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Examining the accuracy of Medicare payments to physicians

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Medicare made $70 billion in payments to physicians in 2017 for care they provided to the 44 million Americans covered by the federal health-care program.

Who decides how much a physician should be reimbursed from Medicare for their services?

Medicare has depended on a committee convened by the American Medical Association known as the Relative Value Scale Update Committee (RUC) since 1992. The RUC has been called the most important health care committee you’ve never heard of.

The RUC has 31 members, most of whom come from the major specialty societies, such as the American Academy of Orthopedic Surgeons and American Association of Neurological Surgeons. By estimating the time and effort physicians take to perform thousands of different services, the RUC assigns “values” to each service that determine how much physicians are paid for delivering it. 

The RUC has come under heavy criticism in health policy circles for its influential role in setting payment levels. But its performance and methods have never been closely studied.

So Stanford researchers David C. Chan and David Studdert — both core faculty members at Stanford Health Policy — set out to evaluate how well the RUC was doing. The researchers analyzed one critical ingredient of the valuation process: how long services take to perform.  They compared the RUC’s estimates of the duration of 293 common operations to “benchmark” times for the same operations, obtained from actual surgical cases recorded in a large national database.

The study, published in The New England Journal of Medicine, found substantial discrepancies between the RUC’s time estimates and the benchmark times. But Chan and Studdert also found that the RUC did not show a systematic bias; times were as likely to be overestimated as they were to be underestimated.  

The research team, which also included Johnny Huynh, a PhD student in economics at UCLA, then characterized inaccuracies, quantified their effect on physician revenue, and examined whether re-review by the RUC corrected them.

“The inaccuracy of the RUC’s estimates for some procedures times was quite large,” said Chan, a faculty fellow at the Stanford Institute for Economic Policy Research and staff physician at the Veterans Affairs Palo Alto Health Care System. “The best way we could think of to indicate how large was to convert them into clinical revenue, and see how the inaccuracies affected different specialties.”

The study estimated that orthopedic surgeons and urologists received higher payments than they would have if benchmark times had been used — $160 million and $40 million more, respectively, in Medicare reimbursements over a five year period. Whereas cardiothoracic surgeons, neurosurgeons and vascular surgeons received lower payments — $130 million, $60 million, and $30 million less, respectively — during the same period.

Yet the researchers did not find evidence that inaccuracies stemmed from systematic bias.

“There was already an awareness that the RUC was missing the mark on some of its time estimates. Our study reinforces that inaccuracy story,” said Studdert, a professor of medicine and law. “But the prevailing view is that RUC uses times that are systematically longer than the truth, and we just don’t see that.” 

The study concludes nonetheless that reform is still needed, because the time discrepancies are large and have substantial effects on payment allocations. It points to two policy reforms that have the potential to improve the accuracy of service valuations by the RUC: 

  1. Use larger and more reliable sources of data for the time estimates;
  2. Enhance the real-time accuracy of the valuations by monitoring such data sources for substantial changes in the duration of procedures and using this information to prioritize procedures for re-review.

“I believe that the RUC has moved in this direction recently, and I suspect that there would be a fairly general agreement that the process could be improved by going further and using more and better data,” Chan said.

The researchers now intend to turn their sights on another aspect of physician payment policy: the perception that the RUC methods lead to underpayment of primary care physicians.

“The biggest criticism of the RUC over the years is the allegation that it systematically undervalues the work of primary care physicians, relative to surgeons,” Studdert said. “Now that we have developed method for benchmarking the RUC’s accuracy, we’d like to redeploy it on this primary care versus surgical care issue.”