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.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Robinson JC. Theory and practice in the design of physician payment incentives. Milbank Q. 2001;79(2):149,77, III.
AAFP, AAP, ACP, AOA. Joint principles of a patient-centered medical home. 2007 March 5 2007;2009(September 11):1.
Goodson JD, Bierman AS, Fein O, Rask K, Rich EC, Selker HP. The future of capitation: The physician role in managing change in practice. J Gen Intern Med. 2001;16(4):250–6.
Landon BE, Reschovsky J, Blumenthal D. Changes in career satisfaction among primary care and specialist physicians, 1997–2001. JAMA. 2003;289(4):442–9.
Geraghty EM, Franks P, Kravitz RL. Primary care visit length, quality, and satisfaction for standardized patients with depression. J Gen Intern Med. 2007;22(12):1641–7.
Gross DA, Zyzanski SJ, Borawski EA, Cebul RD, Stange KC. Patient satisfaction with time spent with their physician. J Fam Pract. 1998;47(2):133–7.
Lin CT, Albertson GA, Schilling LM, et al. Is patients’ perception of time spent with the physician a determinant of ambulatory patient satisfaction? Arch Intern Med. 2001;161(11):1437–42.
Roe BB. Sounding boards. the UCR boondoggle: A death knell for private practice? N Engl J Med. 1981;305(1):41–5.
United States. Physician Payment Review Commission. Annual Report to Congress. 1989.
Bodenheimer T, Berenson RA, Rudolf P. The primary care-specialty income gap: Why it matters. Ann Intern Med. 2007;146(4):301–6.
Medicare Payment Advisory Commission. Report to congress: Medicare payment policy. March 2009:77–128; 2009.
Morrison I, Smith R. Hamster health care. BMJ. 2000;321(7276):1541–2.
Wagner EH, Austin BT, Von Korff M. Organizing care for patients with chronic illness. Milbank Q. 1996;74(4):511–44.
Trude S. So much to do, so little time: Physician capacity constraints, 1997–2001. Result from the Community Tracking Study. 2003 May 2003;8(May):1–4.
Cherry DK, Hing E, Woodwell DA, Rechtsteiner EA. National ambulatory medical care survey: 2006 summary. National Health Statistics Reports. 2008 August 6, 2008;3(Number 3 August 6, 2008):1–40.
Mechanic D. The uncertain future of primary medical care. Ann Intern Med. 2009;151(1):66–7.
Abbo ED, Zhang Q, Zelder M, Huang ES. The increasing number of clinical items addressed during the time of adult primary care visits. J Gen Intern Med. 2008;23(12):2058–65.
Linzer M, Manwell LB, Williams ES, et al. Working conditions in primary care: Physician reactions and care quality. Ann Intern Med. 2009;151(1):28–36.
Boyd CM, Shadmi E, Conwell LJ, et al. A pilot test of the effect of guided care on the quality of primary care experiences for multimorbid older adults. J Gen Intern Med. 2008;23(5):536–42.
Murray E, Lo B, Pollack L, Donelan K, Lee K. Direct-to-consumer advertising: Physicians’ views of its effects on quality of care and the doctor-patient relationship. J Am Board Fam Pract. 2003;16(6):513–24.
Ahmad F, Hudak PL, Bercovitz K, Hollenberg E, Levinson W. Are physicians ready for patients with Internet-based health information? J Med Internet Res. 2006;8(3):e22.
Yarnall KS, Pollak KI, Ostbye T, Krause KM, Michener JL. Primary care: Is there enough time for prevention? Am J Public Health. 2003;93(4):635–41.
Ostbye T, Yarnall KS, Krause KM, Pollak KI, Gradison M, Michener JL. Is there time for management of patients with chronic diseases in primary care? Ann Fam Med. 2005;3(3):209–14.
The American Geriatrics Society-members-Charles Cefalu testimony; 2009(12/10/2009).
American Medical Association. Current procedural terminology : CPT. 1999.
Institute of Medicine. Division of Health Manpower and Resources Development. A manpower policy for primary health care : Report of a study. Washington: National Academy of Sciences; 1978.
International Conference on Primary Health Care. Declaration of Alma-Ata. WHO Chron. 1978;32(11):428–30.
Mehrotra A, Keehl-Markowitz L, Ayanian JZ. Implementing open-access scheduling of visits in primary care practices: A cautionary tale. Ann Intern Med. 2008;148(12):915–22.
Six steps to open access scheduling success; 2009(12/10/2009).
Berenson RA, Horvath J. Confronting the barriers to chronic care management in Medicare. Health Aff (Millwood). 2003 Jan–Jun;Suppl Web Exclusives:W3,37–53.
Medicare Payment Advisory Commission. A data book: Healthcare spending and the Medicare program. 2008 June 2009;1(June):i–210.
Lishner DM, Richarson M, Levine P, Patrick D. Access to primary health care among persons with disabilities in rural areas: A summary of the literature. J Rural Health. 2008;12(1):45–53.
Colwill JM, Cultice JM, Kruse RL. Will generalist physician supply meet demands of an increasing and aging population? Health Aff (Millwood). 2008;27(3):w232–41.
