Analysis: No easy fix for Medicare payment

WASHINGTON, March 2 (UPI) -- There is little support for the current Medicare physician payment system, but changing it will be a complicated, long-term process, a U.S. government commission said Thursday.

The current system "neither rewards physicians who restrain volume growth, nor punishes those who prescribe unnecessary services," Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission (MedPAC), testified before the Senate Finance Committee.

The amount physicians are paid for providing services to seniors in Medicare is determined by a formula called the Sustainable Growth Rate, or SGR, that ties the payment growth rate to the growth of the economy. The problem: Medical costs are growing far faster than the economy as a whole, and that means each year the formula calls for drastic cuts to physician payments.

The predicted cuts are 10 percent for 2007 and 40 percent over the next eight years -- far more than intended when the SGR was created 10 years ago. To compensate, Congress has consistently passed last-minute funding to bail out the Medicare system, but few consider that a permanent solution.

The SGR system has also failed to rein in healthcare costs. When payments go down, physician services go up. That, because of a quirk of the formula, causes payments to go down again, furthering the cycle.

But simply eliminating the SGR would come with a hefty price tag, said Peter Orszag, director of the Congressional Budget Office. A repeal of the formula would cost the federal government $262 billion over the next 10 years and increase out-of-pocket costs for seniors by $70 billion.

If a third alternative is not found, it could seriously jeopardize the ability of the federal government to keep up with its Medicare obligations, Orszag said. "It is the central long-term fiscal problem facing the United States."

"The SGR is not working," said Committee Chairman Max Baucus, D-Mont. "Healthcare costs will not just get better in the morning."

The MedPAC report suggests two alternatives. The first would eliminate the SGR altogether and seek to hold down costs through quality initiatives that focus on payment for quality and not volume of services.

Pay-for-performance and other efficiency initiatives would play a large part in any such plan.

The second alternative would make the SGR more nuanced by dividing doctors into regions and even small groups to prevent efficient regions and practices from being punished by lower payment when unscrupulous doctors perform unnecessary services to make more money.

Doctors seem to largely favor the first approach.

"The Medicare payment system is broken," said Cecil Wilson, chair of the board of trustees of the American Medical Association, the largest U.S. association representing doctors. "As long as spending targets remain in place, there is no end to the cycle.

"No amount of tinkering can fix what is broken beyond repair."

The formula punishes efficient doctors, Wilson said, and prevents focus on changes that will really save money, like ensuring all beneficiaries have a primary-care provider to give preventive care and coordinate treatment.

Keeping the SGR -- with its unpredictable reimbursement rates -- will also hurt surgeons, Thomas Russell, executive director of the American College of Surgeons, told United Press International.

"If we don't do something, we're going to have a real shortage of surgeons," he said. "It's going to drive doctors into these little niches where they do facelifts all the time."

But others say a real fix for Medicare's fiscal crunch will be longer and more complicated.

CBO's Orszag recommended a separate body either in or out of the federal government to evaluate the cost and efficacy of different treatments.

MedPAC's Hackbarth also called for increasing the resources of the Centers for Medicare & Medicaid Services (CMS) to look into ways to improve the payment system.

"One of the most important bottlenecks is (CMS) and its capacity," he said. "We need a 21st-century Medicare program, and we're trying to do it on the cheap."

"We need a fundamental shift toward greater focus on value and efficiency," Mark McClellan, a health economist with the American Enterprise Institute and former head of Medicare, told UPI.

"That's really the only kind of care we can afford," McClellan said. "There will certainly be some challenges, and it may be a multiyear project, but we need to do it, and the sooner the better."

Investing in the agency's resources for focusing on quality would help, he said, but there also needs to be a public discussion about the best ways to improve physician payment.

There may not even be one fix for all time, he added, but it is good that the report is asking the question of how to make progress.

"More of the same isn't going to do it."

Analysis: Trading away debt, disease

WASHINGTON, March 1 (UPI) -- Soon, some developing countries will be able to cash in their debt for healthcare -- and better financial health.

To finance the $50 billion-per-year gap between global health needs and global health aid, a flurry of inventive proposals have been put forth, including promises to buy future drugs and a tax on airline tickets.

But the Global Fund for AIDS, Tuberculosis and Malaria is resurrecting an old idea: letting countries cancel debt in exchange for undertaking specific development projects.

This year, Indonesia -- soon to be followed by Pakistan, Peru and Kenya -- will be the first country involved in the fund's new Debt2Health program in which tens of millions of dollars in debt will be negotiated in exchange for spending on fund-approved health projects.

Supporters of the plan say it will funnel much-needed funding into poor countries' health sectors. But others warn the potential of the project depends on how well it surmounts obstacles that have sunk debt-swaps in the past.

"It's win-win," Paul Zeitz, executive director of the Global AIDS Alliance, said Wednesday at the Brookings Institution.

Creditors reduce their risk, he said, and highly indebted countries with "an urgent, pressing health crisis" get additional resources to combat it, he said. In addition, participating countries often save money, because the exchange comes with a negotiated steep discount so that a $25 million health project could erase $50 million in debt.

In Indonesia, swap negotiations are under way with the German government under the auspices of the Global Fund. The Southeast Asian country, which spends 40 percent of its annual budget servicing its $34 billion debt burden, will exchange $180 million in debt for $90 million in health spending.

The remaining three pilot projects should be wrapped up by 2010, and the hope is to extend such arrangements to more highly indebted, high disease-burden countries after that, said Kingsley Chiedu Moghalu, head of global partnerships at the fund.

Arranging more of the agreements, however, may not be so easy.

At the peak of the Third World debt crisis in the 1980s, interested third parties purchased debt for pennies on the dollar, and then offered to erase it if the debtor country undertook any of a variety of projects. Several Central American countries, for example, eliminated large chunks of debt by protecting their rainforests.

But even during that time of copious debt, and the mutual desperation of debtor countries and lenders, less than $200 million was swapped.

Part of the reason is that political will is sometimes lacking in debtor countries, said Ngozi Okonjo-Iweala, a former Nigerian finance minister who participated in many swap negotiations.

When countries are not servicing their debt at all, "there is no real impact on the budget at all," she said, "and under the agreement, there is an immediate impact."

As a result, some politicians decide that "the debt is unserviceable, we're not doing anything, we're not swapping," she said.

There is also sometimes frustration with the limits put on how swapped funds can be spent, Okonjo-Iweala added, and creditors can also be tough negotiators that offer little or no discount on debt, she said.

But bilateral donors like Germany are warm and fuzzy compared to private lenders and export-import banks that hold 40 percent of the $2.5 trillion in developing-country debt, Zeitz said. Few deals of any kind have been brokered with such lenders, and none offers significant discounts.

"The time has come to bring them to the table," he said.

But some things have changed since the 1980s that might make negotiations more fruitful, said Homi Kharas, former chief economist of the East Asia and Pacific Region at the World Bank and visiting fellow at the Brookings Institution.

Countries are more financially solvent and have greater foreign-currency reserves than two decades ago, he said, which will give them stronger negotiating positions but also make them less likely to come to the table.

The best idea may be to offer debt-swapping as part of a menu of options to countries trying to improve their health infrastructure, Kharas added.

Despite the difficulties, Okonjo-Iweala said, it is worth it to pursue swapping as another way to increase health resources.

"Let's look at this and see what are the stumbling blocks in the way and try to take it from there."