Reimbursements that physicians in the US get have no relation to supply and demand. All physician work is reduced to a series of codes, called the Current Procedural Terminology, and then submitted to the RVS Update Committee (RUC), which is made up of representatives of all specialties/subspecialties and this group then “values” the code by recommending that it be assigned a certain number of “relative value units” (RVUs). This recommendation is then passed on to the HCA (the government Medicare organization called Hospital Corporation of America) where they then change it based on whatever they want. There is a common misconception that the RUC gives more weight to proceduralists however, that was deemed untrue as each procedure contains a cognitive value as the number of RVUs for major procedures usually include the office visit before it (to set it up) and all the follow-up office visits after the procedure for 90 days.
An RVU assignment is supposed to reflect not only time, but acuity, risk, and need for specialized training. Once these RVUs are assigned, it requires an act of Congress to get them changed, so they certainly do not reflect changes in supply and demand in any sort of real-time. So as noted below, the federal government has declared that 15 minutes of curing your blindness by removing a cataract (plus the office visit to discuss it and the follow-up) is “worth” more than 15 minutes of discussing whether or not you should take a statin that will lower your risk of heart attack 20 years from now. Unfortunately, this is why there is such a disparity in the physician distribution of certain specialties and why there has been such a void to fill in terms of general practitioners and family medicine. This is all quite consistent with the Marxist theory of labor value and is the recommended way to set prices in socialism and it is yet another reason that I laugh hollowly when someone describes American health care as a “free market.” Unfortunately, this kind of system will eventually lead to an oversupply of physician in certain specialties and shortages in others due to the inefficient and politically-driven pricing mechanisms.
The price of healthcare insurance in the U.S. is determined in part by negotiations between payers and providers. When a large group of orthopedic surgeons commands a significant percent of business in a given area, they are in a good position to bargain for higher fees from local insurers. Why? It’s a relatively simple concept of market share monopolization and how this group of orthopedic surgeons are able to essentially strongarm the local insurers because this group is the primary source of income and reimbursements from this area of medicine. What happens, then, when insurers gain market share? In part, they are in a position to negotiate for lower provider fees. That is why health insurance mergers could potentially reduce health care prices. Why do I say “could” instead of “will?” For several reasons. First, health insurance is still a local business. The complicated market power of Aetna/Humana will still vary dramatically from market to market.
Some people call economics the dismal science. I have no idea what name they would give to the even messier world of health care economics. But that messiness is not the fault of health care economists, who simply happen to be studying one of the most fascinating and complex parts of our economy. I look forward to seeing what they learn about merger mania and health care prices. Especially with the new Trump administration and their plans on repealing the ACA, I’m curious to see what they will replace it with and whether or not it actually becomes a viable alternative or not. All I know is that if it does get taken down, I’m no longer eligible to stay under my parent’s umbrella health insurance plan :/ sigh. Of course there are much farther reaching effects, but due to the complexity of the 900+ paged law, it’s something only the most bored and titillated of healthcare economists will fully understand.
Healthcare, social justice, and policy are not mutually exclusive. Our individual and collective health – physical, emotional, psychological, and even socioeconomic – is directly affected by unregulated Big Pharma and U.S. health insurance companies. It is imperative we educate ourselves, hold the system and those who perpetuate it accountable, and demand for regulation reform.The more sociopathic you are, the more capitalism rewards you. This is why capitalism requires regulation.