May 8, The Honorable Fred Upton Chairman House Committee on Energy and Commerce United States House of Representatives Washington, DC 20151

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1 May 8, 2013 The Honorable Dave Camp Chairman House Committee on Ways and Means United States House of Representatives Washington D.C The Honorable Fred Upton Chairman House Committee on Energy and Commerce United States House of Representatives Washington, DC Dear Chairmen Camp and Upton: On behalf of the American Society for Clinical Pathology (ASCP), I am writing to share our views on the Overview of SGR Repeal and Reform Proposal produced jointly by the Committee on Ways and Means and Committee on Energy and Commerce. ASCP applauds the Committee s leadership to address the flawed sustainable growth rate (SGR). ASCP agrees that fixing the problems with the SGR must be accompanied by fiscally responsible fundamental reform of the Medicare fee-for-service (FFS) payment system. In addition, as federal initiatives to advance quality reporting in Medicare, efforts must be made to ensure flexibility so that one-size-fits-all requirements do not pose unintended consequences for medical specialties that cannot reasonably meet these requirements. To accomplish this goal, Congress must address financial incentives in the Medicare program that encourage overutilization of costly medical services. In large part, these incentives are the same as those that have encouraged increases in the volume of physician services, which is the root cause of the increased costs threaten the stability of the Medicare physician fee schedule. To address these incentives toward overutilization, the Committees must address abusive physician self-referral practices that are increasing the costs and utilization of Medicare medical services. This is best accomplished by closing unintended loopholes in the Stark self referral law s in office ancillary services exception by removing from the list of IOAS exceptions anatomic pathology, advanced imaging, radiation therapy and physical therapy. We note that the president s budget scored these reforms at $6.8 billion over 10 years though savings anatomic pathology were not included in this score. Our comments focus on two issues. First, closing unintended loopholes in the physician self referral law is critical to reforming the SGR, enhancing the efficiency of the Medicare physician payment system and better controlling unnecessary health care spending. Second, efforts to address quality, efficiency and patient satisfaction must be conscious of the fact that one-size-fits-all requirements may create unfair, unintended negative consequences for certain medical specialties and that Congress needs to provide the Centers for Medicare and Medicaid Services with sufficient authority to provide regulatory relief when necessary to prevent unfair or inappropriate penalties against certain medical providers. 1. Alternative Payment Models: While bundled payments and shared savings models (Accountable Care Organizations) are currently receiving serious attention as alternatives to Fee-for Service (FFS), ASCP believes these alternatives are no panacea for many of the problems wrought by FFS. One of the primary criticisms of FFS is that as payment rates have declined, volume of physician services has increased. A significant portion of these

