Features

July/ August 2013 Special Deal

The shadowy cartel of doctors that controls Medicare.

By Haley Sweetland Edwards

These manipulated prices are also a major reason why specialists are in oversupply in many parts of the country, while a worsening shortage of primary care providers threatens the whole health care delivery system. It’s precisely because the RUC has overvalued certain procedures and undervalued others that radiologists now make twice what primary care docs do in a year—that’s an average of $1.5 million more in a lifetime. While that little fact doesn’t explain everything (doctors choose their fields for a multiplicity of reasons), future income is, presumably, not entirely unimportant to a young MD.

And we’re not just talking about medical students here. Having the wrong kinds of doctors in the wrong places, with the wrong financial incentives, is one of the major reasons why Americans pay so much more for health care than do citizens in other advanced nations, and yet we live no longer.

Over the past few years, a few well-placed health care figures from both parties have spoken out—at least once they’ve left office—about how crazy this system is. “The RUC is really just a giant cabal run by the AMA,” Thomas Scully, former head of the CMS under George W. Bush, told me. “A private trade association should not have that sort of control over the biggest spending account in the government. It’s an outrageous travesty of democracy.” Bruce Vladeck, former head of the CMS under Bill Clinton, agrees, calling the RUC “a significant part of the problem.”

There have also been scathing reports issued by the Government Accountability Office, and by MedPAC, the agency that advises Congress on Medicare-related issues, as well as some hard-hitting investigative reporting by the Wall Street Journal and the Center for Public Integrity. In 2011, a bipartisan panel participated in a Senate roundtable, during which three former heads of the CMS took turns lamenting the RUC.

Yet, for the most part, the RUC continues to operate exactly as it always has—behind the scenes, without anyone, including actual doctors laboring in the clinics and hospitals across the country, even really knowing about it. (This spring, Scully told me that he went to lunch with a very high-ranking official at the CMS who had no idea how the RUC actually worked.)

The Affordable Care Act, for its part, includes a few lines that could potentially, if incrementally, limit the RUC’s power. But in general, it doesn’t much change the way the reimbursement system works. Taking on the RUC would have “started a nuclear war with the AMA,” as Scully put it, and alienated other key political allies that the administration needed to pass the law to begin with. Fixing the RUC, however, is essential to fixing health care in this country.

cartoon

“Follow the money,” said Gail Wilensky, who headed the CMS under George H. W. Bush and has been critical of the RUC. “Change the way physicians are paid, and you change the system.”

The RUC, like that third margarita, seemed like a good idea at the time. When liberals were trying to pass Medicare in 1965, the staunchest opponent they faced was the AMA, which was dead set against the program on the grounds that “socialized medicine” would upend physicians’ livelihoods.

In order to get the bill passed, liberals made many big concessions to organized medicine. One was keeping the “fee-for-service” payment system, which we still have today, in which doctors bill Medicare (and private insurance companies and uninsured patients) according to every single service or procedure they perform. Another was that Medicare promised to pay physicians the “usual, customary and reasonable” rate for each of those services. One of the problems that quickly arose was that there was no benchmark for what was “usual” or “reasonable,” no nationally accepted standard for “customary” for the price of each individual service or procedure. Prices, unsurprisingly, began to skyrocket.

Someone who worked with the Bush administration in the 1980s told me a story about an ophthalmologist in Texas, known as the legendary “Cataract King.” Despite the fact that a cataract surgery had gotten much easier to perform—it took two to three hours when it was first invented, but by the ’80s clocked in at about a half an hour—he continued to charge the “customary” rate: up to $6,000 a pop. By the mid-’80s, Medicare was spending about 4 percent of its budget on cataract surgeries alone. Meanwhile, an hour-long visit with a patient resulting in a complex diagnosis fetched about forty bucks.

By 1985, doctors’ rates were, to say the least, wildly distorted and Medicare spending was outstripping the growth of both the economy and federal tax receipts year after year. Panicked, Congress amended the law in 1986 to require doctors to charge Medicare according to “historical” rates, but it was too little too late. “Historical” rates were already crushingly high, and Medicare was on the verge of collapse.

