Many years ago I began to view prices as signals of value, divorced of any emotional baggage.  I came to the conclusion that the only time that a price should elicit anger is if the seller has the buyer over a barrel, an argument some would say applies to health care (buyer and seller, actually) and something we will discuss in this blog.  I owe my own understanding of prices to those who regard themselves as part of the “Austrian” school of economics, but cannot deny that my initial teacher was none other than Medicare.

The arbitrary cuts in pay aimed primarily at radiologists, anesthesiologists, pathologists and emergency room physicians in the early 1990’s, part of the RBRVS (resource based relative value scale), was a wake up call for many physicians.  One year later this same group of specialists were hit again with further cuts.  Let me give you some numbers so you will understand.  I was paid about $1100 (by Medicare) as an anesthesiologist for my service in connection with an open heart surgery lasting between 3-4 hours when I started my practice in 1990.  With the first round of Medicare cuts, my compensation was $550.  After the second round, my compensation for the last 6 hour open heart procedure in which I participated was $278.  The last claim I filed for a Medicare patient in connection with the anesthetic I provided for a total knee replacement rendered $78.

Medicare sent their message and I felt obligated to respond.  To continue to participate sent a message to the price-setters that I was ok with this.  I wasn’t ok with it so I quit dealing with Medicare, altogether.  At some level I felt obligated to respond with an appropriate price signal of my own.  Many of my colleagues were aghast that I would do such a thing, but in fairness to them, some of them were over a barrel and the folks running Medicare knew this.  That is why the most vicious initial cuts were reserved for physicians who were “hospital based,” that is, physicians who owed their livelihood and loyalty to the institution where they worked more so than any direct relationship with patients or physicians for whom they acted as consultants.  To say “no” to Medicare, meant saying “no” to the hospital where an anesthesiologist worked and meant retaliation of some type was near, as the hospitals, in spite of their poor-mouthing were still paid well by Medicare for their part. For an anesthesiologist or a group of them to say “no” to Medicare, to refuse to go along with this scam, meant that the revenue stream of that hospital would be affected adversely and most anesthesia groups, owing their livelihood to the hospital where they work (and with which many have exclusive contracts to provide the services there) feared that their group would simply be replaced by another anesthesia group.  Interestingly, enough anesthesiologists eventually quit participating in Medicare cardiac procedures that many if not most of those remaining are subsidized by the hospitals where these procedures are performed, obscuring the price signal sent by the folks at Medicare.