January 4, 2010

Healthcare Reform Is About Protecting Monopolies

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Andrew Lawrence predicted it would be completed at exactly the right time, whenever that was

Brain teaser:

A Medicare patient comes to a Los Angeles psychiatric clinic for a new psych eval.  45 minutes later, the doctor codes and bills it as  "90801 Psychiatric Diagnostic Interview" for $169, fee set by the government.

A month later, the patient returns for a 15 minute med check; the doc codes it as 90862 and bills for $61.

Question: if this appears to be a consistent reimbursement rate of about $4/minute, why are there two codes? Why not just bill Medicare by the minute?


Most people assume the codes are simply government bureaucracy, like penal codes or social security numbers, the numbers are for public use.  They aren't.  They are a product, they are intellectual property.  To use them, you have to license them.  They are no different than a Jay-Z song: you have to pay Jay-Z for the right to use it.  

The trick is that doctors have no choice, Medicare requires them to use these codes-- that they must first license or buy.

Who owns them?  You probably think it's the government, but it isn't: it's the American Medical Association.

In 2001 they made about $70M from those fees.  Trent Lott attempted (read: pretended) to try to break this monopoly, but 6 months later the Towers came down and no one needed to (pretend to) do anything after that.

At that time (and now) politicians assumed that the AMA wanted the copyright protection to help doctors, because it prevented the consumer from comparing prices:

The AMA has been able to impose on the entire nation the AMA's obviously self-interested policy against consumers comparison shopping for medical care based on price by suing Web sites and others to prohibit them from posting comparisons of doctor and other medical fees on the Internet using the CPT code [said Trent Lott]
And that sounds sufficiently populist to get support.  But it's about doctors.  It's about the business enterprise that is the AMA.  It makes $70M from the CPT fees, but it makes only half of that from membership dues.  In fact, most doctors don't even belong to the AMA (I don't, nor to the APA); it's only about 15% of doctors.

The AMA is in the healthcare business, but the business of healthcare is business.


Lott was completely wrong, he was seeing the AMA as a proxy and protector of the greedy doctors it serves.  Wrong.  The AMA isn't going to protect reimbursement rates from Congress, but you can be sure it will protect CPT codes.   $70M might not seem like a lot, especially in comparison to the money at stake in healthcare reform; but $70M is a lot to the AMA.   

At some point in the growth of any organization, it spends increasing resources on its own existence.  It's not because it is evil or selfish, it is by necessity.  Consider the hypothetical example that the AMA wants to serve doctors, but membership is declining, so to boost revenue in order to serve doctors it tightens its grip on CPT codes, journal fees, etc.  However, doing these things puts it further at odds with doctors that they want to serve, resulting in further declining membership, which, by necessity, results in even tighter grips, etc.

This is not an ethical judgment, it's public choice theory, it's survival.  So far no problem.  This is the important part:

At some later point in the growth of an organization, as the members become more vocal in their disapproval, it begins to question the sanity of its own members; it doubts whether the people it serves even know what's good for them.   It assumes that the self-interest of the individual members is morally inferior to the self-interest of the organization.

This point is an inflection point; it is the beginning of the end for one of them.