Fixing America’s Health Care Reimbursement System

A tempest is brewing in physician circles over how doctors are paid. But calming it will require more than just the action of physicians. It will demand the attention and influence of businesses and patient advocates who, outside the health industrial complex, bear the brunt of the nation’s skyrocketing health care costs.

Much responsibility for America’s inequitable health care payment system and its cost crisis is embedded in the informal but symbiotic relationship between the Centers for Medicare and Medicaid Services and the American Medical Association’s Relative Value System Update Committee — also known as the RUC. For two decades, the RUC, a specialist-dominated panel, has encouraged national health care reimbursement policy that financially undervalues the challenges associated with primary care’s management of complicated patients, while favoring often unnecessarily complex, costly and excessive medical services. For its part, CMS has provided mostly rubber-stamp acceptance of the RUC’s recommendations. If America’s primary care societies noisily left the RUC, they would de-legitimize the panel’s role in driving the American health system’s immense waste and pave the way for a more fair and enlightened approach to reimbursement.

As it is, though, unnecessary health care costs are sucking the life out of the American economy. Over the past 11 years, health care premium inflation has risen nearly four times as fast as the rest of the economy. Health care costs nearly double those in other developed nations have put U.S. corporations at a severe competitive disadvantage in the global marketplace.

Many health care experts believe that half or more of all health care expenditures — the costs of bloated transactional processes as well as inappropriate procedures, service sites and prescription drug levels — provide no value. For perspective, this year we’ll unnecessarily spend nearly $1.5 trillion on health care, an amount equivalent to the national debt. Though we continually have given physicians and the health care industry a pass on this issue, its impact can be understood as the difference between our national prosperity and decline.

The current system’s under-valuing of primary care is one of three structural flaws — the other two are fee-for-service reimbursement and a lack of cost, quality and safety transparency — that produce excess spending and block the health care sector from working as a true market. Overwhelming evidence shows that allowing physicians to serve as patient advocates and guides throughout the entirety of care results in better outcomes at significantly lower cost. Recently, patient-centered medical homes, super-charged primary care practices, have demonstrated measurable cost and quality successes, also proofs of the approach. These facts are indisputable and are, by the way, the reason why America’s corporations are stepping up the use of on-site primary care clinics.

Meanwhile, a spate of recent articles about the RUC have produced swift, strong responses within key circles. They have been passed virally among primary care physicians. Discussions have begun with people who might have influence over the process. And sensible changes in this advisory system seem possible.

Seizing that opportunity would first require mobilizing primary care doctors to demand that their professional societies, such as the American Academy of Family Physicians and the American College of Physicians, abandon the RUC. Then these physicians also would call on CMS to replace it with a more independent advisory panel. That effort would also launch a national discussion about how to more fairly value and pay for America’s health care.

But one man’s waste is another’s income. The current reimbursement system handsomely serves most of the health care industry: health plans; hospitals; specialists; and drug, device and technology firms. Threaten that revenue stream, and those organizations would direct their considerable resources to its protection. In 2009, records show that some members of Congress collected $1.2 billion in health care lobbying contributions – more than it had ever received from an industry on an issue – from health care interests. America’s 250,000 primary care physicians are simply no match for the combined power and influence of the rest of the health care industry.

In an influence-driven government like ours, it is the non-health care business sector that has the organization and leverage necessary to drive the health care changes America so desperately needs. The health care industry represents one dollar of every six dollars in the U.S. economy, but industries outside health care represent the other five. If American businesses, led by groups like the National Business Group on Health, the Pacific Business Group on Health, the Business Roundtable, the National Retail Federation, the U.S. Chamber of Commerce and the National Federation of Independent Business were to advocate for the same policies in national health care reimbursement policy that their members are often implementing in their own on-site clinics, it would have a dramatically positive impact on the nation’s physical and economic health.

Ironically, health care reform specifically avoided addressing the carnage that has been wrought by the RUC. If America’s primary care physicians, backed by the nation’s corporations, all working out of enlightened self-interest, were to focus on addressing this one structural defect, the corrective impact on our health system would be greater than all the reform bill’s cost-reduction provisions combined.

This article originally appeared at Kaiser Health News.

Brian Klepper is an independent health care analyst, Chief Development Officer for WeCare TLC Onsite Clinics and the editor of Care & Cost. His new site, Replace the RUC, provides extensive background on the issue.

