Medicare Payment for Physician Services

INCREASING ATTENTION is being given by public policymakers to alternative ways by which Medicare might pay for physician services. (l-l 3). Among the many approaches under consideration are modifying the existing fee-for-service system; establishing prospectively set rates for bundles of services, such as payment based on diagnosis-related groups; developing uniform fee schedules; paying fixed indemnity amounts; linking payments to relative value scales; paying on a capitation basis; or implementing a voucher system. This position paper first reviews the historical background of Medicare payment of physicians, then identifies fundamental principles and objectives that the American College of Physicians believes should apply. These basic principles-assurance of access to care, assurance of high-quality care, and reasonable cost to ensure the affordability of care-serve as criteria by which any physician payment system may be assessed. The alternative payment approaches being considered for Medicare are evaluated in light of these criteria, and the advantages and disadvantages of each are discussed. Although the focus is on Medicare, the principles and objectives identified in this paper could have broader applications for evaluation of other medical care payment systems and other public policy options.