A few years ago, I noted that the American Medical Association/Specialty Society Relative Value Scale Update Committee (RUC) has a dominant role in suggesting payment levels to CMS.  It raises hard questions about price-setting in the health care sector, many of which cannot be answered because its processes are opaque.  Now we know that judicial relief will not improve things any time soon.  As Brian Klepper reports, “On January 7, a federal appeals court rejected six Georgia primary care physicians’ (PCPs) challenge to the Centers for Medicare and Medicaid Services’ (CMS) 20-year, sole-source relationship with the secretive, specialist-dominated federal advisory committee that determines the relative value of medical services.”  What was the complaint?

The core of the … physicians’ legal challenge was that the RUC is a “de facto Federal Advisory Committee,” and therefore subject to the stringent accountability requirements of the Federal Advisory Committee Act (FACA). This law ensures that federal bodies have panel compositions that are numerically representative of their constituencies, that their proceedings are open, and that methodologies are scientifically credible. In other words, FACA ensures that advisory practices are aligned with the public interest.

The RUC adheres to none of these and is an object lesson in how special interests can be insinuated into and capture regulatory processes, displacing the public interest. For example, when the legal challenge was first filed, only 3 of 29 RUC panelists (10 percent) represented primary care, even though some 30 percent of US physicians practice primary care. RUC meetings are closed to the public, unless an invitation is extended by the Chair, and admission is tied to the guest signing a nondisclosure agreement. Determination of a procedure’s value has been based on as few as 30 survey responses by physicians who know that their reimbursement will be linked to how they have answered the questions.

This is a sad example of opacity in health pricing. In ordinary markets, publicity would tend to narrow the price differential between similar quality services.  In health care, however, there is a triple layer of agency between care and patients whose physicians’ recommendations are often constrained by an insurer that is chosen by the patient’s employer or government. Even if we assume away the agency problems in such an arrangement, it is difficult for buyers and sellers to truly understand “market” dynamics, or even the governmental processes that underlie them.

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