The Medicare Physician Fee Schedule and Unethical Behavior

“The Medicare Physician Fee Schedule (MPFS) directly determines nearly $200 billion in Medicare spending and indirectly affects an additional $600 billion or more in payments to physicians by other payers. Yet the fee schedule has widely recognized flaws: paying whether the service rendered is medically necessary, is performed efficiently, or meets acceptable quality standards. At its core, clinician fee schedules attempt to pay for clinicians’ time and effort, not whether the care maintains or improves patients’ health.

Many hoped that value-based payment models would make MPFS flaws moot. Paradoxically, virtually all the alternative payment models that the Centers for Medicare and Medicaid Innovation and other payers are testing are built on the MPFS foundation. Consequently, the MPFS flaws have not been supplanted but instead transferred into alternative payment models.

For all the criticisms surrounding MPFS fees, a central problem with how the MPFS is generated has not been openly discussed: it embodies and institutionalizes an inherent conflict of interest that incentivizes exaggerations. When physicians’ judgments of time determine their own payment through the MPFS’s relative ranking of services, then inaccuracies, distortions, and false statements become incentivized and accepted as the social norm. [..]

The Centers for Medicare & Medicaid Services (CMS) lacks the personnel to determine the physician time and intensity for 8000 codes, especially with changing technology and processes of care requiring regular review. To address this deficiency, CMS relies on the American Medical Association’s Relative Value Update Committee (RUC) to devise work descriptions and determine time and intensity estimates. The RUC, in turn, accepts work descriptions and relies on surveys of clinicians who perform the service to estimate the time and skills required. The RUC reviews the descriptions and time estimates, deciding whether to accept or revise them to ensure consistency across codes. This polling and decision process is an “insiders’ game” closed to health policy experts and other stakeholders, especially Medicare patients with a direct stake in what the process produces. The RUC then forwards its recommendations for RVUs [relative value units, the time and intensity required to furnish the service; practice expenses associated with the service; and the attributed malpractice costs] to CMS, which accepts them approximately 95% of the time or makes only minor adjustments. [..]

When asked to value their own professional services, physicians are naturally biased. Like all human beings, physicians value and want to think well of what they do and may believe the demands of their own work require greater skill and expertise than the work of others. The RUC process takes this natural bias and, by attaching financial interest to it, creates the conditions for distorted judgments and therefore a conflict of interest. The financial interests incentivize overestimation, and then the process institutionalizes the conflict of interest in the form of RVUs.

[..] an assessment of 4.9 million surgical procedures found that empirically determined times were on average 27% lower than those used in the RUC’s valuation process. For surgical services, commonly available time stamps in electronic health records and operating room logs provide empirical information that likely limits the extent of time estimate inflation. For other services the lack of external sources of time validation permits greater time exaggeration.

[The authors suggest three changes:
1. Use empirical data to determine time physicians spend to perform services.
2. Use an expert, conflict-free, clinical panel should estimate work intensity and categorize work intensity into no more than 7 intensity gradations.
3. Re-evaluate the top 200 most costly codes on a rolling 5-year basis.]

The MPFS is conceptually and ethically flawed. It rewards time even if inefficient, of poor quality, or without benefiting patients’ health. Worse, the MPFS not only encourages but also institutionalizes unprofessional and unethical practices of physicians by accepting their inaccurate work descriptions and time estimates to set the physicians’ own reimbursement levels. These are not inescapable flaws. By spending a few million dollars for CMS to sever its dependence on the RUC’s estimates of time and intensity, CMS would likely save billions of dollars resulting from a more accurate and ethical Medicare fee schedule.”

Full article, RA Berenson and EJ Emanuel, JAMA, 2023.6.22