Who Decides How Much Specialists Are Paid?

If you’ve read the post above about specialists vying to do lucrative procedures like colonoscopies-- while avoiding equally time-consuming procedures that just don’t pay as well--you might have wondered: who sets and updates the fees for each procedure?

The answer: a Medicare advisory committee called the RVS Update Committee (or RUC).  The RUC flies under the radar. It’s quite secretive and many people have never heard of it. Yet it is enormously powerful. It sets the prices for Medicare’s fee-for-service payment schedule, a price-list that has become the basis for most private insurers’ payments as well.

Who is on the RUC? It’s dominated by specialists. So, it should come as no surprise that a specialist’s time is deemed to be worth far more than an internist’s or a family doctor’s time.  An article in the June 2007 Annals of Internal Medicine provides a quick example.

In 2005, the Medicare fee for a typical 25- to 30-minute office visit to a primary care physician in Chicago was $89.64 for a patient with a complex medical condition (Current Procedural Terminology [CPT] code 99214). By contrast, Medicare’s fee for a gastroenterologist in the outpatient department of a Chicago hospital performing a colonoscopy (CPT code 45378)--which also takes about 30 minutes—was $226.63.  And if the specialist performed the procedure in his own office, where he pays for equipment and nursing time, he could charge Medicare $422.90 for his thirty minutes.  (Of course the primary care physician also has to pay for staff and equipment, though the equipment may not be as expensive.) 

Keep in mind that the gastroenterologist spent more time training in his specialty, and in that sense it is fair that he should be paid more. But should he be paid that much more per half hour? And, assuming he practices medicine for twenty-five years, at what point (if ever) do you stop paying him 2 ½ times as much for every 30 minutes that he works?

And the questions don’t stop there. As the Happy Hospitalist’s post above illustrates, some specialists and some procedures fetch much higher fees than others. Why?

It turns out that in the 1ate 1980s, Medicare asked Harvard economist Dr. William Hsiao to set prices for the thousands of individual procedures that doctors perform. And Hsiao decided that to be fair, prices should be based not just how much time the procedure takes but also on the mental effort and judgment involved, the technical skill and physical effort required, and the stress entailed.  To calibrate the precise amount of mental effort, stress and technical skill involved in everything from cataract surgery to performing a hysterectomy on a woman with cervical cancer, he and his team interviewed thousands of doctors.  (At the time, they determined that cataract surgery involves just slightly less work.)   

In 1992, Medicare adopted Hsiao’s fee schedule, and private insurers soon followed suit.

But the schedule was not carved in stone. As medical technology changes, some procedures become easier, while others become more elaborate. Thus the master schedule of some 6,000 procedures will always remain a work-in-progress, rather like a cathedral that outlives its original architects.

And who fine-tunes the schedule on a regular basis? The rather secretive committee stacked with specialists that I described earlier—the RUC.  It has 30 members, with 23 of them appointed by “national medical specialty societies.”

Given that decisions are based on “how much stress” a physician experiences while dong a particular surgery and the amount of “technical skill involved,” clearly the RUC is called upon to make some pretty subjective judgments. Nevertheless, its decisions are rarely questions.

Writing in the Journal of the American Medical Association in November, Harvard’s John Goodson MD, describes the RUC and its relationship with CMS this way:

The RUC has 30 members (the chair only votes in case of a tie) with 23 of its members appointed by “national medical specialty societies.” Meetings are closed to outside observation except by invitation of the chair. Only 3 of the seats rotate on a 2-year basis. Other members have no term limits.
“Seventeen of the permanent seats on the RUC are assigned to a variety of AMA-recognized specialty societies, including those that account for a very small portion of all professional Medicare billing, such as neurosurgery, plastic surgery, pathology, and otolaryngology. Proceedings are proprietary and therefore are not publicly available for review.

