A national commission convened to examine physician pay recommended abolishing the sustainable growth formula (SGR) and replacing the fee-for-service payment model with a system that rewards quality and value-based care.

The Society of General Internal Medicine put together National Commission on Physician Payment Reform in 2012 to examine the current physician payment system and the drivers of high healthcare costs and uneven quality. The 14-member commission was asked to recommend optional methods of payment that also would lower costs and improve patient outcomes. The panel published 12 recommendations in a report released March 4.

Physician pay and related expenses contribute to 20 percent of healthcare spending, according to the report, while doctors’ decisions account for another 60 percent of total costs. They cited as cost factors reliance on costly technology-intensive imaging and surgical procedures, higher-cost specialties and the use of inhospital rather than outpatient services. The commissioners also focused on systemic issues from “skewed incentives for fee-for-service payment,” and Medicare issues tied to the SGR and the Relative Value Scale Update Committee (RUC).

Their 12 recommendations offered near-term and transitional approaches to revise models of payment by both public and private payers. “The recommendations stress the importance of eliminating the current fee-for-service payment system and provide a blueprint for transitioning to new systems over a five-year-period,” they wrote. “They also call for transparency in determining how physicians are paid and services reimbursed, and offer suggestions for how to eliminate the SGR and its associated ‘doc-fix.’”

The 12 recommendations are:

1. Elimination of stand-alone fee-for-service payment to medical practices;
2. Testing of new models of care over a five-year period;
3. Recalibration of fee-for-service payments during this transition to reward practices that offer quality and value;
4. Annual updates for evaluation and management codes, with a three-year freeze on procedural diagnosis codes unless the codes are demonstrably undervalued;
5. Elimination of higher payment facility-based services if they can be performed in a lower cost setting;
6. Incorporating quality metrics in fee-for-service contracts;
7. Encouraging virtual relationships and efficiencies among small practices;
8. Initially focusing fixed payments on opportunities that offer cost savings and improvements in quality care;
9. Including measures to assess quality, adequate risk adjustment and physician commitment in fixed payment models;
10. Elimination of the SGR;
11. Payment of repeal of the SGR through cost savings from Medicare; and
12. Making the RUC’s decision making more transparent, making the RUC more diverse and adding alternative, evidence-based processes to validate the RUC’s data and methods.

“Rather than tinkering with the SGR, the commission recommends abolishing it and replacing it with a physician payment system that strengthens the doctor-patient relationship and emphasizes appropriate, cost-effective care,” the authors proposed. The Congressional Budget Office’s estimated that it would take $138 billion over 10 years to snuff out the SGR, an amount that the commission argued could be found through the reduction of overuse of medical services in Medicare.

The commission described the RUC’s composition and operations as “seriously flawed” but also highlighted a number of improvements. Those included the addition of primary care and geriatrics representatives in 2012, publication of vote totals on recommendations and the ability to attend meetings if approved by the RUC chair.

William Frist, MD, a former heart transplant surgeon at Vanderbilt University in Nashville, Tenn., and a former U.S. Senator (R-Tenn.), served as honorary chair. Jerry D. Kennett, MD, an interventional cardiologist at Missouri Heart Center in Columbia was a commissioner. The Society of General Internal Medicine sponsored the report through grants from the Robert Wood Johnson Foundation and the California HealthCare Foundation.