Doctors’ fees should be based on what they believe their services are worth
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I can’t imagine any patient or health care provider would argue with the logic included in the title of this article.
I’ve been retired for almost 5 years, but I’m still very interested in the challenges facing health care providers and especially those faced by eye care providers. The difference now is that I’m covered by Medicare and thus able to see what patients see on their Explanation of Benefits forms (EOBs). Even more enlightening, I’ve been having breakfast with a group of old friends 2 or 3 days a week (pre-COVID, of course), often hearing how confused they are as they try to understand the health care payment system.
I hear comments like, “Can you believe it? My doctor charged me $2,600 for a procedure she did for me last month, and Medicare only paid her $126! My part of the bill is only a few bucks! Who pays the rest of the bill? This system is crazy!” Or, “Man, I don’t know what I’d do without my Medicare and Medicare supplement. There’s no way I could have paid $822 for a 10-minute visit to my MD last month. Sheeesh! That figures out to be over $80 a minute! Even if they counted the half hour I was in the waiting room, it would still be over $20 a minute!”
Examples from my personal EOBs from Medicare include a charge of $523.00 for a level four office visit, established patient, for which the doctor was reimbursed a total of $105.07, and a level three visit that was billed at $225 and reimbursed at $61.40. My breakfast mates are right ... The system doesn’t make any sense. Either the charges are artificially high, or the payments are woefully low. Or both, maybe?
What my breakfast buddies have no way of knowing is that the doctor must write off the difference between what is billed and what the insurer pays. Neither would they understand that insurance premiums they pay are based upon the providers’ reimbursements, not upon the providers’ charges. And very few people, providers or patients, realize that disparities between what is billed and what is paid have resulted from changes over the past several decades and are often largely unrelated to any careful assessment of the true value of the services.
Prior to the 1950s, doctors and hospitals charged what they felt was appropriate for the service and patients paid them directly. I’m sure there would occasionally be some give and take between a provider’s billing person and a patient when extenuating circumstances existed, but usually the patient paid whatever the provider billed.
Along came the first health care insurers, most commonly Blue Shield programs, and things changed forever. Fewer than 10% of Americans had insurance for doctors’ services in 1940, and over 70% had coverage by 1955. As that coverage became more common, insurers paid based on “usual and customary” reimbursement schedules, suspecting that doctors were charging more for insured patients than they charged private pay patients.
The insurers’ move to usual and customary launched a game among payers and providers that continues today. The most common usual and customary reimbursements were 80% of the providers’ charges. It didn’t take long for the providers to respond by adjusting their fees accordingly. “If I need $100 for my service, and the insurer reimburses at 80%,” some providers reasoned, “I’ll just raise my usual charge to $125!”
That game between insurers and the providers resulted in an upward spiral of health care charges over the ensuing decades ... A spiral that continues today.
Medicare came on the scene in 1964, reimbursing providers the lesser of the Medicare payment schedule amount or the provider’s actual charge. Its original fees were very likely based on the Blue Shield model. In 1989, that system was replaced by the Resource Based Relative Value Scale (RBRVS). RBRVS totally changed the payment logic, in that it is not based upon surveys of providers’ usual fees at all. Instead, it assigns a number value to each covered service, relative to all other covered services. The fee for each service is then calculated by multiplying its relative value by the “conversion factor,” a number that is set each year by Medicare. (Medicare fee = a service’s relative value multiplied by Medicare’s conversion factor)
The main difference in RBRVS is that its payments are not related to the fees that providers charge. It eliminated the 80% of usual and customary calculation. Thus, there is no advantage to providers raising their usual charges to receive higher reimbursements.
This provider-payer “dance” between payers and providers has been going on for a very long time, with payers setting reimbursements high enough to please an adequate number of providers and low enough to stay solvent, while providers try to set fees that will ensure adequate payment from all payers while not being too high for patients not covered by insurance.
Ideally, each practice would develop its fee schedule so that it is fair for private pay patients and adequate for the financial needs of their practice, which would result in insurers developing reimbursement schedules that reflect the true value of the services they cover, neither grossly inflated nor woefully inadequate.
Honestly, though, I doubt that day will come any time soon. I’ll know it’s here, though, when I’m at breakfast with my buddies again (post-COVID), and one of them says, “I got this report from Medicare the other day. It looks like the doctor billed the exact amount she wanted to be paid for my visit, Medicare accepted the claim and paid its portion, and my supplemental insurance paid the rest.” Just as unlikely, the rest of the group would turn to him and yell, “Of course that’s what happened, Harry! That’s exactly how the health care system is supposed to work!”
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