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How a secretive committee recommends how much physicians should be paid Date: 12/19/14

Dan Keating
Dan Keating

Peter Whoriskey
Peter Whoriskey

By Dan Keating and Peter Whoriskey

When you want to explain health care costs in this country, it helps to start with the biggest health care payer – the federal government and the Medicare system. In the government’s fee-for-service system, someone has to suggest how much the government pays for each service. Trouble is, most people have no idea that the “someone” who makes those decisions is a committee of doctors run by the American Medical Association.

Recognizing that a committee of doctors has so much influence over how much doctors get paid, we decided to look into this system – called the Relative Value Update Committee – including how it came about, how it works, which portions are functioning and which seem to be awry.

For our article, "How a secretive panel uses data that distorts doctors pay," we reported extensively on what goes into the formula used to compute how much the federal Centers for Medicare & Medicaid Services (and many private commercial insurers) pays doctors, how much time doctors spend on each procedure and how many procedures doctors do per day. But that reporting gave us only a superficial understanding of the payment-setting process.

Our first breakthrough came when we were able to do a more thorough analysis by reviewing data in a spreadsheet that Medicare publishes annually. The data include rates for physician compensation for more than 6,000 procedures, services and tests. CMS puts the spreadsheet online, so we can’t claim getting it was a huge coup, but it was useful nonetheless.

The key to using these numbers was to understand that the formula for compensation is the sum of three key components: how much to pay the doctor, how much to pay for the facility where the procedure takes place and how much to pay for medical malpractice insurance premiums related to that procedure. Each of these components can be adjusted for geographic variations that involve the relative cost of living and medical malpractice costs in various locations nationwide.

Technically, the spreadsheet does not say “how much to pay.” Instead, it says how much relative value to give to each component. For the physician portion, it says how much value to assign to each procedure relative to other procedures. Therefore, brain surgery is worth more than popping pimples. Then, CMS computes the relative doctor value from two elements. One element is the time it takes to do the job. The other element is the most subjective measure of all – the “intensity” of the effort.

Our first analysis involved how the committee determines intensity. Although improved technology, equipment and technique increase workers’ efficiency and productivity in almost all sectors of the economy, the AMA committee was ruling that physicians’ intensity of effort was rising far more often than it was declining. In fact, intensity of effort went up 68 percent of the time, and it went down 10 percent of the time. Experts who had never done any such review were surprised at our findings.

The second major vein of analysis concerned the time element. We obtained patient-level data from outpatient clinics in Pennsylvaniaand Florida. The data identify the procedure and the doctor who did the procedure. We matched the procedure codes to the RVU list to see the assumed time for each job. That allowed us to sum the time for each doctor. We calculated the average assumed procedure time for a specific doctor on a day of the week in a given quarter. Working from relatively small samples, we found 84 doctors in Floridaand two in Pennsylvaniawho were billing, on average, for more than 24 hours worth of procedures in a day. We found many, many more with other extreme levels – 20 hours, 16 hours or 12 hours in a clinic that would be open only eight or 10 hours per day.

We also used our calculations when CMS released the national Medicare Part B doctor compensation report last spring. Rather than total amounts by doctor, we broke out the totals to show how much CMS paid for doctor compensation, how much for facility overhead and how much for malpractice. And we could tell which payments were entirely for doctor-delivered drugs – such as Avastin and Lucentis for wet macular degeneration, a controversial treatment example.

The most common reader reaction was outrage over the idea that a panel of doctors makes recommendations used to set physician pay. But since the article ran, the AMA, which runs the committee, has announced changes to its pay-setting procedures. Those changes are designed to ensure more transparency in the process of setting doctor pay, and more accuracy in estimating the time involved. How much those changes will affect the committee’s work is difficult to measure.

Since then, we’ve done these follow-up articles:


Dan Keating is a reporter, graphics/data, and Peter Whoriskey is a staff writer for The Washington Post.