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their Practice Patterns Is a Promising Step Toward Encouraging Program 
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Testimony: 

Before the Subcommittee on Health, Committee on Ways and Means, House 
of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EDT: 

Thursday, May 10, 2007: 

Medicare: 

Providing Systematic Feedback to Physicians on their Practice Patterns 
Is a Promising Step Toward Encouraging Program Efficiency: 

Statement of A. Bruce Steinwald: 
Director, Health Care: 

GAO-07-862T: 

GAO Highlights: 

Highlights of GAO-07-862T, a testimony before the Subcommittee on 
Health, Committee on Ways and Means, House of Representatives 

Why GAO Did This Study: 

GAO was asked to discuss—based on Medicare: Focus on Physician Practice 
Patterns Can Lead to Greater Program Efficiency, GAO-07-307 (Apr. 30, 
2007)—the importance in Medicare of providing feedback to physicians on 
how their use of health care resources compares with that of their 
peers. GAO’s report discusses an approach to analyzing physicians’ 
practice patterns in Medicare and ways the Centers for Medicare & 
Medicaid Services (CMS) could use the results. In a related matter, 
Medicare’s sustainable growth rate system of spending targets used to 
moderate physician spending growth and annually update physician fees 
has been problematic, acting as a blunt instrument and lacking in 
incentives for physicians individually to be attentive to the efficient 
use of resources in their practices. GAO’s statement focuses on (1) the 
results of its analysis estimating the prevalence of inefficient 
physicians in Medicare and (2) the potential for CMS to profile 
physicians in traditional fee-for-service Medicare for efficiency and 
use the results in ways that are similar to other purchasers’ efforts 
to encourage efficiency. 

What GAO Found: 

Having considered efforts of 10 private and public health care 
purchasers that routinely evaluate physicians for efficiency and other 
factors, GAO conducted its own analysis of physician practices in 
Medicare. GAO focused the analysis on generalists—physicians who 
described their specialty as general practice, internal medicine, or 
family practice—and selected metropolitan areas that were diverse 
geographically and in terms of Medicare spending per beneficiary. 
Although GAO did not include specialists in its analysis, its method 
does not preclude profiling specialists, as long as enough data are 
available to make meaningful comparisons across physicians. Based on 
2003 Medicare claims data, GAO’s analysis found outlier generalist 
physicians—physicians who treat a disproportionate share of overly 
expensive patients—in all 12 metropolitan areas studied. Outlier 
generalists and other generalists saw similar numbers of Medicare 
patients and their respective patients averaged the same number of 
office visits. However, after taking health status and location into 
account, GAO found that Medicare patients who saw an outlier 
generalist—compared with those who saw other generalists—were more 
likely to have been hospitalized, more likely to have been hospitalized 
multiple times, and more likely to have used home health services. By 
contrast, they were less likely to have been admitted to a skilled 
nursing facility. GAO concluded that outlier generalists were likely to 
practice medicine inefficiently. 

CMS has tools available to evaluate physicians’ practices for 
efficiency, including a comprehensive repository of Medicare claims 
data to compute reliable efficiency measures and substantial experience 
adjusting for differences in patients’ health status. The agency also 
has wide experience in conducting educational outreach to physicians 
with respect to improper billing practices and potential 
fraud—providing individual physicians, in some cases, comparative 
information on how the physician varies from other physicians in the 
same specialty or in other ways. A physician education effort based on 
efficiency profiling would therefore not be a foreign concept in 
Medicare. For example, CMS could provide physicians a report that 
compares their practice’s efficiency with that of their peers, enabling 
physicians to see whether their practice style is outside the norm. As 
for implementing other strategies to encourage efficiency, such as the 
use of certain financial incentives, CMS would likely need additional 
legislative authority. 

CMS agreed with the need to measure physician resource use in Medicare 
but raised concerns about the costs involved in reporting the results 
and was silent on other strategies discussed beyond physician 
education. GAO concurs that resource use measurement and reporting 
activities would require adequate funding; however, GAO is concerned 
that efforts to achieve efficiency that rely solely on physician 
education without financial or other incentives for physicians to curb 
inefficiencies will be suboptimal. 

