AMA’s Ownership of Medical Billing Codes Boosts Prices and Overhead Costs

Writing in Health Affairs, Ezekiel Emanuel and Kevin Schulman explain that one-quarter (25%) of health care spending is in on administration. The cost of health care administration is $1.5 trillion each year. Americans could save $1,200 on their health insurance premiums if administration were merely reduced by one-quarter Emanuel and Schulman claim. More from Health Affairs:

A big part of these administrative costs involves billing for medical services. In the US, the billing and related insurance costs for a simple physician office visit are more than $20 per bill, amounting to nearly $1 in $7 of physician office revenue. The billing costs for a surgical procedure done in a US hospital averages more than $215.

Sending a bill to an insurance company involves four steps. First is eligibility determinations, such as verifying a patient’s insurance status. Second is coding, which entails documenting the services provided and linking them to specific insurance and billing codes for the service. Third is reviewing and formatting the bill and submitting the invoice. Last is any reworking and adjudication if the insurance company questions or denies the bill.

The United States spends more minutes on billing tasks than other countries. The authors do not believe that artificial intelligence is going to help. Providers already use AI to bill health plans and insurers use AI to deny claims. There are around 1,000 insurance companies administering 318,000 health plans. That is a lot of different companies with numerous health plans to bill and collect. More from Health Affairs:

Furthermore, in the US medical billing is “unbundled.” There is a separate bill for every part of a medical service. For a surgical procedure, there is a charge for the operating room, a separate charge for the anesthesiologist, a separate charge for the surgeon, a separate charge for the recovery room, a separate charge for medications, and a separate charge for any follow-up visits or physical therapy. Some countries pay hospitals a global budget or bundled payment instead of billing for each service separately. 

Emanuel and Schulman say, “To realize savings requires standardizing and digitizing billing.”

Everything in health care is billed piecemeal. There is no bundling of service because there is little competition. In a competitive market, common services would be bundled into their usual components. This is not done in health care. Rather, providers try to maximize reimbursements against insurers’ reimbursement formulas. How does this work? It’s done through thousands of itemized billing codes allowing providers to bill for every conceivable task. 

What difference does this make? The AMA recently announced a change in the maternity CPT codes, moving away from a bundled global obstetrics code to separate codes for antepartum care, labor management, delivery care, and postpartum care. Physicians who once billed obstetrics under a global code (59400 or 59510) will have to split up billing into numerous phase specific codes. This likely means more pay due to more billable tasks. 

There are more than 11,000 billing codes called CPT codes. These represent 11,000 tasks for which providers can charge. Guess who owns the CPT codes? The American Medical Association (AMA). I have read that if doctors and hospitals started advertising prices for each CPT code the AMA could shut it down as a copyright violation. The AMA does not want price transparency, because they do not want doctors competing on price. 

The Centers for Medicare and Medicaid Services made a grave error when it allowed a nonprofit advocacy organization for providers to own the copyright for the codes used to bill. Allowing AMA to hold CPT code copyright increases complexity since the AMA’s goal is not facilitating competition. Owning the copyright brings in $513 million in medical billing code revenue each year (far more than the AMA makes off membership dues). The revenue is probably a drop in bucket compared to the added cost of overhead from piecemeal pricing. Gaining control over billing codes and streamlining/bundling codes into procedures is unlikely on its own to lead to greater competition. However, piecemeal pricing makes price competition more difficult since finding the price of a medical service often requires knowing the myriad of CPT codes that goes into that service. 

Read more at Health Affairs: Addressing Medical Affordability Without Compromising Care