The Journey to Value in Payment: Why is This Stuff so Hard?

By Robert Hall, PPS Senior Consultant

One of my favorite Oscar Wilde admonitions is to avoid cynicism: “What is a cynic? Someone who knows the price of everything and the value of nothing.”

Unfortunately, value is a slippery idea in health care and the ways we try and calculate it can spur intense cynicism based on their complexity and perceived ease of manipulation. Nevertheless, having a rough idea of the value you add to the health system and the well-being of your patients is incredibly important as we lurch into a system of payment based not on how many things are done, but how much health results from your work. I just wish it were easier to quantify.

As we move to a more modern way of looking at value, it’s important to explain the way the health system has measured value through payment for outpatient clinical services for close to 40 years. Current Procedural Terminology (CPT) codes were published by the AMA in 1966 and began to be used by the Medicare program in 1983 and are known as HCPCS Level I codes. They are the core of the more than 5 billion US health care claims that are submitted for payment each year.

Each CPT code is associated with “relative value units” or RVUs. RVUs do not represent monetary value. Instead, they signify the relative value (as ultimately defined by the Centers for Medicare and Medicaid Services) of clinician work, resources, and expertise devoted to care for patients. The actual dollar amount of payment for those services only comes when a conversion factor (CF) — dollar per RVU — is applied to the total RVUs reported. Congress (through direction to the CMS) sets the value of the CF each year.

The RVUs associated with a specific CPT code consist of three components:

  1. Clinician work: The amount of time, skill, training, and intensity necessary to perform a given procedure. The work RVU accounts for 53% of the total RVU.
  2. Practice expense: Costs such as equipment and supplies, consulting and professional services, rent, and staff salaries.
  3. Malpractice expense: The liability expenditures borne by or on behalf of the clinician. Malpractice expense makes up only 3% of the total.

Each component is then multiplied by the “Geographic Practice Cost Index,” or GPCI, to account for variations in living and business costs across the country. Montana and Manhattan have very different costs of living, and the GPCI attempts to account for that. Add the three elements together, multiply the resulting sum by the CF, and you reach the dollar amount that Medicare will pay for a particular CPT code.

The primacy of CPT-based payment is slowly changing as we see new payment models proliferate across the country. While I think CPTs and RVUs will be around for a very long time due to the infrastructure devoted to them, policymakers are shifting their focus away from gauging how many things a clinician does to how much does that care contribute to improving health outcomes. And right now, calculating and assigning a value to that is pretty messy.

Policymakers look at value differently than clinicians or patients do, and their efforts to maximize the impact of tax dollars has led to incredible complexity. When considering value and cost effectiveness, a policymaker will likely not only include costs that are directly related to treatments, but will add in related societal benefits such as those associated with decreased sick leave or increased productivity at work, both of which are critical results from effective physical therapist services. To evaluate the choices available to them, policymakers turn to well-worn econometric analyses to decide what to fund. As Bürge, et al., state, “Generally, there are five types of economic analyses in health care: cost-minimization, cost-effectiveness, cost-utility, cost-consequence, and cost-benefit. As recommended for health and medicine, cost-effectiveness and cost-utility analyses are the most relevant for physical therapy.” One tool policymakers depend on is the incremental cost effectiveness ratio (ICER) to assign a number to the cost effectiveness of a specific health intervention. ICERs illustrate the difference between normal treatment alone and normal treatment in addition to a specific intervention. But even the academics include different assumptions in their calculation of the critical value of a health intervention’s ICER. In a seminal literature review about physical therapy’s cost-effectiveness, the ICERs that were reported in various studies about specific physical therapy interventions only sometimes included societal costs. Not including those costs makes it challenging for a policymaker to assign a dollar value to physical therapy services.

Even under the simplest definition of value in health care (quality divided by cost), complexity results. For a patient (or, if you will, a customer), the idea of value could be as simple as “what I got and how much it cost me.” But so much more goes into each health result for a patient: generally some form of insurance that tends to hide real costs from the patient, a functioning health system that is all but invisible to most patients, back-office staff wrestling with insurers to secure payment, the physical plant required to treat patients in a healthy environment, and innumerable other inputs. And even the results of treatment interventions can be calculated from the perspective of the customer/patient in vastly different ways. Does the patient only want improved function? Does the patient actually want to hurry back to a job that may or may not be fulfilling? What about the mental health benefits associated with successful physical therapy treatment? The job of assigning value — even with the most basic quality/cost formula — gets quite complicated when human beings are being evaluated.

It’s not so simple to calculate a number proving your exact value to a payer. Because physical therapists still primarily operate in a world where dollars get paid for services provided, PPS has produced a number of new resources to help you prove your value to insurers and policymakers. We urge you to use them in your quest for value, and ultimately, optimal payment. Knowing how much “bang for the buck” you can add to the health of your patients will help increase the number of bucks coming into your practice.

Robert Hall is a senior consultant for PPS working to advocate with private payers. Prior to his work with PPS, he was the Director of Government Relations for the American Academy of Family Physicians, the access to care lobbyist for the American Academy of Pediatrics, the Director of Government Relations for the National Coalition for Cancer Survivorship, Counsel to US Senator Mark Dayton, Attorney Advisor to the US Securities and Exchange Commission, and Chief Clerk to the Texas House of Representatives Insurance Committee.

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