Succeeding in Payment Reform


Metrics for maximizing the lifetime value of every relationship.

By Jerry Henderson, PT

The fee-for-service (a payment model where services are unbundled and paid for separately) system is dysfunctional. It is designed to pay us for what we do, not what we know. We are financially rewarded for providing more care but not necessarily better care.

The keys to success in tomorrow’s pay-for-performance system will be better case management and better communication. There is some good news: Preparing for tomorrow’s incentives now, will make your practice more successful today.

Perverse Incentives

The payers know that there are perverse incentives that cause overutilization, but they do not really know how to manage this fact. In reaction, they have instituted largely ineffective programs:

  • Preauthorization: Based on some arbitrary factors (often only the patient’s diagnosis), the payer authorizes a certain number of visits, units, or sometimes, certain allowed procedure codes.
  • Utilization management: These “Mother May I?” programs have been notoriously burdensome. They often require the therapist to fill out a separate form that echoes information that has already been documented in the patient’s medical record.
  • Postpayment review: The payer, or some contractor working for the payer, reviews chart notes after payment has been made. In the event of an unfavorable review, the payer requires repayment, or withholds payments from claims on other patients. In some instances, the contractor making these decisions is paid based on how much money they “recover” for the payer. The Medicare Manual Medical Review is one example.
  • Annual treatment limits: Arbitrary preordained benefit limits on rehabilitation services. The “20 physical therapy visits per calendar year” or “$1,960 in allowed charges for physical therapy and speech language pathology services combined” are meaningless to consumers. How are they supposed to make judgments on whether or not these annual limits are reasonable when making decisions on purchasing health care coverage?
  • Nonsensical Current Procedural Terminology (CPT) codes: It is hard to imagine a system for creating charges to be paid for our services that would be worse than the combination of complex, timed 15-minute procedures and “untimed” codes we use today. The CPT codes used by physical therapists (PTs) and occupational therapists (OTs) are one of the root causes of overutilization. They are misunderstood by therapists, and even by payers—with Medicare being the lone exception.

None of these methods for controlling utilization are fair to the consumer: your patients. In my opinion, they also do not work well for the physical therapist or for the payers themselves.

The amount of waste caused by fee-for-service is crippling our health care system and economy. It is not sustainable. No one really knows how long it will take to completely replace fee-for-service, but the pace of change is clearly accelerating. The signs of change are unmistakable:

  • The American Physical Therapy Association (APTA) is advocating for a payment per visit model with evaluation visits paid on the basis of complexity with a gradual transition to payment per episode.
  • More commercial payers are requiring systematic outcomes measurement as part of their quality improvement initiatives.
  • Medicare has already kickstarted the transition from fee-for-service to pay-for-performance: The Bundled Payment for Care Improvement (BPCI) Initiative, Comprehensive Care for Joint Replacement (CCJR) model and Telehealth Initiatives from Medicare are all examples.
  • Whatever form these new payment systems take, I believe that this change is a huge opportunity for our profession. Our colleagues who prepare now will be well positioned to take full advantage. And the good news is that you can make changes today to begin adapting to the new payment systems of tomorrow.

The Right Care

Begin to imagine how you will change your systems and processes when we are getting paid for providing the right care to the right patient at the right time, not for the volume of procedures provided. Examples of how this may change abound. What if the payment incentives changed so that you were able to:

  • provide home exercise instruction and other patient education prior to total joint surgeries?
  • use systems that allow patients to reach you quickly, and get specific feedback if they have any problems?
  • use telehealth technology to monitor your patients’ progress remotely?
  • get paid to follow up on your patients routinely to make sure they are continuing their home program?
  • get paid regardless of the setting, including the patient’s home, assisted living facility, skilled nursing facility, or hospital?
  • provide care without preauthorization, utilization management, or arbitrary treatment limits?
  • use qualified extenders, like assistants, athletic trainers, and aids without financial penalty?
  • become the entry point in the health care system for patients when appropriate?

Key Relationships

Since a single-payer system appears unlikely any time soon, most experts agree that we will continue to have a mix of government and employer-subsidized commercial health plans.


