If Not Fee for Service, What?

After kicking the can down the road on the sustainable growth rate (SGR) for more than a decade, health policymakers appear to be reaching consensus on some of the elements needed in a strategy for the reform of physician payment, health economist Gail R. Wilensky, PhD, writes in Health Affairs.1 In her recap of payment-reform efforts to date, Wilensky (former head of the Medicare and Medicaid programs and past chair of the Medicare Payment Advisory Commission) even expresses some optimism that the SGR could vanish altogether. That is unlikely to come to pass, she says, without greater experimentation in physician-payment reform—for specialists, in particular.

Medicare has moved most decisively away from fee-for-service payment, in the hospital arena, through the use of bundling, beginning with DRG inpatient payments in 1983 and later extending similar prospective-payment methods to outpatient departments, home-care providers, and nursing homes. The strategy used to contain physician payments, however, has been the failed SGR, instituted by the Balanced Budget Act of 1997 and bypassed every year since 2004 (when physicians received their one and only pay cut).

A current focus of the payor community is the search for payment strategies that encourage value (rather than the volume encouraged by fee-for-service payment). “A fee schedule that reimburses each physician on the basis of approximately 8,000 different codes makes it very difficult to hold physicians responsible or accountable for the health outcomes of their patients or the costs of treating them—both crucial for value,” Wilensky writes.

She sees reason to be optimistic in a bipartisan payment-reform bill passed by the House Committee on Energy and Commerce (HR 2810, the Medicare Patient Access and Quality Improvement Act) and in a legislative framework (discussion draft)—released by the Senate Committee on Finance and the House Committee on Ways and Means—that contains common elements. Both proposals preserve stability (briefly) for physicians, but provide higher payment adjustments for those who participate in an alternative payment system that demonstrates improved value. 

HR 2810 would repeal the SGR and provide annual increases of 0.5% through 2018. In 2019, greater updates would be available, based on physicians’ performance (assessed using quality measures) or on their participation in alternative payment models. The discussion draft from the Senate and House committees also calls for the repeal of the SGR, with 0% updates through 2023, after which updates of up to 2% are available to physicians participating in alternative payment models; all others would receive 1% updates. These similarities suggest more unity in thinking than has been seen at any other time since the RBRVS passed in 1989, Wilensky says.

Alternative Insights

Pilot programs and experiments in alternative payment currently in play are likely to offer some insights into which models offer the most viable alternatives for physician-payment reform. Patient-centered medical homes have demonstrated that they can coordinate care better, but the savings generated have been less promising. While physicians are typically paid on a fee-for-service basis, a supplemental per-member, per-month payment for care coordination is often made to cover the work of a physician or nurse manager in care coordination.

Payors piloting these experiments have reported modest savings, at best, according to Wilensky. UnitedHealthcare reported 4% savings over two years, and WellPoint reported 3% savings over one year, in a New Hampshire pilot. 

A multipayor pilot covering five independent practices in Rhode Island failed to demonstrate a downward trend in hospital admissions or emergency-department visits and did not provide a bump in quality performance. “This study supports the notion that patient-centered medical homes that are undertaken outside an integrated care setting produce no more than modest savings,” Wilensky writes.

Instead of paying a per-member, per-month fee, Blue Cross Blue Shield of Michigan (BCBSM) pays higher fees for evaluation/management codes that represent office and preventive-care visits, as well as higher fees based on the number of quality measurements adopted and the performance level achieved. Outcomes for all patients in an area, not just BCBSM members, are assessed. Wilensky notes that the payor’s dominant market coverage enables BCBSM to have a greater impact on population health. 

BCBSM also gave specialists the opportunity to participate in 2012 and 2013, based on specialists’ use of evaluation/management codes. In 2014, added payment will be available to specialists, based on the quality and efficiency of care. On the cost front, BCBSM reported cost increases, in 2011 and 2012, of less than half the amounts reported by its competitors.

ACOs and Bundles

Accountable-care organizations (ACOs) represent another strategy that attempts (through enhanced payment for care coordination and IT implementation, as well as other incentives) to neutralize the fee-for-service incentive to increase volume. In early 2013, there were 250 ACOs, authorized by the Patient Protection and Affordable Care Act (PPACA); they included 32 Pioneer ACOs and 175 private ACOs. Now, there are more. As described in the PPACA, ACOs must meet all the health-care needs of at least 5,000 people, and those that meet quality and cost-saving thresholds have the opportunity to share in savings.

Bundled-payment projects that include physicians are the third strategy cited by Wilensky. The CMS Innovation Center’s Bundled Payments for Care Improvement Initiative funds four different bundling models, but all are hospital-centered: Providers propose a price for a condition that they want to bundle; the proposed price represents a discount on what CMS would have spent for unbundled services.

The shortcoming of this initiative is that it fails to provide any evidence about the effects of these experiments on physicians’ behavior—because physician payments are not a part of the hospital’s bundle. Wilensky believes that this is a missed opportunity, but specialists’ lack of interest in alternative payment models is partly to blame for the fact that they have not been invited to the party.

“Specialists’ attitudes toward alternative forms of reimbursement could change dramatically if their Medicare payments directly reflected their participation in alternative payment and delivery models, such as is being proposed in the Ways and Means and Finance Committees’ discussion draft,” Wilensky writes. If Wilensky is correct, and consensus is building around value-based payment, then a burning question remains: Where is radiology adding value? 


  1. Wilensky GR. Developing a viable alternative to Medicare’s physician payment strategy. Health Aff (Millwood). 2014;33(1):153-160.