ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

Johnson Announces Hearing on Physician Payments

Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on Health of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on the Medicare administrative pricing formula for physicians, which has resulted in a negative 5.4 percent update in 2002. The hearing will take place on Thursday, February 28, 2002, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 a.m. The hearing will conclude by 1:30 p.m.

In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. Witnesses will include Dr. Glenn Hackbarth, Chairman, Medicare Payment Advisory Commission (MedPAC); Dan Crippen, Director, Congressional Budget Office; Dr. Paul Ginsburg, President, Center for Studying Health System Change; and representatives of physician organizations. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

Driven by high growth in payments for physician services in the 1980s, the Medicare Volume Performance Standard (MVPS) was enacted in the Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) to give physicians an incentive to control volume and to limit the growth in Medicare expenditures for physician services. Based on the recommendations of MedPAC and with the support of physician groups, the Sustainable Growth Rate (SGR) replaced the MVPS in 1997. The SGR formula is linked, in part, to projected Gross Domestic Product, so when the economy slows the update is reduced accordingly. It is also tied to the difference between actual expenditures and target expenditures. The SGR is used in combination with the Medicare Economic Index (MEI), a measure of the increase in physician office and salary costs. Therefore, the SGR is not a direct limit on expenditures -- payments are not withheld if the target is exceeded-- but the update is increased or decreased.

Under the SGR formula, a "saw-tooth" pattern of funding has emerged. For example, the update increased 5.2 percent in 2000 and 4.8 percent in 2001 - more than twice the rate of physician cost inflation. Then in 2002, the update decreased to a negative 5.4 percent, resulting in more than a 10 percent swing in just one year. The SGR formula is inflexible in its administration. For example, the SGR is dependent on economists accurately predicting economic trends; otherwise, the target is missed. Moreover, past errors in setting the target carryover and must be absorbed in future years, making it difficult to correct for the missed target in one year. Consequently, the Office of the Actuary is predicting negative payment updates through 2006.

MedPAC has recommended replacing the SGR with a simple model based on the MEI. Because successive and negative changes are projected, however, a change to the formula that produces moderate payment increases results in significant budgetary costs and increased beneficiary cost-sharing.

In announcing the hearing, Chairman Johnson stated, "Medicare's formula for paying physicians is completely irrational and must be reformed this year. These cuts are unjustifiable. They result from factors in a formula that has nothing to do with the cost of providing health care. Inadequate payment of health professionals will discourage the top quality candidates that medicine has traditionally attracted and harm patient access to care."

FOCUS OF THE HEARING:

This hearing will focus on the Medicare physician fee schedule formula. It will discuss the effect of the formula on physician payments and beneficiary access to care. The hearing will also analyze reforms to the current sustainable growth rate and the impact of any change on access and Medicare outlays.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Please note: Due to the change in House mail policy, any person or organization wishing to submit a written statement for the printed record of the hearing should send it electronically to hearingclerks.waysandmeans@mail.house.gov, along with a fax copy to (202) 225-2610, by the close of business, Thursday, March 14, 2002. Those filing written statements who wish to have their statements distributed to the press and interested public at the hearing should deliver their 200 copies to the Subcommittee on Health in room 1136 Longworth House Office Building, in an open and searchable package 48 hours before the hearing. The U.S. Capitol Police will refuse unopened and unsearchable deliveries to all House Office Buildings.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.

1. Due to the change in House mail policy, all statements and any accompanying exhibits for printing must be submitted electronically to hearingclerks.waysandmeans@mail.house.gov, along with a fax copy to (202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.

Note: All Committee advisories and news releases are available on the World Wide Web at http://waysandmeans.house.gov.

The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call (202) 225-1721 or (202) 226-3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.