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Paying for primary care—Time for a change?
MEDICINE,
SCIENCE AND SOCIETY
Paying for Primary Care-Time PHILIP
P
R. LEE,
M.D. and LAUREN
hysician and hospital reimbursement, particularly Medicare and Medicaid policies, have come under increasing scrutiny because of the continuing rapid rise in the cost of medical care. Issues that have also attracted attention because of their relationship to physician reimbursement are the specialty and geographic maldistribution of physicians, the incentives for subspecialization, the use of technology and the impact of reimbursement on primary care services. Problems that appear to stem from current reimbursement policies raise the question-is it time for a change? In two recent studies of Medicare and Medicaid reimbursement, the effects of current physician reimbursement policies have been examined in considerable detail [1,2]. Both groups of investigators concluded that changes are needed, particularly in the customary, prevailing and reasonable (CPR) charge policies that have become the predominant method of reimbursement employed since the enactment of Medicare. A careful analysis of the present system of physician reimbursement by Showstack et al. [3] reveals the complexity of both CPR and fee schedule physician reimbursement policies that are employed by many Medicaid programs, as well as by private health insurance programs. The systems are not easily modified, nor is it easy to predict the consequences of particular policy changes. The issues related to primary care have been examined by The Institute of Medicine (IOM) in its report, A Manpower Policy for Primary Health Care. As a result of its study, the IOM recommended major changes in current policies of third party payers [federal, state and private). These include the reimbursement of all physicians at the same level for the same primary care service, reduction of the differentials between providers of primary care and of nonprimary care, reimbursement for preventive services, elimination of geographic differentials in payment levels for physicians within a state, and reimbursement of practice units at the same level,
for a Change?
B. LeROY,
M.C.P.
whether the services were provided by physicians, nurse practitioners or physicians’ assistants [4]. These recommendations and their possible consequences for patients, physicians and the public purse merit serious consideration by the medical profession as well as by those who determine third party reimbursement policies. Hospital reimbursement policies also have a major impact on primary care. This is due partly to their impact on residency training programs and the incentives that exist to hospitalize patients rather than to care for them in ambulatory care centers. Three general points about the disadvantages of the current payment structure deserve emphasis because of their potential impact on training programs and because they provide the framework for examining options for reform: Insurance benefits (private and public) for ambulatory services are less comprehensive than those for hospital services. In 1976, third party payment accounted for 91 per cent of all hospital expenditures, as compared to roughly 60 per cent of physician services and all other services performed outside the hospital l
Hospital outpatient departments and emergency rooms, particularly in teaching hospitals, see a disproportionately large number of patients from low income groups who frequently have minimal or no insurance coverage for ambulatory care and are unable to pay for services directly. l
In the hospital inpatient setting, the costs associated with much of residency training can be absorbed in the hospital budget because the residents provide a great deal of service to the patients and these added costs can be passed on to third parties as a reimbursable cost of patient care. In contrast, the higher per unit cost resulting from education programs in ambulatory l
From the Health Policy Program, School of Medicine, University of California, San Francisco, California. Requests for reprints should be addressed to Dr. Philip R. Lee, Health Policy Program, School of Medicine, University of California, San Francisco, California 94143.
March 1990 The American Journal of Medicine
Volume 68
319
EDITORIAL-LEE,
LEROY
settings places the outpatient clinic at a competitive disadvantage compared with physicians in private practice who are not involved in residency training. This is true because the costs must either be absorbed by the institution, paid directly by the patients or reimbursed (inadequately) by third parties. In reflecting on physician and hospital reimbursement, we have reached three general conclusions: (I) current policies (Medicare, Medicaid, private health insurance] for physician and hospital reimbursement constitute a significant barrier to controlling the inflation in health care costs, to achieving national goals with respect to access to primary care and to correcting the present pattern of specialty maldistribution; (2) current policies place severe restrictions on the expansion of primary care residency training programs, particularly in general medicine and family practice; and (3) the failure to modify present policies of physician and hospital reimbursement will result in increasing efforts to regulate physicians and hospitals in terms of the costs of care and the need for services (e.g., certificate of need). Given the problems associated with the financing of primary care graduate medical education, and the deficiencies of current hospital and physician reimbursement policies, is it possible to reconcile the national mandates for training primary care physicians and improving access to primary care with existing financial barriers to achieving these objectives? Analysis of the incentive structure implicit in the existing reimbursement systems reveals a number of options for change. Those options most often discussed are broad based and