2 Page 2 volume and cost increases are related to the self-referral of physician services, such as anatomic pathology and clinical laboratory services. ASCP believes, however, that the notion that bundling or shared savings models will discourage self referral in outpatient settings is flawed. Using as an example the case of a prostate biopsy, bundling enables the clinician to pass the bundled payment efficiency discounts on to referred specialist(s)-- such as pathologists. And, similar to a self referral arrangement, the clinician will still, more than likely, be able to profit on their referral. This could allow referring clinicians to earn significant sums on their referrals just like under FFS. Moreover, given that such patient protections as the Stark law, antimarkup rules, etc. would appear to have fewer teeth than under a FFS environment, more providers may be able to engage in potentially abusive self referral arrangements. While it is possible that on a per patient basis the margins may be less than those found in FFS self referral arrangements, as research has repeatedly shown the existence of any incentive to profit on the referral is powerful and, we suspect, that self referral would continue to thrive with bundling. Similarly, shared savings systems, i.e., ACOs, may not be able to provide the incentives or controls necessary to prevent self referral from flourishing. This is because the margins involved with the self referral of physician services compensated under FFS arrangements greatly exceed any shared savings that could encourage self referring physicians to change behavior. Moreover, any attempt to prevent physicians from profiting on self referral could encourage those physicians to cease their participation with the ACO. We note that the regulations establishing the shared savings program specifically exempts contracting entities from the Stark Law as well as the anti-markup rules and other patient protections. Studies have consistently shown across numerous medical specialties that in cases where physicians have a financial interest in their referrals, increased utilization of medical services and higher program costs result. While the following evidence focuses only on the self referral of anatomic pathology services, academic literature is replete with studies documenting the existence of self referral in other medical services too, such as advanced diagnostic imaging, physical therapy, radiation therapy, etc. In 2012, the journal Health Affairs published a study examining utilization and diagnostic accuracy of physicians billing for the pathological analysis of a prostate biopsy. The study provided clear evidence that not only do physicians who profit on their referrals for anatomic pathology services overutilize these services but they were less likely to diagnose cancer. The study found that, on average, urologists who profit on their pathology orders bill for 72 percent more pathology services (10.3 specimens vs. six specimens) than their non-self-referring colleagues. The study noted that non-self-referring urologists were twelve percentage points more likely to diagnose cancer than self-referring urologists. This latter finding the study s author contends is likely because the financial incentives are likely incentivizing the referring physician to perform prostate biopsies on men who are unlikely to have prostate cancer. Additionally, the Medicare Payment Advisory Commission (MedPAC) reported in its June 2010 Report to Congress that the IOAS exception creates incentives to increase volume via physician self referral of services. Indeed, MedPAC s June Report to Congress noted that the IOAS exception was never intended to be used in that manner it is currently being used. MedPAC s June 2010 Report to Congress noted that the IOAS exception was intend for quick turnaround services, such as routine clinical lab tests or X-rays, provided during the same office visit. MedPAC s review of physician billing data revealed that these services are rarely completed during the same office visit--or even the same day. For anatomic pathology services, these services generally cannot

3 Page 3 be completed while the patient is physically present in the physician s office. Consequently the results of these physician services have no bearing on patient care provided during the patient s appointment with the self referring physician. Also, the Department of Health and Human Services Office of the Inspector General (OIG) launched in 2007 an investigation into anatomic pathology-related self-referral. OIG published three audits of physician group practices to examine their utilization of anatomic pathology services after entering into business arrangements to capture pathology reimbursements. In every case, an alarming increase in the utilization of anatomic pathology services was documented once these group practices were able to capture the pathology-related revenues. In the year after the three urology practices entered into arrangements allowing them to profit from their referrals, their utilization of pathology services increased 699%, 230%, and 26%, respectively. One urology group practice increased its per patient utilization of pathology services from one unit of service to almost 9 units of service. With Medicare reimbursing the examination of a biopsy specimen at about $110 per specimen, this represents a cost increase of almost $900 per patient. These arrangements typically utilized a pod lab or other contractual joint venture arrangement to obtain the revenues intended for the performance of the technical and professional components of anatomic pathology services. The OIG audits reveal that all of the audited physician groups billed significantly more biopsies than the area Medicare carrier paid on average to other providers 124%, 65%, and 58%, respectively. It is difficult to justify such significant increases in utilization over a 2 year period on changes in clinical practice, considering the comparison with the billing practices of other area providers. Prior to enactment of the original Stark law, an HHS Office of the Inspector General study found in 1989 that physicians with a financial interest in the clinical laboratories to which they referred Medicare patients [ordered] 45 percent more laboratory services than did physicians who did not have such financial interests. In addition, the Center for Health Policy Studies found that laboratory charges per enrollee under private health insurance programs were 41 percent higher in non-direct billing states. This study also found that laboratory test utilization is higher in non-direct billing states. Direct billing laws require the individual or entity performing the services to bill for it, thus preventing ordering physicians from marking up the cost of the services they order. More and more often, single specialty group practices are adding services listed on the IOAS exception list to their menu of services. The data is quite clear that the inclusion on these designated health services are increasing Medicare s programmatic costs. Consequently, any serious effort by Congress to deal with the issue of Medicare spending and improve the efficiency of the payment system must include closing loopholes in the physician self referral law. Specifically, ASCP urges the Committee to remove anatomic pathology, advanced diagnostic imaging, physical therapy, and radiation therapy from the physician self referral law s in-office ancillary services exception. 2. Quality, Efficiency and Regulatory Relief The laboratory, with its long history of quality control and quality management, has been a pioneer in the development and implementation of processes that ensure accuracy and precision in patient testing. In fact, laboratory efficiency places considerably high on the quality scale as compared to other areas within health care. It was the laboratory that introduced such concepts as quality control, quality assurance, and quality management to patient care processes.

