• In The Trenches

    The 30 Year Lie: How Physician Payment Inequities Began

    "Oh why must I feel this way? Hey, must be the money!"
    -- Nelly,
    Ride Wit Me

    The final rule on the 2020 Medicare physician fee schedule contained provisions that, if fully implemented in 2021, will increase payments to family physicians participating in the Medicare program by an estimated 12%. This is achieved through policies that increase the overall value of office visit evaluation and management codes and the availability of a new add-on code for complex patients. The combination of these two policies represent the first double-digit increase in Medicare payments for primary care physicians in, well, ever.

    The AAFP fought hard for both of these policies, and although we recognize they do not reverse decades of undervaluation of primary care, they do represent a financial shift toward primary care. This is a good thing. I wrote an extensive post on these new policies in November.

    As I noted then, not everyone is thrilled about these policies. In fact, some are extremely upset and are working hard to prevent these increases from being implemented. Here is why: The law requires changes to the Medicare physician fee schedule to be budget-neutral -- meaning that increases in payment for any specific code or family of codes must be offset by reductions in others. This tension is not new, but it has grown since the repeal of the Medicare sustainable growth rate formula in 2015 and the implementation of value-based payment models.

    Another contributing factor is the increasing autonomy CMS has exercised when it comes to implementing recommendations from the AMA/Specialty Society Relative Value Scale Update Committee. Questioning the recommendations of the RUC was once unheard of, but is now more common.

    To help us understand the intensity associated with this issue, I thought it would be helpful to take a stroll down memory lane and evaluate the history of physician payment in the United States and the origins of the many legacy processes and methodologies that continue to serve as the foundation of physician payments.

    The first focused effort to create a payment methodology was the 1956 California Relative Value Study. Then in the 1970s, a group of researchers at the Harvard School of Public Health led by a young associate professor of economics named William Hsiao, Ph.D., began studying physician payment, building on the concept of relative values as established by the CRVS. As noted in their publications, the work was commissioned in response to ''dramatic escalation of health care costs" that brought physicians' fees under increased scrutiny.

    "Concern exists not only with regard to high fees," they wrote in 1984, "but also with the equivalency of fees between different types of services and between different specialties. At the present time charges for physician services are, in large measure, determined by the individual physician."

    In 1979, Hsiao and his research partner William Stason, M.D., published an article that would fundamentally change physician payment policy and the U.S. health care system. The article, "Toward Developing a Relative Value Scale for Medical and Surgical Services," outlined the findings from research conducted to "determine the relative values of surgical procedures and medical office visits on the basis of resource costs."

    The findings drew the attention of policymakers and regulators in Washington, D.C. During the next 10 years, Hsiao and his team furthered their research and analysis at the request of government agencies -- specifically the Health Care Financing Administration (now CMS) and the Physician Payment Review Commission -- publishing studies in 1984 and 1985. Phase two of Hsiao's study was completed between 1988 and 1991 and became the foundation of future legislation.

    Congress created the PPRC in 1986 with the charge of providing advice on reforms in the "methods used to pay physicians for services to Medicare beneficiaries."

    In 1987, the PPRC submitted its first report to Congress, titled "Medicare Physician Payment: An Agenda for Reform." The report outlined goals for physician payment policy and a range of alternatives for physician payment reforms. One of the concepts included in the PPRC recommendations was the establishment of a relative value scale -- a methodology developed by Hsiao and his team.

    In the spring of 1989, Paul Ginsburg, Ph.D., executive director of the PPRC, published a Health Affairs article, "Physician Payment Policy in the 101st Congress," in which he framed the task at hand:

    "Almost 20 years elapsed between the compromises that led to the last-minute creation of Part B of the Medicare program and the beginning of a serious focus on reforming its mechanism for paying physicians. Starting in 1984, however, four successive years of legislation have established a direction for change and provided for development of the infrastructure to accomplish it. While policy initiates might not have gotten off the ground if not for the huge cost problem this country has faced, research findings of inappropriate care and seemingly erratic patterns of fees have reinforced policymakers' resolve to reform the payment system."

