Letters to Dr. Oz

I imagine The Director for the Center for Medicare and Medicaid Services is reading this newsletter.

I don't have to tell anybody there's a new administration coming to govern— just like there is every four years.

This is an unprecedented period of time. And I mean that there is little precedent for it. I'm going to try something a little unusual, and I'm going to write a letter, or maybe a series of letters, to the incoming administration. I will be very frank— but these are letters written to people. I'm going to try to keep their minds in mind. I will do my best to think about what those individuals might want, think, or value. For the rest of your reading this, you'll have to buckle up and follow me on this journey because this series of columns has not been written to you.

I am going to start by writing to Dr. Oz. I don't know Mehmet Oz personally, but I feel the most comfortable trying to write to him—out of this case of characters— because he's a doctor, too. That's a place to start. He's also been nominated to run the Center for Medicare and Medicaid Services, an agency about which I have a lot of thoughts and feelings. With further ado, my first letter….

Dear Dr. Oz,

Welcome to a remarkable opportunity—honestly, this is a way better gig for you than being elected to the Senate would've ever been. You will be happy to have the most important role in healthcare. The Center Medicare and Medicaid Services is a woefully under-resourced department. Part of this is structural, in that the CMS ends up setting policies on spending money, and a phenomenal amount of it doesn't bring money in. The FDA is different. Companies will pay the FDA to evaluate their products. Those companies have money because they get to make money off of selling those products if it goes well. CMS is a much more grim mandate—care for everyone with limited funds. Don't blow it. Don't spend it on something stupid. Don't do that.

CMS, for administrators, is all about not looking like an idiot. They need to pay for healthcare services so no one will glance at them cross-eyed. Innovation would be penalized. If you're going to pay for a treatment, and it turns out not to work, and you were the CMS administrator who blew all the money we need for existing treatments?

The mindset is scarcity. Nobody wants to do a lousy job and get fired, and then they have to be the person who did the wrong job and got fired.

However, according to the incoming administration, many people will get fired anyway. It may be that the driving force of CMS—which, to be very clear, has been people not wanting to do something stupid and get canned—might not be so important anymore. If everyone is maybe getting fired from all government, you may be able to incentivize different behaviors.

 CMS's payment for services needs to change. I'm pretty sure you know this, but I will provide a little extra explanation in keeping with the open letter format so everyone else can follow along.

CMS uses the American Medical Association’s CPT coding system to decide how much medical care is paid, which is not only what doctors do.

In hospital settings, this information gets backsolved from current procedural terminology codes, which account for each of the individual parts of care delivered in the hospital, to bundle payments, Which are paid for under DRG (or Diagnosis-related Groups).

In the hospitals, these are bundled payments. This payment model has created incentives for innovation, at least in general medical care. The intensive care unit is only possible If we pay for innovative treatments that can keep people alive. When. For nothing else would. However. In the outpatient setting. This doesn't exist. The challenge for CMS, of course, is that hospital care and outpatient care are costly. Where you could keep people out of those costly hospitals. Honestly, for the most valuable specialties, it doesn't pay enough. RFK has already talked about needing to have “healthy foods,” and that is true, but there isn’t a CPT code for that intervention. Attempts to pay for evidence-based healthy eating such as the ketogenic diet for bipolar disorder don’t get reimbursed. There is no code to negotiate! It’s like going to an arcade with foreign currency—those won’t feed the video games with slots for US quarters.

We have this rather strange situation. Medicare is overwhelmingly not able to negotiate the price of drugs. So, whatever the manufacturer comes to market with. That's what CMS ends up having to pay—it comes down to a fight over formulary. It is not great for health, per se, just a very successful go-to market for the drug maker.

“Time for physicians” has also been extensively negotiated. This happens at the American Medical Association level, which sets the multipliers on the central unit of calculation in American healthcare: the relative value unit (RVU). CMS sets a price for one unit of these RVUs, and historically, the AMA has decided what each doctor in each medical specialty gets paid for each thing they do. It’s “practice expense * physician time * med mal insurance premium * location multiplier.”

