The History Of Managed Care

The source for this blog is the November 4 issue of NPR’s Planet Money Podcast. It’s a fascinating story that you might enjoy listening to. Click here to listen.

 

If you don’t have an iPod or similar, I highly recommend you get one. They are great little devices for downloading both your favorite music and a variety of interesting podcasts off the internet.

 

 

When the federal government set out to create the Medicare system in 1965, their single biggest concern was that doctors wouldn’t participate.

 

In a current-day interview with NPR, Joseph Califano, senior domestic policy aide for President Lyndon Johnson, looks back to explain how the Johnson administration

decided on a radical idea.

 

They let MDs SET THEIR OWN FEES!

 

Why? They wanted to make Medicare more appealing to doctors.

 

 

Turns out, a ‘set your own fee’ Medicare system became very popular with medical doctors in the 60’s, 70’s and 80’s.

 

I think any practicing OD today could understand why.

 

But, this system was viewed as too expensive for the US healthcare budget.

 

Mr. Califano freely admits that he and his colleagues blundered because they simply didn’t understand the economic structure of the healthcare system.

 

This not-so-old story is a cautionary tale for why we should all be wary today as our politicians try to force healthcare reform on a resistant populace.

 

 

Desperate to get healthcare costs under control in the mid 70’s, the Gerald Ford administration sought to stem rising costs with a technique you will be very familiar with.

 

They started capping the fees paid to doctors.

 

At that point, Medicare moved from managed care to ‘managed pay’. And that, of course, is why doctors of all persuasion now hate it.

 

Unfortunately, the law of ‘unintended consequences’ took over and the ‘fix,’ created another problem, overtreatment.

 

Doctors decided if they couldn’t raise their fees, they would simply order, and bill for, more procedures.

 

Creating a new, bigger problem happens frequently when the federal government applies a narrow solution to a broad problem in a heavy handed way.

 

 

So now, the question became, how much is a medical procedure really worth?

 

In the late 1980’s, an economist from Harvard, Professor William Hsiao, was given the task of developing a method to determine competitive prices for doctor’s care.

 

Professor Hsiao explains on the podcast how he brought in groups of doctors and asked them to rate every single thing they did based on how technically difficult it was, how stressful, how much the supplies cost, etc.

 

Lots of data fresh in hand, Hsiao retreated to his Ivory Tower and developed the Relative Value Scale. Medicare adopted the RVS to determine payments in 1992, and it’s still used today.

 

And, of course, healthcare insurance and other third-party payer programs follow a similar model.

 

 

However, the RVS has done little to cut rising costs — something Hsiao, and virtually everyone in the healthcare industry, blames on… special interest groups.

 

It’s sad, but true. How much a doctor gets paid under today’s system to perform an eye examination, a colonoscopy, a cataract surgery or a skin biopsy is determined not only by the time and complexity of the procedure, but also by how effective that particular discipline’s lobbyist is.

 

 

So here we are nearing 2010. Healthcare providers are virtual prisoners to a third-party payment system controlled by big corporations and even bigger government.

 

Sure, you can opt out and take only private pay patients.

 

But, if you want to serve the vast majority of consumers, those covered by these government and private plans, you have to play by the big boy rules.

 

My question is: How does a minority profession like optometry best position itself to prosper over the next decade and beyond?

 

Agree with this blog? Disagree? Have a comment or question of your own? Click here to send me an e-mail.