What GAO Recommends: 

In its report, GAO recommended that CMS develop a system that 
identifies individual physicians with inefficient practice patterns 
and, seeking legislative authority as necessary, uses the results to 
improve program efficiency. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-862T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact A. Bruce Steinwald at 
(202) 512-7101or steinwalda@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today as you discuss the importance of 
physician-focused strategies to improve efficiency in Medicare. One 
such strategy entails providing feedback to physicians on how their use 
of health care resources compares with that of their peers. We recently 
issued a report, entitled Medicare: Focus on Physician Practice 
Patterns Can Lead to Greater Program Efficiency,[Footnote 1] which 
discusses an approach to analyzing physicians' practice patterns in 
Medicare and ways the Centers for Medicare & Medicaid Services 
(CMS)[Footnote 2] could use the results of such an analysis to modify 
inefficient physician behavior. In the report, we used the term 
efficiency to mean providing and ordering a level of services that is 
sufficient to meet a patient's health care needs but not excessive, 
given a patient's health status. 

The report fulfilled a 2003 mandate that we examine aspects of 
physician compensation in Medicare, pertaining only to physicians 
serving beneficiaries in traditional fee-for-service (FFS) 
Medicare.[Footnote 3] This topic has been of significant interest to 
the Congress, as Medicare's current system of spending targets used to 
moderate physician spending growth and annually update physician fees 
has been problematic. This spending target system--called the 
sustainable growth rate (SGR) system--adjusts Medicare's physician fees 
based on the extent to which actual spending aligns with specified 
targets. If the growth in the number of services provided per 
beneficiary--referred to as volume--and in the average complexity and 
costliness of services--referred to as intensity--is high enough, 
spending will exceed the SGR target. In recent years, the SGR system 
has called for cuts in physician fees to offset volume and intensity 
increases that have exceeded spending targets. Although these cuts have 
been overridden by legislative or administrative action, a sustained 
period of declining fees under the SGR system is projected. 
Policymakers are therefore concerned about the appropriateness of the 
SGR system for updating physician fees and about physicians' continued 
participation in the Medicare program. The problem, in part, is that 
the SGR system acts as a blunt instrument in that all physicians are 
subject to the consequences of excess spending--namely, downward fee 
adjustments--that may stem from the excessive use of resources by only 
some physicians. In addition, under the SGR system, individual 
physicians have no incentive to be attentive to the efficient use of 
resources in their own practices. 

Policymakers are also concerned that some of the increase in volume and 
intensity that drives spending growth may not be medically necessary. 
Experts agree that physicians play a central role in the generation of 
health care expenditures in total.[Footnote 4] For example, physicians 
refer patients to other physicians; they admit patients to hospitals, 
skilled nursing facilities, and hospices; and they order services 
delivered by other health care providers, such as imaging studies, 
laboratory tests, and home health services. However, some of the 
spending for services provided and ordered by physicians may not be 
warranted. For example, the wide geographic variation in Medicare 
spending per beneficiary--unrelated to beneficiary health status or 
outcomes--provides evidence that health needs alone do not determine 
spending.[Footnote 5] Medicare physician payment policy does little to 
change this situation; payments under the Medicare program are not 
designed to foster individual physician responsibility for the most 
effective medical practices. In contrast, some public and private 
health care purchasers have initiated programs to identify efficient 
physicians and encourage patients to obtain care from them. 

Against this backdrop, my remarks today will focus on (1) the results 
of our analysis estimating the prevalence of inefficient physicians in 
Medicare and (2) the potential for CMS to profile physicians in 
traditional FFS Medicare for efficiency and use the results in ways 
that are similar to other purchasers' efforts to encourage efficiency. 
My remarks are based on findings in our report: Medicare: Focus on 
Physician Practice Patterns Can Lead to Greater Program 
Efficiency.[Footnote 6] Having considered the efforts of 10 private and 
public health care purchasers that routinely evaluate physicians for 
efficiency and other factors, we conducted our own analysis of 
physician practices in Medicare. We focused the analysis on 
generalists--physicians who described their specialty as general 
practice, internal medicine, or family practice--and selected 
metropolitan areas that were diverse geographically and in terms of 
Medicare spending per beneficiary. Although we did not include 
specialists in the analysis, our method does not preclude profiling 
specialists, as long as enough data are available to make meaningful 
comparisons across physicians. We based our analysis on 2003 Medicare 
claims data. We conducted our work from September 2005 through May 2007 
in accordance with generally accepted government auditing standards. 

