Federal Investigators Fault Medicare’s Reliance on Doctors for Pay Standards

WASHINGTON — The government relies too heavily on advice from the American Medical Association in deciding how much to pay doctors under Medicare, and the decisions may be biased because the doctors have potential conflicts of interest, federal investigators say in a new report.

This reliance on the association, combined with flaws in data collected by the influential doctors’ group, “could result in inaccurate Medicare payment rates,” the investigators said.

The report, by the Government Accountability Office, a nonpartisan arm of Congress, reveals new details of an obscure process that distributes more than $70 billion a year to doctors treating Medicare patients.

Medicare uses a fee schedule and sets rates based on its estimate of the “relative value” of each service. For example, by the government’s reckoning, a hip replacement operation involves more than twice as much work as cataract surgery and about 20 times as much as a routine office visit with an established patient. In measuring work, the government takes account of a doctor’s time and the amount of mental and physical effort and technical skill required to perform a particular service, compared with other services.

Medicare’s decisions ripple through the health care system and directly affect consumers. Medicare beneficiaries often pay about 20 percent of the Medicare-approved charge for doctors’ services. In addition, many private insurers use the Medicare fee schedule as a guide in deciding how much to pay doctors. If Medicare overvalues a particular service, it may create an incentive for doctors to provide more of it, and vice versa.

Critics have complained for several years about the unusual role of doctors in the setting of Medicare’s rates. The report tends to validate some of the criticism.

The Government Accountability Office said Medicare officials usually accepted the recommendations they received from a committee of 31 doctors formed by the medical association and medical specialty societies.

Meetings of the panel, known as the Relative Value Scale Update Committee, are open to the public. But people who attend must sign a confidentiality agreement promising not to disclose information about the discussions.

In developing their recommendations, the report said, “physicians who serve Medicare beneficiaries may have conflicts of interest” because they stand to benefit when the government assigns higher values to the services they perform.

Higher values mean higher payments. Medicare has assigned a numerical value to each of more than 7,000 services and procedures. Officials multiply this number by a “conversion factor” — now about $36 — to determine how much doctors will be paid for a service.

While changes in the value of particular services are not supposed to alter the amount spent by Medicare, they can determine winners and losers, by increasing payments for some services at the expense of others.

Dr. Barbara S. Levy, who has been chairwoman of the medical association’s update committee for the last six years, defended its work and said she did not see any conflicts of interest.

“We are not talking about dollars or money,” said Dr. Levy, a gynecologist. “We are talking about the time and resources that are necessary to perform a procedure, including: How many sutures does it take? And what sort of equipment? And how many minutes of my nurse’s time? And do I need a nurse versus a medical assistant for the safety of my patient?”

“I can’t imagine how anyone other than a group of physicians could provide that kind of expertise,” she said.

Another committee member, Dr. Gregory J. Przybylski, a neurosurgeon in New Jersey, said, “It is very difficult to get information about services being provided unless you ask the people who are actually providing those services.”

Representative Jim McDermott of Washington, the senior Democrat on the Ways and Means subcommittee on health, said: “Medicare certainly needs clinical expertise to appraise the value of doctors’ services, but we give medical specialty societies an undue influence on their own payments. Medicare is a cash cow for specialists and not for family practitioners.”

The American Academy of Family Physicians has long argued that the American Medical Association panel should include more primary care doctors, as well as consumer representatives, employers and health care economists. Press officers for the A.M.A. said the panel had recommended substantial increases for some primary care services in recent years.

Under federal law, Medicare fees are supposed to reflect the time required to perform a service and the intensity of the work, as well as the cost of items like office space, wages, supplies, equipment and malpractice insurance. Medical societies collect data on doctors’ work by conducting surveys of their members.

But the surveys often have low response rates, raising questions about their accuracy, and Medicare officials do not have a way to verify the data, the accountability office said.

Barbara O. Wynn, a researcher at the RAND Corporation who did a separate study commissioned by the government, found that the time required for thousands of surgical procedures was less than Medicare assumed. For example, Medicare assumes that surgeons spend 75 minutes removing a prostate, Ms. Wynn said, but independent information indicated that the time was closer to 54 minutes.

These and other weaknesses in the data “could lead to inflated Medicare payment rates” for some services, the Government Accountability Office said.

The auditors faulted Medicare officials as well as the doctors’ committee. The federal Centers for Medicare and Medicaid Services “does not fully disclose information upon which its decisions were based” and does not follow “a standardized process” to establish the relative value of doctors’ services, they said.

Physician groups “donate over $8 million” a year in services to the update committee, and “hundreds of physicians provide volunteer time,” the report said. By contrast, it said, fewer than 10 people do such work at the federal Medicare agency.

The Obama administration said it was seeking additional data so it could establish more accurate payment rates.

The Affordable Care Act, signed more than five years ago by President Obama, required Medicare officials to reassess the time and effort needed to provide services. Congress in 2014 supplied $2 million a year so the government could collect its own data.

But the Government Accountability Office said the Medicare agency “does not have a specific timeline or plan for using these funds.”

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