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.
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.
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.
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.
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
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
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.
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,
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
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
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.
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.
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.
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.
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.
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.
“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.
Those RVUs needed to be adjusted accordingly.
The question soon became:
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).
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,
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.
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.
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.
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.
Several RUC members I spoke to mentioned that the chairwoman often reminds the committee to “Put your RUC hat on,” meaning:
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.
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.
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.
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.
The RUC’s database features page upon page describing what exactly a doctor does when performing each procedure.
Each of these questions can bring
sometimes hours of haggling at the meetings.
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.
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.
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 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.
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,
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.
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 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.
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.
Powerful specialty societies, who didn’t
want to see the amount of the pie remaining to pay for procedures
decreased, vehemently opposed the idea.
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.
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.
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).
The CMS has also cracked down on certain types of redundant billing.
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.)
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.
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.
Even if these incremental steps remain in place, some critics argue they are akin to frosting on a rotten cake.
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.
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.
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.
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.
As this magazine has argued (see Phillip
Cure”), the federal government should set a certain date
at which Medicare will pay only for health services provided by
And it would have a delightful side benefit:
The RUC, in other words, would be made obsolete.