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14 replies »

  1. A few concepts off the top of my balding head regarding income disparity between primary care and proceduralists:

    1. Volume. Specialists see more people in less time. Value of the care provided is not related to the amount of time required to provide the care, even though CMS uses time as a primary factor in setting relative value.
    2. Hours worked. Specialists put in more hours to get to where the got and they continue to work more hours than their primary care colleagues.
    3. Speed of care. If all you do is dermatology, you will diagnose and treat a skin lesion quicker, more accurately and probably cheaper than a primary care doctor who, because of their important (and undervalued) broad scope of knowledge, will be unable to consistently dispatch care with the same alacrity.
    4. Payer Mix. Even in the relatively well compensated field of orthopaedic surgery where median annual income is estimated to be about $500K, there are half of the orthopaedic surgeons in the country below that number. That group generally has more Medicare, Medicaid and uninsured patients. In most states, auto injury and worker’s comp pay a premium. Private payers may range from, just suppose, 1.3 to 1.7 of Medicare. Primary care doctors do not get these multipliers and do not see comp and auto at the rate of the higher paid proceduralists.
    5. Use of mid level providers. Specialists who do financially well frequently utilize physician assistants and nurse practitioners to expand their services to a larger group of patients.
    6. Fixed overhead. Whether you are a solo primary care doc or a subspecialist in a group, the vast majority of your annual expenses are fixed. If it costs you $400K to keep the lights on, you work 40 hours a week and bring in $600K, well, your W-2 will be $200K. If it costs you $450K to keep the lights on, you work 60 hours a week, 20 hours of which are in an OR or ER where you really are not paying for the lights, and you bring in $900K, your W-2 will be $450K.

    You do not fix these issues by Replacing the RUC. The flaws in physician compensation date back to the adoption of RBRVS. The noise the RUC has received is unfortunate. Only 13% of Medicare dollars go to physicians. We will not fix Medicare by Replacing the RUC. Ten per cent of Medicare beneficiaries consume 64% of Medicare dollars. We will not fix that by Replacing the RUC. The RUC is the only current method for interaction among the different fields in medicine. Primary Care’s upcoming departure from the RUC table is as sad as it is ignorant.

    Reformatting the RVS (Relative Value Scale) to something other than RB (Resource Based) is what we need. VBRVS= Value Based Relative Value Scale. Great concept but who decide what is valuable? Me? You? Brian Klepper? Consumers? Carriers? How about the RUC, consumers and carriers and then the government follows our lead? A pipe dream if there ever was one…

  2. I would be very interested in hearing about your thoughts on why the massive difference in income between primary care physicians and procedural specialists….the difference seems more than the factor of 1.23-1.54 that you have calculated. I understand that other factors may play a part in final income, but aren’t those supposed to be accounted for with the practice RVU and malpractice RVU?

    I do believe specialists should have higher incomes than primary care physicians….the factors you state seem more than reasonable. But the difference in incomes, from what I’ve superficially seen, seem way beyond that. Thanks for any thoughts on the matter.

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  5. Reformat Physician Reimbursement Methodology

    Dear Dr. Klepper:

    Efforts to clarify and improve the methodology used for determining physician reimbursement are overdue. Accuracy in presentation of information is needed to have an educated discussion. As such I would recommend immediate and significant updates to your website replacetheruc.com.

    Graphs that point to the increase cost of Medicare expenditures and those that show a significant disparity between primary care and specialist compensation are disturbing. Only 13% of Medicare costs are related to physician compensation. That percent has significantly decreased in the last 20 years. Is it possible your Replace the RUC battle will contribute to a dysfunctional sound bite confrontation similar to Fox News vs. CNN? Is not the bigger issue where 87% of Medicare’s money is spent? Focusing on the 13% allows payors to continue to de-value physician services as doctors are pitted against each other in what some believe is a “zero-sum game.”

    However, let’s assume that all aspects of healthcare spending need to be evaluated and physician compensation, while not the biggest issue, is an issue. The primary premise of the question that you raise relates to the hourly rate for physician compensation. Is one physician’s knowledge or skill more financially valuable than another? Is there a scalable rate adjustment that could be applied to years of training or complexity of care provided? Is there a value to technical skill? Can technical skills be evaluated by a metric? Can those with exceptional technical skills be compensated at a higher rate? And as it relates to the primary care fields, can those with experiential knowledge that allows for an accurate diagnosis in a shorter time with less additional diagnostic tests be compensated at a higher rate?

