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Business & Profession Health Economics and Policy

How Low Can You Go?

In healthcare, we hear a lot about money. How much do you think we spend on healthcare here in the US? The answer is over $3 trillion. Let me put that into perspective: that’s more than the entire GDP of France, or the United Kingdom.

American healthcare is the fifth largest economic enterprise on the planet. Whatever method you choose to evaluate healthcare spending in the US, we spend more money to provide the same services compared with any other country. Data from the Organization for Economic Cooperation and Development showed that in 2014, our total health expenditure per capita was $9,024 (1). Other wealthy countries spend about half that amount. Why is that? To quote an earlier paper on this very matter, “It’s the prices, stupid” (2). Virtually every procedure in medicine simply costs more in the USA than it does in other countries. As a result, the Relative Value Scale Update Committee (RUC) and Center for Medicaid Services (CMS) have been tasked with lowering prices over the past several years. To do this, they have been screening for so-called “misvalued services.” In other words, it’s believed that we are paying too much for certain services, and the outcome is familiar to many of us: significant cuts to retinal surgery, lasers and imaging. And there are more to come.

As we all know, the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 stipulates that the CMS must find $1 billion a year for the next three years in “misvalued services.” And we are increasingly seeing CMS rejecting the proposed RUC values, relativity and intensity are diminishing, and time is becoming the primary factor. The result is that we are being paid substantially less in 2016 than we were in 2015 for providing the most common procedures that we all deal with day-to-day. In 2016, payment for retinal detachment repair was cut between 16 to 33 percent depending on the procedure.

While we may think: “Why is everybody picking on ophthalmology?” It turns out that they’re not. Between 2009 and 2016, ophthalmology has been the only surgical specialty that has not suffered a net negative in reimbursement. However, there is going to be an increasing shift from volume to value and we need to be aware of these changing objectives. We already have the value-based modifier in the ACA, the merit-based incentive payment system (MIPS) starts in 2017 as well as alternative payment models (APMs). New CMS payment categories have also been defined. CMS have been very clear in their long-term goals: that by 2018, 80 percent or less of payments will be based on the quality of care.

I want to emphasize how critical MIPS is going to be moving forwards. We all need to understand the implications for our practices, as there are going to be performance criteria involving quality, resource use (including the cost of our drugs), clinical practice improvement activities, and advancing care information (the old meaningful use) of our EHR. It is likely, as we deal with these regulatory requirements, that the IRIS registry will play a central role going forward. So can healthcare spending be cut without physician payments being cut? Theoretically, yes, as we only account for 16 percent of payments into the healthcare system. But we control virtually everything else.

I will leave you with something to consider, and that is the triple aim of many healthcare policies: to improve the experience of care; to improve the health of populations; and to reduce the per capita costs of healthcare. So the question really becomes: how low can you go?

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  1. OECD, “Health Spending (indicator)”, doi: 10.1787/8643de-en (2016). Available at: Accessed September 09, 2016.
  2. GF Anderson et al., “It’s the prices, stupid: why the United States is so different from other countries”, Health Aff, 22, 89–105 (2003). PMID: 12757275.
About the Author
George Williams

George Williams is Professor and Chair of the Department of Ophthalmology at Oakland University William Beaumont School of Medicine, Director of the Beaumont Eye Institute, Vice Chief of Surgical Services for Academic Affairs at William Beaumont Hospital in Royal Oak, Michigan, and Secretary for Federal Affairs at the AAO.

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