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Ann Thorac Surg 1995;60:1094-1096
© 1995 The Society of Thoracic Surgeons
Sutter Hospital, Sacramento, California
Accepted for publication June 13, 1995.
Abstract
Surgeons have, over the past 7 years, experienced a significant decrease in valuation of their services. This has been accomplished by use of the Resource-Based Relative Value System, and its interpretation and modification by various agencies of the federal government. Congress recently mandated a study of practice costs that could result in further reductions of up to 30%. In anticipation of this further reduction, it is important to understand in as accurate a way as possible what has happened thus far to the value for surgical services. Simple percentage in decrease of fees is well understood, but their decrease in relation to the cost of a constant market basket of goods has not been well publicized. We present a simple method for determining the change in value for any procedure or service done by a surgeon in relation to the cost of a constant market basket of goods for any period of time from 1970 to 1995. For example, the increase in the cost for the constant market basket of goods between 1972 and 1992 is shown to be 236%. The increase in value for a typical cardiothoracic procedure in the same time period was 52%. The valuation for this procedure has actually declined 55% from 1972 to 1992, relative to the market basket of goods. The service that would buy the complete basket in 1972 will now buy only 45% of the basket.
As a result of the federal government's long concern with escalating Medicare costs and their more recent actions dealing with these costs, surgeons have experienced a significant decrease in valuation of their services. This has been largely accomplished through the use of Professor William Hsaio's Resource-Based Relative Value Scale method of physician work valuation and its interpretation and modification by the Physician Payment Review Commission, the Health Care Financing Administration, and their influence on Congress and the administration.
The Hsaio Resource-Based Relative Value Scale was calculated originally using three components: work, overhead costs, and income loss due to years in training. The devaluation that surgeons have so far experienced is a result of interpretation and valuation of only one component of the formula, that of work. The income loss due to years in training component was deleted by the federal agencies, who stated that they believed it was already built into the relatively higher work unit valuation for surgical procedures. To our knowledge, there was never a study done to support this belief.
As a result of advice from the Physician Payment Review Commission, as well as the Health Care Financing Administration, Congress recently mandated that the valuation for the third component of the original Hsaio formula (the practice expense costs) be studied. The Physician Payment Review Commission has indicated that, in their opinion, such a study could result in reimbursement cuts of as much as an additional 30%.
Although surgeons know that valuation for their services has already been significantly decreased, in anticipation of this further reduction, it is important to understand in as accurate a way as possible what has happened thus far to these values.
Methodology
The following method quantifies the actual loss in buying power for a constant unit of cardiothoracic surgical service from one year to another, in relation to the price of a constant market basket of goods as determined by the Consumer Price Index (CPI).
The CPI is compiled by the Bureau of Labor Statistics at the US Department of Labor (Table 1
). The CPI tracks the price of a constant market basket of goods. The CPI is a widely accepted measure of inflation in the United States. By law, the CPI is used to adjust Social Security and other government retirement benefits. It is also used to adjust the personal exemption, standard deduction, and ceilings on personal income tax brackets. The grid (Fig 1) was created by calculating the percentage change in the CPI from one year to another.
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Step 1
To determine the percentage change in the cost of a constant market basket of goods for any time period beginning in 1974 and ending in 1995 using the grid (Fig 1
), perform the following steps: (A) Choose the beginning year of the survey and find it on the vertical axis. (B) Choose the ending year of the survey and find it on the horizontal axis. The point of intersection of these two years will give the percent change in CPI for the period from the earlier year to the later year. For example, to look for the market basket change between 1972 and 1992, go to the vertical axis, find 1972, and then follow this line to 1992 on the horizontal axis. The point where the two intersect indicates that the change in cost for the constant market basket has been an increase of 236%.
Step 2
To determine the percentage change in the fee for a given procedure or service over the same time period, a simple calculation is made using the dollar figures for the beginning year and the ending year: (A) Identify the dollar value received for a procedure in the year beginning the survey. (B) Identify the dollar value received for this same procedure for the year ending the survey. (C) Subtract the dollar value for the earlier year from the value for the later year. This gives the dollar difference. (D) Divide this difference by the first-year dollar value to identify the percentage gain. For example, using the same years as those used to determine the CPI change from 1972 to 1992 (step 1), if the value for surgical procedure X was $2,000 in 1972 and $3,046 in 1992, the difference is a gain of $1,046. To determine the percentage change in value for procedure X between 1972 and 1992, divide 1,046 by 2,000, which yields a gain of 52% in value for procedure X from 1972 to 1992.
Step 3
To determine the comparative gain or loss of the value for this procedure or service in relation to the market basket over the same period of time, use the above two values in the following calculation. The results are most revealing!
Results
(A) In step 1 we determined from the grid that the change in the market basket cost from the beginning year to the ending year was 236%. Assuming that a market basket of goods cost $1.00 in 1972, convert the percentage increase in constant market basket of goods over the same span of years to a dollar value: 236% x $1.00 = $2.36 + $1.00 = $3.36. Thus, the market basket of goods that cost $1.00 in 1972 cost $3.36 in 1992.
(B) Similarly, we used the results of the calculation in step 2D to determine the change in the value for procedure X. In our example, the gain was 52%. Thus, using the same calculation as in step 3A: 52% x $1.00 = $.52 + 1.00 = $1.52. Thus, the portion of procedure X that generated $1.00 in 1972 would generate $1.52 in 1992.
(C) The actual decline in valuation of procedure X in relation to the constant market basket is derived by subtracting the value for the procedure ($1.52) from the value for the market basket ($3.36), giving $1.84.
(D) Finally, to determine the actual decline in the value of procedure X in relation to this market basket, divide the difference (1.84) by the constant market basket value (3.36), which yields the number (0.55). Thus, in this instance, the valuation for procedure X has declined by 55% from 1972 to 1992 relative to the market basket of goods. The service that would buy the complete basket in 1972 will now buy only 45% of the basket.
Conclusions
The decreased monetary valuation of cardiothoracic surgical services that was initiated by the federal government to lower Medicare and Medicaid costs has now spread to all payers. As noted earlier, we are facing another possible significant devaluation of our services under the government plan to revalue practice costs.
The exercise presented, when used to calculate the change in relativity in cardiothoracic services, provides both evidence as to what has happened to an individual's personal economic profile and data for future planning. To this point, it is important to understand that there is no present evidence to support the belief that there will be any increase in this relativity in the future.
Footnotes
Address reprint requests to Dr Miller, 23 Spanish Bay Circle, Pebble Beach, CA 93953.
This article has been cited by other articles:
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  J. A. Haugen and G. E. Miller Jr Results of continual devaluation of cardiothoracic surgical codes by the HCFA between 1984 and 1999 Ann. Thorac. Surg., January 1, 2001; 71(1): 9 - 12. [Abstract] [Full Text] [PDF]
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R. L. Replogle The Way Things Were-The Ways Things Ought to Be Ann. Thorac. Surg., April 1, 1997; 63(4): 923 - 929. [Full Text]
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