In summary, we found outlier generalist physicians--physicians who 
treat a disproportionate share of overly expensive patients--in all 12 
metropolitan areas studied. Outlier generalists and other generalists 
saw similar numbers of Medicare patients and their respective patients 
averaged the same number of office visits. However, after taking health 
status and location into account, we found that Medicare patients who 
saw an outlier generalist--compared with those who saw other 
generalists--were more likely to have been hospitalized, more likely to 
have been hospitalized multiple times, and more likely to have used 
home health services. By contrast, they were less likely to have been 
admitted to a skilled nursing facility. We concluded that outlier 
generalists were likely to practice medicine inefficiently. 

CMS has tools available to evaluate physicians' practices for 
efficiency, including a comprehensive repository of Medicare claims 
data to compute reliable efficiency measures and substantial experience 
adjusting for differences in patients' health status. The agency also 
has wide experience in conducting educational outreach to physicians 
with respect to improper billing practices and potential fraud-- 
providing individual physicians, in some cases, comparative information 
on how the physician varies from other physicians in the same specialty 
or in other ways. A physician education effort based on efficiency 
profiling results would therefore not be a foreign concept in Medicare. 
For example, CMS could provide physicians a report that compares their 
practice's efficiency with that of their peers, enabling physicians to 
see whether their practice style is outside the norm. As for 
implementing other strategies to encourage efficiency, such as the use 
of certain financial incentives, CMS would likely need additional 
legislative authority. 

In our April 2007 report, we recommended that CMS develop a system that 
identifies individual physicians with inefficient practice patterns 
and, seeking legislative changes as necessary, uses the results to 
improve program efficiency. CMS agreed with the need to measure 
physician resource use in Medicare but raised concerns about the costs 
involved in reporting the results and was silent on other strategies 
discussed beyond physician education. We concur that resource use 
measurement and reporting activities would require adequate funding; 
however, we are concerned that efforts to achieve efficiency that rely 
solely on physician education without financial or other incentives for 
physicians to curb inefficiencies will be suboptimal. 

Background: 

Linking efficiency to physician payment policy has been a subject of 
interest among policymakers and health policy analysts. For example, 
the Institute of Medicine has recently recommended that Medicare 
payment policies should be reformed to include a system for paying 
health care providers differentially based on how well they meet 
performance standards for quality or efficiency or both.[Footnote 7] In 
April 2005, CMS initiated a demonstration mandated by the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) to test this approach.[Footnote 8] Under the Physician Group 
Practice demonstration, 10 large physician group practices, each 
comprising at least 200 physicians, are eligible for bonus payments if 
they meet quality targets and succeed in keeping the total expenditures 
of their Medicare population below annual targets.[Footnote 9] 

Several studies have found that Medicare and other purchasers could 
realize substantial savings if a portion of patients switched from less 
efficient to more efficient physicians. The estimates vary according to 
assumptions about the proportion of beneficiaries changing 
physicians.[Footnote 10] In 2003, the Consumer-Purchaser Disclosure 
Project, a partnership of consumer, labor, and purchaser organizations, 
asked actuaries and health researchers to estimate the potential 
savings to Medicare if a small proportion of beneficiaries started 
using more efficient physicians. The Project reported that Medicare 
could save between 2 and 4 percent of total costs if 1 out of 10 
beneficiaries moved to more efficient physicians. This conclusion is 
based on information received from one actuarial firm and two academic 
researchers. One researcher concluded, based on his simulations, that 
if 5 to 10 percent of Medicare enrollees switched to the most efficient 
physicians, savings would be 1 to 3 percent of program costs--which 
would amount to about $5 billion to $14 billion in 2007. 

The Congress has also recently expressed interest in approaches to 
constrain the growth of physician spending. The Deficit Reduction Act 
of 2005 required the Medicare Payment Advisory Commission (MedPAC) to 
study options for controlling the volume of physicians' services under 
Medicare.[Footnote 11] One approach for applying volume controls that 
the Congress directed MedPAC to consider is a payment system that takes 
into account physician outliers. 

In our report on which this statement is based, we sought information 
about other purchasers' profiling efforts designed to encourage 
physicians to practice efficiently. We selected 10 health care 
purchasers that profiled physicians in their networks--that is, 
compared physicians' performance to an efficiency standard to identify 
those who practiced inefficiently.[Footnote 12] To measure efficiency, 
the purchasers we spoke with generally compared actual spending for 
physicians' patients to the expected spending for those same patients, 
given their clinical and demographic characteristics.[Footnote 13] Most 
purchasers said they also evaluated physicians on quality. The 
purchasers linked their efficiency profiling results and other measures 
to a range of physician-focused strategies to encourage the efficient 
provision of care. Some of the purchasers said their profiling efforts 
produced savings. 

