(Conversation) – Modern medicine is noteworthy.
Conditions like HIV / AIDS and hepatitis C were once de facto death sentences. You can now handle both easily and effectively.
But for Americans, the wonders of modern medicine cost enormous amounts of money. Total US health care costs in 2020 exceeded US $ 4.1 trillion, or US $ 12,000 per person. How those trillions of dollars are spent may seem like a mystery.
The largest part, hospital care, which accounts for 31% of total spending, is now subject to transparency rules to help patients understand the cost of their treatment. But so far, hospital compliance has been kept to a minimum.
Things are more transparent and more opaque when it comes to the second largest part of America’s annual health care costs: 20% of total health care costs, or paying for doctors and clinical services, which account for $ 810 billion. The amount charged to a patient for hip replacement or influenza vaccination is the result of a highly technical process that includes secret committee meetings, physician investigations, and federal regulations.
Decades ago, the federal government developed a seemingly scientific approach to solving these problems. As a health policy expert, I learned that the formula is simple. However, coming up with the numbers in that formula is much more complicated.
Free for any doctor
The federal government has done its best to stay out of the doctor’s office for the longest time. In general, health care is a private endeavor, and doctors and other health care providers have claimed what they want, or what they think patients can afford.
Then, in 1965, Congress founded Medicare and Medicaid. These are federal programs that provide health insurance to the elderly and the poor, respectively. Virtually overnight, they turned the government into the largest spender on health care. This meant that the Johnson administration had to come up with a way to compensate doctors who had long opposed the government’s involvement in health care and denounce it as “socialization medicine.”
An agreement has been created that looks harmless enough to minimize opposition. Doctors were allowed to charge Medicare “conventional, general and reasonable fees” and the federal government did not ask them.
However, as many doctors were willing to accept the offer to the federal government, the inflationary nature of this approach quickly became apparent. Doctors often charged Medicare for two to four times the amount they charged to private insurance companies. The need for change seemed inevitable.
New payment system
It took another 20 years to develop a more evidence-based approach that was less dependent on the discretion of the doctor and aimed at controlling spending.
After a comprehensive study conducted by Harvard researchers and the American Medical Association, the federal government has developed a framework for paying providers based on the resources and skills needed for a variety of treatments. Called the resource-based relative value scale by the author, this formula contains three steps for calculating the amount that a doctor can charge for a procedure.
First, there is a “relative value unit” for each step, which is divided into three components. The main part is the actual labor of the doctor. To determine that, researchers used doctors’ research and historical payment data to determine the time, effort, and skills required for each of the thousands of medical procedures. Higher values are assigned to more resource-consuming procedures (6.29 relative value units) such as catheter placement, and lower values are required procedures (1/5 of the unit) such as administration of COVID-19 shots. Will be assigned to.
The Centers for Medicare and Medicaid Services has been updated with relative value units for all possible procedures, from allergic skin tests requiring skin puncture, which is one of the lowest values of 0.01 units, to repair of diaphragmatic hernias. I have a list. , The most expensive one on the list, is 108.91 units.
The other two factors are general expenses such as rent and medical equipment and malpractice insurance. They are also determined by a similar process, including the cost of resources.
The next step is to adjust the units of these relative values to the local cost difference. The government has created three geographic cost indexes for each component. Multiply these numbers by the corresponding component to get the sum in relative value units for that category. These are updated regularly by the Medicare and Medicaid Service Centers. Some states have one set of indexes for every city, while others, such as California, have multiple indexes.
Finally, to get the dollar value for a medical procedure, sum the units of the aligned relative values in each category and multiply by a value called the conversion factor to get the dollar amount. This number is the same across the country and is updated annually, but with slight changes from year to year. In 2022, this was set at $ 34.61.
And done: you have the price to pay for thousands of medical procedures.
Imagine having a 20-29 minute appointment with a doctor, known as an outpatient clinic, to give an example of how all of this is combined. If you live in Alabama, the cost will be $ 86.90. Physicians reach that number by multiplying the unit of relative value for each component by a geographic index and multiplying the sum of 2.51 units by a conversion factor of $ 34.61. The cost of the same visit will be $ 118.36 in Alaska and $ 107.99 in San Francisco.
Process problem
Overall, I believe the current system is an important step in developing a more evidence-based approach to physician payments, but it’s not without problems.
One is the way the doctor himself controls the process, mainly because of its high technical nature.
A committee of 32 doctors from different disciplines across the country meets several times a year to vote on recommended changes in fees paid to doctors. Theoretically, these fees are set by federal regulators, but in virtually all cases, regulators accept the Commission’s recommendations.
This means that a handful of doctors are basically deciding how the United States spends hundreds of billions of dollars a year. In addition to potentially having their own personal and professional interests in pursuit, they also have the expertise and skills to determine the effectiveness or value of a particular treatment for others. It may be missing. There is evidence that the units of relative value often do not adequately reflect the resources required for many procedures. And the whole process is very opaque.
Finally, the current approach focuses primarily on physician efforts, not patient outcomes. This is in stark contrast to the various efforts to implement pay for performance in healthcare.
Given the bipartisan state since Washington, DC, it is unlikely that any dramatic changes will occur in the system anytime soon. However, gradual changes are possible and can make a meaningful difference. For example, expand the role of primary care physicians on the committee, or extend membership beyond physicians.
