Report of the National Commission on Physician Payment Reform

Our nation cannot control runaway medical spending without fundamentally changing how physicians are paid.

The United States health care system is plagued by the twin ills of high cost and uneven quality. Health care spending in the U.S. represents 18 percent of gross domestic product or $8,000 per person annually. As a proportion of the federal budget, the cost of Medicare has risen from 3.5 percent in 1975 to 15.1 percent in 2010. In 2020, it is projected to consume 17 percent of the federal budget. This enormous investment has not produced a commensurate improvement in the nation’s health. In fact, the health status of Americans pales in comparison to other nations, with the U.S. ranking 37th in health status.

Many factors drive the high level of expenditures in our health care system, yet several stand out:

  • Fee-for-service reimbursement. Under this model, physicians are reimbursed for each service they provide. Pay is not necessarily linked to outcomes.
  • Reliance on technology and expensive care. The federal government and private insurers reimburse technology-intensive procedures—such as imaging or surgery—at higher rates than services focused on evaluating patients or managing the care for chronic conditions over time, such as an appointment to discuss diabetes management.
  • Reliance on a high proportion of specialists. The U.S. has a high ratio of specialists to primary care physicians. The higher-intensity, higher-cost practice of specialists makes their care particularly expensive. The current payment system favors highcost procedures over time spent on evaluation or management of care.
  • Paying more for the same service or procedure when done in a hospital setting as opposed to an outpatient setting. For example, Medicare pays $450 for an echocardiogram done in a hospital and only $180 for the same procedure in a physician’s office.

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