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Insurers may not explicitly reward your practice for improved quality and service, but there is a way to make quality and service pay.

Fam Pract Manag. 2000;7(9):48-52

Health care financing and reimbursement systems in the United States are, without debate, a complex array of rules, regulations and policies. The complexity might actually be forgivable if the system were working well, but unfortunately that isn't the case. While the United States outspends every industrialized nation in the area of health care, we do not achieve comparable standards for quality, service or access. The value we receive for each dollar spent is not what it could be.

Our reimbursement methods reinforce the problem. Most physicians and other providers are paid a standard fee regardless of the quality of their care or service, and few insurers pay more for improvements in quality. Given the absence of incentives, practice improvement has been driven largely by professional and personal motivation. Strive to do better and there may be a personal reward, but an accompanying financial reward is unlikely.

Although the situation may seem hopeless, there is good reason to be optimistic. While insurers themselves may not currently pay for quality, a practice can make internal changes that lead to improved quality and service and improved revenue. This article will explain how it is possible.


  • Current health care financing and reimbursement systems do not reward practices for quality and service.

  • Even without changes in the reimbursement system, practices can make quality and service pay.

  • The key is to maximize the practice's patient panel and RVUs per visit.

The current state

In other industries, vendors of higher quality goods or services demand higher prices, and the customer is willing to pay more for quality. But in health care, the customer is generally not the one paying the physician; the insurer is paying the physician. And in most current reimbursement schemes, higher quality care and service receive exactly the same reimbursement as all others.

Insurers also control delivery methods and are hesitant to pay for advances in the delivery of care. In fact, they often thwart innovation. For example, a recent Wall Street Journal article described the benefits of group medical visits in which a physician simultaneously sees many patients with similar conditions in a group setting. The patients who choose this form of care are perfectly free to choose traditional care. However, they tend to be very satisfied with the group visit format, as are the involved physicians and other health care professionals. There is also a substantial amount of emerging evidence for the clinical and psychosocial benefits of group visits.1

Despite this, an insurance company spokesman was quoted as saying, “We philosophically believe that the patient-physician relationship is a one-on-one relationship, not a 12-on-one relationship.” Presuming to know more about an individual's desired method of care than does the individual, health insurance companies dictate how care must be provided. Thus far, most indemnity insurers have not developed billing codes for group appointments.

Likewise, despite the value of using e-mail as a form of care (with appropriate precautions), very few insurers are paying for such value-added services. Even though group visits and e-mail can provide valuable methods of care and potentially cut health care costs, most indemnity insurers will not pay for them today. (Part 2 of this series will address external barriers to proper reimbursement and discuss examples of payers such as Independent Health in Buffalo, N.Y., that have taken the lead in creating methods to pay physicians for quality care and service. See the series overview.)

In other sectors of our economy, companies vie for the consumer's business and loyalty by increasingly customizing their products and services to meet the unique needs and desires of the individual. In health care, delivery remains essentially plain vanilla — a one-size-fits-all system in which most practices look, feel and operate just like all the others. Again, the current financing system fosters this. It does not encourage innovative, customized delivery of services that have the potential to improve quality and service.

How can quality and service possibly pay in such an environment? Read on.

Series overview

This article is first in a series exploring how quality and service can pay within a medical practice.

Part 1 examines ways that family practices can change their internal systems to maximize quality and service while increasing revenue.

Part 2 will focus on the external environment and how practices can work with insurance plans and other financial intermediaries (e.g., health plans, IPAs) to create financial incentives for improved quality and service.

Part 3 will explore emerging innovations in the financing system. There is hope. Experts predict that health care financing will change dramatically in favor of the consumer in the next five to 10 years. These changes could be of great benefit to physicians as well.

Fee for service and capitation

Understanding the nuances of current reimbursement systems is critical to maximizing practice revenue while delivering high-quality service and clinical care.

Fee for service is relatively simple because it pays for one thing: traditional office visits. The fact that a physician may not be reimbursed directly for other forms of care (e.g., non-visit care, group visits) does not preclude them. They may still positively affect a practice's total revenue.

