Doug Henwood dhenwood at
Fri Aug 25 10:35:21 PDT 2000

Wall Street Journal - August 25, 2000

AMA Moves to Fight the Posting Of Its Price Codes on the Internet


Entrepreneur Timothy Pickering had an idea for helping consumers penetrate the mystery of health-care costs. Three years ago, he set up a free Web site that estimated prices for medical procedures, based on the amounts the federal government typically reimburses doctors for the treatments.

Remove a ruptured appendix? $601. Take out a child's tonsils? $248.

By late last year, Mr. Pickering says, the site, now known as, was getting 70,000 hits a month. Mary Abraham clicked on "hip" to find out what a hip replacement might cost her insurer. "Doctors freak out when you ask about cost," says the 51-year-old Whittier, Calif., woman. "It's like they want to keep how they get paid a secret." The site gave her an estimate of $12,000 for the hip operation. Ms. Abraham, who is now recuperating from the procedure, hasn't yet seen the actual bill.

Eventually, Mr. Pickering hoped to generate a profit, partly by selling doctors the opportunity to be listed on the site. Then, last fall, he heard from the doctors, and they weren't happy.

The influential American Medical Association, with nearly 300,000 members, informed Mr. Pickering that it owns the arcane list of codes and descriptions, called "Common Procedural Terminology," or CPT, that he was using to match payment information with medical procedures. The AMA ordered him to shut down or pay hefty royalties -- or face a potentially draining legal fight.

At a time when consumers are taking a more active role in managing their health care and paying a larger share of the cost, the AMA is aggressively asserting its control over who uses the codes -- and over who knows what about the cost of medicine. The codes are, in a sense, the authoritative dictionary of physician billing, critical to translating the often obscure language of doctors, insurers and government agencies. As reliance on the codes increases within the health-care system, the information is becoming more valuable as intellectual property.

Providers of legal information, sports scores, stock prices and other kinds of information are all fighting to hold onto their lucrative data as the Web disperses it to a wider array of users. Now, the AMA is defending what it sees as its rights to the ubiquitous CPT codes in another high-stakes information-property war.

The AMA has been involved in at least two lawsuits related to the codes in the past year, both of which ended in confidential settlements that the association maintains preserve its control of the CPT. The medical association also has filed "friend of the court" briefs in related legal cases, urging judges to protect similar forms of intellectual property, such as codes used in the building and plumbing industries.

Demand for information on health-care prices is strong and growing. New for-profit Web sites that rely on these codes are cropping up, some of them even more sophisticated than Mr. Pickering's. Whether any of these sites thrive could have as much to do with their success in negotiating deals with the AMA as with their ability to attract customers. Any information provider -- online or off -- that attempts to offer comprehensive pricing data for doctors' services must use the codes or undertake the daunting task of creating a new system and persuading others to adopt it.

AMA's Worry

The AMA says it isn't trying to stop anyone from using the codes. In fact, the group says it encourages their widespread use -- but only on its terms. If the AMA didn't enforce its copyright, outsiders might tamper with the codes or offer out-of-date versions of the information, says Donald Palmisano, a surgeon and AMA trustee. "People [might] lose confidence in it because they don't know if it's accurate."

The AMA first published the CPT in 1966, when it was one of many competing coding systems. Since then, the compilation has eclipsed its rivals and grown to include more than 7,000 five-digit codes and descriptions of the procedures they identify.

The association claims a copyright on each year's revision of the codes. The current term for such copyrights is at least 70 years. The AMA says it deserves this legal protection for a creative editorial process of refining codes and adding new ones. One example is code 99201, which describes a limited, 10-minute office visit with a new patient. Code 99203 designates a more-expensive 30-minute exam.

In a 1983 effort to standardize billing systems, the federal government adopted the codes for Medicare, the health-insurance program for the elderly and the disabled. Private health plans followed suit. New federal regulations announced this month will make the codes the standard for electronic transactions involving physician services, further bolstering their importance.

The AMA says it opposes Web sites and any other businesses that encourage consumers to shop for medical care primarily based on price. Instead, the association says, patients should choose doctors based primarily on the quality of care. "The AMA is not in favor of Internet sites that advertise services to the lowest bidder without a relationship between the physician and the patient," Dr. Palmisano explains. This doesn't mean the association wants to crack down more broadly on health-care sites as a potential source of competition with the medical establishment, he says.

As a model, the AMA points to Medem Inc., a for-profit venture it and other medical groups have financed to provide doctors with approved medical information for use on the doctors' own Web sites. Price data aren't included. The idea is to encourage patients to visit their doctor's site first, rather than surf the Net for cost estimates.

The AMA has a financial motivation for holding tightly to its codes. The association generates millions of dollars a year by licensing the CPT to publishers and software makers and by selling products to help doctors use the codes properly. The AMA won't say how much revenue it collects from the codes but acknowledges that the amount is "significant" and increasing. Last year, the association reported total sales of $34 million from all books and products, plus $37 million in royalties.

Money derived from the CPT, Dr. Palmisano says, helps fund the AMA's nonprofit mission of advancing medicine and the public interest. He cites the association's support of antitobacco efforts as a leading example.

