1

The New Model of Primary Care: Reimbursement Scenarios

Introduction

The U.S. Health Care system is a system fraught with problems. Despite spending more on
health care than any other nation in the world, the U.S. lags behind in health care indices. The
American public has grown increasingly wary of a system that produces optimal care for a few,
but leaves many without any care at all. Additionally, the current fee-for-service system has
allowed for an epidemic of sorts in the area of over-treating and over-prescribing patients. This
has done little for the efficacy of overall care, not to mention the costs the must be borne. As a
result, a fundamental rethinking of the system needed to occur.1

In 2002, 7 national family medicine organizations (the American Board of Family Practice, the
Association of Departments of Family Medicine, the Association of Family Practice Residency
Directors, the North American Primary Care Research Group, the Society of Teachers of Family
Medicine, the American Academy of Family Physicians, and the American Academy of Family
Physicians Foundation) initiated the Future of Family Medicine Project. The goal of this project
was to address some of the changes that were occurring within the health care sector (a
fragmented health care system, exorbitant costs, a deficient fee-for-service payment scheme).2 In
essence, FFM was created to rationalize, reinvent and you could even say save primary care.
Five task forces were created to address the following issues: Patient Expectations, Medical
Education, Professional Development, Communications, and Leadership. A final task force was
initiated in 2004 to formulate and recommend an appropriate financial model that will ensure
that the New Model will be sustainable and successful.3 This paper will briefly explain the
concept of the Medical Home/New Model and identify the financial reimbursement models that
have been suggested to date.

What is the Medical Home/New Model of Primary Care

"primary care, the backbone of the nation's health care system, is at grave risk of collapse."

The American College of Physicians 4

 2

The idea of the “medical home” was first coined in 1967, in reference to the centralization of
pediatric medical records. The concept has since been taken and amended by the American
College of Physicians and the American Academy of Family Physicians to express centralized

comprehensive primary care.5 As a result of the previously mentioned task forces, The Future of
Family Medicine proposed the “New Model”, a drastic and complete overhaul of the GP system;
a restructuring in both the organization and thought process behind providing primary care.
Essential in this rationale is the following:
 A personal medical home for each  Community based care
patient  Emphasis on quality and safety
 Patient-centered care (measure-improve-measure)
 A team approach to care  Enhanced financial efficiency
 Elimination of barriers to care (operational improvements and
 Advanced IT systems (EHRs) new revenue flows)
 Redesigned, functional offices  Commitment to family medicine’s
 Whole-person orientation “basket of services”

The underpinnings of the “New Model” rest on the idea that access to comprehensive,
coordinated, continuous and personalized care will result in better outcomes (improved health,
better disease management, lowered costs, and equalization of care). It is often referred to as to
as a patient-centered medical home, a personalized one-stop shop of sorts where a patient can
come in, receive a variety of services from a coordinated team who personalizes, educates and
manages care all while lowering total costs. The focus in this model is based on value and
outcome as opposed to the volume-based care (perpetuated under the FFS approach) patients had
been receiving. This was very good for specialists, but it has drained primary care of nearly
every resource and ensured a departure from its ultimate goal – the prevention and management
of illness.6,7 Thus, in 2008 the National Committee for Quality Assurance (NCQA) published
guidelines to ensure that more primary care practices become certified as “Medical Homes” and
pilot projects have begun around the country to test out the implementation, efficacy and
reimbursement systems that best serve the New Model.5

Financial Considerations and Reimbursement Mechanisms

The last task force assessed the reimbursement strategy for implementing the New Model from
both a micro- and macroeconomic perspective. From a micro-economic perspective, the New
 3

Model will have consequences on both cost and income, with the possible addition of more
clinical staff to support the multidisciplinary team approach, the revising or upgrading of IT
systems, and redesigned offices. In the long term, implementation of Electronic Health Record
(EHR) systems may reduce costs by decreasing the need for administrative staff and increasing
the physician-patient contact time. As previously described, the New Model comprises
numerous elements, each of which can affect practice costs and revenues. The Task Force paper
goes into great detail, itemizing costs for every parameter necessary to ensure successful
transformation of a practice into a Medical Home. Up-front training needs, number of services
performed, service intensity (revenue/procedure), physician time/service, clinical staff
time/service, office expenses, administrative staff costs, and malpractice premiums were all
assessed. Such transition costs were estimated to run from $23,442 - $90,650 (for a 5 physician
practice), however, compensation could increase by 26% percent. Additionally, enhancing
reimbursement models could lead to a further compensation of up to 61%.2,3

