"Fixing Medical Prices: How Physicians Are Paid" is the academic capstone on a number of public policy and trade journal articles over the last five years which take the lid off the RUC process and look inside.
The Amazon page is here; the Harvard University Press page is here; Laugesen's academic home page is here. (At Amazon, it's "#1 in New Releases in Health Policy" and "Sold Out.")
See a review in Health Affairs, here.
For those who are unfamiliar, HIPAA law sets AMA CPT codes as the standardized code sets for communications between physicians and hospitals, and payers.
Then, for physician services (whether an office visit or a heart transplant), the physician fee is set by a process called "RVUs" or relative value units. Generally, RVUs are delineated by elaborate committee processes within the AMA, and then passed on to CMS for validation and publication in a federal fee schedule.
Some notes on the book, after the break.
Laugesen's book is the capstone of five years of research, from wide-ranging sources and including numerous interviews and attendance at RUC meetings.
Her best-known or most-quoted earlier article may be her 2012 publication that CMS accepts AMA RUC RVU values some 90% of the time (Health Affairs, 2012, here.)
For additional entry points into this field, see Anna Wilde Mathews' articles in the Wall Street Journal in 2010 and 2011 (here, coauthored with Tom McGinty, and here). The WSJ has a home page for Medicare articles, focusing on abuse, here.
Concerns that AMA has a monopoly, such as on CPT codes, date to at least 2001 (here). For other accessible press, see a blog at New York Times, 2011, here; in Marketplace, 2012, here; in Health Affairs, 2013, here; in Washington Monthly, 2013, here; in Forbes, 2013, here.
In Washington, concerns about how to "fix" valuations are perennial and were a debate topic at MedPAC in September 2016, here.
The most frequent policy concern is that the valuation system was developed in the 1980s to "fix" the higher payment to specialists versus family practice and other non-specialist physicians - but things got worse. This puzzle is the entry point for Laugesen. While there have been some top down legislative fixes in this direction, the RUC process doesn't accomplish this, according to Laugesen.
RVUs are "relative units" that allow physician value and dollarized values (such as supplies) to be added together. Physician time and effort are recorded as "RVUs" (e.g. about 1 RVU for a 20 minute office visit), supplies are recorded as standardized dollar values from archival sources like invoices; clinical staff time is recorded as minutes which are multipled by standardized per minute staff time values (like 45 cents per minute). Supplies and staff time (which start as dollars) are converted to RVUs, added to physician time in RVUs, and then the sum is converted back into a fee schedule, aka dollars, by a fixed multiplier ("conversion factor" or CF; currently circa $30 per RVU).
I am not a card carrying RUC expert but have these thoughts from watching CPT, RUC, and CMS, for over a decade:
- RVU Overpayment and US Costs. The focus is on overpayment of "technology," and rising technological costs. Only a small part of these are driven by physician payments; whether a cardiac surgeon is paid $5000, $6000, or $7000 for a heart transplant is a small fraction of the $100,000-plus total costs.
- Undervaluation, too. As-is, RUC processes can also cause undervaluation of services. For example, the valuation of colonoscopy is so low it is very rarely performed in the office setting, relative to its valuation in the hospital outpatient (or ASC) setting. However, this is a result of the RUC policies and accounting rules applied as they are. Like patent law, basically the same small set of rules are applied to every situation, for the virtue of uniformity. Generally, these examples won't be undervaluation by RVUs within the RVU rule set, but undervaluations created by some real-world factors that apply to certain services or settings.
- Big discounts are already applied to "technology." Technology costs are heavily discounted; a line item valuation of $1000 for a disposable office surgical supply is formally discounted by about 50% due to processes within the CMS rules for valuations. These occur through extremely obscure rules buried in thousands of pages of federal policymaking. The actual statute and regulation for RVU valuations are only a few sentences long. Laugesen notes the body of rules that are either obscurely published policies or unwritten conventions and rules (page 180). (Understanding RVUs is akin to being fluent in Klingon; as someone states, "there is no rulebook to study.") Time is also discounted, with many physician time valuations pegged by unwritten rules at 25th percentile of available data.
- CMS Acceptance of RVU vs Tiny Tweaks. CMS used to accept some 90% or more of RVU valuations, but it's down towards 80%. This obscures the fact that many of the CMS valuation changes are extremely tiny, such as tenths of an RVU (a few dollars). (It's as if CMS staff were ordered to give tickets to people driving 56 mph in a 55 mph zone, to be sure ticket counts meet their metrics.) Laugesen mentions this on page 198, and from 198ff discusses the complexity of the system and near-impossibility of CMS reviewing all the valuation data (and against what would CMS review it...) She notes that RUC meetings may run for days and debate 5000 pages of materials.
