Which Physician Compensation Model Makes Sense Under Healthcare Reform?

Douglas Brosnan , MD, JD

Director of Provider Relations

Bing Pao , MD

Director of Provider Relations

Published October 17, 2013

"Incentives favoring procedures over all else may lead to worse outcomes for patients, and more costs to patients and society. If we do not figure out how to make incentives given to physicians more rational and fair, expect healthcare costs to continue to rise, while access and quality continue to suffer."

— Roy M. Poses, MD, internist

It's not secret that when it comes to providing cost-effective care for patients, our decades-old fee-for-service model isn't getting the job done. What's more, there's concern that the emphasis on expensive procedures may short-change primary care physicians, a specialty we desperately need to grow in order to meet the demands of healthcare reform and an aging population.

Blame for fee-for-service's shortcomings often falls on the RUC (known more verbosely as the American Medical Association Specialty Society Relative Value Scale Update Committee). The RUC is the expert panel that formulates recommendations on the relative value of CPT codes and passes these on to the Centers for Medicare & Medicaid Services (CMS), where they are generally accepted. In recent years, the RUC has caught considerable heat for holding secretive closed meetings, underrepresenting primary care and setting fees that favor specialists.

Concerns came to a head in 2012, when a group of primary care physicians sued in federal court, claiming that the RUC was a "de facto Federal Advisory Committee" and subject to certain accountability requirements, including open and public proceedings. Unfortunately, the suit was dismissed on procedural grounds, and the court did not comment on its merit.

A year later, we haven't solved the problem of payment, and urgency is growing. Under the Affordable Care Act, primary care physicians are expected to spearhead the push toward coordinated care. This will require them to spend additional time on "cognitive services" — diagnosis, monitoring, follow-up, patient education and care coordination — which are poorly compensated under the fee-for-service model.

This creates a conundrum, because the value of a given healthcare service is a complex thing to measure. It's not like a mass-produced widget that can be sold for a dollar. A patient might present with a relatively minor complaint, but be very difficult to deal with and require an inordinate amount of the doctor's time. For example, a patient may have a problem with prescription drug abuse and require a prolonged discussion about appropriate management of chronic pain. The physician who puts in the extra work gets paid the same as the one who sends the patient out the door in five minutes.

So given that physicians will soon need to care for more patients and produce better outcomes with the same amount of healthcare dollars, what form of payment makes sense?

A fee-for-service payment model, even with de facto price-fixing for the economically disadvantaged and elderly population, really is not feasible given the unsustainable growth rate of Medicare and Medicaid expenditures. Alternatives like vouchers haven't gained much traction. It is also important to recognize that private insurers view Medicare rates as market benchmarks and adjust their pricing accordingly. Hence the RUC's activities will continue to have a significant influence on the private sector as well.

A more feasible scenario is that most physicians will eventually end up working on salary for public or private employers. This arrangement is becoming increasingly common due to the growing financial, regulatory and administrative challenges facing physician entrepreneurs. Hospitals also benefit from their employed physicians' flow of referrals.

However, this sets up a potential conflict of interest that could impact care quality. Ethically, physicians are obliged to act on the patient's behalf. It's dangerous for them to serve two masters, which is why some states still prohibit their direct employment by hospitals.

Let's say a patient may or may not benefit from an expensive CT scan. The employed physician is leaning toward the procedure, but at the same time, worries about displaying a costly practice pattern — especially if the hospital employing the physician is receiving a bundled payment. The physician knows the procedure costs come directly out of the hospital's pocket. Chances are, the physician will wonder if ordering the scan will have repercussions when it comes time to renew his or her employment contract.

There are more potential problems with a salaried employment model. Bundled payments can create a "food fight" among providers, with different specialties, the hospital, the durable medical equipment people and the long-term care folks all scrambling for their piece of the pie. How do we determine who gets what? Who makes that decision?

So what's the solution to the payment puzzle? Well, we don't have any easy answers, but there are a few steps we could take toward compensating physicians fairly while meeting the demands of healthcare reform.

First, we should expect fee-for-service to be with us in some form for the foreseeable future. This isn't necessarily a bad thing. The RUC isn't perfect, but who is better to determine the relative value of medical services than practicing physicians? I think we all agree we don't want politicians anywhere near those numbers!

That being said, the process for calculating those fees should be transparent. If RUC's membership and proceedings were open to the public, many physicians would still feel shortchanged. But there would likely be greater fairness and buy-in if everyone understood how service valuation was calculated.

Finally, we need to understand that payments are only half the battle. To make compensation truly equitable, we need to deal with factors like malpractice law and reimbursement penalties that eat away at the physicians' earnings, even when we provide high-quality, evidence-based care. We'll take a closer look at those next week in the second post of our two-part series.

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