At the same time, market forces are creating an increased demand for accountability. Consumers are continuing to make large contributions to their own health care costs out of pocket. As consumers take more responsibility for costs, they become more discerning, and demand value. Employers are also demanding better value from their health care spending. (For an excellent summary of some of the employer-led changes, read The Grassroots Healthcare Revolution, by John Torinus, Jr.)

Today, our practices still rely primarily on physician referrals. Tomorrow, the lifeblood of our practices will rely on relationships with the ultimate payers: employers and their employees. The market forces and regulatory changes foreshadowing this change are unmistakable: Most states now have some form of direct access, and insurance plans, employers, and consumers will begin to see the inherent waste of unnecessarily requiring referrals.

When employers and consumers have a better understanding about how cost effective our services are, especially when we are no longer tethered with arbitrary and unfair insurance requirements, there will be a huge increase in demand for our services.

As the importance of the physician referral relationship diminishes, and relationships with consumers and their employers become more important, we can begin reaching out to these groups today. If we do, it will pay huge dividends in the near future.

One of our bigger challenges will be preparing for the increased demand for our services.

Utilizing Clinical Staff

There will be a dramatic shift in how therapists operate effectively in this new environment. There are simply not going to be enough therapists to keep up with demand if we continue treating patients the same way. As the perverse incentives of fee-for-service go away, we will need to become more skillful case managers. We will need to leverage our skills and knowledge to help patients manage their own care more effectively. Using telehealth technology will become an important adjunct to our practices as we shift more responsibility to the patients themselves.

We will also need to utilize our administrative staffs, assistants, and aides to help manage caseloads. Not all patients are well served by coming to our clinics two to three times a week. Identifying those patients who need less frequent in-person visits and closely managing that caseload in between less frequent visits will be a huge key to success.


Case Management

As we begin to take responsibility for providing more effective care, and become an entry point in health care, we will need to become much more skillful at proactively managing our patients. We will need to anticipate and prevent injuries, follow up on all of our patients following active treatment to prevent reinjury, and work with our patients to help them take more responsibility for their own care.

Evidence-based Clinical Pathways

Today, there are huge variations in clinical practice patterns, and, as a result, physical therapy is perceived by consumers as an ill-defined commodity. As employers become more discerning purchasers of our services, they are going to demand more evidence of our effectiveness and demand less practice variation. To succeed in a pay-for-performance world, we must offer a reliable, defined treatment system. This treatment system must offer standardized, evidence-based clinical pathways with predictable outcomes. Practices that refuse to participate and standardize around clinical pathways will not be able to participate with many of these employer-sponsored health care plans in the future.

New Metrics

We will have to monitor our business by developing metrics based more on clinical effectiveness and efficiency and less on procedure-based productivity. Table 1 is an example of some of the metrics effective practices monitor today and some of the metrics we should begin monitoring as we prepare for the future.

Start Preparing Now

There is no doubt that changes are coming. The good news is that we know changes are coming, and we have a good idea of what the future holds.


Adapting today will not only prepare you for tomorrow, it will provide immediate tangible benefits to your practice and your patients. Using proactive case management will improve schedule vacancy and patient satisfaction, as well as that of referring physicians. Standardizing around evidence-based clinical pathways will help you defend your practice against postpayment review utilization management. Utilizing outcomes systems effectively will help you monitor and manage quality.

As we transition to pay-for-performance systems over the next few years, successful practices will learn how to provide the right amount of care to the right patients at the right time in the right setting by the right providers. Those that prepare now will be very well positioned to enjoy a very bright future.


1. The amount of waste caused by fee-for-service is crippling our health care system and economy. It is not sustainable.

2. Accessed December 2015.

3. Accessed December 2015.

4. Accessed December 2015.


6. John Torinus, Jr., The Grassroots Health Care Revolution, BenBella Books, Inc., 2014.


Jerry Henderson, PT, is a PPS member and the vice president of Therapist Success at Clinicient. He can be reached at or on twitter @hendersonPDX.

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