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The Fix Is In
The hidden public-private cartel that sets health care prices.
The root of the shortage can be traced to 1985, when a Harvard economist named William Hsiao developed a scale to measure the relative value of every single one of the thousands of services provided by doctors, a job later compared to measuring "the exact amount of anger in the world." For example, Hsiao's team deemed that a hysterectomy required 3.8 times more mental effort and 4.47 times more technical skill than a psychotherapy session. In 1992, Medicare formally adopted Hsiao's concept; private insurers followed suit. Today, this relative value-based system sets the prices—and therefore drives the priorities of American medicine.
Here's how it works. Doctors do a job—like placing a coronary artery stent, reading an EKG, or spending an hour examining and diagnosing a patient with a complex problem like insomnia—and earn something called "relative value units." In 2009, according to Medicare, the stent guy scores about 24 units for his relatively quick procedure, the EKG person gets 0.5 units for the 10 seconds his job requires, and the poor internist gets only 2.5 units for his hour of time. Figuring a doctor's total take per task is straightforward: Medicare adds up a doctor's total RVUs, multiplies the total by a fixed amount (roughly $40 right now), and writes the check.
Fundamentally, the entire payment model of American health care drives medical centers, doctors, and hospital managers to push for more fancy procedures at the expense of primary care doctors. How'd we get here? Since 1992, Medicare has depended almost entirely on the American Medical Association for guidance on how relative values should be set. In a devastating critique published in the Annals of Internal Medicine, scholars from the Urban Institute and the University of California-San Francisco explained that Medicare uncritically accepted 95 percent of the AMA's recommendations, which are formulated by the group's Relative Value Scale Update Committee, or RUC.
This price-fixing process explains why people can't find primary care doctors in Massachusetts. By law, Medicare's costs are capped so what one doctor gains, another loses. (Medicare has long "rationed" care in this manner.) To meet budget targets, Medicare doesn't alter the relative valuations of different medical services; instead, it simply cuts the multiplier (say, from $40 to $38 per RVU), which just worsens the disparity between specialists and primary care doctors.
The funny thing is, paying more for medical care that's more valuable does makes sense. That's how capitalism should work. Unfortunately, ever since William Hsiao created the system in 1985, the collusive market valuation of medical services considered only the doctor (paying for his or her mental effort and stress, for example). The system completely fails to consider the value to the person actually getting the service. If we did, for example, angioplasties for stable chest pain would never be worth so much more than outpatient visits to lower cholesterol and blood pressure, which are just as effective.
Originally posted by FortAnthem
Is this thing on?
All of a sudden nobody cares about health care prices. I guess...
I know what some people are thinking; what's wrong with members of a profession setting the prices for their services, that's how capitalism works right?
Originally posted by Aggie Man
Interesting....My insurance company sets the acceptable charge for any given procedure. It's in the contract between my insurance company and my medical provider. It must suck for the non-insured to have to succumb to prices set by the AMA...all the more reason for health care reform!
Since the majority (85%) of Americans have health insurance, they do not directly pay for medical services. Insurance companies, as payors, negotiate health care pricing with providers on behalf of the insured. Hospitals, doctors, and other medical providers have traditionally disclosed their fee schedules only to insurance companies and other institutional payors, and not to individual patients.
As part of Medicare's pricing system, Relative Value Unit (RVUs) amounts are assigned to every medical procedure. One RVU translates into a dollar value that varies by region and by year; in 2005 the base (not location adjusted) RVU equaled roughly $37.90. Major insurers use Medicare's RVU calculations when negotiating payment schedules with providers, and many insurers simply adopt Medicare's payment schedule.