Schoen C, Osborn R, Doty MM, Bishop M, Peugh J, Murukutla N. Toward higher-performance health systems: Adults' health care experiences in seven countries. Health Aff (Millwood). 2007;26(6):w717–34.
Davis K, Schoenbaum SC, Audet AM. A 2020 vision of patient-centered primary care. J Gen Intern Med. 2005;20(10):953–7.
Goroll AH, Berenson RA, Schoenbaum SC, Gardner LB. Fundamental reform of payment for adult primary care: Comprehensive payment for comprehensive care. J Gen Intern Med. 2007;22(3):410–5.
American College of Physicians. Reforming physician payments to achieve greater value in health care spending. 2009;1–46.
Newhouse JP, Buntin MB, Chapman JD. Risk adjustment and Medicare: Taking a closer look. Health Aff (Millwood). 1997;16(5):26–43.
Newhouse JP. Patients at risk: Health reform and risk adjustment. Health Aff (Millwood). 1994;13(1):132–46.
Ash AS, Ellis RP, Pope GC, et al. Using diagnoses to describe populations and predict costs. Health Care Financ Rev. 2000;21(3):7–28.
Mechanic D, Schlesinger M. The impact of managed care on patients' trust in medical care and their physicians. JAMA. 1996;275(21):1693–7.
Angell M. The doctor as double agent. Kennedy Inst Ethics J. 1993;3(3):279–86.
Schoenbaum SC. Physicians and prepaid group practices. Health Aff (Millwood). 2004 Jan–Jun;Suppl Web Exclusives:W4,76–8.
Gallagher TH, St. Peter RF, Chesney M, Lo B. Patients’ attitudes toward cost control bonuses for managed care physicians. Health Aff. 2001;20(2):186–92.
Pereira AG, Pearson SD. Patient attitudes toward physician financial incentives. Arch Intern Med. 2001;161(10):1313–7.
The public and the health care delivery system-toplines—Kaiser Family Foundation. 2009(8/23/2009).
Casalino LP, November EA, Berenson RA, Pham HH. Hospital-physician relations: Two tracks and the decline of the voluntary medical staff model. Health Aff (Millwood). 2008;27(5):1305–14.
Relman AS. Salaried physicians and economic incentives. N Engl J Med. 1988;319(12):784.
Pedersen CA, Rich EC, Kralewski J, Feldman R, Dowd B, Bernhardt TS. Primary care physician incentives in medical group practices. Arch Fam Med. 2000;9(5):458–62.
Kralewski JE, Rich EC, Feldman R, et al. The effects of medical group practice and physician payment methods on costs of care. Health Serv Res. 2000;35(3):591–613.
Robinson JC, Shortell SM, Li R, Casalino LP, Rundall T. The alignment and blending of payment incentives within physician organizations. Health Serv Res. 2004;39(5):1589–606.
Lake T, Devers K, Brewster L, Casalino L. Something old, something new: Recent developments in hospital-physician relationships. Health Serv Res. 2003;38(1 Pt 2):471–88.
Sobero ME. Assessment for pay-for-performance options for medical physician services: Final report. 2006;1–191.
Rosenthal MB, Dudley RA. Pay-for-performance: Will the latest payment trend improve care? JAMA. 2007;297(7):740–4.
Mechanic RE, Altman SH. Payment reform options: Episode payment is a good place to start. Health Aff (Millwood). 2009;28(2):w262–71.
Landon BE, Normand SL. Performance measurement in the small office practice: Challenges and potential solutions. Ann Intern Med. 2008;148(5):353–7.
Fisher ES, Staiger DO, Bynum JP, Gottlieb DJ. Creating accountable care organizations: The extended hospital medical staff. Health Aff (Millwood). 2007;26(1):w44–57.
Wolff JL, Boult C. Moving beyond round pegs and square holes: Restructuring Medicare to improve chronic care. Ann Intern Med. 2005;143(6):439–45.
Lynn J, Milbank Memorial Fund. Sick to death and not going to take it anymore! Reforming health care for the last years of life. Berkeley, Calif.; New York: University of California Press; Milbank Memorial Fund; 2004.
Maynard A. Incentives in health care: The shift in emphasis from the implicit to the explicit. chapter 8. In: Dubois CA, McKee M, Nolte N, eds. Human Resources for Health in Europe: European Observatory on Health Systems and Policies Series. N. Berkshire: European Observatory on Health Systems; Open University Press; 2006:1–15.
Gosden T, Forland F, Kristiansen IS, et al. Impact of payment method on behaviour of primary care physicians: A systematic review. J Health Serv Res Policy. 2001;6(1):44–55.
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.”
Conflicts of Interest
There are many mechanisms to pay physicians; some are good and some are bad. The three worst are fee-for-service, capitation, and salary.
About this article
Cite this article
Berenson, R.A., Rich, E.C. US Approaches to Physician Payment: The Deconstruction of Primary Care. J GEN INTERN MED 25, 613–618 (2010). https://doi.org/10.1007/s11606-010-1295-z
- primary care
- health care delivery