And that’s when Harvard economist William Hsiao entered the scene. In 1988, he and his team unveiled what they hoped would be a rational process for setting physicians’ reimbursement rates. The result came to be known as the resource-based relative value scale (RBRVS). By interviewing hundreds of doctors from dozens of specialties, they painstakingly compared thousands of medical procedures—everything from removing a polyp to a lung transplant—and assigned each a relative value unit (RVU) according to three main factors: one, the amount of work it takes for a doctor to perform a given procedure; two, a doctor’s practice costs; and three, malpractice liability. Every year, Congress then sets a multiplier, converting that RVU into dollars.

At the end of 1989, as part of the Omnibus Budget Reconciliation Act, Congress formally adopted Hsiao’s system, requiring that Medicare use the RBRVS in determining the prices it paid physicians. It went into effect in 1992.

The plan went downhill almost immediately. In order for the system to work in practice, new services and procedures had to be added and old ones updated every year. Certain procedures, like in the cataract surgery example, that were initially very difficult and time-consuming to perform had become steadily more routine and quicker to do, while other procedures had gotten more complex and required more skill to perform. Those RVUs needed to be adjusted accordingly. The question soon became: Who should be responsible for updating the RVUs for all those thousands and thousands of procedures?

The Bush administration, skittish of anything resembling government price setting, rejected the idea of establishing an independent council of advisers within the government. Instead, in 1991, they gave the task to the most powerful interest group in the industry, the AMA (which had, of course, graciously offered its services). “And that was the point where I knew the system had been co-opted,” Hsiao told me. “It had become a political process, not a scientific process. And if you don’t think it’s political, you only have to look at the motivation of why AMA wants this job.”

Haley Sweetland Edwards is an editor of the Washington Monthly.

Comments

  • JackD on July 08, 2013 2:42 PM:

    Interesting in light of this price fixing that a number of physicians, including many specialists, threaten to and sometimes actually refuse to treat medicare patients.

  • mnemos on July 10, 2013 6:46 PM:

    @JackD - For the cases I was involved in, those physicians were generally primary care - which is understandable from the article.

    What's the difference between "the sober policy community", "the Easter bunny" and an honest Zeke Emmanuel? There isn't any, they are all equally fictitious. My point isn't really about Zeke Emmanuel deliberately lying so much as pointing out the flaw in assuming the policy community is 'sober'. Not only are there billions of dollars involved in the issues, there are important ideas about ideology, government power, legal rights and individual autonomy. For the 'sober policy community' those things can be as intoxicating as money. Case in point is the "CLASS Act" which has already been scrapped.

    I'd like to think the bundling idea makes sense, but I'm hesitant. There is a certain logic to saying "I am providing this service, and it costs so much." I can look at my bill and see they charged me for an x-ray, and I got an x-ray. What does it mean to be payed for "care" when there is no particular definition? Does it just mean the patient didn't die yet? How do you judge it?

  • NPA Project Manager on July 10, 2013 10:55 PM:

    The Washington Monthly and the National Physicians Alliance (NPA) agree...let's move from valuing inputs to valuing outputs of care. See NPA's blog for more on RUC reform: http://npalliance.org/blog/2013/07/10/a-call-to-reform-or-replace-medicares-relative-values-scale-update-committee-ruc/.

  • physician on July 12, 2013 8:50 PM:

    The one point you left out of the article is that all changes to the RVU system are revenue neutral. So if the total RVU value of all the codes is increased, there is an automatic across the board reduction in the values of all the codes. So unless there is an automatic increase in the number of higher RVU procedures (which probably happens), the updates by the RUC don't automatically increase overall spending. This unfortunately also exacerbates the gap between cognitive and procedural codes.

