Most Wonkblog readers, I would imagine, have a sense that our health care system doesn't work quite perfectly. One major source of that dysfunction is a secretive committee that sets prices for a $2.7 trillion industry. Meet the American Medical Association's Relative Value Update Committee.
The inner workings of the Relative Value Update Committee are becoming a little less secretive. Peter Whoriskey and Dan Keating wrote a fantastic piece over the weekend that that revealed how off-base the RUC's value estimations are, following on excellent work earlier this month from Washington Monthly's Haley Sweetland Edwards. Taken together, the two are one of the clearest windows we have into the bizarre world of medical prices. Here are six of the details that jumped out at me in reading the two pieces:
1. Thirty-one people meet in private, once every three years, to determine the entire country's health care prices. The Relative Value Update Committee (the RUC, pronounced "ruck" by health wonks) has members that represent various medical specialties. In 2013, they gathered at a hotel in Chicago, and went about their business of setting price data for one of the country's largest economic sectors.
"The purpose of each of these triannual RUC meetings is always the same: it’s the committee members’ job to decide what Medicare should pay them and their colleagues for the medical procedures they perform," Edwards writes. "How much should radiologists get for administering an MRI? How much should cardiologists be paid for inserting a heart stent?"
2. The American Medical Association spends $7 million developing these prices. Medicare has a half-dozen, part-time workers to review the data. The RUC does not have the final say in medical prices; once they have determined the relative value of procedures, the MRIs and heart stents and hundreds of other things, Medicare reviews their findings. But they don't have much manpower in this area. "The government has about six to eight people reviewing the estimates provided by the AMA, government officials said, but none of them do it full time," Whoriskey and Keating write.
This helps explain a data point from Edwards' piece: In the past 22 years of turning prices over to Medicare, the agency "has accepted about 90 percent of the RUC’s recommended values—essentially transferring the committee’s decisions directly into law."
3. If the RUC's estimates were right, some doctors would literally work more than 24 hours each day. One way the RUC figures out how much doctors should earn is by estimating how long it takes to do a particular procedure, like the average time of a colonoscopy. Those estimates, Whoriskey and Keating's analysis suggests, are inflated. If those numbers are right, 78 doctors in Florida must work more than 24 hours a day to perform all the medical procedures they bill. One especially impressive doctor finds time for 50 hours worth of procedures in a given day. You can see that here, in this interactive graphic:
4. Medical productively and technology keep increasing. But, for some reason, so do health care prices. The RUC has been seven times as likely to raise estimates of work values rather than lower them, according to Whoriskey and Keating's analysis. "Between 2003 and 2013," they write, "AMA and Medicare have increased the work values for 68 percent of the 5,700 codes analyzed by The Post, while decreasing them for only 10 percent.
"While advances in technology and skill should have reduced the amount of work required, the average work value for a code rose 7 percent over that decade, largely because officials raised the value of doctors’ visits. The rise came in addition to allowances for inflation and other economic factors."
5. The economists who created the RUC now think the RUC works horribly. William Hsiao, a Harvard economist, makes an appearance in both pieces as one of the godfathers of the RUC system. The idea, when it started back in the late 1980s, was to create a "rational" system for setting Medicare prices, which had begun to grow wildly. I'll let Edwards take over here:
The plan went downhill almost immediately. In order for the system to work in practice, new services and procedures had to be added and old ones updated every year. Certain procedures, like in the cataract surgery example, that were initially very difficult and time-consuming to perform had become steadily more routine and quicker to do, while other procedures had gotten more complex and required more skill to perform. Those RVUs needed to be adjusted accordingly. The question soon became: Who should be responsible for updating the RVUs for all those thousands and thousands of procedures?
The Bush administration, skittish of anything resembling government price setting, rejected the idea of establishing an independent council of advisers within the government. Instead, in 1991, they gave the task to the most powerful interest group in the industry, the AMA (which had, of course, graciously offered its services). “And that was the point where I knew the system had been co-opted,” Hsiao told me. “It had become a political process, not a scientific process. And if you don’t think it’s political, you only have to look at the motivation of why AMA wants this job.”
While advances in technology and skill should have reduced the amount of work required, the average work value for a code rose 7 percent over that decade, largely because officials raised the value of doctors’ visits. The rise came in addition to allowances for inflation and other economic factors.
6. Doctors tell the RUC how valuable their work is. In a way, it makes sense to ask doctors how much work it takes to practice medicine; they probably have the best first-hand knowledge of what happens when they perform a heart surgery or a colonoscopy. But surveying doctors on how difficult their work is to set medical prices creates every incentive for doctors to overestimate their value.
"These specialist societies get their data from surveys of their own membership—a group of people who stand to gain directly and materially from making a procedure seem as difficult, time-consuming, and stressful as possible," Edwards writes.
Barbara Levy, who heads the RUC, defended the committee's work on this front. From Whoriskey and Keating: "Sometimes the doctors within a specialty will overestimate the value of their work, Levy said. When that happens, the committee has increasingly decided to significantly lower their estimates of the work involved. 'Suppose I am a cardiologist, and I think I am the most important thing on Earth,' Levy said. The RUC, she said, may have to say, 'We know you’re really important but' you’ve overestimated the work involved on the survey."