• The past and future of Medicare physician payments

    Earlier this week, Aaron posted about the JAMA Internal Medicine paper by Christine Sinsky and David Dugdale. He compared the Relative Value Scale Update Committee (RUC) estimates for hourly revenue with actual hourly revenue for three types of services, cognitive (history taking, clinical assessment, care coordination, chronic conditions management), colonoscopy, and cataract extraction. He kindly linked to my prior posts on the RUC (herehere, and here). If you’re already lost, you can click back to these to refresh your memory.

    Accompanying the Sinsky and Dugdale paper is a commentary by Paul Ginsburg, in which he very briefly summarizes some (hardly all) of the history of Medicare physician payments and looks toward the future. It’s worth quoting.

    First, a look back:

    Congress enacted the Medicare physician fee schedule in 1989, which was implemented beginning in 1992. In a concession to the American Medical Association, which supported the reform, the organization was given a role as a convener of specialty societies to refine and update relative work values.

    Analyses showed that the reform led to large shifts in payment away from procedures and toward primary care. From 1991 to 2002, Medicare payment rates for primary care services increased in excess of 40% in relation to rates for physician services overall. Over time, Medicaid programs and most commercial insurers adopted the relative value scale used by Medicare, so the influence of this reform has been very broad. Along with the rapid growth in managed care,which at the time used gatekeeper models extensively, the incomes and status of primary care physicians increased significantly. [Bold added.]

    It’s astonishing to realize that as recently as 2002* primary care physicians were benefiting, relative to specialists, from the Medicare payment system. That certainly has not been the case more recently, as Aaron and I (and many others) have documented.

    Looking forward:

    The shortcomings of today’s relative value scale in general and the update process in particular were recognized by Congress, which included in the Patient Protection and Affordable Care Act steps that had been under discussion for some time. Section 3134 (Misvalued Codes Under the Physician Fee Schedule) requires review by the Centers for Medicare & Medicaid Services (CMS) for services most likely to be misvalued, such as those with the most rapid volume growth, new technologies for which relative values were recently established, and multiple codes that are frequently billed in conjunction with provision of a single service. The provision authorizes CMS to use analytic contractors to identify services for review, collect data, and make recommendations for changes in relative values. The level of attention at CMS to refine the relative value scale has clearly increased as a result of these provisions.

    I consider Section 3134 to be a continuation of the approach of using science to develop physician payment policies. Those who worked on the provision, which included staff from both parties and both houses of Congress, had a good understanding of the failings of the update process. How effectively these reforms will work is not known, although changes likely will not come quickly. [Bold added.]

    Well, that’s depressing, though not surprising. Taking money away from physicians, even to give it to other physicians, is no simple matter.

    * I recognize that 2002 seems like a long time ago to some people. Shut up.


    • “Taking money away from physicians, even to give it to other physicians, is no simple matter.” No, it’s not. Those capitated HMO contracts had an unexpected result, or unexpected for those who don’t understand incentive. Primary care went from a marginal practice to a potentially highly profitable practice, which, surprise, attracted some very enterprising investors who sought, and obtained, the capitated contracts, and then hired young primary care physicians to service them for relatively low compensation. So rather than taking money from physicians and giving it to other physicians, the net result was to transfer money to investors. [Not all states prohibit the “corporate practice of medicine”, and even in the states which do, it’s not difficult to circumvent the prohibition.] Of course, the story didn’t end there, as other investors, and enterprising primary care physicians, competed for the capitated contracts, which resulted in HMOs moving the contracts from one group of primary care physicians to another, forcing patients to change physicians. I should mention that the trend today is different. Today, it’s all about consolidation and integration, with large hospitals acquiring the primary care practices and hiring the primary care physicians. It’s not only the trend, it’s the national health care policy to encourage consolidation and integration. I think it’s misguided, but that’s where we are headed; indeed, we recently crossed the threshold of more than half of physicians being employed by hospitals.

    • Point 1

      I think the basis of Medicare payments stems from February 1 1983 when the AMA made a secret deal with HCFA where the AMA would create the CPT codes and have the ability to sell them to anyone other than HCFA who would be given use of these codes for free. This became a major funding source to the AMA whose membership is somewhere below 17% and mostly includes academics, medical students and physicians with a special interest in politics. The average practicing physician is not a member.

      A board in control was created containing mostly AMA appointees with additional appointees from government and insurers (BC and BS) The people are not represented on this board where the AMA and government live in a saprophytic relationship.

    • Point 2

      “It’s astonishing to realize that as recently as 2002* primary care physicians were benefiting, relative to specialists, from the Medicare payment system.”

      Is that really so? I guess the shift existed, but did it increase the relative income of the median primary care physician in relationship to others? That is the important question for with declining entry into primary care it certainly doesn’t seem that way.

      Since they were dealing with cognitive services perhaps they cut the cognitive services offered by primary care in other areas and to a greater extent than many of the procedures performed outside of primary care. One has to remember that though primary care procedures were not the highest paid through those dates they were the most numerous. Thus a higher reduction of costs could often be seen by cutting these reimbursements.

