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How Doctors Get Paid

Medical economics is more confusing than "advanced derivatives" and the entire banking industry collapse.  Have you ever wondered how doctors get paid?  I will try to give a brief tutorial.  Consider it "Doctor Reimbursement 101".

First of all, all payments made by Medicare or Insurance companies are based on a weird rating called the Relative Value Scale.  A group of mainly specialty dominated physicians have been appointed to an "expert panel" called the Relative Value Scale Update Committee (RUC) and they assign value ratings to the work a physician does.  For example, the RUC might proposed that an office visit is worth 2.53 value units while placing a catheter is worth 23.5 units.   Each procedure gets a value rating and through a complicated formula these value ratings are converted to actual money $. 

 This committee meets 3 times a year and their work is secret.  Their recommendations are accepted, rejected or modified by CMS (Medicare).   Only 13% of the members of the RUC represent primary care or cognitive specialties.  The remainder, 87% are made up of specialists like urologists, radiologists, heart surgeons and anesthesiologists.  With a fixed annual budget from Medicare, how the shrinking pie is divided is decided upon by this specialty dominated committee.

Is it any wonder primary care is so grossly underpaid in the United States?

After the RUC recommends the value scale for a piece of work,  CMS assigns a dollar amount based on a complicated formula that includes location, malpractice fees and presumed office expenses.  Medicare has determined that in 2012 the fee for a routine office visit for a Medicare provider is $84.30.  The Medicare reimbursement for a hip replacement is $1,459.34.   The Medicare physician fee schedule is 1,235 pages long.  Most doctors in a specialty have no idea how much another doctor in a different specialty gets paid by Medicare.

Medicare fee schedules are important because private insurers based their payments to physicians on these fees.  Some pay percents more and some  less.  Large groups or hospital consortia  have more bargaining power with insurers than does an isolated doctor.  Consequently solo or small group practices are fast becoming dinosaurs in the U.S.  The trend for physicians to join large groups or become employees of hospitals is on a rapid upward trajectory.

A few primary care physicians have opted out of the Byzantine payment structure by going "concierge".  In this structure a patient pays an up front annual fee to cover office visits, prescription refills, phone calls and access to medical care.  The patient still needs insurance to cover tests, surgeries, medications and hospitalization but the preventive and routine visits are usually covered by the fee, as is the coordination of care.  The primary care doctor gets out of the "billing" side completely.

The fee for concierge medicine can range between $1500 - $20,000/ year.  At the higher range, the concierge physician limits his practice to a few hundred patients.

Hospital charges do not include physician charges so patients often get bills separately from the radiologist, the surgeon, the hospitalist, the emergency room physician and the anesthesiologist.  Some of them contract with your insurance company and take an assigned fee.  Some do not and the charges can be quite a shock on top of the hospital bill.

Is it any wonder that our payment scheme is unsatisfactory for both patients and doctors?


Comments

Thanks for pointing out what a mess we have. It's really crazy.

In Israel, where I live part-time, they have an interesting mix of government pay and private insurance. A basic basket of preventative care and life-saving treatment is covered by a tax fund that everyone working pays into (like we pay Medicaid and Medicare but it is for all). The government pays that amount to one of a variety of insurance companies to provide those services - and who then takes capitalism to its full tilt. As a patient, you can receive only the basic basket from your company of choice for no extra charge - or you can pay the company to cover more extensive tests, surgeries, alternative care, etc. Their payment structure is massively simplified, everyone is covered to a level of basic human dignity, and the free market is alive and well. It's not perfect, but it's a model I wish the US would take a closer look at - we have to come up with something better than what we have.

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