    Based largely on the recommendations put forth by the PPRC, Congress created the Medicare physician fee schedule through the Omnibus Budget Reconciliation Act of 1989. The fee schedule comprised three components: relative value scale, geographic multipliers and a conversion factor that converts relative values into fees. The legislation mandated a resource-based relative value scale for reforming physician payment under Medicare. The work of Hsiao and his team was now law, but he was pushed out of all future discussions on how best to implement the new payment system he helped create.

    There is a murky history on how exactly the RUC and not the Health Care Financing Administration became the de facto guardian of the resource-based relative value scale system. Urban legend suggests that the George H.W. Bush White House, in consultation with then-HCFA Administrator Gail Wilensky, Ph.D., awarded the ongoing upkeep to the AMA because they decided that maintaining the system would be too time consuming and costly. In 1991, the AMA established the RUC, which makes recommendations to CMS on the relative values to be assigned to new or revised codes in the Current Procedural Terminology code book.

    This system for determining the value of physician services was implemented in 1992 and is still used today, largely unchanged from its original construct. It isn't too surprising that the payment system hasn't changed, but what is shocking is what the researchers, PPRC and HCFA knew in the 1980s about the disparities in payments between primary care and other physicians, and that little was done to correct it until the 2020 Medicare Physician Fee Schedule final rule took one small step in that direction.

    There are key takeaways:

    • Hsiao Spoke Out -- Hsiao recognized the discrepancies between payment levels and relative values for office visits compared to surgical procedures. "These vary from procedure to procedure and specialty to specialty but indicate that, on the average, office visits are undervalued (or surgical procedures overvalued) by four- to five-fold," he wrote in 1979.
    • HCFA Knew -- As Miriam Laugesen, Ph.D., wrote in Fixing Medical Prices: How Physicians are Paid, "Hsiao completed another study for the agency in 1984 on physician pricing behavior. Staff at the Health Care Financing Administration knew that Hsiao had found large discrepancies between the fees for office visits and surgeries."
    • Nothing Changes -- "We found that there may be large differences in the way different specialties use the billing codes available for E/M services," Hsiao and colleagues wrote in a 1988 JAMA article. "Moreover, the work entailed within some of the E/M services may vary considerably."

    Wonk Hard: A History of CPT

    In the early 1960s, as insurance became more prevalent and the prospects for a government health care system for the aged became more likely, a recommendation to establish a standardized coding system for medical services and procedures was first suggested.

    • 1966 -- The first Current Procedural Terminology handbook was published by the AMA, thus establishing a standard process for coding medical procedures for medical records, insurance claims and statistical purposes.
    • 1970 -- The handbook expanded to include diagnostic and therapeutic procedures in surgery and medicine.
    • 1977 -- A system for updating existing CPT codes and adopting new ones was established.
    • 1980 -- The AMA established the CPT Editorial Panel and tasked it with maintaining the CPT handbook.
    • 1983 – The Health Care Financing Administration mandated that CPT codes be incorporated into the Healthcare Common Procedure Coding System and be used to report most Medicare Part B services.
    • 1986 -- The mandate was expanded to Medicaid.
    • 1987 -- The CPT system expanded to include outpatient hospital surgical procedures.
    • 1992 -- CPT Editorial Panel meetings become open to the public.
    • 1996 -- CPT was designated as a national standard for the electronic transaction of health care information as part of the Health Insurance Portability and Accountability Act.

    The original CPT handbook included 3,554 codes, was 175 pages in length and sold for $2.50. Today, the book includes more than 10,000 codes, is more than 950 pages, and sells for more than $100. The reach of CPT codes is extensive, as noted by the AMA: "Today, in addition to use in federal programs (Medicare and Medicaid), CPT is used extensively throughout the United States as the preferred system of coding and describing health care services."

    Those who want to know more may be interested in the following articles:

    Shawn Martin is senior vice president of advocacy, practice advancement and policy.


    Stephanie Quinn, AAFP senior vice president of advocacy, practice advancement and policy.  Read author bio »


    RSS     About RSS

    Our Other AAFP News Blogs

    Fresh Perspectives - New Docs in Practice
    Leader Voices Blog - An AAFP Leaders Forum
    FPs on the Front Lines - Meeting the Challenge


    The opinions and views expressed here are those of the authors and do not necessarily represent or reflect the opinions and views of the American Academy of Family Physicians. This blog is not intended to provide medical, financial, or legal advice. All comments are moderated and will be removed if they violate our Terms of Use.