US Approaches to Physician Payment: The Deconstruction of Primary Care


The purpose of this paper is to address why the three dominant alternatives to compensating physicians (fee-for-service, capitation, and salary) fall short of what is needed to support enhanced primary care in the patient-centered medical home, and the relevance of such payment reforms as pay-for-performance and episodes/bundling. The review illustrates why prevalent physician payment mechanisms in the US have failed to adequately support primary care and why innovative approaches to primary care payment play such a prominent role in the PCMH discussion. FFS payment for office visits has never effectively rewarded all the activities that comprise prototypical primary care and may contribute to the “hamster on a treadmill” problems in current medical practice. Capitation payments are associated with risk adjustment challenges and, perhaps, public perceptions of conflict with patients’ best interests. Most payers don’t employ and therefore cannot generally place physicians on salary; while in theory such salary payments might neutralize incentives, operationally, “time is money;” extra effort devoted to meeting the needs of a more complex patient will likely reduce the services available to others. Fee-for-service, the predominant physician payment scheme, has contributed to both the continuing decline in the primary care workforce and the capability to serve patients well. Yet, the conceptual alternative payment approaches, modified fee-for-service (including fee bundles), capitation, and salary, each have their own problems. Accordingly, new payment models will likely be required to support restoration of primary care to its proper role in the US health care system, and to promote and sustain the development of patient-centered medical homes.

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This work is adapted from material presented at the conference “Patient-Centered Medical Home: Setting a Policy Relevant Research Agenda” held July 27–28, 2009, at the Fairfax at Embassy Row, Washington, DC. This conference was developed through a collaboration of the Society of General Internal Medicine (SGIM), the Society of Teachers of Family Medicine (STFM), and the Academic Pediatrics Association (APA). This work was supported by grants to SGIM from the American Board of Internal Medicine Foundation, the Commonwealth Fund, and the Agency for Health Care Research and Quality. The Commonwealth Fund also supported Dr. Berenson’s work reviewing payment approaches.

The authors would like to thank Dr. Michael Chernew and Dr. Lori Heim for their thoughtful comments on an earlier draft of these papers; thanks as well for the comments and suggestions from the participants in the conference, “Patient-Centered Medical Home: Setting a Policy Relevant Research Agenda.”

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Correspondence to Eugene C. Rich MD.

Additional information

There are many mechanisms to pay physicians; some are good and some are bad. The three worst are fee-for-service, capitation, and salary.


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Berenson, R.A., Rich, E.C. US Approaches to Physician Payment: The Deconstruction of Primary Care. J GEN INTERN MED 25, 613–618 (2010).

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  • primary care
  • reimbursement
  • health care delivery