Nancy Fabozzi's Blog

More Calls to End Fee for Service: A Look at Recommendations from the National Commission on Physician Payment Reform

18 Mar 2013 | by Nancy Fabozzi
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“Our nation cannot control runaway medical spending without fundamentally changing how physicians are paid.”

The National Commission on Physician Payment Reform, March 2013

In March 2012, the Society of General Internal Medicine (SGIM) assembled an expert commission to look at ways of changing physician reimbursement in order to improve patient outcomes and control exploding expenditures. One year later, on March 4, 2013, SGIM’s National Commission on Physician Payment Reform (NCPPR) released its recommendations which call for transitioning most physicians out of the traditional fee-for-service (FFS) reimbursement system over the next decade. The NCPPR is an independent commission comprised of twelve members representing various realms of academia, industry, and government. The commission is chaired by former Senate Majority Leader William “Bill” Frist, M.D. and Steven Schroeder, M.D. of the University of California, San Francisco. Robert Wood Johnson Foundation (RWJF) is a co-sponsor of NCPPR along with SGIM.

Recognizing the reality of how entrenched the FFS system is in the U.S. healthcare system, the NCPPR foresees a two-phase transition period. First will be a five-year period designed to address the most pressing flaws and inefficiencies in physician reimbursement practiced by government and commercial payers. This phase should incorporate the majority of physicians in a mix of new payment models and tighter controls on traditional FFS. This initial phase will be followed by another five-year period where remaining physicians will be brought into a fixed-payment reimbursement system.

NCPPR's Recommendations for Transitioning out of FFS

The following summarizes NCPPR’s core recommendations -

    • Stand-alone FFS payment is inherently inefficient, causes problematic financial incentives, and should mostly be eliminated and replaced by a fixed-payment model.
    • A five-year transition period should begin, incorporating testing of a reimbursement system based on quality and value with the goal of broad adoption within ten years. Features of this transition should include -
      • Encouragement of behavior that improves quality and cost-effectiveness and penalizes misuse or overuse of care
      • Government and commercial payers should increase annual updates for evaluation and management codes; updates for most procedural diagnosis codes should be frozen for a period of three years
      • Eliminate higher payment for facility-based services that can be performed in a lower-cost setting
      • Incorporate quality metrics into the negotiated reimbursement rates in FFS contracts
      • Encourage small physician practices accepting FFS to form virtual relationships and share resources to achieve higher quality care
      • Focus initial fixed payment programs on areas where significant potential exists for cost savings and higher quality such as chronic care populations
      • For providers in fixed payment models, incorporate measures to safeguard access to high quality care, assess the adequacy of risk-adjustment indicators, and promote strong physician commitment to patients
      • Eliminate the Medicare Sustainable Growth Rate (SGR)
      • Pay for repeal of the SGR with cost-savings from the Medicare program including both cuts to physician payments and reductions in inappropriate utilization of Medicare services
      • Increase the transparency and diversify membership for the AMA’s Relative Value Scale Update Committee (RUC) that sets rates for Medicare reimbursement. In addition, CMS should develop an open, evidence-based, and expert processes to establish and update relative values

FFS and Lack of Pricing Transparency - The Root of All Evil?

The fee-for-service reimbursement system is characterized by separate payments for each medical procedure, office visit, or ancillary service. There is growing consensus that FFS simply does not encourage clinicians to practice cost-effective medicine and instead encourages them to perform more procedures (and more complex procedures) in order to earn more money or, perhaps, to practice defensive medicine due to fear of malpractice lawsuits. In addition to causing cost inflation, FFS is widely believed to contribute to the crisis in primary care, where 60 million patients lack access to a physician due to a growing shortage of providers. This is because the FFS system encourages higher payments for procedures performed by specialists verses primary care providers. It’s no surprise that healthcare cost inflation is a situation that is causing considerable angst across a wide swath of U.S. society, particularly as patients are paying an ever-greater portion of the bill. As Steven Brill noted in his brilliant piece published in Time Magazine on Feb. 20, 2013 (Bitter Pill: Why Medical Bills Are Killing Us), “Health care is eating away at our economy and our treasury”.

It's Not Going to Happen Over Night

Moves towards alternative payment methods for physicians and bundled payments are not new to the U. S. healthcare system, but are gaining considerable traction today thanks in no small part to the Accountable Care Act (ACA). Fixed or bundled payments for healthcare are believed to drive efficiencies that help control overall costs. Public and private health insurers, as well as employers, recognize the importance of changing the way physicians are compensated so that the provision of care and the payment for services is more closely aligned with preventive services, improved clinical outcomes, and enhanced patient safety. The NCPPR report adds to the momentum for the need to address the inherent inefficiencies around FFS reimbursement and to demystify the pricing of medical services. In calling for a phased transition period, I believe the NCPRR lays out a realistic time frame for achieving the transformation away from FFS, particularly given the influx of new patients coming into the system as a result of ACA.

The End of FFS Does Not Mean the End of Administrative and Documentation Hassels

The move away from FFS to a fixed payment environment presents considerable financial risk for physician practices and they will need time to adjust their workflow. Physicians will be strongly motivated to put systems and procedures in place that will help them effectively manage financial risk-informed contract negotiations with payers. In the short term, this will likely result in a higher burden for administrative and clinical documentation requirements for physician practices. During the next five years, expect to see a continued flurry of new products and services specifically desgined to help smooth the many pain points associated with transitioning out of FFS. The move to value-based reimbursement is already a key driver for health IT systems; the momentum will accelerate going forward.