    You conclude that primary care physicians are currently undercompensated for the care they provide. I completely agree.

    Your hypothesis is that the reason for their undercompensation is because of the overcompensation of procedural physicians. Somehow you believe this is the will of the RUC. The data does not support this hypothesis.

    The Powerpoint primer by Dr. Bodenheimer refers to data that is at least five years old. There should be an update of the facts associated with these slides. Perhaps they could address a number of comments in Dr. Levy’s Powerpoint such as the following:
    1. The RUC has recommended increases in the value of E/M services each time primary care organizations and/or CMS have requested a review.
    2. Since the start of RBRVS a mid-level office visit has increased in compensation from $31 (1992) to $66 (2010). Many procedures have seen significant decreases in their cost during that time.

    Another needed update is “Relative Value Unit (RVU) Explained: CPT E&M Code 99223.” Authored by The Happy Hospitalist and published over three years ago, this contains Carville-like incomplete information that adds confusion to the discussion. Either the author does not understand the process or there is intent to inflame. I believe the physician author can be excused for a lack of complete knowledge. I have a difficult time giving a Ph.D. with a resume’ such as yours a free pass. How about we go ahead and dive into “RVU Explained” and complete the explanation in a constructive fashion. Perhaps this will be educational to you and others.

    In rewriting that piece I would make a number of suggestions. The whole system of comparison is confusing—that we can agree on. When many people compare the financial value of physician services they focus on just the work RVU. This assumes the practice expense and malpractice RVUs are properly accounted for which is, of course, subject to debate. I believe the references to geographic variations also detract from the point of the discussion. So we are going to look at just work RVU and we are not going to throw geographic mud into the water, yet.

    We will also look away from the continuing decline in the Medicare Conversion Factor (CF). The CF is multiplied by the RVU’s to determine the actual dollars paid for the service provided. The 2011 CF is $33.9764; 2010 was $36.0791; 2009 was $36.0666; 2008 was $38.0870. From 2008 to 2011 that is a 10.8% decrease that has nothing to do with the RUC and nothing to do with specialist compensation.

    The Happy Hospitalist (Dr. HH) goes over the value associated with the following codes:
    99223 High Level Hospital Admission
    99214 Established Patient Moderate Complex Office Visit
    27447 Total Knee Arthroplasty (note: there is a typo in the article by Dr. HH as it is incorrectly listed there as 22447)
    47562 Laproscopic Cholecystectomy
    45378 Diagnostic Colonoscopy
    50081 Removal of Kidney Stone
    61698 Repair Complex Brian Aneurysm
    67040 Laser Treatment of Retina

    Dr. HH is apparently is unaware of the 90 day Global period and presented procedure values as if they are for just that with no other care included. What the 90 day Global means is that all care related to the patient for that procedure is included in the value. It is a “package price” that was enacted in part to simplify issues with billing for services. The 90 day Global includes the pre-operative office visit, all pre and post procedure care, the procedure, and all follow up for a period of 90 days after the procedure. The number of these visits, the complexity of the visits, the time associated with performing the procedures are estimated by surveys by providers of what would be considered a “average” patient having a certain problem. Generally, more than 50 surveys are completed and the 50th and 25th percentiles are calculated. The validity of the surveys is discussed at the RUC.

    (Historically the RUC recommended wRVU at the 50th percentile and CMS, who has representation at these meetings, accepted more than 90% of the values. Recently, the RUC has more commonly submitted the 25th percentile to CMS which is now rejecting more than 30% of even these lower than average suggested values. This is considered by many to be an inappropriate devaluation of physician services.)

    If we take 27447, Total Knee Replacement, as an example, the wRVU is 23.25. The 90 day Global includes:
    1- 99212: established office visit; wRVU= 0.48
    2- 99213: established office visit; wRVU= 0.97
    1- 99214: established office visit; wRVU= 1.5
    3- 99231: subsequent hospital care; wRVU= 0.76
    1- 99232: subsequent hospital care; wRVU= 1.39
    1- 99238: hospital discharge day; wRVU= 1.28
    When you subtract the total of these wRVUs you are left with a wRVU of 14.38 for performing the procedure.

