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Wednesday, October 27, 2010

The Ruckus over the RUC

Perhaps the cat is out of the bag with the publication of a front page story in the WSJ on the Relative Value Scale Update Committee, other wise known as the RUC. This entity, conceived after the Resource based relative value scale (RBRVS - aka real bad reimbursement very soon), to set fees for Medicare. The payment framework was rapidly adopted by third party insurers and the RUC mistakes quickly became everyone's mistakes. It has functioned at least in part because it has functioned in the shadows. The public was clueless as were most physicians. I gave a talk at a state medical meeting three years ago on health care economics and asked for hands of who knew what the RUC was. Less than 10% of the audience raised their hands.

Thongs are changing as evidenced by the front page WSJ story (which spills over to an entire page on A16). The WSJ article shows the photo and picture of the head of the RUC. I strongly suspect that she will be getting additional calls. I also suspect that the names of the panel members will begin to leak out.THe names are not posted on the AMA website Lots of prying eyes will begin to scrutinize the methods and the math. It will not be pretty.

 (From physician Panel Tilts Medicare Fees - WSJ October 27, 2010

 So here you have it, pricing by committee which perverts the allocation of resources in one sixth of the entire economy. How anyone with any conception of the role of pricing in the allocation of resources could think this could work is beyond me. It is ironic that the William Hsaio, the Harvard Professor whose work served as the intellectual basis for seemed to be surprised by how this has all turned out. He argued that you cannot turn to the physicians who will be doing and billing for the services to derive the information needed to price them accurately.  They will just game the system. Well duh!

 However, who can you turn to to derive this information? It is a fundamental problem with administratively set pricing structures. It will also dog the newly constituted Medicare Payment Advisory Board which will be charged to:
Establish an Independent Payment Advisory Board comprised of 15 members to submit legislative proposals containing recommendations to reduce the per capita rate of growth in Medicare spending if spending exceeds a target growth rate. Beginning April 2013, require the Chief Actuary of CMS to project whether Medicare per capita spending exceeds the average of CPI-U and CPI-M, based on a five year period ending that year. If so, beginning January 15, 2014, the Board will submit recommendations to achieve reductions in Medicare spending. Beginning January 2018, the target is modified such that the board submits recommendations if Medicare per capita spending exceeds GDP per capita plus one percent. The Board will submit proposals to the President and Congress for immediate consideration. The Board is prohibited from submitting proposals that would ration care, increase revenues or change benefits, eligibility or Medicare beneficiary cost sharing (including Parts A and B premiums), or would result in a change in the beneficiary premium percentage or low-income subsidies under Part D. Hospitals and hospices (through 2019) and clinical labs (for one year) will not be subject to cost reductions proposed by the Board. The Board must also submit recommendations every other year to slow the growth in national health expenditures while preserving quality of care by January 1, 2015. (from Focus on Health Reform -

So, how are they going to this any better than the RUC? Who are they going to turn to to get timely and accurate information upon which to base their pricing information? How are they going to adapt to change and innovation? How will this group of politically appointed and motivated individuals assign value to the billions of encounters that patients have with those who provide an almost infinite variety of medical services? Very badly I suspect.

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