Indiana University SPEA Edward J. Bloustein School of Planning and Public Policy University of Pennsylvania AIR American University

Panel Paper: Are Medicare Physician Fees Evidence-Based?

Friday, November 13, 2015 : 10:15 AM
Tuttle South (Hyatt Regency Miami)

*Names in bold indicate Presenter

Miriam Laugesen, Columbia University
Background and Rationale

Medicare fees paid to physicians are based on a methodology called the Resource-Based Relative Value Scale (RBRVS). Introduced by Congress in 1989 to make primary and specialty payments more equal, the RBRVS is designed to reflect the resources that are used in providing a service, including physician labor, practice expenses, and malpractice insurance. The Centers for Medicare and Medicaid Services (CMS) determines relative values through the rule making process. CMS, however, depends heavily on input from physicians from the American Medical Association’s Relative Value Scale Update Committee (RUC), which is a committee of medical specialty society representatives. Increasingly, policymakers and researchers have expressed concern about the impact of medical specialty societies and RUC on fee increases, particularly the way the process may lead to overvalued services. Missing in this analysis is a comprehensive understanding of the information underlying pricing decisions and the process used by RUC to make decisions. Yet, this is essential if we want to develop more accurate prices of physician services and contain the cost of healthcare in the United States.  

Data and Results  

Using a novel dataset collected from RUC meeting materials over a five year period; observation of meetings, and analysis of qualitative interviews, we assess the quality and application of evidence used by RUC. 

A principal source of evidence used by RUC is specialty society surveys of physicians. Surveys ask respondents to rate the work associated with specific services. We find survey response rates are low: on average surveys achieve a response rate of around 20 percent with 51 respondents, but some samples had just six physicians. Samples are not randomly selected. Second, we evaluate the design of these surveys against standards developed by survey research methodologists and psychologists. Discrepancies in physician time estimates are likely due to design issues and particularly problems of recall bias. Third, in its rule-making, CMS has highlighted RUC’s selective use of data; CMS argues that RUC tends to select favorable data and downplay results that would lead to lower work evaluations. Indeed, RUC participants say that data can be ignored so as to increase valuations upwards. 

Policy Impact and Significance 

Physician services account for around twenty-percent of national health expenditure. Prices for physician services in the US are higher than in other countries, even after adjusting for the cost of living (Laugesen and Glied, 2011). Small changes in relative value units influence hundreds of billions of dollars of Medicare expenditure; but changes impact the entire healthcare system, since other public payers and almost all private insurers benchmark their rates to CMS decisions. Our analysis shows that the pricing of physician services in the US draws on an evidence base that urgently requires reassessment.