I recently had the opportunity to address the members of the South Florida Medical Group Management Association. My topic was one that is important to every physician I have ever met – the manner in which their reimbursement (and therefore, their compensation) is changing.

In 1965 Part B of the Medicare program started paying physicians on a fee-for-service basis, based on the “usual and customary” charge in the market (“UCR”). Over time. Congress abandoned the UCR methodology. Starting with making reimbursement determinations based upon what was “reasonable” in the market, the Medicare program began tinkering with the way it reimburses physicians for their services. The program adopted the annual exercise known as the “Physician Fee Schedule”, thereby abandoning UCR. Congress acted to restrict physician reimbursement in a number of other ways, most infamously, through the attempted imposition of the Sustainable Growth Rate (“SCR”). Of course, hospitals and other Part A providers were not immune; their reimbursement shifted from “reasonable cost” to DRGs, RUCs, etc. There is no question that the “good old days” for physician reimbursement are gone, if they ever existed.

Despite these changes, until now, physician reimbursement has retained its essential character as a fee-for-service/productivity model. That is, the more services a physician rendered, the more he would be paid by the Medicare program, as well as private payers. However, the manner in which physician reimbursement will be determined in the future is changing, and it is doing so quickly.

In January of this year, in a New England Journal of Medicine article, HHS Secretary Burwell made clear the Center for Medicare & Medicaid Services’ (“CMS”) intention to fundamentally alter the fee-for-service reimbursement payment system for physicians’ services. According to Secretary Burwell, in 2014 the Medicare program (that is. Part A – Hospital Insurance and Part B – Supplemental Medical Insurance, which together are commonly referred to as “traditional Medicare”) made approximately 20% of its benefit payments through “alternative payment models”, such as accountable care organizations, patient centered medical homes, bundled payments, gainsharing, and various other pay for performance formulae. The growth of these models has caught many people by surprise. Moreover, they are distinguishable from Part C of the Medicare program – the Medicare Advantage program.

In that same article, Secretary Burwell announced it is the Medicare’s intention to rely increasingly on measures that include the quality and value of the services rendered, rather than the volume of services rendered, in determining physician reimbursement. Indeed, the Centers for Medicare & Medicaid Services (“CMS”) anticipates that by the end of 2016, 85% of traditional Medicare payments will be tied to these measures. The volume will continue to increase, so that by 2018, 90% of the payments made by the traditional Medicare program to physicians and other healthcare providers will be tied to the quality and value of the services rendered. In the world of private payers, the move toward these alternative payment models is progressing at least as quickly.

While productivity (the cornerstone of physician reimbursement today) will remain a factor in determining their compensation, physicians need to recognize that the model will look to other factors for determining reimbursement amounts. The Medicare program’s “triple aim” for its Medicare Shared Services Program (“MSSP”), represents the guide for criteria on which the emerging public and private reimbursement models will focus:

1. Increasing the health and welfare of individual patients;
2. Improving the health and welfare of patient populations (ex. diabetics or oncology patients);
3. “Bending” the cost curve to reduce the rate of growth in healthcare expenditures.

The use of increasingly sophisticated “big data” is enabling Medicare and other payers to measure and compare the performance of individual physicians within a specialty and within a geographic market. The ability to analyze a practices’ ability to help its patients reduce the incidence of obesity, stay out of the emergency room, and avoid hospital read missions within 30 days of discharge are examples of the “big data” which is becoming increasingly important in determining a physician’s reimbursement. Physicians who are able to achieve dre goals identified by payers will be the “winners.” Physicians who do not, will be either reimbursed at lower rates or excluded from the panels of private payers.

To achieve the goals identified by “big data”, physicians are going to have to adopt and follow clinical policies and procedures that are founded on evidence, not prior practice. Many opponents of the increasing reliance on data claim that it results in “cookbook” medicine. Supporters, however, view evidence based medicine as the way to identify those practices which are demonstrably safe, effective, efficient and patient focused.

Patient satisfaction surveys, a device long adopted by hospitals and other customer service businesses, also are going to become an increasingly important factor in determining physicians’ reimbursement rates. Physicians will have to either see patients when scheduled and ensure that their staffs provide a professional experience that treats patients with respect, or face the prospect that payers will respond by reducing their reimbursement or removing the practice from its panel, so its insureds/enrollees no longer are subject to poor customer service.

The message is clear, physicians and their practices have to understand and adapt to the evolution (some might say, revolution) taking place in the manner payers are determining reimbursement, and they need to get on board quickly. At the time this is being written, there are only 32 months until 2018. That is not a great deal of time to revise many established business policies, procedures and habits in ways that fundamentally overturn the manner in which these practices have operated since their inception.

Stephen H. Siegel is Of Counsel for the statewide law firm Broad and Cassel’s Fort Lauderdale and Miami offices. He is a Florida Bar Certified- Health Law Attorney and can be reached at shsiegel@broadandcassel.com or 305-373-9424.