Friday, September 4, 2015
Health Affairs Blog
September 3, 2015
Physician Payment Reform In A Post-SGR World: Challenges Remain
By John O'Shea
On April 16, 2015 President Barack Obama signed the Medicare Access and
CHIP Reauthorization Act (MACRA) which, among other things, finally
repeals the Sustainable Growth Rate (SGR) mechanism of updating fees to
the Physician Fee Schedule (PFS).
The passage of MACRA, however, raises new questions about where the U.S.
health care system is headed in the post-SGR world of payment and
Reasons For Caution
These policy changes and announcements follow widespread calls to move
from the current volume-based fee-for-service (FFS) payment system to a
value-based system that pays for patient outcomes rather than individual
services. Value-based health care should be the goal of any health
reform initiative. However, even with SGR out of the way, there are
major challenges to achieving that goal, including the lack of an
agreed-upon, patient-centered definition of value; a shortage of
meaningful performance metrics; and a deficiency of accounting systems
capable of reflecting the true cost of delivering care.
Policymakers and others involved in payment reform should also remain
acutely aware that the multitude of reporting requirements associated
with participation in APMs will add substantially to the already heavy
administrative burden on physician practices.
Alternative Payment Models
The future course of payment reform currently centers on efforts to make
fee-for-service increasingly less attractive than participation in an
alternative payment model (APM). However, moving providers out of FFS
assumes that they have a viable place to go. At this point, it is not
clear that they do.
Value-based purchasing (VBP), the concept behind APMs includes a broad
set of performance-based payment strategies that attempt to use
financial incentives to influence provider performance.
MACRA provides for a significantly modified FFS payment system, the
Merit-Based Incentive Payment System (MIPS), which is essentially a P4P
program. In addition, the legislation encourages the development and
implementation of APMs and offers incentives for providers to move into
Although there are a number of individual examples of successful
initiatives, the overall early results, as well as possible conceptual
flaws, make the long term viability of these models uncertain.
Pay For Performance
Although P4P programs are among the oldest APMs, the success of these
models is impeded by serious gaps in the current quality measurement
system. According to a 2014 RAND report that looked at 49 studies
examining the effect of P4P on process and intermediate outcome
measures, the overall results of the studies were mixed, and any
identified effects were relatively small.
A basic flaw in the design of existing P4P models is the reality that
meaningful patient-centered outcome measures remain elusive.
Accountable Care Organizations
Accountable Care Organizations (ACOs) are health care organizations that
tie provider reimbursements to quality and cost metrics related to the
total care of an assigned population of patients.
Although ACOs are still relatively new, their ability to generate
savings to share with participants is so far not encouraging, as shown
by the early results among the most experienced providers in the Pioneer
Even the most inefficient system has a finite amount of waste; although
it may be relatively easy to address "low hanging fruit" early on,
achieving sustained savings over time will prove increasingly difficult.
In the Bundled Payment model, a single payment is made for services
delivered during an episode of care related to a medical condition or
Although the cost of each bundle may be reduced, without any control
over the volume of bundles provided, overall spending may not go down.
Bundled payments also need accurate risk adjustment to avoid both the
underuse of appropriate care services as well as the tendency to "cherry
pick" low-cost patients.
Patient-Centered Medical Homes
Although early limited evaluations and anecdotal experience with the
Patient-Centered Medical Home model have suggested the promise of cost
savings and higher patient and provider satisfaction, results from a
large multipayer medical home pilot was associated with limited
improvements in quality and no reduction in hospital usage, emergency
department visits, ambulatory care services, or total costs over three
Impact On The Practice Of Medicine
By and large, physicians not only want to provide the best quality
health care to their patients, they also want to know they are doing so.
But physicians currently labor under an increasingly burdensome and
often meaningless number of reporting requirements that take time away
from patients and fail to help them improve the quality of their care.
According to a commentary in The New England Journal of Medicine in
2014, "the quality-measurement enterprise in U.S. health care is
troubled." Physicians, hospitals, and health plans view measurement as
burdensome, expensive, inaccurate, and indifferent to the complexity of
care delivery. The measures also fail to give patients the information
they need to make good decisions.
The recent CMS report that 40 percent of Medicare providers will face
1.5 percent cuts for failing to submit data to the Physician Quality
Reporting System underscores the fact that many providers, especially
those who see few Medicare patients, likely view the cuts as a cost of
business to avoid the administrative hassle.
Yet, in spite of these cautionary signs, public and private payers are
tying larger amounts of provider payments to a growing number of largely
meaningless measures, as if doubling down will somehow fix the problem.
Given the plethora of payment and delivery reform initiatives currently
underway or in development, there is relatively little discussion about
the long-term goal of payment reform or the impact of these initiatives
on the practice of medicine. There are at least two areas of particular
concern: the administrative burden on physicians, and the push toward
Nearly half (46 percent) of doctors reported that they felt burnout in
2014, and a main reason cited was increasing administrative burden,
including the multitude of reporting requirements. These findings cannot
be dismissed, since burnout has been positively linked to increases in
medical errors and has been cited as a reason why doctors leave practice.
Another consequence of both the administrative burden and financial risk
of participation in APMs is likely to be an increase in the already
considerable trend toward practice consolidation. This trend has been
shown to increase health care spending without increasing quality or
efficiency and runs counter to the goals of APMs. Many small,
independent practices will lack the resources needed to comply with the
myriad of reporting requirements involved in APM participation; they are
also less likely to be able to absorb the potential losses in a model
that involves down-side financial risk.
Moving Forward On Physician Payment Reform
The Administration's aims regarding value-based payments and the
expanded use of APMs come with very little detail on how they will be
realized; thus, it is difficult to comment other than to say that given
the current state of performance measurement and the early results from
existing APMs, the timeline seems overly aggressive.
Although the pursuit of better value in health care is a laudable aim
and should continue, setting goals and establishing timelines is not
enough. Linking more and more physician income to meaningless quality
measures or mandating participation in undeveloped APMs will do little
more than add to the already considerable non-clinical burden that
physicians face and may force many physicians to abandon private
practice in favor of employment, thereby accelerating the current trend
toward consolidation. Worse yet, physicians may choose to leave practice
(John O'Shea, MD, is a practicing surgeon and Senior Fellow in the
Center for Health Policy Studies at the Heritage Foundation in
Washington, DC. He served as a senior health policy advisor to the U.S.
House Committee on Energy and Commerce, where he helped draft the
Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) that
replaced the Sustainable Growth Rate (SGR) formula for reimbursing
physician services in the Medicare program.)
Comment by Don McCanne
It is indeed a rare event when we can agree with a health policy fellow
from the Heritage Foundation. John O'Shea has spelled out the
deficiencies and potential harms of the current directions in physician
The goal is to drive quality and control costs. Although Dr. O'Shea does
not tell us how he would do that, it is likely that he would disagree
with our approach. We would adopt a single payer national health program
which, by design, increases quality while improving value in our health
at 2:38 PM