Features

July/ August 2013 Special Deal

The shadowy cartel of doctors that controls Medicare.

By Haley Sweetland Edwards

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On the last week of April earlier this year, a small committee of doctors met quietly in a midsized ballroom at the Renaissance Hotel in Chicago. There was an anesthesiologist, an ophthalmologist, a radiologist, and so on—thirty-one in all, each representing their own medical specialty society, each a heavy hitter in his or her own field.

The meeting was convened, as always, by the American Medical Association. Since 1992, the AMA has summoned this same committee three times a year. It’s called the Specialty Society Relative Value Scale Update Committee (or RUC, pronounced “ruck”), and it’s probably one of the most powerful committees in America that you’ve never heard of.

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?

While these doctors always discuss the “value” of each procedure in terms of the amount of time, work, and overhead required of them to perform it, the implication of that “value” is not lost on anyone in the room: they are, essentially, haggling over what their own salaries should be. “No one ever says the word ‘price,’ ” a doctor on the committee told me after the April meeting. “But yeah, everyone knows we’re talking about money.”

That doctor spoke to me on condition of anonymity in part because all the committee members, as well as more than a hundred or so of their advisers and consultants, are required before each meeting to sign what was described to me as a “draconian” nondisclosure agreement. They are not allowed to talk about the specifics of what is discussed, and they are not allowed to remove any of the literature handed out behind those double doors. Neither the minutes nor the surveys they use to arrive at their decisions are ever published, and the meetings, which last about five days each time, are always closed to both the public and the press. After that meeting in April, there was not so much as a single headline, not in any major newspaper, not even on the wonkiest of the TV shows, announcing that it had taken place at all.

In a free market society, there’s a name for this kind of thing—for when a roomful of professionals from the same trade meet behind closed doors to agree on how much their services should be worth. It’s called price-fixing. And in any other industry, it’s illegal—grounds for a federal investigation into antitrust abuse, at the least.

But this, dear readers, is not any other industry. This is the health care industry, and here, this kind of “price-fixing” is not only perfectly legal, it’s sanctioned by the U.S. government. At the end of each of these meetings, RUC members vote anonymously on a list of “recommended values,” which are then sent to the Centers for Medicare and Medicaid Services (CMS), the federal agency that runs those programs. For the last twenty-two years, the CMS has accepted about 90 percent of the RUC’s recommended values—essentially transferring the committee’s decisions directly into law.

The RUC, in other words, enjoys basically de facto control over how roughly $85 billion in U.S. taxpayer money is divvied up every year. And that’s just the start of it. Because of the way the system is set up, the values the RUC comes up with wind up shaping the very structure of the U.S. health care sector, creating the perverse financial incentives that dictate how our doctors behave, and affecting the annual expenditure of nearly one-fifth of our GDP.

It’s fairly common knowledge at this point that Congress does not allow Medicare to negotiate with pharmaceutical companies over the amount the government pays for their drugs. Each drug company simply sets a price for its own product, and Medicare either takes it or doesn’t. While that arrangement undoubtedly drives up Medicare spending—and health care spending more generally—it at least allows for some competition among the drug companies that manufacture similar products. But when it comes to paying doctors for the services and procedures they perform, the system is even more backward. In this case, Medicare actually asks the suppliers—the doctors themselves—to get together first, compare notes, and then report back on how much each of them ought to get paid.

Medicare is not legally required to accept the RUC’s recommended values for doctors’ services and procedures, but the truth is, it doesn’t have much of a choice. There is no other advisory body currently capable of recommending alternative prices, and Congress has never given the CMS the resources necessary to do the job itself.

The consequences of this set-up are pretty staggering. Allowing a small group of doctors to determine the fees that they and their colleagues will be paid not only drives up the cost of Medicare over time, it also drives up the cost of health care in this country writ large. That’s because private insurance companies also use Medicare’s fee schedule as a baseline for negotiating prices with hospitals and other providers. So if the RUC inflates the base price Medicare pays for a specific procedure, that inflationary effect ripples up through the health care industry as a whole.

Another, even more powerful consequence of this system is that while the prices Medicare and private insurers pay for certain procedures have increased—sometimes rapidly—the prices paid for other services have declined or stagnated. That’s largely because of basic flaws in the way the system is set up. For one, the RUC spends the vast majority of its time reviewing specialty procedures, which change more quickly as technology advances, rather than so-called “cognitive” services, like office visits, that primary care doctors and other generalists rely on for the bulk of their income. The result is that there are “a hundred ways to bill for removing varicose veins, and only one way to bill for an intermediate office visit,” one former RUC member told me. For another, the RUC is dominated by specialists, who have a direct interest in setting the reimbursement rates for specialty procedures much higher than for general services.

