Last week, writing in the New York Times Economix blog, Professor Uwe Reinhardt, a noted health care economist at Princeton University, took on the topic of payments to physicians. His main point was:
America’s health care spending issues might have something to do with our fee-for-service payment system.
Studies have shown that physicians are not impervious to the financial incentives inherent in fee-for-service payments. For example, on average, physicians who have a direct financial interest in the use of imaging services, like CAT scans or M.R.I. scans, recommend far more such services for their patients than do physicians without such financial interest....
He noted some possible solutions:
In recognition of the conflict of interest inherent in fee-for-service payment, there is now a worldwide movement to replace the system with so-called 'evidence-based case reimbursement'. Under this approach, one single payment would cover all of the supplies and services that are needed, under best, evidence-based clinical practices, to respond adequately to well-defined medical conditions.
Not all health care, of course, can be categorized into neat, episodic bundles for this purpose. For chronic conditions, for example, payment may shift from fee-for-service to annual or monthly fees per patient, and care for such patients might be organized by clinically integrated health systems or by managed care companies procuring health care from different systems on an integrated basis. And for some patients with very complicated conditions, fee-for-service would still persist. One would think, however, that a move toward these alternative payment systems would not only reduce the geographic variations in per-capita health spending, but help control the annual growth of health spending over all.
What is missing from this picture?
Positive Incentives for Procedures, Negative Incentives for "Cognitive" Services, Especially Primary Care
First, Reinhardt suggested that the major problem with the current way the US pays for physicians is that it gives excess incentives for physicians to order diagnostic tests provided by facilities in which they have financial interests. This is, in my humble opinion, a real problem. But it is hardly the biggest problem with our current system of physician payments.
I submit that the biggest problem with our current system is that it provides big and increasing incentives to do procedures. This may lead to the over-use of some procedures in some instances. Moreover, it promotes high prices for the devices, drugs and support services required by the physicians to do these services. Thus, the current system pays many people well, and makes some people very rich. However, its enormous costs come out of other peoples' wallets, decreasing access and quality. Furthermore, the current system has provided disincentives to provide "cognitive care," especially primary care. Payments to physicians who do primary care do not cover all that they do on behalf of patients. Payments have not even kept up with inflation, nor with the increasing overhead costs of providing primary care, most of which are produced by the demands of government and insurance company bureaucracies. Thus, primary care in the US is dying. It is increasingly difficult for patients to find physicians who will take care them as whole patients, not as a set of different organs.
The Shadowy RUC
These biased incentives that lead to so much mischief are not the product of divine intervention or the laws of physics. They are the result of the actions of people, a few people operating in the shadows.
As we have discussed, the US Medicare system determines what it pays physicians using the Resource Based Relative Value System (RBRVS). This system determines the pay for every kind of medical encounter according to a complex formula that is supposed to account for physicians' time and effort, physicians' practice expense, and the cost of malpractice insurance. The components of physicians' effort assessed are, in turn, technical skill and physical effort; the required mental effort and judgment; and stress due to the potential risk to the patient.
To keep the system, which was started in 1990, current, requires addition of new kinds of encounters, which means encounters involving new kinds of procedures, and updating of the estimates of various components, including physicians' time and effort. To do so, the Center for Medicare and Medicaid Services (CMS) relies almost exclusively on the advice of the RBRVS Update Committee (RUC). The RUC is a private committee of the AMA, touted as an "expert panel" that takes advantage of the organization's First Amendment rights to petition the government. Membership on the RUC is allotted to represent specialty societies, so that the vast majority of the members represent specialties that do procedures and focus on expensive, high-technology tests and treatments. However, the identities of RUC members are secret, as are the proceedings of the group.
This opaque and unaccountable process has resulted in increases outstripping inflation in fees paid for procedures, while fees paid for "cognitive"medicine, i.e., for primary care, and for services that involve diagnosis, management of acute and chronic disease, counseling, coordination of care, etc, but not procedures, have lagged inflation. The effects of the RUC have been amplified by the unexplained tendency of commercial managed care and health insurance to track the RBRVS system when making their own payments to physicians.For further details about the RUC, see these posts on Health Care Renewal (here, here, here, here, and here) and important articles by Bodenheimer et al,(1) and Goodson.(2)
By the way, why the US Center for Medicare and Medicaid Services (CMS) relies de facto exclusively on the RUC to control the RBRVS system, and why the AMA made the RUC into a secret organization apparently beholden only to the organization's proceduralist members are unanswered questions.
