By BRIAN KLEPPER & DAVID KIBBE, MD

By mid-November, the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) must respond to the legal complaint filed in a Maryland federal court by six Augusta, Georgia family physicians.

These doctors are not asking for money, but for relief from the negative effects brought about by CMS’ twenty year reliance on the American Medical Association’s Relative Value Scale Update Committee (RUC) for valuing doctors’ work. They are asking CMS to enforce the Federal Advisory Committee Act(FACA), which requires that regulatory agencies shield themselves from undue special interest influence. In the process, they are asking CMS to rethink Medicare’s approach to physician payment, with a mind toward recognizing and valuing primary care’s ability to treat the whole patient within a larger system of care. They are asking CMS to develop payment policy that supports the needs of patients over those of professional groups.

In a sense, the suit reflects the larger concerns of America’s increasing unrest: a general frustration with a system rigged to benefit the few at the expense of the many, privatizing profits while socializing losses. It calls into question an incentive structure that has resulted in half or more of all health spending providing no utility and translating to exorbitant cost but debatable value. In other words, the case is accompanied by a sense that the system, as it is currently constituted, is failing the American people.

Any simple examination of medical services payment reveals the systematic under-valuing of primary care services relative to procedural services, the direct result of the RUC’s valuation process. For example, in an earlier Health Affairs Blog post we compared a 99214 moderately complex established office visit with a routine cataract extraction and intraocular lens implant. The first has all of medicine as it’s palette. The second is a highly refined, low risk, repetitive procedure that is valued, on an hourly basis, at 12.5 times the first.

The Distortions Of A System That Relies On The RUC

The Medicare Physician Fee Schedule that has evolved out of the CMS-RUC relationship has precipitated an avalanche of undesirable consequences. Declining per patient primary care revenues have shortened office visits, increasing specialty and outpatient diagnostic referrals. Pressed for time, communications between primary care physicians and specialists have deteriorated, corroding primary care’s moderating influence over specialists, who often have a financial incentive to conduct unnecessary procedures.

Medical residents, wary of making far less than their colleagues, steer away from primary care as a career choice. Specialists have strong financial incentives to practice to lucrative codes rather than to coordinate patient care. Patients are exposed to the risks, sometimes including death, associated with unnecessary and inappropriate procedures. And purchasers – government, employers, and individuals – are held hostage to unrelenting health care cost inflation that currently consumes as much as an additional trillion dollars a year, attributable to excesses driven by payment incentives.

These dynamics are not lost on the Administration or its agency leaders. Unlike most of their predecessors, they find themselves overseeing a health care industry not merely used to manipulating the health system to its advantage, but now desperate to maintain profits against a backdrop of a severe recession. At the same time, CMS’ leadership sees a federal budget and an economy potentially destabilized by out-of-control health care costs, supported by a longstanding, institutionalized valuation mechanism that fixes pricing throughout large sectors of health care.

There is strong evidence that the Administration appreciates the situation’s gravity and dynamics. For example, the President’s recent deficit reduction plan proposes $320 billion in savings over the next decade from structural changes to Medicare and Medicaid. Those savings presumably would grow to $1 trillion over the second decade. Perhaps more straight forward is CMS’ pioneering Comprehensive Primary Care Initiative, a public-private pilot from CMS’ Innovation Center that would pay primary care doctors more to coordinate patient care, avoid hospitalizations and ER visits, using approaches that build on the patient-centered medical home.

Equally impressive are the recent recommendations from the Medicare Payment Advisory Commission(MedPAC). They would repeal the Sustainable Growth Rate (SGR) formula, then reduce specialist reimbursement by 5.9 percent per year for three years, freezing it for the next seven years. Primary care physicians’ pay would be frozen for 10 years. The RUC’s questionable valuation survey methods would be replaced by physician data collected directly from high-performing medical practices. A new body would review, identify and revalue potentially over-valued codes, while keeping the budgetary impact neutral, with a goal of reducing the budget one percent per year.

Unfortunately, MedPAC is merely a Congressional advisory panel and, as a practical matter, its recommendations are often ignored by Congress in favor of those from lobbyists. And in truth, its recommendations don’t go far enough. For example, the MedPAC recommendations would keep RBRVS in place, continuing to base “value” on the flawed framework of physician inputs – physician work, practice expense and malpractice expense – rather than a more modern, market-based concept of patient or societal value. That said, it is headed in the right direction.

CMS Should Settle With The Plaintiffs Rather Than Fight Them

Most organizations reflexively respond to a legal complaint with a move to dismiss. But the case against the AMA’s longstanding influence over Medicare (as alleged in the complaint) challenges a status quo that has abused the public interest in a way that the Administration appreciates. CMS Administrator Don Berwick could take advantage of the opportunity by settling with the plaintiffs in a legal context away from the lobbying interests that dominate the rest of policy.

This would let CMS act decisively in the public interest by initiating a series of far-reaching actions: taking control of the process independent of the RUC, phasing out the current Medicare Physician Fee Schedule, developing a new, more sensible approach to medical services valuation and payment, and establishing a federal advisory committee that does follow FACA’s disclosure rules.

The distortions of health care’s mission have resulted from the incentives embedded in our payment system, promoted by the RUC and authorized by too-willing federal agencies. In responding to this suit, CMS’ senior leaders could act in concert with their own stated values to bring that mission back into balance. This path would serve the interests of the vast majority of Americans, rather than just health care professionals and the industry, and it would send a message that could revitalize the American people’s faith in the power of government to act for their benefit.

Brian Klepper, PhD, is an independent health care analyst, Chief Development Officer for WeCare TLC Onsite Clinics and the editor of Care & Cost. His new site, Replace the RUC, provides extensive background on the issue. David C. Kibbe, MD, MBA, is a Family Physician and Senior Advisor to the American Academy of Family Physicians who consults on healthcare professional and consumer technologies.

This post first appeared at Health Affairs Blog on 10/25/2011. Copyright ©2010Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.