Those two factors go a long way toward explaining why we’ve seen an explosion of billing for certain types of lucrative procedures. After all, the incentives are perfectly aligned: ordering that extra test means more money for a doctor’s practice or hospital, more money for the labs, and often more money for the device makers and drug companies, too. (Oh, and, by the way, the device makers and drug companies are, not incidentally, major funders of the medical specialty societies whose members vote on the RUC.)

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.

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“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.”

The AMA spends at least $7 million a year running the RUC, according to its own estimates, and that includes maintaining about six full-time staff members. For that, it gets a very good return on investment. The first boon is that, in order to be on the RUC, specialty societies must become dues-paying members. At a time when the AMA has struggled against being overshadowed by specialty societies, controlling the RUC prevents what might otherwise be a rapid exodus of membership. As one RUC member told me bluntly, “No one cares about AMA. They care about the RUC.” And that’s a lucky break for the AMA. In 2012, dues collection actually increased by 3 percent, topping out at $38.6 million for the year. Cha-ching.

The second boon for the AMA is that by controlling the RUC, it controls much of the source code that our health care system uses to operate. Every single one of those roughly 9,000 medical services and procedures has its own five-digit code, known as current procedural terminology (CPT), and the AMA owns them all. That means that anyone—physicians, labs, hospitals, you name it—who wants to bill Medicare, Medicaid, or a private insurance company has to purchase either AMA books and products, or products from other software companies that pay AMA royalties and licensing fees to use the CPT codes. According to its annual report, in 2012 the AMA made $83.1 million in “royalties and credentialing products,” a large chunk of which comes from licensing CPT. Again: cha-ching.

And that’s just the monetary stuff. The third boon—the real power curve—is the fact that the AMA’s control of the RUC makes it indispensible to everyone and everything in a $2.7 trillion health care industry. That includes specialty societies, primary care organizations, and medical device and pharmaceutical companies—all of whom have something big to gain or lose from the RUC’s decisions.

The AMA cannot be unaware of this staggering power. Still, its official line about the RUC is that it’s simply doing the U.S. government a favor—offering its professional recommendations free of charge. Chaired by Dr. Barbara Levy, who is also the vice president of health policy at the American Congress of Obstetricians and Gynecologists, the RUC is simply a gathering of volunteer experts who jettison their personal interests and behave “like the Supreme Court” on behalf of the public good, according to the AMA.

But in talking to a half-dozen current and former RUC members, including both generalists and specialists, the image of the committee that emerges is less a gathering of angels, cloaked by some Rawlsian Veil of Ignorance, and more akin to a health care-themed Game of Thrones. Several RUC members I spoke to mentioned that the chairwoman often reminds the committee to “Put your RUC hat on,” meaning: “Don’t think from your society’s standpoint.” But everyone I spoke to said that specialty societies on the RUC form coalitions and alliances. Two doctors told me that “personal loyalties” play a major role in determining the way that RUC members vote. “There’s no denying it’s a highly, highly, highly politicized process,” a RUC member told me.

Here’s how the process works. Every time a new procedure comes along, a special committee at the AMA called the CPT Editorial Panel decides whether or not it needs to create a new CPT code for it. The need for a new code is sometimes tied to a new device—a valve or pump or robot that, if it is to be used, requires that doctors perform a new procedure.

Importantly, it’s not the panel’s job to weigh in on whether a new procedure is more effective or cost-efficient than a traditional method. The Food and Drug Administration has to approve a new device for the panel to consider it, but other than that the panel’s job is limited. It simply decides if a new procedure is sufficiently different from existing procedures already in the CPT; if it is, then it is assigned a CPT code, and then sent off to the RUC to be assigned a relative value unit.

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When either updating an old RVU or coming up with a new one, the RUC members spend most of their time debating something called “work units”—a slippery currency that combines how much time, training, technical skill, physical and mental effort, and stress are required of a doctor when performing a certain procedure or service. For example, according to the 2013 RUC database, “freezing off” a suspicious-looking lesion or freckle, known in the medical parlance as a “destruction,” has been assigned 1.22 work units; inserting a single-valve cardiac stent, 33.75.

