Monday, October 28, 2013

The RBRVS must die, or why repealing Obamacare is not going to fix US medicine

I just saw a great explanation of the labor theory of value. Take some scuba gear and dive down to the sea bottom. Go bring up a seashell in one hand and a diamond in another. By the labor theory of value, both these objects are the same value. In terms of assigning prices in a modern economy, this simply does not work. Outside of certain anarchist and marxist circles the labor theory of value is dead as a doornail. The theory is not dead within the federal government. We spend almost a trillion dollars in Medicare and Medicaid using that system. In US bureaucratic speak, the implementation of the labor theory of value is the Resource-based relative value scale (RBRVS) system. This payment system is so convenient for private insurers that they offer contracts based on the RBRVS system. They often offer a blanket multiplier of what Medicare pays to incent doctors to join their networks. But if government is paying too much for one code and too little for another, the mistake gets passed through and applied to private insurance contracts as well. Medicaid also allows states to set prices as a percentage of Medicare's RBRVS pricing system. In Medicaid's case, the payment is generally less than Medicare. Pricing signals are being muffled and often outright ignored based on the whims of a small committee of the AMA whose recommendations on pricing are accepted about 90% of the time and another committee within CMS who make the final decision by law. We've organized much of our economy based on the principle that prices are emergent, built on supply and demand factors and that it is impossible for any central committee to manage prices. And then at the close of the Cold War, we set up exactly this sort of system to handle what is now trillions of dollars of public and private healthcare spending.