The problem in fee-for-service settings is that many practices have made office-visit volume the primary goal when they should be focusing on relative value units (RVUs). (See "Relative value units.") It is possible to be extremely busy driving visits through a practice while achieving relatively low reimbursement. Why? Not all visits are the same. The more complex a visit, the higher the RVU and the higher the visit reimbursement. The average of all visit RVUs directly correlates with a practice's total revenue, yet many practices have failed to pay attention to RVUs.

Many physicians argue that filling the office with higher RVU cases would be exhausting because of the greater number of clinical management issues per patient. This may be true within inefficient practices that lack functioning care teams; however, efficient practices will quickly learn how to manage this. (We will discuss this in greater detail later in the article.)

Relative value units

Relative value units (RVUs) are a relative measure of the complexity of health care services and procedures. The greater the RVU, the greater the reimbursement.

The most commonly used relative value scale is the Resource-Based Relative Value Scale (RBRVS) maintained by the Health Care Financing Administration as part of the Medicare Fee Schedule. Here are a sampling of RVUs under the RBRVS:

CPT codeDescriptionTotal RVUs
99211Level-I office visit, established0.55
93000EKG, complete0.79
99212Level-II office visit, established0.94
71020Chest X-ray0.98
99401Preventive counseling, individual1.01
99213Level-III office visit, established1.29
17000Destroy benign/premalignant lesion1.37
99214Level-IV office visit, established1.99
99396Preventive visit, established, age 40-642.92
99215Level-V office visit, established2.97
59400Obstetrical care (global package)39.66

A full listing of RVUs for the 2000 RBRVS was published in the Nov. 2, 1999, Federal Register. The 2001 RBRVS will be updated later this year.

Capitation was designed to provide physicians with incentives to deliver care in innovative ways that move beyond the current visit-based system, which focuses primarily on acute care issues. In capitation, the motivation of a practice should be to increase its panel size (or population) and therefore increase revenue without expanding overhead, or at least expanding overhead at a lower rate.

However, practices have rarely leveraged these opportunities, for a variety of complex reasons. First, most practices have a mix of fee-for-service and capitated reimbursement, which leaves physicians and office managers struggling hopelessly to design different approaches for different parts of the practice. Second, capitated payment systems have the trappings of traditional “managed care,” which brings with it many distractions, including utilization review and preauthorization, which consume valuable practice resources.

Third, practices tend to focus on the acute-care needs of individual patients, not on the total health of their population of patients. Improving the care of individuals through population management is crucial to success in capitated payment systems, but these techniques are largely unknown to physicians. In addition, most practices do not have the information systems to manage a population of patients. Fourth, managed care has often focused on patient-unfriendly demand management. The intent has been to alter the use of unnecessary services to reduce costs, but the approach has typically been restrictive and obstructive, not creative or productive from the patient's or the practice's perspective.

In summary, fee-for-service systems provide incentives toward visits, but physicians have not given proper attention to maximizing the value of those visits. Capitated systems provide incentives to grow the panel and manage a population more effectively, but providers have not taken full advantage of such incentives. Therefore, in many cases, neither payment method has been optimized, so reimbursement has not been optimized.

The key to reimbursement

The main message practices need to understand is that it is in a practice's financial interest to maximize the number of patients cared for by each physician and to maximize the content of each visit — regardless of the type of payment system. In capitation, a practice must have a large panel size; managing that panel will require the wise use of office-visit time. In fee for service, a practice must maximize RVUs; having a sufficient number of high RVU cases will require a large patient panel.

To manage a large population and higher RVU visits, a practice must make improvements in quality and service. A large panel of patients and higher RVU visits (and therefore maximum reimbursement) will not be possible unless a practice provides good care, operates efficiently and treats its “customers” well.

There are many methods a practice can use to help achieve these goals. Here are just a few:

1. Work as an efficient care team. By working effectively as a team, maximizing individual strengths and delegating appropriate tasks, greater patient complexity and acuity in a practice need not be accompanied by additional stress. A good deal of physicians' time can be freed up by having others assist them in their daily work. With appropriate guidance and training, nurse practitioners, physician assistants or nurses can do patient follow-up visits, assist in the management of complex cases, perform non-visit care, manage refills, perform routine exams such as Pap smears and many additional tasks.2 When practices use available resources effectively, resources are made available to care for more complex cases.

