Sunday, November 10, 2013

Healthcare basics II



There are a lot of areas that I see us lacking consensus or basic factual understanding but nowhere is it worse than in the area of healthcare. This series is a number of short examinations of what healthcare is and how it is currently paid for in the US. Some of the lessons are specific to the US while others are universal.

Healthcare consists of two basic things, figuring out what (if anything is wrong with you) and doing procedures to treat (and possibly cure) what ails you. Procedures, along with medicines and equipment, are what you pay for, and procedure codes are the functional equivalent of UPC codes for consumer goods.

Conceptually, there are two kinds of codes. Codes that are incurred to figure out what is wrong with you, or diagnostic codes, and codes that are incurred to actually treat what is wrong with you, or treatment codes. Both these types of codes are laid out in a procedure code book.

In the US the procedure code book until recently has solely been the Current Procedure Terminology (CPT) which is written and maintained by the American Medical Association (AMA). The author of the code book in this case is highly relevant because, as a private American organization organized as a 501(c)6 tax exempt business league, the AMA may maintain copyright, which it does in this case. The royalty scheme used by the AMA is $14.50 per user, per electronic product and $14.50 per distributed product. No guidance, other than look it up is given by the AMA as to what it considers fair use.

Were the American Petroleum Institute to copyright the terms, unleaded, plus, and super, gasoline pricing would be profoundly affected. The effect on medical pricing is no less profound, or pernicious. Doctors simply do not advertise prices with attached CPT codes so that people can do the ordinary consumer activity of price shopping.

In 2012 the AMA received approximately $80M in CPT royalty payments (royalties and credentialing products were $83.1M). It receives less than half that in dues ($38.7M) out of a total of approximately $273.9M in revenues. Its royalties are 30% of income while dues are less than 15%. Without its CPT royalties, its 2012 positive results of $16.6M would likely be wiped out and replaced by a significant deficit.

Series Index