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Physician Payment: Current System and Opportunities for Reform

This AARP Public Policy Institute research report by Lynn Nonnemaker, Sarah Thomas, and Joyce Dubow examines the current physician payment system, with a focus on Medicare, and considers what reforms are needed and feasible in order to improve health care quality and value.

Our goals for the payment system of the future are clear: better and more efficient care at a sustainable cost. The problems with our current payment system also are clear: incentives to increase volume, undervalued primary care, and a fragmented and inefficient delivery system. The ideas currently under development for physician payment—pay for performance, episode-based payment, accountable care organizations, and the patient-centered medical home—all hold promise for aligning incentives toward better quality and efficiency of care. Several international models of physician payment are looked at for elements that might be adopted in the United States, including pay-for-performance in the United Kingdom, budget targets with all-payer systems in Germany and Japan, physician profiling and medical homes in France, and combined payments to specialists and hospitals in many countries. Key questions for discussion include whether we should try all of these ideas, whether they are compatible with each other, what unintended consequences might result if and when they are adopted on a large scale, where to commit the most political and administrative capital, and what other ideas for improving physician payment await examination. (31 pages)

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