  • Stephen A. Kardos on July 13, 2013 8:27 AM:

    Despite many fees for medical services being dramatically reduced over time, health expense as a proportion of GDP has steadily risen over the past 50 years. Payment for cognitive efforts now lags dramatically behind payment for procedural efforts. Our nation has focused on the amounts paid for ICD9 or CPT4 codes, rather than on the quality of medical decisions made by caregivers and their patients. Surgical specialties have been more successful lobbying for higher payment than cognitive specialties. Yet, it is just this sum of medical procedures that reflects clinical decisions for an individual over time that determines individual healthcare costs and, in turn, the nation�s healthcare costs. Therefore, fees should be based on physician-patient comparative efficacy rather than unit costs. Hsiao�s RBRVS should be implemented to overcome inappropriate disparities in physician payment and be augmented by comparative efficacy for primary care cognitive services.

  • platon20 on July 13, 2013 8:19 PM:

    This article ignores 1 very important fact:

    The RUC does NOT control the amount of money that goes to doctors, it only controls the RATIO of money that goes to doctors from a FIXED AMOUNT SET BY THE FEDERAL GOVERNMENT.

    Every year, there's a total fund of money approved by the federal government that is set aside for doctors (SVR). The RUC committee simply determines how this pie is split up. But they have ZERO CONTROL over the absolute amount of money spent.

    If CMS wanted to, they could cut down the SVR total in half and the RUC couldnt do anything about it.

    The amount of money that doctors gets paid isnt set by the RUC, it is set by CMS. RUC simply controls how that fixed amount of money is split up.

  • poor journalism on July 14, 2013 9:17 AM:

    This is an example of poor journalism.

    The government decides how big the financial pie is going to be. This determines the level of service that will be provided to medicare patients for the next fiscal year.

    The doctors wrestle among themselves to determine the best way to split the money.

    This is no different than someone given foodstamps and then the family deciding on how to best to split the foodstamps to feed the family.

    Medicare is rationed care. Patients dont get the level of service that private patients are getting. As a result these doctors are finding ways to split the foodstamps to determine how they are to get paid. This is NOT price fixing.

    This is legal. This is government approved.

    This article is trash sensational journalism.

    One of the doctors feels like he got a smaller piece of the pie so he complains to a "journalist".

    The Washington Monthly prints this garbage propaganda.

  • Robert Malthus on July 15, 2013 9:15 AM:

    There is a third option for reforming this system: privatize it. That is, every patient, whether covered by Medicare, private insurance, or subsidized insurance would use a "medical expenses account" to cover their medical expenses. Medicare, employer-provided insurance, or ACA-subsidized insurance would all put funds into this account. The account could be spent only on medical expenses. The idea would be to use market-mechanisms to allocate resources and drive innovation and efficiency.

  • Socrates Lockhelm on July 15, 2013 7:27 PM:

    Price-fixing? Doctors concede that the objective is to set the parameters around which the government payments will be set. Quacks like a duck. Cut and past from the article: "The purpose of each of these triannual RUC meetings is always the same: it�s the committee members� job to decide what Medicare should pay them and their colleagues for the medical procedures they perform. How much should radiologists get for administering an MRI? How much should cardiologists be paid for inserting a heart stent?" Quack, quack! This is a price-fixing scheme that is shameful.

  • Jim Homes on July 15, 2013 7:30 PM:

    So let me get this straight... the folks who posted above (who undoubtedly are physicians) are arguing that because the doctors don't control the SIZE of the pie but instead control what codes get the BIGGEST slices of the pie that's OK? Give me a break. That's exactly the problem and it's still price fixing. Imagine... if big pharma execs got together and decided cancer drugs would be double the price but other drugs would be half off? How would that be any different? The fact is doctors and their manipulation of the reimbursement system are as responsible for the inflation in healthcare costs as anyone other player involved in the system. They simply have been better at protecting their turf and their own. The AMA RUC process is just one of the previously sacred cows that needs to get slaughtered. And the time is coming... It might be just Washington Monthly now but I predict mass media will soon wake up and start opening up the public's eyes to this fraud.

  • Matt on July 16, 2013 2:53 AM:

    The article did mention that it was a fixed sum of money which is split up. It actually went into detail about it and the resulting collusion among different specialties for many paragraphs.

    And it's not that far-fetched to see how pushing down primary care's relative payments makes the pie as a whole bigger. Primary care payments are pushed down, which lessens access for primary care. These Medicare patients then complain about lack of access, which then pushes up the absolute pie. I'm not sure of the details, but I'm sure there's some of this going on with the annual "doc fixes."