Through Profiling, We Found That Physicians Likely to Practice 
Inefficiently in Medicare Were Present in All Areas Selected for Study: 

Having considered the efforts of other health care purchasers in 
profiling physicians for efficiency, we conducted our own profiling 
analysis of physician practices in Medicare and found individual 
physicians who were likely to practice medicine inefficiently in each 
of 12 metropolitan areas studied. We selected areas that were diverse 
geographically and in terms of Medicare spending per 
beneficiary.[Footnote 14] We focused our analysis on generalists-- 
physicians who described their specialty as general practice, internal 
medicine, or family practice. Although we did not include specialists 
in our analysis, our method does not preclude profiling specialists, as 
long as enough data are available to make meaningful comparisons across 
physicians. 

Under our methodology, we computed the percentage of overly expensive 
patients in each physician's Medicare practice. To identify overly 
expensive patients, we grouped the Medicare beneficiaries in the 12 
areas according to their health status, using diagnostic and 
demographic information. We classified beneficiaries as overly 
expensive if their total Medicare expenditures--for services provided 
by all health providers, not just physicians--ranked in the top fifth 
of their health status cohort for 2003 claims.[Footnote 15] 

Within each health status cohort, we observed large differences in 
total Medicare spending across beneficiaries. For example, in one 
cohort of beneficiaries whose health status was about average, overly 
expensive beneficiaries--the top fifth ranked by expenditures--had 
average total expenditures of $24,574, as compared with the cohort's 
bottom fifth, averaging $1,155.[Footnote 16] (See fig. 1.) 

Figure 1: Average Medicare Expenditures, by Quintile, for Beneficiaries 
of Nearly Average Health Status: 

[See PDF for image] 

Source: GAO analysis of 2003 Medicare claims and enrollment data. 

Note: Beneficiaries who died during 2003 are excluded. 

[End of figure] 

This variation may reflect differences in the number and type of 
services provided and ordered by these patients' physicians as well as 
factors not under the physicians' direct control, such as a patient's 
response to and compliance with treatment protocols. Holding health 
status constant, overly expensive beneficiaries accounted for nearly 
one-half of total Medicare expenditures even though they represented 
only 20 percent of beneficiaries in our sample. 

Once these patients were identified and linked to the physicians who 
treated them, we were able to determine which physicians treated a 
disproportionate share of these patients compared with their generalist 
peers in the same location. We classified these physicians as outliers-
-that is, physicians whose proportions of overly expensive patients 
would occur by chance less than 1 time in 100. Notably, all physicians 
had some overly expensive patients in their Medicare practice, but 
outlier physicians had a much higher percentage of such patients. We 
concluded that these outlier physicians were likely to be practicing 
medicine inefficiently.[Footnote 17] 

Based on 2003 Medicare claims data, our analysis found outlier 
generalist physicians in all 12 metropolitan areas we studied. The 
Miami area had the highest percentage--almost 21 percent--of outlier 
generalists, followed by the Baton Rouge area at about 11 percent. (See 
table 1.) Across the other areas, the percentage of outliers ranged 
from 2 percent to about 6 percent. 

Table 1: Percentage of Outlier Physicians in 12 Metropolitan Areas, 
2003: 

Metropolitan area: Miami, Fla; 
Percentage of outlier physicians: 20.9. 

Metropolitan area: Baton Rouge, La; 
Percentage of outlier physicians: 11.2. 

Metropolitan area: Cape Coral, Fla; 
Percentage of outlier physicians: 6.3. 

Metropolitan area: Portland, Maine; 
Percentage of outlier physicians: 5.8. 

Metropolitan area: Riverside, Calif; 
Percentage of outlier physicians: 5.8. 

Metropolitan area: Phoenix, Ariz; 
Percentage of outlier physicians: 5.2. 

Metropolitan area: Sacramento, Calif; 
Percentage of outlier physicians: 5.2. 

Metropolitan area: Des Moines, Iowa; 
Percentage of outlier physicians: 4.8. 

Metropolitan area: Columbus, Ohio; 
Percentage of outlier physicians: 4.6. 