Reimbursement Models

Under the New Model, average physician compensation can be increased by $42,800. This
would raise salaries from $167,500 to $210,300, assuming physicians increase patient volume
according to time saved under the New Model.2 However, on the Macroeconomic level, there
are elements of the New Model which would not be reimbursable under the current fee-for-
service system (e-consultation and chronic disease management). As a result, alternate
reimbursement models need to be considered.

The way the current reimbursement system is set up, consultations via the Web or e-mail are not
reimbursable. Yet, if these were incorporated into the current FFS system, physicians would
actually lose money (as it would be reimbursed at a lower rate and decrease office visits). A
study by Iglehart indicates that reimbursement for electronic services even reduces health care
spending by $3.69/patient/month.8 Likewise, the reimbursement scheme for chronic disease
management in primary care is poorly set up; physicians are either not reimbursed at all or
reimbursed via a framework provided by private insurers, which typically entails payment being
limited to patients who have been registered as chronically ill, with the insurer paying the initial
visit and reimbursing for each chronically ill patient on a monthly basis (usually $15/patient).9 If
this framework were extended beyond private insurance, assuming that 10% of a physician’s
 4

patient load will have one or more chronic illness, this allows for a substantial reimbursement
(assume a physician with a patient base of 2030, reimbursed at 15%/chronically ill patient, this
will increase compensation by $14,834).3 See Table 1 (indicated Table 11 from Task Force 6
Report) for a breakdown of payment changes to go into effect under the New Model in the
Appendix.

There is much uncertainty regarding which reimbursement system should be utilized under the
New Model. At the moment, pilot projects are being initiated to test out best practices for
implementation of the New Model as well as which reimbursement system is most optimal. The
only clear consensus is that the financial rewards system at the primary care level must be
amended. Below, is a brief presentation of the models currently being discussed. For review,
please see Figure 1 in the Appendix, which highlights the spectrum of reimbursement systems in
health care.10

Financial Incentive Models within FFS

The most traditional model for U.S. policymakers is to amend the current Fee-For-Service
model. The belief is that creating incentives in the form of bonuses to the current FFS system
will allow for quality improvements in primary care. Physicians should be eligible for the
following financial incentives:3

 Quality bonuses based on implementation of tools to increase the quality of medical care
(EHRs and chronic care management for example)

 Performance-based fee schedules which will adjust reimbursements based on the

physician’s adoption of quality improvement initiatives (as indicated on patient
satisfaction surveys)

 Reimbursement for care planning which will allow for primary care physicians to be
reimbursed for managing chronically ill patients.

 Quality grants will help alleviate the up-front costs involved in implementing some fo the
quality improvement initiatives (websites, EHRs)
 5

 Compensation at risk, where the payer will withhold a portion of the physician’s income
until year’s end, when quality improvement steps have been met

Using the Bridges to Excellence program as a standard, a physician under a FFS model with
alternative bonus will receive the following: up to $50/patient (capped at $20,000) upon
implementation of quality improvement initiatives such as EHRs, patient education and care
management programs.3,11 To address specific health concerns, bonuses for diabetic and cardiac
care can also be instituted ($80/patient/year and $160/patient/year respectively). Thus, a typical
physician, with 7% of their patient list having diabetes and 3% having cardiac conditions, who
implements all office quality improvements under the New Model, would be eligible for bonuses
up to $44,200. 3,4

A 24-month pilot project to transform a New York healthcare care delivery network, Taconic
Independent Practice Association (IPA), into a patient-centered medical home recently
commenced which will be using the FFS reimbursement model with 2 bonus incentives – one for
NCQA certification and another tied to outcomes measured by aggregate administrative data. 12

