• Why do we do stupid things? RUC edition

    Prerequisite: My prior post and, if necessary, the Health Affairs post by Brian Klepper to which it links.

    Brad DeLong says that the IPAB exists to dismantle the RUC, citing his paper with Ann Marie Marciarille, which I’ve now read. Their case is strong. The whole subject begs two questions:

    1. Why does CMS listen to the RUC?
    2. Why do private insurers listen to the RUC?

    DeLong and Marciarille offer some answers. To 1:

    CMS has shown tremendous deference to RUC recommendations. RUC’s recommendations are accepted by CMS 94 percent of the time. Anything that disturbs the order of this will be worldview changing. […]

    [Medicare has] been reluctant to abandon RUC in light of the failure to identify a clearly superior alternative. RUC embodies many of the flaws of self-regulated fee-for-service medicine while also embodying the political stalemate over funding physician services through government-funded health insurance, leaving many persuaded that progress is impossible. In addition, primary care providers have not leveraged their role as the specialty care referral base into financial concessions from other physicians.

    Even the modest proposal that any medical services valuation panel include a broader array of health-care experts (including nonprovider experts) has met with ferocious criticism from providers. More ambitious proposals (e.g., requiring CMS to fund direct surveys of medical practice and resources) scarcely see the light of day.

    Interpretation: No surprise, it’s politics. The fact that the RUC is deep in the weeds and protected by a professional class held in high regard by Americans, far higher than members of Congress, no doubt play roles as well.

    To 2:

    It is a fact that the bulk of private insurers use Dr. Hsiao’s work and the RVS [relative value scale, that which the RUC updates] as a baseline against which to make their own pricing and reimbursement decisions. The market cannot magically create information out of thin air. It has to be created by somebody, somewhere—and that somebody is Medicare. As the largest paying unit in America’s health-care system, it would be surprising if Medicare did not turn out to be both the price and the administrative process leader whose judgments are taken as a baseline that other purchasers use in making their own pricing and reimbursement decisions.

    Interpretation: No single insurer stands to gain from the tremendous investment of resources required to establish a different basis for fee for service reimbursement. That being the case, Medicare’s system serves as a convenient focal point. It is, in a sense, profit maximizing to use it. But that is not to say that some other (better) system Medicare might adopt (if it could) would not also be profit maximizing.

    The RUC, as it currently operates, is a bad solution to a monstrous collective action problem. Neither the market nor our government has made any significant steps toward improvement. The IPAB is something new and could break the logjam. It has big potential. That’s why it’s a huge threat and at perpetual risk of being undermined, repealed, discredited, harassed, and subject to all manner of other efforts to impose impotence.

    My next stop on this train: Henry G. Dove, Use of the Resource-Based Relative Value Scale for Private Insurers, 13 Health Affairs. 193, 198 (1994). Ungated here (PDF).


    • Thank you for the shout out.

      I like your questions. You have blogged on this (around this?) before, in 2011, I believe. And I commend Uwe Reinhardt’s tour de force of Economix blogging from the fall and winter of 2010 on many of these topics:


      I would add another question: why so little cost accounting in health care?

    • I’m enjoying this series. Keep them coming.


      Peter Elias, MD

    • Doesnt this imply that the composition of the IPAB board is pretty important? I have no idea how that will be determined.


    • It strikes me that any alternative solution is still going to have to deal with the professional dominance of specialty physicians.

      Professional dominance is a sociology term that describes professions which self-regulate, rather than being regulated by outsiders, which are highly respected and compensated, and which set the terms of their own employment rather than taking orders from others. In addition to physicians, lawyers and financial workers are also dominant professions.

      Lawyers and financial workers have gone out of control in important ways that harm society. The posts on the RUC detail how physicians, especially specialty physicians, have also gone out of control in ways that harm the broader society. They have exerted their political influence and their technical influence on reimbursement rates in ways that harm society. They have also kept mid-level practitioners (physician assistants, nurse practitioners) from expanding their scopes of practice in many states. Substituting to mid-level practitioners WHERE WARRANTED could reduce costs.

      We want to sharply reduce physicians’ influence over reimbursements without Either way, most of the reforms we talk about, like single payer, ACOs, rate setting, don’t necessarily affect professional dominance. They could potentially be co-opted. I’m not sure what alternative there is aside from somehow getting computers to sharply reduce physician professional dominance. Either way, I’d suggest we think about how any regulatory system can be captured, and will have to overcome opposition from specialty physicians.

    • See our article in Health Affairs on the CMS 90 percent acceptance rate of RUC recommendations.