 2019.

And denying payment for hospital-acquired conditions would save just $45 million, the report found.

Health-related tax increases could give the government a big financial lift, the report indicated. Taxing drinks with added sugar and increasing cigarette and alcoholic beverage taxes could bring an additional $205 billion by 2019, the report found.

According to the report, reducing Medicare rates for primary care physicians who fail to meet influenza vaccination benchmarks could save the government $620 million in physician payments and hospitalization costs by 2019.

However, as more physicians begin complying with the benchmarks to avoid the penalty, and as Medicare beneficiaries live longer, the CBO said the government would actually lose money in the long run.

On the other hand, the budget office estimate did not take account of benefits to the rest of the economy from broader flu vaccination.

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