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Published 5/1/2013
Jordan C. Apfeld, BA; Daniel J. Stinner, MD; A. Alex Jahangir, MD, MMHC; Manish K. Sethi, MD

Administration Pushing New Payment Models

NCPPR calls for “drastic changes” to fee-for-service

Jordan C. Apfeld, BA; Daniel J. Stinner, MD; A. Alex Jahangir, MD, MMHC; and Manish K. Sethi, MD

Three years after the Patient Protection and Affordable Care Act (PPACA) became law, the American healthcare system continues to struggle with both high costs and irregular quality. Critics argue that both problems can be attributed to the fee-for-service (FFS) payment structure, which they maintain encourages physicians to provide extraneous services without regard to outcomes.

In March 2013, the National Commission on Physician Payment Reform (NCPPR) called for “drastic changes to the current fee-for-service payment system and a five-year transition to a physician-payment system that rewards quality and value-based care.” Orthopaedists who are working
on potential solutions to the payment conundrum should understand the reports’ contents and recommendations.

Challenges to payment reform
The authors of the NCPPR report—former Senator William H. Frist, MD, and Steven Schroeder, MD, distinguished professor of health and health care, division of general internal medicine, department of medicine, at the University of California, San Francisco—contend that the most common recommendations for payment reform are off-base and insufficient to tackle the problem of rising costs. Traditional proposals include the following:

  • Offering high-deductible plans
  • Cutting services covered under health insurance plans
  • Raising the eligibility age for Medicare
  • Increasing the out-of-pocket costs for seniors on Medicare
  • Relying on the Sustainable Growth Rate (SGR) formula
  • Reducing physician reimbursements across-the-board

Of these proposals, only a reduction in physician reimbursement would “drastically” contain costs, but it could have mixed results. A large reduction in payments would risk a problem with access, because physicians might be unwilling to enter low-paying specialties and might consider withdrawing from practice entirely. A small reduction in payments, on the other hand, would be insufficient to stem the rise in healthcare costs.

The other proposals will, at best, marginally contain costs, and do not address the root causes for rising healthcare expenditures. Additionally, implementing some of these proposals might affect healthcare access, especially for the elderly and chronically ill.

Viable solutions
The NCPPR report outlines alternative solutions for payment reform, designed to align incentives with lower costs and better quality. The 12 recommendations take a two-pronged approach to reform, advocating the following:

  • Accelerating the testing and adoption of new payment models
  • “Fixing” the existing FFS model to include a quality or outcomes-based performance component

The report encourages the adoption and spread of new payment models such as accountable care organizations, bundled payments, and patient-centered medical homes. Both private healthcare corporations and the Centers for Medicare and Medicaid Services are currently testing these models. Developing these models is a priority in the NCPPR report and represents sweeping changes to the systemic issues in health care.

In addition, the report also provides a more immediate solution—fixing FFS. Because FFS will continue to be part of future payment systems, the report endorses a “blended payment system” that would reward value over volume. FFS models would be updated over 5 years to achieve the following goals:

  • Include a component of quality or outcome-based performance reimbursement
  • Increase total reimbursement for evaluation and management services
  • Eliminate higher payment for facility-based services that can be performed at a lower-cost facility (ie, in a physician’s offices or an ambulatory facility) and freeze reimbursement values for other procedural diagnostic codes for three years
  • Abolish the SGR formula

Although the report offers reasonable alternatives to the current reimbursement system, is it feasible to move away from FFS for good?

What’s working
In the 1990s, attempts were made to replace FFS with full capitation patients. But a backlash from both patients and providers quickly ended the effort. The transition was too sudden and operated on insufficient evidence.

This time around, physician payment overhauls are projected to retain certain aspects of FFS while slowly transitioning to episode-of-care or comprehensive care payment schedules. Both private and public healthcare groups are testing reforms on a micro-scale, measuring the feasibility and reliability of new payment structures before expanding them to a larger scale.

For example, the physician-led Geisinger Health System in Pennsylvania has switched to paying physicians salaries, with the prospect for bonuses for achieving stellar patient outcomes. According to the AHRQ Health Care Innovations Exchange, Geisinger’s Proven Care® program system implements fixed pricing for certain procedures and a strict reliance on evidence-based standards of care and was first tested with cardiac surgery. Furthermore, PPACA provides for public testing of new payment models through Medicare, which may become the way these new payment models are introduced across the country.

Definite barriers to implementing each of the NCPPR proposals exist, but they are not as daunting as those that would accompany a comprehensive replacement of the current payment models. Providers should want to fix FFS, because it will not survive without adapting to address the rising costs and compromised quality of American health care today.

Payment reform will happen; the FFS model is simply no longer sustainable. Orthopaedic surgeons must understand the positive and negative effects of each proposal and play a role in the evolving discussion.

Read the entire NCPPR report at http://physicianpaymentcommission.org/report/

Jordan C. Apfeld, BA; Daniel J. Stinner, MD; A. Alex Jahangir, MD, MMHC; and Manish K. Sethi, MD, are all associated with the Vanderbilt Orthopaedic Institute Center for Health Policy.


  1. Frist WH, Schroeder S: To contain health care costs, pay doctors differently. Politico March 4, 2013. http://www.politico.com/story/2013/03/to-contain-health-care-costs-eliminate-fee-for-service-88339.html (Accessed April 10, 2013)
  2. Frist WH, Schroeder S: Changing the way physicians are paid: Report of The National Commission on Physician Payment Reform. March 4, 2013. http://healthaffairs.org/blog/2013/03/04/changing-the-way-physicians-are-paid-report-of-the-national-commission-on-physician-payment-reform/ (Accessed April 10, 2013)
  3. Frist WH, Schroeder S: Report of The National Commission on Physician Payment Reform. March 2013. http://physicianpaymentcommission.org/report/ (Accessed April 10, 2013)
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