Medicare Physician Fee Schedule (MPFS) and Centralized Planning

 In a centrally planned economy the allocation of resources is determined by a comprehensive plan of production which specifies output requirements.

Centralized Planning Definition

Moving from volume to value is health reform’s latest mantra, policy makers hope to replace fee-for-service systems with value-based approaches that reward improved outcomes achieved at a lower cost.  Ground zero in these efforts is the Medicare Physician Fee Schedule (MPFS).

Robert Berenson,  MD, and John Goodson, D, “Finding Value in Unexpected Places – Fixing the Medicare Physician Fee Schedule, “ New England Journal of Medicine,  April 7, 2016

The idea behind the Medicare Physician Fee Schedule(MPFS), is, as far as possible, to end variation of physician payment rates,  standardize fees for specialists and primary care physicians,  narrow the gap between the two,  and improve pay for cognitive specialists – family physicians,  general internists,  pediatricians, geriatricians,  and psychologists.

There is nothing new about this effort.  MPFS was introduced in 1992.    Yet incomes for cardiologists and radiologists, and other procedural specialists remains 2.0 to 2.5 times that of cognitive physicians.   This should not be.  The Resource-Based Relative Value Scale (RBRVS), the foundation of MPFS) was designed to align fees with total physician time on an equitable basis.  Service codes based on Relative Value Units (RVU), especially for Evaluation and Management Service (E&M) activities, the primary responsibility of cognitive specialists,  was developed to capture the time and effort physicians spend with patients.

What’s gone wrong?

Well, to begin with, centralized planning rarely works because it cannot capture the nuances of the patient-physician encounter.    Only markets can to that.  Even socialized economies still rely on fee-for-service, yet spend far less on health care.

Second, as I pointed out in a blog, “Talk Is Cheap,” the American culture prefers action to talk. This attitude filters down to how physicians are paid.

Thirdly,   MPFS has failed to adjust fees downward to account for time –less spent by specialists based on automation, experience, and substitution by non-physicians, and other productivity improvements.  Specialists now do care faster in less time than previously, but their codes often remain the same

Fourthly , given an aging population with chronic illnesses, multiple co-morbidities,  multiple visits to other doctors, and multiple drugs being taken, cognitive specialists  spend more time than procedural specialists in data gathering and entry,  analysis and decision making, and judgment making in ambiguous and uncertain situations. 

Fifthly, CMS coding depends partly on an AMA-sponsored panel, the RVS Update Committee (RUC), to identify those codes to improve or reduce to reflect changing realities.   Specialty societies dominate RUC and are reluctant to downgrade codes for specialists.

Sixthly,   in the end MPFS may become largely irrelevant. Many physicians are increasingly not accepting Medicare and Medicaid patients, and are switching to cash-only and concierge practices to avoid the low fees of Medicare and Medicaid, often 60% to 80% of fees offered by private insurance.  John Goodman, a conservative economist, predicts a mass migration from 3^rd party coverage, not only to raise income but to escape the hassles and regulations of 3^rd parties and the time-consuming and overhead expenses of data entry requirements of electronic heath records.  A two-tier system of care may be emerging to escape the rigors of centralized planning.

On the surface, centralized planning with replacement of fee-for-service with a value-based approach may sound good, a noble effort in that it is implemented to achieve equal outcomes and social justice among members of society and among physicians, but I am skeptical, given the  MPFS performance over the last 24 years, that quality measurements and value-based outcomes are feasible in a free-enterprise society.