    But let's say that the RUC is doing everything correctly. Why should such a powerful body operate in complete secrecy? Medicare was not set up for doctors, but for patients by taxpayers. The doctors work for the taxpayers, not the taxpayers for the doctors. To have a system which sets reimbursement and allows procedures regardless of effectiveness and price means that taxpayers are getting a raw deal. To be successful, Medicare needs some version of a committee independent from special interests which will hold the purse strings.

  • robertsgt40 on July 16, 2013 4:35 PM:

    How about Rahm Emanuel's brother, Dr Ezekiel Emanuel, advisor to Obama on healthcare "issues"?

  • Barbara Levy, M.D., Chair of the RUC on July 17, 2013 12:43 PM:

    The constant evolution of health care requires clinical expertise to assess medical services, and by tapping into the front-line knowledge of physicians, Medicare gains credible insights into the complexities of patient care and at no cost to taxpayers.

    When considering how to provide the best value for limited Medicare dollars, there is simply no substitute for relying on the medical expertise of physicians. No one knows more about what is involved in providing services to Medicare patients than the physicians who care for them.

    The physician members of the RUC apply their considerable medical expertise to develop an evidence-based approach for making fair and objective recommendations that the government can consider when making determinations for the Medicare program.

    The RUC will continue to make recommendations to Medicares decision makers on the work physicians do to care for an aging population and also continue its strong support for primary care physicians. Many factors beyond the control of the RUC contribute to the current income differentials between primary care and specialty medicine. Despite this challenge, adoption of RUC recommendations during the last ten years have increased annual payments to primary care physicians by $6 billion.

    More than 300 attendees, including physicians, other health professionals, researchers and representatives from the government participate in RUC meetings that provide Medicare with recommended medical service values. More information is available at www.ama-assn.org/go/rbrvs.

  • PaulArt on July 18, 2013 7:45 AM:

    There is a very easy way to fix this � dead easy in fact. Approve an immigration program for a new H1-B visa program for Doctors to come here from India and all over the English speaking world. Allow companies like Tata Consultancy Services, Cognizant and Wipro to ship in boatloads of Doctors or all varieties and kinds to the USA. These companies bring in boatloads of Software Engineers into the USA every year. This was the main reason that salaries for software engineers went down the tubes two decades ago. So, let them bring in Doctors per the same kind of resume scrutiny and minimal certification requirements. Let the CMS hold a qualification exam in India and other countries which is along the lines of the Board certification exams held here in the US. You can bet good money that we will soon have the �Free Market� in medical care in the USA. Case closed � no one has to travel to India and Mexico for cheaper medical care anymore. If you are wondering why such a H1-B program does not exist for Doctors, well, you can blame the AMA again for this. They have worked very hard behind the scenes to control the levers of power so that visas are not handed to anyone who even smells like a Doctor in a US Consulate abroad.

  • justaveterinarian on July 18, 2013 11:19 AM:

    So, if we're destined to have price-fixing, how about rigging the system to promote wellness care? Let's find out how much the average internist or family practice physician thinks is fair compensation for every senior to have two intermediate-level consults, two brief rechecks and two sickness-related visits a year. Let's set reimbursement at the level where 90% of primary care docs are willing to take Medicare patients. Let's calculate what this would cost and deduct it from the "pie" referred to above. Then let the specialists duke it out for the remaining share.

  • Dr Duh on July 19, 2013 11:54 PM:

    Wow a giant article about how physicians divvy up the *PRE-EXISTING* pie by deciding on the relative value of different procedures. I'm shocked, shocked, that we would have the physicians who actually make the diagnoses and perform the procedures make these decisions rather than 'neutral' civil servants, er, future lobbyists for the insurance/pharmaceutical/device industries.

    Still, this is 'very important' because 'serious people' tell us so. After all physician compensation represents a whopping 7.6% of medical expenditures and even though that number has been on the decline, everything is their fault. Right?

