Rethinking the Value of Medical Services

Brian Klepper and David C. Kibbe

First posted 8/1/11 on the Health Affairs Blog

Copyright ©2011 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.

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 a health care analyst and Chief Development Officer of WeCare TLC Onsite Clinics. David C. Kibbe MD MBA is a Senior Advisor to the American Academy of Family Physicians and an industry consultant on health information technology.

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2 Comments

Filed under RBRVS, RUC

2 responses to “Rethinking the Value of Medical Services

  1. What a great vision for a rational reimbursement system, one that puts the patient and society front and center. Medicare has to move past a fee-for-service system, and the challenge of reimbursing physicians based on evidence and quality is an exciting goal. Additionally, this should be a system that is nearly impossible to game since it’s the based on measurable data. An important first step could be CMS or CDC taking over physician code development from the AMA, the major source of the special interests.

  2. OH

    Well, this view is rather short. The risks of any surgical procedure are greater than any “discussion” with a patient simply because something can and occasionally does go wrong. I am not an ophthalmologist but I do occasionally do invasive procedures. And while the cataract surgery may take 15 minutes in very skilled hands, meeting the patient, getting a consent, scrubbing in and out and the like do not make this a 15 minute encounter but rather a 45 or 60 minute encounter for anyone who likes to “take care” of his or her patients. Furthermore, unlike the family physician, as a specialist, the buck often stops with me. I can’t refer to the cardiology or someone else when i am not sure what the condition is. I have to figure it out and take the risk that I may be wrong. Thus, I believe that you are presenting a skewed version of events here. Is $111 for a visit with all the complexities enough? NO. Should someone doing invasive procedures get paid $400, on the order of what my plumber or car mechanic makes for a job? I’d say most definitely not.

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