Is Dr. Hsaio Responsible for the Doctor Shortage He’s Now Trying to ‘Fix’?

by Angela Chagnon

Health Care Hearing

Harvard economist Dr. William Hsaio and other members of his team testified about corrections to the Act 128 report at the House Health Care Committee Friday afternoon. Hsaio is also head of the Department of Health Policy and Management and the Department of Global Health and Population at Harvard.

Mark Larson (D-Burlington), chair of the committee, mentioned that he had been approached by several “specialists” and had been informed of Dr. Hsaio’s role in designing the Medicare reimbursement system to determine physicians’ pay for services provided to Medicare patients. The system is called RBRVS, which stands for “Resource Based Relative Value Scale”.

“What we did was measure the amount of work for every procedure and every service, and based on that amount of work input, you compensated the physicians,” said Hsaio. “As a result, some of the high, lucrative specialties…saw their fees go low[er].”

As of 2007, the Medicare reimbursement equation looks like this:

Work RVU x Budget Neutrality Work Adjustor x Work (GPCI)+Practice Expense (PE) RVU x PE GPCI+Malpractice (PLI) RVU x PLI GPCI= Total RVUxCY 2007 Conversion Factor of $37.8975= Medicare Payment

The Los Angeles Times ran a glowing article in October 1988 about Dr. Hsaio’s cost containment plan for Medicare.

Another not-so-glowing article from May 3, 2010 lays out Dr. Hsaio’s RVRBS system in very frank terms. An excerpt reads:

“After the introduction of Medicare and Medicaid in the late 1960s, the medical care economic model changed from being one where professional fees were determined by the market to the dysfunctional insurance model that we have today.”

Soon afterward, healthcare costs exploded. The Federal government decided that something had to be done about it and, in 1991, hired Dr. Hsaio to fix the problem. The article goes on to say:

“The government believed that what was needed to control costs was another layer of bureaucracy. So Dr. Hsiao was hired to develop a bureaucratic way to determine the costs of professional services since basic supply and demand forces no longer applied. Yet, ironically, the RVU system as originally envisioned by Dr. Hsiao as a way to control health care cost increases has actually worsened the situation while giving primary care physicians the royal (Medicare) screw.”

In a follow-up study published in the New England Journal of Medicine, Dr. Hsaio admits:

“The misallocation of practice expenses in the Medicare fee schedule results in serious underpayment for medical services. We think it likely that physicians compensate by performing more lucrative services, such as diagnostic tests. Even if legislation is passed to deal with the misallocation of expenses, the current conversion factor still produces unreasonably low levels of payment overall, which could dissuade those considering a career in medicine from entering the field. Finally, the simulation method we developed can be used as a tool for fee negotiations.”

Rep. George Till (D-Jericho), a physician and member of the Health Care Committee, said as much during the hearing. “In general, primary care and rural medicine…are very much under compensated by the RBRVS system compared to procedural oriented specialties,” he said. “That is the actual root of the problem of not having enough primary care physicians.”

Hsaio blamed the primary doctor shortage on the American Medical Association, accusing them of “distorting” the system and causing primary care specialists and internists to be underpaid. The American Medical Association’s position on RBRVS can be found here.

The AMA has been trying to reform the Medicare reimbursement system for years.

“In 2006, the RUC [the AMA/Specialty Society RVS Update Committee] established the Five-Year Review Identification Workgroup to identify potentially misvalued services using objective mechanisms for reevaluation during the upcoming Five-Year Review. The RUC formed this Workgroup in response to criticisms that, despite reducing the work RVUs for nearly 400 services in the past, the RUC process contains bias in favor of identifying undervalued codes as compared to overvalued codes.”

Hsaio also blamed the failure of the healthcare system on “serious market failures”.

“The market doesn’t work,” said Hsaio. “There are serious market failures in healthcare, and the United States has not been able to correct that. So consequently, people turn away from the market, and go to the political side…and of course the political side is also a market. And they are trying to use that market to do something. ‘I don’t like what’s produced by this economic market called healthcare. I want you, the political leaders, to do something about it.’ That would be my explanation.”

If you look at the evidence, the problems with the health care market are directly related to political leaders “doing something” — in some cases with the advice of Dr. Hsaio. We can only hope that the legislature realizes that before they make what may be the most expensive mistake in Vermont history.