August 2005 | Vol. 23, No. 8

Senate Introduces Bi-Partisan Legislation on Pay for Performance (P4P) and Health Information Technology (HIT)

According to SVU legislative/regulatory advocacy consultant Bill Sarraille of Sidley Austin Brown & Wood LLP, on June 30, 2005, Senate Finance Committee Chairman Charles Grassley (R-IA) and ranking member Max Baucus (D-MT) introduced legislation on Pay for Performance (P4P). The legislation, S. 1356, the "Medicare Value Purchasing Act of 2005" links physician, hospital, Medicare Advantage plans, home care agencies and skilled nursing facilities Medicare payments to quality. The legislation creates a pool that would be distributed to those physicians who meet certain thresholds based on quality performance or improvement. These thresholds will be developed by the Centers for Medicare and Medicaid Services (CMS).

Beginning in 2007, physicians who first report quality data will receive the full update to their payments. Currently, unless the Sustainable Growth Rate (SGR) formula is fixed, that is expected to be somewhere between -4% to -5%. Physicians not reporting would receive an update reduced by 2% over that negative update.

Beginning in 2008, a "quality pool" will be created consisting of a 1 percent reduction to the conversion factor—and will increase by.25 % annually—so that by 2012 the reductions will reach 2%. Providers will get additional payments if they demonstrate they have reached quality thresholds or made quantifiable improvements. Providers have raised concerns regarding the funding mechanism. The legislation also includes a Sense of the Senate on the issue of the SGR and the pending reductions, but it is not binding and does nothing to prevent the reductions. Chairman Grassley has stated that he will most likely combine this legislation with another bill to address the 2006 scheduled payment reduction due to the SGR at the end of the year.

On the same day, Health, Education, Labor and Pensions Chairman Michael Enzi (R-WY) and ranking member Edward Kennedy (D-MA) introduced another in a series of bills on Health Information Technology (HIT), S. 1355, the "Health Information Technology and Quality Improvement Act of 2005". The legislation seeks to enhance the adoption of HIT and to improve quality. The sponsors of both bills view them together, as a way to improve the health care system by controlling health costs through efficient purchasing and the use of health information technology. For a copy of the final bill as introduced, please go to www.senate.gov.