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Reforming Reimbursement

Many provisions in the Affordable Care Act make minor tweaks to the payment strategy for physicians accepting Medicare. A survey of doctors predicts which options are most likely to be successful.

National health expenditures amounted to $2.3 trillion dollars in 2008 divided among many different areas. The most costly segments of the health care economy were hospital care (31 percent), physician/clinical services (21 percent), and prescription drugs (10 percent) according to data analysis from the Kaiser Family Foundation.

Currently, hospital care is paid for by many purchasers on a prospective basis determined by the diagnosis of the individual patient. Thus, hospitals are compensated for the average costs of care for a patient with pneumonia or heart attack or emphysema. By way of this style of prospective payment, hospital care does not provide an incentive to increase the intensity of services.

On the contrary, physician services, which account for 21 percent of national health care costs, are currently paid by many purchasers (including Medicare) on a retrospective basis. Specifically, in this review, physician payment reform will refer only to the Medicare physician-fee-schedule (MPFS).

Beginning in 2015, the Affordable Care Act (Section 3007) directs the Secretary of HHS to develop a value-based payment modifier for physicians. This does not, however, shift the strategy of payment from retrospective – which has perverse incentives to increase the frequency and intensity of care – with a prospective system of payment.

The Affordable Care Act also expands the Physician Quality Reporting Initiative (PQRI) and attaches financial penalties for failure to report (Section 3002). This program can be thought of as a type of pay-for-performance program in Medicare.

A national survey conducted last fall examined the opinions of physicians with regard to reforming reimbursement. Physicians surveyed were randomly selected from the AMA Physician Masterfile. 2518 physicians were sent surveys and only 1222 responded; this is a typical response rate for physician surveys. Among respondents, 77 percent were in office-based practice and 58 percent owned their own practice. 82 percent of physicians accepted Medicare (88 percent accepted private insurance, 87 percent accepted cash,  74 percent accepted Medicaid).

Most physicians (78 percent) felt that the current MPFS was unfairly balanced between different billing codes. Three different reform proposals were discussed. Among these choices, the highest level of support was for incentive programs such as pay-for-performance (49 percent).

A lower level of support  (42 percent) was present for reforms that would shift the value of individual MPFS components in favor of  primary care. Two-thirds of generalists supported this option; only 17 percent of surgeons thought this was a good idea.

Lastly, and least popular among physicians, was the idea of bundling payments (only 17 percent supported it and 69 percent opposed). It should be noted that this unpopular reform strategy is present in the Affordable Care Act. Section 3023 establishes a pilot program for bundled payments. A similar provision (section 3022) allows Medicare to group payments for accountable care organizations.


Although touched upon in the Affordable Care Act, physician payment reform is not substantially altered as a result of the health reform law. Policy makers are beginning to assert the leverage of the Medicare program to pay physicians for quality (not quantity) of service.

New payment structures which attempt to provide a lump sum payment for a patient’s care (such as bundled payments) should be explored. However, based on the above data physician buy-in appears unlikely. A more palatable methodology might be lump sum payments to an accountable care organization (ACO) as opposed to physicians individually.

At a recent breakfast with friends, one of them inquired about how effective this model (popularized by the Cleveland Clinic) might be. Formulating a group mentality out of independently minded physicians will be a huge challenge. However, if real or pseudo networks can be structured with physicians and nearby hospitals, the ACO model which compensates physicians in a salaried (not fee-for-service) manner may thrive.

Federman AD, Woodward M, Keyhani S. Physicians’ opinions about reforming reimbursement: results of a national survey. Arch Intern Med. 2010 Oct 25;170(19):1735-42.


Cedric Dark, MD, MPH

Cedric Dark, MD, MPH, FACEP
About Cedric Dark, MD, MPH, FACEP

Cedric Dark, MD, MPH, FACEP is Founder and Executive Editor of Policy Prescriptions®. A summa cum laude graduate of Morehouse College, Dr. Dark earned his medical degree from New York University School of Medicine. He holds a master’s degree from the Mailman School of Public Health at Columbia University. He completed his residency training at George Washington University. Currently, Dr. Dark is an Assistant Professor in the Department of Emergency Medicine and a Health Policy Scholar in the Center for Medical Ethics & Health Policy at Baylor College of Medicine. He produces a health policy podcast for the American Academy of Emergency Medicine. Dr. Dark’s commentary and opinions on this website are his own and do not represent the views of Baylor College of Medicine or the American Academy of Emergency Medicine. Contact: Website | Facebook | Twitter | Google+ | YouTube | More Posts

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