So That’s How The Rates Are Set

The Wall Street Journal published a very important article this week. Written by Anna Wilde Mathews and Tom McGinty, it is entitled, “Secrets of the System: Physician Panel Prescribes the Fees Paid by Medicare.

Here’s the lede:

Three times a year, 29 doctors gather around a table in a hotel meeting room. Their job is an unusual one: divvying up billions of Medicare dollars.

The group, convened by the American Medical Association, has no official government standing. Members are mostly selected by medical-specialty trade groups. Anyone who attends its meetings must sign a confidentiality agreement.

Yet the influence of the secretive panel, known as the Relative Value Scale Update Committee, is enormous. The Centers for Medicare and Medicaid Services, which oversee Medicare, typically follow at least 90% of its recommendations in figuring out how much to pay doctors for their work. Medicare spends over $60 billion a year on doctors and other practitioners. Many private insurers and Medicaid programs also use the federal system in creating their own fee schedules.

By coincidence, one of our doctors had just explained this to me a few days earlier. After reading the article, he jokingly and then seriously commented:

The only thing missing from the description is the cigars. Actually they make it sound more shady than truly exists. The recommendations from this committee are made to Pro-PAC (Prospective Payment Assessment Committee), who then set the Medicare fee structure.

Procedures have always won out over E&M time.

Another doctor friend put it this way: I think that it is the core of much evil.

Why the harsh reaction? Well, it is inherent in this statement: “Procedures have always won out over E&M time.” Evaluation and management (E&M) services refer to visits and consultations furnished by physicians. You might want to think about this as “old-fashioned doctoring.” The MD talks, listens, probes, and uses his or her cognitive skills to figure out what’s wrong with you and what might be done about.

It contrast, procedures are things that are done to you mechanically, like surgery or other invasive techniques.

Both are important to medical care. But which is more important? One can certainly make a case that a primary care doctor’s, nephrologist’s, or neurologist’s E&M can make a significant difference in the course of treatment of a patient. Indeed, those doctors’ diagnostic skills can often obviate the risk, cost, and disruption of interventional procedures. This is not to say that people who perform procedures are not also important: Indeed their abilities are essential and determinative in many cases. However, the process described in the article results in greater values being ascribed to the procedures than to the cognitive services. And greater value translates into higher payment rates.

It may be that the committee’s skewed membership leads to this result. It might be, too, that there is some historical basis for a payment system of this sort. Whatever the reason, it is clearly time to undo the bias.

The future for health care in the United States will be based in great measure on employing cognitive skills to bring about prevention, chronic disease management, and overuse of the medical system. The payment system should reflect that high value.

Unfortunately, this is viewed as a zero sum game. Under Washington rules, if cognitive specialists are paid more, proceduralists must be paid less so that the presumed overall level of appropriations will be held constant. But that is the static case, one that assumes the same number of procedures will be carried out. In the dynamic case, paying cognitive specialists better so they can spend more time with patients will reduce the need for procedures and thereby reduce overall health care expenditures, even if the proceduralists are not taken down a notch.

Paul Levy is the President and CEO of Beth Israel Deconess Medical Center in Boston. Paul recently became the focus of much media attention when he decided to publish infection rates at his hospital, despite the fact that under Massachusetts law he is not yet required to do so. For the past three years he has blogged about his experiences in an online journal, Running a Hospital, one of the few blogs we know of maintained by a senior hospital executive.

9 replies »

  1. Wasn’t the RUC commissioned by CMS (then HCFA)? The basic premise is: here’s the budget for doc fees (based on GAO projections of total yearly Medicare costs) and you figure out amongst yourself how big each slice of that pie is.
    Furthermore, these RVU changes are supposed to be budget-neutral to CMS, so in the end, CMS applies an “adjustment factor” to readjust the RVUs which take away much of the gains to any one specialty. (to keep the pie from getting bigger– any increased costs to CMS as a result of these RUC changes actually ends up being due to increased care given and associated costs over and above GAO projections. And they’ll try to take that away too – see the GDP/SGR issue below!)
    The RUC sets the proportional (R=”relative”) amounts for the work RVU component only, weighing the relative value between a simple laceration repair and a hip replacement, for example. There’s also a practice expense cost, geographic cost, and risk ( read med mal ) value as well, all of which are set by CMS.
    Each of these values is added together and then multiplied by the Conversion factor, which is the yearly dollar amount that sets the real reimbursement rate. That number is set by CMS, and is based (oddly enough) on the GDP and medicare’s projected “sustainable growth rate” not on anything related to healthcare.
    That’s where the porposed 20% cuts come from.
    So I see nothing evil about the RUC. Yes, the RVUs favor procedures, which is directly responsible for the dearth of primary care physicians. but that is starting to change… The last RUC brought relative gains in E&M services over procedures. Of course those gains were offset by the budget-neutral provisions of the regulations. So, I got a small pay raise (well, the hospital that collects my Medicare fees and pays me a salary did) at the expense of our staff orthopedic surgeons!

