How the AMA’s Price Fixing Distorts Health Care Delivery and Pricing

By Roy M. Poses, MD, Clinical Associate Professor of Medicine at Brown Univerity. Originally posted in Health Care Renewal.

It has been a year since we wrote about the RUC, the American Medical Association’s Relative Value System Update Committee.  There is only one thing new since then.  Politico just made another attempt to shed some light on this obscure committee and its outsize effect on health care. 

To summarize the events so far, all I need to do is cut and paste from our last post on the topic, from July, 2013…

In 2007, readers of the Annals of Internal Medicine could read part of the solution to a great medical mystery.(1)  For years, health care costs in the US had been levitating faster than inflation, without producing any noticeable positive effect on patients.  Many possible reasons were proposed, but as the problem continued to worsen, none were proven.

Health Care Prices are High Because They are Fixed That Way

The article in the Annals, however, proposed one conceptually simple answer.

The prices of most physicians’ services, at least most of those that involved procedures or operations for Medicare patients, were high because the US government set them that way. Although the notion that prices were high because they were fixed to be so high was simple, how the fixing was done, and how the fixing affected the rest of the health system was complex, mind numbingly complex.

Perhaps because of the complexity of its implementation, the simplicity of the concept has not seemingly reached the consciousness of most American health care professionals or policy makers, despite the publication of several scholarly articles on the subject, efforts by humble bloggers such as yours truly, a major journalistic expose in the Wall Street Journal in 2010,  another major expose in Washington Monthly in 2013, and congressional hearings in 2013.  The lack of much public discussion of this issue despite its importance and the above attempts to start discussion seemed to be a prime example of what we have called the anechoic effect, that important causes of health care dysfunction whose discussion would discomfit those who are currently personally profiting from the current system rarely produce many public echoes.  (For a review of what is known to date about how the offputtingly named Resource Based Relative Value Scale Update Committee (RUC) works, and previous attempts to makes it central role in fixing what US physicians are paid public, see the Appendix.)

Politico’s Turn

Now an article by Katie Jennings in Politico brings up some of the issues about the RUC that we have dealt with again and again. These included six of seven major points discussed in the Washington Monthly article, and that have been discussed multiple times on Health Care Renewal.  I will list the seven points, with supporting quotes for the first six from the Politico article.  (Our post in 2013 on the Washington Monthly article had supporting quotes for the last point.) 

The RUC is Well Hidden

 And yet even many doctors are not aware of the hidden hand of the AMA-run committee in perpetuating this costly crisis. The panel, with very little transparency or public discussion, continues….

Also

RUC meetings were closed, invitations had to be approved by the AMA, the charter had not been made public and there were no minutes or public documentation of what was said at the meetings. (Last year, under pressure, the RUC announced it would post meeting minutes on the AMA website.)

The RUC Fixes Prices

a secretive committee run by the American Medical Association (AMA) …, with the assent of the government, has enormous power to determine Medicare prices by assessing the relative value of the services that physicians perform.

The Government Enables the RUC to Fix Prices

the role of the AMA’s secret committee [dates] back to 1992, when the U.S. government sought to overhaul the entire Medicare fee system and decided it didn’t have the right personnel to conduct extensive surveys of physicians. So the federal agency tasked with overseeing the program, the Centers for Medicare and Medicaid Services, enlisted the AMA and the committee it had formed to determine what’s known as the relative value of physician work, meaning the amount of time, effort and skill that goes into performing a procedure. Each procedure had a corresponding code in the AMA’s Current Procedural Terminology coding system, which the government had already adopted nearly a decade before, in 1983, as the standard for physician billing and reimbursement for Medicare.

Also,

Above all, the RUC appeared to be dictating solutions to the government. Since 1992, the RUC has submitted more than 7,000 recommendations to the Centers for Medicare and Medicaid Services. The agency has accepted 87.4 percent of the recommendations, according to a study published in Health Affairs.

The Government Fixed Prices are Endorsed by the Private Sector

Because Medicare fees are the baseline for the rest of the pricing in the health care system, this has had a broad effect,

The Price Fixing Drives Up Costs and the Use of Services

For decades the committee has … [set prices] done so in a way that has skewed Medicare fees in favor of expensive specialists over ordinary general practitioners like Fischer, who are the nation’s first line of defense against serious illness. Because Medicare fees are the baseline for the rest of the pricing in the health care system, this has had a broad effect, contributing to a situation where primary care doctors are in general underpaid, underappreciated — and in critically short supply as medical students flock to where the money and opportunity are.

