The RUC Is Bad Medicine: It Has To Go

Brian Klepper

Posted 8/12/13 on Medscape Business of Medicine

BK 711“One of the biggest mistakes we made … is that we took the RUC … back in 1992 and gave it to the AMA. … It’s incredibly political, and it’s just human nature…the specialists that spend more money and have more time have a bigger impact.”

This was Tom Scully, former Bush II Administrator of the Centers for Medicare and Medicaid Services (CMS), previously the Health Care Finance Administration (HCFA). He was a panelist in a May 10, 2012 Senate Finance Committee RoundTable discussion by former HCFA/CMS Administrators and has become one of the RUC’s most outspoken critics. He was explaining how the American Medical Association’s (AMA) Relative Value Scale Update Committee (RUC), a group that asked if it could help the government by overseeing a valuation process for medical services, came to dominate and distort the pricing used in Medicare, Medicaid and commercial health plans.

Mr. Scully echoed this sentiment recently.

“The idea that $100 billion in federal spending is based on fixed prices that go through an industry trade association in a process that is not open to the public is pretty wild. … Having the AMA run the process of fixing prices for Medicare was crazy from the beginning.”

Gail Wilensky, HCFA Administrator under Bush I, was wistful. “It happened innocently enough.”

It is remarkable and compelling to hear these federal health program ex-stewards express regret about a fiasco they had a hand in. Their “mea culpas” are almost palpable. Mr. Scully, in a recent Washington Post video interview, gave a quick aside, “It’s partially my fault.”


Before last month, hardly anyone in America had ever heard of the RUC, much less understood how it works. For almost 20 years, it mostly flew under the mainstream media radar. Then, in October 2010, the Wall Street Journal’s Anna Mathews and Tom McGinty delivered a scathing expose that described the RUC’s manipulation of health care pricing. Mr. Scully memorably called the RUC “indefensible.”

Time passed. Then last month, Washington Monthly editor Haley Sweetland Edwards resurrected the topic with a witty explication of the RUC’s “Special Deal”. (“The RUC, like that third Margarita, seemed like a good idea at the time.”) This was rapidly followed by a Washington Post front page article, in which Peter Whoriskey and Dan Keating showed how the RUC’s valuations are sufficiently skewed that they permit Medicare to pay some physicians for more than 24 hours of work each day.

For a brief moment, the RUC was front and center in the American media. Here was a secretive, 31 physician, specialist-dominated health care star chamber, operating under the auspices of the AMA, and complicit with CMS. It values medical services, often spun to panelists’ interests. CMS historically has accepted nearly 90 percent of the RUC’s recommendations, with no further due diligence. A deliciously grand scandal, and one of the deep roots of America’s health care crisis, taking advantage of us all.

The question, though, is whether anyone can do anything about it.

The Best Assumptions Money Can Buy

The RUC’s work follows the design of the Resource-Based Relative Value Scale, a formulaic system of inputs – weighing the contributions of physician work (54%), practice expense (41%), and malpractice expense (5%) – devised by a Harvard team in the late 1980s. One assumption here is that the relative weights are approximately accurate across specialties and services. Barbara Levy, MD, a gynecologist and the RUC’s Chair, insists they are.

“None of us believe the numbers are fine-tuned, We do believe we get them right with respect to each other.”

Of course, this assumes you accept that primary care is less demanding and time consuming than specialty services, that quickly diagnosing and managing a patient presenting with an array of complicated symptoms is easier and less valuable than doing a procedure.

A couple years ago, David Kibbe, MD and I explored this assumption by comparing a moderately complex primary care office visit (99214), in which a physician must address at least 3 different problems in 25 minutes, with an ophthalmologist’s cataract extraction and intraocular lens implant. The cataract procedure, in basic form now more than 50 years old, is highly refined, automated and often performed in assembly line fashion. Using this comparison’s RUC valuations, Medicare pays ophthalmologists at 12.5 times the hourly rate paid to primary care physicians. The demands on generalists are arguably greater.

Another problem with RBRVS is that it bases payments purely on what sellers subjectively calculate they should be paid, without considering other factors, like value to the end user. But even if Medicare’s input-only-based valuation method made sense, there is the question of whether a self-interested panel, meaning those that know their payments will be tied to their recommendations, can credibly oversee an objective valuation methodology. Dr. Levy has admitted that special interest bias is part of the process.

“We assume that everyone is inflating everything when they come in. They are wanting to fight for the best possible values for their specialties.”

Horse trading on the valuations apparently is common. Neil Brooks, MD, a family physician and RUC panelist for 4 years reported,

“If radiology presented a new set of codes that had to do with imaging procedures, there was a feeling that some people would go along with that if radiology would go along with other things.”

And Roy Poses, MD has documented RUC panelists with financial conflicts that could influence their valuations.

“It appears that many of the RUC members have significant conflicts of interest with respect to their roles as de facto setters of the rates at which physicians are paid by the government.”

The AMA is fierce about protecting its franchise, and has argued strongly that no other interests, even those with a strong stake in care and cost – e.g., patients, purchasers or health economists – should participate in the valuation process. Only doctors can understand the value of a medical service, and so they alone must create the basis for what the rest of us pay.

FACA And The Public Interest

But the RUC has a deeper structural problem. It has evaded the safeguards we normally demand of federal agencies’ external advisors.