By many accounts, the resulting debates are often spectacularly absurd. The RUC’s database features page upon page describing what exactly a doctor does when performing each procedure. How many minutes must a doctor spend waiting for a patient to get dressed or undressed? How much time does it take to scrub in, or wait around? To read a chart? Each of these questions can bring sometimes hours of haggling at the meetings.

And then there’s the even more slippery idea of how much “mental effort” or “stress” a given procedure requires. How stressful is it to, say, perform a surgery that requires a doctor to stop a patient’s heart? And, since all of these values are relative to one another, is that level of stress greater or less than having an office visit with, say, an emotionally disturbed teenager suffering from multiple illnesses?

It’s at this point that most people—both AMA representatives and critics of it—are in agreement: at best, this is a deeply imperfect system, mired by necessity in the minutiae of doctors’ actions. But while RUC supporters argue that it’s simply the best we’ve got, critics contend that by taking an already imperfect system and handing it over to precisely those groups with the biggest material interests at stake, we’re making it even worse.

Coming up with the exact number, down to the hundredth decimal point, illustrating the “work units” for a given procedure is an admittedly thankless task. But when the RUC does it, it relies to a large degree on the testimony of—who else?—the most affected specialty society on the RUC. For instance, the American College of Cardiology will give a presentation arguing for the precise amount of time and effort required to perform a cardiac stent; the urologists weigh in on how long a catheter procedure should take. The RUC’s argument here is that the most affected specialty society knows the most about how much work, time, and stress go into the procedures its members perform.

But, of course, that specialty society also has the most to gain by inflating that value. For one, it’s in that society’s direct interest to get its members paid as much as possible. For another, the most affected specialty society often receives a good chunk of its funding from pharmaceutical and medical device companies—companies that also have a direct stake in the RUC’s proceedings. When the RUC offers up generous reimbursement rates for a specific procedure, doctors generally do it more often, and that means they use more of certain drugs and devices, too. It’s a positive feedback loop—and everyone knows it.

And then there’s the fact that much of the “data” these affected specialty societies trot out in front of the RUC would not pass the laugh test in a high school stats class. After all, these specialist societies get their data from surveys of their own membership—a group of people who stand to gain directly and materially from making a procedure seem as difficult, time-consuming, and stressful as possible. And respondents can’t exactly plead ignorance. They know darn well how the results of those polls will be used, and in case they forget, the surveys are printed with a reminder: your response is “important to you and other physicians because these values determine the rate at which Medicare and other payers reimburse for procedures,” according to a 2010 Wall Street Journal article.

What’s more, RUC rules require as few as thirty survey responses—a meager sample size, even if everyone involved weren’t both self-selected and personally invested in the results. “You wouldn’t use the results of thirty surveys to determine anything, much less billions in taxpayer cash,” a former adviser to the RUC told me.

There’s good reason to take into account the experience of those doctors who perform the procedure in question, said John Goodson, a primary care physician and associate professor at Harvard Medical School who has written about the RUC, “but if the process of assigning values to physician services is to be trusted, then the profession should hold itself to the same high, evidence-based standards that it does in other domains.”

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Another flaw in methodology comes from the fact that the RUC often relies on records from teaching hospitals in determining how long an operation takes, even though teaching hospitals often have longer surgery times than nonteaching hospitals. A 2006 study by the nonprofit health care research firm RTI International compared the amount of time the RUC suggested for sixty surgeries to data from 148 hospitals’ actual surgery logs. The RUC’s estimated times were often longer—sometimes by up to two hours.

Perhaps the most damning aspect of the RUC’s methodology, however, is that, while its members often spend quite literally hours debating if a certain procedure takes three minutes or just two, the RUC never so much as flicks at the question of how much—or even whether—a procedure actually benefits patients. This failure, which is part of a broader flaw in federal health care policy, is enormously damaging to the practice of American medicine. Among other things, it means that many patients wind up undergoing expensive procedures for which more effective and less costly alternatives are available.

The AMA’s main defense against the charge that the RUC skews health care spending toward specialists’ costliest procedures is that the system is self-policing. The members are working within a fixed budget, the AMA says, so they keep each other in check: if the RUC votes to raise the RVU of one procedure, it has to account for that increase by decreasing RVUs of other procedures elsewhere. And that’s true—as far as it goes. The process does indeed involve much squabbling among specialist societies, and RUC representatives do sometimes end up voting to lower codes that would positively affect their own societies. “There’s a certain calculation that happens, and people definitely vote against themselves,” a former RUC member told me.