Until recently, the AMA's codes weren't seen as having much value in a consumer market. But that is changing. Patients are chafing at the restrictions of HMOs. And increasingly, patients are paying a larger share of their health costs. Individuals are expected to spend a total of $222 billion out-of-pocket for health care this year. Some people who have insurance still elect to pay for some medical care on their own. There are also about 44 million Americans who don't have insurance, some of whom might be interested in negotiating online for medical services.

Most intriguing to Internet entrepreneurs, some employers are shifting to "defined contribution" plans, under which companies give workers a fixed amount of money and allow them to arrange health services or insurance for themselves.

The AMA says it encourages patients to have frank discussions about prices with their doctors. But in health care, there is rarely a simple answer to the question, "What does this cost?" A doctor's fee schedule often resembles a wish list. Government health plans and private insurers usually decide what doctors get paid, reimbursing them at a standard rate for each procedure in a given market or paying a flat fee per patient per month.

The federal Health Care Financing Administration, which reimburses doctors for treatment under Medicare, has pages of Byzantine payment schedules on its Web site, but nonexperts would have a hard time understanding the information.

Web Sites Sprouting

That isn't the case with the new consumer-oriented Web sites, which rely on the CPT. HealthMarket Inc., of Norwalk, Conn., offers an "exchange" to help patients find doctors who will perform specific services at a discounted rate. After individuals join and pay an annual $29 fee, they can type in their zip code or city and click on a procedure, such as "urinalysis." The site tells them that a "common" charge is $16 but that HealthMarket's exchange can arrange it for $13. Lumenos Inc., in Alexandria, Va., plans to offer a similar service when it launches a site in the fall.

In Glendale, Calif., is betting that a cash market already exists for procedures not covered by health insurance, such as laser-vision surgery. Patients type in codes from their medical bills, and the site, relying on the CPT, spits out comparative rates, which can be used to challenge high bills.

Most of the fledgling online companies maintain they have rights to use the CPT through other licensees, or that they are applying, or intend to apply, for permission to use them. The AMA won't divulge its roster of licensees.

Andy Slavitt, chief executive of, cites an August 1997 federal appeals court ruling as legal precedent for his position that he doesn't need the AMA's permission to use the codes. The ruling by the Ninth U.S. Circuit Court of Appeals, based in San Francisco, stemmed from a suit challenging the AMA's copyright. The plaintiff was Practice Management Information Corp., a Los Angeles publisher that buys AMA coding books and resells them to doctors and hospitals.

The appeals court rejected Practice Management's argument that when HCFA, the federal Medicare agency, adopted the codes in 1983, they became part of public law and therefore not subject to a privately owned copyright. But in another part of its ruling, the appellate court concluded that the AMA misused the copyright when the association agreed to give the codes free to the government, partly in exchange for HCFA's promise not to use any competing coding system. That means that the copyright was unenforceable during the period of misuse. The AMA says that in response to the ruling, it amended its deal with HCFA back in August 1997 to eliminate the condition that the agency use only the CPT.

The legal fight ended without a clean resolution. Both sides appealed to the Supreme Court, but the justices declined to review the split lower-court ruling. Practice Management and the AMA then agreed to a settlement in May that neither side will discuss. For now, the issue of the copyright status of a private database that becomes part of public law remains an unsettled question nationally, according to intellectual-property attorneys. The Supreme Court could resolve it in a future case.

Meanwhile, the AMA has joined securities dealers and legal-information providers, among others, in backing a bill pending in Congress that would expand legal protection of large databases. (The bill's supporters include Dow Jones & Co., publisher of The Wall Street Journal and its online edition,, and other newspaper publishers.)

'Cease and Desist'

Mr. Pickering, who is 45 years old, says he knew about the AMA's copyright when he launched his for-profit Web site in late 1997. He says he didn't think the AMA would object because the site would help patients, who would typically use only a few codes at a time.

He became interested in health care while working in military-hospital administration in the late 1970s, he says. In 1983, he helped form a Phoenix, Ariz., company that analyzed publicly available health information and then sold it to hospitals to help them gauge things like market share. Mr. Pickering says he saw the Web as offering a new opportunity to market health information, this time to consumers. His site has received favorable mention in such publications as the Washington Post.

Then last October, the AMA got in touch. In e-mail exchanges that followed, Paula Williams, an AMA licensing manager, suggested that he either would have to pay a royalty of $10 per registered user, or severely limit his use of the codes. The AMA declined to make Ms. Williams available for comment.

Mr. Pickering countered that he shouldn't have to pay anything. He said he didn't require users to register, and limiting the codes would defeat the site's purpose. Ms. Williams for a time expressed sympathy for his mission. "We have looked at the site -- I think it's a good one," she said in one e-mail, provided by Mr. Pickering.

But the group stood firm. "The site must immediately come down," Ms. Williams wrote in a Dec. 17 e-mail. "Our legal department will be [seeking] a cease-and-desist order if that does not happen."

Mr. Pickering threw in the towel. "I can't afford to fight the AMA," he says. He took the physician-pricing tool off the site. now offers price information for hospital in-patient services, as opposed to physician services. The hospital information relies on a nonproprietary set of codes administered by the federal government.

In a bitter posting on his site, Mr. Pickering likens the AMA to a restaurant that charges patrons to look at the menu. "Most of us would take our business elsewhere," the screed says, "if there was another choice."

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