Congress is poised to entangle Medicare doctors in even more bureaucratic red tape. In its version of the budget reconciliation bill, the Senate voted to establish new reimbursement reporting and compliance rules for physicians practicing in the Medicare program.

Enacted as part of the Deficit Reduction Omnibus Reconciliation Act of 2005, Section 6110 of the Senate bill creates a "values-based purchasing" provision in the Medicare program. This provision would tie Medicare physician payment, as well as the payment of other medical professionals, to new "quality" reporting and compliance requirements, reducing a doctor's payment by 2 percent for certain services if the doctor did not report "quality-related" data. The Senate bill further specifies that services to be included under the "values-based" purchasing provision would also include hospital inpatient services and the services of home health agencies and skilled nursing facilities.

The proposed payment reduction (1 percent in the first year and 2 percent thereafter) from non-compliant physicians and providers would establish a funding pool to be redistributed the following year to physicians and other medical providers that do comply. The Congressional Budget Office (CBO) estimates that the provision would reduce total Medicare spending by $4.5 billion over the 2006-2010 period.[1]

The Evidence. When learning how to treat patients, doctors are taught that they are first to "do no harm." Lawmakers should follow suit. While federal lawmakers are rushing to implement "values-based purchasing" in Medicare, they ought to take a closer look at the professional literature on the topic, including the limited uses of "evidence-based medicine" underlying this approach. For example, Harvard University's Meredith B. Rosenthal and her colleagues recently published "Early Experience with Pay for Performance from Concept to Practice" in the Journal of the American Medical Association[2] in an attempt to fill the void of published research on this physician payment strategy. Curiously, the accompanying JAMA editorial rightly notes that in health care there have been "only nine randomized controlled trials of Pay For Performance…reported in the literature."[3] In reviewing those studies, we note that the review by the Agency for Healthcare Research and Quality (AHRQ) concluded that "little unequivocal data" supported this approach.[4]

Of particular interest, in Dr. Rosenthal's study, a group of Pacific Northwest physicians who were not operating under a pay for performance bonus system scored higher than the California physicians who were.[5] Clearly, beyond the absence or presence of financial bonuses, other factors have been affecting the care of these patients. In fact, such financial bonuses are likely a superfluous source of motivation when compared to the other factors motivating typical physicians treating patients. These other motivators include the desire to help another human being who is suffering, pride in one's work, use of one's skills to meet the challenge of the individual medical case, and the desire to maintain a sterling reputation in one's community. And if these are not strong enough motivators, medical malpractice attorneys are looking over doctors' shoulders as they treat their patients.

The Problems. When one reviews the professional literature relating to the medical "pay for performance" scheme, as we have recently done in a Heritage Foundation analysis, study after study suggests that there are various problems with this approach, including limitations on evidence-based medicine, an overemphasis on process in the payment system, the subversion of physicians' professional judgment on individual patient care, the undermining of personalized health care, an inhibition of medical innovation, the threat of unproductive "gaming" in the payment system, and a weakening of the traditional doctor-patient relationship.[6]

Major Policy Change. As enacted, the provisions of the Senate bill would establish, in effect, government guidelines for the practice of medicine and tie Medicare payment to physician compliance with those guidelines. Senior and other citizens should know that this is a radical break from the original Medicare policy that traditionally prohibited federal officials from interfering in the practice of medicine.

The irony of the recent Senate action is that with all of the rhetoric on the importance of "evidence-based medicine," the Congress is poised to implement a Medicare "pay for performance" system that is, in fact, short on evidence and pregnant with perverse incentives. The physicians will have every incentive to enroll in "obedience school" and carefully tend to the bureaucracy's paperwork and government guidelines to secure higher reimbursement in a tight fiscal environment, which will soon get tighter as the baby-boom generation starts to retire. By diverting "the focus" of doctors and other medical professionals from appropriate patient-centered medical care, the Medicare "values-based purchasing" provision will likely create new incentives to game the system in unproductive ways. While doctors are fulfilling their reporting requirements, giving the government the data the government wants, real quality could decline even while the measured indicators are looking good.

Conclusion

The Senate has enacted a new system of Medicare payment that ties physician reimbursement to compliance with government reporting requirements. While this approach, sometimes called "values-based purchasing" or "pay for performance," is superficially attractive, it has the potential to create more perverse incentives in the Medicare program without substantively improving the quality of patient care.

Congress should reform the flawed physician payment system, which is driven by outdated administrative formulas, and introduce changes that reflect the real market conditions of supply and demand for medical services. In the provision of services, there is no greater mechanism than a free market in rewarding quality and providing benefit. In a new Medicare system, driven by consumer choice and competition, patients themselves could pick a health plan that imposed "quality reporting" requirements on doctors. But that would be a matter of consumer choice, not government edict. Meanwhile, Congress should cool its hot regulatory passion and not make the irrational Medicare physician payment system even worse than it is.

Richard Dolinar, M.D., is a practicing physician and a Senior Fellow in Health Care Policy at the Heartland Institute.

For Further Background

On the Medicare "values-based purchasing" concept, see Richard Dolinar, M.D., and S. Luke Leininger, "Pay for Performance or Compliance? A Second Opinion on Medicare Reimbursement," Heritage Foundation Backgrounder No. 1882, October 5, 2005, at www.heritage.org/research/healthcare/bg1882.cfm.

On the unresolved problems of the Medicare physician payment update formula, see Robert E. Moffit, Ph.D., "Why Doctors Are Abandoning Medicare and What Should Be Done About It," Heritage Foundation Backgrounder No. 1539, April 22, 2002, at www.heritage.org/research/healthcare/bg1539.cfm.