Recommendations for Ending Fee-for-Service Medicine

In March 2012, the Society of General Internal Medicine convened the National Commission on Physician Payment Reform to recommend forms of payment that would maximize good clinical outcomes, enhance patient and physician satisfaction and autonomy, and prove cost effective care… fee-for service reimbursement stood out as the most important cause of high health care costs

Steven A, Schroeder MD and William Frist, MD, “Phasing out Fee-for-Service Payment, New England  Journal of Medicine, May 23, 2013

What follows is a blueprint for a new physician payment system consisting of 12 recommendations for phasing out fee-for service reimbursement.

Recommendation 1: Over time, payers should largely eliminate stand-alone fee-for-service payment to medical practices because of its inherent inefficiencies and problematic financial incentives.

Recommendation 2: The transition to an approach based on quality and value should start with testing new models of care over a 5-year period and incorporating them into increasing numbers of practices, with the goal of broad adoption by the end of the decade.

Recommendation 3: Because the fee-for-service model will remain important into the future, even as the nation shifts to fixed-payment models, it will be necessary to continue recalibrating fee-for-service payments.

Recommendation 4: For both Medicare and private insurers, fees should be increased for evaluation-and-management codes, which are currently undervalued. Fees for procedural diagnosis codes, which are generally overvalued and thus create incentives for overuse, should be frozen for 3 years. During this period, efforts should continue to improve the accuracy of relative values, which may result in some increases as well as some decreases in payments for specific services.

Recommendation 5: Increased payment for facility-based services that can be performed in a lower-cost setting should be eliminated. In addition, the payment mechanism for physicians should be transparent and provide physicians with roughly equal reimbursement for equivalent services, regardless of specialty or setting. Recommendation 6: Fee-for-service contracts should always include a component of quality or outcome-based performance reimbursement at a level sufficient to motivate a substantial change in behavior.

Recommendation 7: For practices with fewer than five providers, changes in fee-for-service reimbursement should encourage methods for the practices to form virtual relationships and thereby share resources to increase the quality of care.

Recommendation 8: As the nation moves from a fee-for-service system toward one that pays physicians through fixed payments, initial payment reforms should focus on areas in which there is substantial potential for cost savings and better quality of care.

Recommendation 9: Measures should be put in place to safeguard access to high-quality care, assess the adequacy of risk-adjustment indicators, and promote strong physician commitment to patients.

Recommendation 10: Medicare's sustainable growth rate (SGR) adjustment should be eliminated.

Recommendation 11: Cost-saving measures to offset the elimination of the SGR should come not only from reduced physician payment but also from the Medicare program as a whole. Medicare should also look for savings from reductions in inappropriate utilization of Medicare services.

Recommendation 12: The Relative Value Scale Update Committee (RUC) should continue to make changes to become more representative of the medical profession as a whole and to make its decision making more transparent. The Centers for Medicare and Medicaid Services (CMS) has a statutory responsibility to ensure that the relative values it adopts are accurate. Therefore, it should develop additional open, evidence-based, and expert processes beyond the recommendations of the RUC to validate the data and methods it uses to establish and update relative values.

As of 2012, improvements in the RUC include the addition of new primary care and geriatrics seats and the requirement that vote totals for all recommendations be published. The commission urges continued improvement of the RUC and encourages the CMS to look more widely at alternative sources of relative value and other payment recommendations.

Conclusions

Controlling rising expenditures for health care will not occur without changing the way that physicians are paid. This will require the aggressive pursuit of new physician-payment models with no delusions that the fee-for-service model will be swiftly or entirely eliminated. As we transition to various forms of blended physician payment, fixing current payment inequities under fee-for-service models will be of the utmost importance. Those fixes include reducing gaps in payments between different sites of care, rewarding caring for complex and underserved patients, and ensuring that evaluative and management services are valued as highly as technological care.”

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