Prices are High Because They are Fixed That Way
The article in the Annals, however, proposed one conceptually simple
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, and recent congressional hearings. The lack of discussion of this issue 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.)
The Washington Monthly Pulls Back the Curtain
Now another attempt to pull back the curtain that hides the RUC was just made by the Washington Monthly. A long, detailed, well-written article by Haley Sweetland Edwards went through the major points, and included some new discoveries. She asserted:
The RUC is Well Hidden
[The RUC is] probably one of the most powerful committees in America that you’ve never heard of.
The RUC Fixes Prices
when a roomful of professionals from the same trade meet behind closed
doors to agree on how much their services should be worth. It’s called
The Government Enables the RUC to Fix Prices
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
The Government Fixed Prices are Endorsed by the Private Sector
private insurance companies also use Medicare’s fee schedule as a
baseline for negotiating prices with hospitals and other providers.
The Price Fixing Drives Up Costs and the Use of Services
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.
These Incentives Cripple Primary Care
These manipulated prices are also a major reason why specialists are in
oversupply in many parts of the country, while a worsening shortage of
primary care providers threatens the whole health care delivery system.
These Incentives Benefit Big Corporations, not just Medical Specialists
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 RUC.)
[Art by Monte Wolverton for the Washington Monthly article]
What to Do and What Will Happen?
We previously wrote,
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.
Ms Edwards ended her article with two specific suggestions:
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.
get Medicare out of the business of funding fee-for-service medicine.
I can only hope that the latest Washington Monthly article, which was accompanied by an editorial and a short first-hand account of how difficult is the lot of the modern primary care physician, 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
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.
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
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.
ADDENDUM (15 July, 2013) – see also comments by Dr Howard Brody on the Hooked: Ethics, Medicine and Pharma blog.
ADDENDUM (18 July, 2013) – see also comments by Yves Smith on the Naked Capitalism blog.
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.)