4 Page 4 While quality, efficiency and patient outcomes should be incorporated into the Medicare physician payment system, we believe there is a dilemma with regard to how to do this in an appropriate manner. One consideration essential to incorporating quality, efficiency and patient outcomes into the Medicare fee schedules requires an understanding that one-size-fits-all approaches may cause serious unintended consequences. Given the vast differences between medical specialties, some medical specialties may find it difficult, if not impossible, to meet some quality, efficiency or outcomes measures requirements. For example, the Electronic Health Records (EHR) Meaningful Use regulations mandates that all physicians report patient-specific and other data derived from face-to-face patient encounters to document that physicians are adhering to federal EHR requirements. Due, in part, to the fact that pathologists generally do not have face-to-face encounters with the patients they serve, they cannot meet the program s requirements. In addition to not being eligible to receive incentives to support their adoption of EHR systems even though pathologist and clinical laboratories may be the largest contributor of data to a patient s electronic health record pathologists could be subject to reimbursement penalties though no fault of their own. Though pathologists, radiologists and anesthesiologists are currently benefiting from a temporary exemption for the MU requirements due to this one-size-fits-all approach, the absence of a permanent exemption within the program to hold harmless those specialists and other providers that cannot meet programmatic requirements demonstrates the dilemma posed by one-size-fits-all approaches to encourage change within medicine. Such perverse requirements can discourage EHR investments and participation in Medicare and Medicaid. To avoid such problems in the future, Congress must provide sufficient statutory authority to the Centers for Medicare and Medicaid Services to provide it with the flexibility necessary to fully and permanently exempt, when necessary, certain medical specialties and individual physicians. Congress should also consider providing CMS with the authority to create alternative requirements, provided the agency can develop alternatives that are technical feasible and not overly burdensome. Providing such authority to Congress may also enable CMS to better target the medical services that can have the greatest impact on cost, utilization, and patient outcomes. More immediately, ASCP urges the Committee to support the enactment of HR 1309, the Health Information Technology Reform Act, introduced by Representatives Tom Price and Ron Kind, which would prevent pathologist s from having their reimbursement rates reduced for failure to satisfy a requirement they cannot possible meet. In conclusion, the Committee should, as part of its efforts to improve the solvency and efficiency of Medicare, close the loopholes in the physician self referrals law s in office ancillary services exception and ensure that any mandates placed on providers to improve quality, efficiency, or patient outcomes also provides CMS with the authority necessary to provide regulatory relief to those specialties or providers unable to meet the requirements due to the nature of their specialty. For the Committee s convenience, we are also attaching a copy of a similar comment letter submitted to the House Committee on Energy and Commerce last year. The ASCP is a 501(c)(3) nonprofit medical specialty society representing more than 100,000 members. Our members are board certified pathologists, other physicians, clinical scientists, certified medical technologists and technicians, and educators. ASCP is one of our nation s largest medical specialty

5 Page 5 societies and is the world s largest organization representing the field of laboratory medicine and pathology. As the leading provider of continuing education for pathologists and medical laboratory personnel, ASCP enhances the quality of the profession through comprehensive educational programs, publications, and self-assessment materials. ASCP looks forward to continuing to work with the Committee on reforming the physician fee schedule and transitioning to a system that incorporates new payment models designed to enhance care coordination, quality, appropriateness and cost. For further information, please contact Matthew Schulze, ASCP s Senior Manager for Federal and State Affairs, at (202) x Sincerely, Joel Shilling, MD, FASCP President, ASCP