The Secret, Shadowy World Of AMA Price Fixing In The US

How the AMA secretly sets prices for health care in the US.

The Specialty Society Relative Value Scale Update Committee (or RUC, pronounced “ruck”) is a committee of the American Medical Association (AMA) that meets in secret to divvy up roughly $85 billion in U.S. taxpayer money every year. Of course that's just to get started. Because of the way the system is set up, the "values" the RUC comes up with wind up shaping the very structure of the U.S. health care sector, creating the perverse financial incentives that dictate how U.S. doctors behave, and affecting the annual expenditure of nearly one-fifth of the United State's GDP, $2.7 trillion dollars.

Is there anyone who really thinks that this is a good system?

From this article from Washington Monthly

While these doctors always discuss the “value” of each procedure in terms of the amount of time, work, and overhead required of them to perform it, the implication of that “value” is not lost on anyone in the room: they are, essentially, haggling over what their own salaries should be. “No one ever says the word ‘price,’ ” a doctor on the committee told me after the April meeting. “But yeah, everyone knows we’re talking about money.”

That doctor spoke to me on condition of anonymity in part because all the committee members, as well as more than a hundred or so of their advisers and consultants, are required before each meeting to sign what was described to me as a “draconian” nondisclosure agreement. They are not allowed to talk about the specifics of what is discussed, and they are not allowed to remove any of the literature handed out behind those double doors. Neither the minutes nor the surveys they use to arrive at their decisions are ever published, and the meetings, which last about five days each time, are always closed to both the public and the press. After that meeting in April, there was not so much as a single headline, not in any major newspaper, not even on the wonkiest of the TV shows, announcing that it had taken place at all.

In a free market society, there’s a name for this kind of thing—for when a roomful of professionals from the same trade meet behind closed doors to agree on how much their services should be worth. It’s called price-fixing. And in any other industry, it’s illegal—grounds for a federal investigation into antitrust abuse, at the least.

and this about why the AMA want's to control this:

The first boon is that, in order to be on the RUC, specialty societies must become dues-paying members. At a time when the AMA has struggled against being overshadowed by specialty societies, controlling the RUC prevents what might otherwise be a rapid exodus of membership. As one RUC member told me bluntly, “No one cares about AMA. They care about the RUC.” And that’s a lucky break for the AMA. In 2012, dues collection actually increased by 3 percent, topping out at $38.6 million for the year. Cha-ching.

The second boon for the AMA is that by controlling the RUC, it controls much of the source code that our health care system uses to operate. Every single one of those roughly 9,000 medical services and procedures has its own five-digit code, known as current procedural terminology (CPT), and the AMA owns them all. That means that anyone—physicians, labs, hospitals, you name it—who wants to bill Medicare, Medicaid, or a private insurance company has to purchase either AMA books and products, or products from other software companies that pay AMA royalties and licensing fees to use the CPT codes. According to its annual report, in 2012 the AMA made $83.1 million in “royalties and credentialing products,” a large chunk of which comes from licensing CPT. Again: cha-ching.

And that’s just the monetary stuff. The third boon—the real power curve—is the fact that the AMA’s control of the RUC makes it indispensible to everyone and everything in a $2.7 trillion health care industry. That includes specialty societies, primary care organizations, and medical device and pharmaceutical companies—all of whom have something big to gain or lose from the RUC’s decisions.

Snide and snarky comments welcome in moderation if you're in the US. Better ideas from outside of the US even more welcome.

Effects of Changes in the Medicare Physician Fee System

Relatively newly practicing physicians may not know that the Medicare physician payment system changed pretty substantially in the early nineties. This was by design.

The perception of those who designed this new system was that certain services were overpaid and others underpaid. It likely had much more to do with ratcheting down the costs of health care. As physician fees constitute only 10-20% of the entire equation, the wisdom of concentrating on physician’s fees to change the system is perhaps questionable. This is what was done nevertheless.

A cornerstone philosophy of the new system was that procedure-based specialties were overpaid. The physician fee system prior to this was based on usual and customary fees. This newer one based payments on a model that paid for a service at a uniform rate regardless of who performed it. While this seems fair on the surface, it had predictable effects.

Why would a surgeon with much higher overhead remove a lump in a patient if the new payment system put the procedure in a revenue negative position? The practice of surgeons removing certain lumps gave way to family practice and dermatology physicians removing many of them. These were the only specialties that under the newer system could turn a profit doing so.

The Medicare fee schedule economically regulates procedures in medicine. It also indirectly fed the growth of cosmetic medicine and surgery as this was the escape hatch many practitioners sought as the Medicare boom feel upon us. Surgeons interested in turning a profit quickly figured on what paid adequately and more importantly on what did not. As my grandfather told me as a young child, everyone needs to make a living. It is perhaps unfortunate that doctors do not discuss these matters with patients when telling them why they cannot offer a service. Is it really ever wrong to tell your patients the truth?