Table Of ContentFIXING MEDICAL PRICES
FIXING MEDICAL PRICES
HOW PHYSICIANS ARE PAID
MIRIAM J. LAUGESEN
Cambridge, Massachusetts
London, England
2016
Copyright © 2016 by the President and Fellows of Harvard College
All rights reserved
Printed in the United States of Amer i ca
First printing
Library of Congress Cataloging- in- Publication Data
Names: Laugesen, Miriam, author.
Title: Fixing medical prices : how physicians are paid / Miriam J. Laugesen.
Description: Cambridge, Mas sa chu setts : Harvard University Press, 2016. |
Includes bibliographical references and index.
Identifi ers: LCCN 2016015003 | ISBN 9780674545168 (alk. paper)
Subjects: LCSH: American Medical Association. | Medical economics—U nited States. |
Medical care— United States— Evaluation. | Medicare. | Health ser vices
administration— United States.
Classifi cation: LCC RA410.53 .L385 2016 | DDC 338.4/73621— dc23
LC rec ord available at https:// lccn . loc . gov / 2016015003
Contents
Preface vii
Abbreviations xi
1. Introduction: The House of Medicine and Medical Prices 1
2. The Enduring Infl uence of the House of Medicine over Prices 23
3. The Science of Work and Payment Reform 47
4. How Doctors Get Paid 90
5. Confl icts of Interest and Prob lems of Evidence 129
6. Complexity, Agency Capture, and the Game of Codes 174
7. Conclusion 200
Notes 221
References 229
Acknowl edgments 255
Index 259
Preface
In 2007, my neighbor, who happened to be a physician, told me (with a re-
signed shrug) why internists were poorly paid. According to her, Medicare’s
fee schedule was tilted toward the needs of specialists. Our discussion was
a spark that reignited my longstanding interest in this issue. I had pub-
lished a paper that touched on the topic during my postdoctoral training, but
put it aside.
Ever since my fi rst health policy class a dec ade earlier, I had considered
the way Medicare sets prices an enigma. I remembered Professor Joseph
Newhouse explaining how Congress believed primary care physicians should
be paid more, so that their fees refl ected the true cost of providing their
serv ices. Congress changed the way Medicare paid physicians in 1989, in
an effort to achieve that goal. If my neighbor was correct, Congress’s efforts
to ensure that primary care doctors’ fees better refl ected the value of their
ser vices had failed. That was unfortunate, because the rationale under lying
the 1989 legislation was that rewarding the effort associated with primary
care would potentially improve health outcomes.
An article I coauthored with my colleague Sherry Glied gave credence
to the misdirection of these goals. While orthopedic surgeons’ incomes and
fees were the highest among the countries we studied, primary care incomes
and fees in the United States w ere more similar to those in other countries.
The larger gap between specialty and primary care incomes in the United
States was suggestive of a prob lem, and a paper by physicians Christine
Sinksy and David Dugdale showed that Medicare fees for screening colo-
noscopies and cataract extractions were 368 percent and 486 percent,
vii
viii • Preface
respectively, of the amount earned by physicians for the same time spent on
offi ce visits; these procedures can generate more revenue in one to two hours
than a primary care physician receives for an entire day’s work (Sinsky and
Dugdale 2013).
Without the right economic incentives, it is diffi cult to persuade more
physicians to become primary care physicians. Although many non-m onetary
factors infl uence medical students’ residency choices, higher-i ncome spe-
cialties are naturally more attractive. The relative allocation of resources
among physicians has profound consequences, and ultimately it can even
infl uence the kinds of ser vices people receive. Over de cades, many well-
designed research studies have shown that when fees are increased or
decreased, physicians pivot to the kinds of serv ices that are more rewarding.
Yet for most Americans, these kinds of fi nancial incentives are imperceptible
and operate invisibly.
In starting this book, I wanted to know whether my neighbor was right:
had the congressional effort to pay for the true cost of primary care failed,
and if so, why? I suspected the repres ent at ion of specialists in the policy
proc ess might be a f actor. From my earlier preliminary work, I knew that
the American Medical Association (AMA) plays a key role in advising Medi-
care on how much physician “work” was associated with providing specifi c
ser vices. That struck me as unusual. I also wondered how such a poten-
tially impor tant policy pro cess was hiding in plain sight.
Starting around 2006, other researchers were critiquing this pro cess and
considering its impact on physician fees. I soon became a policy detective,
trying to unravel the mystery of Medicare fees. One of my fi rst papers on
the topic, published in 2012, showed that the AMA committee advising fed-
eral offi cials was highly successful: Medicare was adopting 90 percent of its
recommendations. But why? This book attempts to understand how and why
the AMA makes its recommendations, and why Medicare often agrees with
them.
As is often the case, the real ity is complicated and nuanced. The way we
price serv ices refl ects dec ades of effective advocacy by physicians’ organ-
izations. The message of this book is that medicine has successfully advanced
the idea that when it comes to payment policy, “doctor knows best.” The
philosophy built on itself: In a policy vacuum such ideas were reinforced,
and physician organi zations fi lled up the space. Physician-d irected payment
policy was aided by a complementary billing infrastructure that dovetailed
elegantly. A physician-designed billing code system developed for private
Preface • ix
insurers was l ater mandated for Medicare and became the industry stan-
dard across the entire health care system. Indeed, Medicare’s policy choices,
which have typically been physician-f riendly, compounded medicine’s
infl uence. A fl uid symbiosis developed, whereby the private sector a dopted
Medicare standards and rules. In the private sector, prices were confi rmed
by the light touch of state governments regulating the health insurance
industry.
Since 1989, these factors almost guaranteed that the intentions of
Congress would come undone. Fixing Medical Prices makes the case that
understanding how and why we value diff ere nt medical serv ices is a neces-
sary step toward fi xing our health care system.
