In my last post, we explored the convoluted and somewhat sinister creation of the Independent Payment Advisory Board (IPAB) by President Obama and our political Leaders in Congress. Funded at an initial rate of $15 million each and every year, virtually untouchable by Congress and forbidden by law from having a majority of healthcare providers on board, the mission of the IPAB is to find ways of saving money in healthcare by reducing the amount of money paid to providers. By law, pretty much everything else is off the table.
As a concerned and patriotic citizen, I would like to do my part to help the IPAB in its mission. And since pay-for-performance is fashionable in government circles these days, all I ask is to receive a mere 1% of all the money my proposals will save the U.S. healthcare system annually. What could possibly be fairer? So in this spirit of hope and change, let us explore a radical new plan for saving billions and improving healthcare in America. First, a little background on what we have now.
As far as I know, these folks didn’t create Medicare’s RBRVS payment system, but they obviously use similar design strategies. My guess is that they will be among the first “experts” tapped by heathcare reform’s new Independent Payment Review Board.
As you may or may not know, about 20 years ago the Federal government adopted a bizarre and complex means of paying doctors, physician assistants, nurse practitioners and other healthcare providers called the “resource-based relative value system”, or “RBRVS” for short. RBRVS was invented by academicians at Harvard University at the behest of the folks in charge of Medicare, who were themselves apparently looking for a highly theoretical, confusing, complex and easily manipulated means of paying for professional services. More information about the history and mechanisms behind RBRVS can be found here, here, and here. I would also strongly recommend this post and this post by The Happy Hospitalist, that do a great job of describing how the system works for doctors in clinical practice.
While a detailed explanation of RBRVS is beyond the scope of this article, allow me to provide a rough summary of how it is supposed to work.
Before the imposition of the RBRVS, doctors charged however much they thought their services were worth in the form of a “usual and customary fee” for services that they performed. Medicare and other insurers then decided how much of the physician’s fee they wanted to pay, and paid it. The rest was pretty much the responsibility of the patient.
Then a generation ago, the “experts” at Harvard decided that it would be fairer and more equitable to pay physicians for their services based upon the relative amount of “resources” needed to produce a given service. These resources were divided into three components: physician “work”, practice expense, and medical malpractice costs. The amount of “work” done by a physician was then itself quantified by breaking it down into still more theoretical components: the amount of time a task should take, the “technical skill” and physical effort required, the amount of mental effort and judgment, and the “stress” inflicted on the provider by the potential risk posed to the patient. These components are theoretical in the sense that, in the real world where the rest of us live, every patient, doctor and case is different. So while it would be nice to imagine that there is an “average” degree of work that one might pay for, a given doctor might routinely do more or less work for patients and procedures in her particular practice.
Then all you have to do it come up with a quantitative figure for the “work” associated with every single medical visit and procedure known to man. Let’s take a modest surgical procedure as an example. Our academic colleagues supposedly evaluate, quantify and total all of the factors associated with pre-operative visits, the hospital admission work-up, the operation itself, immediate post-op care (including writing notes, talking to families, meeting with other providers, etc.), writing orders, evaluating the patient in the recovery room, and all of the subsequent post-op hospital and office visits. Of course this all assumes that this figure does not change significantly over time while technologies, illnesses, and the population are changing all around you. And the amount of “work” ought to be re-evaluated every time a new medical procedure is invented or and old one is modified.
What could possibly be simpler and less prone to error and subjectivity? Pretty much anything.
The purported goal of this Rube Goldberg exercise is to come up with a metric that allows us to define one quantitative unit of “work” or “Relative Value Unit” (RVU). In theory, this will allow us to definitively say that, for example, one heart transplant operation is worth as much as 43 primary care clinic follow-up visits. Therefore the cardiac surgeon should be paid 43 times more for each transplant than the internist is for his office visit.
But really, determining the “work” component is just the beginning of the payment calculation process. The RBRVS approach then combines all of these various work, overhead and malpractice expense components, adjusts for a “Geographic Practice Cost Index”, and then multiples everything by a “cost conversion factor” in order to come up with an actual dollar value for each and every service provided as shown in this example created by Dr. Aaron Liberman at the University of Central Florida:
If by now you’re not shaking your head in disgust and disbelief over how bizarre and complex this whole payment system has become, then you should probably be pricing credit default swaps on Wall Street. It gets far worse when you realize that these are just the rules dealing with how services will be valued. They have little or nothing to do with how whether, or how much, the government or other insurers will actually pay. Those rules – including the exactly prescribed provider actions, forms and documentation required to bill for a specific visit or procedures add another entire galaxy of bureaucracy and complexity to the process.
Our government has clearly gone to a great deal of time, trouble and expense to create this novel and elaborate system of determining provider compensation. The real question is whether it serves us well, or whether it simply constitutes another milestone on the road to Hellth. (Spoiler alert: it’s the latter.) Let’s examine some of the more obvious and unforgiveable defects of RBRVS.
- It’s expensive. Literally billions of dollars are spent each year trying to keep up with and comply with the rules and regulations surrounding this thing. One of the best examples is the very existence of Athenahealth, Inc. Athenahealth is a relative newcomer to the healthcare system, but now has a market capitalization of about $1.2 billion. Nearly all of its business consists of helping doctors and hospitals with RBRVS-based insurance billing and collections.
- It’s corrupt, and corrupts the delivery of healthcare services. The assignment and adjustment of RVUs is a function of the super-secret AMA/Specialty Society RVS Update Committee (RUC) established by the American Medical Association. (Note 1) Heavily weighed towards specialists, the RUC turns what is supposed to be a scientific/economic process into a political one. Each adjustment to RVUs is a dollar-laden decision that has little or nothing to do with what is good for patients or providers. Just two examples:
- Generally speaking, specialists make their living by performing “procedures” such as surgeries, catheterizations, and endoscopies. Since specialists dominate the RUC and RVU update process, it should be no surprise that doing specialized procedures pays far more on an hourly basis than talking, thinking, prescribing or educating patients. The result has been a persistent and worsening shortage of primary care physicians.
- The RVU-initiated financial bias towards procedures and away from everything else inherently mixes medical and financial decision-making. Procedures are clearly over-utilized as a direct result of the financial incentives involved. And why shouldn’t they be? Doctors didn’t make the payment rules, they just respond rationally to them.
- The system wreaks havoc on the medical and financial efficiency of the healthcare system as a whole. Markets only work if they are based upon supply and demand rather than a theoretical construct of “work”, and if the price of goods and services is allowed to fluctuate freely based upon quality, consumer taste, geography, experience and a host of other factors. Eliminating any basis of a free market through RBRVS price fixing produces huge economic inefficiencies in the delivery of healthcare goods and services.
- Perhaps worst of all, complexity makes it impossible to know what the heck is really going on. As we’ve recently seen with the credit default swaps in the housing market, bad things tend to happen when you mix money and systems that people have to strain to understand.
So how should we pay doctors? It should be no surprise that the same mentality that brought us RBRVS is now cooking up all sorts new schemes to further obscure, complicate and manipulate the payment process. These include such fashionable and modern-sounding monikers as pay-for-performance, episode-based payments, accountable care organizations and “medical homes”. We’ll look at these in a bit, but first let’s get right to the correct answer. It’ll be the topic of the next post.
In the meantime, to whom in the government do I send this royalty agreement?
Note 1: The AMA rakes in about $70 million annually for licensing rights to the CPT codes at the heart of the RBRVS system. It’s just one of many self-interested money-making organizations with a large and vested interest in perpetuating this administrative nightmare.