Former CMS Administrator Proposes Semi-Permanent “Doc Fix”

Former CMS Administrator Marc McClellan, together with Keith Fontenot, Alice Rivlin, and Erica Socker, proposed reforms to Medicare that they believe could save billions of dollars, advance the agency’s goals to improve care, and, importantly, pass Congress with bipartisan support. In addition to elimination of the sustainable growth rate (SGR), the proposal includes: (1) payment incentives for physicians to move to a payment system that pays for outcomes, not the quantity of services furnished; (2) front-loading incentive payments to allow doctors to hire the extra staff needed to coordinate care; (3) funding to develop better measures of cost and quality; (4) reforms to the Medicare benefit and cost sharing structure; and (5) payment for post-acute and outpatient care based on the beneficiary’s needs for services rather than the setting.

Incentive Payments

McClellan and his coauthors believe that simply stabilizing physician payments for five years and adding $75 billion in incentive payments, as he says the Administration has proposed, will not be enough to persuade doctors to make the changes in care needed for effective cost control. In addition, they believe that the funding for these incentive payments cannot come from cuts to the payments for other providers. Rather, there must be incentives for hospitals and post-acute care providers to work with doctors to reinforce the actions needed to improve care. For example, the incentives for hospitals to participate in coordinating post-hospital care should be expanded.

Need-Based Payment

The authors propose that payment for post-acute care depend solely on the beneficiary’s needs for services, not on the setting in which care is delivered. Payment should not vary whether the same services are delivered in a nursing home, an inpatient rehabilitation facility, or the patient’s home. Similarly, payment for identical ambulatory services in an outpatient hospital unit, an ambulatory surgical center, or physician’s office should be the same.

Reforms to the Benefits and Cost Sharing Structure

McClellan et al. would create a unified cost sharing structure similar to most private insurance. Rather than having one deductible for inpatient and another for outpatient care, they suggest one deductible. Beneficiaries also should be protected by an out-of-pocket limit. Copayments should apply to all services, except for preventive services so that beneficiaries will have an incentive to use those services. At the same time, the supplemental insurance benefits and premiums should be modified so that beneficiaries are not insulated from the cost of services. “First dollar” coverage should be eliminated because it allows for no incentive for beneficiaries or providers to choose less costly, more effective care. In addition, the more generous plans should cost more, and beneficiaries with high incomes should pay higher Medicare premiums. Because these proposals would cause some beneficiaries with moderate expenses to pay more, the article also suggests that the savings from choosing high-value care should be shared with beneficiaries.

Timing of Reforms

If Congress cannot reach agreement on permanent reforms to physician payments, McClellan and his coauthors suggest that stabilization measures should last at least five years. Otherwise, they believe, doctors will be so focused on the next payment legislation that they will not address the changes to be made in improving quality of care. The reforms to benefits could be phased in by applying them first to new beneficiaries, or implementing the cost sharing reforms gradually. The additional cost to beneficiaries could be offset in part by reducing copayments for high-value services and opportunities for beneficiaries to save when they choose high qualify low cost providers.