Fixing Medical Prices: How Physicians Are Paid by Miriam J. Laugesen (review)

Fixing Medical Prices is a superb book on a subject—how Medicare determines what it pays physicians—that is both exceedingly complex and arcane, yet also critically important in terms of impacting the structure of health care finance, organization and delivery. The manner in which a provider of anything is paid and how much they are are key factors when it comes to understanding how, why, where, when and what people do. Physicians are no exception. As Laugesen explains, following the flow of money is key to understanding health care policy and the contours of the U.S. medical industrial complex.

Fixing Medical Prices presents five major arguments. First, “higher prices for health care contributes to higher health expenditures in the United States” (p. 1). Or as a widely read 2003 Health Affairs article was entitled: “It’s the Prices, Stupid: Why the United States is So Different from Other Countries.” The volume of medical care per capita in the U.S. is similar to or less than the per capita volume of medical care in other developed countries. The main reason health expenditures rise so much more in the U.S. and consume such a comparatively large proportion of GDP is that the cost of most health care is significantly more than it is in other countries.

Second, as the single largest purchaser of physician services, Medicare sets the rates for physician services that become the default rates for the rest of the industry. Private insurers negotiate payment rates based on what Medicare pays. Moreover, Medicare’s prices are transparent and standardized with a Resource-Based Relative Value Scale (RBRVS) that needs recalibrating on a regular basis. Laugesen provides a rare and exhaustive analysis of how the American Medical Association (AMA) influences this recalibration process ever year. She also shows how the process is dominated by specialists who do medical procedures at the expense of primary care physicians who provide diagnostic procedures, prevention, and complex chronic disease management.

Third, Laugesen demonstrates that the AMA has remained powerful contrary to conventional wisdom that assumes that the organization has become politically weak and eclipsed by medical specialty societies. It is true the AMA does not wage major political campaigns for or against national health initiatives, as it used to from the 1920s to the 1960s. So it’s public profile has decreased. But the AMA has found subtle and less conspicuous ways to stay very influential when it comes to determining what Medicare pays physicians. Thus, the “decline” narrative used to describe the AMA in recent decades needs to be revisited. When one controls the manner and amount of payment, partisan politics are less important.

Fourth, Fixing Medical Prices highlights the continuing role of information asymmetry in medicine. Patients and the general public have vastly greater access to medical facts and data than in generations past, but setting medical prices (and, as a result, medical priorities) still requires medical experts. Only doctors—most of whom are specialists—sit on the AMA’s powerful RVS Update Committee (RUC) that recalibrates physician fees for Medicare.

Finally, Laugesen makes the insightful point that the story of Medicare payment policy for physicians is a classic example of “policy drift.” In other words, social scientists often focus too much attention on the failure or passage of major reform legislation at the expense of what happens to an Act thereafter. For example, the numerous annual tweaks and modifications to the seminal reforms to Medicare physician payment policy in 1989 have meant that the original goals of the legislation have largely and disappointingly not been achieved.

Fixing Medical Prices is an outstanding piece of scholarship. It draws from special access to AMA meetings and information, as well as other sources of valuable primary data. The book should be required reading for health policy scholars, medical students, medical historians, and anyone interested in how money—in the form of Medicare payment policy—shapes U.S...