Medicare a Big Contributor to the Broken Health Payment System, Senators Told

Who is to blame for America’s broken healthcare payment system? Witnesses and lawmakers mostly pointed fingers at Medicare during Wednesday’s Senate Budget Committee hearing on how primary care improves healthcare efficiency.

“Medicare’s fee schedule has created this unbalanced delivery system and primary care crisis,” said Christopher Koller, president of the Milbank Memorial Fund, in New York City. “How much and how it pays is not delivering value for the Medicare program or its beneficiaries. Medicare is the benchmark for all other payers, so this inefficiency is rippled through our entire healthcare system.”

Concerns About the RUC

Koller especially faulted the RVS [Relative Value Scale] Update Committee — known as the RUC — a group of primary care and specialty physicians appointed by the American Medical Association that makes recommendations to Medicare regarding how much to reimburse for various Current Procedural Terminology (CPT) codes. He noted that a 2021 report from the National Academies of Science, Engineering, and Medicine, written by a committee on which Koller served, found that 90% of the RUC’s recommendations are accepted by the Centers for Medicare & Medicaid Services.

“The fee schedule implemented by Medicare systematically devalues primary care services relative to other services,” he said. “This results in a compensation gap between primary care and other physicians that is widened, driving what specialty medical students choose and what graduate medical education programs hospitals offer. Given the five-to-one ratio of specialist to primary care physicians on the RUC, these findings are not surprising.”

Amol Navathe, MD, PhD, of the Perelman School of Medicine at the University of Pennsylvania in Philadelphia, agreed. “The current fee-for-service payment system produces a misalignment between provider incentives and patient health,” he said. “This leads to systematic underinvestment in primary care. In particular, the payment rates in Medicare’s Physician Fee Schedule undervalue diagnostic services in favor of procedural ones. This is an issue throughout the fee schedule and exacerbates the incentive to provide more services by shifting toward costly ones. Thus, Medicare spending goes up without producing additional health benefits.”

The solution, he said, is to pay primary care practices under a “hybrid” model in which clinicians receive both monthly payments for each Medicare beneficiary, adjusted for their level of illness, as well as fee-for-service payments for selected services provided at visits. “A hybrid payment model would allow practices to deliver more patient-centered care, change to more efficient staffing models, and use technology like telehealth when it is efficient and effective,” said Navathe, who is vice-chair of the Medicare Payment Advisory Commission (MedPAC) but was speaking for himself.

Experience With Alternative Payment Models

Bob Rauner, MD, a family physician in Lincoln, Nebraska who spoke on behalf of the American Academy of Family Physicians, talked about his experience with alternative payment arrangements such as the Medicare Shared Savings Program. “In 2012, the Medicare Shared Savings Program came out with an advance-payment ACO [accountable care organization] contract,” he said. “I recruited nine clinics during that advanced payment ACO … Within the first 2 years we were one of the top 10 highest quality-scoring ACOs in the country as a group of mostly rural family physicians, but we ran into sustainability challenges when the advanced payment money ran out.”

“Future ACO contracts should measure primary care spending to make sure the money is going to the right place in these contracts,” he added.

Committee members had varying concerns about the current system. “What drives me nuts about these hearings is we’re just not looking at the root cause,” said Sen. Ron Johnson (R-Wisc.) “I would argue that what changed is the third-party payer system. We have a completely broken healthcare financing system, which incentivizes specialties but disincentivizes family doctors. And until we recognize it, we’re not going to fix the problem.”

“It wasn’t that many decades ago that the patients paid about 90 cents on the dollar,” Johnson continued. “Now they pay 10 cents, so we’ve taken consumerism out of this. And 80% of physicians used to be independent. Now 80% are part of organizations and they are told how to do medicine. … I think the solution here is we have to put physicians again at the top of the treatment pyramid as opposed to being crushed at the bottom by all the bureaucracy.”

Johnson asked Rauner about the state of chronic disease research, specifically “what are we doing to figure out what caused it as opposed to how do we treat it, and then figure out how to prevent it.”

“We know what’s causing chronic disease,” Rauner responded. “It’s lack of exercise, poor nutrition, and obesity — that’s what’s driving it. One of my biggest fears, honestly, is that chronic disease is growing while our primary care workforce is shrinking, which is a recipe for disaster.”

Striving for Equity

Sen. Tim Kaine (D-Va.) mentioned that one doctor in Richmond, Lerla Joseph, MD — a Black physician who serves low-income patients — had suggested that Medicare and Medicaid could be doing more to support diverse providers, rural providers, and small providers. “As she says, equality is one thing but equity is another, and she believes a lot of the focus on building these value-based care models have focused on larger providers, and not necessarily those serving rural or minority communities,” said Kaine. He asked the witnesses at the hearing what more the federal government could do in this area.

Navathe said, “We need models that are really truly directed towards safety net providers, toward rural providers, toward providers that take care of diverse populations, so there’s increased investment and technical support for them. Secondly, when we do voluntary models, we have to check for representativeness, we have to make sure that we’re actually getting participation from those [groups] or create better incentives for that to happen.” He also urged officials to consider making some voluntary programs mandatory, because clinicians that tend to participate in voluntary programs aren’t necessarily representative of all communities.

Committee chairman Sen. Sheldon Whitehouse (D-R.I.) ended the hearing on a hopeful note. “I think it is very clear that by reforming the payment system, we can free up innovation and [improve the] patient response to primary care providers,” he said. “The shackles of a pure fee-for-service system are not helpful as we move forward … I hope that we can continue to go forward to build bipartisan legislation that will achieve those goals.”

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