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Oct 28. HSPM J712. RBRVS. Leftover issue from last time. Resource-Based Relative Value System for physician payment. In the late 1980s, Medicare led a direct attack on how physicians set their prices. Medicare implemented the Resource-Based Relative Value System for paying doctors.

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oct 28

Oct 28


  • Leftover issue from last time
resource based relative value system for physician payment
Resource-Based Relative Value System for physician payment
  • In the late 1980s, Medicare led a direct attack on how physicians set their prices. Medicare implemented the Resource-Based Relative Value System for paying doctors.
  • It's now used, in various forms, by private as well as public payers.
rbrvs drgs for doctors
RBRVS = DRGs for doctors?
  • No
    • DRG-based payment is prospective. It pays a certain amount per case, regardless of what resources the hospital puts in to the patient’s care.
    • RBRVS is fee-for-service payment
rbrvs drgs for doctors1
RBRVS = DRGs for doctors?
  • But Yes in the sense that
    • Both came from the US government
    • Both simplify payment-setting
      • Both based on giving a weight to each unit of service
      • Weight is proportional to the cost of the service
      • Costs are determined by formula, not existing market prices
      • Payment = (Payment for a service with weight = 1) × (Weight of the service)
historical context
Historical context
    • Roe, B.B., "The UCR Boondoggle: A Death Knell for Private Practice?" N Engl J Med, July 2, 1981, 305(1), pp. 41-45.
  • Medicare used Usual and Customary Rates as the basis for pricing doctor services.
  • Invited abuse. In 1981, a heart surgeon could do three 2-4 hour coronary bypass surgeries per week at $2500 each and make $350,000 annually.
  • RBRVS was intended to set fees by simulating the fees the market would have set if the market functioned properly.
  • With prices having a consistent relationship with cost.
  • Hsiao, W.C., Braun, P., Dunn, D., Becker, E.R., DeNicola, M., Ketcham, T.R., "Results and Policy Implications of the Resource-Based Relative-Value Study," N Engl J Med, September 29, 1988, 319(13), pp. 881-888.
  • This article, which is printed second in the original magazine, gives the general idea of RBRVS.
physician work measure for rbrvs
Physician work measure for RBRVS
  • Hsiao, W.C., Braun, P., Yntema, D., Becker, E.R., "Estimating Physicians' Work for a Resource-Based Relative Value Scale," N Engl J Med, September 29, 1988, 319(13), pp. 835-841.
  • This article (printed first in the NEJM issue) looks specifically at how they measured the physician's work entailed in any particular procedure.
the goal
The goal
  • Hsiao, an actuary by training, was later a major consultant to the Taiwan government for the reform of its health insurance system.
  • Here, he suspected that physician fees were out of proportion to cost, with some surgical specialties much more handsomely reimbursed than primary care.
  • Making the fees proportional to cost would encourage physicians to pursue careers in "primary care, rural practice, and out-of-hospital services," rather than flocking to surgical specialties.
rbrvs formula
RBRVS formula
  • RBRV = (TW)(1+RPC)(1+AST)
  • Resource-Based Relative Value = (Total Work)× (Specialty Practice Cost Index)×(Specialized Training Cost Index)
  • Specialty practice cost is hired labor and capital
  • Specialized training cost is the opportunity cost of spending time in residency.
total work formula
Total Work formula
  • Total Work = Time×(Complexity Index)
  • Complexity index = “sweat factor”
  • Includes Pre- + Intra- + Post-service work
  • Based on surveys of physicians
Compares actual Medicare payments with what Medicare would pay if proportional to RBRV and total-payment-neutral
potential rbrvs impact
Potential RBRVS impact
  • If Medicare fees were adjusted to the RBRVS but total spending unchanged ("budget-neutral"), thoracic surgery, ophthalmology fees would drop >40%. General surgery fees would drop about 15%.
  • Internal medicine fees would rise >30%. Family practice fees would rise >60%.
  • Ontario's negotiated fee schedule more uniform relative to RBRV than mean Medicare payment.
l imitations of rbrvs
Limitations of RBRVS
    • which Hsiao recognized:
  • The CPT-4 classification system for physician services, like any classification system, has variations within the classes. Some docs, such as those who treat poor people, may have more difficult patients within RBRV classes.
  • No extra payment is allowed for better outcomes. RBRVS is based on resource inputs, not benefits. There's no financial incentive for higher quality.
as implemented by sc medicaid
As implemented by SC Medicaid
  • Naus, F., Medical Management Institute 1991
  • Nose fracture CPT 21325
future purchases the future is now
Future purchases?(The future is now!)
  • Frontline: Sick Around the World (2008)
    • or
  • The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care
    • and
  • Sicko
  • Optional: Marcia Angell, The Truth About the Drug Companies: How They Deceive Us and What to Do About It
old system
Old system
  • Independent self-employed doctors
    • Paid fee-for-service
    • Not hospital employees
  • Hospitals
    • Before aseptic surgery, hospitals were places for poor people to go to die.
    • Or get free care (“dispensaries”)
    • Then became doctors’ workshops
      • Built by philanthropic organizations (non-profit)
      • Or doctors as owners (for-profit)
old system1
Old system
  • Insurance
    • Blue Cross trademark owned by American Hospital Association
    • Essentially a pre-payment collection agency
    • Blue Shield added for doctors
    • Buick was “the doctor’s car”
hmo history
HMO history
  • Mayer, T.R., and Mayer, G.G., "HMOs: Origins and Development" N Engl J Med, February 28, 1985, 312, pp. 590-594.
early hmo differences from fee for service
Early HMO differences from fee-for-service
  • Ware, J.E., et al, "Comparison of Health Outcomes at a Health Maintenance Organisation with Those of Fee-for-Service Care," Lancet, May 3, 1986, pp. 1017-1022.
  • Siu, A.L., Leibowitz, L., Brook, R.H., Goldman, N.S., Lurie, N., Newhouse, J.P., "Use of the Hospital in a Randomized Trial of Prepaid Care," JAMA, March 4, 1988, 259, pp. 1343-1346.
  • Ware, J.E., Bayliss, M.S., Rogers, W.H., Kosinski, M., Tarlov, A.R., "Differences in 4-Year Health Outcomes for elderly and Poor, Chronically Ill Patients treated in HMO and Fee-for-Service Systems," JAMA, October 2, 1996, 276(13), pp. 1037-1047.
forms of hmo health maintenance organization
Forms of HMO“Health Maintenance Organization”

