1. Oct 28 HSPM J712

2. RBRVS Leftover issue from last time

3. 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.

4. 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

5. 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)

6. 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.

7. 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.

8. Physician work measure for RBRVS Hsiao, W.C., Braun, P., Yntema, D., Becker, E.R., "Estimating Physicians' Work for a Resource- Based 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.

9. 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.

10. 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.

12. Total Work formula Total Work = Time×(Complexity Index) Complexity index = “sweat factor” Includes Pre- + Intra- + Post-service work Based on surveys of physicians

13. Compares actual Medicare payments with what Medicare would pay if proportional to RBRV and total-payment-neutral

15. 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.

16. 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.

17. As implemented by SC Medicaid Naus, F., Medical Management Institute 1991 Nose fracture CPT 21325 RVU categoryUSSC adjSC RVU Work RVU1740.971169.1 Overhead RVU1200.874105.1 Malpractice RVU200.4579.14 Total314283.3

18. 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 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 ItMarcia Angell, The Truth About the Drug Companies: How They Deceive Us and What to Do About It

19. Managed care

20. 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)

21. 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”

22. Old system Doctors and hospitals InsurancePatient

23. Prepaid group practice system Doctors Hospitals Insurance* *legally not Patient

24. HMO history Mayer, T.R., and Mayer, G.G., "HMOs: Origins and Development" N Engl J Med, February 28, 1985, 312, pp. 590-594.

25. Early HMO differences from fee-for- service Ware, J.E., et al, "Comparison of Health Outcomes at a Health Maintenance Organisation with Those of Fee- for-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.

26. 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)

27. 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.

28. 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.

29. Following diagrams from Bodenheimer and Grumbach, Capitation or Decapitation

32. 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?

33. 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

35. How health insurance competition is working http://articles.latimes.com/2006/sep/17/busi ness/fi-revoke17 http://articles.latimes.com/2006/sep/17/busi ness/fi-revoke17 http://www.calnurses.org/media- center/press- releases/2009/september/california-s-real- death-panels-insurers-deny-21-of-claims.html http://www.calnurses.org/media- center/press- releases/2009/september/california-s-real- death-panels-insurers-deny-21-of-claims.html http://www.consumerreports.org/health/insu rance/health-insurance/overview/health- insurance-ov.htm http://www.consumerreports.org/health/insu rance/health-insurance/overview/health- insurance-ov.htm

36. Who Killed Health Care? Regina Herzlinga