Mixed Reimbursement Model

Another approach in funding the New Model is to focus on a hybrid of reimbursement models,
using FFS as a primary form and fixed annual payments for each patient to fund the cost of
changing over to the New Model. For example, the fixed amount could be $10/patient. Given
that a physician has 2,030 patients, this amounts to $20,030 in net revenue. Additionally,
bonuses could also be added for dealing with chronic diseases (as described in Bridges to
Excellence) as well as overall performance bonuses using various measures (use of generic
prescriptions, patient satisfaction surveys, Health Plan Employer Data and Information Set
measures, etc). Utilizing these incentives, physicians could substantially increase their income
under the New Model by working the same number of hours, but treating more patients.
Compensation could increase by as much as $110,300, depending on bonuses earned.3,4

This incentive system has been effective in the UK, where GPs traditionally were compensated
according to a mixed model of capitation (40%), salary (30%), capital and information
technology (15%) and FFS, including quality-based incentives (15%). 13 In 2004, reimbursement
 6

was amended to ensure an even greater emphasis on the quality incentive system, involving 146
indicators across 7 areas of practice.

Comprehensive Payment for Comprehensive Care

Perhaps the most unique reimbursement model to date has been proposed by Dr. Goroll, who has
simply done away with the concept of a volume-based pay system.14 According to Goroll’s
reimbursement scheme, payment would be not unlike capitation, but tied to performance
(achieving societal health goals) and needs/risk-adjusted. This form of reimbursement would
fully replace FFS under the Resource-Based Relative-Value Scale (RBRVU) system and allow
for a comprehensive investment in primary care practices to ensure proper implementation of an
“advanced medical home”.14 The base payment would exceed the currently inadequate payments
for primary care evaluation and management services. Additionally, it would provide the
resources necessary to establish multilevel teams and implement the measures needed to give
physicians more time with patients, improve coordination, and ensure evidence-based care. It is
also suggested that 15-25% of the comprehensive payment be performance/outcomes-based and
paid as a bonus on a monthly basis.6,15 This bonus payment would allow for a significant
increase physician income that would be commensurate with the value created. Strong risk
adjustment of these payments would normalize the amount paid with the actual burden of care
assumed. While Goroll admits this reimbursement model is similar to capitation, ‘it avoids the
pitfalls of inadequate payment, excessive financial risk, shunning of complex patients,
withholding of care, and cost reduction as the only reward outcome.’ 7 See Table 2 for a
comparison of payment compensation types under each different reimbursement system.15

Estimates indicate physician payment could increase by as much as 40%, with total personal
health care expenditures increasing by only 3%. In 2009, Capital District Physicians Health Plan
(CDPHP), via TransforMED, instituted a 30-month pilot project to transform its primary care
practices into patient-centered medical homes. The aim was to determine the best payment
model which could improve patients’ access to care, coordinate this care and improve patient,
staff and physician experiences. The model chosen for this project was the risk-adjusted
comprehensive payment model. According to Terry McGeeney, CEO of TransforMED, “There
are no productivity issues under this payment model because physicians are not paid based on
how many patients they see a day,” 17,18
 7

Prometheus Payment

The PROMETHEUS payment model, similar to the comprehensive payment for comprehensive
care model, addresses the shortcomings of FFS by injecting mechanisms that instigate value-
driven care. After compiling national claims data, the PROMETHEUS developers found that a
large percentage of total costs (up to 40%) involving chronic patients were attributed to
“Potentially Avoidable Complications” (PAC), meaning had the Medical Home (and a financial
system that supports value) been instituted sooner, costs could have been significantly decreased
and patient outcomes could have improved. PROMETHEUS bases its payment primarily on
episode of care payment, using the “Evidence-informed Case Rate” (ECR) which creates a
patient-specific, severity-adjusted prospective budget for patients with chronic conditions. By
capitalizing on aspects of various models, PROMETHEUS, like many other models, suggests
that the hybrid approach is the best way to move forward in the evolution of health care payment
reform, with residual visit-based FFS payments, bundled episode-based payments and “thin”
capitation to support transition to the New Model. According to PROMETHEUS, preventative,
non-emergent, non-chronic and low technical care can be treated via FFS. With ECRs (diabetes,
coronary artery disease, hypertension, asthma, heart failure, and COPD), a patient-specific, risk-
adjusted global budget is established which should cover all services recommended by clinical
guidelines. Interestingly, the budget to a given ECR is also tied to a PAC allowance, meaning
that a physician must work to decrease the cost associated with PAC, both individually and in a
coordinated manner. And lastly, the cost of reengineering and sustaining the physician workplace
into a patient-centered medical home (i.e. the New Model), is suggested to come in the form of
“thin” capitation, rewarding based on a per-member-per-month (PMPM) fee. PMPM serves to
alleviate the upfront costs of transforming the physician practice while also working towards the
future reduction of PACs. Such a model is hypothesized as driving high-value while protecting
providers from probability risk, and allowing consumers the freedom of choice in physicians. 19

