Congress Proposes New Physician Payment System The idea behind accountable care organizations -- as would be created for Medicare by the health care overhaul bills -- is simple: If all the doctors who take care of you worked together and their financial fates were somehow connected, you’d get better care and it wouldn’t cost as much.
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Congress Proposes New Physician Payment System

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Congress Proposes New Physician Payment System

Congress Proposes New Physician Payment System

Congress Proposes New Physician Payment System

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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The health care overhaul bills on Capitol Hill do not upend traditional "fee for service" payment for doctors, but they do include financial incentives for doctors to cut medical costs and improve patient care.

Both the House and Senate bills include provisions to encourage the creation of accountable care organizations, or ACOs, as a way to test their viability. The ACO project would be limited to Medicare.

The idea is a pretty simple one: If all the doctors who take care of you — your primary care physician, any specialists and your hospital — worked together and their financial fates were somehow connected, almost like business partners, you'd get better care and it wouldn't cost as much.

These affiliated provider groups could earn bonuses if they met or exceeded certain quality and cost targets for their Medicare patients.

An ACO is a bit like a building contractor. The contractor gets together with some other contractors — plumbers, electricians, roofers — and they agree to repair your house for a set amount of money.

If you've had a home repair that went sideways, this whole approach to managing health care may not inspire a lot of confidence. But there's good evidence to suggest that physicians who have a financial stake in your medical costs are more efficient and more effective.

Redlands Family Practice

Dr. Alexander Terrazas is a reluctant poster child for ACOs. When I first called to request a visit to his small family practice in Redlands, Calif., he told me flatly, "This is not a silver bullet." And yet his three-doctor clinic — which sits in a strip mall between a pet grooming shop and a fabric store — has achieved cost savings and quality scores usually seen only at much larger, elite health care systems.

Terrazas and his colleagues at Redlands Family Practice began their experiment in 1984. That's when a San Bernardino, Calif., health plan proposed paying them a fixed monthly fee per patient. Today, the clinic won't disclose how much it gets per patient. But records show Medicare pays about $11,000 a year per patient to private insurers and Redlands gets the vast majority of that amount.

The clinic has to stretch the so-called global payment to cover all of the patient's visits, any specialist referrals, lab tests, even surgeries and hospital stays. If there's a surplus left over, the partners divvy it up. If they're over budget, they take a hit.

"The main transition was: To what extent can I coordinate and treat the medical problems the patient has and at what level do I really need assistance? The patients had to understand they didn't need an endocrinologist to take care of their diabetes. They didn't need a cardiovascular specialist to take care of their blood pressure," Terrazas says.

Today, about half of Terrazas' patients are covered under global payments. Terrazas says he has managed to make it work by reassuring his patients that their doctors aren't shortchanging them on quality to make a bonus.

"We had to get the patients comfortable that they were going to receive whatever care they needed," he says. "If they needed orthopedic surgery, we're going to get you to the orthopedist."

In fact, the doctors at Redlands decided there were some patients they wanted to see much more often. Those with multiple chronic illnesses come in almost monthly, even when they're doing well. Hospitals also had to get onboard. The clinic offered the local hospital financial incentives for getting patients out quickly and safely and avoiding unnecessary and costly re-admissions.

Sandee Derryberry, the practice's executive director, says the clinic focuses — almost obsessively — on helping patients make a smooth transition out of the hospital.

"We all quickly realized that we needed to know where the patient was in all the processes — if they'd gone to the hospital, what were the next steps? What specialists were seeing them? What were they gonna need when they arrived home?" Derryberry says.

The clinic closely monitors its performance. At monthly meetings, physicians compare the medical services they've charged and the number of specialist referrals, ER visits and preventive screenings.

"You want the doctors to see how they're comparing against their peers because a lot of times that encourages a discussion of, 'Well, I keep having this problem with Patient X,' " Derryberry says.

For all these efforts, Redlands Family Practice spends 15 percent less than the regional average. The clinic has faced tough times. Derryberry says one month, five patients went into the hospital for costly open heart surgery. But those are balanced out by relatively quiet periods and the clinic's aggressive management of chronically ill patients.

Despite the clinic's lower costs, however, private insurers continue to raise premiums. And Terrazas says that threatens to unravel the tacit agreement he and his colleagues have made with their patients.

"The people coming into the office say, 'Hey, they just raised my premium 10, 12 percent. I want to make sure I'm getting something for it. I want this stuff; I want this stuff.' That's our fiscal responsibility," Terrazas says.

Patient Protection and Affordable Care Act

Congress is not proposing that all physicians accept these global payments. In fact, the accountable care organization program included in the health care overhaul bills is quite flexible.

Dr. Elliot Fisher is a leading health policy researcher at Dartmouth who has closely studied the ACO concept. He says greater savings will come if the model spreads.

"One question is: Will all payers — Medicare, Medicaid and the private payers — adopt the same reimbursement model and same aligned incentives?" Fisher asks.

Although there's been no political opposition to ACOs and the American Medical Association supports the approach, Terrazas is skeptical the accountable care model will catch on.

"Every time I've gone out into the community and try to sell it, develop it, everybody seems to be so hesitant. As soon as we stop talking, it's 'Oh, this won't work for me,' " Terrazas says.

Physicians tell him they don't have the time or management expertise to negotiate contracts with other physicians and hospitals. And, Terrazas says, when you cut costs by reducing hospital re-admissions, duplicate lab tests or unnecessary specialist referrals, someone, somewhere loses out.

Randy Brown, director of health policy research for Mathematica, a nonpartisan research firm, shares that criticism. Brown says the U.S. health care system is littered with pilot projects and research studies that map out how to reduce medical spending, but implementing them requires tough political and business decisions.

"If you're going to cut costs, the spending pie has to shrink. And that means somebody is going to make a lot less money. And there's no discussion about who that's going to be," Brown says. "Who's going to take that hit?"

Brown says while some celebrated health care systems and physicians like Terrazas have made those tough choices, it's unlikely large numbers of providers will do so.

Congressional leaders and health system reformers, though, are optimistic there are enough incentives in the bills for physicians to at least give it a try.