Who Sets the Price?

Rapid rises in healthcare spending are no secret; the major contributors include pharmaceutical prices, biotechnological advances, and administrative expenses. But a group of 31 people might also wield more power than you might expect.

In 1992, the Centers for Medicare and Medicaid Services (CMS) began using the Resource-Based Relative Value Scale (RVS) to price each of the 100,000 medical services that health professionals perform. These quantities are given in terms of Relative Value Units (RVUs), which determine the amount that CMS will reimburse for a service under Medicare. As most commercial insurers base their reimbursement rates on Medicare’s, the RVS has become a primary determinant of healthcare costs.

Since 1992, CMS has annually entrusted the American Medical Association (AMA) to assign RVUs to each service. To conduct this process, the AMA coordinates the 31-member RVS Update Committee (RUC), with one physician representing each major medical specialty. Four of the 31 are rotating seats, periodically representing fields like cardiology or nephrology. 

Officially, the RUC is simply advisory, but CMS typically accepts over 80% of its recommendations. Therefore, the RUC often receives criticism for raising costs in physicians’ best interests and increasing reimbursements for specialists over primary care.

Is this criticism warranted? One researcher recently investigated the effect of rotating specialty representation on increased reimbursement for services relating to those specialties. From 1994 to 2013, she determined that more specialized services saw greater increases in RVUs and corresponding Medicare payments than less specialized services. For instance, if a gastroenterologist held a one-year rotating seat on the RUC, gastroenterologists would receive a $45 million increase in annual Medicare payments.

Should the RUC continue to set prices in healthcare? If so, perhaps we should consider reforming the RUC to (1) proportionally represent specialties and thereby increasing primary care representation, (2) eliminate the system of permanent and rotating seats, and (3) consider more and less specialized services separately in order to reduce disparities in the annual boost to reimbursement. Policymakers and advocates should remember the powerful influence of the RUC as we attempt to make healthcare in America more affordable.

This Policy Prescriptions® review is written by Rajadhar Reddy as part of our collaboration with the Health Policy Journal Club at Baylor College of Medicine where he is a medical student.

Abstract

BACKGROUND: The Resource-Based Relative Value Scale Update Committee (RUC) submits recommended reimbursement values for physician work (wRVUs) under Medicare Part B. The RUC includes rotating representatives from medical specialties.

OBJECTIVE: To identify changes in physician reimbursements associated with RUC rotating seat representation.

DATA SOURCES: Relative Value Scale Update Committee members 1994-2013; Medicare Part B Relative Value Scale 1994-2013; Physician/Supplier Procedure Summary Master File 2007; Part B National Summary Data File 2000-2011.

STUDY DESIGN: I match service and procedure codes to specialties using 2007 Medicare billing data. Subsequently, I model wRVUs as a function of RUC rotating committee representation and level of code specialization.

PRINCIPAL FINDINGS: An annual RUC rotating seat membership is associated with a statistically significant 3-5 percent increase in Medicare expenditures for codes billed to that specialty. For codes that are performed by a small number of physicians, the association between reimbursement and rotating subspecialty representation is positive, 0.177 (SE = 0.024). For codes that are performed by a large number of physicians, the association is negative, -0.183 (SE = 0.026).

CONCLUSIONS: Rotating representation on the RUC is correlated with overall reimbursement rates. The resulting differential changes may exacerbate existing reimbursement discrepancies between generalist and specialist practitioners.

PMID: 29633250

Gao, YN. Health Serv Res. 2018 Apr 6. e-pub.