- RVU and Anti Trust. As Laugesen discusses, RVU data is not published by AMA; it is forwarded to CMS and published as federal data for federal fee schedules. This avoids anti-trust concerns. A few years ago AMA developed extensive data tables valuing genomic tests as physician services which, at least for a year, CMS did not publish, and AMA couldn't publish it either.
- RVU data is not secret. Voluminous tables of data per CPT code are released for free by CMS as gigantic Excel spreadsheets, while a user-friendly format (AMA RVRVS Database) is available from AMA for a few hundred dollars. Everything is bottom-up. CMS might want to (say) reduce some radiotherapy service in price by 20%, but it isn't done by fiat. Prices and valuations inside the programming tables have to be tweaked and altered - the price of supplies, the amortization of capital equipment, the use of physician time - for a public-facing 20% price change to occur on the fee schedule.
- The Vignette. One sort of difficulty that I've seen (both working for the Medicare program and as a consultant) is in the Typical Case or Vignette. For example, imagine if there were a hundred antibodies available for immunohistochemistry, ranging from $5/slide to $40/slide, and the one picked as "typical" was $30/slide. This would be very hard for other specialists at AMA RUC to figure out (not the information a surgeon or psychiatrist carries around in his head.)[*]
- Marxist Theory of Value - don't laugh. For a number of years the RVU system has been compared to the "Marxist theory of value" since much of the pricing is based on labor inputs in minutes, or reeks of an inefficient or hopeless "planned economy" with fixed prices. (See citations by Moffitt and by Wasley [**]). Laugesen cites these in passing, but there is something here. RVUs are based on internal data for bottom-up pricing. What is actually wanted is an effective distribution of physicians by geographic area and by specialty. If this fails to be accomplished by the RVU system, then it isn't economically effective as a price/distribution system. If this fails to be accomplished by little add-on tweaks (like rural payment bonuses or using specialty time at the 25th percentile) then the tweaks weren't big enough.
- Are We More Technologically Adverse Than We Think? Ironically, the system can be highly adverse to new technology. In a recent book, The Innovation Illusion (Erixon & Weigel, here), the authors argue that technology change is one thing, and innovation is another - it is technology rolled out in waves of process and institutional change. Trying to deploy an accounting system based on physician time (85 minutes for a surgery) to an IT era (e.g. 0.001 seconds of computer processor time) is insane. The CMS RVU system has not dealt with this yet, except to say that IT is "overhead" and thus disappears from efforts at innovation, while physician time saved and reduced is "lost dollars" for providers.
- CMS's New Authority to Revise RVUs - Lies In Wait. Laugesen discusses section 3134 of the 2010 Accountable Care Act, which gave CMS some rules and mandates for revaluing "misvalued codes." (Some of this, CMS was creating itself through its own policies.) The April 2014 Protecting Access to Medicare Act (PAMA) included Section 220, which gave CMS new, far more wide-ranging authority to revise RVU values, and to mandate data submission to itself. To date, CMS has done little with this new authority.[***] In contrast, PAMA Section 216 (which revises the clinical lab fee schedule to market prices) has gone through hundreds of pages of rulemaking.
- High Costs and Low Wait Times: The Algebra Binds Them. In doing an MBA, I postponed an operations class to the last quarter of the two years, but it was very interesting. There is hidden algebra behind many facets of business operations. For example, assume a call center has 10 staff and wait time of 10 minutes. How many staff do you need, to have wait time of 5 minutes? A person might guess 15, or at most 20, but it's actually more than double staff to halve the wait time. It's the way the math and algebra work (and it may take calculus; you can't gaze into the distance and guess). If we want very low wait time for surgeries (whether operating rooms or surgeons) we have to have high staff and high costs. (For a medical example, see Patrick et al. 2008, here). Conversely, when some country's system has half the cost and double-plus the wait times, it's math. What do we have to pay some specialty group to have enough of them? The answer isn't solely in a spreadsheet with RVU data and rules and conversion factors. It's real world economics.
[*] Until a few years ago, reading one immunohistochemistry slide for a pathologist was timed at approaching 30 minutes. This suggested that if you got an H&E biopsy, and 8 immunostains, the next four hours were shot. Heaven forbid, if you got two such slide trays at 9 am, that was pretty much your whole day gone. (Probably not.)
[**] From book, page 11. Moffitt RE (1992) Back to the future: Medicare's resurrection of the labor theory of value. Regulation 15:54. (At Cato Institute, here.) Wasley TP (1993) Health care in the 20th century: government interference and protection. Business Economics 28:11.
[***] CMS didn't have time to incorporate PAMA Section 220 into July 2014 rulemaking, but didn't do much anything with it in July 2015 or July 2016 rulemaking, either.