These Incentives Cripple Primary Care

And because the 31-member committee was – and still is — made up of a majority of specialists who typically sought to maximize their own share of the pie (26 of the 31 are appointed by the major national medical associations), it was no surprise who the losers turned out to be. ‘The specialists know what the game is,’ said Dr. Robert Berenson of the Urban Institute in DC, who was a member of the RUC in the early 1990s. ‘The [RUC’s] basic method of relying on a specialty society to give a non-biased appraisal … is fundamentally a flawed concept.’ Dr. Grant Rodkey, the first chair of the committee that came to be known as the RUC, described the scene of the inaugural meeting as ‘reminiscent of a group of dogs on leash eyeing a platter with a not-too-generous bone,’ in a 1997 interview in the Bulletin of the American College of Surgeons.

These Incentives Benefit Big Corporations, not just Medical Specialists

This was the only issue not directly addressed in the 2014 Politico article.  (But see our 2013 post.)

What to Do and What Will Happen?

The Politico article concluded on an optimistic note, suggesting that increased transparency about what Medicare pays physicians might help.

One key moment came in a court ruling this year: For 35 years until last April, all the Medicare billing practices of physicians had been kept private by a court injunction granted to the AMA. But after an appeals court ruled that such information must be made public, the 2012 billing data was released, showing that the top 1 percent of doctors, mostly specialists, accounted for an outsized portion —14 percent — of Medicare billing.

Or perhaps Congress might ride to the rescue,

Today ironically, the renegade primary care doctors see hope on Capitol Hill—and in the Obamacare law that so many on Capitol Hill have demonized. In April, seeking to avoid impending cuts to physician Medicare reimbursements, Congress passed the “Protecting Access to Medicare Act.” The new law expands on a provision already included in the Affordable Care Act that gives the secretary of Health and Human Services greater authority to identify and correct misvalued Current Procedural Terminology codes. Spurred by Congressman McDermott — who told me in an email that he still wants “major changes that make the RUC’s process more transparent” — Congress also commissioned a report from the Comptroller General to study the process by which the RUC provides recommendations to the government on Medicare fees.

And there is even one – one out of very many – health care insurance companies that might finally deviate from the Medicare fee schedule as influenced by the RUC,

Even some medical insurers, like CareFirst in the Washington, D.C. region, have begun to rebel against the old system and to push the savings that might come from paying primary care physicians more. As long as I can remember, family physicians and general internists have been financially at the low end of the totem pole,’ even though they’re the ones who perform the critical if unglamorous work of preventing serious illnesses, former CareFirst Chairman Michael Merson told The Washington Post recently.

But there have been only tiny changes in the RUC since the Washington Monthly article last year, and actually since we first wrote about the RUC in 2007.

The AMA, of course, fails to see anything wrong with the RUC.  On the AMA Wire blog appeared an  anonymous but apparently official post that sought to refute most of the the points made in the Politico article.

Well Hidden

The title of the blog post included the phrase “and it’s no secret,” but as far as I can tell, the AMA post never directly addressed the secrecy issue, especially involving the secrecy of RUC proceedings, whose location on the AMA website is not obvious to me.  I must admit that the list of members of the RUC is no longer secret, but can be found here (with a log-in, but no subscription required, and minus any biographical information, or conflict of interest disclosures).

Price Fixing

The AMA blog post stated

the RUC does not control the Medicare payment system, nor does it set rates for medical services

That is true as far as it goes, but totally ignores how the RUC’s determination of the relative values indirectly sets payment rates.

Government’s Uncritical Acceptance of the RUC’s Recommendations

The AMA blog post included,

The RUC’s recommendations are thoroughly reviewed by government officials who have the final say.

That failed to acknowledge how rarely the government officials have altered the RUC’s findings in the past.

Effects on Primary Care

The AMA blog post stated

The RUC values all physicians’ cognitive work and role tackling the growing number of Americans with long-term health problems that need continuous care. The committee’s work reflects the continued importance of services that all doctors—including primary care physicians—perform.

Again, this ignores the small representation of primary care physicians, and of physicians who perform only cognitive, as opposed to procedural services on the RUC, and the data, starting with the Annals of Internal Medicine article from 2007, that suggests the RUC’s updates favor procedural services.

Presumably as long as the leadership of the AMA sees no problems with the RUC, not much is likely to change.    

Summary

So since 1992, the RUC has had an outsize role controlling what Medicare pays physicians, and hence physicians’ pay in general.  Over this time, the playing field has become increasingly tilted in favor of procedural services and away from cognitive services, especially primary care.  The result is that the US has the most expensive health care system in the world, but hardly the best health care or health care results in the world. 

Economists have beaten us over the head with idea that incentives matter.  The RUC seems to embody a corporatist approach to fixing prices for medical services to create perverse incentives for physicians to do more procedures, and do less conversing with and examining patients, examining the best clinical research evidence about their problems, and rigorously thinking about how best to help them.  More procedures at higher prices helps physicians who do procedures.  It may help even more the corporations that provide the devices and drugs whose use is necessitated by such procedures, and the hospitals who can charge a lot of money as sites for performance of procedures.  It may even help insurance companies by driving ever more money through the health care system, and thus allow rationalization for higher administrative expenses as a function of overall money flow.

