Reforming Medicare's physician payment system.

n engl j med 360;7 nejm.org february 12, 2009 653 fees.1 Congress appropriately feared the potential problems with access to care that could result from such a fee reduction. But although putting more money into the same broken physician-reimbursement system may buy lawmakers a little more time to address the need for a new one — helpful only if they use it to set the direction for a new system — it also makes the eventual solution even more expensive, since Congress has been providing funding only for the cost of the current year’s fix, not for its ongoing costs. When the latest adjustment craters in January 2010, physicians’ payments are supposed to revert to the lowest level they would have reached had it not been for the temporary patches; this would amount to a 20% reduction in fees. Although it is hard to imagine such a draconian cut actually occurring, it is even harder to envision what Congress is prepared to do in response to this latest threat. Medicare originally based its reimbursement to physicians, like all its reimbursements, on the amounts that had historically been charged for particular health care services. In 1984, when the program moved away from a chargebased per-diem rate for hospitals, it introduced the use of the Medicare Economic Index — a measure of the annual change that physicians face in the costs of practice — for updating physicians’ reimbursement. This change marked the start of an increasing divergence between Medicare’s reimbursement of physicians and its reimbursement of other providers. The trend in most Medicare reimbursement has been toward bundled payments. The adoption, in 1983, of a prospective payment system for inpatient hospital care — based on predetermined reimbursement rates for hospitalizations according to the patient’s condition (as classified in a diagnosis-related group, or DRG) — was the beginning of that process, and the bundled approach has since been extended to capital payments for inpatient care, as well as to outpatient hospital care, renal care, home care, and nursing home care. The ultimate in bundled payments is a single capitated payment that covers all Medicare services, such as that used for Medicare Advantage Plans. There is some concern that proHealth Care 20 09