Rethinking The Value Of Medical Services

One of American politics’ most disingenuous conceits is that health care must cost what we currently pay. Another is that the only way to make it cost less is to deny care. It has been in industry executives’ financial interests to perpetuate these myths, but most will acknowledge privately that the way we value and pay for medical services is a deep root of America’s health care cost explosion.

When the Resource-Based Relative Value Scale (RBRVS) became the framework for Medicare payment nearly twenty years ago, it equated a medical service’s “value” with four categories of physician work inputs: time, mental effort and judgment, technical skill and physical effort, and psychological stress. The assessment process, handled from the outset by the American Medical Association’s (AMA) secretive, specialist-dominated Relative Value Scale Update Committee (RUC), delineates and quantifies a service’s inputs in terms of its Relative Value Units (RVUs) which, with a monetary multiplier, define its worth.

In 1989, RBRVS’ lead architect, William Hsaio, confidently suggested that the process would be rational and reliable:

We found that physicians can rate the relative amount of work of the services within their specialty directly, taking into account all the dimensions of work. Moreover, these ratings are highly reproducible, consistent, and therefore probably valid.

But Dr. Hsaio did not anticipate that special interests would capture the process and manipulate it to financial advantage. Twenty years after RBRVS was adopted, “mental effort and judgment” has been hijacked to favor specialist physicians and hospitals, primary care has been stifled, and the relative value system has become a study in caprice and distortion.

Getting Values Wrong

The resulting inconsistencies in how we value services are breathtaking. For an unexceptional example, compare the reimbursements for a moderately complex primary care office visit for an established patient (CPT 99214) with an ophthalmologist’s 10-15 minute cataract extraction with implantation of an intra-ocular lens.

A primary care office visit can be classified as a 99214 if it requires 25 minutes of face time and has two of three components: a detailed history, a detailed examination or medical decision-making of moderate complexity.

Keep in mind that, in primary care, new signs and symptoms must be weighed against the whole of medicine. Is a persistent cough a bronchial infection, tuberculosis, lung cancer or something else? The variation across patients is staggering as well. Primary care doctors typically see conditions ranging from sprains and hernias to infectious diseases and vascular ailments, and must be a specialist in dealing with this complexity. In 2011, Medicare pays $111.36 for a 99214.

By contrast, specialist physicians in many disciplines face less patient variation, at least compared to primary care doctors’ experience, but their work may have more “wow.” Cataract removal, a 50 year old procedure that has been highly refined and automated, immediately improves sight, a dramatic impact. Many ophthalmologists operate “focused factories,” processing an assembly line of 20 or more cataract patients. With pre-screened patients and a controlled clinical environment, the risks are relatively predictable, the mental demands limited and the work repetitive. For cataract extraction, Medicare currently reimburses the ophthalmologist $697.12, and requires a $139.24 patient co-payment, for a total of $836.36.

In other words, relying on the RUC’s assessment using RBRVS, Medicare values the ophthalmologist’s work 7.5 times more than the primary care specialist’s. The valuation assumes that the complexity and skill required in the two encounters are heavily weighted toward the ophthalmologist, though it could be reasonably argued that the mental effort, judgment and skill required by the primary care doctor are greater.

But there is a more serious flaw in the approach. RBRVS bases value on the demands of physician work, but ignores the actual benefit to the patient or society. It doesn’t consider whether the service followed evidence-based guidelines (and whether it was appropriate or even necessary) or whether the hoped for health outcome was achieved.

We need both primary care specialists and procedural specialists. The policy questions are whether one should be valued at so much more than the other, and whether we need more procedural specialists than primary care doctors, or the opposite as other developed nations have settled on. The way we pay for services should reflect our decisions. But also, we need a payment approach that is fair, consistent, transparent and more congruent with modern notions of value.

The flaws in our medical services valuation and payment system create incentives for unnecessary and unnecessarily complex services that expose patients to gratuitous risk (and sometimes, harm), and that artificially increase cost for purchasers. This one mechanism is largely responsible for taking the health care industry and the larger economy to the edge of an economic precipice.

What Should CMS Do Now?

Against the intensifying national economic crisis, CMS could immediately and substantially reduce unnecessary cost by revamping this system. It should aggressively identify and reassess over-valued specialty services, while re-valuing primary care. Equally important, the definition of value must be broadened beyond physician work inputs to quantitative measures of impact, efficacy and efficiency, using the plentiful evidence now available in both clinical encounter and financial claims data.

Adjusting the current approach to payment will be opposed by procedural specialists and powerful health care interests that have fed for decades off the specialty-based largess. But ultimately, it would serve their interests and those of the American people by stabilizing a system wildly out of control.

