I see physician payment reform as the biggest threat and opportunity of the year. There is growing consensus among policy wonks, members of Congress, and others that fee-for-service (FFS) medicine has to be replaced with something better. But what?

One thing for sure -- that most physicians do not understand -- is that non E & M FFS payments are being “nickel and dime’d” downward slowly-but-surely to make FFS payment less attractive and less viable. It is a plot. The recent and likely future actions of the RUC in these regards to inexorably whittle down procedure and diagnostic services payments under pressure from CMS contribute to this. The entire RBRVS readjustment processes are undermining gradually FFS, although there have been some modest increases in E & M payments, but not enough to make primary care viable.

Since most of the waste in health care costs is still in unnecessary or avoidable inpatient care, if there was a way to ‘gainshare’ with hospitals when physicians reduce unnecessary spending or admissions, there would be resources for significant pay increases in a reformed payment system in which both society and patients win, and real savings are achieved. But, the hospitals are the losers in that scenario, making it tough to get going. [more] The most logical gainsharing strategy would involve partnerships between Medicare (CMS) and insurers with physicians. Savings achieved and split there would benefit everybody (except hospitals). But insurers should be interested in such opportunities.

The conversations are mainly about three parallel and needed kinds of payment reforms: 1) creating bundled episodes of care payments for chronic conditions (or modified capitation arrangements for integrated systems, which already employ something like this now). This will be complicated in non-integrated settings, where many physicians often participate in a patient’s overall care. 2) Specific rewards for improved quality and/or outcomes. This one may be the easiest to design and implement, but is still complicated. 3) Payment for improved coordination or the “patient-centered medical home (PCMH)” concept. This has a lot of supporters, but may be falling on some hard times:

JAMA and the NEJM have recently run depressing reports on the 80,000 patient 15-site Medicare study on PCMH coordination -- none of their sites or processes produced savings, and most could not even show clinical improvement for the interventions applied over the control groups. Gesinger, Kaiser Permanente and others have developed their own models that appear to be having impacts as integrated systems. They have the advantage of reallocating reduced hospital costs into better financed outpatient coordination systems. But the CBO (Congressional Budget Office) and Mr. Orzag in the White House Office of Management and Budget (OMB) are saying unflattering things about PCMH these days. At least, they say, the PCMH concept needs to be measured in terms of assuring better outcomes, higher satisfaction, and reduced costs. Getting NCDR, IC3 and other systems geared up to do such monitoring will be essential to any success here -- otherwise the $$$ will likely be wasted.

The ACC is at work addressing these issues. Nothing will be more important for docs and patients in the near future in my view. The current payment system is broken. But fixing it will prove very difficult -- and many expensive blunders could be made in the process.

The new CBO Director Douglas Elmendorf told the Senate Budget Committee on Feb. 10 that health care reform will be less effective without payment incentives for providers. Elmendorf also emphasized that there is disagreement on specific reforms, but advised that changing the tax treatment of health benefits could create significant savings. This is just another indication that it’s going to happen, and it will likely be part of the Medicare and SGR fix bill. Wait and see. And we need to be ready for it. Why?

Because one likely scenario I can imagine is: new proposals will be developed for episodes or global budgets and for quality incentives that will be optional or voluntary, but with significant payment incentives. Only integrated systems, large groups, or big IPAs will be functionally able to participate. The remaining FFS system will be frozen, and less and less attractive and viable -- to try to push smaller practice folks into bigger networks over time. This could have very negative short term workforce issues if lots of FFS docs just decide to throw in the towel and quit.

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