Yet incentives favoring procedures over all else may lead to worse outcomes for patients, and more costs to patients and society.  If we do not figure out how to make incentives given to physicians more rational and fair, expect health care costs to continue to rise, while access and quality continue to suffer.

Since we started writing about the RUC in 2007,  there have been some small changes in the RUC.  It has slightly more primary care representation, and its membership is no longer secret.  That is, however, about it.

As I wrote last time, hopefully the Politico article, added to all the other attempts to shine light on the RUC, will succeed in increasing awareness of the RUC and its essential role in making the US health care system increasingly unworkable.  Of course, such awareness may disturb the many people who are making so much money within the current system.  But if we do nothing about the RUC, and about the ever expanding bubble of health care costs, that bubble will surely burst, and the results for patients’ and the public’s health will be devastating.

APPENDIX – Background on the RUC

 We have frequently posted, first here in 2007, and more recently here,  here, here, and here, about the little-known group that controls how the US Medicare system pays physicians, the RBRVS Update Committee, or RUC.

Since 1991, Medicare has set physicians’ payments using the Resource Based Relative Value System (RBRVS), ostensibly based on a rational formula to tie physicians’ pay to the time and effort they expend, and the resources they consume on particular patient care activities. Although the RBRVS was meant to level the payment playing field for cognitive services, including primary care vs procedures, over time it has had the opposite effect, as explained by Bodenheimer et al in a 1997 article in the Annals of Internal Medicine.(1) A system that pays a lot for procedures, but much less for diagnosing illnesses, forecasting prognoses, deciding on treatment, and understanding patients’ values and preferences when procedures and devices are not involved, is likely to be very expensive, but not necessarily very good for patients.

As we wrote before, to update the system, the Center for Medicare and Medicaid Services (CMS) relies almost exclusively on the advice of the RBRVS Update Committee. The RUC is a private committee of the AMA, touted as an “expert panel” that takes advantage of the organization’s First Amendment rights to petition the government. Membership on the RUC is allotted to represent specialty societies, so that the vast majority of the members represent specialties that do procedures and focus on expensive, high-technology tests and treatments.

However, the identities of RUC members were opaque for a long time, and the proceedings of the group are secret. As Goodson(2) noted, RUC “meetings are closed to outside observers except by invitation of the chair.” Furthermore, he stated, “proceedings are proprietary and therefore not publicly available for review.”

In fact, the fog surrounding the operations of the RUC seems to have affected many who write about it. We have posted (here, here, here, and here) about how previous publications about problems with incentives provided to physicians seemed to have avoided even mentioning the RUC. Up until 2010, after the US recent attempt at health care reform, the RUC seemed to remain the great unmentionable. Even the leading US medical journal seemed reluctant to even print its name. That changed in October, 2010. A combined effort by the Wall Street Journal, the Center for Public Integrity, and Kaiser Health News yielded two major articles about the RUC, here in the WSJ (also with two more spin-off articles), and here from the Center for Public Integrity (also reprinted by Kaiser Health News.) The articles covered the main points about the RUC: its de facto control over how physicians are paid, its “secretive” nature (quoting the WSJ article), how it appears to favor procedures over cognitive physician services, etc.

In 2011, after the “Replace the RUC” movement generated some more interest about this secretive group, and its complicated but obscure role in the health care system, the current RUC membership was finally revealed. It was relatively easy for me to determine that many of the members had conflicts of interest (beyond their specialty or sub-specialty identity and their role in medical societies that might have institutional conflicts of interest, and leaders with conflicts of interest).

Then that year a lawsuit was filed by a number of primary care physicians that contended that the RUC was functioning illegally as a de facto US government advisory panel. It appeared that things might change. However, it was not to be.

A judge dismissed the lawsuit in 2012, based on his contention that the law that set up the RBRVS system prevented any challenges through the legal system to the mechanism used to set payment rates.

The ruling did not address the legality of the relationship between the RUC and the federal government.

The eery quiet then resumed, only punctuated briefly in early 2013, when a Senate committee held hearings with no obvious effect.

References

1. Bodenheimer T, Berenson RA, Rudolf P. The primary care-specialty income gap: why it matters. Ann Intern Med 2007; 146: 301-306. (Link here.)

2. Goodson JD. Unintended consequences of Resource-Based Relative Value Scale reimbursement. JAMA 2007; 298(19):2308-2310. (Link here.)