2. Improve internal systems. A practice's scheduling system is of particular importance. Making improvements in this area will not only improve customer service, but it will also reduce unused visit time in a practice. For example, same-day scheduling, or “open access,” in which practices see patients on the day they call for an appointment, actually leads to a higher total utilization of visit time because no-show rates are substantially lower.3 [See “Same-Day Appointments: Exploding the Access Paradigm,” FPM, September 2000.]

3. Manage uncomplicated issues outside the office visit. While methods for doing this may not be directly reimbursed in the current system, they can provide indirect financial rewards by allowing precious office time to be used for visits that generate higher reimbursement. For example, e-mail can actually pay, even if not directly, by providing high-quality management and service for uncomplicated cases while preserving valuable office time for more complicated cases that offer higher reimbursement.

4. Do more with each visit. Each visit is an opportunity to do as much as possible for the “customer.” In addition to caring for the acute problem or providing follow-up, a physician can use the time for prevention, health enhancement and more. While a practice may not be able to bill for all of these services, such measures reduce the need for separate immunization visits, for example, and reduce low-RVU visits. Maximally using each visit means the office is more productive overall. In aggregate, these measures lead to a higher RVU per visit, and customers appreciate such thorough service.

Of course, each visit should be appropriately coded to reflect the complexity of the visit. Practices should have their own review processes in place to examine the accuracy of their coding to guard against both under- and over-coding.

5. Use group visits. Group visits provide an effective means to serve large numbers of customers and improve practice efficiency. They are voluntary and can lead to improved patient satisfaction since many patients enjoy this form of care. There is also growing evidence that group visits improve the quality of care as well. They can also reduce the repetitive nature of a practice's work. Instead of giving the same explanation 20 times in separate encounters, a physician can give the explanation once in front of 20 individuals. Such systems can also be used to improve screening and prevention, prescription refills and self-management skills.4,5 [See “Planning Group Visits for High-Risk Patients,” FPM, June 2000,and “Making Good Time With Group Visits,” FPM, July/August 1997, page 70.]

Case study

ThedaCare is an integrated delivery system based in Appleton, Wis., with 87 physicians working at 21 different locations. Over the past two years, the organization has taken on many internal initiatives to improve service and clinical quality. Appleton Medical Center (AMC) is one of ThedaCare's sites.

During this time, AMC has provided additional value-added services and higher clinical quality to its patients with no change in its reimbursement system. The practice has accomplished this while going from approximately 415 to 380 visits per physician per month. Simultaneously, the average number of work relative value units (RVUs) per physician per month has increased from approximately 320 to 360 with a total revenue increase of $40,000 per month.

Some of the most significant changes within the practice were as follows:

  • AMC moved to same-day scheduling, or open access, and reduced the average time until the next available appointment from approximately seven days to one day. The percentage of individuals seeing their own physician went from 71 percent in 1999 to 75 percent in 2000.

  • AMC tested group visits for patients who have diabetes and instituted an electronic registry to track and manage specific populations (including patients with diabetes) more effectively. The percentage of patients with average HbA1c levels of < 8.0 mg per dL was 57 percent in the standard care patients compared to 72 percent in the group visit patients. Likewise, 71 percent of the non-group-visit patients had two HbA1c determinations per year compared with 84 percent of group visit patients.

ThedaCare has much more data than can be discussed here. While these data may seem simplistic, AMC demonstrates how changes in internal practice management can simultaneously improve clinical quality, service and financial performance.


Despite the failings of current health care payment systems, a practice can do many things to increase revenue while improving service and clinical quality. To do so requires the practice to focus on internal improvements that increase the average RVUs per visit and enable the practice to manage a large patient panel. While improving revenue is a significant goal of such efforts, it should not be primary. In fact, success is unlikely in practices that try to accomplish improvements without a sharp focus on clinical outcomes.

Of course, it is unfair to expect practices to drive improvements in care and service without seeing accompanying improvements in reimbursement. There is no debate that the current system is restrictive; however, insurers alone are not to blame. (Part 2 of this series will provide examples of payers who are beginning to compensate for quality care and improved service.)

Physicians and other providers must innovate in care delivery methods and document improvements in care. We cannot wait for insurers to change their reimbursement methods. On the contrary, we should work to bring insurers to the table to learn about innovations in care delivery and accelerate our work together to improve reimbursement methodologies that reward superior quality and service.

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