The federal government typically insists that advisory panels follow the rules set up under the Federal Advisory Committee Act (FACA). The composition of the panel should reflect the real world percentages of its constituents. Proceedings should be publicly open and transparent. Analytical methods should be scientifically credible. In other words, the structure and function of advisory committees should be required to operate in the public interest, protecting us from special interest lobbying’s inevitable excesses. (Remember, for example, when Vice President Cheney met in closed meetings with energy industry lobbyists to formulate energy policy?)

The RUC adheres to none of these rules. It’s proceedings are closed to the public and no transcript is made available. Meeting invitations may come only from the Chair, and are contingent on signing an onerous non-disclosure form. Valuations have been made with as few as 30 survey responses. And the committee’s composition is overwhelmingly dominated by specialty physicians, though the AMA selectively allocates seats at the table. “Minor” specialties, like Gastroenterology, may be excluded from the discussion. Even though Medicare is primarily dedicated to senior care, Geriatrics was not invited to participate until February 2012.

Medicare’s refusal to hold the RUC accountable was the basis of a legal challenge by six Augusta, GA primary care physicians. The suit argued that the RUC was a “de facto Federal Advisory Committee,” and therefore subject to the FACA rules. Like the district court ruling before it, the appeals court’s decision dismissed the plaintiffs’ claims on procedural grounds, with almost no discussion of content or merit. The courts ruled that the RUC’s relationship with CMS was beyond their jurisdiction, and can only be remedied by Congress.

The Potential For Meaningful Congressional Action

Given the strong influence that the health industry has had over Congress, the prospects are poor for meaningful policy-based change that can bring health care back into balance. In 2009, the year that the Affordable Care Act was formulated, Congress accepted $1.2 billion in campaign contributions from health care interests in exchange for influence over the shape of the law.

Recently, Rep. Jim McDermott (D-WA) introduced the Accuracy in Medicare Physician Payment Act (HR 2545), which would require the RUC to adhere to the public interest requirements of FACA, and supplement the current valuation panel with non-physicians: patients, purchasers and health economists. It would also provide CMS with more resources to oversee the valuation program. These steps would go a long way toward improving health care and cost. But passage would require buy-in from a Congress largely beholden to the health care industry, and seem like a long-shot.

Systemic Distortions

Over time, the RUC’s over-valuing of specialty services and under-valuing of primary care has had serious real world impacts. Excessive valuations of certain procedures – e.g., cardiac stenting, colonoscopies, back surgeries – have created lucrative incentives for specialists to over-treat. For example, 2008 international health system comparison data showed that we do revascularization procedures at twice the rate of other developed nations. Other data show a clinically inexplicable 15-fold increase in complex spinal fusions between 2002 and 2007, with adjusted mean hospital charges of $81,000. Paul Fischer, MD, the lead plaintiff in the failed lawsuit against CMS, has argued that “practicing to the codes” has narrowed specialists’ care palette, compromising outcomes and medical professionalism.

Lower primary care reimbursements have resulted in shorter visits and a doubling of the specialty referral rate over the past decade. Rushed schedules have also inhibited primary care’s ability to moderate inappropriate specialty care. And the growing pay gap between primary care and specialist physicians – a 2010 study showed that specialists, on average, can expect to make about $3.5 million more over a 30 year career – has driven all but the most idealistic medical students away from primary care into the more lucrative specialties. This has fueled a national primary care labor shortage that will plague the US for decades.

But the RUC’s payment distortions have damaged far more than primary care physicians’ work lives. Patients receiving unnecessary services are needlessly exposed to physical risk that sometimes results in harm or death. Purchasers – taxpayers, businesses and individuals – shoulder relentlessly excessive and rapidly growing health care costs. A 2010 RAND study showed that 79 percent of the last decade’s growth in household income has been absorbed by health care, leaving few resources for other important societal needs, like infrastructure replacement and education. Health care has become the most significant threat to our national economic security, and the RUC, while not our only health care problem, remains a key driver of unnecessary health cost.

Can We Fix The RUC?

Two questions come to mind.

By what logic should overt financial conflict be a default characteristic of any governmental program?

In a policy environment that has been captured by special interests like the health care lobby, is it even possible to fix a national problem like the RUC?

Toward the end of the Senate Finance Committee RoundTable discussion, Bruce Vladeck, Clinton’s HCFA Administrator, summed up our dilemma.

“I’m hopeful that some combination of the need to address overall deficit reduction strategies more generally and a different kind of political climate in the relatively near future will create the opportunity for people to say, ‘We made a mistake. We created a formula that produces irrational and counterintuitive results, and we’re just going to abolish it and start all over again. It’s the only way we’re going to get out of this morass.’”

Brian Klepper, PhD is a health care analyst.

2 thoughts on “The RUC Is Bad Medicine: It Has To Go

  1. Sometimes I think you know much!

    Hope all is well, let me know when you will be in south Florida….would love to catch up.

  2. Not only does the RUC have to go so does CPT. There is no reason the AMA should be controlling these parameters of payment. The easiest way to dump them is just to base the pricing on the average time it takes to do a surgery times only one hourly wage factor for all surgeons. Of course, the same pricing could be applied to cognitive services as well. The importance of CPT codes is way out of scale — it complicates all the reimbursement considerations, but that was the original idea. From an economic standpoint market fraction maximizes profit. In my mind maximum profit for surgeons and other physicians is not the point of a health care system. But, to keep things in perspective, the biggest cost problems are with hospitals, drugs, devices and long term care. Great blog post.

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