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About Lambert Strether

Lambert Strether has been blogging, managing online communities, and doing system administration 24/7 since 2003, in Drupal and WordPress. Besides political economy and the political scene, he blogs about rhetoric, software engineering, permaculture, history, literature, local politics, international travel, food, and fixing stuff around the house. The nom de plume “Lambert Strether” comes from Henry James’s The Ambassadors: “Live all you can. It’s a mistake not to.” You can follow him on Twitter at @lambertstrether. http://www.correntewire.com

8 comments

  1. LAS

    Nice work, Lambert. I’ve resisted some of your ACA essays, but align with you on this. I don’t think the “crap-i-fi-cation” of health care is due to ACA legislation at all but to other forces. The AMA is one of those other forces. .

    AMA influence could be traced yet further and deeper. The AMA blocked plenty of legislation meant to benefit the public well before the 1990’s. For one, creating Medicare and Medicaid was impossible, until LBJ spoke with them and learned the only way they’d permit the programs to exist were by changing laws and permitting doctors to become corporate owners of hospitals and nursing homes, etc. Which was duly done. Otherwise, probably, the public would never have gotten Medicare and Medicaid at all.

    There’s a 500-page book put out by Center of Medicare & Medicaid about how hospitals and other providers should submit their fees for services to Medicare. I’ve not read this thoroughly, only skimmed a few sections relevant to my work. Yet I think this may be a major key to really understanding how the system works, including the structure of hospitals and medical service providers; that is, if seems to me, hospitals and other entities model their profit centers and workforce to extract the most revenues they can feasibly get through this fee system. Population needs are a very distant second consideration.

    Senator Saunders’ is trying to change some of the incentives written into the Medicare system, but there’s a long way to go yet. HRSA (per ACA and other public health legislation) has been sponsoring some newer, smaller, more eclectic programs to address healthcare gaps in this country and one of them includes redistribution of Medicare residency reimbursement. I wonder if Yves observation that Rubin’s people are beginning to populate the HRSA agency might not be related to these developments.

  2. Gabriel

    This article and the one on the global ring to wash Russian dirty money are enough to make you think that the paranoids are right – there are covert, extensive designs to do not-so-good things.

    That cabals, perhaps many, exist that influence our lives but work for their own interests, not ours.

  3. fresno dan

    “Economists have beaten us over the head with idea that incentives matter. The RUC seems to embody a corporatist approach to fixing prices for medical services to create perverse incentives for physicians to do more procedures, and do less conversing with and examining patients, examining the best clinical research evidence about their problems, and rigorously thinking about how best to help them. More procedures at higher prices helps physicians who do procedures. It may help even more the corporations that provide the devices and drugs whose use is necessitated by such procedures, and the hospitals who can charge a lot of money as sites for performance of procedures. ”
    =====================================================
    One of the big problems in clinical research (in addition to the incentives that the entity that makes the drug does the research) is the human notion that a null result is a “bad” or “worthless” result, and not worth publishing. The fact remains that an awful lot of treatment harms instead of helps, or is of no proven value. Pair the profit motive with the human desire to “do something” and you get an expensive and perversely ineffective medical treatment establishment…

  4. Don Levit

    It is really unfortunate the secrecy and corruption behind the fee schedule
    Apparently a lot of effort went into establishing the prices
    Fairness must be established
    Until then why not have all insurers pay a percentage of Medicare rates
    No insurer will have a pricing advantage and with no costs for negotiating every procedure with
    every provider insurance premiums will
    Not increase as much
    Don Levit

  5. Banger

    The AMA has a long history of monopoly practices and price-fixing. Itk has attempted to jail and harass alternative practitioners who dare offer an herbal remedy without a license–those days are gone but a half century ago things were very different. Now modern doctors practice industrial medicine that is sometimes effective–and sometimes causes more harm than good. Life spans have increase due to the germ theory, advances in public health, and anti-biotics and a few excellent remedies. Considering that 80 % of diseases are stress related and the wealth of proven and well-tried alternative practices, the AMA still clings to its industrial and insensitive practices–if it weren’t for nurses imagine where we’d be.

    1. Carla

      “if it weren’t for nurses”… indeed, Banger! The National Nurses Union has been at the forefront of activism advocating single payer — Improved, Expanded Medicare for All. The National Nurses Union was in Detroit on July 18, on the streets in force, demanding that the water taps be turned back on.

      The fact is, nurses understand Health Care. All too often, doctors address only medical care. Nurses take care of people; doctors tend to treat parts. I’m generalizing, but you get my point. And I think the really excellent doctors out there would agree. At least, I hope so.

  6. impermanence

    Health care needs to be a non-profit, single payer concern until the population can be educated and weaned off of the notion that somebody is going to save them from their poor life choices.

  7. Melody

    So glad to see the HealthCare Renewal site is beginning to be more widely broadcast. Poses et al have long demonstrated the “anechoic effect” of their investigative reporting. May you and others begin the reverberation! Thanks.

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