The relative worthlessness of relative value

In 1989, the Omnibus Budget Reconciliation Act mandated use of the resource-based relative value scale methodology for physician payments under Medicare Part B. Recent media attention has focused on its inaccuracy and the American Medical Association's apparent conflict of interest. Re-examination of this matter is long overdue.

The RBRVS was established to replace a payment system calculated from prevailing physician fees. While the federal government wanted to involve physicians in the process of formulating the new method, the Federal Trade Commission had antitrust concerns.

In a compromise, the government gave the task to William Hsiao and colleagues at the Harvard School of Public Health. According to the AMA: “Under terms from its subcontract from Harvard, the AMA's major role in the RBRVS study was to serve as a liaison between the Harvard researchers, organized medicine and practicing physicians.” Thus, the AMA was never meant to assume an important, direct role in rate-setting.

The RBRVS assesses the necessary resources for a particular service by adding the value of the work, practice costs and malpractice expenses—each weighted and adjusted with its own geographic modifier. Every unique resource cost is multiplied by a conversion factor ($34.0230 in 2013) to determine actual payment.

Of the three components, the value of the work has the majority of weight and is the most open to subjective interpretation. According to the Hsiao group's original research, this component is “a function of four dimensions: time (pre-service, intraservice and post-service); mental effort and judgment; technical skill and physical effort; and stress.” Currently, the AMA's Relative Value Scale Update Committee, known as the RUC, assigns work values. The CMS accepts 95% of its recommendations, according to the AMA.

As of April 28, six of 25 society representatives on this committee of 30 members come from primary-care specialties. However, primary-care physicians provide about half of Medicare physician visits. Although recent RUC evaluations have adjusted some procedural “overvalued services,” cognitive services have not generally increased.

The subjective nature of the work component and the apparent conflict of interest of the RUC invite at least several beginning recommendations for improvement:

• Change the weighted representation on the RUC. While all medical specialties should be represented, primary care should have a vote that is weighted based on volume of services.
• Reduce payments over time for standardized, well-established procedures. One of the media's criticisms is that procedure times observed in surgical centers are less than the times in the relative-value unit, or RVU, calculation, resulting in overpayment. In fairness to the RUC, times include pre- and post-procedure work, which was not observed. That said, established procedures having high volumes, growing individual experience and more professionals trained to perform them should be paid gradually less as the relative work also decreases. For example, research on cardiovascular services with high rates of volume growth found that work RVUs for these services have tended to stay the same or, in the case of echocardiograms, increase.
• Simplify work calculations and pay for results, not methods. A surgeon who removes a lesion gets paid more if it turns out to be malignant than if it is benign. (Follow-up consultation for additional treatment of malignancy can be billed separately). A surgeon who removes an appendix suspecting a patient has appendicitis gets paid the same whether or not it is normal on subsequent pathological examination. A dermatologist gets paid the same regardless of the method chosen to remove a wart. A gastroenterologist is paid different amounts for removing a polyp depending on the technique. Do these differences really make sense?
• Eliminate the geographic practice adjustment for the work component. Does it make sense that the time, effort, judgment and stress are different for the same service just because it is performed in different parts of the country? The adjustment rationale for work comes from economists who noted geographic differences in hourly earnings of workers in professional occupations with five or more years of college education. They used these differences as proxies to adjust the physician work component. The concept is irrational and should be eliminated.

Why the rush for change? Newer payment schemes rely on RBRVS payments. For example, global rates use current RBRVS calculations as a starting point and the Physician Quality Reporting System pays rewards based on a percentage of Medicare payments. Both of these methods will continue to underpay primary-care physicians at a time when they are in short supply.

What if the AMA balks at change? The CMS could set its own rates as it does for certain procedures and tangible goods. An alternative is that after Oct. 1, 2014, ICD-10 will be in general use; it comes with a list of procedures as well as diagnostic codes. Options certainly exist, if we have the will to exercise them.

Dr. Joel Shalowitz is a clinical professor of health industry management at Northwestern University's Kellogg School of Management and professor of preventive medicine at the Feinberg School of Medicine.