A new commentary by Gail Wilensky, released today as a web first by Health Affairs, reviews the recent history and future direction of physician payment reform. Since 1992 Medicare has reimbursed physicians on a fee-for-service basis. In 1997, as medical costs escalated, Congress began using a Sustainable Growth Rate (SGR) formula to reduce reimbursements if overall physician spending exceeded the growth in the economy.

However, in all but one year, Congress ignored its own earlier directive, postponing physician payment cuts even as costs remained out of control. With this game of “kick the can down the road” becoming increasingly tiresome to both lawmakers and physicians, Congress is now considering new legislation to do away with the current SGR formula and reimburse physicians for improving quality and lowering costs.

Wilensky is a Senior Fellow at Project HOPE, Health Affairs’ parent organization, who directed the Medicare and Medicaid programs under President George H Walker Bush. In her analysis, she observes that there seems to be growing agreement on the elements that a physician payment reform strategy should contain. Wilensky compares the provisions in several key proposals — including the discussion draft recently released by the House Ways and Means Committee and the Senate Finance Committee — that would replace the SGR with more value-oriented payment systems. She also examines several pilot programs currently being tested, including medical homes and accountable care organizations. So far, she notes, these programs have produced inconsistent results. “What they do not do is provide evidence about the effects of various ways to reimburse physicians when the payments for physicians are not part of a hospital’s bundled payment,” she says.

Wilensky considers the House-Senate discussion draft to be the most promising development but cautions: “[T]he reduced cost of eliminating the SGR…is much less than it has been for most of the past decade but still represents a sizable cost that will have to be paid for with other spending reductions or revenue sources.”