Metropolitan area: Pittsburgh, Pa; 
Percentage of outlier physicians: 3.8. 

Metropolitan area: Springfield, Mass; 
Percentage of outlier physicians: 2.9. 

Metropolitan area: Albuquerque, N. Mex;
 Percentage of outlier physicians: 2.0. 

Source: GAO analysis of 2003 CMS claims and enrollment data. 

Note: Outlier percentages greater than 1 percent indicate that an area 
has an excessive number of outlier physicians. 

[End of table] 

In 2003, outlier generalists' Medicare practices were similar to those 
of other generalists, but the beneficiaries they treated tended to 
experience higher utilization of certain services. Outlier generalists 
and other generalists saw similar average numbers of Medicare patients 
(219 compared with 235) and their patients averaged the same number of 
office visits (3.7 compared with 3.5). However, after taking into 
account beneficiary health status and geographic location, we found 
that beneficiaries who saw an outlier generalist, compared with those 
who saw other generalists, were 15 percent more likely to have been 
hospitalized, 57 percent more likely to have been hospitalized multiple 
times, and 51 percent more likely to have used home health services. By 
contrast, they were 10 percent less likely to have been admitted to a 
skilled nursing facility.[Footnote 18] 

CMS Has Tools Available to Profile Physicians for Efficiency: 

Medicare's data-rich environment is conducive to identifying physicians 
who are likely to practice medicine inefficiently. Fundamental to this 
effort is the ability to make statistical comparisons that enable 
health care purchasers to identify physicians practicing outside of 
established standards. CMS has the tools to make statistically valid 
comparisons, including comprehensive medical claims information, 
sufficient numbers of physicians in most areas to construct adequate 
sample sizes, and methods to adjust for differences in patient health 
status. 

Among the resources available to CMS are the following: 

* Comprehensive source of medical claims information. CMS maintains a 
centralized repository, or database, of all Medicare claims that 
provides a comprehensive source of information on patients' Medicare- 
covered medical encounters. Using claims from the central database, 
each of which includes the beneficiary's unique identification number, 
CMS can identify and link patients to the various types of services 
they received and to the physicians who treated them. 

* Data samples large enough to ensure meaningful comparisons across 
physicians. The feasibility of using efficiency measures to compare 
physicians' performance depends, in part, on two factors: the 
availability of enough data on each physician to compute an efficiency 
measure and numbers of physicians large enough to provide meaningful 
comparisons. In 2005, Medicare's 33.6 million FFS enrollees were served 
by about 618,800 physicians. These figures suggest that CMS has enough 
clinical and expenditure data to compute efficiency measures for most 
physicians billing Medicare. 

* Methods to account for differences in patient health status. Because 
sicker patients are expected to use more health care resources than 
healthier patients, the health status of patients must be taken into 
account to make meaningful comparisons among physicians. Medicare has 
significant experience with risk adjustment, a methodological tool that 
assigns individuals a health status score based on their diagnoses and 
demographic characteristics. For example, CMS has used increasingly 
sophisticated risk adjustment methodologies over the past decade to set 
payment rates for beneficiaries enrolled in managed care plans. On the 
related topic of measuring resource use, CMS noted in comments on a 
draft of our report that emerging "episode grouper" technology was a 
promising approach to measuring resource use associated with a given 
episode of care. We agree, but we also consider our measurement of 
resource use on a per capita basis, capturing total health care 
expenditures for a given period of time, equally promising. 

To conduct profiling analyses, CMS would likely make methodological 
decisions similar to those made by the health care purchasers we 
interviewed. For example, the health care purchasers we spoke with made 
choices about whether to profile individual physicians or group 
practices; which risk adjustment tool was best suited for a purchaser's 
physician and enrollee population; whether to measure costs associated 
with episodes of care or the costs, within a specific time period, 
associated with the patients in a physician's practice; and what 
criteria to use to define inefficient practice patterns. 

As for ways CMS could use profiling results, actions taken by other 
health care purchasers we interviewed may be instructive in suggesting 
future directions for Medicare. For example, all purchasers in our 
study used physician education as part of their strategy to change 
behavior. Educational outreach to physicians has been a long-standing 
and widespread activity in Medicare as a means to change physician 
behavior based on profiling efforts to identify improper billing 
practices and potential fraud. Outreach includes letters sent to 
physicians alerting them to billing practices that are 
inappropriate.[Footnote 19] In some cases, physicians are given 
comparative information on how the physician varies from other 
physicians in the same specialty or locality with respect to use of a 
certain service. 

