The incentives in the permanent “doc-fix” legislation, which now has overwhelming bipartisan support from both houses of Congress and the president, will not, by themselves, drive physicians toward value-based compensation schemes.
But what incentives won't do, the rapidly changing Medicare and private insurance marketplace—coupled with the ongoing changes in physician-employment patterns and the changing demographics of the physician workforce—will. By early next decade, independent physician practices that stick to fee-for-service medicine will find it increasingly difficult to earn a living and attract talent.
The legislation repealing the outdated formula for setting Medicare physician pay is not generous. It offers a pay increase of 0.5% a year over the next four years, followed by no increase for the next six years. That guarantees physician income from Medicare will lose ground to inflation over the next decade.
To make up for some of those lost earnings, the legislation offers a 5% bonus from 2020 to 2024 if physician practices by 2019 derive at least 25% of their Medicare revenue from accountable care organizations, bundled payments or other value-based reimbursement models. In the out years, the bonus goes to 0.75% of revenue per year.
That could lead some physicians to say that those minimal incentives aren't worth pursuing. But providers will face an uncertain future if they think making it up in volume will remain a viable alternative.
First, a decade from now they will face a very different Medicare population. Aging baby boomers are accustomed to being in managed-care networks, which helps explain the rapid growth of Medicare Advantage plans.
Advantage plans are the perfect laboratories for extending and experimenting with value-based insurance design and value-based physician reimbursement. As Congress holds future Advantage payments in check—the likely scenario—many more plans will seek to transfer risk to their contracted physicians and other providers.
The CMS, meanwhile, is under intense pressure to move to an opt-in model for Medicare beneficiaries who become part of accountable care organizations, which are growing rapidly in the private sector. ACOs are designed to enlist physicians in value-based reimbursement schemes.
This ongoing expansion of Medicare Advantage and ACOs amounts to a pincer attack on fee-for-service medicine in Medicare.
Beneficiaries' out-of-pocket costs will change because of the doc-fix legislation. It bars Medigap plans from offering first-dollar coverage.
This additional cost saving will increase demands from beneficiaries to know exactly how much they will pay. That in turn will lead many to ask more questions about why a particular test or procedure is needed in the first place.
Given the rapid expansion of consumer-directed health plans in the private sector, it's likely that close to half of the next generation of seniors entering Medicare will have experienced life in a high-deductible plan where at least the first $1,000 is on them.
Seniors won't be the only ones raising questions. According to a recent survey, high-deductible plans already covered 23% of all employees last year, up from 18% in 2013. The average deductible for individuals in those plans was $2,500.
As a result, a growing share of the population is being trained to ask questions about the quality, price and necessity of the care they are being offered.
Given these trends, the healthcare consumption patterns of the next generation of senior beneficiaries may well end up looking more like frugal Minnesotans than profligate Floridians. As researchers associated with the Dartmouth Atlas of Health Care have long shown, beneficiaries who flit from specialist to specialist achieve no better outcomes for all the increased cost.
Younger physicians are not only adapting to this emerging new world, they are forcing the changes. They are far more likely to seek full-time employment with hospitals or large group practices than to hang out their own shingle in a physician-owned practice. With even the fee-for-service-oriented doctors' lobbying groups and the congressional doctors' caucus overwhelmingly backing the doc-fix bill, it's now clear that Medicare's physician reimbursement system is evolving slowly toward value-based care.