      Example: Blood tests (and other small procedures/tests like the EKG’s etc.) The cognitive work of interpreting these tests especially blood tests was almost entirely eliminated from physician income. Was that cognitive work included in the calculations. I doubt it. The payment was shifted to the office visit so it is likely that the rise in the office visit didn’t make up for the loss of this income stream that was based upon the cognitive process

      The same goes for other procedures common in a general practice. One could see dramatic drops in certain procedure rates done by the generalist while the sister procedure rates done by specialists did not fall so precipitously many of those years. (The article mentioned: “As an aside, I have long believed that, whatever the methodological merits of the framework used by Hsiao and colleagues, use of a parameter in addition to time to allow somewhat higher payments per hour for at least some procedures was critical to the enactment of the legislation.”)

      A second way these manipulations may have failed to adequately raise primary care rates relative to others was the removal of balance billing. Consider generalist bills are generally small but frequent so the removal of balance billing might have had a greater %impact on primary care revenues.

      Thirdly certain things done by primary care were undervalued and proven by the GAO. At one time flu shots were being paid at a rate lower than what the GAO later calculated to be the actual cost of their provision.

      Fourth, and finally to keep this posting reasonable in size one has to take into account that as the rates for office visits were being increased the administrative costs of the primary care physician rose considerably likely much more than many specialists which would lead to a decrease in income.

    • “Taking money away from physicians, even to give it to other physicians, is no simple matter.”

      Why does taking money away from physicians require giving it to other physicians? Why not save the money?

      • Save what money, exactly? Even if you pay physicians zero the total healthcare costs in this country only go down by 10 percent.

    • “Save what money, exactly? Even if you pay physicians zero the total healthcare costs in this country only go down by 10 percent.”

      1. Not true. The money spent under physician direction exceeds the amount paid to physicians as professional fees. Much of the argument concerns extra facilities costs, for example. In some cases physicians may be investors in these facilities, but this money would not show up in the physician compensation component of healthcare expenses.

      2. Saving 10% of what we spend on healthcare translates into an enormous amount of money.

      Primary care income: Can someone walk me through why I as a patient, or the nation as a whole should make raising primary care physician incomes a goal?

      I am not asking why increasing access to primary care would be valuable, that could be done with physician extenders. Faster and for less cost than by using physicians.

      I am not asking why reducing overpayments for services of questionable clinical value would be appropriate, that could be done without increasing payment for anything.

      I am not asking why it would be useful to remove perverse incentives in physician compensation, that could be done without increasing payment for anything.

      I am not asking why reducing reducing the difference between primary care and specialist income would be appropriate, that could be done entirely by reducing specialist compensation. In fact, it could be done while also reducing PCP compensation.

      When PCP’s complain about their low incomes I think “You chose the low income side of a high income field. You could have chosen otherwise, and the PCP’s have never made as much as specialists. You knew, or should have known, that you were making a choice that would lead to a lower income. Why should I care about this?”

      • You shouldn’t care about lowering the prices for pcp’s nor if extenders are used instead of Dr.’s unless of course your life or the life of one of your loved one’s is in jeopardy and you will only settle for the best care available instead of second best or even substandard care. Economically that might not be such a bad idea. Physicians generally rank among the smartest and hardest working of all students so perhaps we would be better off if they chose professions in engineering and science that produce wealth. It is a thought that should not be discounted.

        I’ll pay for my physician whatever it takes to keep my family or myself healthy, but you need not do the same. I’ll drive a Chevy and if you would like you can drive the Porsche.

        On another thought take note that 10% profit isn’t really 10% profit for 1.5% of that 10% funds social security etc. and another ~2% funds federal expenditures. Depending on the state plus state tax, sales tax and property tax one could add maybe another 2%. You can correct me on that, but zero profit for the physician leads to only about 5% in savings for the government.

        Average inflation is estimated to be about 4% per year though some say 3+%. At 4% government taxes based upon the number you presented and the estimates I have made government savings from physicians practicing for free would be 1% or maybe a bit more or less. On the other hand the government has increased the money supply so much that when it comes time to pay the piper it will have to be done in part by inflation. In the Carter administration inflation was as high as 14.8% so your $100 bill was worth $85.20 the following year. 1% doesn’t look all that high when one puts things into perspective even though every dollar not spent is saved.

        With regard to your ideas of other ways physicians make money, you are correct, but it doesn’t account for as much as you might be thinking. The Stark laws saw to that, so instead of physicians making the money private investors reap the profits without have to do night call. Don’t worry, however, for the ACA has provided the ACO which will drive physicians to earn money off of things other than their medical skills which will become secondary to the profits of the ACO. There you will have to be satisfied with your physician extender no matter what their qualifications are.


    • It is not at all clear that replacing PCP’s with extenders would lead to lower quality care. Many of the functions they take over are routine, and far from life and death. If it does reach that level of severity, care is often in the hands of specialists.

    • Physician extenders are a two edged sword. Quality is dependent upon training and experience. What you think is simple is a little cough in a person that has a cold, but what can be missed is congestive heart failure, a tumor, a foreign body, asthma, reflux from the stomach, pneumonia, etc. Delay in diagnosis and treatment can mean higher costs, death, unalleviated patient symptoms (which entails loss of work and thus production) etc.

      After thinking about wrongful diagnosis start thinking about wrongful treatment. After that think of what happens when the patient loses faith in the primary care system.

      Finally, think of training. At present we have a relatively dedicated supply of physician extenders. Suddenly create a need for loads more of them and the dedication could fall along with their innate abilities. Then add up the cost of these extenders acting as primary care providers along with increasing malpractice costs that go along with increasing responsibility and costs could rise. Then add in the increased need of specialist consults and you may have created a monster.