Medicare-Based Fee Schedules and Work Comp

Tuesday, July 30, 2013 | 0

Medicare bases the physician fee schedule, known as the Resource-Based Relative Value Scale, on estimates of how much time it takes docs to do specific things, plus their operating expenses adjusted for regional cost factors. That’s a gross oversimplification but close enough (more on the details of the price-setting process is here).

Turns out the time estimates are (generally) way overstated, resulting in higher compensation for docs, higher costs for taxpayers and a whole raft of downstream unintended effects – including higher costs for work comp payers.

The American Medical Association's Resource Based Relative Value System Update (RUC) Committee actually does the estimating. According to a great piece in the Washington Post, “the AMA’s estimates of the time involved in many procedures are exaggerated, sometimes by as much as 100% [emphasis added]… If the time estimates are to be believed, some doctors would have to be averaging more than 24 hours a day to perform all of the procedures that they are reporting. This volume of work does not mean these doctors are doing anything wrong. They are just getting paid at the rates set by the government, under the guidance of the AMA.”

Who sits on the committee was essentially a secret until a couple years ago, when the Replace the RUC Committee published the names of committee members, along with their potential conflicts of interest. Pretty scary reading.

The AMA RUC Committee’s estimates come from surveys of physicians, who are explicitly told the surveys are used to set payment levels. Shockingly, their estimates are seven times more likely to raise the estimate of time required than to lower it, making medicine the only industry that has gotten less efficient in the past decades.

I’d be remiss if I didn’t acknowledge that experts, including Brown University's Dr Roy Poses have been on the RUC story for years. Here’s one of his gentler statements:

The RUC seems to embody a corporatist approach to fixing prices for medical services to create perverse incentives for physicians to do more procedures, and do less conversing with and examining patients, examining the best clinical research evidence about their problems, and rigorously thinking about how best to help them. More procedures at higher prices help physicians who do procedures. It may help even more the corporations that provide the devices and drugs whose use is necessitated by such procedures, and the hospitals who can charge a lot of money as sites for performance of procedures.

Impact on workers’ comp

Of the 33+ states with fee schedules for physicians and other providers, all save one – California – use the RBRVS as the basis, and California is adopting the RBRVS. The RUC’s time estimates have resulted in estimates that are often twice the actual time it takes to perform a procedure. Significantly, the Post article cited orthopedics as one area where time estimates are particularly generous.

It is important to note that the Centers for Medicare and Medicaid Services sets the dollars per time unit, so the ultimate cost is partially based on that as well as the AMA’s time estimate. But there’s no getting around the AMA’s RUC is inflating the time, and thereby inflating their members’ income and employers’ and taxpayers’ work comp costs.

Kudos to the WaPo for their terrific investigative reporting, and to Roy Poses for being on top of this for years. 

What does this mean for you?

A deeper understanding as to why our health care system is – by far – the most expensive in the known universe.

Joe Paduda is co-owner of CompPharma, a consortium of pharmacy benefit managers, and owner of Health Strategy Associates, a Connecticut based employer-consulting firm. This column was reprinted with his permission from his Managed Care Matters blog.