  2. I stumbled onto this blog and these postings today, as I was looking for resources regarding how physicians set their fees. I have never followed a blog before, nor contributed. I’m a physician and think I know how we set our fees, but I don’t think the general public or politicians or policy wonks have much of a clue. I’m searching for published articles, books, blogs, etc, that describe how physicians decide on their fees.
    I’m considering publishing in some form my take on the subject and am looking at what’s out there on the subject – so as not to reinvent the wheel or waste people’s time.
    As opposed to Mr. Levy and some of the comments, I’m not so surprised or upset about the medicare fee schedule and how it’s arrived at (described above)- the surgical bias has been in place for probably 40+ years. It is not something invented by these 29 physicians/AMA recommendations to the medicare people. I haven’t researched this but suspect the surgeons lobbied hard early on when medicare fees, RBRVS, and the like were first being started and set in place the bias toward surgical processes in fee setting. It’s going to be pretty difficult to change this bias any time soon, but I agree the attempt should be made and continued.
    One of my interests is how physicians, using medicare allowables or not, come up with what they charge patients. As opposed to what may be the usual business model (where costs of all kinds are added up and then a price is set, to result in a reasonable profit), it seems to me physicians simply decide to charge as much as the market will bear, regardless of costs, overhead, and reasonable profits. The basis for these charges can be some multiple of medicare allowables, or insurance companies’ UCR’s, or purchased listings of fees published by various vendors, or personal ethical standards – usually a combination of all or several. This is my understanding of how it works for individual practitioners or smaller groups (2- 30 physicians). It is likely that as groups get larger, like Kaiser or Mayo or Cleveland Clinic, they set their fees based more on the traditional model – or maybe not.
    I’m not sure I’d be so hard on the AMA. I’ve elected to not be a member for many years (feeling they did not represent me well) but feel they are not a lost cause. I know physicians who belong and pay attention and the AMA is about the only game in town (aside from specialty societies) trying to represent physicians to the public and to policy makers. I think it is still possible for the AMA to become more representative. Frankly, I was pleasantly surprised the AMA supported Obama’s health insurance reform. I would have expected the AMA to have been staunchly against any reforms, like they have always been. My understanding is that there may have been some sort of deal between Obama and the AMA that benefited physicians, but in any case it was an interesting partnership.
    I’m not too familiar with this blog process so hope these comments are appropriate.

  3. @ DeterminedMD
    > Sums it up perfectly for me!
    Well, this is more or less what I have been saying since about 2005 on THCB. It is up to doctors to save medicine from (dare I say?) doctors. Similarly, it is up to accountants to save accountancy from accountants, and up to lawyers to save law from lawyers. I’ll read Lundberg, thanks.
    > I do not respect reckless capitalism … nor do I
    > respect socialism
    Then you will also like Hilaire Belloc. Get a copy of “The Servile State” (1912). Of course Belloc owed a great debt to Chesterton, and freely admitted it.

