Doctors and hospitals worry a lot about what they get paid. It surprised me several years ago to discover that a majority of the doctors and managers in our organization did not have an in depth understanding of the mechanisms and issues that really determined how we were paid. As I have traveled around the country I have discovered that our organization was not an exception. Misunderstandings about where the money comes from and the various components of the “revenue cycle” have sustained a small army of consultants and experts in revenue cycle improvement and the associated issues of coding. One of the most important processes that Lean can improve for a practice, hospital or health system is the revenue cycle.

Harvard Vanguard/Atrius has a terrific VP of Contracting who, during my tenure, would travel around to our sites giving a talk entitled “How We Get Paid”. It was a presentation of the “facts of life” for smart people who, more often than not, were amazed by what they did not know or had misunderstood for years and years. In May I will be speaking to a group about “How to Manage the Financial Transition from Volume to Value”. The answer is simple. No matter what your revenue source, focus on providing quality care that is patient centered, safe, efficient, effective, timely and equitable. While in pursuit of those objectives focus on creating value for the customer by improving service and removing waste. Realize that managing cost, managing processes of care to reduce waste, and focusing on growing the practice by attracting patients with your quality and service is the only way to go no matter whether you are paid FFS or you are seeking new revenue for the care of a population. Taking the bugs and waste out of a revenue cycle that you understand also helps.

When I was a child my mother read Joel Chandler Harris’s Uncle Remus stories to me over and over again. Those stories were an introduction to strategic thinking. Walt Disney gave me great visuals and music with “Song of the South” (1946) which has never been released on DVD, perhaps because Disney was criticized for a racially insensitivity in the movie. Harris wrote out of respect for the African American oral culture and to diminish tensions in the post Civil War period (Uncle Remus was published in 1880). The issue of what standard should be applied to historical figures with respect to race is a vexing problem given the continued racial tensions of our time. When I was growing up in the South in the 40’s and 50’s Harris and Disney had not yet been criticized for their benign presentation of slavery.

My favorite story is “Br’er Rabbit and the briar patch”. You probably remember that the briar patch is where old Br’er Rabbit was born and it was into the briar patch that he convinced Br’er Fox to throw him when he famously said, “Whatever you do. Don’t throw me into the briar patch!” We, Harvard Vanguard/Atrius Health, had been born in the “briar patch” of capitation and I always dreamed that the briar patch of value based reimbursement was more like our birthplace than FFS payment! I still look forward to the day when we are back in the briar patch.

I love to markup journals and books as I try to extract what the authors are trying to give me. I had a field day with a recent article in the NEJM, “Finding Value in Unexpected Places — Fixing the Medicare Physician Fee Schedule”. The authors of this very informative piece quickly point out that if we look under the covers of value based reimbursement, we will discover that for a long time to come physician compensation will be built on a fee for service infrastructure. They are convincing when they insist that we should give that fact deep thought.

What payment reformers often fail to recognize is that the specific MPFS [Medicare Physician Fee Schedule] payment rates have important implications for Medicare and its beneficiaries. The relative payment levels for the thousands of service codes and the absence of payment for other activities powerfully influence how physicians spend their time — and their tendency to perform unneeded tests and procedures. The mix of services that physicians provide under a particular fee schedule can affect value at least as much as any improvements derived from rewarding physicians on the basis of quality measures — the approach Congress took in the Medicare Access and CHIP Reauthorization Act of 2015 [MACRA]

Variation in payment rates — and resulting incomes — also influences new physicians’ specialty choices and contributes to growing shortages of primary care physicians and geriatricians. A substantially improved, carefully managed MPFS could not only pave the way to more fundamental value-based payment reform but also improve performance among physicians who are likely to be paid according to fee schedules for the foreseeable future.

…The Department of Health and Human Services categorization of payment methods acknowledges that most value-based, physician payment models being tested are built on top of the MPFS, as are the two value-based payment initiatives that replaced the sustainable growth rate formula — the Merit-Based Incentive Payment System and Alternative Payment Models. If the foundation of Medicare’s fee schedule isn’t sound, these systems will be unstable.

From this start, which may represent news for some, the authors go on to examine the Medicare Physician Fee Schedule as it exists and probably will exist for sometime. They discuss the origin of the resource-based relative value scale (RBRVS) and of relative-value units (RVUs). They point out how the scales were created to try to fairly compensate both procedural specialists as well as physicians whose tasks were primarily “cognitive”. I have heard Thomas Scully, the administrator or CMS under George Bush in 1992, admit that RVUs produced exactly the opposite effect from what they were designed to do. As a mechanism for producing compensation equity, RVUs have been a total failure as a strategy. Everyone of us knows that the gap in compensation between procedural specialties and primary care and other cognitive specialties continues to grow. The authors show us that since 1992 the increase in comp of radiologists and cardiologists is up 2-2.5 times the increase for family physicians, pediatricians, internists and psychiatrists.

I have found that many doctors and administrators do not know the role of the AMA in determining the value of individual RVUs for E/M codes. The authors review this as they discuss the RUC (the RVU Update Committee of the AMA). The RUC is populated by a majority of specialists and many feel that there is a conflict of interest in the way the process works since after review by MedPac, CMS essentially copies and pastes the recommendations of the RUC into the Medicare Physician Fee Schedule and then the commercial payers copy and paste the same schedule with some increase into their payment mechanisms.

Most physicians do not really understand the origin of their pain as the Medicare compensation schedule is translated into the entirety of their compensation or realize that since most payers base their fee schedules on the same RVUs from the RUC, the damage is compounded. What the authors also suggest is that technology has reduced the “work” of many procedures but the compensation has not changed to reflect the reduced effort. Simultaneously, the work of the “cognitive specialties” has become much more complex and tedious. The work of cognitive practice has increased as the relative rewards have fallen and much of the work is not compensated at all.

The combination of these realities has been why I have always favored a capitated payment system that allows a system to set its own “internal” RVUs which can partially repair the problem. At Harvard Vanguard our “internal RVUs” could not completely eliminate the problem of inequity in compensation between specialties since all organizations are vulnerable to the “market” compensation ranges in their service areas. The authors rightly recognize that the system must be repaired centrally. Presumably, the solution will require political will within CMS where the repair must occur.

We believe that two key flaws in the RBRVS are its substantial misvaluations of physician work and the failure of current service codes to capture the range and intensity of nonprocedural physician activities, known as evaluation and management (E/M) services. Correcting these flaws could improve outcomes and support movement toward payment models that will better serve Medicare beneficiaries…Implementing new incentives and quality measures in new payment models while maintaining a broken fee schedule is a prescription for failure.

I hope that many physicians and healthcare managers and executives will read the whole article and find a way to respond to the issues that are addressed. I have long predicted that these inequities in the relative compensation between the various specialties undermine our ability to collectively address the larger changes that are required to make progress toward the Triple Aim. This issue will be further aggravated by the implementation of bundled payment and is a huge issue in the effectiveness of ACOs. Inequity in compensation breeds anger and undermines the movement toward the level of collaboration that I refer to as “I to We”. I think that it is unlikely that this issue will be resolved easily. There could be “blood on the floor” before a solution is found which not only explains why it persists but also points out that the solution will be dependent on leadership capable of a very long view.