Special deal: the shadowy cartel of doctors that controls Medicare.

AuthorEdwards, Haley Sweetland

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On the last week of April earlier this year, a small committee of doctors met quietly in a mid-sized ballroom at the Renaissance Hotel in Chicago. There was an anesthesiologist, an ophthalmologist, a radiologist, and so on--thirty-one in all, each representing their own medical specialty society, each a heavy hitter in his or her own field.

The meeting was convened, as always, by the American Medical Association. Since 1992, the AMA has summoned this same committee three times a year. It's called the Specialty Society Relative Value Scale Update Committee (or RUC, pronounced "ruck"), and it's probably one of the most powerful committees in America that you've never heard of.

The purpose of each of these triannual RUC meetings is always the same: it's the committee members' job to decide what Medicare should pay them and their colleagues for the medical procedures they perform. How much should radiologists get for administering an MRI? How much should cardiologists be paid for inserting a heart stent?

While these doctors always discuss the "value" of each procedure in terms of the amount of time, work, and overhead required of them to perform it, the implication of that "value" is not lost on anyone in the room: they are, essentially, haggling over what their own salaries should be. "No one ever says the word 'price,'" a doctor on the committee told me after the April meeting. "But yeah, everyone knows we're talking about money."

That doctor spoke to me on condition of anonymity in part because all the committee members, as well as more than a hundred or so of their advisers and consultants, are required before each meeting to sign what was described to me as a "draconian" nondisdosure agreement. They are not allowed to talk about the specifics of what is discussed, and they are not allowed to remove any of the literature handed out behind those double doors. Neither the minutes nor the surveys they use to arrive at their decisions are ever published, and the meetings, which last about five days each time, are always closed to both the public and the press. After that meeting in April, there was not so much as a single headline, not in any major newspaper, not even on the wonkiest of the TV shows, announcing that it had taken place at all.

In a free market society, there's a name for this kind of thing--for when a roomful of professionals from the same trade meet behind closed doors to agree on how much their services should be worth. It's called price-fixing. And in any other industry, it's illegal--grounds for a federal investigation into antitrust abuse, at the least.

But this, dear readers, is not any other industry. This is the health care industry, and here, this kind of "price-fixing" is not only perfectly legal, it's sanctioned by the U.S. government. At the end of each of these meetings, RUC members vote anonymously on a list of "recommended values," which are then sent to the Centers for Medicare and Medicaid Services (CMS), the federal agency that runs those programs. For the last twenty-two years, the CMS has accepted about 90 percent of the RUC's recommended values--essentially transferring the committee's decisions directly into law.

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. Because of the way the system is set up, 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.

It's fairly common knowledge at this point that Congress does not allow Medicare to negotiate with pharmaceutical companies over the amount the government pays for their drugs. Each drug company simply sets a price for its own product, and Medicare either takes it or doesn't. While that arrangement undoubtedly drives up Medicare spending--and health care spending more generally--it at least allows for some competition among the drug companies that manufacture similar products. But when it comes to paying doctors for the services and procedures they perform, the system is even more backward. In this case, 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.

Medicare is not legally required to accept the RUC's recommended values for doctors' services and procedures, but the truth is, it doesn't have much of a choice. There is no other advisory body currently capable of recommending alternative prices, and Congress has never given the CMS the resources necessary to do the job itself.

The consequences of this set-up are pretty staggering. Allowing a small group of doctors to determine the fees that they and their colleagues will be paid not only drives up the cost of Medicare over time, it also drives up the cost of health care in this country writ large. That's because private insurance companies also use Medicare's fee schedule as a baseline for negotiating prices with hospitals and other providers. So if the RUC inflates the base price Medicare pays for a specific procedure, that inflationary effect ripples up through the health care industry as a whole.

Another, even more powerful consequence of this system is that while the prices Medicare and private insurers pay for certain procedures have increased--sometimes rapidly--the prices paid for other services have declined or stagnated. That's largely because of basic flaws in the way the system is set up. For one, the RUC spends the vast majority of its time reviewing specialty procedures, which change more quickly as technology advances, rather than so-called "cognitive" services, like office visits, that primary care doctors and other generalists rely on for the bulk of their income. The result is that there are "a hundred ways to bill for removing varicose veins, and only one way to bill for an intermediate office visit," one former RUC member told me. For another, the RUC is dominated by specialists, who have a direct interest in setting the reimbursement rates for specialty procedures much higher than for general services.

Those two factors go a long way toward explaining why we've seen an explosion of billing for certain types of lucrative procedures. After all, the incentives are perfectly aligned: ordering that extra test means more money for a doctor's practice or hospital, more money for the labs, and often more money for the device makers and drug companies, too. (Oh, and, by the way, the device makers and drug companies are, not incidentally, major funders of the medical specialty societies whose members vote on the RUC.)

These manipulated prices are also a major reason why specialists are in oversupply in many parts of the country, while a worsening shortage of primary care providers threatens the whole health care delivery system. It's precisely because the RUC has overvalued certain procedures and undervalued others that radiologists now make twice what primary care does do in a year--that's an average of $2.5 million more in a lifetime. While that little fact doesn't explain everything (doctors choose their fields for a multiplicity of reasons), future income is, presumably, not entirely unimportant to a young MD.

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