“Traditionally, more than 90% of the s RUC's recommendations are accepted and enacted by CMS. [my emphasis]

“The RUC has powerfully influenced CMS decision making and, as a result, is a powerful force in the US medical economy. Furthermore, by creating and maintaining incentives for more and more specialty care and by failing to accurately and continuously assess the practice expense…the decisions of CMS have fueled health care inflation. Doing so has affected the competitiveness of US corporations in the global market by contributing to years of double-digit health care inflation that have consistently increased the costs of manufacturing and business in the United States over the last decades.”

(Thanks to Brian Klepper, an analyst based in Atlantic Beach, Florida, who works on health care reform, for calling my attention to this article and the piece quoted above from the Annals of Internal Medicine in his December 17  post on The Health Care Blog:  “Bad Medicine: How The AMA Undermined Primary Care in America.")

In fairness to specialists, some are just trying to maintain their incomes.  In recent years, Medicare has been doing its best to keep fees flat—yet inflation means that a specialist’s overhead continues to rise. The cost of labor, real estate, equipment and malpractice insurance all are climbing. In order to keep up, many physicians are trying to do more procedures and more lucrative procedures. And while some (particularly primary care physicians and other generalists) have watched their incomes drop, overall doctors have succeeded.  According to the 2007 annual report of the Boards of Trustees of the Medicare trust fund, Medicare fee-for-services spending growth rates began to accelerate in 2000, rising to $35,936 billion from $33.348 billion in the prior year. By 2005, the total had jumped 73 percent in just six years.

MedPAC, the independent Medicare Payment Commission that advises Congress on Medicare spending, realizes that it needs to find a better way to determine specialists’ fees. Testifying before the House Ways and Means Committee’s  Subcommittee on Health last May (see www.medpac.gov), MedPAC chairman Glenn Hackbarth noted that the RUC’s three most recent reviews, completed in 1996, 2001, and 2006,

“recommended substantially more increases than decreases in the relative values of services, even though one might expect many services to become overvalued over time. We have noted that physician specialty societies have a financial stake in the process and therefore have little incentive to identify overvalued services.”

Responding to that problem, MEDPAC recommended “that CMS establish a group of experts, separate from the RUC, to help the agency conduct these and other activities. This recommendation was intended not to supplant the RUC but to augment it. To that end, the new group should include members who do not directly benefit from changes to Medicare’s payment rates, such as physicians who are salaried, retired, or serve as carrier medical directors and experts in medical economics and technology diffusion.”

But this would be only a temporary fix. Ultimately, many members of MedPAC realize that Medicare must move away from fee-for-service altogether. Until Medicare replaces fee-for-service with another payment system, many physicians will respond to any attempt to contain costs by increasing the volume of work that they do. This means that they have to work faster, spending less time with each patient, undermining the quality of care, and frustrating both the doctor and the patient.

Long-term, the best solution would be for Medicare to adopt a system that reimburses both doctors and hospitals for each episode of care, from beginning to end with a bonus to doctors and hospitals that achieve the best and most efficient outcomes.

I’ll be talking about this proposal in a future post where I return to my pie chart on “Health Care Spending” to examine what percentage of our health care dollars are used to pay for physician’s services—and whether it would be feasible to trim their share without affecting the quality of care.

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[anonymous]

i don't know if the primary care assistance programs work or not. i know many people who couldn't tolerate the place they were sent to and left before their time was up, paying a penalty.

i also know many people who put their time in and then went to do a fellowship and settle somewhere else. changing the debt load does not change the fact that a lot of the work is made up of things others don't want to do.

didn't fleischman in northen exposure leave at the end of the series? he couldn't even take pretending to be a primary care doc. :)

[Maggie Mahar]

anonymous and Martin-
Thanks for your comments.

Martin: I don't know the answer to your question, but I'm certain RUC's meetings are closed and minutes are not made public.

anonymous-- it had occurred to me, too, that retired specialists might not be familiar with the newest procedures (depending on how recent retired). It seems to be that doctors who work on salary would be the best choice.

