In its most recent report to Congress, the Medicare Payment Advisory Commission (MedPAC) focused on how incentives in the Medicare payment systems could be changed from those that reward volume, to ones that reward value. The report also suggested penalizing providers of high-cost, low-quality care with lower payments and cutting payments to private plans that provide Medicare coverage.

"Medicare must change the way it pays healthcare providers," said Glenn Hackbarth, chair of MedPAC. "Current incentives reward volume instead of value and costly care instead of efficient, effective care. When providers don't work together, quality suffers and costs increase-which benefits neither the patient nor the Medicare program."

In the "Improving Incentives in the Medicare Program" report submitted to Congress on June 15, MedPAC suggested several ways to modify incentives to change the way care is delivered in the Medicare program.

"Part of the problem is that Medicare's fee-for-service payment systems reward more care--and more complex care--without regard to the quality or value of that care," the report stated. "In addition, Medicare's payment systems create separate payment 'silos' (e.g., inpatient hospitals, physicians, post-acute care providers) and do not encourage coordination among providers within a silo or across silos. Medicare must address those limitations-creating new payment methods that reward higher quality, promote efficient use of limited resources, and encourage effective integration of care."

The commission made several recommendations on how to fix the system, including a focus on graduate medical education. MedPAC suggested that future work on medical education policy issues may explore ways to link delivery system reforms to medical education incentives and structuring medical education subsidies to produce a balance of generalists and specialists.

The report also discussed two variations on the model for accountable care organizations (ACOs): a voluntary model of participation or a mandatory model.

In a voluntary, bonus-only model, ACOs would receive bonuses for meeting cost and quality targets.

In a mandatory, bonus-and-withold model, MedPAC recommended that bonuses could be funded by shared savings and by penalizing providers who fail to meet cost and quality targets.

In 2005, MedPAC recommended that Medicare share information with physicians about the resources they use to provide patient care and Congress passed legislation directing CMS to begin measuring and reporting physician resource use in 2008.

MedPAC suggeted that this should include adopting a methodology for measuring resource use that is transparent, as well as ensure physicians are able to actively modify behavior based on feedback and risk-adjusting clinical data to ensure fair comparison.

MedPAC also suggested that when physicians have a financial interest in imaging equipment, they are more likely to order imaging tests and incur higher overall spending on their patients' care. The report recommended focusing on discouraging unnecessary care, including redundant or unneeded diagnostic tests.

The report also found that Medicare needs a regulatory pathway for follow-on biologics to create price competition among biologic products.

In addition, MedPAC said that Medicare's cost-sharing requirements and its lack of catastrophic protection have been important catalysts behind the widespread use of supplemental coverage. However, coverage that fills in most or all of Medicare's cost sharing can lead to higher use of services and Medicare spending, frequently without corresponding gains in quality of care. The report questioned whether cost sharing can be used as a tool for increasing the value of care while ensuring access to services. It recommended that the traditional Medicare benefit design be redesigned.

MedPAC, as mandated by Congress, also examined ways to improve the Medicare Advantage (MA) program. Under the current system, in 2009 Medicare is paying about $12 billion more for beneficiaries enrolled in MA plans than it would have spent if they were in fee-for-service Medicare. The report discussed options that encourage efficient plans and reward quality, including better chronic care management.

The entire report is available for download at http://www.medpac.gov.