Bermuda Hospitals Board Fees to the Relative Value System

Wednesday, March 7, 2018
Minister of Health, The Hon. Kim N. Wilson JP, MP

Ministerial Statement by the Minister of Health  Hon. Kim Wilson JP, MP

Mr Speaker

I rise today to highlight to this Honourable House and the public, my Ministry’s intention to undertake a significant modernization of the Bermuda Hospitals Board Fees in the coming months.

You will recall that during my budget presentation last week I noted that we have begun the long-needed review of BHB’s fees, following years of complaints from a variety of stakeholders about the level of these fee rates, which are regulated under the Bermuda Hospitals Board (Hospital Fees) Regulations.

These Regulations are updated annually when the premiums are set, to ensure the premiums can absorb any fee changes.  Updates to these regulation have not, to date, taken into account how the delivery of medicine has evolved, or of changes in the complexity or simplifications thereof. However, Mr Speaker, this year we are taking the review much further to account for such changes.

Mr Speaker

This Government’s intention is to convert the BHB fees to a rational, standardized methodology based on an internationally accepted standard, founded on the relative value of procedures. For example, removing tonsils has an RVU or 8.25, compared to treating a lower jaw fracture, which has an RVU of 34.62. RVUs weigh procedures according to their complexity.

At present some BHB fees are priced higher than international benchmarks, while others are priced much lower. The intent is to remove this discrepancy by applying a rational, internationally accepted standard to set BHB’s fees.

Mr Speaker

In the 2017 Throne Speech the Government stated that “The cost of healthcare is a major expense for the government and private employers, which reduces our global competitiveness. Cost reduction will lead to savings that will promote economic growth.” We committed at that time to launching a “comprehensive review of healthcare costs in Bermuda and will seek to extract savings throughout the entire healthcare system”.

We are committed to doing so, but intend to proceed with a phased approach that will address the Bermuda Hospitals Board at this point…. Why?...

Mr Speaker

Our community invests the largest proportion of all health spending (46%) on local hospitalization. Therefore, if we wish to control health costs we have to address the largest part of the health system. Our hospital is a vital component of our health system.  It has to succeed to ensure vital care is delivered, and part of managing that success requires that we pay fair fees for services.

Further, BHB’s fees are already set by the Government. Unlike private entities, BHB’s fees are laid in this House under Regulations, so it is a natural place to begin a comprehensive review of healthcare costs.

Mr Speaker

Several healthcare reviews conducted over the past 18 years have recommended that Bermuda adopt a more transparent and rational mechanism to set fees.

Specifically, in 2004 a report by Ernst and Young recommended conversion to the Resource-Based Relative Value Scale (RBRVS), widely used in the US as well as other jurisdictions. And in 2009, a review commissioned to Price Waterhouse and Cooper recommended that Bermuda consider use of the same RBRVS system to set local fees.

Importantly, Mr Speaker, these reviews were speaking only of fees that are already regulated by the Government – NOT all healthcare fees. In the context of the current review in particular, we are focused only on BHB and standard health benefit fees.

Mr Speaker

The House should be aware that Bermuda has already begun utilizing the RBRVS methodology for regulated fees.  After a three-year period of development and consultation, in 2015 the Bermuda Health Council applied the methodology to a small schedule of fees for diagnostic imaging procedures. At the time this conversion took place, some fees went up – for example, mammography – and some went down – for example, x-rays. But overall the transition was designed to be cost-neutral to the health system.  That is, overall, the health system spent approximately the same on diagnostic imaging with the old fees as with the new ones; but the new fees reflect the complexity of each procedure.

We are now undertaking to do the same exercise with BHB’s fees, in a way that is revenue neutral to the hospital compared to the current 2017/18 fiscal year projected revenue.

This means, Mr Speaker, that some fees will go up and some will go down. This is indicative that some of our services, based on the RVU scale of complexity, are currently undervalued while others require downward adjustment.  But at the end of the year, if the system continues to serve the same types of patients as seen this current year, and our demographic profile does not drastically change over the next 12 months, it is projected that the amount spent on hospital care will remain relatively the same as it would have been under the old fee structure.

Mr Speaker

The purpose of this change is as a first step to deliver on the Government’s promise to review healthcare costs, which, in the long term, will allow us to contain insurance premiums.  At present we know how much we are spending overall – $701 million in total, or just over $11 thousand per person, are the most recent figures! But we don’t know if we are spending it wisely, or whether we are paying fairly.

To enable us to understand truly what we are spending on, measure whether we are spending it properly, we need a rational fee system. The RBRVS method can move us in the right direction, and provide us a stronger foundation for evaluating our services and programmes. 

However, it remains clear that much other work will remain, such as redirecting care to appropriate providers, reducing unnecessary utilization and, of course, becoming a healthier population that needs less healthcare interventions.

Mr Speaker

The resource-based relative value scale (RBRVS) is a payment system used by most public and private insurers in the US, as well as by the US hospitals and practices that we partner with for complex care. The RBRVS is based on the principle that payments for services should reflect the cost of providing those services and should be able to be compared from institution to institution and between locations. It was developed to improve and stabilize payment systems and it is updated annually with extensive physician input to adjust the value or weight of procedures.

The methodology assigns a Relative Value Unit, or RVU, to healthcare procedure codes called CPT codes. Bermuda already uses these CPT to document and bill for treatment in offices, clinics and at the hospital.  Local health Insurers rely on these CPT codes in their systems to process claims.

Notably, Mr Speaker, the RVU is not a fee or price itself. Rather, it is a weight assigned to medical procedures based on their complexity according to the physician work, the practice expense and professional liability. RVUs are used in the US, Australia, the US Virgin Islands, Taiwan, Canada, and South Africa.

Mr Speaker

In order to generate a fee or price from RVUs, jurisdictions apply a Geographic Practice Cost Index, which allows for adjustments in prices according to the local cost of providing services. In addition, a locally-based Conversion Factor will take into account the cost of living in Bermuda. This is a complex, technical process but it has the benefit of being transparent and internationally accepted. Naturally, local available data and input is used to determine the local Conversion Factor and other geographic indices.

Mr Speaker

I have tasked the Bermuda Health Council with undertaking this work on behalf of the Ministry of Health, as they have the technical expertise to calculate the fees.  We have been working with BHB on this transition and will shortly undertake consultation with stakeholders who are impacted by BHB’s fees, including other standard health benefit providers and insurers.

This is a very large undertaking, Mr Speaker, but it is one that we must face and complete expeditiously if we are to achieve the difficult task of controlling health costs and, in the longer term, containing insurance rates. We have to start by aligning our costs with the value of the services and ensure there is fairness and transparency in our health system.

Mr Speaker

The Bermuda Health Strategy, our National Health Plan, is committed to controlling health costs, and includes a goal to develop mechanisms to pay healthcare providers in ways that improve efficiency and sustainability. This work, and the Throne Speech commitment to undertake a review of healthcare fees is well overdue.

Thank you Mr Speaker.