    Our goal on this road to clarity is to speak in dollars and cents, not wRVUs. So if we take 14.38 wRVUs and multiply it by the 2011 conversion factor of 33.9764 we find that the surgeon is paid $488.58 for actually doing a total knee replacement.

    The surveys performed by providers that are reviewed by the RUC also account for details regarding the time associated with performing a service. Dr. HH refers to 99214 as a “20-30 minute visit.” Actually, according to the RUC database, that visit, on average, is 40 minutes, which includes 5 minutes of pre-service time, 25 minutes of intra-service time and 10 minutes of post-service time. The wRVU for a 99214 is 1.50 and that translates to $50.96. If we calculate that out to an hourly rate you get a rate of $76.45 per hour of physician work. The numbers Dr. HH listed included funding for practice expense and malpractice expense. As stated earlier, I am leaving those factors out of this analysis.

    Now if we circle back to our Total Knee example and look at the times listed for the procedure we see the following:
    Pre-Service eval: 45 minutes
    Pre-Service positioning: 15
    Pre-service scrub, dress, wait: 15
    Intra-service: 124
    Immediate post-service: 30
    That totals to 229 minutes or 3.82 hours. $488.58 divided by 3.82 hours equals $128.01 per hour of physician work. For the combination of cognitive and technical skill to eliminate pain and improve the function of the patient with arthritis. However, that overstates the hourly rate as it does not include the time associated with the other visits.

    Let’s dive deeper into the weeds and add back in the RUC times for all the additional visits that are part of the 90 day global. That would be another 4 hours of physician time in this example.

    The 90 day Global total wRVU for a total knee replacement is 23.25; multiply that times the CF equals $789.95. Divide that by 7.82 hours of care and the orthopaedic surgeon’s hourly rate is $101.02 per hour.

    Just like I consider my primary care colleagues undercompensated for the care they provide, I also consider my orthopaedic colleagues undercompensated for the care they provide.

    And in spite of the assertion by Dr. HH that the total knee is “worth 16 times more,” the hourly rate differential between the 99214 ($76.45/hr) and the 27447 ($101.05/hr) is $24.57/hour. So the time associated with a total knee is priced at 1.32 times the price of an office visit, not 16 times.

    Next on Dr. HH’s hit list is the laproscopic cholecystectomy, cpt number 47562. Going through the same analysis as total knee, the rate for performing the surgery is $107.49/hr and the total care of the patient for the episode is $97.45/hr. That is not “eight times more,” it is 1.27 times more.
    I consider my general surgical colleagues undercompensated for the care they provide.

    Colonoscopy rate is $100.29/hr. 1.32 times, not “2.6 times” more.
    I consider my gastroenterology colleagues undercompensated for the care they provide.

    Removal of a kidney stone is $94.39/hr. 1.23 times, not “16 times” more.
    I consider my renal colleagues undercompensated for the care they provide.

    Complex brain aneurysm is $117.39/hr. 1.54 times, not “50 times” more.
    I consider my neurosurgical colleagues undercompensated for the care they provide.

    Retina surgery is $103.16/hr. 1.35 times, not “13 times” more.
    I consider my ophthalmologist colleagues undercompensated for the care they provide.

    These values for services are disturbingly low across the board. This is the key information that needs to find a massive audience. We cannot afford to get bogged down in a diversion by a Wall Street Journal writer. This cannot degenerate into a battle between physician specialties.

    One could conclude from the hourly data presented that the RUC has done a very good job on completing its assigned mission: define the use of physician resources to complete a task. The data as accurately presented above should get you and others to stand up and thank the physician volunteers who attend the RUC meetings. There is another group of physician volunteers who attend the CPT meetings that deserve thanks for what also has been a very thankless job. These are not people blogging in an attempt to get a speaking engagement. These are caring professionals who see the RUC as a good collaborative option to help balance the payment system.

    It is easy to point to something as a problem. Let’s work together to find a better way without being distracted by efforts to eliminate the method that has done as well as it could within the guidelines allowed.

    I have further ideas on the graph that shows the gap between primary care and specialty care income. I have a number of ideas on how to begin to reformat physician reimbursement methodology. I have burning questions why there is such a state by state variability in Medicare payment to hospitals for the same procedure. (For example, the average Medicare payment to hospitals in Virginia for a total joint replacement in 2009 was $9,078. Right next door in Maryland the average payment was $16,760. A difference of $6,682 per case. That’s a lot of 99214’s.)