But this inter-society bargaining occurs in a context in which there’s already a baked-in directional bias toward increasing the value of technical procedures, which are updated regularly and constantly fine-tuned, rather than cognitive or diagnostic services, which are mostly left alone. It also occurs in a context in which one side is politically weaker than the other. The most important cleavage within the RUC is between specialist doctors, who make the bulk of their money billing for procedures, and primary care doctors, who generate most of their income from office visits. While the primary care docs make up roughly 40 percent of physicians nationwide, they have only 14 percent of the votes on the RUC. Primary care physicians now have four rotating seats on the committee—up from just two seats a few years ago—out of a total of twenty-nine voting seats. (Of the thirty-one-doctor panel, two permanent seats are nonvoting positions.) Since a vote passes with a two-thirds majority, their political clout is extremely limited.

In 2005, this baked-in two-faction system erupted into a full-blown war during a RUC meeting when the two representatives from primary care threatened to leave the committee if it did not increase compensation for office visits, according to people who were present at the time. Powerful specialty societies, who didn’t want to see the amount of the pie remaining to pay for procedures decreased, vehemently opposed the idea.

Dr. Tom Felger, a former director of the American Academy of Family Physicians who was on the RUC at the time, told me that the American College of Surgeons had even created a spreadsheet, which they shared with other surgical specialties, illustrating exactly how much the RUC could increase the value of the office-visit CPT codes without affecting surgeons’ income. “They had done the math. They knew the facts,” said Felger, who represented the AAFP at RUC meetings for a decade. “When I saw it, I thought, ‘Wow-ee, this is it—now that’s collusion.’ ”

In 2007, the RUC did finally vote to increase the RVUs for office visits, redistributing roughly $4 billion from different procedures to do so. But that was only a modest counter to the broader directionality of the RUC, which spends the vast majority of its time reviewing, updating—and often increasing—the RVUs for specific, technical procedures that make specialists the most money. Because of the direct relationship between what Medicare pays and what private insurers pay, that has the result of driving up health care spending in America—a dynamic that will continue as long as specialists dominate the committee.

And despite the RUC’s vote to increase office-visit codes, the large payment gap between primary care doctors and specialists still exists. In 2012, radiologists and orthopedists made on average nearly twice as much ($315,000) as pediatricians ($156,000), while family doctors and those specializing in diabetes and endocrinology made nearly $140,000 less than urologists. “If … a primary care doctor is making a fraction of what an orthopedist is making, then that distorts the health care system in a whole variety of different ways,” said Vladeck, the former head of the CMS under Clinton. “You really have to think about what that’s doing down the line.”

One effect is that fewer young doctors choose to go into primary care. Another is that existing primary care docs cram more and more patients into their schedules to make up cost on volume and, as a result, have only a few minutes to consult with each one (see Candice Chen, “A Day in the Life of a Primary Care Doctor,” page 42). “If you run a practice and have bills to pay—that’s going to weigh on you,” says Kavita Patel, a primary care internist at Johns Hopkins Medicine and former health care adviser at the White House. “I see twenty-eight patients in a day. I spend seven to eight minutes with a patient. That’s unrealistic—it’s crazy.”

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The good news is that there’s been some incremental progress in the past few years. For example, a more empirical system is now in place for selecting the CPT codes that the RUC reviews every year. The CMS has also cracked down on certain types of redundant billing. “We’ve reduced payments for high-cost imaging quite significantly,” Jonathan Blum, the current director of the CMS, told me. “And we’ve eliminated payment codes we thought were overvalued, contrary to recommendations of the RUC.”

The CMS touts that in the last couple of years it has accepted only 60 percent of the RUC’s recommended RVUs—down from an average of about 90 percent over the past twenty years. (For technical reasons, it’s fair to say that the 60 percent number is somewhat exaggerated, but it is still a step in the right direction.)

The Affordable Care Act also takes some incremental steps toward reforming the payment system. It requires that the CMS create new “mechanisms” for establishing the physician fee schedule, which can include increasing its own in-house data collection and analysis to correct, corroborate, or refute the RUC’s recommendations, especially for inputs that are more easily measured empirically, like determining how long on average a given surgery takes. To comply, the CMS recently commissioned two reports from the RAND Corporation and the Urban Institute to advise the agency on how best to do that.

