Lots has happened since our last update.  It may take a couple of posts for us to catch up.

Outside the project, the Congressional House of Representatives passed its own version of healthcare reform, and the entire 1,990 pages of the bill can be found here.  We would strongly recommend against reading the bill while driving or operating heavy machinery; in large doses it is mind-numbing.  Although the length is in itself extraordinary, (if you were to read at an average of one page every 30 seconds, it would take you just over 16.5 hours to read the whole thing), the Senate seems determined to outdo the House on this score.  The initial Senate proposal released by Majority Leader Harry Reid (D- Nevada), is 2,074 pages.  This is particularly troublesome in light of the quote by James Madison in Dr. Fogoros’ guest blog entry re-posted on the U.S. Healthcare Constitution site earlier this month.

Over the past few days I’ve spent a few hours looking over selected parts of the House proposal with an eye toward its potential impact on the lives and rights of patients and healthcare providers.  While there is absolutely no way I can claim to have read all of it some parts certainly stand out with respect to the need for a dedicated healthcare constitution.

One section that really stands out is Section 1122 on page 398, entitled “Misvalued Codes Under the Physician Fee Schedule”.  This section discusses a modification to the current RBRVS system of reimbursement for healthcare goods and services.  This system serves as the underlying financial basis for pricing all healthcare goods and services, and was invented by a professor at Harvard University back in the 1980s.  For those of you who may not be familiar with it, the system was an attempt to decide how much a healthcare good or service should cost based upon the inputs that go into delivering it (such as time, complexity, practice overhead expense and the like), rather than any element of scarcity, quality or demand as would normally be the case in a free market system of pricing things.  Instead, the RBRVS system is completely free of supply and demand when it comes to valuing things.  Moreover, the ultimate price set for any physician-provided good or services is established by a secret process that takes place within the AMA/Specialty Society RVS Update Committee (RUC).  This is where they decide, for example, how much brain surgery is worth when compared to a routine office visit.

For the purposes of my discussion, the interesting part of the proposed modification in the House bill is this:

“For purposes of identifying potentially misvalued services pursuant to clause (i)(I), the Secretary shall examine (as the Secretary determines to be appropriate) codes (and families of codes as appropriate) for which there has been the fastest growth; codes (and families of codes as appropriate) that have experienced substantial changes in practice expenses; codes for new technologies or services within an appropriate period (such as three years) after the relative values are initially established for such codes; multiple codes that are frequently billed in conjunction with furnishing a single service; codes with low relative values, particularly those that are often billed multiple times for a single treatment; codes which have not been subject to review since the implementation of the RBRVS (the so-called ‘Harvard-valued codes’); and such other codes determined to be appropriate by the Secretary.”

To translate, if a code is on the upswing in terms of use or expense, look hard at unilaterally re-setting the valuation of that code.  One can almost certainly bet that this will be done by reducing the reimbursement that Medicare (and by extension, all insurers) will pay.

Is this a provision a bad thing?  It’s safe to say that no one knows.  In this, as with so many things in healthcare, the devil is in the details.  If this change brings the true value of healthcare goods and services more into line with how they would be allocated in a medically and financially perfect world, it will be a welcome change.  On the other hand, if the evaluation is done poorly and the decisions are made purely as cost-saving measures, it’s .likely to make things worse.  However from the perspective of healthcare rights, responsibilities and limitations on the arbitrary use of political or bureaucratic power – i.e., all of the things that important to define in a healthcare constitution – there are a couple of reasons to think twice about a provision like this.

First, the creation of this provision speaks volumes about the financial model of healthcare that Congress (and therefore the U.S. taxpayer) is buying into.  It’s a system in which healthcare goods and services are directly priced by government regulators.  Whether this is good or bad depends upon your point of view, but it does have profound implications for which treatments will be used, and which will be avoided.  Any system used to set prices is going to directly determine which goods and services are utilized.  (In a perfect world, medical goods and services would be utilized based upon what is best for the patient, but the RBRVS system has nothing to do with supply, demand or medical utility.  It solely deals with perceived cost of production.  Manipulating this number creates financial “winners” and “losers”, and has an enormous impact on resource utilization, as described here.)  So what this really new policy really means is that we’ve taken a giant step toward having government regulators dictate what medical treatments will be used based strictly upon whether they believe the code is “properly valued”.  Supply and demand is not part of this equation, and neither is whether the treatment might be medically optimal.

The important question from the perspective of reforming the U.S. healthcare system is whether this is a pricing system that is likely to optimize the medical and financial results that we get?  If the answer is “no”, (which seems likely, since neither medicine nor resource optimization are a part of the pricing criteria), why would we want to take this approach to allocating healthcare services?  There are a number of other economic models that one might choose that would produce far more efficient (and therefore more beneficial) results.

This is why it’s important to think very hard about the economic model that we want to utilize in our healthcare system.  How are things priced?  What does this mean for how things are rationed?  Does it create perverse incentives we’d rather do without?  American healthcare (and the resulting healthcare constitution) ought to make these principles and intentions very clear.

Second, through Medicare and Medicaid, the federal government is the single largest purchaser of healthcare services in the United States.  Because of its immense clout, virtually every other insurer in the country closely follows Medicare’s lead on just about everything.  In practical terms, this means that Medicare is a monopsony – a single buyer that dominates healthcare purchasing and sets prices for everyone in this market.

Any graduate of Economics 101 will tell you that monopolies and monopsonies are both economically inefficient, and lead to a poor allocation of resources relative to most fee-market based alternatives.  For better or worse, the bill the House just passed would move us even further toward giving the government monopsonist power.  Do we want this?  Is this a conscious decision on the part of our leaders, or is it simply a careless-but-well-intentioned patch that is reinforcing a system that Congress would never deliberately enact if we were starting from scratch?

If it’s the former, it’s a comment on the current decision-making process in Congress.  If the latter, it’s an excellent example the problem with piecemeal reform.  If you build a house in a swamp it will sink.  Simply adding onto it does nothing for structural integrity, and will simply make it sink faster.  The modifications do nothing to change the underlying defects.