    But, I also have a job, a family, and a mortgage. I really do not have the time to pour into this at the level that is probably needed. So I have to hope that since we have the same first name, I can work with you and we can be allies with the same goal: the health of the people who live in the United States of America.


  6. It may be unrealistic to expect much support from the American College of Physicians for a proposal to leave the RUC process. Recall that many of the ACP members are highly-compensated procedure-performing medical specialists.

  7. Brian,
    Excellent post, I couldnt’ agree more with your conclusion- especially with my history of being a fourth generation family doc who has witnessed first had the dramatic decline of primary care in this country.
    The current drivers of the reform effort, supposedly centered around reducing costs and improving outcomes, has neglected the central role the RUC has played in driving provider behaviors in the exact opposite direction- towards high utilization, advanced procedures, and ‘high value’ specialty care. ACO’s, in all their wisdom, will not function effectively, nor succeed at all, if the current reimbursement paradigm is not fundamentally changed towards a more equitable method for managing the whole patient. Why a dermatologist gets paid significantly more than a family doc for diagnosing the very same rash has never made much sense to me.
    During this RUC-driven period of ever increasing income disparity between the specalists and primary care, family docs have been forced to respond with their only alternatives to remain fiancially viable- boost volume (read- reduce visit times) and/or move to concierge care- a response that has threatened overall care quality or reduced access of modest income patients to primary care docs respectively.
    If those in charge of health reform are ever going to succeed in the ‘triple aim’, we will need a different reimbursement philosophy. The RUC method is so entrenched that, in 2011, I fear it cannot be fixed. Starting over with a cognitive and outcomes based approach to assigning value to provider work seems prudent. Else, we will spin our wheels forever.
    Keep up the good work, Brian.

  8. Brian, you are on the right track but there are missing elements. Primary care docs must give something to get back their role as arbiters of care. Namely, they must agree voluntarily to treat patients with appropriate care. In other words, eliminate the waste and unnecessary treatment that so characterizes U.S. health care.

    An independent managed care system comprised of a national, all inclusive medical network, and an independent care management organization can manage care in such a way as to assure appropriate care. It can and must build an alliance between care providers, patients, and payers that respects the needs of each group.

    Ultimately there can be only one solution – managed care, independent of government, payers, and care providers. It must operate under a single principle, appropriate care for all patients. Thus, while we ask primary care docs to voluntarily treat appropriately, as Ronald Reagan once said, “trust but verify.”

    It is indeed true, as you state, that assuring appropriate care will eliminate billions of waste in unnecessary tests, studies, specialist treatment, and so on. We cannot eliminate $600 to $800 billion in unnecessary care without it coming from somewhere.

    The solution starts with the independent managed care organization paying primary care docs fairly and promptly. The care managers assure patients and payers that doctors are providing appropriate treatment. The managed care system simply removes care providers who fail to honor their voluntary agreement . That draconian punishment will ensure compliance.

    Today there is so much discussion about private vs. public, socialized medicine, mandates, etc. that it fails to address the only issue of real importance – how do we assure Americans that they will get appropriate care? Hopefully, this is a start.

  9. Why does anybody think the “industry” is going to fix this? If you do you’re delusional. Who fixed the dysfunctional housing market prior to the “latest” meltdown – certainly not the industry. It’s all about preserving/saving/growing income, and personal greed is the principle driver, and getting that from premium payers is the game. Until there is a massive implosion of cost versus ability to pay, then this won’t get fixed unless government is the arbitrator/fixer. You can talk all day long about CDH, HDHP, capitation, none of it will mean anything unless the underlying COST (price) is addressed. Don’t look to providers to slit their own throats until they’ve slit everyone else’s first. What is fixing the housing mess – lower values on someone else’s equity because people can wait to buy a house – try waiting for that life saving surgery.

  10. Nice, Brian.

    It is indeed a maddening perplex, is it not? Likely next-up-at-the-plate solution? Blame and punish the victims (i.e., the docs and patients).

    I wrote 5 lengthy posts on health policy reform across the past couple of years over on my policy blog (linked in upper right corner).


    I’m not seeing that I missed much.

    Now I work for one of the RECs (link in my name). Good LORD, what a shoot-aim-ready ride we got goin’ on.