Physician Compensation

The problem with a single payer system is…

setting accurate prices.  A single payer does not have a market against which to measure prices; instead, single payers often pay based on provider’s reported cost or a multiplier related to the prices charged years ago when there was a market.

Fortunately, the U.S. does not have this problem…or do we?

The Relative Value Update Committee in essence sets prices for all physicians services for Medicare.  As Marketplace reports:

who do you suppose sets the price of individual medical procedures? If you said insurance companies or the government, you’re only half right. Because the prices your insurance company pays are based on a set of values listed in a phone-book sized directory of billing codes. Those codes are pretty much the economic hierarchy of modern medicine. They say what’s costs more: a colonoscopy or a CT scan or chemotherapy? And those values are set by a closed-door committee of the American Medical Association.

So doctors get to set their own prices in the Medicare system.  Why doesn’t Medicare do it itself?  The answer is that setting prices is difficult for bureaucrats; physicians understand the cost of production for medical service, but officeworkers typically do not.

Medicare even admits it can’t accurately set prices.  According to former CMS director Don Berwick: “It would take a long time — years — for CMS, even if it had the resources, to go back over every single code and make an independent judgement from what the RUC has made.

Thus, CMS has, in effect, outsourced the pricing decisions to doctors.  Since physicians are far from an unbiased group, they set relative prices as they see fit.  Since specialists are generally more organized and make more money than primary care docs, payments for specialty procedures has been increasing relative to primary care.  Thus, despite the outcry to increase payments for primary care physicians, little has been done.

[Note: 2010/2011 was an exception with Health Reform’s creation of the Primary Care Incentive Payment].


Leave a Reply

Your email address will not be published. Required fields are marked *