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Fixing Medical Prices: How Physicians Are Paid
Medical care prices in the United States are not only the most expensive in the world, but there are wide variations in what physicians are paid. Doctors at the frontlines of medical care who manage complex conditions argue that they receive disproportionately lower fees than physicians performing services such as minor surgeries and endoscopies. Fixing Medical Prices goes to the heart of the U.S. medical pricing process: to a largely unknown yet influential committee of medical organizations affiliated with the American Medical Association that advises Medicare. Medicare's ready acceptance of this committee's recommendations typically sets off a chain reaction across the entire American health care system.
For decades, the U.S. policymaking structure for pricing has reflected the influence of physician organizations. What Miriam Laugesen's rich analysis shows is how these organizations navigate the arcane and complex work of this advisory committee. Contradicting the story of a profession in political decline, Fixing Medical Prices demonstrates that the power of physician organizations has simply become more subtle.
Laugesen's investigation into the exorbitant cost of American medical care will be of interest to those who follow the politics of health care policy, the influence of interest groups on rate setting, and the medical profession's past and future role in our health care system.
For decades, the U.S. policymaking structure for pricing has reflected the influence of physician organizations. What Miriam Laugesen's rich analysis shows is how these organizations navigate the arcane and complex work of this advisory committee. Contradicting the story of a profession in political decline, Fixing Medical Prices demonstrates that the power of physician organizations has simply become more subtle.
Laugesen's investigation into the exorbitant cost of American medical care will be of interest to those who follow the politics of health care policy, the influence of interest groups on rate setting, and the medical profession's past and future role in our health care system.
- GenresHealth Care
288 pages, Hardcover
Published November 21, 2016
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March 1, 2019
I’ve long been fascinated by the economic system of the Soviet Union. That system’s most important task was translating the infinitude of wants and desires of people and businesses into prices that somehow made sense relative to each other. Without the market system coordinating supply and demand, however, it was impossible, and largely dictated by the political power of different groups. Yet many of the best minds of that country struggled to find some way to work it out. This book shows that America’s medical system relies on a similar Soviet-style pricing scheme created by some of our best minds, known as the Resource-Based Relative Value System (RBRVS – what an acronym!), and its results are as riddled with special interests and inefficiencies as you would expect.
After World War II, the American Medical Association (AMA) finally acquiesced to private insurance, largely under the aegis of its Blue Cross and Blue Shield plans, but that meant they needed to standardize reimbursements for thousands of different procedures. In 1956 the California Medical Association, starting in Alameda County, with help from famed psychoanalyst Ernest Dichter, tried to survey physicians on the reasonable charges of different specialties, mainly surgery, thus creating a list of fees for each, which was soon adopted by other associations. In, 1966, the AMA assisted the effort by creating, and trademarking, the list of “Current Procedural Terminology” for every possible charge and procedure, which became the outline of the fee schedules as well.
One of this book’s significant revelations is that, while Medicare as passed in 1965 guaranteed “customary, prevailing and reasonable” charge reimbursement, translating that into real prices often meant using the California Medical Association’s and the AMA’s list of fees and terminology, which were updated regularly by these associations, and which were often paid out by medical insurance intermediaries. (Although private medical insurance soon adopted a similar “usual, customary, and reasonable” charge standard themselves, they too came to rely on the California and AMA fee schedules).
Runaway Medicare-costs, and the gradual inflation of specialist benefits vis-à-vis primary care, however, made Congress take action. As early as 1969 they cut the level of fees from the 90th to 83rd (and later 75th percentile) of the prevailing charges, and in 1974 they established a Medicare Economic Index that was supposed to cap price rises, but nothing worked. An antitrust case against the California Medical Association which caused it to stop updated its fee schedule in 1974 made reform more urgent. In steps Willaim Hsiao, a professor of public health at Harvard who had been doing a “relative value survey” of physician procedures, estimating each against a baseline “office visit,” which the Massachusetts Rate Setting commission soon used to set its Medicaid payments. In 1986, the federal government tasked Hsiao to do a grand study of Medicare pricing and of how each procedure should be priced relative to each other. His work became the basis of the RBRVS which was instituted in 1989. The real kicker, however, is that the AMA came back again with their Relative Value Update Committee, which organizes specialists twice a year to update the RBRVS charges, and to which the government largely defers to when setting these federal reimbursement prices, and which private insurers then largely copy. Thus, we’ve fallen again into the clutches of the “House of Medicine,” where the income of specialists who attend these meetings is continually inflated, and the costs continue spiraling upwards.
There is an amazing amount of solid public policy research in this book. Unfortunately, the writing is sometimes circuitous and confusing, and provides few guideposts to readers. Nonetheless, this book provides the most extensive glimpse yet of the strange system that shapes most of our health care industry.
After World War II, the American Medical Association (AMA) finally acquiesced to private insurance, largely under the aegis of its Blue Cross and Blue Shield plans, but that meant they needed to standardize reimbursements for thousands of different procedures. In 1956 the California Medical Association, starting in Alameda County, with help from famed psychoanalyst Ernest Dichter, tried to survey physicians on the reasonable charges of different specialties, mainly surgery, thus creating a list of fees for each, which was soon adopted by other associations. In, 1966, the AMA assisted the effort by creating, and trademarking, the list of “Current Procedural Terminology” for every possible charge and procedure, which became the outline of the fee schedules as well.
One of this book’s significant revelations is that, while Medicare as passed in 1965 guaranteed “customary, prevailing and reasonable” charge reimbursement, translating that into real prices often meant using the California Medical Association’s and the AMA’s list of fees and terminology, which were updated regularly by these associations, and which were often paid out by medical insurance intermediaries. (Although private medical insurance soon adopted a similar “usual, customary, and reasonable” charge standard themselves, they too came to rely on the California and AMA fee schedules).
Runaway Medicare-costs, and the gradual inflation of specialist benefits vis-à-vis primary care, however, made Congress take action. As early as 1969 they cut the level of fees from the 90th to 83rd (and later 75th percentile) of the prevailing charges, and in 1974 they established a Medicare Economic Index that was supposed to cap price rises, but nothing worked. An antitrust case against the California Medical Association which caused it to stop updated its fee schedule in 1974 made reform more urgent. In steps Willaim Hsiao, a professor of public health at Harvard who had been doing a “relative value survey” of physician procedures, estimating each against a baseline “office visit,” which the Massachusetts Rate Setting commission soon used to set its Medicaid payments. In 1986, the federal government tasked Hsiao to do a grand study of Medicare pricing and of how each procedure should be priced relative to each other. His work became the basis of the RBRVS which was instituted in 1989. The real kicker, however, is that the AMA came back again with their Relative Value Update Committee, which organizes specialists twice a year to update the RBRVS charges, and to which the government largely defers to when setting these federal reimbursement prices, and which private insurers then largely copy. Thus, we’ve fallen again into the clutches of the “House of Medicine,” where the income of specialists who attend these meetings is continually inflated, and the costs continue spiraling upwards.
There is an amazing amount of solid public policy research in this book. Unfortunately, the writing is sometimes circuitous and confusing, and provides few guideposts to readers. Nonetheless, this book provides the most extensive glimpse yet of the strange system that shapes most of our health care industry.
September 11, 2023
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... but it is poorly written. Sentences are structured in a confusing manner, and there is a lot of quoting without great integration into the discussion.
... but it is poorly written. Sentences are structured in a confusing manner, and there is a lot of quoting without great integration into the discussion.
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