What Reinhardt Left Out, and Why?
Professor Reinhardt, one of our most distinguished health care economists, barely touched on the biggest problems with how the US fee-for-service payment system works, and why these problems occurred. Thus, it is not surprising that the few solutions he recommended seem irrelevant to these problems.
As an aside, his discussion is not atypical of what is seen in most writings about health care policy that have to do with costs. It appears that it is politically incorrect to say that incentives are skewed, that this skewing appears to have resulted from the acts of a few individuals, and that these acts occurred with little outside attention or accountability. Why do health care policy experts follow these dictates of political correctness?
I don't know, but one possible explanation is that they are themselves biased by their own incentives. So let us further consider the case of Professor Reinhardt.
Professor Reinhardt's Conflicts of Interest
Not listed in the NY Times official bio of Professor Reinhardt are the following relationships:
- Professor Reinhardt is a member of the board of directors of Amerigroup, a health insurance company specializing in providing Medicaid and Medicare managed care. The company's 2008 proxy statement said that Professor Reinhardt owns the equivalent of 134,482 shares of stock, current value, $3,859,633 (at its current price, $28.70 per Google Financial), and got $221,422 total compensation in 2007.
- Professor Reinhardt is a member of the board of directors of Boston Scientific, a medical device company. The company's 2008 proxy statement said that Professor Reinhardt owns the equivalent of 51, 533 shares of stock, current value, $396,288 (at its current price, $7.69 per Google Financial) and got $118,885 total compensation in 2007.
In addition, per the above proxy statements, Professor Reinhardt is on the board of two funds from H&Q Healthcare Investors, and is a Trustee of Duke University and the Duke University Health System.
Boston Scientific, a device manufacturer, benefits from increased demand for its products due to physicians' pay incentives that favor the procedures for which they are used. As a director of the company, Professor Reinhardt has a duty to advance the financial interests of the company and its shareholders. Amerigroup may benefit from the current status quo in how physicians are paid. As a director the company, again Professor Reinhardt has a duty to advance the financial interests of the company and its shareholders. Thus, it seems that Professor Reinhardt's legal responsibilities to these companies might tend to bias him against actively questioning how physicians are currently paid, or proposing solutions that might upset the status quo.
Professor Reinhardt's leadership roles in US publicly traded corporations are public, but not easily found unless one knows where to look. (A previous post on Health Care Renewal did discuss Professor Reinhardt's previous failure to review relationships relevant at the time to a riposte Reinhardt wrote in response to an op-ed in the New York Times by a physician who decried the increasing commercialization of health care.)
However, the New York Times did not choose to make public these conflicts of interest. I should note that biographies of Professor Reinhardt on the Princeton web-site, and furnished by the Princeton Bioethics Forum, the Commonwealth Fund, and the Henry J Kaiser Foundation did not note these relationships. A transcript of an interview on the Public Broadcasting System Frontline show also did not reveal these relationships.
Without the knowledge of these financial relationships, one might suppose Professor Reinhardt's opinions are only based on his disinterested expertise as a well-known economic scholar. Without knowledge of these financial relationships, one might think that a secretive, opaque process skewing physicians' payments toward procedures is not an important problem for our health care system.
We have come to a critical time in the history of attempts to reform the US health care system. Whether reform occurs, and whether it does any good will depend on the quality of the debate that precedes it. Such a debate should be robust, but those involved ought to make clear where their biases and interests may lie.
Unfortunately, it may be that some of the most prominent voices in the debate are those of people with strong personal financial interests in having health care reform go in certain directions, not others. Furthermore, people with particular interests may not want certain issues to be even brought up. If these interests are not revealed, the debate becomes deceptive.
I fear that much of the debate up to now has been deceptive, and will not lead to good outcomes.
1. Bodenheimer T, Berenson RA, Rudolf P. The primary care-specialty income gap: why it matters. Ann Intern Med 2007; 146: 301-306. Link here.
2. Goodson JD. Unintended consequences of Resource-Based Relative Value Scale reimbursement. JAMA 2007; 298(19):2308-2310. Link here.