The Little-Known Physician Committee That Helps Decide How Much Physicians Are Paid

If asked to explain ballooning healthcare costs, Americans often point to prescription drug prices and health insurance premiums. A new book by Miriam Laugesen, associate professor of Health Policy and Management, examines an overlooked factor: how the medical profession itself influences the price of physician services.

The result of Laugesen’s six-year study, Fixing Medical Prices shines a light on the byzantine inner workings of the Specialty Society Relative Value Update Committee (RUC), a American Medical Association-sponsored physician panel that advises the Centers for Medicare and Medicaid (CMS) on how to price more than 8,500 different patient-physician services, from a routine checkup to open-heart surgery.

Laugesen observed committee meetings and reviewed thousands of pages of their documents; she also interviewed current and former members and quotes them in the book, even as the sensitive nature of the material required that she shield their identities.The result of her detective work reveals that RUC, which purports to provide independent expertise, is not removed from the interests of its specialty society members. 

“There’s an important distinction to be made regarding the expertise needed to assess physician work—which arguably any physician could make—and having people who represent an organization of doctors with that organization’s interest behind them,” says Laugesen.

Best Laid Plans

After World War II, the American Medical Association fended off attempts to pass universal health insurance and HMO-style capitation in order to maintain a fee-for-service model. To help insurance companies know how much to pay, a group of physicians in California created a system to set relative values for services—for example, compensation for a tonsillectomy might be worth five times as much as a tetanus shot. Medicare and private insurance companies used this system until 1975 when it was ruled illegal under antitrust law.

Seeing healthcare costs grow rapidly in the 1980s, Congress sought to assert control over Medicare, including reforms to the physician payment system and attempts to correct the growing earnings imbalance between specialists and primary care physicians. The AMA pushed to revive the relative value system, championing the work of Harvard economist William Hsiao, whose 1988 study formed the basis for what became the Resource-Based Relative Value Scale (RBRVS) currently used to pay physicians.

As Congress debated reforms, physician groups successfully advocated replacing strict budget caps with budget targets. After the RBRVS was rolled out in 1992 and it emerged that CMS didn’t have the manpower or expertise to update relative value units, the AMA stepped in to create RUC. None other than Hsiao later bemoaned what became of the RBRVS: Laugesen quotes him saying in 2013, “The system has been coopted.”

In Practice

To set relative value units, RUC surveys specialty societies on the time, effort, and resources involved in each clinical encounter. The surveys are often small, and respondents are not always randomly selected. Furthermore, Laugesen argues that the nature of the surveys—which rely on self-assessments—results in estimates that don’t always align with reality. The book points to research by the RAND Corporation finding a RUC estimate for the time need to complete a colonoscopy was 51 minutes, compared to an independent assessment of 17 minutes.

When CMS accepts RUC’s recommendations—which happens nine times out of ten—the result ripples across the healthcare system, since Medicare fees serve as a benchmark for private insurers. When it does reject a RUC recommendation, CMS doesn’t always have the final word and can change its decision based on the reaction of physician groups. Laugesen writes of occasions when physician groups lobbied Congress to do an about-face on a CMS policy decision while characterizing any cost-control efforts to seniors as “cuts to Medicare.”

It its quarter-century of existence, RBRVS has failed to make progress on its two main goals. Physician fees, which account for one-fifth of all healthcare spending, have continued to climb. And according to the most recent data, the median income of an American orthopedic surgeon is $484,000, compared with $195,738 for a family doctor. Even worse, says Laugesen, RUC has created a medical system that encourages physicians to favor quick, profitable outpatient procedures rather than preventive primary care.

Thinking of RUC as a sinister conspiracy is the wrong conclusion, the book argues. Instead it is the product of a variety of organizational and informational asymmetries. Only 10 CMS staff are allocated to review hundreds of RUC recommendations every year. A single year’s worth of fee updates in the Federal Register runs to hundreds of pages. More often than not, Congress and CMS are resigned to the idea that doctor knows best.

Reform

A new era of reform began with the Affordable Care Act. While the law doesn’t directly regulate healthcare costs, it has boosted primary care payments to better coordinate and manage chronic conditions and reward high quality care—strategies some believe could moderate costs. Laugesen is skeptical. These sort of technical fixes are vulnerable to erosion through lobbying of the kind seen with RBRVS, she says, especially around fungible measures like quality. 

While RUC has attempted to reform itself—requiring members to disclose conflicts of interest and increasing the minimum survey sample size to 50—Laugesen says these efforts fall short. At the very least, she argues, Congress must provide greater funding to CMS to oversee RUC; more effective would be to supplement or even supplant RUC with statistical models.

Looking ahead to a Trump administration, radical reform of Medicare seems a serious possibility. House Speaker Paul Ryan’s plan calls to privatize the program through a voucher system.  No matter what happens, says Laugesen, “there will always be need for some system to determine how physicians are paid.”