On July 31, 2013, the U.S. House of Representatives Energy and Commerce (E&C) Committee voted 51 to 0 to approve HR 2810, “The Medicare Patient Access and Quality Improvement Act of 2013.” If approved or incorporated into other federal legislation, this bill would accomplish what has long been thought impossible in health policy circles—the full repeal of the Sustainable Growth Rate (SGR) formula for determining Medicare payments to physicians and other healthcare providers.

Repeal of the SGR has been a high priority for more than a decade, but has rarely been seriously considered due to the incredibly high budgetary cost of repealing the formula.

As currently drafted, HR 2810 does not address the critical question of what, if any, revenues or reduced expenditures elsewhere (commonly called “pay-fors”) will be attached to the final bill. The question of pay-fors is a significant one, because the total projected budgetary cost for repealing the scheduled SGR cuts under HR 2810 would be $175 billion, according to the Congressional Budget Office.

What HR 2810 does
The proposed legislation would repeal the SGR formula and increase payments under the Medicare Physician Fee Schedule by small percentages for 5 years (through 2019). After 2019, physicians and nonphysician providers would be able to choose among different payment models. These models fall into the following two groups:

• a fee-for-service (FFS) model that includes a form of payment for quality
• alternative payment models that link payments to quality standards

The alternative payment models would enable physicians to receive higher Medicare payments if they meet quality standards, but would include the potential downside risk of being paid less for services to Medicare patients if quality standards are not met. Alternative payment models could be designed and proposed by physicians, giving some control to creative, entrepreneurial healthcare providers.

HR 2810 provides significant incentives for adopting alternative payment models. Some of the more popular or promising alternative payment models include the following:

• accountable care organizations, which pay a per-patient fee for all care provided to a patient within a defined period
• shared savings models, which allow physicians and nonphysician providers to receive bonus payments based on shared savings over projected costs
• episode-of-care models, which provide a single payment to a single provider for a single episode of care for a patient across both time and sites of service
• bundled payment models, which bundle payments across providers and sites of services for a defined period

Many of these models have been part of various federal pilot projects in recent years. Other broad models are anticipated to emerge during the next few years as both payers and physicians experiment with how to best measure and pay for quality.

What’s wrong with FFS?
FFS, in various forms, is how physicians in the United States have been reimbursed for decades. FFS is a straightforward approach under which a physician (or nonphysician provider) performs a specified service or procedure on a patient and then submits a charge to the payer for the service or procedure.

However, the FFS approach has two inherent problems. The first is that, with a strictly FFS payment model, providers are paid the same rate regardless of whether the procedure or service has any benefit to the patient. The second is that the physician or nonphysician provider carries no direct financial risk if the service provided does not benefit the patient.

These two fundamental shortcomings are, in large part, why Congress, private payers, and health policy experts have invested a great deal of time and money into developing alternative payment models that take into account the quality of the services provided.

This transition will undoubtedly seem unnecessary and disruptive to many physicians, but payers and legislators are no longer willing to pay for services and procedures unless physicians are willing to assume some risk and pay attention to patient outcomes and quality of care.

There is also considerable frustration over the wide variation in the quality (as well as the cost) of care across states and regions. Research has shown that little relationship exists between cost and issues such as volume of care, patient outcomes, or quality of care. From a payer perspective, these issues should, and potentially can, be tied together in a more direct way.

In this regard, HR 2810 represents a watershed in health policy. It restructures the basic physician payment methodology to allow for the development and institutionalization of payment models that do not rely on the traditional FFS approach. Many physician associations, including the AAOS, worked with legislators in drafting HR 2810. Regardless of the bill’s fate, the movement from an FFS environment to a multimodal payment environment is already under way and accelerating.

The question of quality
In the last decade, a vast body of research and policy analysis has arisen that fundamentally questions whether the (relative) administrative simplicity of an FFS system has cost American healthcare consumers a great deal of money without providing improvements in the overall health of patients or the quality of the care they receive. Furthermore, within Congress and regulatory and policy circles, FFS is considered incompatible with a healthcare system that seeks to maximize quality in the most cost-efficient way possible.

In the private carrier environment, most private payers are already incorporating quality and outcome measures into physician payments—some more aggressively than others. In fact, fewer and fewer physicians are being paid strictly on an FFS basis. The purchasing community (ie, employers) is also increasingly demanding the provision of higher quality care in a more transparent and consistent manner. These trends can be seen in the various quality recognition programs developed by private payers and in the closer relationships being developed between large employers and hospital systems.

Organized medicine now stands on the brink of a significant reorganization of payment and delivery models. New models emphasize and compensate physicians for measuring and improving quality of care in a more open and transparent way. Although quality improvement is notoriously difficult to define and measure, more tools are being developed and employed every day. Tools such as the AAOS Evidence-based Clinical Practice Guidelines and Appropriate Use Criteria, as well as surgical registries like the American Joint Replacement Registry and others across the country, will be central to this move toward greater consistency and transparency.

It remains to be seen whether this new era will yield positive returns in the form of lower costs and higher quality. But without question, all physicians have to be prepared for this change that, whether they like it or not, is coming. FFS payments will remain an option for physicians, but physicians may find their payments reduced. Alternative payment methods may provide more opportunities to maintain reimbursement levels. Payers will continue to strengthen incentives toward new payment and delivery models.

Orthopaedic surgeons are among the most entrepreneurial and opportunistic medical specialists, and this new era promises many exciting opportunities for AAOS members. The AAOS was an early voice in advocating for a flexible and fair approach to physician payment and delivery and will continue to be a leading source of education and tools for members and other nonorthopaedic surgeons.

More information on these and other health policy issues is available in the government relations section of the AAOS website (www.aaos.org/dc). AAOS Now will continue to update members on new tools for physicians and information on the fate of federal legislation such as HR 2810.

Thomas C. Barber, MD, chairs the AAOS Council on Advocacy. Matthew Twetten, MA; Elizabeth Fassbender; and Catherine Boudreaux, MPP, are staff in the AAOS office of government relations.