Stanley Feld M.D.,FACP,MACE
In the early 1980’s, the government made an effort to control its costs by regulating prices for encounters, procedures and diagnoses. We had terms such as Evaluation and Management codes (EM codes), ICD-9 coding, CPT codes and DRGs. The goal was to quantitate services and unify prices for each diagnosis. This was very confusing and complicated for the practicing physician. We went to hours of dull, descriptive lectures to learn what these terms meant. We tried to figure out how to participate legitimately. Quite simply, a system of price controls was imposed upon us. Price controls, in my opinion, never work no matter what the industry. These price controls set into play many of the serious economic misalignments all the stakeholders suffer in our healthcare system. Price shifting occurred. Hospitals had more money and more administrators than physician practices. The hospitals figured out what was going on and how to get around it before the physicians did.
Price shifting was simply the phenomenon of increasing the price of a service to another payer (Private Insurer) to compensate for the reduction in fees imposed by the initial payer (Medicare). If the institutions’ or physicians’ cost to provide the service was $75, they would charge the patient, Medicare, and the private insurer $100 and have a $25 profit. Medicare now said it would only pay $50. In order to compensate for the Medicare reduction in payment below the cost of the service, the fee for the service was increased to $150 to the private sector. The price charged did not take into account the institution’s or physician’s patient mix. Some hospitals and physician practices lost money because they had a high percentage of Medicare patients. Some experienced a windfall profit because of a high private pay population. The insurance industry did not protest because its revenue increased with the increase in revenue volume.
The plot thickens. I believe the solutions to the riddle are in the developing defects in the system.