A physician education effort based on efficiency profiling would 
therefore not be a foreign concept in Medicare. For example, CMS could 
provide physicians a report that compares their practice's efficiency 
with that of their peers. This would enable physicians to see whether 
their practice style is outside the norm. In its March 2005 report to 
the Congress,[Footnote 20] MedPAC recommended that CMS measure resource 
use by physicians and share the results with them on a confidential 
basis. MedPAC suggested that such an approach would enable CMS to gain 
experience in examining resource use measures and identifying ways to 
refine them while affording physicians the opportunity to change 
inefficient practices.[Footnote 21] In commenting on a draft of our 
report, CMS noted that the agency would incur significant recurring 
costs in developing reports on physician resource use and disseminating 
them nationwide. We agree that any such undertaking would need to be 
adequately funded. 

Another application of profiling results used by the purchasers we 
spoke with entailed sharing comparative information with enrollees. CMS 
has considerable experience comparing certain providers on quality 
measures and posting the results to a Web site. Currently, Medicare Web 
sites with comparative information exist for hospitals, nursing homes, 
home health care agencies, dialysis facilities, and managed care plans. 
In its March 2005 report to the Congress, MedPAC noted that CMS could 
share results of physician performance measurement with beneficiaries 
once the agency gained sufficient experience with its physician 
measurement tools. 

Several structural features of the Medicare program would appear to 
pose challenges to the use of other strategies designed to encourage 
efficiency. These features include a beneficiary's freedom to choose 
any licensed physician permitted to be paid by Medicare; the lack of 
authority to exclude physicians from participating in Medicare unless 
they engage in unlawful, abusive, or unprofessional practices; and a 
physician payment system that does not take into account the efficiency 
of the care provided. Under these provisions, CMS would not likely be 
able--in the absence of additional legislative authority--to assign 
physicians to tiers associated with varying beneficiary copayments, tie 
fee updates of individual physicians to meeting performance standards, 
or exclude physicians who do not meet practice efficiency and quality 
criteria. In commenting on our draft report, CMS was silent with regard 
to the need for legislative authority. The agency noted that it is 
studying and implementing initiatives that link assessment of physician 
performance to financial and other incentives, such as public 
reporting. 

Regardless of the use made of physician profiling results, the 
involvement of, and acceptance by, the physician community and other 
stakeholders of any actions taken is critical. Several purchasers 
described how they had worked to get physician buy-in. They explained 
their methods to physicians and shared data with them to increase 
physicians' familiarity with and confidence in the purchasers' 
profiling. CMS has several avenues for obtaining the input of the 
physician community. Among them is the federal rule-making process, 
which generally provides a comment period for all parties affected by 
prospective policy changes. In addition, CMS forms federal advisory 
committees--including ones composed of physicians and other health care 
practitioners--that regularly provide it with advice and 
recommendations concerning regulatory and other policy decisions. 

Having considered the tools CMS has available and the structural 
challenges the agency would likely face in seeking to implement certain 
incentives used by other purchasers, we recommended in our April 2007 
report that the Administrator of CMS develop a profiling system-- 
seeking legislative authority, as necessary--that includes the 
following elements: 

* total Medicare expenditures as the basis for measuring efficiency, 

* adjustments for differences in patients' health status, 

* empirically based standards that set the parameters of efficiency, 

* a physician education program that explains to physicians how the 
profiling system works and how their efficiency measures compare with 
those of their peers, 

* financial or other incentives for individual physicians to improve 
the efficiency of the care they provide, and: 

* methods for measuring the impact of physician profiling on program 
spending and physician behavior. 

Concluding Observations: 

Policymakers have expressed interest in linking physician performance 
to Medicare payment so that incentives under FFS for physicians to 
practice inefficiently can be reversed. In our view, Medicare should 
adopt an approach that relies not only on physician education but also 
financial or other incentives--such as discouraging patients from 
obtaining care from physicians who are determined to be inefficient. A 
primary virtue of profiling is that, coupled with incentives to 
encourage efficiency, it can create a system that operates at the 
individual physician level. In this way, profiling can address a 
principal criticism of the SGR system, which only operates at the 
aggregate physician level. Although any savings from physician 
profiling alone would clearly not be sufficient to correct Medicare's 
long-term fiscal imbalance, it could be an important part of a package 
of reforms aimed at future program sustainability. 