Summary

Central to the demise of primary care in the United States are defunct payment systems, from the
‘gatekeeper’ role of the 1990s to the current Fee-for-service model, these reimbursement systems
have been illogical choices for the field of primary care. As a result, patients are neither
satisfied, nor treated accordingly and generations of medical students have steered clear of
 8

residencies in the field, opting for more lucrative specialties where fee-for-service is greatly
rewarding. In spite of long hours and a high patient load, primary care doctors earn
approximately a third of what radiologists, cardiologist and orthopedic surgeons earn.7 As Dr.
Starfield points out, “Right now, we’re spending about 70 times more on the production of
specialists than we are on the production of primary care physicians.” 20 The disadvantages of
FFS in primary care was further documented when the NRHI Summit Panel concluded that the
current FFS systems do not pay for many elements of Primary Care.10 As one physician stated in
a recent roundtable interview, “for every hour of face-to-face time, I have another hour, at least,
of time that I spend that’s unreimbursed. So, if I’m there for 13 hours, I’m getting paid for about
6 of the hours I’m spending. So I do think that there should be a, you know, a substantial sort of
lump of, ‘This is what you’re being paid to manage these people.’” 20

Due to the current dissatisfaction amongst providers, the general fragmentation of the health
sector and the sheer crisis primary care is now facing, there have been a number of proposals
regarding a reimbursement overhaul. One model, the evolutionary approach, continues with the
FFS scheme with the addition of management pay for the coordination of care. This model,
however, fails to address the problem with FFS (the rewarding of procedures and visits).
Additionally, cost control or quality of care issues may not be fully resolved under this model.
Another model, a hybrid, value-based payment system, incorporates ‘pay-for performance’ into a
fee-for-service set up. However, concerns have been raised that this method still doesn’t address
the problem associated with the inadvertently placed focus on procedures and processes.10 More
promising systems are the comprehensive payment for comprehensive care and the Prometheus
system, which both use a hybrid of payment modalities and reimburses in a comprehensive
fashion based using evidence and outcome-based practices.

In any case, it is clear that that the reimbursement systems of the future must comprise of a
mixture of models as is illustrated in other countries, yet with the components to address both
quality, specific preventative measures (Bridges to Excellence) and patient demographics to curb
chronic conditions and the costs associated with these conditions (ECRs and PACs). 13

Additionally, for primary care reform to achieve its goal, other issues must be addressed, such as
the revision of malpractice liability insurance laws, the limitation of the strength and autonomy
imposed by the AMA (which has a definite bias towards certain models using the RBRVS
 9

system, rewarding a piecework payment system), as well as convincing subspecialties, who will
likely fight to keep in place models that allow them more referrals, not necessarily for the
betterment of the patient.6

It doesn’t take a mathematician to conclude that the U.S. on the brink of a national health care
disaster and primary care is at the epicenter of this crisis. A fundamental change must occur and
it must begin with payment reform. While we are still in the very early stages of transforming
practices to Medical Homes and experimenting with reimbursement models, I would like to
conclude with the following simple graph, shown below, which clearly indicates that a hybrid
model is the best model necessary to raise income levels.2

References
 10

1. Bodenheimer, T. 2006. Primary Care – Will It Survive? New England Journal of

Medicine. 355(9) pg. 861-862.

2. Spann, S.J. 2005. Is the New Model of Family Medicine Financially Viable? Family
Practice Management. May 2005. www.aafp.org/fpm

3. Spann, S.J., et al. 2004. Task Force Report 6. Report on Financing the New Model of
Family Medicine. Annals of Family Medicine. 2(3) November/December. pg. S1-S21.

4. The impending collapse of primary care medicine and its implications for the state of the
nation’s health care. Washington, D.C .: American College of Physicians, January 30,
2006 (http://www.acpononline.org/hpp/statehc06_1.pdf)

5. Backer, L.A. 2007. The Medical Home: An Idea Whose Time Has Come … Again.
Family Practice Management. September 2007. pg. 38-41. www.aafp.org/fpm

6. Bodenheimer, T. 2007. Interview with Dr. Allan Goroll. Primary Care e-Letter. Center
for Excellence in Primary Care. Issue 11 San Francisco.