The CMS, in cooperation with the AMA, is also considering rolling out new codes that may make it easier for primary care doctors to bill for services for which they weren’t previously compensated. This year, for example, they introduced two so-called transitional care management (TCM) codes that will allow doctors to bill Medicare for the time they spend helping patients transition from an in-patient setting to another community or their homes.

Yet while some of these incremental changes have been supported by the AMA and the powerful specialty societies (which, indeed, have nothing to lose from, say, TCM codes), other attempts at reform have been met with fierce push back—from organized letter campaigns to intense lobbying—and it is not clear if they will survive.

“CMS is in a no-win situation,” says Vladeck. “They’ve got extremely powerful forces making extraordinary amounts of money, and if CMS tries to change that, it’s really easy for the providers to say, ‘This is going to impair access,’ or ‘This is going to hamper care,’ even if there’s zero reality to that claim. People like doctors and nurses, and they don’t like government bureaucrats.”

Even if these incremental steps remain in place, some critics argue they are akin to frosting on a rotten cake. “You can make these tweaks,” says Brian Klepper, a health care analyst and principal at WeCare, a primary care clinic and medical management firm, “but what you’re doing is ignoring the fact that this system is fundamentally insane. It’s so corrupt and collusive, it’s not something that can be incrementally fixed.”

Long term, there are two basic options to really solving the problems caused by the RUC. The first is to take the process away from the control of the AMA and put it in the hands of a well-resourced group of experts under the auspices of the federal government. This might take the form of a panel of doctors employed by the government, or of an advisory committee of representatives of different medical societies but with greater representation of primary care doctors. While the latter set-up would hardly eliminate all conflicts of interest and political horse trading, such a committee would at least have to meet federal requirements for disclosure of all conflicts of interest. It would also be required to publish minutes from the meetings, data from any surveys used, and so forth. That would be a big improvement over the current, closed-door policy at the RUC, which, because it’s convened by a private entity, the AMA, enjoys First Amendment freedom from federal disclosure rules.

This option, however, is politically tricky. “The AMA and these medical specialty societies have power, and they’re not wild about seeing that power diluted,” said Zeke Emanuel, a former special adviser on health policy to the Office of Management and Budget and the National Economic Council, and an oncologist. “So yeah, if you ask the sober policy community, ‘Should we do this?’ their opinion is yes. But when it comes to this, the sober policy community has almost never held sway.”

In 2011, Washington Democratic Congressman Jim McDermott proposed a bill that would have furnished the CMS with resources to assemble an independent council of advisers. It was met with a strongly worded letter from the American College of Surgeons the day it was proposed and died in committee that afternoon.

Some reformers point to a provision in Obamacare that might allow for an end run around Congress. The law creates a new entity, the Independent Payment Advisory Board, which, if Medicare costs outstrip the Consumer Price Index, will have the power to cut or change Medicare provider payments unilaterally. Its decisions can be overturned by Congress only if lawmakers pass alternative cost-cutting measures of equal size. Statutorily, IPAB could create a government-run equivalent of the RUC. Whether it will ever get a chance to exercise that power, however, is an open question: IPAB is a major political target for both Republicans who are demanding its immediate abolition and some Democrats who enjoy close ties to the medical drug and device industry.

The second option to solving the RUC problem would be to get Medicare out of the business of funding fee-for-service medicine. Reformers have been complaining for years that paying providers per procedure creates incentives for gaming and overuse that are difficult, if not impossible, to overcome. Under Obamacare, the CMS is already taking modest steps away from fee-for-service billing by expanding experiments in “bundled payments,” whereby providers are paid a lump sum to take care of patients with certain conditions, like diabetes or heart disease. The AMA, aware of the growing backlash in Washington against fee-for-service, has endorsed some of Medicare’s bundling initiatives.

But we need to go much further. It’s no coincidence that numerous studies have found that the best-quality and lowest-cost health care in America can be found in systems like Veterans Affairs and Utah’s Intermountain Healthcare where doctors are on salary and paid for keeping their patients well, not according to a fee-for-service system. As this magazine has argued (see Phillip Longman, “The Cure”), the federal government should set a certain date at which Medicare will pay only for health services provided by integrated systems.

Such a move would be fiercely resisted by organized medicine, and specialist societies in particular. But it would be the surest way to control the nation’s health care costs while improving health outcomes. And it would have a delightful side benefit: with fee-for-service eliminated, there would be no need to have thirty-one doctors sit in a ballroom in Chicago and centrally plan the pricing minutia of thousands of medical services and procedures. The RUC, in other words, would be made obsolete.

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.