Avedon's other weblog

Avedon's other weblog

PPACA: The Third Way To Lowering Health Care Prices?

Stuart Zechman

[I asked Stuart to post something here that explained one of the big reasons medical costs are so high in the United States that is unrelated to the forces we usually discuss. He felt that this comment he posted in late 2010 at Swampland helped unpack it. - Avedon]

http://swampland.blogs.time.com/2010/11/10/what-the-deficit-commission-says-about-health-care/comment-page-1/#comment-216122

Kate Pickert:

You write:

"The commission report also calls for a much stronger Independent Payment Advisory Board, the newly created commission charged with slowing the growth in Medicare spending."

What exactly is this "Independent Payment Advisory Board?"

How exactly will it "slow the growth" of Medicare's medical insurance payments?

There are two ways of achieving a slower-growing Medicare that come to mind, of course.

One is to cut spending by reducing the amount of things for which Medicare pays, like, for example, setting a limit on how many MRI's, pain-alleviating pills or doctors' visits someone may have before they have to pay more for these things in some way themselves --which, at current prices, they will simply be unable to pay.

The other is to change the way that the "Resource-based Relative Value Scale" (the price schedule for the hospital visits, laboratory tests, etc for which Medicare pays) determines pricing for health care.

Since not only Medicare, but all HMOs use this price menu to determine how much they pay for all health care spending

(from the Wikipedia entry)

Resource-Based Relative Value Scale (RBRVS) is a schema used to determine how much money medical providers should be paid. It is currently used by Medicare in the United States and by nearly all Health maintenance organizations (HMOs).

RBRVS assigns procedures performed by a physician or other medical provider a relative value which is adjusted by geographic region (so a procedure performed in Manhattan is worth more than a procedure performed in El Paso). This value is then multiplied by a fixed conversion factor, which changes annually, to determine the amount of payment.

RBRVS determines prices based on three separate factors: physician work (52%), practice expense (44%), and malpractice expense (4%).[1][2]

, adjusting the prices on the menu to grow more slowly or to be less expensive altogether would not only have the effect of reducing Medicare's burden, it would lower the price of health care for Americans in the private market as well.

In theory, the pricing of health care by Medicare, and therefore the entire private health insurance industry, should be a matter of transparent, public record. In theory, the manner in which prices were decided would be available to all kinds of public scrutiny, including yours, Kate Pickert.

Unfortunately, that's not the case currently:

The RBRVS system has been criticized on a number of grounds:

# The regulatory committee (RUC) is largely privately run, an example of regulatory capture.[3]

# The regulatory committee (RUC) is secretive, with the meetings being closed to the public and uninvited observers.[3][4]

# The data are effectively copyrighted by the AMA, but its use is required by statute.

Although the RBRVS system is mandated by the Centers for Medicare and Medicaid Services (CMS) and the data for it appears in the Federal Register, the American Medical Association (AMA) maintains that their copyright of the CPT allows them to charge a license fee to anyone who wishes to associate RVU values with CPT codes. The AMA receives approximately $70 million annually from these fees, making them reluctant to allow the free distribution of tools and data that might help physicians calculate their fees accurately and fairly.

Will the Independent Payment Advisory Board address these obviously corrupting flaws in the secretive, closed, copyrighted, regulatory capture-prone process used to decide how much Americans pay every year in health care prices, Kate Pickert?

And what about this other obvious flaw in the current, secret pricing scheme?

Paying based on effort rather than effect skews incentives, leading to overuse of complicated procedures without consideration for outcomes.[3] Contrast with evidence-based medicine (EBM), which is based on outcomes.

According to this critique, RBRVS misaligns incentives: because the medical value to the patient of a service is not included in how much is paid for the service, there is no financial incentive to help the patient, nor to minimize costs. Rather, payment is partly based on difficulty of the service (the "physician work" component), and thus a profit-maximizing physician is incentivized to provide maximally complicated services, with no consideration for effectiveness.

One effect attributed to RBRVS is a lack of primary care physicians (PCPs) at the expense of specialists – because specialist services require more effort and specialized training, they are paid more highly, incentivizing physicians to specialize, leading to a lack of PCPs.

Will the Independent Payment Advisory Board attempt to slow the growth in Medicare spending by changing the way that prices are calculated, so that a hospital can't charge the tax payer, say, $140 for a Tylenol pill, just because they're a hospital, and not a convenience store?

http://money.cnn.com/video/news/2010/03/01/n_medical_waste.cnnmoney/

Or, Kate Pickert, will the Independent Payment Advisory Board simply declare some devices, laboratory tests, drugs and procedures "less effective" using some similarly secretive and complex pricing scale set by unknown insiders, and therefore shove the burden for paying for them back on ordinary people?

Is that latter method how this Board intends to lower health care prices, by making it so that (in theory, at least) eventually providers stop lobbying the government to keep their prices high, and begin to lower their prices themselves, after average people prove year after year that they simply cannot pay --and suffer their individual fates?

I am, of course, perfectly aware that you've included mentions of the Independent Payment Advisory Board in prior reports, Kate Pickert, such as this one in September of this year:

...the [minority Republican] motion [to the 9/11 responder's bill] would have rolled back a few key provisions in the Affordable Care Act, particularly those that are highly unpopular or easy to caricature. The motion would have, for example, repealed the Independent Payment Advisory Board, a 15-member independent panel created by the ACA and charged with figuring out ways to cut Medicare payment rates to keep them from increasing so quickly. (Political attack version: “Mr. Congressman voted to ration Medicare.”)

, but you haven't (as far as I am aware) reported exactly how the Board says (or if it's willing to say) how it will reduce payments.

So, Kate Pickert, is the cost-cutting method likely to be of the first way, in which people increasingly pay more for care at current price growth rates, until the exorbitant health care prices paid by Americans come down "by themselves"?

Or will it be of the second, in which the current Resource-Based Relative Value Scale method of a private group deciding how much we will pay for health care is brought out of the shadows, and we, the people who are paying the highest prices in the world, can see for ourselves that things are fair, well and good with our money?

Can you tell us exactly, or in more key detail how the PPACA's new Independent Payment Advisory Board will reduce health care prices for Americans, Kate Pickert?

stuart_zechman (6:08 AM) permalink