Has it worked?
Nearly six years after the Medicare physician payment system known as the resource-based relative value scale took effect, advocates say it is accomplishing many of its goals.
The system, however, also has its shortcomings and its naysayers, some of whom question the scale's effectiveness and fairness.
Instead of basing physicians' fees on their historical charges, Medicare in 1992 began setting fees using the RBRVS. The system assigns a numerical value to each physician service or procedure based on its complexity. It arrives at a fee by multiplying the numerical value by an annually updated dollar figure known as the conversion factor.
Advocates say the system is responsible for preserving fee-for-service medicine. That's because Congress, as it tried to arrest cost growth in the 1980s, had considered but rejected newer payment options, such as capitation or bundling of physicians' reimbursement into hospital DRGs.
They also say it has reduced fees for overvalued procedures, eliminated differences in payment by geography and specialty, and increased primary-care incomes. All this has been at the expense of many specialists, although not as much as primary-care doctors would have liked.
Saving money. Most important for lawmakers, the value scale has been responsible for controlling the growth of total Medicare physician payments. Indeed, physician payment growth has been so slow that it was not an issue in the debate over the federal balanced-budget law enacted earlier this year.
In the budget act, physician payments were trimmed just $5.3 billion between 1998 and 2002, about 3.1% from the projected $169.5 billion that Medicare would have paid physicians over those five years had the budget law not passed.
According to HCFA data, Medicare physician spending grew 86.1% between 1985 and 1991. From 1992, when the value scale was implemented, to 1995, Medicare physician expenditures grew a more modest 26.4%.
Physician payments have been rising more slowly because the system sets cost limitation targets. Only when annual Medicare expenditures for physician services fall under the targets are doctors rewarded with bigger fee updates.
"HCFA's motivation is basically to save money overall," says Grant Rodkey, M.D., the founding chairman of a physician panel organized by the American Medical Association that advises HCFA on the physician payment system. "They want the patient to be well taken care of, but the dollar sign is really important over there."
Some critics note, however, that had the RBRVS never been implemented, some other mechanism would have been applied to physician fees to limit Medicare expenditure growth.
Like hospitals under PPS, doctors have had to rethink their practices and pay more attention to managing the business side and the treatment of patients.
"It has helped nonprocedural physicians gain more recognition and thus more reimbursement," says William Gee, M.D., a urological surgeon and a representative of the American Urological Association to the HCFA advisory panel on physician payment. "It's probably reduced reimbursement for some proceduralists. This has forced many to figure out exactly what their costs are."
And that has spilled over into physicians' relationships with hospitals, which are being driven by the same incentives to deliver better care at lower costs under the PPS.
"It has been helpful in that it's brought our thinking closer together on managing care under fixed payments," says Richard Wade, senior vice president of communications at the American Hospital Association.
Coverage gaps. Still, after nearly six years, the system doesn't cover everything. The RBRVS now covers only 54% of the typical physician fee, the component that is attributable to physicians' professional work.
Through the end of 1998, physicians will continue to be reimbursed for the practice-related costs of serving Medicare beneficiaries based almost completely on their historical charges. That portion of their payment-covering such costs as staff time, supplies and equipment-represents about 41% of the typical fee.
Changing that portion of their payments to a resource-based formula is scheduled to take place gradually between 1999 and 2002, instead of in 1998 as had been called for in a 1994 law. That delay has been largely the result of opposition from specialists, who stand to lose as much as $4 billion a year in Medicare payments.
And also thanks to the balanced-budget law, Medicare's compensation of physicians' malpractice insurance expenses-covering the remaining 5% of the typical fee-will move to a resource-based payment method but not until the year 2000.
Private payer advantage. Other critics point out that private payers have much greater negotiating leverage in a system in which everybody knows what doctors' Medicare fees are.
That has been made possible by private insurers' growing use of RBRVS. The 1995 report of the former Physician Payment Review Commission, which advised Congress on Medicare physician payment issues, says 30 of 108 plans surveyed were using RBRVS as a basis for fees.
But because Medicare's conversion factor makes it clear exactly how much Medicare is paying, the health plans can use that as a benchmark for what they will pay. Under the old system, a variety of factors could result in different payments to physicians for similar procedures. Now, private payers know Medicare's pricing for those procedures and, consequently, how low the payers can go in negotiating rates with physicians.
That may explain why the PPRC has noted an increase in Medicare fees relative to private insurers' rates. The commission's 1995 report projected Medicare fees would rise to 68% of the average private insurers' rate in 1995, up from 61% in 1992.
In fact, of the plans in the PPRC survey that said they use the RBRVS, 20% had set their conversion factor, and thus their fees, equal to Medicare's.
Supporters of the value scale also tout evidence that the RBRVS has helped primary-care physicians.
According to the 1997 report of the PPRC, which this year merged with another commission to form the Medicare Payment Advisory Commission, payments per primary-care service grew an average of 6.9% a year between 1992 and 1995. By comparison, fees per surgical service grew just 2.8% a year, and for nonsurgical procedures, fees per service actually shrank 0.2% a year.
That contributed to a 14.8% increase in total income for family practice physicians between 1992 and 1995, for example, according to AMA data published in the PPRC's 1997 report.
Over the same period, general surgeons' income grew 16%, according to the AMA data. But the year following implementation of the RBRVS, 1993, marked the beginning of an upward trend in family physicians' real income, which had been flat since 1985, according to the AMA data published in the 1997 PPRC report.
Increasing primary-care income has played a role in the steady increase in the number of medical students who are choosing careers in primary care, advocates say. According to Association of American Medical Colleges' data published in the 1997 PPRC report, nearly 32% of medical students were choosing primary-care careers in 1996, up from less than 15% when the RBRVS was implemented.
"Relative incomes haven't changed that much but enough so that it increases the incentive" to choose a primary-care career, says Christopher Hogan, an analyst for MedPAC.
Others, however, say the income increase was the result of expanded private-and public-sector enrollment in managed-care plans, where primary-care doctors are in greater demand because they tend to provide lower-cost services.
For the future, the advocates say, the RBRVS will continue to be relevant even in a Medicare system in which fee-for-service payment appears to be going the way of the dinosaur. It is being replaced by capitation as greater numbers of Medicare beneficiaries join managed-care plans. In a limited experiment in the mid-Atlantic region, inpatient physician payments will be bundled with hospital payments (Sept. 22, p. 36).
Even in a world without fee-for-service payment, however, RBRVS gives providers and payers a way to measure productivity and reimburse physicians based on how many services they deliver and how complex those services are.
But others say factors besides productivity-such as outcomes or patient satisfaction-will become more important in the compensation formulas of the future.
"There are other measurement tools," says Brent Miller, vice president of public policy and political affairs at the American Medical Group Association. "They all have vestiges of RBRVS, but I think a lot of people are moving away from dependence on the Medicare formula."