  4. Thanks for the tip per the book, Tom L. The book I was speaking of is “Severed Trust”, by George Lundberg, published in 2000. Read Chapter 6, “A Terminal Profession”.
    Excerpts from pages 159-60:
    Why do people go to Medical School? …four reasons…First, people who aspire to become doctors want to take care of sick people. They want to be of service, to help people stay well, and to help them get well if they become sick…Second, people who want to become doctors are good at science…Third, people who want to become doctors want to have a good deal of independence. They like being in charge of their own lives; they look forward to opening their own practices and making up their own minds about how best to proceed in caring for patients. They want to govern themselves, to not be intruded upon by others…Fourth, people who want to be doctors want to make money…people who go into medicine often make a lot of money-certainly not as much as captains of business, finance, and industry, but well beyond the average income.
    People like Maggie Mahar must turn red if they accept that Lundberg does accurately summarize the feelings and needs most doctors possess. Especially the independence, make up their own minds, and money parts, because this current political power resents that kind of thinking! Well, I do not respect reckless capitalism for the sake of profit first, nor do I respect socialism that believes everyone is equal regardless of each individual’s level of effort. I was raised that if you have goals and needs, you do best in achieving them by pursuing them on your own merits and efforts, and at the same time, be as giving and supportive to the community as able.
    Neither the Repugnacant or Democrap agendas support this line of thinking, to me. For them , it is “greed is good” and “gimme that, it’s mine”.
    I like what Lundberg says in his introduction, that some other blog authors seem to dismiss or rationalize:
    “The profession of medicine has been bought out by business, and unless physicians take it back, it will devolve into a business technology in which faceless patients will be treated by faceless technicians.”
    Sums it up perfectly for me!

  5. @DeterminedMD
    > And, you really have to thank third party payors
    > for a sizeable contribution to this downslide.
    If you mean this in the sense “third party payment created immense moral hazard for patients, doctors, drug & device manufacturers, governments, hospital administrators, EVERYONE, and at the same time reduced medicine to a series of discrete services priced out like oil changes” I could not agree more. The docs of 1920 knew it would happen, the docs of 1964 didn’t understand the mechanism by which it would happen. Besides, they wanted the promised money. Only classical professionalism could possibly have averted the worst behaviors in the face of this, and that notion of professionalism has been derided on this very blog as nostalgic (by commentators, not by the regular contributors).
    I have a book for you, written a century ago by the Englishman G.K. Chesterton — What’s Wrong With the World? If you act very quickly you can get a copy delivered to you for less than $5. http://bit.ly/cN5u3d Chesterton is my favorite author and I bet he resonates with you too. The trick to reading Chesterton is to read aloud: we’re not used to that anymore. And remember he’s trying to make serious points in an entertaining way — this isn’t an economics textbook. Sometimes he’s downright funny.

  6. You know what we as profession gave up for the sake of dough: standing in the community as leaders and spokespersons for the welfare of the masses. And it was not a power issue, from what I heard and read from my predecessors, but just appreciating being valued as “elders” or guardians, if that is the right terminology. But, when you start focusing on income first, and the concerns of the community second or further back, that respect and interest in our opinion diminished oh so rapidly.
    And, you really have to thank third party payors for a sizeable contribution to this downslide. I read a wonderful synopsis to this effect, but I don’t have the book in front of me now, so I will reference it over the weekend, for anyone interested. I know the author is well known in our circles, so hope it will be of value.
    By the way, what does the matter of Clinton asking Meek to step down at the end of the election cycle say to you? To me: party interests trump public needs. And this health care legislation is a loud part to it!

  7. Well Determined, I am sympathetic. You’ll agree I think that “pay me what I charge for whatever patients will lie still for” got us into a world of hurt before PPS was put into place. And as Hayek predicted, we have a different world of hurt now. So how should rates be set in an opaque, insurance-financed market, and by whom?
    These guys say about 20% of practicing physicians are AMA members, whatever that really means. http://bit.ly/bIXHzQ The action’s in the specialty societies.

  8. DeterminedMD:
    And what’s even more amazing is that the primary care societies remain affiliated with the AMA, and are terrified of uttering even a hint of criticism of the negative effect this protection racket has on American medicine. Must be some strange version of the Stockholm syndrome.

  9. And you wonder why the AMA, which I am not a member of, signed off on this monstrosity legislation. Yup, those good ol’ boys, who either don’t spend much time providing consistent patient care, or, have their wallets out on the desk in front of them and have that guide their principles, these guys set the rates.
    Hey colleagues, wonder why there is so much anger directed to us as a whole? Why does anyone with a conscience, note not conscious, belong to this organization and give it any legitimacy these days!?
    You look the other way or just sit silently but angry while this crap goes on, you are part of the problem.
    How powerful and influential is an organization that has no real membership? Think about that. And, by the way, what percentage of practicing physicians in the US belong to it now anyway? So why is it given the press it is such an illustrious organization!?