Mr. Chairman, this concludes my prepared remarks. I will be pleased to 
answer any questions you or the Subcommittee Members may have. 

GAO Contacts and Acknowledgments: 

For future contacts regarding this testimony, please contact A. Bruce 
Steinwald at (202) 512-7101 or at steinwalda@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this statement. Other individuals who made 
key contributions include Phyllis Thorburn, Assistant Director; Todd 
Anderson; Hannah Fein; Richard Lipinski; and Eric Wedum. 

FOOTNOTES 

[1] GAO-07-307 (Washington, D.C.: Apr. 30, 2007). 

[2] CMS is the agency that administers Medicare. 

[3] See Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA), Pub. L. No. 108-173, § 953, 117 Stat. 2066, 2428. 

[4] GAO, Comptroller General's Forum on Health Care: Unsustainable 
Trends Necessitate Comprehensive and Fundamental Reforms to Control 
Spending and Improve Value, GAO-04-793SP (Washington D.C.: May 1, 
2004); Laura A. Dummit, Medicare Physician Payments and Spending, 
National Health Policy Forum, Issue Brief Number 815 (Washington D.C.: 
Oct. 9, 2006). 

[5] Elliot S. Fisher, et al., "The Implications of Regional Variations 
in Medicare Spending. Part 1: The Content, Quality, and Accessibility 
of Care," Annals of Internal Medicine, vol. 138, no. 4 (2003): 273-287. 

[6] GAO-07-307. 

[7] Institute of Medicine, Rewarding Provider Performance: Aligning 
Incentives in Medicare (Pathways to Quality Health Care Series) - 
Summary (Washington, D.C.: 2007). 

[8] Pub. L. No. 106-554, app. F, § 412(a), 114 Stat. 2763, 2763A-509- 
515. 

[9] We are currently conducting a study of the demonstration, as 
required by BIPA (Pub. L. No. 106-554, app. F, § 412(b), 114 Stat. 
2763, 2763A-515). 

[10] See Consumer-Purchaser Disclosure Project, More Efficient 
Physicians: A Path to Significant Savings in Health Care (Washington, 
D.C.: July 2003). 

[11] MedPAC is an independent federal body established by the Balanced 
Budget Act of 1997 to advise the Congress on payment, access, and 
quality issues affecting the Medicare program. 

[12] In our report we used the term purchaser to mean health plans as 
well as agencies that manage care purchased from health plans; one of 
the entities we interviewed is a provider network that contracts with 
several insurance companies to provide care to their enrollees. 

[13] Generally, estimates of an individual's expected spending are 
based on factors such as patient diagnoses and demographic traits. 

[14] The 12 metropolitan areas were Albuquerque, N.M; Baton Rouge, La; 
Des Moines, Iowa; Phoenix, Ariz; Miami, Fla; Springfield, Mass; Cape 
Coral, Fla; Riverside, Calif; Pittsburgh, Pa; Columbus, Ohio; 
Sacramento, Calif; and Portland, Maine. 

[15] Expenditures identified were for services from inpatient hospital, 
outpatient, skilled nursing facility, physician, hospice, durable 
medical equipment, and home health providers. 

[16] See GAO-07-307, appendix I, for a depiction of beneficiary 
expenditures at the 20th, 50th, and 80th percentile for each health 
status cohort. 

[17] Our approach to estimating outlier physicians was conservative in 
that it captured only the most extreme practice patterns; therefore, 
our analysis does not mean that all nonoutlier physicians were 
practicing efficiently. 

[18] These findings were derived from logistic regressions in which 
health status, geographic area, and beneficiary contact with an outlier 
generalist were the explanatory variables used to predict whether a 
beneficiary was hospitalized, used home health services, or was 
admitted to a skilled nursing facility. 

[19] Other forms of physician education include face-to-face meetings, 
telephone conferences, seminars, and workshops. 

[20] MedPAC, Report to the Congress: Medicare Payment Policy 
(Washington, D.C.: March 2005). 

[21] In several testimonies before the Congress in the last half of 
2005, CMS officials said that they were taking steps to implement this 
recommendation. See Value-Based Purchasing for Physicians Under 
Medicare: Hearing Before the House Subcommittee on Health, Committee on 
Ways and Means, 109th Cong. (2005) (statement of Mark B. McClellan, MD, 
Ph.D., Administrator of CMS).

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