Resource-based relative value schedule as an instrument for price collusion in the health care industry. A collusive monopsony case

In this study I describe the mechanism that facilitates tacit collusion and price coordination, present evidence that firms use the Resource Based Relative Value Scale (RBRVS) to coordinate fees, and describe how monopsonistic behavior may be the result of such actions.; As part of a cost containment plan to control escalating costs in the medical industry, the United States government through the Center for Medicare and Medical (CMS) (previously known as Health Care Finance Administration) (HCFA), implemented a fee schedule to pay Medicare providers for their services. The fee schedule implemented on January 1, 1992, was based on the Resource Based Relative Value Scale (RBRVS). It is the main hypothesis of my thesis that private insurers used this RBRVS as a mechanism for price collusion and sharing information. From the viewpoint of tacit collusion theory, the preparation and circulation of RBRVS adversely affects competition.; My findings reveal that private insurance companies have adjusted downward the reimbursement for Pap smears. This adjustment has been guided by the government's usage of RBRVS to calculate reimbursements.; I conclude that the use of RBRVS as a prospective payment is in essence a price control mechanism that poses the problem of how to ensure that real prices are not lowered through the expedient of increasing profits. As Mark V. Pauly indicates, “…the use of the market power to reduce medical spending may harm the well being of specialized medical workers and of consumers of medical care.”...