How the Doctor Cartel Sets Medical Prices
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The Fiscal Times
July 17, 2013

If policymakers are serious about trimming Medicare and other healthcare costs, they need go no further than a secretive doctors' committee called the AMA/Specialty Society Relative Value Scale Update Committee, also known as the "RUC" (pronounced "ruck" ).

Run by the American Medical Association, the physicians' trade group, the RUC meets three times a year in private "to develop new or relative values for revised CPT codes." CPT codes, or "current procedural terminology," are used to determine prices for specific procedures in Medicare and other medical billing.

In other words, doctors are setting their own prices.

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The AMA has argued that the privately run and financed RUC is "a basis for exercising its First Amendment right to petition to the federal government as part of its research and data collection activities."  Operating for the last 20 years, 21 members of the 31-member RUC are appointed by medical societies representing various specialties.

In recent years, the RUC has been receiving more attention as the Medicare reform debate heats up. A recent investigative piece in the Washington Monthly found that "Medicare actually asks the suppliers—the doctors themselves—to get together first, compare notes, and then report back on how much each of them ought to get paid."

Although technically Medicare doesn't have to accept the RUC's price list, it's stuck because it doesn't have an independent way of determining costs of services ranging from angiograms to X-rays. Congress has never provided Medicare with the resources to do unbiased pricing of what the services should cost in a competitive environment.

At present, Medicare sets hospital prices using a number of complex variables such as “case severity” and adjusts for local conditions, which includes number of Medicaid patients served.  Congress passed a “sustainable growth rate” for doctors’ fees, which would have cut physician payments, but it’s never been implemented due to heavy lobbying by physician groups.

Because the RUC is top-heavy with specialists, technology-intensive procedures may be subject to more price increases than routine office visits, driving up the overall cost of care.

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Primary-care doctors, who serve as gatekeepers to other specialists across the country, have little voice in the RUC, representing only 14 percent of voting members, the Washington Monthly reported. They can only charge so much for a low-tech office visit as opposed to a high-tech specialty procedure.
  
Washington Monthly author Haley Sweetland Edwards argues:

The RUC, in other words, enjoys basically de facto control over how roughly $85 billion in U.S. taxpayer money is divvied up every year. And that’s just the start of it…the values the RUC comes up with wind up shaping the very structure of the U.S. health care sector, creating the perverse financial incentives that dictate how our doctors behave, and affecting the annual expenditure of nearly one-fifth of our GDP.

Government watchdogs have known about the RUC's embedded conflict of interest for years.

In 2009, the Government Accountability Office noted that when the RUC was asked to examine "potential duplication in resource estimates" (potential overbilling), the committee didn't focus on services that account for the lion's share of Medicare billing. Even more critical was the Kaiser Health News Service, which suggested that Medicare "Quit the RUC:

Not surprisingly, the Committee’s payment recommendations have consistently favored specialists at the expense of primary care physicians. More striking, however, is CMS’ rubber stamping of about 90 percent of their suggestions, even though, in their last three service reviews, the RUC urged payment increases six times more often than decreases…So we propose a radical solution. Quit the RUC.

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Despite exposés by The Wall Street Journal, though, the activities of the RUC cause barely a ripple in the Medicare reform discussion. What's undeniable is that as healthcare expenses  gobble up nearly 20 percent of U.S. economic input, medical costs continue to outpace all other industrial countries.

HIGH COSTS OF CARE TIED INTO PRICING SYSTEM?
While there's no definitive evidence that the RUC is directly overpricing services in the U.S. when compared with other countries, American procedures consistently rank as the most expensive in the world. Some important distinctions: U.S. doctors largely pay for their own six-figure educations and countries with national health programs produce annual budgets for care. So it can be argued that U.S.-based specialists are more aggressive in their prices since they have to pay for education loans and office expenses.

According to a survey by the International Federation of Health Plans published in March, there are large disparities between what U.S. doctors charge and other low-cost national providers. Here's a sampling:

Medical Cost Differences

Procedure

U.S.

Lowest-Cost Country

Angiogram

$800

$85 (Canada)

Appendectomy

$13,000

$1,030 (Argentina)

Angioplasty

$26,524

$2,972 (Argentina)

CT Scan(head)

$510

$43 (India)

Hip Replacement

$38,017

$3,579 (Argentina)

Source: International Federation of Health Plans, 2012 Survey

Although it's often unfair to compare single-payer health programs run by governments to the fragmented U.S. private-public system, it's clear that specialists who can essentially set their own prices have a disincentive to save money across the healthcare system.

While there's been no outcry about the RUC on Capitol Hill, the Affordable Care Act (ACA) has several provisions to address overpricing. One pilot program calls for "bundling" payments for specific procedures as an incentive for providers to lower costs. Another program is creating "accountable care organizations" that promote coordinated care among general practitioners and specialists.

Ultimately, though, the real cost savings might come in scrapping the fee-for-service system, which encourages all medical professionals to bill for as many services as possible. Like the operation of the RUC, that's a discussion that has yet to fully take shape.

Journalist and speaker John F. Wasik has written 14 books on subjects that range from wealth to ecology to retirement. He writes for Reuters and contributes to Forbes, The New York Times and other publications.