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).


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