Group Recommends Replacing Medicare Fee-for-Service Physician Payments

The elimination of the sustainable growth rate (SGR) mechanism for updating Medicare payments to physicians; increasing the amount paid to physicians for evaluation and management services; and the elimination of the fee-for-service payment system for physicians are among 12 recommendations made by the National Commission on Physician Payment Reform on March 4.

The Commission sees reforming physician payment as the central component to controlling health care costs. The recommendations are grouped into two categories; those that are system wide and those that pertain to Medicare. The Commission recommended a five-year transition away from a fee-for-payment system to one based on quality of care.

Medicare Changes

The Commission recommended the elimination of the SGR from the Medicare program, noting that in the time period that the SGR has been in effect, payments to physicians have increased 3 percent while the consumer price index has risen 20 percent. The Commission argued that reductions in physician payments and inappropriate utilizations of Medicare services should be used to offset the cost of eliminating the SGR.

The Commission also recommended that the Relative Value Scale Update Committee (RUC) should be more transparent and that its membership should be diversified. The Commission maintained that the RUC, which advises CMS on updating the amount paid by Medicare for every procedure, is dominated by specialists and generally meets out of the purview of the public. The reason for their decisions are not often known as the RUC does not release transcripts of their meetings, or report on votes. The Commission feels that bringing some transparency to the decisions made by this organization may shift the payment disadvantage away from primary care physicians.

Systemic Changes

The Commission recommended that the Medicare physician payment system move over the next five years from a fee-for-service model to a model that rewards quality and value-based care. During the transition period a number of different reimbursement models should be tested and specific changes should be made to physician payments to move the system in that direction.

The Commission recommended larger payment updates for evaluation and management services, while updates for procedural diagnostic code should be frozen for three years. The Commission believes that the current discrepancy in these payments leads more medical students to become specialists as opposed to primary care physicians.

Other changes to move the system away from a fee-for-service-based to a value-based system include (1) incorporating some quality metrics into negotiated reimbursement rates, (2) eliminating payments for service provided in facility settings when lower cost setting options are available, (3) encouraging small practices to combine to form virtual relationships to leverage negotiating strengths, and (4) setting the payment rate in areas where significant potential for cost savings exists.

Health Care Costs

The Commission noted that the rising cost of health care in the U.S. can be tied to the amount that physicians are being paid. The U.S. spends more on health care than any other developed country, the Commission reported, nearly $3 trillion per year—18 percent of the domestic product or $8,000 per person. The Commission noted that spending on Medicare has risen from 3.5 percent of gross domestic product (GDP) in 1975 to 15.1 percent in 2010 and is projected to reach 17 percent by 2020. Despite this increased spending the Commission reports that the World Health Organization ranks the U.S. 37th in health status behind countries like Oman, Morocco and Paraguay.

Physician salaries and related expenses account for about 20 percent of those costs; while decisions made by physicians account for another 60 percent. Based on these facts the Commission concluded that how physicians are paid dramatically determines how much is spent on medical care.

The 14-member Commission was convened by the Society of General Internal Medicine in 2010 and is partially funded by the Robert Wood Johnson Foundation and the California HealthCare Foundation.