7. Mohl, B. 2009. Back in the Game. CommonWealth. Pg. 80-91.

8. Iglehart, J. 2002. The woeful neglect of health care workforce issues. Health Affairs.
Millwood. 21: 7-8.

9. Future of Family Medicine Project Leadership Committee. 2004. The future of family
medicine: a collaborative project of the family medicine community. Annals of Family
Medicine. 2: S3-S32. www.annfammed.org

10. Network for Regional Healthcare Improvement. 2007. Working Draft: Creating
Payment Systems to Accelerate Value-Driven Health Care – Issues for Discussion and
Resolution at the 2007 NRHI Summit. Version 3.1 pg. 3-74

11. Bridges to Excellence: Rewarding Quality Across the Healthcare System. Website.
http://www.bridgestoexcellence.org/bte.

12. TransforMED. http://www.transformed.com/TaconicIPA.cfm

 11

13. Smith, P. and Nick, Y. 2004. Quality incentives: the case of UK general practitioners.
Health Affairs (Millwood). 23:112-118.

14. Goroll, A.H. 2008. Reforming Physician Payment. New England Journal of Medicine.
359(20) pg. 2087-2090.

15. Goroll, A.H., Berensen, R.A., Schoenbaum, S.C., Garnder, L.B. 2006. Fundamental
Reform of Payment for Adult Primary Care: Comprehensive Payment for
Comprehensive Care. Journal of General Internal Medicine. 22(6) pg. 410-415.

16. Fairchild, D.G. and Wilcox, M.C. 2007. Comprehensive Coordinated Comprehensive
Care: The Devil is in the Dollars. Journal of General Internal Medicine. 22(3) pg. 424-
425.

17. TransforMED. http://www.transformed.com/CDPHP.cfm

18. Nash, B. 2009. Presentation: The Medical Home – Building a Patient-Centered Practice.
The 4th National Pay for Performance Summit. San Francisco.

http://www.pfpsummit.com/past4/agenda/index.html#day1

http://www.ehcca.com/presentations/pfpsummit4/nash_pc2.pdf

19. de Brantes, F., Gosfield, A.G., Emery, D., Rastogi, A. and D’Andrea, G. 2007.
Sustaining the Medical. Robert Wood Foundation.
http://rwjf.org/files/research/prometheusmedicalhomes.pdf

20. Lee, T., Bodenheimer, T., Goroll, A., Starfield, B. and Treadway, K. 2008. Prospectives
Roundtable: Redesigning Primary Care. http://www.nejm.org/perspective/primary-care-
video/

Appendix

Table 1 (indicated Table 11 from Task Force 6 Report)3

 12

Breakdown of payment changes under the New Model.

Table 2 Comparison of Comprehensive Payment System with Others Reimbursement

Types15

Figure 1. The Spectrum of Payment Methods in Health Care10

 13

1. Fee for Service (FFS). A provider is paid a fee for each specific service rendered.
2. Per Diem. A provider is paid a fee for each day of care, covering all services
rendered during that day.
3. Episode of Care Payment (ECP). A provider is paid a fee for all services
rendered during a single “episode of care,” i.e., from initial diagnosis of a
condition to completion of treatment of that condition. This is similar to the DRG
prospective payment system used for hospitals by Medicare and other payers. In
addition, surgeons are typically paid a single amount for all services associated
with a particular episode of care.
4. Multi-Provider Bundled Episode of Care Payment. Two or more providers are
jointly paid a fee for their combined services rendered during a single episode of
care.
5. Condition-Specific Capitation. A fee is paid to cover all services rendered by
all providers to deal with a particular condition, either on a one-time basis (for
short-term conditions) or on a regular, periodic basis (for longer-term conditions,
such as chronic diseases).
6. Capitation. A regular, periodic fee is paid to cover some or all services rendered
by all providers for all conditions affecting a particular patient.

(This structure is adapted from various authors, particularly "Theory and Practice in the
Design of Physician Incentives," by James C. Robinson, Milbank Quarterly, 79:2, June
2001.)