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Senate Finance Chairman Max Baucus (D-Mont.), backs major changes to a long-standing federal reimbursement formula for doctors who participate in Medicare, with an eye to reining in the entitlement program’s soaring costs.

Medicare costs are growing at an unsustainable rate, various experts testified at a Thursday hearing Senate Finance hearing on Medicare. These costs are the “central fiscal problem facing the United States,” said Peter Orszag, director of the Congressional Budget Office.

Lawmakers on both sides of the aisle agree that a fix to the formula — known as the Sustainable Growth Rate — was necessary. The SGR sets an overall spending target on certain goods and services. Payment rates are then adjusted annually to reflect differences between actual spending and the spending target.

Baucus said that while the SGR is faulty, it should be reformed, rather than revoked, in order to avoid runaway costs. He said the changes should focus on how the underlying costs are worked into the SGR formula.

Lawmakers likely will consider several options to reform the formula, including focusing on the quality of care provided, rather than the quantity of care, and using comparative effectiveness rates to determine the best ways to treat ailments, Baucus added.

Republicans, including the committee’s ranking member, Sen. Chuck Grassley (R-Iowa), and Gordon Smith (R-Ore.) agreed that the reimbursement system wrongly focuses on quantity over quality. “Medicare rewards over utilization and inefficiency,” Grassley said at the hearing.

Orszag also agreed that comparative effectiveness should play a key role. Such information will help build a base of evidence for what care not currently covered by Medicare should be deemed necessary. The federal government should also invest money in new technology to support that approach, he said.

Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission, agreed as well, but they all questioned how the government would fix the formula. A new MedPAC study offered a wide range of choices, among them, allowing the federal government to either repeal the SGR or delay its implementation by freezing its rates for the next year.

“None of the changes will be easy from a technical standpoint or a political standpoint.” said Hackbarth, noting that reform would take “years of effort, patience, determination and investment.”

The cost of these fixes, CBO’s scoring of them and their resulting impact on the “pay-as-you-go” budgeting rule enacted by the new Democratic majority were foremost on Baucus’ and Grassley’s minds. PAYGO requires that any spending increases be offset by cuts in other programs.

Asked if there was a way around budget rules, Orszag responded, “Even God can’t change them.”

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