American College of Physicians: Internal Medicine — Doctors for Adults ®

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How to repair our 'dysfunctional' reimbursement system

From the June ACP Observer, copyright 2004 by the American College of Physicians.

By Robert B. Doherty

When the College convened a summit on revitalizing internal medicine last November, a general consensus was reached about the need to repair the "dysfunctional'' reimbursement system.

This consensus was embraced by organizations spanning the range of internal medicine interests, from academic internists to community-based practitioners, and from generalists to subspecialists. While some of these groups have clashed in the past over payment issues, many agreed that the current reimbursement system is holding back internal medicine as a specialty.

While the summit did not produce specific recommendations, there was general agreement that we need alternatives to the current Medicare policy, which reimburses internists on a per-procedure basis for each acute episode of illness.

A look at history

Before we can change the current system, we must remember that Medicare structured its reimbursement system largely in response to requests from the medical profession.

Medicare originally made payments based on physicians' usual and customary charges. Preventive care (except perhaps for the annual physical examination) was virtually unheard of, and Medicare benefits were designed to cover treatment for only acute illnesses. The Current Procedural Terminology (CPT) coding system, developed by the AMA, became the accepted way to bill Medicare and other payers.

In the mid-1970s, Congress imposed limits on increases in physician reimbursement by creating the Medicare economic index (MEI). This index, which is still used today, limits annual increases in payments to measurable increases in average costs such as rent, utilities and staff salaries in running a doctor's office.

In 1989, Congress mandated that instead of basing payments on usual and customary fees, Medicare would reimburse physicians according to the relative differences in physician work, practice expenses and medical liability costs associated with each service. A new measure—the resourcebased relative value scale (RBRVS)—was created to measure such differences. The goal was to reallocate payments from historically "overvalued'' invasive and surgical procedures to "undervalued'' cognitive services, such as office visits and consultations.

The RBRVS was strongly supported by the American Society of Internal Medicine, ACP and other specialty societies whose members' services had historically been undervalued based on historical charges. In 1992, the AMA created a multispecialty committee—the RVS Update Committee (RUC)—to give the Medicare program recommendations on new and revised relative values under the RBRVS.

More limitations

Unfortunately, the 1989 law that gave us the RBRVS also gave us changes that ACP and the AMA did not ask for. For example, Congress required that spending be budget-neutral, meaning that any changes in reimbursement due to the RBRVS would redistribute Medicare dollars, not add to them.

Congress also imposed maximum "limiting charges'' on how much physicians could charge above approved amounts. And Congress mandated that future annual increases be linked to a target rate of growth, called a volume performance standard (VPS).

The VPS provided higher updates if volume growth was lower than baseline targets. If overall volume exceeded the targets, however, physicians would receive lower updates.

With the support of the American College of Surgeons, separate volume targets were created for surgical procedures, primary care services and other nonsurgical services.

In 1997, Congress eliminated the separate VPS targets and replaced them with a new target: the sustainable growth rate, or SGR. This formula increases or decreases annual pay updates based on how overall expenditures on physician services included in the target compare with the per capita gross domestic product.

What's so dysfunctional?

Under the system in place today, payments are based on the RBRVS and multiplied by a dollar conversion factor. That conversion factor is increased or decreased annually depending on how overall expenditures compare with the SGR.

Because the medical profession itself asked for the RBRVS, why do so many internists now consider the whole Medicare payment system to be dysfunctional?

Although the RBRVS succeeded in redistributing Medicare dollars from surgical procedures to office visits and other cognitive services, the absolute gains to internists have been eroded. The annual updates under the volume performance standards-and since then under the SGR-have not kept pace with costs.

Medicare's budget neutrality rules have made it impossible to increase aggregate payments to doctors. In addition, limits on how much physicians can bill Medicare in excess of approved amounts make it impossible for internists to offset the cuts by charging more.

ACP is working to fix the flaws in the SGR, and we are advocating that budget neutrality restraints be eased. Such efforts have the potential of modestly improving payments for internists' services, but they will not change the underlying fee-for-service system.

Toward a more functional model

A potentially more promising approach is to redesign the entire payment system to recognize how medical practice is changing. This might mean reimbursing internists for prevention and ongoing management of patients' health, not just treatment of acute illnesses. It might mean changing the unit of payment from a per-procedure code to a global or management fee.

It might include risk adjusters to recognize the more complex medical conditions typically seen by internists. It might reimburse internists for services outside of the office visit itself, like e-mail consultations and telephone calls.

It might change the reimbursement incentives so internists are paid not for how many services they provide, but how well they deliver high quality care.

Designing new models of reimbursement will be difficult. The College will first have to describe the kind of system we want and then develop innovative methodologies to achieve our desired ends.

We will want to test the methodologies in the real world of patient care to make sure they work as intended. We will then need to persuade Congress to support them.

The history of the RBRVS teaches us that payment reform is not risk-free. Congress may not give us just the changes we want, but new rules and regulations that we don't want.

Payment reform can also be divisive within the medical profession, pitting potential winners against losers. Changes in incentives may change the way care is delivered, but not always in the way we intend.

The alternative, however, is to accept a dysfunctional payment system that no longer meets the needs of internists or their patients. Change may be risky, but the risk of maintaing the status quo is even greater.

Robert B. Doherty is ACP's Senior Vice President for Governmental Affairs and Public Policy.

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