Legal relationship between HMO and docs may be:

  • Docs own the HMO as, e.g., stockholders or partners.
    • Prepaid group practice, also called "staff model."
    • Docs can be salaried and also be partners.
      • The Permanente medical group (the doctor half of Kaiser Plan) does this


  • HMO contracts with docs, who maintain private practices
    • Independent Practice Association (IPA)
forms of hmo health maintenance organization1
Forms of HMO“Health Maintenance Organization”

Will HMO pay for visits to docs not in plan? (Doctors who are in the HMO constitute the "panel.")

  • No -- "closed panel."  Closed panel HMOs do pay for services of outside doctors for patients who have exotic conditions that the HMO panel cannot handle, if specifically authorized by the HMO.
  • Yes -- "open panel." A fully open panel HMO would be a contradiction in terms. Compare PPOs.
  • "Gatekeeper" method: each subscriber gets a primary care doc who must approve in advance any visits to specialists. The HMO will pay for any service that the "Gatekeeper" approves, even if provided by a physician who is not a member of the panel. This intermediate form is common, used locally by Companion Care of S.C.
other forms of managed care
Other forms of managed care
  • PPO -- Preferred Provider Organization
    • Has a panel, but the PPO pays a share of costs for services rendered by providers not on the panel. 
    • Providers in the panel are "preferred" by the PPO; it pays a higher percentage of the cost for their services.
  • POS -- Point of Service -- plans seem the same as PPOs to me.
following diagrams from
Following diagrams from
  • Bodenheimer and Grumbach, Capitation or Decapitation



Doctors have incentive to give more care.

Is prevention encouraged?

  • Doctors have incentive to give less care.
  • Is prevention encouraged?

Which is worse for patient trust in the doctor?

next slide from
Next slide from
  • NEJM 1997
how health insurance competition is working
How health insurance competition is working
  • http://articles.latimes.com/2006/sep/17/business/fi-revoke17
  • http://www.calnurses.org/media-center/press-releases/2009/september/california-s-real-death-panels-insurers-deny-21-of-claims.html
  • http://www.consumerreports.org/health/insurance/health-insurance/overview/health-insurance-ov.htm
who killed health care
Who Killed Health Care?
  • Regina Herzlinga