Setting Prices

It's not easy setting prices, particularly when you are in a highly competitive industry.  It can be even harder holding a price when you are a small company selling to very large companies.  But it's a lot easier to set and maintain prices when it comes to healthcare, especially when the government is of great help in maintaining prices.

Most of the fees in healthcare are based on Medicare.  And Medicare fees are based on the time various procedures take.  And the time various procedures take is set by a committee of the AMA, the American Medical Association, i.e., doctors.  The lobbying group for doctors provides the basis for what the government and private insurance companies pay the doctors.  Sound strange to you?

Every year the Relative Value Update Committee (RUC), a committee made up of 25 members appointed by the various medical societies representing specialists and primary care physicians and six others, survey doctors asking how much time is spent on various procedures.  Does it seem odd to you that the doctors who fill out the surveys are informed that the reason for the survey is to set pay?  Would this cause some doctors to overstate the time of some procedures? It certainly seems that way as some doctors are working more than 24 hours a day if one believes their time estimates.

Further, despite the increasing use of sophisticated technology (which has reduced the time spent on many procedures) the survey results are seven times as likely to raise estimates of work value than to lower them.  Perhaps this is why Medicare spending on physician fees per patient grew 58 percent between 2001 and 2011.