Ann Marie Marciarille and J. Bradford DeLong, Bending the Health Cost Curve: The Promise and Peril of the Independent Payment Advisory Board, _ HEALTH MATRIX (forthcoming 2012):
Relative weights or relative value units (RVUs) are the core of the Medicare Physician Fee Schedule. RVUs are designed to account for the relative costliness of resources used to provide each service and reflect the relative levels of time, effort, skill, and stress involved. Physician services, in short, have been distilled to these components: time, effort, skill, and stress. The origins of assigning relative weights to physician effort and skill trace back to the invention of RBRVS. Harvard Medical School Professor William Hsiao rationalized the most common Medicare physician services in a kind of medical time study, based on his understanding of the time, effort, skill and stress involved in these services in 1992. These relative weights are updated at least every five years. As reported by MedPAC, “in completing its review, CMS receives advice from a group of physicians and other professionals sponsored by the American Medical Association and physician specialty societies.”
William Hsiao’s legacy is a system that systematically undervalues cognitive services, and systematically overvalues medical procedures. As a result, specialty physician services enjoy continued dominance in the delivery and budget of the Medicare program.
At this point, one would expect an authorial team including an economist to sneer in Hayekian fashion at thumb-fingered government regulatory bureaucracies. Government is one-size fits all and cannot process detailed information; private actors in markets are more efficient and flexible, economists might say. They must, under pressure of competition, create better ways of classifying expenditures and reimbursing providers than the rigid command-and-control accounting system of Dr. William Hsiao.
If the economist co-author were to say this, however, he would be wrong. It is a fact that the bulk of private insurers use Dr. Hsiao’s work and the RVS as a baseline against which to make their own pricing and reimbursement decisions. The market cannot magically create information out of thin air. It has to be created by somebody, somewhere—and that somebody is Medicare. As the largest paying unit in America’s health care system, it would be surprising if Medicare did not turn out to be both the price and the administrative-process leader whose judgments are taken as a baseline that other purchasers use in making their own pricing and reimbursement decisions…