09/25/2014 09:13 am ET Updated Nov 25, 2014

How an Influential Group of Doctors Exerts Influence Over Medicare Payments to Physicians

Imagine a scenario in which Exxon Mobil recommends to the U.S. Environmental Protection Agency (EPA) how much carbon dioxide that oil and gas companies should be allowed to emit -- and the EPA approves those recommendations 90 percent of the time. We all know that industry often has outsized influence over the regulatory process, but having 90 percent of its recommendations rubber-stamped would be outrageous.

Yet, the new Public Citizen report, "Inside Job," shows that this is exactly what has occurred in the health care industry. Last week, an American Medical Association (AMA) committee met to develop highly influential recommendations regarding Medicare Part B physician payment rates. The meetings themselves are dull and typically involve lengthy discussions of obscure medical procedures, but their impact on the U.S. health care system cannot be overstated.

And while physician payments might seem less of a problem than toxic air pollution, the impact on the U.S. economy cannot be understated. Because Medicare is typically used as the baseline for how much private insurers pay physicians, any distortions to the Medicare have widespread effects on health care and the broader economy.

Bruce Vladeck, a former administer of the Health Care Financing Administration (now CMS) has remarked on the impact of the current physician payment on aggregate health care costs. In 2012, before the U.S. Senate Finance Committee, he said, "Part of the problem is that [the Medicare payment system] not only sets relative Medicare payments, it's used by almost everybody else in the health care system as a way of evaluating the relative worth of physician services."

In 1992, the agency now known as the Centers for Medicare & Medicaid Services (CMS) reached an agreement with the AMA to allow it to take over the process of valuing medical services covered by Medicare Part B. The AMA created the Relative Value Scale Update Committee, or RUC, to make recommendations that are highly influential in determining physician payments for medical services covered by Medicare Part B.

Much of the data used by the RUC come from survey responses of physicians who are aware that their answers can have direct implications for their pay. This type of incentive structure has obvious consequences. In one telling example, a Washington Post report discovered that a physician could bill CMS for 26 hours of work per day, according to the data collected by the RUC and used by CMS. Even when the AMA reviews procedures that might be misvalued, the RUC is far more likely to advocate for increasing values rather than lowering them. This contradicts the expectation that over time, physicians will become more proficient in performing a procedure, thus causing the values to decrease rather than increase.

Beyond the potentially skewed values, CMS usually accepts the RUC's recommendations at very high rates. Public Citizen's report discovered that CMS accepted 87 percent of RUC-recommended time values at the conclusion of annual reviews of new, revised or misvalued Medicare procedures.

The result of the RUC/CMS partnership is a deeply flawed process that likely puts upward pressure on total health care spending while simultaneously fueling an ongoing and serious shortage of primary care physicians.

The RUC is dominated by specialists, with as few as 7 percent of its voting members representing primary care, resulting in the over-valuation of specialty procedures and the under-valuation of procedures geared toward primary care. This is in part due to the fact that Medicare payments to physicians are drawn from a fixed amount of money; therefore, when one service has its value increased, others must be decreased to maintain parity. The result of this imbalance is a payment system that highly incentivizes specialty medicine and has driven medical students into specialties rather than primary care. Vladeck, speaking at a Senate Finance Committee hearing, noted that the current payment system is "central to the income problem of primary care physicians."

This "income problem" described by Vladeck has contributed to a significant and serious shortage of primary care physicians. In many European countries, primary care physicians make up between 70 and 80 percent of the practicing physician workforce; in the United States, it's approximately one-third. By 2020, the United States is projected to have a shortage of 20,000 primary care physicians. The shortage is already being felt now through increasingly long wait times to receive care. In Boston, patients wait an average of 66 days before they can see a family physician.

CMS needs to take control of this process and rein in the influence of the AMA's RUC committee. Otherwise, we will continue to have a health care system whose costs are disproportionately influenced by industry insiders.