I've written about med student loans on this blog before. My feeling is that we could solve quite a few problems if we began offering full loans to students that They Wouldn't Have to Pay Back (not even the principle-) if, after finishing their training, they agreed to go into a speciality where we need more docs (primary care, internal medicine, palliative care, etc.) and work in a part of the country where they are most needed for a certain number of years.

If they fulfilled the commitment (say 4 years), all of their loans would be
forgiven.

This would make it much easier for a primary care doc to make it financially and would help redistribute docs. (We had many more programs like this in the early 1970s--see the tv show "Northern Exposure" -they worked really well. Often the docs wound up putting down roots in the places where they were sent . . .

[Martin]

Does anyone know if RUC meetings are (or should be) subject to FACA? It seems like it should be, in which case the meetings must be open and minutes must be published (I think...)

[anonymous]

i'm trying to be fair and see your perspective, as i am sure you try to see mine.
to the average working doc on the street, there is no concept to them that they are setting their own fees. maybe this seems like splitting hairs, but cms does set their own fees, albeit with input from a powerless structure.

the average doc receives a fee schedule of what cms is willing to pay. they receive a fee schedule of what insurers are willing to pay. both of these are constantly revised downward. lost in the debate of the 10% cuts was that it was not a proposed 10% across the board cut, but rather a proposed average 10% cut that would have fallen extremely disproportionately on the specialists-like ortho, uro, cardiology.

in principle, i think the idea of retired docs serving is a good one, but really the question is what are we trying to address? they don't know how to do many of the newest procedures so have a hard time debating the relative difficulty other than word of mouth (which might be very good, admittedly). they don't know the struggles currently practicing people face-ie educational loans of 200k -400k if money magazine is to be believed. are those loan repayments taken into consideration, or is that not any of cms' business when setting fees for physician reimbursement? should cms take into account cola adjustments to employees of physician offices when setting their fees? if so, it is hard to imagine how they can fairly propose cuts at all?

respectfully submitted.

[maggie mahar]

Marc & Chris--
Thanks for your comments.

Marc--I didn't realize that payment for a hospitalist's services is billed separately.
But I think the reason for billing for "episodes of care" (rather than DRG's) holds because in many cases, a patient who comes into the hospital with one diagnosis (and so one DRG) leaves with the DRG upgraded. And this may be because the hospital-- or the doctor who originally referred the patient to the hospital--just wasn't very efficient in making the original diagnosis.
Too often the wrong tests are ordered--for two or three days--until the patient lands with a doctor who recognizes what is going on.

Chris-- a very interesting comment. I think that doctors who are on salary could be very helpful in giving the rest of us a dispassionate view of how payment to physicians could be changed.

On the one hand, they are doctors, and recognize how many years of training, loans, goes into becoming a doctor. So they tend to believe that doctors shoudl be well-paid.

At the same time, they don't have a vested interest in paying more for particular services. . .

[Chris Johnson]

I'm a subspecialist in pediatric intensive care and have seen more and more of our procedures bundled with the act of simply providing a day's critical care. On the whole I like this approach. I wonder if many procedures (e.g. lumbar punctures, bone marrow biopsies) ought to be bundled with the diagnoses most likely to need them. This wouldn't cover all procedures, but it might remove a fair number of them from a linkage to reimbursement for doing them or not doing them. (Full disclosure--I'm a salaried physician.)

[Dr. Marc Stone]

DRGs do not include physician fees!

Physicians bill separately for care they do in the hospital. Even when the hospital employs physicians on salary, the hospital bills Medicare separately. There is genuine episode of care billing for major procedures, the "global fee" which includes all physician services specific to that procedure from the time of the procedure to as long as 90 days afterwards.

As far as the RUC goes, primary care specialty societies could stop this exploitation by the subspecialists but don't do so because too much of their own income comes from procedures - they make $10 from spending less than a minute confirming an ECG that has already been read by a machine - three times the per minute rate for an office visit. They would rater be second-class citizens than kill the goose that lays the golden eggs.

