Medicare

An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report. Preface

In recent years, pay-for-performance (P4P) programs have emerged as a strategy for driving improvements in the quality, safety, and efficiency of delivered health care. In 2005, with passage of the Deficit Reduction Act, Congress mandated that the Secretary of the Department of Health and Human Services (DHHS) develop a plan for value-based purcha

An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report

Prepared by: RAND Health working paper series CHERYL L.DAMBERG, MELONY SORBERO, ATEEV MEHROTRA, STEPHANIE TELEKI, SUSAN LOVEJOY, AND LILY BRADLEY Prepared for: Office of the Assistant Secretary for Planning and Evaluation (ASPE) U.S. Department of Health and Human Services (HHS) Prepared Under: WR-474-ASPE/CMS

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Short-Term Fixes to the Sustainable Growth Rate Process . Footnotes

1 E.g., GAO, Medicare Physician Payments: Concerns about Spending Target System Prompt Interest in Considering Reforms. Washington GAO, Report #GAO-05-85, October 2004. 2 Data presented in this section are based on NORC’s analysis of allowed charges from the Physician/Supplier Procedure Summary Master Files (PSPSMFs) for years 1996-2004.�

Short-Term Fixes to the Sustainable Growth Rate Process . Appendix. SGR Spending Predictions

Data Sources. Implementation of the SGR process requires that CMS use the most current information at its disposal to estimate components of the SGR formula, including spending, and components that are used to calculate the SGR (which in turn, are used to calculate annual target spending and cumulated target spending). As noted in the text,

Short-Term Fixes to the Sustainable Growth Rate Process . 6.0 Discussion

The primary objective of this report has been to evaluate revisions to the current SGR physician payment update methodology with a focus on refinements to attributes of the SGR process and changes in the definition of target spending. A spreadsheet model of the current SGR process was constructed for comparative study of effects of changes in th

Short-Term Fixes to the Sustainable Growth Rate Process . 5.4 Additional Refinements

Refinements to the SGR process that have been discussed above can be considered simultaneously. Tables 15a and 15b document effects on CFs of sequentially imposing two refinements on the rebased model with drug and lab spending excluded from SGR spending: use of the higher SGR values (displayed in Table 12), e.g., to accommodate desire for hig

Short-Term Fixes to the Sustainable Growth Rate Process . 5.3 Elimination of Drug and Lab Spending from the SGR

An argument raised by some providers and critics of the SGR process is that the payment update should not be based on events beyond control of providers. An example is spending for drugs and lab tests. These components of SGR spending are less within the control of providers than services and procedures routinely provided under the MFS. Drug

Short-Term Fixes to the Sustainable Growth Rate Process . 5.2 Rebasing Target Spending

The current SGR process was implemented with an initial target level based on actual spending levels in the late 1990s. Since that time, each year’s target has been increased using the SGR. Over time, the rate of spending has increased and the cumulated difference between annual actual and target spending levels has grown rapidly.

Short-Term Fixes to the Sustainable Growth Rate Process . 5.1 Effects of Changes in SGR Values

A fundamental explanation for payment update declines that have been recently experienced and are likely in the near future without significant changes to the SGR process is that spending increases faster than target spending levels. This over-spending determines the penalty of the UAF, which can more than offset the MEI when the update is calcu

Short-Term Fixes to the Sustainable Growth Rate Process . 5.0 Changes in Target-Setting Processes

Changes in the UAF formula can be used to change the size of penalties/rewards associated with over-/under-spending, which in turn changes the rate at which provider payments would change year to year. An alternative approach is to alter the way in which target spending is defined or the composition of spending that is counted towards target spe

Short-Term Fixes to the Sustainable Growth Rate Process . 4.2.2 The Size of the UAF Penalty

In addition to changes in the UAF penalty floor, the size of the UAF penalty for over-spending can be reduced by lowering the weights applied to the measures of over-spending in the previous year and cumulated spending. A rationale for the cumulated spending term of the UAF is that CFs can be adjusted to help the Medicare program recover a porti

Short-Term Fixes to the Sustainable Growth Rate Process . 4.2.1 The UAF Floor

An option that retains some cost-containment incentives but does not lead to negative payment updates is to set the UAF floor such that the largest over-spending penalty would completely offset the MEI. Under this option, the floor is a negative percent that would be just large enough in magnitude to offset the MEI, producing a 0-percent update.

Short-Term Fixes to the Sustainable Growth Rate Process . 4.2 Changes in the Design of the UAF

As indicated in the summary discussion of the current SGR update process, the magnitude of the UAF is a key determinant of the size of Medicare payment updates. Without the UAF portion of the SGR process, payments would be updated using the MEI. The UAF is the means by which the update process recovers over-spending.

Short-Term Fixes to the Sustainable Growth Rate Process . 4.1 Changes in the Measure of the Costs of Practice

The MEI is a fixed-weight input price index reflecting average annual changes in prices for inputs required to produce physician services, namely the physician’s own time and practice expense. The MEI is an important ingredient in the SGR process, affecting payment updates in two ways (Figure 2). The measure is used directly in the c

Short-Term Fixes to the Sustainable Growth Rate Process . 4.0 Potential Refinements of the SGR

Short-Term Fixes to the Sustainable Growth Rate Process . 3.2 Current Law Baseline

On the surface, study of the SGR payment process is straightforward. The process can be described as a recursive model, consisting of a set of algebraic relationships that are linked over time. This view, however, is somewhat naïve, as noted above. Changes in data alter future but not past values of SGR process relationships, and prediction

Short-Term Fixes to the Sustainable Growth Rate Process . 3.1 Methods

Analysis of the SGR process might be helpful in setting the stage for refinements that can be implemented to overcome current flaws resulting from the formula, as well as suggesting longer run changes that might be considered for more substantive changes to the payment update process in the future. A spreadsheet model of the SGR process was cons

Short-Term Fixes to the Sustainable Growth Rate Process . 3.0 Modeling the SGR Process

Short-Term Fixes to the Sustainable Growth Rate Process . 2.2.3 Criticisms of the SGR Process

Advocates for SGR reform cite significant flaws with the current process. First, recent updates have been large and negative, a consequence of over-spending. A string of negative updates has pressured Congress to intervene legislatively, as large and widespread changes in provider behavior are necessary to overcome the negative impacts on paym

Short-Term Fixes to the Sustainable Growth Rate Process . 2.2.2. The SGR Process

The VPS was replaced with the SGR process, following passage of the Balanced Budget Act of 1997. As was VPS, the SGR process was designed to allow for increases in Medicare payments while ensuring that growth in aggregate spending would be contained. 4 Unlike the VPS when it was replaced, the SGR system produces a single update. Figure 2.

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