Reinhardt on the AMA proposal to balance bill Medicare patients

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Uwe Reinhardt, Ph.D., James Madison Professor of Political Economy and Professor of Economic and Public Affairs, Woodrow Wilson School, Princeton University, responds on the AMA proposal to balance bill Medicare patients:

The AMA must be jesting--but then, the AMA has done many humorous things in the recent past, so this scheme is within that tradition.

Suppose a kindly nation decided to give every family in New York City a $2,000 per month subsidy for the rental of an apartment, but allowed landlords to balance bill on top of that allowance anything that the market would bear. Would that make sense? What would happen to rentals in NYC? Yet the analogue is what the AMA is proposing. Basically, they want to undo Medicare, but not give up the lush public subsidy that comes with Medicare. I have trouble keeping a straight face just thinking about it.

If we do want to depart from the current model of price controls--which has been poorly run, I admit--then I'd propose the following:

1. Every physician must use the Medicare relative value scale (RBRVS).

2. But every physician is allowed to set, at the beginning of each year, his or her own monetary conversion factor to be applied to that RBRVS. The physician would have to use the resulting fee schedule for the entire ensuing year, and for all of his or her Medicare patients (in other words, price discrimination among Medicare patients by the individual physician would be prohibited).

3. Each physician's conversion factor would be made public through sundry media, to wit:
a. via an 800 number
b. on a web site
c. by posting it in 5 inch letters visibly in the waiting room of his practice.

This would be a market-based pricing system, in lieu of the current administered price-control system, but it would provide transparency and thereby allow the competition everyone talks about.

I had proposed this scheme to the Physician Payment Review Commission, but it was then brushed aside as a flaky idea. The irony of ironies would be if now the AMA prevailed with its truly ridiculous scheme.

Happy New Year!

Uwe

Here are some brief comments on Uwe's double contribution.

Uwe's brief, sharp analysis of the social foolishness of the AMA's position is very welcome. It has been a long time since the country has had a discussion of what methods to use in paying doctors. Providing a down-payment subsidy on unrestricted fees in a national health insurance program serves no useful purpose other than raising physician incomes. Furthermore, Uwe's suggestion of an effort to model a reasonable income for physicians in any area and use that as the basis of a firm fee schedule, one that assumes a reasonable amount of daily work, and leaves the reasonable physician with a decent income, is also a worthwhile policy to explore. I agree as well with the idea that doctors are either in or out of a major plan like Medicare; the problem he describes here is important. So, in all these ways, I share Uwe's views and none of them raise democratic theory issues, as he worries with tongue and cheek.

I do want to urge, however, that Uwe not spend his time developing the 2nd best option--the market-mirroring one where public presentation of prices would be required along with what I regard as the unimplementable regulation that these published prices be required for all patients. I draw that lesson from months of monitoring my father-in-law's surgical partnership in l967, where the fees they 'charged' had little to do with the fees they ended up accepting. They set high fees, used that in the Medicare program, but in fact they discounted fees all over the place to deal with individual circumstances. Anyway, since Uwe's first-best is in my view best and his second is not a close cousin, I urge further discussion of making the current administered prices model better. After all, the rest of the OECD world has learned how to play the administrative price game; it takes continual adjustment.

Cheers to Uwe

Theodore R. Marmor
Professor of Public Policy & Management
Professor of Political Science
Yale University School of Management