Hang 'em out to dry! Wait, "them" is us!

I can already predict the result.  The New York Times publishes a story about the rise in specialists' incomes, much of which is based on procedures they carry out.  Outrage follows, and health care public policy experts say, "You see, the solution is to move away from fee-for-service medicine and towards capitated, or global, payments."

Sure, that's one answer, but not one that will solve this problem.

You see, even under a capitated system of care, someone has to decide how to pay the various kinds of doctors within a health care system for their work.  That internal transfer pricing is what matters most, not some global payment that the provider organization collects per month per patient. To calculate the physicians' compensation, most organizations use a fee schedule based in some way on the Medicare fee schedule.  What's the basis for that fee schedule?  The Times explains:

Medicare’s valuation of physicians’ services is based on a complex algorithm that is intended to take into account the time and skill required to perform a medical task, with an adjustment made for a specialty’s malpractice rates. 

Buried in the back of The Times story, we find the real problem:

But renegotiating payments involves a highly contentious process that plays out behind closed doors at the American Medical Association’s Relative Value Scale Update Committee, which consists of doctors representing 26 medical disciplines who advise Medicare. In dermatology trade journals, Dr. Coldiron, who has served on the committee, describes it like this: “Everybody sits around a table and tries to strip money away from another specialty.” It’s like “26 sharks in a tank with nothing to eat but each other.”

Primary care doctors — who make up only 12 percent of physicians in practice — say they have little clout, with at most five representatives on the panel. “That committee keeps the perverse incentives in place,” said Brian Crownover, a family physician from Boise, Idaho.

This is not news. The Wall Street Journal described this in detail in 2010. 

Three times a year, 29 doctors gather around a table in a hotel meeting room. Their job is an unusual one: divvying up billions of Medicare dollars.

The group, convened by the American Medical Association, has no official government standing. Members are mostly selected by medical-specialty trade groups. Anyone who attends its meetings must sign a confidentiality agreement.

Yet the influence of the secretive panel, known as the Relative Value Scale Update Committee, is enormous.

I gave an update in 2012, citing an excellent article by Brian Klepper, who quoted Tom Scully, CMS administrator for President Bush:

One of the biggest mistakes we made … is that we took the RUC… and gave it to the AMA. …It’s very, very politicized. I’ve watched the RUC for years. It’s incredibly political, and it’s just human nature…the specialists that spend more money and have more time have a bigger impact… So it’s really, it’s all about political representation, and the AMA does a good job, given what they are, but they’re a political body of specialty groups, and they’re just not, in my opinion, objective enough.

 

The Obama administration remains complicit in this approach.  I reiterate a solution:

I would like to make a simple proposal to President Obama, Secretary of HHS Kathleen Sebelius, and CMS administrator Marilyn Tavenner.  Keep the RUC but insist that all of its meetings and deliberations be made public.  That is within the immediate power of the Executive branch, requiring no judicial review.  This is an administration that has prided itself on transparency.  Surely they can insist that one their key advisory panels, one that will help determine the success or failure of health reform, should perform its functions in the open.  Let’s shine some sunshine on the process and logic used.  If the RUC’s methodology is sound, we will all learn from that.  If it is flawed, the public outcry will make it change its ways.  

 

Meanwhile, for those who insist on promoting global payments, let remind you of a point I made on this topic three years ago:

Now, though, let me let you in on a little secret with regard to capitated care. Underneath the global budget, there is still a fee-for-service arrangement establishing the transfer prices among the providers in a network. That GI specialist will still get paid for each colonoscopy. The big thing to work out in this system is the allocation of any surplus or deficit in the annual budget among the various specialists.

Unless that allocation is skewed heavily towards primary care doctors, decisions about the level of care given will not change. But, if the allocation is skewed too heavily towards the PCPs, there is no real income signal for the specialists, leading to a danger that they will not feel invested in the end result. Unless the system is accompanied by intensive, real-time reporting, along with clear penalties for excessive care, it will not work.

Did I say penalties? You bet. Without those, there is no enforcement of the global budget. But with those, global budgets are likely to raises hackles and resentment among specialists. I predict that the biggest issue facing physician groups in the coming years is the perceived interference by the global payment risk unit in the clinical decisions made by specialists.