would affect all physicians whether in training or in practice. There are, however, additional measures directed specifically at graduate medical education that also deserve consideration. OPTIONS FOR REFORM Extending health insurance coverage to all ambulatory care services has been suggested as a means of reducing the emphasis on hospital inpatient services and providing greater access to primary care. Without copayments and/or deductibles, however, the effects of such coverage would increase demand and increase costs considerably [51. Given current and projected limitations on public budgets, such comprehensive coverage seems unlikely. If major changes in the scope of coverage are unlikely, what can be done about physician and hospital reimbursement? Reimbursement reforms, if they are to have an impact on the number and distribution of primary care physicians, will have to address: (1)the differentials in remuneration among specialists, including the high fees paid for procedures performed by specialists; (2) the geographic disparities in payment for equivalent services
320
March 1980
The American Journal of Medicine
due to the policy of paying physicians on the basis of customary, prevailing and reasonable charges within relatively narrow geographic areas; and (3) the bias of present hospital reimbursement policies toward inpatient services. One option, a negotiated fee schedule, directly addresses the issue of differential payment for primary care versus subspecialty services. This fee schedule can be derived in many ways. One approach simply raises fees of primary care physicians while selectively lowering the fees paid,for certain highly paid specialists and for a variety of procedures currently performed largely by nonprimary care physicians. A second approach entails adjustment of reimbursement rates for specific clinical services, and as such would necessitate the development and field-testing of new methods for establishing fee-for-service reimbursement. A system based on the time required by well qualified professionals performing the same service could replace the arbitrary valuation of services presently applied in payment schemes. Payment under such a system would provide equal pay for equal time spent by equally well qualified physicians. Complementary policies should also be developed to reduce the payment for many procedures and selected ancillary services. Otherwise, experience has shown that in the absence of constraints on the physician’s use of procedures and ancillary services, the use of a fee schedule could lead to greater intensity in the use of these services [6]. Another method that is currently being tested is per case reimbursement of physicians for hospital services. Any reform of fee schedules will have to deal with the high hourly income of many surgeons, radiologists and clinical pathologists when compared to pediatricians, internists and family physicians. This is a sensitive and complex issue, but one that must be addressed. Another approach might link hospital reimbursement with policies regulating the number and distribution of residency positions. If health manpower policy required approval of residency positions according to nationally defined goals, accompanying reimbursement policy would pay only for those approved positions. Another more extreme option would stipulate a particular composition of residency training positions within a hospital as a condition for participation in federal reimbursement programs. Each of these options requires statutory changes. Restrictions such as these on participation of hospitals in Medicare and Medicaid must be evaluated in terms of the disadvantages to program beneficiaries as well as the impact on graduate medical education. Another set of hospital reimbursement options that directly address graduate medical education focus on differential reimbursement for primary care and nonprimary care training. One approach would revise the Social Security Act [Section 2231 which defines restrictions on allowable routine costs under federal hospital reimbursement programs and possible excep-
Volume 88
EDITORIAL-LEE,
tions to those restrictions. Currently, exceptions may be granted for the excess costs of residency training programs regardless of specialty. Modification of this provision would allow only the costs of primary care training programs to pass through the ceilings imposed on routine costs while placing a cap on other specialty training programs. Differential rates of hospital reimbursement rates for residency positions in primary care specialties and those in surgical and other oversupplied specialties could also be used to reduce the supply of those specialists. Although the issues are complex and the answers not easy, proposals to reform current third party reimbursement policies that affect primary care should be accorded high priority by physicians as well as by policymakers. The medical profession must not limit its role to responding to proposals of government or the health insurance industry. The time has come for the medical profession to act rather than react.
LEROY
ACKNOWLEDGMENT
We wish to acknowledge the assistance of Steven Schroeder and Robert Derzon in preparing this editorial. REFERENCES 1. Burney IL, Schieber GJ, Blaxall MO, Gabel JR: Medicare and Medicaid physician payment incentives. Health Care Financing Review 1979; 1: 62-78. 2. Holahan J, Hadley J, Scanlon W, Lee R, Bluck J: Paying for physician services under Medicare and Medicaid. Milbank Memorial Fund Quarterly/Health and Society 1979; 57: 183-211. 3. Showstack JA, Blumberg BD, Schwartz J, et al.: Fee-for-service physician payment: analysis of current methods and their development. Inquiry 1979; 16:230-246. 4. Institute of Medicine: A manpower policy for primary health care, Washington, D.C., National Academy of Sciences, 1978. p 106. 5. Newhouse JP, et al.: Policy options and the impact of national health insurance. N Engl J Med 1974; 290: 1345-1359. 6. Holahan. et al.: Op cit.
