Feature Pay for US doctors

Physician pay is changing

BMJ 2013; 346 doi: https://doi.org/10.1136/bmj.f1540 (Published 07 March 2013) Cite this as: BMJ 2013;346:f1540
  1. Miriam E Tucker, writer
  1. 1Bethesda
  1. miriametucker{at}aol.com

A new report calls for reforming the way US doctors are paid. Miriam E Tucker investigates

An independent commission has issued a set of proposals aimed at changing the way physicians are paid in the United States, including a call to largely phase out fee-for-service pay within five years.

The National Commission on Physician Payment Reform, launched under the auspices of the Society of General Internal Medicine (SGIM), spent the past year devising a set of 12 recommendations guided by six basic principles, all with the goals of shifting the physician payment system toward decreasing total expenditure while improving quality of care.1

“We’re now at a point where the level of spending on healthcare is unsustainable, and the way that doctors are paid is one of the single most important drivers of our escalating healthcare costs,” Steven A Schroeder, commission chair and professor of health and healthcare at University of California, San Francisco, said at a Capitol Hill briefing announcing the report.

Indeed, despite the enormous outlay for healthcare in the United States—totaling 18% of gross domestic product and $8000 (£5000; €6000) per capita per year, an amount greater than any other country spends—the US ranks just 37th in health status, behind nations such as Oman, Morocco, and Paraguay.

The Medicare program alone consumed 15% of the federal budget in 2010, up from 3.5% in 1975. By 2020, that proportion is projected to reach 17%, or 4% of gross domestic product.

In an interview with the BMJ, Schroeder said the main problem was not physicians’ salaries per se, which account for about 20% of total healthcare spending. Rather, it was the results of their decisions, fueled by a fee-for-service payment system that rewarded action rather than outcome, which consume 70%.

“Fee-for-service promotes fragmented care and encourages doctors to provide more and more costly care, regardless of benefit to patients,” said Schroeder.

System wide changes

The commission’s honorary chair is former US senate majority leader and heart surgeon William Frist. The other 12 members include practicing physicians, heads of large healthcare systems, business leaders and experts in health policy, health economics, and medical ethics. Most physicians on the panel are general internists, but there is also a practicing cardiologist and a pulmonologist.

Their ultimate goal is the first recommendation: “Over time, payers should largely eliminate stand alone fee-for-service payment to medical practices because of its inherent inefficiencies and problematic financial incentives.”

Instead, the commissioners advise greater adoption of value based fixed payment systems such as “bundled” payment, in which physicians are paid for all of the care related to a specific condition or episode (such as a hip replacement), or “capitation,” in which physicians are paid a specific amount per patient and share in the financial risk.

The commissioners suggest a five year period for moving to care delivery models that use these fixed payment methods. These models include integrated provider networks that share financial risk—known as “accountable care organizations”—and “patient centered medical homes,” in which a primary care physician coordinates the care of patients.

Spurred on by the Affordable Care Act, these models are already in place in many parts of the country, in both the private and public sectors. The commissioners deemed the five years as sufficient time to allow for assessment of outcomes and for making changes such as installation of electronic medical records and updates to billing systems.

Initial transition efforts, commissioners say, should focus on areas with the greatest potential for cost savings and quality improvement, such as the 5% of the sickest patients who consume half of all health expenditures, or in-hospital procedures and their follow-up.

Acknowledging that not all services are amenable to fixed-payment models, the commission advises that, regardless of type, payment should “reward behavior that improves quality, care coordination, and cost effectiveness and/or penalize behavior that misuses or overuses care that does not add benefits to patients but simply adds to the cost.”

Both Medicare and private insurers are advised to annually increase the value of evaluation and management (E&M) billing codes used for cognitive services such as preventive care and chronic disease management, while at the same time freezing procedural diagnosis code updates for three years.

The focus here is on the service rather than the type of provider. The increased reimbursement for time spent counseling patients, for example, would apply equally to specialists such as cardiologists, endocrinologists, and rheumatologists as to primary care physicians.