    Why don't we call a spade a spade?
    This is a politically motivated article designed to accomplish three things.
    1. Knee-cap potential physician critics of Obama-care by portraying them as 'price-fixers' who are only interested in money.
    2. Divide and conquer physician resistance by peeling off primary care from the specialties.
    3. Facilitate the de-professionalization of medical care, by destroying private practice. When physicians are employees of the hospital they will be unable to speak up for patients when the suits decide that cutting costs and making their bonus is more important than patient care.

  • Joe Claro on July 20, 2013 10:43 AM:

    I'm really put off by both the content and the tone of this article. What fundamental belief or principle leads to the conclusion that health care should be treated like any other service or product, subject to the whims of the free market? Isn't it obvious that treating illness and promoting health are different from marketing potato chips and cars? Does the writer really believe that "what the market will bear" is an appropriate principle for health care?

  • Shawn Eng on July 21, 2013 3:41 AM:

    The one recommendation I have is for Detroit and any other municipality, city or state that goes bankrupt in the future, is for the emergency manager to use their authority and break their local medical guilds. I mean allow out-of-state certifications, loosen scope-of-practice laws, promote medical tourism and most importantly of all, adopt the Singapore model of open pricing. Don't let an emergency go to waste. Only the power of an unelected technocrat has the ability to circumvent the lobbying power of the healthcare industry.

  • Wondering on July 21, 2013 1:29 PM:

    Even though the RUC is "only" deciding how to slice up the Medicare pie, is it not significant that this slicing is also the baseline private insurers use? This fact can hardly be lost on the committee.

  • Soprano on July 22, 2013 10:35 AM:

    I received an email on Saturday from the Washington Post with the screaming headline "Post Exclusive" reiterating all of the information in this article. The date on the "Special Report" was July 20. Perhaps someone should enlighten the Post editors on the meaning of the word "exclusive." Given that your article pre-dated theirs by a week and a half, their report may not be as "special" as they think it is. If you want to give them an undeserved hit, you can read their article at http://www.washingtonpost.com/business/economy/how-a-secretive-panel-uses-data-that-distorts-doctors-pay/2013/07/20/ee134e3a-eda8-11e2-9008-61e94a7ea20d_story.html

  • Terry Nugent on July 22, 2013 12:29 PM:

    One glaring error--AMA derives no material membership benefit from RUC administration. Specialists do not need to pay dues to reap any purported benefit from RUC activities and many don't.

    Bundled payments will simply shift the lobbying power and politicization of pricing from doctors to health systems. It is naive to believe that major medical systems such as Harvard and Northwestern will lack political influence.

    The ultimate answer to these issues is to get government and third parties in general out of the price setting business and reintroduce market pricing into healthcare. Price increases in healthcare track almost directly with increases in third party payment, although so do advances in medical science and access to it. Price competition in LASIK and the few other procedures where price competition prevails are the classic examples of how this would reduce prices and costs. In the current political climate there is no chance of such reforms in the foreseeable future.

    The one theme of this piece that makes sense is the need to recalibrate payment rates to incent more physicians to provide primary care.

  • Soprano on July 23, 2013 10:45 AM:

    Happy to see that this article got a shout-out in Ezra Klein's WaPo Wonkblog, this morning.

  • Soprano on July 23, 2013 10:49 AM:

    Sorry -- that was in Wonkbook, the email compilation with links to articles in Wonkblog, rather than in Wonkblog itself.

  • OLd Timer on July 25, 2013 2:41 PM:

    This is one of the most intellectually dishonest article I have ever read. Your suppositions show a total lack of knowledge about how physicians' fees are established. You need to do better research before to put yourself out as a journalist.

  • Read on on July 29, 2013 8:25 PM:

    U.S. health care is causing harm to education, infrastruture and the overall well being of public health. It could not happen soon enough for doctors to be
    salaried like a teacher or government employee. Cut out the money incentive and the health of the nation would improve over night. Medical schools would have to be made public and tution lowered as a start. Has anyone wondered why doctors are no longer called doctors but health care providers? Is that why you went to medical school? I suppose if the money is right a doctor could hardly care what he or she is called. Corporate medicine is here and its gonna get more ugly.