Should the Fee-for-Service System be Scrapped?

The National Commission on Physician Payment Reform recommends eliminating stand-alone fee-for-service physician payments by the end of the decade. The group says that the fee-for-service system, in which doctors get paid for each service, is a chief driver of the high health care costs and uneven health care quality. With fee-for-service, skewed financial incentives promote fragmented care and encourage doctors to give more care and more costly care regardless of the benefit to patients, according to the Commission. The Commission is chaired by former Robert Wood Johnson Foundation president Steven Schroeder, M.D., with former Senator Majority leader Bill Frist, M.D., as honorary chair.

The Commission offers a five-year blueprint for transitioning to a more value-based, mixed payment model. Initial steps include fast-tracking accountable-care organizations and patient-centered medical homes that reimburse doctors through fixed payments and shared savings and adopting bundled payments for patients with multiple chronic conditions and in-hospital procedures and their follow-up.

The Commission also offers the following recommendations:

• For Medicare and private insurers, increase annual payment for evaluation and management codes, which are undervalued.
• Eliminate higher payments for facility-based services that can be performed in a lower-cost setting.
• Always incorporate quality metrics into negotiated reimbursement rates for fee-for-service contracts. Today, technical services by surgeons, radiologists and other procedural specialists are reimbursed at a much higher rate than are E&M services, such as preventive health care or office visits to discuss diabetes management. This discourages doctors from spending time with patients, particularly patients with complex chronic illness. It also contributes to the nation’s shortage of primary care providers. For example, in 2011, a radiologist earned an average of $315,000 a year while a family doctor earned an average of $158,000. Over the past years, there has been a trend toward lower reimbursement for medical services performed in outpatient facilities than in in hospitals. For example, Medicare pays $450 for an echocardiogram in a hospital and only $180 in a physician’s office.
• Fee-for-service reimbursement should encourage practices with fewer than five providers)to share resources to achieve higher quality care.
• Medicare’s Sustainable Growth Rate should be abolished. The Relative Value Scale Update Committee would make decision-making more transparent and diversify its membership so that it is more representative of the medical profession. For more information,

Last Updated 05/25/2022

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