Should insurers pay the same fees under an all-payer system? - Medicare Payment Systems: Moving Toward the Future

Health Care Financing Review, Winter, 1994 by Gerald F. Kominski, Thomas Rice

Finally, our findings could have significant redistributive consequences. The Prospective Payment Assessment Commission (ProPAC) (1992a) estimates that private insurance payments equal 128 percent of costs, while Medicare and Medicaid payments equal only 90 percent and 80 percent of costs, respectively. Thus, if fees under an all-payer system for all major insurers were based on their costs, fees for private insurers would be reduced by 22 percent, while fees would be increased by 11 percent for Medicare, and by 25 percent for Medicaid. ProPAC's study did not directly address the issue of the relative costs of each major insurer, however. Our results indicate that the relative costs of Medicare patients, after controlling for case-mix differences, are at least 12 percent higher than privately insured patients (i.e., commercially insured, HMO, and Blue Cross). If these results were nationally representative, substantial increases in financing for Medicare and Medicaid would be necessary, and substantial reductions in the premiums collected by private insurers would be possible.

Physicians

If the RBRVS-based MFS is used as the basis for physician payment under an all-payer system, the question to be addressed is whether the relative value units reflect the amount of effort needed to treat all patients. If they do, then the same physician fees could be used by all insurers; if they do not, then some modification would be necessary. The most commonly discussed method of doing so would be to make adjustments in the conversion factor in situations where the patients covered by one insurer are more costly to treat--for example, using what has been coined a "Medicare adjuster."(4) (We will not consider whether pediatric patients also involve more effort for particular procedures, since we are aware of no empirical information on this issue.

To examine the need for such an adjustment, it is useful to consider each of three types of services separately: visits, surgery, and ancillary services. Beginning with the last of these, there would appear to be little need to have different payment rates for different types of patients for testing and imaging services. Although there is no research available on this specific issue, it would seem that the amount of work that goes into interpreting such tests should be invariant with patient age (Physician Payment Review Commission, 1991c).

With respect to visits, there are several studies concluding that Medicare and non-Medicare patients require similar amounts of physician effort. As part of the Phase II study conducted by Hsiao et al. (1990) on the RBRVS, the amount of work entailed in providing the following services was compared:

* A followup office visit for a stable 80-year old with metastatic breast cancer, versus a similar 50-year old patient.

* A followup office visit for a 70-year old diabetic hypertensive with recent change in insulin requirements, versus a similar 45-year old patient.

* A followup office visit for a 67-year old male with right above-the-knee amputation who is having physical discomfort due to his prosthesis, versus a similar 27-year old patient.