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The problem with Congress's new plan to pay Medicare's doctors

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Congress is taking a bow for its recent, bipartisan triumph: a $214 billion deal to finally throw out Medicare's broken payment system. The bill passed the Senate late Tuesday night, after sailing through the House with strong support from both parties.

But lost in the kumbaya moment is widespread concern that the new way Medicare is going to pay doctors forces the government to do something it's not very good at: measure how good — or bad — doctors are at their jobs. Worse, the new bill doesn't say much about how the government is meant to accomplish this task.

"I'm very skeptical of this," says Robert Berenson, a fellow at the Urban Institute whose research focuses on Medicare policy. "It's really absurd that we don't have any measures for most doctors that can place a value on their performance."

The sentiment is the same on the right.

"The existing quality measures aren't relevant to what [doctors] do in their everyday practice," says John O'Shea, a senior fellow at the Heritage Foundation who previously advised Energy and Commerce Chairman Fred Upton (R-MI) on health policy. "They don't result in better patient care. I think we're going to need better quality measures."

Congress wants to pay better doctors more money

doctor target

(Chip Somodevilla/Getty Images News)

Since 1997, Medicare has paid doctors based on an outdated formula called the Sustainable Growth Rate. SGR assumed Medicare costs would grow much more slowly than they actually do, and so it required double-digit pay cuts for Medicare doctors every few years. But instead of letting those pay cuts go into effect, Congress always scrounges up extra billions to save doctors' salaries.

Since the early 2000s, Washington has passed 17 "doc fix" bills: short-term patches that keep doctor payments stable for a few months or years (when Congress is feeling extra-generous, sometimes it gives doctors a 0.5 or 1 percent raise).

The new bill has enough funding to keep doctor salaries steady for the next decade. That's captured a strong endorsement from health industry groups, who have hated the constant uncertainty that's swirled around doctor payments for more than a decade.

"When passed by the Senate, the bill will put an end to the cycle of Congress passing expensive patches to extend a policy that all agree was bad in the first place," American Medical Association president Robert Wah said in a statement.

But over the long term, the new bill replaces SGR with a new formula for how doctors are paid — one where in theory, better physicians will earn more money.

Right now, the American health-care system is largely "fee for service": doctors get paid a set amount for each episode of care, whether that's an annual physical or a knee replacement. Arguably, that gives them a strong financial incentive to over-treat their patients.

This new bill tries to move away from that, paying doctors more for the value they provide — giving doctors more money, for example, when their knee replacement goes well and less money if the surgery has mistakes or complications.

The replacement Medicare formula lets doctors pick from two ways to participate in that payment scheme:

  1. They can join the Merit-Based Incentive Payment System (which goes by the delightful acronym MIPS). This programs rolls three old, other incentive programs into one larger one that gives doctors a quality score. If their scores are really great, doctors' reimbursement rates will go up.
  2. They can sign up to be part of an Alternative Payment Model. These are typically payment arrangements that require a whole group of doctors to band together and take a lump sum of money to care for a certain group of patients. If they can provide the care for less — and hit certain quality metrics — they get to keep some of the leftover cash. The hope is that these models will force doctors to be vigilant against wasteful care, since doctors have a financial incentive to spend less than their lump sum amount.

You can think of MIPS as "Pay-for-Value Lite": it some layers some bonuses (and some penalties) on top of a system that still pays doctors a set amount for each medical service.

The Alternative Payment Model option is where there's real potential for change because you have doctors taking on much more risk. They're no longer getting paid for each service; they're getting a lump sum of money and figuring out how to spend it best.

This is the option Congress and the White House want doctors to choose: doctors immediately get a 5 percent bonus on top of all their other Medicare payments just for going this route.

"The good thing we can say about this bill is that it's great to provide strong financial incentives for alternative payment models," says Topher Spiro, vice president for health policy at the Center for American Progress. "In an ideal world, there would be negative consequences for not doing this. But politically, that's probably not feasible."

The $214 billion question: how will the government define quality?

doctor patient

(Media for Medical/Universal Images Group via Getty News Images)

The Medicare reform bill feels pretty long, coming in at just about 265 dense pages. But the thing that worries health care experts the most is that it's actually too short.

The bill doesn't say anything about what quality metrics will be used to gauge whether doctors are good or bad — or what counts as an alternative payment model.

"It's way easier in Congress to get agreement on general principles than on details," says Mark McClellan, who directs the Health Care Innovation and Value Initiative at the Brookings Institution. He previously ran the Medicare program under George W. Bush. "That means a lot is going to hinge on how this and future administrations implement the law."

A lot of this concern has to do with the MIPS program. The law doesn't say which quality metrics the government ought to use in measuring quality. And for some specialties, this is very tough: how do you measure if a radiologist, for example, is doing a great job? Mostly by if they read image scans right — but Medicare doesn't get that information in patient claims.

"We're inherently limited by what we're able to measure," Berenson says.

There's already worry about the metric-setting process: it requires the federal government to use quality indicators that doctor groups suggest to the health and human services secretary. The secretary can add her own metrics to the list — but doctors are then free to pick and choose which metrics they want to be judged on.

"This is like if you let students write a test for themselves, and then the teacher offers a range of tests," says Spiro. "And of course the students choose the test they wrote for themselves."

There are similar definition concerns for the alternative payment models. These don't get fully defined in the bill, so nobody really knows at this point how far away they'll move from a fee-for-service system.

"It's possible they will call things alternative payment models that are really just a way of funneling money to provider systems that don't provide any great value," says Michael Chernew, a Harvard professor who previously served as vice-chair of MedPac, an independent body that advises Congress on Medicare policy. "This could maybe be something like a 'coordination fee,' that really isn't moving into a new model."

The new system is better than the status quo — and a lot will rest on definitions decided later

Health-care experts were nearly universal: moving into a fully paid-for Medicare system was preferable to the annual scramble for additional funds.

"There won't be so much uncertainty anymore," McClellan says. "Having the long-term predictability and not having to do this each year is going to be an important benefit on its own."

As for whether the new funding formulas will work, observers are still very much in a wait-and-see mode: the new payment system won't start until 2019, giving the Obama administration — and their successors — four years to sort out the definitional issues that keep health policy experts up at night.

"This is all conceptual at this point," says Heritage's O'Shea. "We just don't know if we have good quality measures yet, and what are the right outcome measures. Those are just really difficult to create."

Correction: This article initially misidentified Michael Chernew's position with MedPac. He is a former vice-chair.