March 1980
The American Journal of Medicine
Volume 68
321
SCIENCE AND SOCIETY
Paying for Primary Care-Time PHILIP
P
R. LEE,
M.D. and LAUREN
hysician and hospital reimbursement, particularly Medicare and Medicaid policies, have come under increasing scrutiny because of the continuing rapid rise in the cost of medical care. Issues that have also attracted attention because of their relationship to physician reimbursement are the specialty and geographic maldistribution of physicians, the incentives for subspecialization, the use of technology and the impact of reimbursement on primary care services. Problems that appear to stem from current reimbursement policies raise the question-is it time for a change? In two recent studies of Medicare and Medicaid reimbursement, the effects of current physician reimbursement policies have been examined in considerable detail [1,2]. Both groups of investigators concluded that changes are needed, particularly in the customary, prevailing and reasonable (CPR) charge policies that have become the predominant method of reimbursement employed since the enactment of Medicare. A careful analysis of the present system of physician reimbursement by Showstack et al. [3] reveals the complexity of both CPR and fee schedule physician reimbursement policies that are employed by many Medicaid programs, as well as by private health insurance programs. The systems are not easily modified, nor is it easy to predict the consequences of particular policy changes. The issues related to primary care have been examined by The Institute of Medicine (IOM) in its report, A Manpower Policy for Primary Health Care. As a result of its study, the IOM recommended major changes in current policies of third party payers [federal, state and private). These include the reimbursement of all physicians at the same level for the same primary care service, reduction of the differentials between providers of primary care and of nonprimary care, reimbursement for preventive services, elimination of geographic differentials in payment levels for physicians within a state, and reimbursement of practice units at the same level,
for a Change?
B. LeROY,
M.C.P.
whether the services were provided by physicians, nurse practitioners or physicians’ assistants [4]. These recommendations and their possible consequences for patients, physicians and the public purse merit serious consideration by the medical profession as well as by those who determine third party reimbursement policies. Hospital reimbursement policies also have a major impact on primary care. This is due partly to their impact on residency training programs and the incentives that exist to hospitalize patients rather than to care for them in ambulatory care centers. Three general points about the disadvantages of the current payment structure deserve emphasis because of their potential impact on training programs and because they provide the framework for examining options for reform: Insurance benefits (private and public) for ambulatory services are less comprehensive than those for hospital services. In 1976, third party payment accounted for 91 per cent of all hospital expenditures, as compared to roughly 60 per cent of physician services and all other services performed outside the hospital l
Hospital outpatient departments and emergency rooms, particularly in teaching hospitals, see a disproportionately large number of patients from low income groups who frequently have minimal or no insurance coverage for ambulatory care and are unable to pay for services directly. l
In the hospital inpatient setting, the costs associated with much of residency training can be absorbed in the hospital budget because the residents provide a great deal of service to the patients and these added costs can be passed on to third parties as a reimbursable cost of patient care. In contrast, the higher per unit cost resulting from education programs in ambulatory l
From the Health Policy Program, School of Medicine, University of California, San Francisco, California. Requests for reprints should be addressed to Dr. Philip R. Lee, Health Policy Program, School of Medicine, University of California, San Francisco, California 94143.
March 1990 The American Journal of Medicine
Volume 68
319
EDITORIAL-LEE,
LEROY
settings places the outpatient clinic at a competitive disadvantage compared with physicians in private practice who are not involved in residency training. This is true because the costs must either be absorbed by the institution, paid directly by the patients or reimbursed (inadequately) by third parties. In reflecting on physician and hospital reimbursement, we have reached three general conclusions: (I) current policies (Medicare, Medicaid, private health insurance] for physician and hospital reimbursement constitute a significant barrier to controlling the inflation in health care costs, to achieving national goals with respect to access to primary care and to correcting the present pattern of specialty maldistribution; (2) current policies place severe restrictions on the expansion of primary care residency training programs, particularly in general medicine and family practice; and (3) the failure to modify present policies of physician and hospital reimbursement will result in increasing efforts to regulate physicians and hospitals in terms of the costs of care and the need for services (e.g., certificate of need). Given the problems associated with the financing of primary care graduate medical education, and the deficiencies of current hospital and physician reimbursement policies, is it possible to reconcile the national mandates for training primary care physicians and improving access to primary care with existing financial barriers to achieving these objectives? Analysis of the incentive structure implicit in the existing reimbursement systems reveals a number of options for change. Those options most often discussed are broad based and would affect all physicians whether in training or