[maggie mahar]

Anonymous & Jeff --
Thanks for responding.

Anonymous- I'm really not bashing physicians. By and large, I see them as part of the solution, not part of the problem--i.e. I think we need boards and panels of physcians making decisions about what is effective medicine, and ultimately, what is cost-effective (assuming that, in a world of finite resources, we cannot afford to do everything that we might possible do that might possibly give someone another two or three week of life.)

When I question how much "some specialists" charge for "some procedures", I think you'll notice that I always say "some" specailists.

I'm not likely to use "some" when talking about drugmakers, because I believe that virtually all of them charge as much as they can get away with all of the time. That is what they are supposed to do-- make as much profit as possible.

As professionals, doctors are supposed to have other goals, and I believe most do.

But clearly, it's not a good idea to have people setting their own fees. If I was allowed to set my own salary, I certainly would pay myself more than I am now paid! (Non-profit think tanks don't pay very well.)

I thought MedPac's suggestion that specailists who are retired or on salary be involved in updating fees was a very good one. I do think that, in many cases, you probably have to work in that particular specialty to fully appreciate the work involved-- as procedures change and become more complicated. You also need to take in to account the other factors you bring up--such as the likelihood that you'll have to perform the procedure at 3 a.m.
This is not a problem for a dermatologist who does only cosmetic dermatology, but obviously is a factor for an ob/gyn who is on call. He/she really can't have a couple of drinks or go to a family event that will take him too far from the hospital when he is on call. And it sounds as if you're in a situation where you are on call virtually all of the time.
That's why the fee schedule needs to be looked at very carefully, by people who understand the procedures. And why the proposed 10% across- the- board cuts in Medicare payments to physicians makes no sense whatsoever.

I'm sure some specialists are being underpaid for some specific procedures as well as being overpaid for others.

Jeff-
A healthcare blue book sounds like a patient-friendly idea. And I certainly think patients need to know how much they will be charged for a consult, or a particular procedure, before they come in.
The only thing I would add is that the bluebook could only apply to a fairly small geographic area. Overhead varies so much--even in different parts of a city--that a doctor practicing in some areas has to charge significantly more than a doctor whose real estate and labor costs are much lower ...

[anonymous]

i know physician bashing is in vogue, but please keep in mind that most are really trying to help patients. remember that the physicians don't just learn to do a procedure one day, and that is it. the technology is constantly changing, and there are better and better ways to do procedures. we still have to invest the time to learn how to do these new procedures. (i spent an extra year of my life in indentured servitude while learning a skill that has been totally abandoned. how painful is that?) medications are constantly changing. people are living longer and with more advanced disease and have higher and higher expectations. doing procedures on sicker patients is harder than ever.
the reimbursement reflects not only the time to perform the procedure but routine postoperative care as well as availability to treat complications and pay for malpractice. and being available to do the procedures at nights and on weekends and on holidays, at least that's what the guy who comes to unlock my door and is available 24/7 says. for my area of expertise, there needs to be a large population present to have enough cases to pay for my presence. in exchange, i am on call all the time 24/7, unless i am out of town. if i leave to go to my sister's wedding or to go to a class, people have to get flown to another hospital and their chance of survival drops. if reimbursement went up, then maybe we could hire someone else. i cannot drive more than 20 min from the hospital. i can not drive to family events with my family in case i have to leave. i can never have more than 1/2 glass of wine.

i am not complaining, but i am hopefully informing you what life can be like for the specialists that seem to be the easy target.
i urge you to make sure you consider ways to make sure quality remains high first and foremost while looking at ways to achieve cost control. please let us know who is going to control society's expectations as we start to ration health care more aggressively.
respectfully submitted

[Jeff]

Thanks for the interesting article. Another area that lacks transparency is physician pricing at the patient level. I have begun an initiative to communicate 'fair' pricing levels to patients by way of the healthcare blue book. I would be interested in your thoughts. As you know, many providers don't offer pricing amounts before a visit and often charge some patients 3 times (if not 5 to 10 times) more than they typically charge BC/BS.

