When will the lights go out on fee-for-service?

Physicians have been paid according to the number of visits or procedures they bill for a very long time, almost half a century for Medicare. Fee-for-service might have made sense originally, when everything was done on an episodic, acute care basis, but medicine has changed, and the payment system needs to change with it.

Today, we know that the best thing for the patient is to help prevent illnesses or complications that require more invasive tests or surgical procedures or hospital admissions.

Good medical care requires coordination among teams of health professionals and family caregivers, not just the interaction between the individual doctor and patient. Some of the most valuable things doctors do happen outside of the office visit, such as making arrangements over the phone with other clinicians or family caregivers. And the cognitive services provided by primary care physicians are at least as valuable to patients as doing a procedure, and outcomes and quality matter more to patients than how many procedures their doctor orders.

Yet doctors and patients are stuck with an out-of-date system that fails to pay for the things that we now know are essential to good medical care. Is it any wonder, then, that we get what we do pay for: rushed, inefficient, high-volume, invasive, and fragmented care that undervalues primary and preventive care, and is highly dissatisfying to doctors and their patients alike?

Despite all the flaws with fee-for-service, the medical profession has steadfastly clung to it. Year after year, physician membership organizations have devoted most of their attention to trying to change it at the margins: getting new CPT codes adopted, persuading Medicare to increase the relative value units, and of course, fighting the perennial battle to halt cuts to the sustainable growth rate (SGR) formula. Despite physicians' concerns about the current system, they have been skeptical about proposals to replace it. There is increasing evidence, though, that fee-for-service, like a play gone stale that has been on Broadway way too long, is about to end its half-century run.

“Unless we begin the process of developing a long-term solution, we will once again be faced with the unwanted choice of extending a fundamentally broken payment system or jeopardizing access to care for Medicare beneficiaries,” wrote Rep. Henry A. Waxman, ranking Democrat on the House Energy and Commerce Committee, in a March 28 letter to ACP and about 50 other physician membership organizations. “We cannot let either happen.”

The letter went on to request that the physician organizations provide the committee with specific ideas “on how to reform the physician payment system and move to a system that reduces spending, pays providers fairly, and pays for services according to their value to the beneficiary.”

The idea of paying for services according to their value to the beneficiary would be a fundamental departure from the current Medicare system. Fee-for-service is agnostic about value to the patient, because it only concerns itself with the number of procedures and visits generated, and the work and costs involved in delivering the services (the relative values), not how valuable they are to the patient. By comparison, value-based payments would mean paying physicians, at least in part, for achieving measurable improvements in the outcomes and efficiency of care provided.

Most proposals for value-based payments also change the unit of payment from a procedure code to a bundle of services, discreet episodes of care, or risk-adjusted payments per patient per month (capitation), with the opportunity to earn more or less depending on how well the physician or health care organization delivers care effectively and efficiently. Some proposals would maintain an element of fee-for-service with value-based payments layered on top.

Not only Congress has decided that the current payment system should be on its way out. ACP, the American Medical Association, the American College of Surgeons, the American Academy of Family Physicians, and the American Osteopathic Association responded to the Energy and Commerce Committee's request by offering proposals to transition to new models aligned with value.

Although the details of their proposals varied, all called for a period of at least five years of stable payments with the annual updates guaranteed by statute instead of being set by the SGR. During this time, a variety of alternatives would be pilot-tested on a voluntary basis. Physicians who agreed to participate in the pilots could earn more for achieving better outcomes. Then, after the five-year period of stability and innovation, the models that were most effective in the pilots would be broadly adopted by Medicare. Physicians then would be given a clear timetable, another four or five years, to transition to the new models so that by the end of the decade, most practices would be paid, at least in part, on value to patients, not volume of services.

ACP recognizes that there will be many challenges in transitioning to new value-based payments, but the alternative is trying to defend a broken payment system that does not meet the needs of patients, the people who pay the bills (taxpayers and employers), and physicians themselves.