It’s a question of what adds up to one relative value unit. The problem with this is that you're paying people fundamentally for their time or how much it costs them to do a thing. For a neurosurgeon, it costs more to do a neurosurgery. It would help if you had a whole bunch of other equipment, staffing, surgical ORs, etc. A neurosurgeon spends five minutes, maybe the equivalent of an hour of a primary care doctor's time, for RVUs per unit time. This is because you're adding up some of how much time they take and some of how much it costs to run their practice—not how much value they create.

The Center for Medicare and Medicaid Services can't change the price of drugs in our current system…at least not without getting into a knock-down, drag-out fight with pharmaceutical companies. You should pick your battles regarding the relative value units and the American Medical Association.

However, one part of the payment infrastructure that isn't as firmly entrenched and calcified is medical devices.

Medical devices aren't paid through pharmacy benefit managers, so there are no negotiated billions of dollars of kickbacks—sorry, rebates—around them.

They're paid for under the CPT code system—and the Healthcare Common Procedure Coding System (HCPCS) you control! For example—in some cases, if a physician uses an electronic health record, we're not paying separately for that.

We don't pay separately if they use a stethoscope. For some procedures, we include the cost of the piece of equipment. CMS can actually change the multiplier for that number. So, I advise you to lean in hard on breakthrough medical devices. The FDA's breakthrough program has been successful.

They are defining new things. Meaningfully different from existing treatments, better outcomes in life-threatening conditions. That is better than anything before. At least in the hospital setting, when those things are more expensive to provide, they qualify for new technology add-on payments (NTAP). And for years, those NTAP payments have allowed for the miracles of modern medicine, like implantable cardiac defibrillators. And extracorporeal membrane oxygenation. These remarkable devices allow us to save lives in the hospital setting, but they don't have an easy path to payment in the outpatient setting.

If you're wondering why inpatient psychiatry still sucks, it's because the new technology add-on payment program only became relevant for a psychiatric innovation last year. That innovation is fMRI-guided accelerated transcranial magnetic stimulation. Still, 75% of all inpatient psychiatric units have contracting that doesn't allow for these add-on payments, and thus, new technologies are not being brought into inpatient psychiatry, basically at all.

That means we don't have any financial mechanism to drive innovation away from pharmaceuticals alone and towards better outcomes.

Thus, my advice to you, Dr. Oz?

It’s self-interested. I admit to being very self-interested, given that I'm a physician who thinks mental health and devices are good tools.

Use the CMS levers to create novel payment pathways for breakthrough medical devices. Over the long term, you'll pay less.

If you do this, you won't have to pay off the big pharmacy benefit managers to negotiate rebates back and forth. It's a different payment pathway that allows for value.

Focusing on breakthrough medical devices, including artificial intelligence-powered tools, has an additional benefit. We all know that's incredibly powerful, but right now, it's not getting into the most value-starved parts of healthcare where it could save the most lives because, surprise, surprise—there's no way to pay for it.

Paying for Breakthrough Devices Everywhere was proposed last year with broad bipartisan support. It was called the Breakthrough Treatments Act. That act called for automatic payments in the hospital setting, just like the new technology add-on payment program. And in the outpatient setting. For innovators, getting into a novel technology payment pathway like TCET is just a matter of tooth and nail. CMS could do this more broadly with one stroke of your pen. Or, with congressional support, we could pass the Breakthrough Treatments Act.

This would allow these breakthrough medical devices—which, importantly, aren't drugs with endless markups—to get rapidly to people who need them. This would also drive investment dollars into technology, not just pharma. This would be a better use of money for us all.

We must make outpatient care less expensive and better over the long term. And if you try to do that with better drugs, it's going to cost more because we already know drug prices go up forever. There's $485+ billion a year in pharmacy benefit management rebates. And that goes up at 8.8% every year. That will eat up your entire budget at CMS, given enough time.

If you let it.

However, if you start paying physicians more, you will get better outcomes—stop slow-rolling at-risk contracts! Start paying for breakthrough medical devices that will allow physicians in the outpatient setting to drive down costs. That means when physicians work harder to get people well, they get paid more. And this might mean you have to pay psychiatrists as much as neurosurgeons. Said a psychiatrist! But only if they take care of high-risk patients and drive down costs—beyond primary care, encompassing every specialty willing to go at risk.

So, that's my advice: devices and at-risk contracts. I hope it's helpful. Good luck.

You're going to need it.