Where 400 Years of Fee for Service Has Led Us
Under the initial Medicare legislation, physicians were reimbursed according to the "usual, customary and reasonable rates." Physicians billed patients who were then reimbursed by Medicare. In the 1980s, because of the rapid escalation of health care expenditures, Congress passed laws involving Medicare that ultimately restructured the way physician services were reimbursed. In January 1992, new legislation went into effect that established a Medicare fee schedule for physician services replacing the system of paying physicians according to what they billed.
The Resource Based Relative Value Scale (RBRVS) established a standardized payment schedule. The Evaluation and Management (E/M) model was part of the new payment system. RBRVS was developed to produce the following four main outcomes:
• Uniform policies nationwide.
• A national fee schedule.
• New Current Procedural Terminology (CPT) codes.
• Establishment of relative values on the basis of the resources used by physicians to perform a particular service: the physician work and practice expense. (Malpractice expense was added later.)
The intent of the RBRVS was to reduce the inequality between fees for cognitive services and payment for procedures, but there remains much discussion that challenges whether this goal was ever actually achieved. Equally controversial are the differences in allocations of practice expenses across services. As an example, the volume of diagnostic and imaging procedures has increased far more rapidly than the volume of office visits, a situation that benefits specialists who perform those procedures.
Thus, what started 83 years ago as a 50-cent-per-month insurance plan for Dallas teachers grew to the 1992 Medicare Payment Reform program with implementation of the RBRVS. It has been 20 years since the E/M coding system had its initial publication in the 1992 American Medical Association CPT codebook.
The "fee for service" model for physician reimbursement has survived in the United States – in one form or another – for almost 400 years. However, current medical economics define a perception that the present model for health care delivery is unsustainable.
As new legislative regulations become integrated into practice reimbursements, physicians must be aware of emerging complex management tools, which include pay-for-performance formulas, evidence-based medicine guidelines, clinical algorithms, electronic health records, global budgets, shared savings, and a multitude of legislative changes regarding legal structures and antitrust protection.
And as health economics influence health care markets, economic issues also result in changes in how physicians practice medicine. Even before the Affordable Care Act was signed into law by Congress in March 2010, changes have been taking place in physician practice settings. Organizational models appear to be migrating toward physicians’ seeking a more integrated structure with industry and hospital-owned provider networks.
Physician recruitment is also being affected by young doctors who must balance their commitment to meet an average $200,000 education debt while still facing the uncertainties of the various employment markets. An increased proportion of graduating doctors are not accepting the traditional "partner track" positions in private medical groups, but are instead opting to seek economic stability by taking salaried positions in health-sponsored employment provider networks. According to a 2009 survey by the Medical Group Management Association, 65% of established physicians were placed in hospital-owned practices, and 49% of physicians hired out of training joined a hospital-owned practice. This represents a nearly 75% increase in the number of active doctors employed by hospitals since 2000.
The literature and media are filled with editorials about how physician fee for service is the root cause for poor coordination of care and overutilization of expensive, "unnecessary" physician services, and accountable care organizations (ACOs) have emerged as an alternative to the current medical care model.
However, it is important to recognize that the incentive-driven compensation prototype of the future ACO marketplace is not risk free. It remains unclear whether developing organizations that integrate physicians and hospitals offers the promise for better care coordination, fewer complications, and cost savings. It is also unclear whether any changes in value and quality will be passed along to patients and payers in the form of lower prices.
What is certain, however, is that physicians are gravitating toward health care system–sponsored employment with a guaranteed salary, and physician recruitment is being affected by larger health care organizations that are driving higher compensation packages to young, job-seeking physicians, many of whom have specific training in areas of hospital need.
The economics of modern medicine has come a long way. It has been 392 years since the Mayflower sailed from a site near the Mayflower Step in Plymouth, England, and landed in Plymouth, Massachusetts, in 1620. Its 102 passengers and 25-30 crew members, including physicians Myles Standish and Samuel Fuller, would probably be rather surprised at how far medicine has progressed.