Brian Klepper, PhD, 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. David C. Kibbe, MD, MBA, is a Family Physician and Senior Advisor to the American Academy of Family Physicians who consults on healthcare professional and consumer technologies.

This post first appeared at Health Affairs Blog on 08/01/2011. Copyright ©2010Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.

5 replies »

  1. (I’m a practice manager for surgeons.)

    I hear the voice of primary care arguing that a cataract extraction is not worth 7.5 times a primary care 99214, based mostly on a relative valuation of “patient variation” over — what? The unthinking, automoton of an eye surgeon. Ah. Don’t we all inherently value what we know more than what we don’t know? Can we please hear from the eye surgeon? When we do, I’m afraid we’ll hear some equally nebulous descriptor for what is unique about his cognitive (and manual) challenges, and that descriptor will be calibrated to distinguish the surgeon’s skill from the PCP’s, we’ll be left with the task of valuing periwinkle over teal.

    If you’ve spent any time managing people, you soon learn that its a psychological law: most people think everyone else’s job is easier. When you ask for details, what you get of course is a highly detailed rendering of the speaker’s job, and a skeletal caricature of the other’s. Given the description, any rational listener would re-value the two — but the inequity is built into the description, isn’t it? It’s a tautology.

    There’s nothing objective here, either. The primary care doctors are asserting they are not paid enough and they intend to take money away from the surgeons. It may be that the RVU system “overvalues” proceduralists (probably does), but what I don’t hear is any new rigor that the primary care minds are bringing. Your argument may win, but don’t tell yourself it’s more than a power struggle. You may seize some cash, but you’ll just prompt a retributive political cycle that in the end won’t be good for physicians. You are becoming a profession of rent seekers.

    What I’d like to hear is a primary care physician explain to an eye surgeon what the new ratio should be, and by what equation it was derived, in terms that give the surgeons’ description of his own skills the same seriousness you just gave your own.

  2. The description of specialist (specifically surgical) reimbursment and valuation are somewhat simplified in the above post and do not accurately relate the relative value calculation. I would not disagree that the level of complexity and decision-making may be equivalent or even weighted toward a primary provider in some cases, however note that the valuation takes into account more than this.

    Total periprocedural care of the patient in the surgical period extends in most cases for a 90 day global period, so add to the seemingly ‘overpriced’ cataract RVU: ALL pre and post care (usually several office visits lasting 10-15 minutes each), phone calls for problems, re-evaluation and treatment for any associated complications, added cost of malpractice insurance (risk) etc. In addition most specialists are required to take hospital call (which primary providers are doing less so) in order to maintain privileges, the time factor of which needs to be accounted for.

    Combining the actual patient contact time, complexity, risk, call etc. that is associated with a procedure, the reimbursment now would not seem so incomparable to an E&M code. Take aortic aneurysm surgery, with a reimbursement around $1200, now includes at times HOURS of bedside management, 30 minutes each DAY of rounding for 5 days, 60 minutes of pre-op and 20 minutes x 2 of post-op care and we are looking at an undervalued reimbursment that pales in comparison to complex E&M.

    It is time to stop the comparison approach to arguing the RVU system. I am not particularly a fan of this method, rather fixed income calculations taking into account these issues across a population of patients seems to make more sense, and deflated the volume-based disaster we are in right now.

    A more cogent and honest debate would be that many providers are undervalued for the care they are providing reagrdless of their specialty status.

  3. “It doesn’t consider whether the service followed evidence-based guidelines (and whether it was appropriate or even necessary) or whether the hoped for health outcome was achieved”
    For most specialties, and patients this is important however as someone with chronic intractable pain, it is virtually impossible to use the same guidelines. Pain is subjective and as such, when deciding if an approach has worked is also subjectively based. The outcome is less pain and lessened disability. To quantitate that hard to do since some people can work more and need less medication with the same pain complaint as someone else.
    It would be a benfit to pain patients and pain management specialists if there was a way to have more provable benefit from therapies. Until then we are at least one of the groups for which guidelines such as these are relatively worthless.
    Carol Jay Levy
    author A PAINED LIFE, a chronic pain journey

  4. Excellent post, but I think your most important sentences are the early ones:

    ‘One of American politics’ most disingenuous conceits is that health care must cost what we currently pay. Another is that the only way to make it cost less is to deny care.’

    This can be applied not only to physician reimbursement, but to ALL other aspects of health care – not only hospitals and other providers, but to pharma, medical devices, hospital suppliers, etc. I always remember the story of the $1200 time clock in our lab – before the days of computers, it stamped the time/date on a lab slip. For $1200 – because it was in a hospital.
    So let’s think about your statements above, and where else they might lead us.

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