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The State of the Nation's Health

Nevertheless, the evidence is inescapable, and in recent years what has become known simply as "the Dartmouth research" has found widespread acceptance, among both the cognoscenti of medicine and many of the movers and shakers in the Washington health-policy world. And now, as the conversation about health-care reform heats up once again, Dartmouth's work is helping to shape the discussion.

Re-examining reimbursements
The impact of Dartmouth's findings is manifest in a report on reimbursements to physicians that MedPAC released on March 1. Today, Medicare pays most physicians on a fee-for-service basis: the more they do, the more they are paid. On the face of it, this makes sense—the doctor who performs more tests and procedures earns more.

The trouble is, the number of services physicians provide has been escalating ever-upward. So in 1997, Congress set a target for growth in Medicare's payments to physicians; called the Sustainable Growth Rate (SGR), the formula is tied to the growth of the economy as a whole. If overall billings from the nation's physicians come in under the SGR target, they are all supposed to be rewarded with a larger annual update in their Medicare fees; but if they miss the target, their reimbursements are supposed to be cut. Congress hoped that the SGR would provide a collective incentive for physicians to control the volume and intensity of services that they delivered. At least, that was the theory.

In practice, the SGR system has failed on all counts. From 2000 to 2005, the volume and intensity of Medicare physician services grew by over 5% annually—more than double the 2.2% growth rate permitted under the SGR. To offset this "excess spending," the SGR target called for reductions in physician fees. But when Medicare put the plan into action, slashing fees by 5.4% in 2002, the AMA howled, warning that some physicians might begin refusing to take new Medicare patients. And, in fact, the fees Medicare pays some doctors—

In Manhattan and Miami, chronically ill Medicare patients receive far more aggressive care than very similar patients in places like Salt Lake City, Utah. And here's the stunner: Patients who receive the most intensive, aggressive, and expensive treatments often fare worse than those who receive more conservative care.

particularly family physicians and general internists—are so low already that further cuts could make it hard for some to stay in business. "The primary-care physicians, they are the ones I worry about," says U.S. Representative Pete Stark, chair of the House Ways and Means Health Subcommittee.

And despite the threat of the SGR, physicians have continued to do more. In 2005, Medicare laid out $57.8 billion for physician services—up roughly 9.5% per beneficiary from 2004. Under the SGR formula, Congress should have continued to trim fees. But legislators have backed off. In 2003, they agreed that rather than cutting physician fees they would freeze them for two years beginning in 2004. And at the end of 2006, Congress granted doctors an 11th-hour reprieve, blocking a 5% cut planned for 2007. All scheduled cuts have now been pushed into the future.

Meanwhile, doctors continue to bill Medicare for more tests and more services. This is in part because technological advances are making more treatments available to more patients, as

well as in part, say some physicians, because they must work harder to maintain their income levels. The cost of supplies, labor, and malpractice insurance continues to rise, and reimbursements are not keeping up with inflation.

What is more difficult to explain is why the use of specialists and ICUs is growing fastest in areas that Dartmouth's 2006 report on chronic diseases described as "regions with the highest baseline spending rates. In other words, the disparity between regions in spending and utilization appears to be increasing."

Here it becomes clear how Dartmouth's work cuts to the heart of what is wrong with the SGR formula: By calling for national cuts in physicians' fees, the SGR system turns a blind eye to geographic variations in care. If physicians in Portland, Ore., are conserving resources—and getting better outcomes—they don't deserve to have their fees cut. By contrast, specialists in Miami are doing more tests and performing more procedures—without getting better results. As MedPAC Chair Glen Hackbarth told the New York Times in 2005, the SGR system "is inequitable, because it treats all physicians and regions of the country alike."

But Congress recently asked MedPAC to recommend alternatives to the SGR, and this time no one is ignoring Dartmouth's work. When MedPAC met last November, Elliott Fisher was among the experts asked to testify.

Supply as a driver
Fisher began by explaining what is driving the more aggressive care for chronically ill patients in cities like Los Angeles and Miami: "More hospital beds per capita, more medical specialists, and more internists."

The numbers are stunning. According to Dartmouth's 2006 report, high-cost regions boast 32% more hospital beds, 31% more physicians, 65% more medical specialists, 75% more general internists, and 29% more surgeons than low-cost regions. Yet with all of these resources,

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