Oct 28
HSPM J712
RBRVS
• Leftover issue from last time
Resource-Based Relative Value System
for physician payment
• In the late 1980s, Medicare led a direct attack
on how physicians set their prices. Medicare
implemented the Resource-Based Relative
Value System for paying doctors.
• It's now used, in various forms, by private as
well as public payers.
RBRVS = DRGs for doctors?
• No
– DRG-based payment is prospective. It pays a
certain amount per case, regardless of what
resources the hospital puts in to the patient’s
care.
– RBRVS is fee-for-service payment
RBRVS = DRGs for doctors?
• But Yes in the sense that
– Both came from the US government
– Both simplify payment-setting
• Both based on giving a weight to each unit of service
• Weight is proportional to the cost of the service
• Costs are determined by formula, not existing market
prices
• Payment = (Payment for a service with weight = 1) ×
(Weight of the service)
Historical context
– Roe, B.B., "The UCR Boondoggle: A Death Knell for
Private Practice?" N Engl J Med, July 2, 1981,
305(1), pp. 41-45.
• Medicare used Usual and Customary Rates as
the basis for pricing doctor services.
• Invited abuse. In 1981, a heart surgeon could
do three 2-4 hour coronary bypass surgeries
per week at $2500 each and make $350,000
annually.
RBRVS
• RBRVS was intended to set fees by simulating the fees
the market would have set if the market functioned
properly.
• With prices having a consistent relationship with cost.
• Hsiao, W.C., Braun, P., Dunn, D., Becker, E.R., DeNicola,
M., Ketcham, T.R., "Results and Policy Implications of
the Resource-Based Relative-Value Study," N Engl J
Med, September 29, 1988, 319(13), pp. 881-888.
• This article, which is printed second in the original
magazine, gives the general idea of RBRVS.
Physician work measure for RBRVS
• Hsiao, W.C., Braun, P., Yntema, D., Becker, E.R.,
"Estimating Physicians' Work for a ResourceBased Relative Value Scale," N Engl J Med,
September 29, 1988, 319(13), pp. 835-841.
• This article (printed first in the NEJM issue)
looks specifically at how they measured the
physician's work entailed in any particular
procedure.
The goal
• Hsiao, an actuary by training, was later a major
consultant to the Taiwan government for the
reform of its health insurance system.
• Here, he suspected that physician fees were out
of proportion to cost, with some surgical
specialties much more handsomely reimbursed
than primary care.
• Making the fees proportional to cost would
encourage physicians to pursue careers in
"primary care, rural practice, and out-of-hospital
services," rather than flocking to surgical
specialties.
RBRVS formula
• RBRV = (TW)(1+RPC)(1+AST)
• Resource-Based Relative Value = (Total Work)×
(Specialty Practice Cost Index)×(Specialized
Training Cost Index)
• Specialty practice cost is hired labor and
capital
• Specialized training cost is the opportunity
cost of spending time in residency.
Total Work formula
• Total Work = Time×(Complexity Index)
• Complexity index = “sweat factor”
• Includes Pre- + Intra- + Post-service work
• Based on surveys of physicians
Compares actual Medicare payments with what Medicare
would pay if proportional to RBRV and total-payment-neutral
Potential RBRVS impact
• If Medicare fees were adjusted to the RBRVS but
total spending unchanged ("budget-neutral"),
thoracic surgery, ophthalmology fees would drop
>40%. General surgery fees would drop about
15%.
• Internal medicine fees would rise >30%. Family
practice fees would rise >60%.
• Ontario's negotiated fee schedule more uniform
relative to RBRV than mean Medicare payment.
Limitations of RBRVS
– which Hsiao recognized:
• The CPT-4 classification system for physician
services, like any classification system, has
variations within the classes. Some docs, such as
those who treat poor people, may have more
difficult patients within RBRV classes.
• No extra payment is allowed for better outcomes.
RBRVS is based on resource inputs, not benefits.
There's no financial incentive for higher quality.
As implemented by SC Medicaid
• Naus, F., Medical Management Institute 1991
• Nose fracture CPT 21325
RVU category US SC adj SC RVU
Work RVU
174 0.971 169.1
Overhead RVU 120 0.874 105.1
Malpractice
RVU
20 0.457 9.14
Total
314
283.3
Future purchases?
(The future is now!)