in practice. There are, however, additional measures directed specifically at graduate medical education that also deserve consideration. OPTIONS FOR REFORM Extending health insurance coverage to all ambulatory care services has been suggested as a means of reducing the emphasis on hospital inpatient services and providing greater access to primary care. Without copayments and/or deductibles, however, the effects of such coverage would increase demand and increase costs considerably [51. Given current and projected limitations on public budgets, such comprehensive coverage seems unlikely. If major changes in the scope of coverage are unlikely, what can be done about physician and hospital reimbursement? Reimbursement reforms, if they are to have an impact on the number and distribution of primary care physicians, will have to address: (1)the differentials in remuneration among specialists, including the high fees paid for procedures performed by specialists; (2) the geographic disparities in payment for equivalent services
320
March 1980
The American Journal of Medicine
due to the policy of paying physicians on the basis of customary, prevailing and reasonable charges within relatively narrow geographic areas; and (3) the bias of present hospital reimbursement policies toward inpatient services. One option, a negotiated fee schedule, directly addresses the issue of differential payment for primary care versus subspecialty services. This fee schedule can be derived in many ways. One approach simply raises fees of primary care physicians while selectively lowering the fees paid,for certain highly paid specialists and for a variety of procedures currently performed largely by nonprimary care physicians. A second approach entails adjustment of reimbursement rates for specific clinical services, and as such would necessitate the development and field-testing of new methods for establishing fee-for-service reimbursement. A system based on the time required by well qualified professionals performing the same service could replace the arbitrary valuation of services presently applied in payment schemes. Payment under such a system would provide equal pay for equal time spent by equally well qualified physicians. Complementary policies should also be developed to reduce the payment for many procedures and selected ancillary services. Otherwise, experience has shown that in the absence of constraints on the physician’s use of procedures and ancillary services, the use of a fee schedule could lead to greater intensity in the use of these services [6]. Another method that is currently being tested is per case reimbursement of physicians for hospital services. Any reform of fee schedules will have to deal with the high hourly income of many surgeons, radiologists and clinical pathologists when compared to pediatricians, internists and family physicians. This is a sensitive and complex issue, but one that must be addressed. Another approach might link hospital reimbursement with policies regulating the number and distribution of residency positions. If health manpower policy required approval of residency positions according to nationally defined goals, accompanying reimbursement policy would pay only for those approved positions. Another more extreme option would stipulate a particular composition of residency training positions within a hospital as a condition for participation in federal reimbursement programs. Each of these options requires statutory changes. Restrictions such as these on participation of hospitals in Medicare and Medicaid must be evaluated in terms of the disadvantages to program beneficiaries as well as the impact on graduate medical education. Another set of hospital reimbursement options that directly address graduate medical education focus on differential reimbursement for primary care and nonprimary care training. One approach would revise the Social Security Act [Section 2231 which defines restrictions on allowable routine costs under federal hospital reimbursement programs and possible excep-
Volume 88
EDITORIAL-LEE,
tions to those restrictions. Currently, exceptions may be granted for the excess costs of residency training programs regardless of specialty. Modification of this provision would allow only the costs of primary care training programs to pass through the ceilings imposed on routine costs while placing a cap on other specialty training programs. Differential rates of hospital reimbursement rates for residency positions in primary care specialties and those in surgical and other oversupplied specialties could also be used to reduce the supply of those specialists. Although the issues are complex and the answers not easy, proposals to reform current third party reimbursement policies that affect primary care should be accorded high priority by physicians as well as by policymakers. The medical profession must not limit its role to responding to proposals of government or the health insurance industry. The time has come for the medical profession to act rather than react.
LEROY
ACKNOWLEDGMENT
We wish to acknowledge the assistance of Steven Schroeder and Robert Derzon in preparing this editorial. REFERENCES 1. Burney IL, Schieber GJ, Blaxall MO, Gabel JR: Medicare and Medicaid physician payment incentives. Health Care Financing Review 1979; 1: 62-78. 2. Holahan J, Hadley J, Scanlon W, Lee R, Bluck J: Paying for physician services under Medicare and Medicaid. Milbank Memorial Fund Quarterly/Health and Society 1979; 57: 183-211. 3. Showstack JA, Blumberg BD, Schwartz J, et al.: Fee-for-service physician payment: analysis of current methods and their development. Inquiry 1979; 16:230-246. 4. Institute of Medicine: A manpower policy for primary health care, Washington, D.C., National Academy of Sciences, 1978. p 106. 5. Newhouse JP, et al.: Policy options and the impact of national health insurance. N Engl J Med 1974; 290: 1345-1359. 6. Holahan. et al.: Op cit.
March 1980
The American Journal of Medicine
Volume 68
321