By BRIAN KLEPPER & DAVID KIBBE, MD

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.