[maggie mahar]

Happy Hospitalist & Barry--
Thanks for your comments--

HH--A DRG (diagnostic related group) refers to what happens to the patient in the hospital following a particular diagnosis. Medicare pays a set amount for a particular diagnosis based on its estimate of what treatment for that diagnosis should cost.

But as you know, the DRG can be upped, or added to, many times, as\ doctors do tests and change the diagnosis, as the patients develops complications, as treatment for one condition sets off another (i.e. a heart attack), as the patient develops an infection which lead to something else, etc.
As you know better than any of us, once a patient is in a hospital, and once a bevy of specialists begin consulting, one thing can easily lead to another . .

Also, the DRG does payment does not include payments to doctors before and after hospitalization.

An "episode", as defined by rhe reserachers at Darmouth who came up with this idea, (and MedPac and others who like the idea) is defined as everything that happens to a patient from initial visit to a doctor or doctors for a particular problem through hospitalization, including all of the doctors and specialists who see him while he is in the hospital, and all new diagnoses during his stay though rehab, follow-up visits to the doctor. . .

The idea is, in part, to encourage doctors and hospitals to collaborate since their payment would be based on how well they do when compared to very efficient hospital/doctor groups (like UCSF or the Mayo Clinic) that achieve very good outcomes with fewer complications, by getting the diagnosis right int he first place while using fewer specialists, avoiding unnecessary procedures, infections, etc., thus using fewer resources. (These hospitals and the cluster of doctors who normally refer to them would serve as a benchmark. Hospital/doctor groups that came close to or exceeded the benchmark would receive bonuses. )

As always when paying for performance, adjustments would have to be made for hospital/doctor groups that treat patients who are generally sicker, poorer, older . . .

Barry--
The prediction of aggregate costs would be based on costs at the somewhat more expensive, but not the most expensive hospital/ doctor goups. (75th percentile, if I remember correctly). Groups that achieved very good outcomes efficiently would receive a bonus beyond the predicted cost.
The hospital doctor/groups would be virtually groups centererd around the hosptial(s) where the doctors in question normally refer their patients.
Most doctors refer the vast majority of their patients to one acute-care hospital (because most patients strenuously resist going anywhere that isn't very close to home because they want relatives and friends to visit daily), but they might be members of two clusters.
(By the way, you can provide patients with hard evidence that certain hospitals are better at certain procedures--fewer fatalities following by-pass, for example, and they still insist on going to the hospitals closest to home. Reporting results following heart surgeryhas had very little effect on patient traffic.)
Extensive work has already been done breaking down the clusters, finding that the concept would work for about 98% of all doctors.
The doctor would still have the choice of referring to whatever hospital would provide the best treatment. His payment for that episode would be bundled with that hospital.

[The Happy Hospitalist]

If I may kindly ask, What do you think a DRG payment is?

THe current system of hospital care IS episodic by way of the DRG.

It's about as episodic as it gets.

That's why hospitalists exist.

[Barry Carol]

Maggie,

I'm a big fan of episode pricing conceptually. There are at least two significant challenges, however. The first relates to the ability to accurately predict aggregate costs, including costs related to complications, over many episodes. The second is how to divide the revenue between doctors and hospitals when doctors do not work for the hospital and hospitals themselves may have very different cost structures, even in the same city. Some of that difference may relate to being an AMC vs a community hospital while some may be a function of wide variations in occupancy rates. Salaried doctors would likely create other issues such as productivity and pressure to drive revenue for the "mother ship" (the hospital) even when the patient might be clearly better off going to another nearby hospital which has a much better record in treating the particular condition the patient has.