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Overhaul Needed of System for Establishing Medicare Physician Payments

Sept. 25, 2014

Overhaul Needed of System for Establishing Medicare Physician Payments

Physicians Have Significant Role in Setting Own Pay Through American Medical Association Committee

WASHINGTON, D.C. – The way Medicare physician payments are determined should be overhauled to eliminate a conflict of interest that likely is creating distortions across the U.S. health care market, Public Citizen said today. The call came as the organization released a report showing that the federal government frequently relies on information from an obscure, secretive medical association committee to set those rates.

The Relative Value Update Committee (RUC) of the American Medical Association (AMA) makes recommendations to the Centers for Medicare & Medicaid Services (CMS) on the most important factor in the formula that determines how much doctors are to be paid for services rendered under Medicare Part B: the time and intensity associated with a given procedure.

CMS historically has accepted the RUC’s recommendations about 90 percent of the time, according to a 2012 Health Affairs article, although that percentage has dropped in recent years. The RUC’s payment decisions have implications beyond Medicare because most private insurers use Medicare as a baseline when determining their own physician payment rates.

Instead of relying on RUC, CMS should assume control over the entire rate-setting process, Public Citizen said.

“This process is tantamount to giving oil and gas companies the authority to write environmental regulations or food manufacturers the ability to develop their own food safety standards,” said Adam Crowther, researcher for Public Citizen’s Congress Watch division and author of the report. “The fact that a physician group has such an influential role in a process that determines physician pay for both Medicare and for private payers is unacceptable.”

In its report, “Inside Job,” Public Citizen describes the process through which the RUC and CMS assign values to each service covered by Medicare Part B. The report identifies three key problems with the process:

1. Absence of transparency. Even though CMS relies heavily on the RUC’s recommendations, the RUC is not subject to federal open meetings laws. The RUC’s proceedings are largely off-limits to the public and its records are difficult to access.

2. Self-regulation. The RUC’s work involves physicians making recommendations that directly influence their own pay.

3. Membership imbalance. The membership of the RUC is highly skewed toward specialty and procedural medicine, with primary care doctors making up as little as 7 percent of its membership.

Three primary factors determine Medicare physician payments: physician work, practice expense and malpractice insurance expenses. The RUC makes recommendations for the work component, which is designed to capture the time and intensity associated with a given procedure. Public Citizen’s analysis of CMS data revealed that:

  • From 2012 to 2014, CMS accepted RUC-recommended work values 65 percent of the time.
  • When CMS does modify a RUC-recommended work value, it is much more likely to decrease the value than increase it, suggesting that the RUC’s recommended values are inflated. From 2012 through 2014, CMS adjusted values for 35 percent of reviewed codes. Of those 35 percent, CMS lowered the RUC value more than 90 percent of the time.
  • Between 2012 and 2014, CMS accepted the RUC-recommended time value (which is a component of the work value) an average of 87 percent of the time and in 2014 accepted 97 percent of RUC-recommended time values.

Several health care experts have been critical of the RUC.

William Hsaio was the Harvard researcher who was instrumental in creating the original payment framework. In 2013, commenting on the AMA taking over the process, he said, “That was the point where I knew the system had been co-opted. 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.”

In 2012, Thomas Scully, CMS administrator from 2001 to 2004, said, “The idea that $100 billion in federal spending is based on fixed prices that go through an industry trade association in a process that is not open to the public is pretty wild.”

Also in 2012, Bruce Vladeck, an administrator of CMS’ predecessor agency from 1993 to 1997, weighed in on the RUC’s impact on primary care, saying that the current payment system “is central to the income problem of primary care physicians.”

In June 2013, U.S. Rep. Jim McDermott (D-Wash.) introduced the Accuracy in Medicare Physician Payment Act. This legislation would resolve some of the problems associated with the RUC by creating an independent panel that would identify services that should be reviewed and verify values for services that the RUC has reviewed. The bill has been referred to the House Energy and Commerce Committee and the House Ways and Means Committee but has not received a vote in either committee.

In its report, Public Citizen calls on CMS to overhaul the process that determines physician payments under Medicare Part B by assuming control over the entire process and using independent data sources – rather than doctors – as much as possible.

“A process as important as this should not be in the hands of the industry that stands to directly benefit from its outcome,” Crowther said.

Read the report.