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How the American Medical Association’s secretive panel drives up health care costs

July 16, 2015

By Vikas Saini, MD and Shannon Brownlee, MSc

A new report by the Government Accountability Office (GAO) shows how heavily the government relies on a select panel of American Medical Association physicians for setting the rates that physicians who treat Medicare patients are paid. The secretive group, known as the Relative Value Scale Update Committee, or RUC for short, has long operated with an astonishing lack of transparency for a private entity in the business of advising government. The RUC can be held at least partly responsible for the current shortage of primary care physicians and the high cost of American health care.

The committee gathers three times a year to make recommendations about how much doctors should be paid for different services they deliver. These recommendations, which are widely adopted by Medicare and private insurers, are based on estimates of “effort” — how much time it takes a doctor to see a patient or perform a particular test or procedure, as well as the mental and physical effort, technical skill required, and expenses the doctor may incur such as paying for a technician. The estimates come from physician specialty societies, like the American College of Cardiology and the American College of Gastroenterology, which survey their members.

According to the GAO report, this method is deeply flawed. Among its many problems, the specialty societies rely on their members to provide the estimates, the very people who have a vested interest in inflating their effort. The more effort they report, the higher the payment rate the RUC is likely to settle on. Which might explain why the average colonoscopy takes about 30 minutes to perform, according to an investigation by the Washington Post, but the RUC pegs it at 75 minutes.

There is another potential source of bias in the RUC’s deliberation. The committee’s 31 physicians, whose names are put forth by the various medical societies, are dominated by specialists, doctors such as cardiologists, orthopedic surgeons, ophthalmologists, and gastroenterologists.  Less than a handful are primary care doctors. This imbalance may be part of the reason the committee has routinely placed greater value on the work of specialists who perform procedures, and undervalued the listening, careful deliberation and counseling provided by the so-called “cognitive” specialties, particularly primary care.

Whatever the reason, the RUC’s recommendations for payments – 90% of which Medicare accepts – have reinforced and perpetuated a system in which primary care doctors make a lot less money than the average specialist. For example, radiologists earn on average about $371,000 a year, cardiologists $390,000, and primary care physicians, $184,000.

A primary care doctor’s income probably sounds pretty hefty to most Americans, but the differential between specialties and primary care has distorted the market for primary care doctors to the point where most states if not all of them are suffering a real shortage. That’s partly because medical students graduate with an average of $170,000 in school debt. Every year, many of those who might have chosen primary care take a hard look at their prospective incomes and wind up on a specialty track instead.

The result? Some 70 percent of all U.S. doctors are specialists, precisely the opposite ratio that most experts say would be best for the nation’s health. Primary care is the bedrock of a well-functioning health care system.

Overpaying specialists hurts patients in other ways. The high valuations the RUC sets for procedures done by specialists serve as an incentive for them to overtreat, to deliver services patients don’t need, or might not want if they were better informed of their treatment choices. Estimates for the amount the nation wastes on such overtreatment is at least at $270 billion, or nearly a third of the total we spend on health care (including Medicare, Medicaid and private insurance).

Given all this, perhaps it should come as no surprise that until the GAO’s report, the RUC’s activities have been almost entirely hidden from public scrutiny. Members of the public who want to witness the committee’s deliberations must sign a confidentiality agreement not to reveal what they heard and saw in sessions.

The RUC’s secretiveness cannot obscure the larger issue that’s at stake here, which is the way in which it has helped to reinforce a “more is better” mentality. Most doctors get paid fee-for-service. The more they do, the more they earn, or in the current jargon, they are paid for  “volume, not value.” There is widespread agreement in the health care policy community that the U.S. needs to shift away from a pure fee-for-service model for most doctors to another approach, perhaps paying a fixed amount per patient per month, or even a salary.

How that new model will work is not yet clear, and making it fair is not going to be easy. But until then, Medicare, as the protector of taxpayer dollars and Medicare patients, should conduct its own evaluation of appropriate fees for different medical services. The Affordable Care Act allotted $2 million for Medicare to collect its own data, but thus far it has not acted.

At the very least, the AMA should level the playing field. Add more primary care doctors to the RUC. Open the committee’s books, share the data that drives the payment decisions, and make all values fair. Stop serving as an example of how big medicine fails to do what’s best for patients and the nation.

Vikas Saini is president and Shannon Brownlee is senior vice president of the Lown Institute.