Following up from the last entry, you now understand how much doctors and hospitals get paid from insurance companies. To summarize, it is Medicare that sets the rate from which doctors are paid. If you are insured and if you are like most people, all you care about is that you, or your employer, can afford your monthly premium, and your plan has affordable co-pay and deductible amounts (the dollars you pay directly to your doctor or hospital). But it is crucial to become more consumer savvy about what actual health care, not just insurance, costs. Insurance companies and our politicians don't want you to know. And Medicare is driving the bus so to speak. So let's take a very brief walk down memory lane with respect to Medicare....
DRG's The Key to the Castle...
From 1964 to 1985, Medicare paid for procedures and office visits based on what was actually done. The activity was described, billed, and doctors and hospitals were paid accordingly. Insurance companies at that time used all kinds of resources to calculate payments to physicians: St. Paul's Medical Reimbursement Fee Schedule (1987), Resource Based Relative Value Scale (RBRVS) which is a standard methdology based on the principle that payments for physician services should correspond with the resource costs for providing those services. Commercial insurance at that time did not unilaterally tie their wagon to the Medicare rate, or what has been termed the "allowable" amount of payment. But in 1985, the implementation of DRG's (Diagnostic Related Groups), which uses diagnosis codes to link with a procedure, changed the landscape of how and what is paid for medical services.
In 2007, author Rick Mayes described DRGs as: "..Rather than simply reimbursing hospitals whatever costs they charged to treat Medicare patients, the new model paid hospitals a predetermined, set rate based on the patient's diagnosis.The most significant change in health policy since Medicare and Medicaid's passage in 1965 went virtually unnoticed by the general public. Nevertheless, the change was nothing short of revolutionary. For the first time, the federal government gained the upper hand in its financial relationship with the hospital industry. Medicare's new prospective payment system with DRGs triggered a shift in the balance of political and economic power between the providers of medical care (hospitals and physicians) and those who paid for it - power that providers had successfully accumulated for more than half a century."
When doctors did a surgery prior to the use of DRG's for the purposes of payment, he was paid 100% of the Medicare "allowable" rate listed for each procedure done. For example, complete sinus surgery requires multiple individual 'procedures' that can be performed at the same time. The surgeon, prior to DRG's, was paid 100% of each Medicare allowable or insurance listed price for every procedure associated with the sinus surgery. With the implementation of DRG's, however, the surgeon is paid 100% of the Medicare allowable (or insurance plan rate)for the first of the procedures, 50% of the rate for the second, and 25% of the rate for the third and subsequent procedures. This dramatically reduced what was then being paid out for procedures. For purposes of illustration only, see the table below:
A Sinus Surgery: Multiple Procedures
Septoplasty First Procedure...
Medicare Allowable payment $1500
Before DRGs 100% or 1500
After DRGs 100% or $1500
Nasal ethmoidectomy Second Procedure
Medicare Allowable $1200
Before DRGs 100% or $1200
After DRGs 50% or $600
Turbinate reduction Third Procedure
Medicare Allowable $500
Before DRGs $500
After DRGs 25% or $125
Total Paid to Surgeon
Before DRGs $3200
After DGRGs $2225
**It would be much easier to read if I could insert a table or chart, but the formatting of this blog site won't allow it. Sorry for the inconvenience.
Commercial insurance pay the same way as Medicare, applying the 100%, 50%, 25% reductions to multiple surgical services performed on the same day.
When you hear politicians say that reform is needed "because doctors get paid for how many procedures they do - the more they do, they more they are paid", it is important to understand how they are paid. With the introduction of DRG's back in the 80's, the more physicians do, the less they are paid.
With most businesses, the more you do (services) or the more you sell (products) the more you are paid. The philosophical argument that is embodied in the current health care reform debate is that medical services, or more specifically your doctor and or hospital, should not be paid based on how many patients or procedures he/she is willing to see or treat. Their base of payment should not be driven by quantity. They should be salaried and their payment based on quality standards. But the inherent problem is what will be required from physicians to practice the art and science of medicine in that type of environment - when quality measurements for the practice of medicine are being managed and implemented by the government.