• Frontline: Sick Around the World (2008)
– or
• The Healing of America: A Global Quest for
Better, Cheaper, and Fairer Health Care
– and
• Sicko
• Optional: Marcia Angell, The Truth About the
Drug Companies: How They Deceive Us and
What to Do About It
Managed care
Old system
• Independent self-employed doctors
– Paid fee-for-service
– Not hospital employees
• Hospitals
– Before aseptic surgery, hospitals were places for
poor people to go to die.
– Or get free care (“dispensaries”)
– Then became doctors’ workshops
• Built by philanthropic organizations (non-profit)
• Or doctors as owners (for-profit)
Old system
• Insurance
– Blue Cross trademark owned by American
Hospital Association
– Essentially a pre-payment collection agency
– Blue Shield added for doctors
– Buick was “the doctor’s car”
Old system
Doctors and
hospitals
Patient
Insurance
Prepaid group practice system
Doctors
Hospitals
Insurance*
*legally not
Patient
HMO history
• Mayer, T.R., and Mayer, G.G., "HMOs: Origins
and Development" N Engl J Med, February 28,
1985, 312, pp. 590-594.
Early HMO differences from fee-forservice
• Ware, J.E., et al, "Comparison of Health Outcomes at a
Health Maintenance Organisation with Those of Feefor-Service Care," Lancet, May 3, 1986, pp. 1017-1022.
• Siu, A.L., Leibowitz, L., Brook, R.H., Goldman, N.S.,
Lurie, N., Newhouse, J.P., "Use of the Hospital in a
Randomized Trial of Prepaid Care," JAMA, March 4,
1988, 259, pp. 1343-1346.
• Ware, J.E., Bayliss, M.S., Rogers, W.H., Kosinski, M.,
Tarlov, A.R., "Differences in 4-Year Health Outcomes for
elderly and Poor, Chronically Ill Patients treated in
HMO and Fee-for-Service Systems," JAMA, October 2,
1996, 276(13), pp. 1037-1047.
Forms of HMO
“Health Maintenance Organization”
Legal relationship between HMO and docs may be:
• Docs own the HMO as, e.g., stockholders or
partners.
– Prepaid group practice, also called "staff model."
– Docs can be salaried and also be partners.
• The Permanente medical group (the doctor half of Kaiser
Plan) does this
or
• HMO contracts with docs, who maintain private
practices
– Independent Practice Association (IPA)
Forms of HMO
“Health Maintenance Organization”
Will HMO pay for visits to docs not in plan? (Doctors who are
in the HMO constitute the "panel.")
• No -- "closed panel." Closed panel HMOs do pay for
services of outside doctors for patients who have exotic
conditions that the HMO panel cannot handle, if specifically
authorized by the HMO.
• Yes -- "open panel." A fully open panel HMO would be a
contradiction in terms. Compare PPOs.
• "Gatekeeper" method: each subscriber gets a primary care
doc who must approve in advance any visits to specialists.
The HMO will pay for any service that the "Gatekeeper"
approves, even if provided by a physician who is not a
member of the panel. This intermediate form is common,
used locally by Companion Care of S.C.
Other forms of managed care
• PPO -- Preferred Provider Organization
– Has a panel, but the PPO pays a share of costs for
services rendered by providers not on the panel.
– Providers in the panel are "preferred" by the PPO;
it pays a higher percentage of the cost for their
services.
• POS -- Point of Service -- plans seem the same
as PPOs to me.
Following diagrams from
• Bodenheimer and Grumbach, Capitation or
Decapitation
Incentive
HMO
• Doctors have incentive to
give less care.
• Is prevention encouraged?
Fee-for-service
• Doctors have incentive to
give more care.
• Is prevention encouraged?
Which is worse for patient trust in the doctor?
Next slide from
• THE MEDICARE-HMO REVOLVING DOOR —
THE HEALTHY GO IN AND THE SICK GO OUT
• ROBERT O. MORGAN, PH.D., BETH A. VIRNIG,
PH.D., M.P.H., CAROLEE A. DEVITO, PH.D.,
M.P.H., AND NANCY A. PERSILY, M.P.H.
• NEJM 1997
How health insurance competition is
working
• http://articles.latimes.com/2006/sep/17/busi
ness/fi-revoke17
• http://www.calnurses.org/mediacenter/pressreleases/2009/september/california-s-realdeath-panels-insurers-deny-21-of-claims.html
• http://www.consumerreports.org/health/insu
rance/health-insurance/overview/healthinsurance-ov.htm
Who Killed Health Care?
• Regina Herzlinga