Instead, they would be compensated in proportion to the relative value units (RVUs) of the care they dispensed. RVUs are a measure of productivity used to determine medical billing.
Generalists like Dr. W. are assigned RVUs primarily according to the complexity of their exams and treatment plans, which are coded on a scale of levels 1 to 5. A simple level 2 visit may yield $60; level 3, $120; level 4, $210; and so on. “What started to happen is lots of pinkeye was billed at a level 4,” he explained. There was a financial incentive: colleagues who were coding expansively could make twice as much – over $300,000 instead of $170,000.
Oncologists prospered buying chemotherapy drugs from manufacturers and infusing them in the office, generally with a hefty markup, a practice known as “buy and bill.”
As the wholesale price of the new drugs jumped again and again, doctors had little motivation to complain, because they were allowed a markup that was often a set percentage above cost. Doctors who used more expensive drugs earned far more. The practice of buy and bill increased dramatically in the late 1990s and into the new century.
With it, the median compensation for oncologists nearly doubled from 1995 to 2004, to $350,000. One study in 2013 attributed 65% of the revenue in a typical oncology practice to such payments. “Drugs and biologicals make up approximately 80% of all medical oncology charges submitted to Medicare each year.”