Site specific payment, in which insurers reimburse at a lower rate for services performed at outpatient facilities than for the same service performed in a hospital, is another target for elimination. As the report notes, Medicare pays $450 for an echocardiogram done in a hospital compared with $180 when it is done in a physician’s office.

And there’s also disparity in reimbursement even within physician practice settings, as larger practices with greater market power are often able to negotiate better rates from private payers. The details of these deals are typically not made public. “It’s very murky . . . It’s hard to justify, and at the very least it ought to be transparent,” Schroeder told the BMJ.

Medicare-specific recommendations

The commissioners join the American Medical Association (AMA), the Medicare Payment Advisory Commission, members of Congress and others in calling for elimination of the sustainable growth rate (SGR), a complicated formula that was intended to control Medicare costs but has failed.

Established by Congress as part of the 1997 Balanced Budget Act, the SGR ties physician reimbursement to the rate of inflation. According to the law, physician pay within Medicare should have been cut every year for the past decade because overall spending exceeded the SGR targets in each of the previous years. But Congress has repeatedly intervened with a “doc fix” that prevented the pay cuts.

“Simply stated, the SGR has not worked in practice and shows no prospect of ever working. The practice of setting expenditure targets one year and ignoring the consequences of exceeding them the next year makes no sense,” the commissioners write.

In February 2013, the Congressional Budget Office estimated that eliminating the SGR targets would cost about $138bn over 10 years. According to the commission, that money should not come entirely from cutting physician payments, but rather from reductions in overuse of Medicare services.

“Recalibrating physician reimbursement should be done by considering total medical expenses not just as a zero sum game of physician related expenses,” the commissioners write.

A final recommendation deals with the “seriously flawed” Relative Value Scale Update Committee (RUC), the panel managed by the AMA that advises the Centers for Medicare and Medicaid Services (CMS) regarding updates to the scale on which physician payment is based. Most RUC members are procedural specialists, which has led to concern that the panel’s recommendations overvalue technical work and undervalue cognitive interventions.

The commissioners call for the RUC to become “more representative of the medical profession as a whole,” and for RUC activities to be more transparent to the public. They also suggest that the CMS “look more widely for alternate sources of relative value and other payment recommendations.”


Reaction to the report from physician specialty organizations is mixed.

The American Academy of Family Physicians (AAFP) “appreciates the [commission’s] excellent work,” incoming president Reid Blackwelder told the BMJ, adding that an AAFP task force made very similar recommendations in 2011, particularly with regard to better valuation of primary care.2

The AMA has made some of the same recommendations that are in the report, but it also has concerns. In a statement provided to the BMJ, AMA president Jeremy Lazarus said, “Many of the ideas discussed in the physician payment report, such as the need to eliminate the [SGR], are consistent with AMA policy . . . However, much of this report reflects the view of only one specialty and does not reflect the broad, diverse field of medicine.”

The panel’s cardiologist, American College of Cardiology Advocacy Steering Committee chairman Jerry Kennett, said that his specialty opposed the three year freeze on procedural diagnostic code updates.

“Everyone pretty much agrees that E&M codes should be increased for cognitive treatment, but reimbursement for cardiology procedures has been cut dramatically over the past few years,” he told the BMJ. However, he said the American College of Cardiology certainly favored eliminating both the SGR and site-specific reimbursement.

Geraldine McGinty, chair of the American College of Radiology’s Economics Commission, told the BMJ, “There are some very interesting ideas in there, but we want to make sure that some of the innovative ideas we have about managing imaging utilization that can manage healthcare costs should be part of the conversation too.”

Of course, Schroeder anticipated some criticism of the report. “I suspect most people will find things in it that they like, and many people will find things in it that they don’t like,” he told the BMJ.

But overall, “This commission felt that the recommendations in the report would be good for increasing value and making the way we pay doctors more rational. We would hope doctors would say this is a fair set of recommendations.”


Cite this as: BMJ 2013;346:f1540


  • Competing interests: I have read and understood the BMJ Group policy on declaration of interests and have no relevant interests to declare.

  • Provenance and peer review: commissioned; not externally peer reviewed.

  • The SGIM received grant support for the report from the Robert Wood Johnson Foundation and the California HealthCare Foundation.


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